What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-04-01 compared with 2023-03-31 · 248 added, 238 removed, 666 unchanged (42% of the section changed)

3 unchanged sentences

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Interim Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022.

Based upon the evaluation, our Interim Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weakness identified during fiscal year 2022,

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2023.

Based upon the evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at a reasonable assurance level, due to the material weakness that was previously disclosed effective December 31, 2022 and discussed below.

Management’s Report on Internal Control Over Financial Reporting

Our management, including the Interim Chief Executive Officer and our Interim Chief Accounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with GAAP.

Our management, including the Chief Executive Officer and our Interim Chief Accounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”), as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with GAAP.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

1 unchanged sentence

Our management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, based on the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on the results of this evaluation, the Company’s management concluded that internal control over financial reporting was not effective as of December 31, 2022, due to the material weakness listed below.

Based on the results of this evaluation, the Company’s management concluded that internal control over financial reporting was not effective as of December 31, 2023, due to the unremedied material weakness listed below.

A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified a material weakness in its internal control over financial reporting at December 31, 2022, over our inventory process.

Specifically, we have identified issues related to:

classification of inventory work in progress;

year-end physical inventory count procedures, and the process to review and approve inventory adjusting journal entries.

We have concluded that the following material weakness in our ICFR that was previously disclosed in our Annual Report on Form 10-K for the year ended December 31,2022 has not been fully remediated as of December 31, 2023.

Management identified a material weakness in its ICFR at December 31, 2023, over our inventory process.

Specifically, we have identified issues related to year-end physical inventory count procedures, and the process to review and approve inventory adjusting journal entries.

After giving full consideration to this material weakness, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S.

generally accepted accounting principles (“US GAAP”), our management has concluded that our consolidated financial statements present fairly, in all material respects our financial position, results of operations and cash flows for the periods disclosed in conformity with US GAAP.

Remediation Plan for Material Weakness

In response to the material weakness, management, with oversight of the Audit Committee of the Board of Directors, has begun the process of, and is committed to, designing and implementing effective measures to strengthen our internal controls over financial reporting and remediate the material weakness.

Our planned internal control remediation efforts include:

We intend to update and implement accounting policies and procedures related to work in process inventory.

These will include modifying our financial reporting account consolidation procedures.

We intend to improve and enforce our formalized inventory count and inventory adjustment processes which includes taking steps to reinforce the inventory taking procedures, proper training and supervision of warehouse staff and strengthening review and approval requirements for any inventory adjustments.

We have engaged a third-party consultant to conduct a full assessment of our controls and procedures.

We intend to continue efforts to ensure our employees understand the ongoing importance of internal controls and compliance with corporate policies and procedures.

While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.

Remediation Plan for Previously Identified Material Weakness

Management, with the oversight of the Audit Committee and the Board of Directors, has been actively engaged in remediation efforts to address the material weakness throughout 2023, and these efforts will continue into 2024.

We made progress towards addressing our material weakness in inventory through the specific actions listed below:

• We have made and continue to make enhancements to our control environment by improving guidance, communication of expectations and importance of internal controls.

Specifically, in the second quarter of 2023, we engaged a third-party consulting firm, who specializes in internal controls over financial reporting, to assist with the design, implementation, and assessment of our controls and procedures.

• We have hired additional qualified operational and executive personnel during 2023, which has helped to provide additional capacity and expertise to enhance inventory procedures.

Specifically, in the third quarter of 2023, the Company hired a new Inventory Control Manager who assumed direct responsibility for inventory procedures and controls.

Additionally.

in the fourth quarter of 2023, the Company hired a new President and Chief Operating Officer, who is also deeply involved in the inventory process.

The Company is also currently assessing if additional accounting and financial personnel should be hired in the organization in order to perform control activities in support of preparation of the financial statements in accordance with U.S.

We expect that this assessment will be completed during the second quarter of 2024, with appropriate action taken during 2024, to ensure that the Company has a sufficient complement of qualified personnel at the right levels, based on any identified gaps in personnel requirements.

• We have evaluated and improved the inventory process and procedures.

Specifically, we have retrained all involved personnel in the inventory process, with emphasis on periodic count procedures and inventory adjustments.

• We have updated our inventory accounting policies and procedures to ensure completeness and accuracy of inventory accounts through proper cutoff, accruals, and analytic review procedures at period end.

While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our ICFR and will continue to diligently review our ICFR.

Attestation Report of the Registered Public Accounting Firm

1 unchanged sentence

Changes in Internal Control Over Financial Reporting

During the quarter ended December 31, 2022, there were no changes in our ICFR that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the changes noted above there were no changes in our ICFR during the year ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

32 unchanged sentences

Taylor (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 May 19, 2022.)

Severance Agreement and Release Between Natural Gas Services Group, Inc.

Chisholm dated December 21, 2022 (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 28, 2022.)

Letter Agreement between Natural Gas Services Group, Inc.

Faircloth dated February 8, 2023 (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 February 13, 2023.)

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.)

1 unchanged sentence

Amended and Restated Pledge and Security Agreement dated February 28, 2023, among Natural Gas Services Group, Inc., the Grantors thereto, Texas Capital Bank, in its capacity as Administrative Agent, for the Lenders and other Secured Parties (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 March 6, 2023.)

Letter Agreement dated June 9, 2022 between Natural Gas Services Group, Inc.

Chisholm (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 13, 2022.)

Retention Agreement dated September19, 2023 between Natural Gas Services Group, Inc.

and James Hazlett (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 November 14, 2023.)

Employment Agreement between Brian L.

Tucker and Natural Gas Services Group, Inc.

dated October 9, 2023 (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 October 10, 2023.)

Employment Agreement between Justin C.

Jacobs and Natural Gas Services Group, Inc.

dated January 29, 2024 (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 February 1, 2024.)

Employee Non-Compete Agreement between Justin C.

Jacobs and Natural Gas Services Group, Inc.

dated January 29, 2024 (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 February 1, 2024.)

Employee Proprietary Rights Agreement between Justin C.

Jacobs and Natural Gas Services Group, Inc.

dated January 29, 2024 (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 February 1, 2024.)

Form of Restricted Stock Unit Award under the Natural Gas Services Group, Inc.

2019 Equity Incentive Plan, as amended.

Form of Performance Stock Unit Award under the Natural Gas Services Group, Inc.

2019 Equity Incentive Plan, as amended.

Subsidiaries of the registrant

Consent of Ham, Langston & Brezina L.L.P.

Consent of Moss Adams LLP

Certification of Interim Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Interim Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Interim Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification of Interim Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Natural Gas Services Group, Inc.

Clawback Policy

101.INS XBRL Instance Document

8 unchanged sentences

NATURAL GAS SERVICES GROUP, INC.

March 31, 2023 By:

/s/ Stephen C.

Chairman of the Board, Interim President and Chief Executive Officer

April 1, 2024 By:

/s/ Justin C.

Chief Executive Officer

(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 James D.

Faircloth, 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.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Justin Jacobs and John Bittner, 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:

1 unchanged sentence

/s/ Stephen C.

Taylor Chairman of the Board of Directors, Interim Chief Executive Officer and President (Principal Executive Officer) March 31, 2023

Faircloth Interim Chief Financial Officer (Principal Accounting Officer)

March 31, 2023

/s/ Leslie A.

Beyer Director March 31, 2023

Jenvey Director March 31, 2023

Bradshaw Director March 31, 2023

Taylor Chairman of the Board of Directors April 1, 2024

/s/ John Bittner Interim Chief Financial Officer (Principal Accounting Officer)

April 1, 2024

/s/ Don Tringali Director April 1, 2024

Jenvey Director April 1, 2024

Bradshaw Director April 1, 2024

/s/ Georganne Hodges Director April 1, 2024

Georganne Hodges

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm ( Ham, Langston & Brezina, LLP ;

Report of Independent Registered Public Accounting Firm ( Ham, Langston & Brezina, LLP ;

Houston, Texas ;

PCAOB ID 298 and Report of Independent Registered Public Accounting Firm (Moss Adams, LLP;

Dallas, Texas;

PCAOB ID 659)

Consolidated Balance Sheets as of December 31, 2023 and 2022

7 unchanged sentences

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, 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year 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, 2022, 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.

(the “Company”) as of December 31, 2023 and 2022, and related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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.

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

We conducted our audit 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.

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

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

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

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.

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

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 audits provide a reasonable basis for our opinion.

Critical Audit Matter

3 unchanged sentences

Houston, Texas

March 31, 2023

April 1, 2024

We have served as the Company's auditor since 2022.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of

NATURAL GAS SERVICES GROUP, INC.

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, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year 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 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.

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

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

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

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

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

/s/ Moss Adams LLP

Dallas, Texas

March 18, 2022

We have served as the Company's auditor from 2020 to 2022.

NATURAL GAS SERVICES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

4 unchanged sentences

39,186 14,668

Inventory 23,414 19,329

Inventory, net of allowance for obsolescence of $ 2,836 and $ 0 , respectively

21,639 23,414

Federal income tax receivable 11,538 11,538

Prepaid income taxes 10 51

Prepaid expenses and other 1,162 1,155

5 unchanged sentences

20,550 22,176

Right of use assets - operating leases, net of accumulated amortization $ 721 and $ 555 , respectively

Intangibles, net of accumulated amortization of $ 2,384 and $ 2,259 , respectively

5 unchanged sentences

Accrued liabilities 15,085 23,918

Current operating leases 155 68

Deferred income 37 1,312

Total current liabilities 32,713 30,399

1 unchanged sentence

Deferred income tax liability 41,636 39,798

Long-term operating leases 194 217

Other long-term liabilities 4,486 2,973

7 unchanged sentences

Retained earnings 134,281 129,534

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

Treasury shares, at cost, 1,310 shares

( 15,004 ) ( 15,004 )

8 unchanged sentences

Sales 8,921 8,568

Service and maintenance income 1,792 1,914

Aftermarket services 6,087 1,792

Total revenue 121,167 84,825

2 unchanged sentences

Cost of sales, exclusive of depreciation stated separately below 8,919 7,650

Cost of service and maintenance, exclusive of depreciation stated separately below 957 898

Cost of aftermarket services, exclusive of depreciation stated separately below 4,658 957

Selling, general and administrative expenses 16,457 13,642

Depreciation and amortization 26,550 24,116

Impairment expense 779 —

Inventory allowance 3,965 83

1 unchanged sentence

Total operating costs and expenses 110,710 84,394

Operating income (loss) 431 ( 12,408 )

Operating income 10,457 431

Other income (expense):

1 unchanged sentence

Other income (expense) 245 ( 108 )

Total other income, net ( 472 ) 622

Total other expense, net ( 3,837 ) ( 472 )

Income (loss) before income taxes:

( 41 ) ( 11,786 )

(Provision for) benefit from income taxes:

Provision for income taxes:

Current ( 35 ) ( 17 )

Deferred ( 1,838 ) ( 511 )

Total income tax benefit (expense) ( 528 ) 2,603

Net loss $ ( 569 ) $ ( 9,183 )

Loss per share:

Total income tax expense ( 1,873 ) ( 528 )

Net income (loss) $ 4,747 $ ( 569 )

Earnings (loss) per share:

Basic $ 0.39 $ ( 0.05 )

21 unchanged sentences

Taxes paid related to net shares settlement of equity awards — — — — ( 983 ) — — — ( 983 )

Purchase of treasury shares — — — — — — 535 ( 6,660 ) ( 6,660 )

Net loss — — — — — ( 569 ) — — ( 569 )

Net income — — — — — 4,747 — — 4,747

BALANCES, December 31, 2023 — $ — 13,688 $ 137 $ 116,480 $ 134,281 1,310 $ ( 15,004 ) $ 235,894

5 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 569 ) $ ( 9,183 )

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

Net income (loss) $ 4,747 $ ( 569 )

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

Depreciation and amortization 26,550 24,116

2 unchanged sentences

Gain on disposal of assets ( 481 ) ( 250 )

Impairment expense 779 —

Retirement of rental equipment 505 196

Bad debt allowance — 65

Provision for credit losses 492 —

Inventory allowance 3,965 83

Stock-based compensation 2,054 1,910

(Gain) loss on company owned life insurance 389 ( 298 )

Loss on company owned life insurance 235 389

Changes in operating assets and liabilities:

3 unchanged sentences

Accounts payable and accrued liabilities 2,436 10,033

Deferred income ( 1,275 ) 208

Other 174 ( 31 )

5 unchanged sentences

NET CASH USED IN INVESTING ACTIVITIES ( 153,888 ) ( 65,079 )

CASH FLOWS USED IN FINANCING ACTIVITIES:

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:

Proceeds from line of credit 139,000 25,000

Proceeds of other long-term liabilities ( 3 ) ( 1 )

Repayments of line of credit, net — ( 417 )

Payments of other long term liabilities ( 95 ) ( 3 )

Payments of debt issuance costs ( 2,693 ) ( 77 )

1 unchanged sentence

Taxes paid related to net share settlement of equity awards ( 983 ) ( 515 )

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 17,745 ( 8,845 )

NET CASH PROVIDED BY FINANCING ACTIVITIES 135,229 17,745

NET CHANGE IN CASH AND CASH EQUIVALENTS ( 626 ) ( 19,570 )

4 unchanged sentences

NON-CASH TRANSACTIONS

Transfer of rental equipment to inventory $ 665 $ —

Right of use asset acquired through a finance lease $ 1,146 $ —

Right of use asset acquired through an operating lease $ 63 $ 229

5 unchanged sentences

(the "Company", “NGS”, "Natural Gas Services Group", "we" or "our") (a Colorado corporation), is a leading 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.

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.

We rent, operate and maintain natural gas compressors and related equipment.

We also design, fabricate and manufacture compressor units both for sale and rental to our customers.

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

The Company was formed on December 17, 1998.

6 unchanged sentences

Actual results could differ from those estimates.

Significant estimates include fixed asset lives, bad debt allowance and the allowance for inventory obsolescence.

Significant estimates include fixed asset lives, provision for credit losses and the allowance for inventory obsolescence.

Additionally, NGS conducts a yearly review of impairment of long-lived assets.

3 unchanged sentences

For purposes of reporting cash flows, we consider all short-term investments with an original maturity of three months or less to be cash equivalents.

We invest our cash primarily in deposits and money market funds with commercial banks.

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

6 unchanged sentences

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 55 % and 46 % of our accounts receivable as of December 31, 2022 and 2021, 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.

The allowance for doubtful accounts was $ 0.3 million and $ 1.1 million at December 31, 2022 and 2021, respectively.

The provision for credit losses was $ 0.8 million and $ 0.3 million at December 31, 2023 and 2022, respectively.

Management believes that the allowance is adequate;

however, actual write-offs may exceed the recorded allowance.

A summary of our allowance for doubtful accounts is as follows:

A summary of our allowance for credit losses is as follows:

Year Ended December 31,

2 unchanged sentences

Accruals 492 —

Recoveries — 8

Write-offs ( 7 ) ( 791 )

15 unchanged sentences

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.

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

Our rental contracts typically range from six to 60 months.

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

3 unchanged sentences

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 completed and shipped, or in accordance with a bill and hold arrangements the customer accepts title and assumes the risk and rewards of ownership.

Our sales revenue is recognized in accordance with ASC 606.

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 is completed and shipped, or in accordance with a bill and hold arrangements 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;

2 unchanged sentences

this is a standard industry practice and is not considered a performance obligation.

From time to time, upon the customer’s written request, 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 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.

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 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 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, 2022 and 2021 was approximately $ 0 and $ 20,000 , respectively.

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

1 unchanged sentence

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.

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

Used compressors or flares - 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.

Aftermarket Service 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.

Payment terms for sales revenue and aftermarket services revenue discussed above are generally 30 to 60 days although terms for specific customers can vary.

Also, the transaction prices are not subject to variable consideration constraints.

7 unchanged sentences

Other (Parts/Rebuilds) - sales

Service and maintenance 1,792 1,914

Aftermarket services 6,087 1,792

Total revenue from contracts with customers

15,008 10,360

ASC 842 rental revenue 106,159 74,465

11 unchanged sentences

Deferred income $ 418 $ 37

The Company recognized $ 1.3 million in revenue for the year ended December 31, 2022 that was included in deferred income at the beginning of 2022.

The Company recognized less than $ 0.1 million in revenue for the year ended December 31, 2023, that was included in accrued liabilities at the beginning of 2023.

For the period ended December 31, 2022, the Company recognized revenue of $ 1.3 million from amounts related to sales that were included in deferred income at the beginning of 2022.

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

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

T ransaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2022, the Company did not have revenue related to unsatisfied performance obligations.

As of December 31, 2023, the Company had $ 0.4 million of revenue related to unsatisfied performance obligations.

Contract Costs

16 unchanged sentences

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 and replacement parts 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 useable but which the Company does not expect to sell or use within the next year.

Rental Equipment and Property and Equipment

1 unchanged sentence

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

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

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

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

8 unchanged sentences

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

Gains and losses resulting from sales and dispositions of other property and equipment are included with other income.

Gains and losses resulting from sales and dispositions of other property and equipment are included within selling, general, and administrative expenses.

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

19 unchanged sentences

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

Capitalized Interest

Effective 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 year ended December 31, 2023, the Company capitalized interest totaling approximately $ 5.5 million.

Fair Value Measurement

5 unchanged sentences

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

Management believes that the fair value of our cash and cash equivalents, trade receivables, accounts payable and line of credit at December 31, 2022 and 2021 approximate their carrying values due to the short-term nature of the instruments or the use of prevailing market interest rates.

Management believes that the fair value of our cash and cash equivalents, trade receivables, and accounts payable at December 31, 2023 and 2022 approximate their carrying values due to the short-term nature of the instruments or the use of prevailing market interest rates.

The company considered the borrowings under the credit facility to approximate fair value based upon borrowing rates currently available to us for loans with similar terms (level 2).

Segments and Related Information

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

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

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

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

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

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

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

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

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

We are engaged in the business of designing and fabricating compressors.

Our compressors are sold and rented to our customers.

In addition, we provide aftermarket services on compressors in our fleet and to third parties.

These business activities are similar in all geographic areas.

Historically, our manufacturing process has been essentially the same for the entire Company and has been performed in-house at our facilities in Midland, Texas and Tulsa, Oklahoma.

Recently, however, we have contracted with third party fabricators to assemble our larger horsepower natural gas compressors.

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

Increasingly, however, we have contracted with third party fabricators to assemble our larger horsepower natural gas compressors.

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

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

5 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 $ 120,000 and $ 64,000 at December 31, 2022 and 2021, respectively, consisted of the following:

As of January 1, 2023 we adopted ASU 2016-13.

The standard did not materially affect our consolidated financial statements and note disclosures.

In December 2023, the Financial Standards Accounting Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023- 09 “Income Taxes (Topics 740):

Improvements to Income Tax Disclosures” to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

ASU 2023-09 is effective for our annual periods beginning January 1, 2025, with early adoption permitted.

The Company is currently evaluating the potential effect that the updated standard will have on the financial statement disclosures.

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for our annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.

The adoption is not expected to have a material impact on the Company’s Consolidated Financial Statements or disclosures.

Our inventory, net of allowance for obsolescence of $ 4.0 million and $ 0.1 million at December 31, 2023 and 2022, respectively, consisted of the following:

(in thousands)

Raw materials - current $ 21,354 $ 17,528

Inventory, net of allowance for obsolescence of $ 2,836 and $ 0 , respectively

$ 20,227 $ 21,354

Work-in-process 1,412 2,060

2 unchanged sentences

Inventory total $ 22,340 $ 24,971

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

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

For the year ended December 31, 2023, our provision for excess and obsolete inventory totaled $ 4.0 million.

The majority of this amount was due to a 2023 charge related to the company's decision to cease future compressor fabrication at our Midland facility, which reduced the expected future demand of certain inventory items held at this facility.

A summary of our inventory allowance is as follows:

2 unchanged sentences

Beginning balance $ 120 $ 64

Accruals 83 208

Additions 3,965 83

Write-offs ( 81 ) ( 27 )

11 unchanged sentences

Depreciation expense for rental equipment was $ 24.0 million and $ 21.9 million for the years ended December 31, 2023 and 2022, respectively.

During the year ended December 31, 2022 we added 45 units to our rental fleet.

Retirement of Rental Equipment

Company management routinely reviews its inventory of rental equipment for retirement or obsolescence.

Management routinely reviews the Company's inventory of rental equipment for retirement or obsolescence.

During 2023, management reviewed the rental fleet to determine which units were not of the type, configuration, make or model that our customers are demanding or that were not cost efficient to refurbish, maintain and/or operate.

As a result of this review, we determined 124 units should be retired from our rental fleet.

Accordingly, we recorded a $ 0.2 million loss on retirement of rental equipment during the year ended December 31, 2022.

During our review of our rental compressor units in 2021, we determined 263 units should be retired from our rental fleet.

We recorded a $ 3.1 million loss on retirement of rental equipment.

As a result of this review, we recorded a $ 0.5 million loss on retirement of rental equipment during the year ended December 31, 2023.

During our review of our rental compressor units in 2022, we recorded a $ 0.2 million loss on retirement of rental equipment.

Property and Equipment

30 unchanged sentences

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

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

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

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

The Company's operating 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.

The company's finance leases are primarily related to vehicles used in our rental business.

The company's finance leases have lease terms of 3 years.

The Company's lease agreements do not contain any contingent rental payments, material residual guarantees or material restrictive covenants.

1 unchanged sentence

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.

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, 2023 and 2022:

2 unchanged sentences

($ in thousands)

Operating lease assets Right of use assets-operating leases $ 349 $ 285

Current lease liabilities Current operating leases $ 155 $ 68

Noncurrent lease liabilities Long-term operating leases 194 217

Operating lease assets Other assets $ 210 $ 349

Finance lease assets Other assets $ 1,045 $ —

Current lease liabilities Accrued liabilities $ 58 $ 155

Current lease liabilities Accrued liabilities 307 —

Non-current lease liabilities Other long-term liabilities 173 194

Non-current lease liabilities Other long-term liabilities 723 —

Total lease liabilities $ 1,261 $ 349

2 unchanged sentences

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

Total operating lease costs for the year ended December 31, 2022 was approximately $ 384,000 .

Total operating lease costs for the years ended December 31, 2023 and December 31, 2022 were approximately $ 0.5 million and $ 0.4 million respectively.

(in thousands)

1 unchanged sentence

Operating lease cost (1) (2)

Finance lease cost $ 95 $ —

(1) Lease costs are classified on the Consolidated Statements of Operations in cost of sales, cost of compressors and selling, general and administrative expenses.

(2) Includes costs of $ 207,000 for leases with terms of 12 months or less and $ 177,000 for leases with terms greater than 12 months for the year ended December 31, 2022.

Includes costs of $ 346,000 for leases with terms of 12 months or less and $ 210,000 for leases with terms greater than 12 months for the year ended December 31, 2021.

(2) Includes costs of $ 0.3 million for leases with terms of 12 months or less and $ 0.2 million for leases with terms greater than 12 months for the year ended December 31, 2023.

Includes costs of $ 0.2 million for leases with terms of 12 months or less and $ 0.2 million for leases with terms greater than 12 months for the year ended December 31, 2022.

The following table shows the future maturities of lease liabilities:

Years Ending December 31, Lease Liabilities

Year Ending December 31, Lease Liabilities

(in thousands)

2 unchanged sentences

Imputed interest ( 15 )

Rent expense under such leases was $ 177,000 and $ 210,000 for the years ended December 31, 2022 and 2021, respectively.

Total $ 1,261

Rent expense under such leases was $ 0.2 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

At December 31, 2023 and 2022, the Company had intangible assets, which relate to developed technology and a trade name.

Amortization expense recognized in each of the years ending December 31, 2022 and 2021 was $ 125,000 .

Estimated amortization expense for the years 2023-2025 is approximately $ 125,000 per year.

The Company has an intangible asset with a gross carrying value of $ 654,000 at December 31, 2022 related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005.

Amortization expense recognized in each of the years ending December 31, 2023 and 2022 was $ 0.1 million.

Estimated amortization expense for 2024 is approximately $ 0.1 million.

The Company has an intangible asset with a gross carrying value of $ 0.7 million at December 31, 2023, related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005.

This asset is not being amortized as it has been deemed to have an indefinite life.

6 unchanged sentences

Our policy is to review intangibles that are being amortized for impairment when indicators of impairment are present.

In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of impairment are present.

In addition, it is our policy to review indefinite-lived intangible assets for impairment annually or when indicators of

impairment are present.

We review intangibles through an assessment of the estimated future cash flows related to such assets.

2 unchanged sentences

Credit Facility

Previous Credit Agreement

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

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

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.

On December 12, 2022, we entered into a First Amendment to the New Credit Agreement (the "First Amendment") to increase the maximum commitment to $ 30 million.

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.

On December 12, 2022, we entered into a First Amendment to the Credit Agreement (the "First Amendment") to increase the maximum commitment to $ 30 million.

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.

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

At December 31, 2022, we had $ 25.0 million outstanding under the New Credit Agreement with a weighted average interest rate of 7.32 %.

At December 31, 2022, we had $ 5 million of availability under the New Credit Agreement.

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.

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

The obligations under the Credit Agreement were 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.

At December 31, 2022, we had $ 25.0 million outstanding under the Credit Agreement with a weighted average interest rate of 7.32 %.

On February 28, 2023, we replaced our Credit Agreement by entering 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;

1 unchanged sentence

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 equip.

In connection with the amendment we agreed to pay fees of $ 2.0 million (representing fees equal to 1.39 % of the $ 145 million increase in the commitment) and reimburse the lenders for their expenses.

On November 14, 2023, the Company entered into a First Amendment to the Amended and Restated Credit Agreement (the "Amendment") with the Lender and certain other lenders to (i) increase the lender commitment from $ 175 million to $ 225 million, and (ii) to add First-Citizens Bank & Trust Company as a new lender to the facility.

In connection with the Amendment, we agreed to pay fees of $ 0.6 million (representing fees equal to 1.125 % of the $ 50 million increase in the commitment) and reimburse the lenders for their expenses.

As of December 31, 2023, we were in compliance with all financial covenants in our credit agreement.

At December 31, 2023, we had $ 164.0 million outstanding under our Amended and Restated Credit Agreement at a weighted average interest rate of 9.40 %.

At December 31, 2023, we had approximately $ 56.0 million of availability under the Amended and Restated Credit Agreement.

Borrowing Base .

5 unchanged sentences

"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 plu s 0.50 %;

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

(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 b e 2.00 % to 2.75 % fo r Base Rate Loans (as defined in the Amended and Restated Credit Agreement) and 3 % to 3.75 % for Term SOFR Loans and for requested letters of credit.

Depending on the leverage ratio, the Applicable Margin can be 2.00 % to 2.75 % for Base Rate Loans (as

defined in the Amended and Restated Credit Agreement) and 3 % 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.

19 unchanged sentences

certain ERISA events;

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

certain change in control events and the defectiveness of any liens.

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

The (provision for) benefit from income taxes for the years ended December 31, 2022 and 2021, consists of the following (in thousands):

Current (expense) benefit

Federal benefit $ — $ —

State (expense) benefit ( 17 ) 1

Total current (expense) benefit ( 17 ) 1

The provision for income taxes for the years ended December 31, 2023 and 2022, consists of the following (in thousands):

Current expense

State expense $ ( 35 ) $ ( 17 )

Total current expense ( 35 ) ( 17 )

Deferred (expense) benefit:

Federal (expense) benefit ( 857 ) 1,991

State (expense) benefit 346 611

Total deferred (expense) benefit ( 511 ) 2,602

Total (expense) benefit $ ( 528 ) $ 2,603

Federal expense ( 1,940 ) ( 857 )

State benefit 102 346

Total deferred expense ( 1,838 ) ( 511 )

Total expense $ ( 1,873 ) $ ( 528 )

The effective tax rate for the years ended December 31, 2023 and 2022, differs from the statutory rate as follows:

8 unchanged sentences

In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes.

The Company generated significant NOLs during 2018 and 2019 and filed carryback claims for these losses to the preceding five years.

Accordingly, as of March 31, 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its deferred tax liability of $ 10.1 million on its condensed balance sheet.

The Company generated significant NOLs

during 2018 and 2019 and filed carryback claims for these losses to the preceding five years.

Accordingly, as of March 31, 2020, the Company recorded a federal income tax receivable of $ 15.0 million and an increase to its deferred tax liability of $ 10.1 million on its balance sheet.

During the third quarter of 2020, the Company received refunds corresponding to the 2018 NOL carryback, leaving a balance in the federal income tax receivable of $ 11.5 million at December 31, 2023.

5 unchanged sentences

Stock compensation 153 121

Interest expense 991 —

Inventory reserves 893 —

Deferred compensation 792 617

22 unchanged sentences

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

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

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

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

The cash surrender value of the life insurance policy is $ 2.4 million and $ 2.5 million as of December 31, 2022 and 2021, respectively, with a gain/(loss) related to the policy of $( 389,000 ) and $ 298,000 reported in other income in our consolidated statement of operations for the year ended December 31, 2022 and 2021, respectively.

The cash surrender value of the life insurance policy is $ 3.0 million and $ 2.4 million as of December 31, 2023 and 2022, respectively, with a loss related to the policy of $( 0.2 ) million

and $( 0.4 ) million reported in other income in our consolidated statement of operations for the year ended December 31, 2023 and 2022, 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.

2 unchanged sentences

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, 2022 and 2021, respectively, we have 3,138 and 17,248 unvested restricted stock units being deferred.

As of December 31, 2023 and 2022, respectively, we have none and 3,138 unvested restricted stock units being deferred.

As of December 31, 2023 and 2022, respectively we have released and issued 191,700 and 188,562 shares to the deferred compensation plan with a value of $ 2.7 million and $ 2.6 million, respectively.

5 unchanged sentences

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 shares of common stock.

On June 20, 2019, at our annual meeting of shareholders, our shareholders approved the 2019 Equity Incentive Plan for restricted shares/units, stock options and other equity awards which reserved for issuance up to 500,000 shares of common stock in connection with awards.

On June 16, 2022, at our annual meeting of shareholders, our shareholders approved an amendment to the Equity Incentive Plan to increase the number of shares available for issuance under the plan by 650,000 shares of common stock.

As of December 31, 2022, we had 250,847 shares outstanding under the Equity Incentive Plan that will vest over the next three years .

As of December 31, 2023, we had outstanding awards of 133,898 shares under the Equity Incentive Plan that may vest over the next three years .

As of December 31, 2023, 405,833 shares were still available for issuance under the Equity Incentive Plan.

5 unchanged sentences

The restricted shares granted to Mr.

Taylor will vest in full on June 30, 2023.

Taylor vested 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 Mr.

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

On May 9, 2023, the Compensation Committee awarded each of our four independent Board members 9,470 restricted stock units.

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

On June 30, 2023, Stephen C.

Taylor was granted restricted stock units for 10,101 and 10,101 shares of common stock that will vest immediately and one year from the date of grant, respectively.

On October 8, 2023, the Compensation Committee awarded 6,361 restricted stock units to Brian Tucker, our Chief Operating Officer.

These units will vest ratably over three years beginning on October 9, 2024.

On October 26, 2023, the compensation committee awarded 4,623 restricted stock units to an independent director.

These units vest one year from the date of the grant.

Compensation expense related to the restricted shares was approximately $ 2.0 million and $ 1.7 million for the years ended December 31, 2023 and 2022, respectively.

1 unchanged sentence

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

A summary of all restricted stock activity as of December 31, 2021 and 2022 and changes during the years then ended are presented below.

A summary of all restricted stock/unit activity as of December 31, 2022 and 2023 and changes during the years then ended are presented below.

Shares Grant Date Fair Value Weighted

4 unchanged sentences

( 152,134 ) $ 10.99 — $ 1,778

Canceled/Forfeited

( 3,333 ) 12.26 — 31

Outstanding, December 31, 2022 250,847 $ 9.14 1.42 $ 2,681

164,640 $ 10.65 — $ 1,754

( 152,134 ) $ 10.99 — $ 1,778

Vested ( 267,232 ) $ 9.22 — $ 2,683

Canceled/Forfeited

( 14,357 ) $ 10.04 — $ 158

Outstanding, December 31, 2023 133,898 $ 10.66 1.57 $ 1,813

1 unchanged sentence

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.

At the time of vesting, each tranche was paid in cash.

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 three years .

1 unchanged sentence

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.

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

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

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.

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

The Company accounts for these other long-term incentive awards as liabilities under accrued liabilities on our 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 $ 1.0 million for the year ended December 31, 2022.

As of December 31, 2022 there was a total of $ 0.7 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next year.

Total compensation expense related to these other long-term incentive awards was approximately $ 0.4 million and $ 1.0 million respectively for the years ended December 31, 2023 and 2022.

As of December 31, 2023 and 2022 respectively there was a total of $ 0.0 million and $ 0.7 million of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next year.

1998 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.

Our 1998 Stock Option Plan as amended, 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.

15 unchanged sentences

Expected dividend yield — % — %

During the year ended December 31, 2022, 215,000 stock option grants were made.

During the year ended December 31, 2023, and 2022, we made 6,000 and 215,000 stock option grants, respectively.

A summary of all option activity as of December 31, 2022 and 2023 and changes during the years then ended are presented below:

7 unchanged sentences

( 200,750 ) $ ( 18.09 ) — $ —

( 13,500 ) $ 13.29 — $ —

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

5 unchanged sentences

Exercisable, December 31, 2023 105,416 $ 22.85 3.08 $ 146

The weighted average grant date fair value of options granted during 2022 was $ 4.24 per option.

We had 55,500 grants of stock options in 2021 with a weighted average grant date fair value of $ 5.15 .

The weighted average grant date fair value of options granted during 2023 and 2022 was $ 5.11 and $ 4.24 per option respectively.

There were no option exercises in either 2023 or 2022.

13 unchanged sentences

129,751 4.10 $ 20.59 105,416 $ 22.85

32,167 1.22 30.41 32,167 $ 30.41

201,584 3.90 $ 19.32 160,084 $ 21.48

The summary of the status of our unvested stock options as of December 31, 2023, and changes during the year then ended is presented below.

7 unchanged sentences

Unvested at December 31, 2023 24,335 $ 10.79

We recognized stock compensation expense from stock options of $ 255,000 and $ 728 for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, there was $ 188,000 of unamortized compensation cost related to unvested stock options.

Loss per Share

Basic loss per common share is computed using the weighted average number of common shares outstanding during the period.

Diluted loss per common share is computed using the weighted average number of common stock and common stock equivalent shares outstanding during the period.

We recognized stock compensation expense from stock options of $ 0.1 million and $ 0.3 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, there was $ 0.1 million of unamortized compensation cost related to unvested stock options.

Earnings (loss) per Share

Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per common share is computed using the weighted average number of common stock and common stock equivalent shares outstanding during the period.

The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share amounts):

Year Ended December 31,

Net loss $ ( 569 ) $ ( 9,183 )

Denominator for basic net loss per common share:

Net income (loss) $ 4,747 $ ( 569 )

Denominator for basic net earnings (loss) per common share:

Weighted average common shares outstanding 12,316 12,305

Denominator for diluted net loss per share:

Denominator for diluted net income (loss) per share:

Weighted average common shares outstanding 12,316 12,305

1 unchanged sentence

Diluted weighted average shares 12,383 12,305

Loss per common share:

Earnings (loss) per common share:

Basic $ 0.39 $ ( 0.05 )

Diluted $ 0.38 $ ( 0.05 )

In the year ended December 31, 2022, 250,847 restricted stock/units and 201,584 stock options were not included in the computation of dilutive income per share, due to their anti-dilutive effect.

In the year ended December 31, 2022, 250,847 restricted stock/units and 201,584 stock options were not included in the computation of diluted loss per share due to their antidilutive effect.

In the year ended December 31, 2023, 10,984 restricted stock/units and 129,751 stock options were not included in the computation of diluted earnings per share due to their antidilutive effect.

Accrued Liabilities

Accrued liabilities consists of the following as of December 31, 2022 and 2021 (in thousands):

Accrued liabilities consisted of the following as of December 31, 2023 and 2022 (in thousands):

Accrued purchases

10 unchanged sentences

During the year ended December 31, 2023, we sold $ 0.9 million of compressor components to N-G Joint Venture, LLC our 14 % joint venture.

As of December 31, 2022, we had accounts receivable of $ 6,000 with N-G.

As of December 31, 2023, we had accounts receivable of $ 0.2 million with N-G.

During the year ended December 31, 2023, we paid $ 0.3 million to Mill Road Capital, a large shareholder, for expense reimbursements related to our cooperation agreement.

Subsequent Events

On February 28, 2023, we entered into an Amended and Restated Credit Agreement.

On February 1, 2024, the Company announced that it had appointed Justin Jacobs as Chief Executive Officer, effective February 12, 2024.

Jacobs is a member of our board of directors .

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