NATURAL GAS SERVICES GROUP INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. 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 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 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 34 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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, 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. 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 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. GAAP. 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. 35 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 This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our ICFR because we are a Smaller Reporting Company and are not subject to auditor attestation requirements under applicable SEC rules. Changes in 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. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 36 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by this item is incorporated herein by reference to the sections “Election of Directors,” “Executive Officers,” “Corporate Governance” and “The Board of Directors and its Committees” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission. We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees. The Code of Business Conduct and Ethics is posted in the "Investor Relations" section of our website at www.ngsgi.com. The Code of Business Conduct and Ethics maybe obtained free of charge by writing before to Natural Gas Services Group, Inc., Attn: Investor Relations, 404 Veterans Airpark Lane, Ste 300 Midland, TX 79705. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to the section “Executive Compensation” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this item is incorporated herein by reference to the section “Principal Shareholders and Security Ownership of Management” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by this item is incorporated herein by reference to the sections “Related Person Transactions” and “Corporate Governance” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is incorporated herein by reference to the section “Principal Accountant Fees and Services” in our definitive proxy statement which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2023 or as such period may be extended by action of the Securities and Exchange Commission. 37 PART IV ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENTS The following documents are filed as part of this Annual Report on Form 10-K: (a)(1) and (a)(2) Consolidated Financial Statements For a list of Consolidated Financial Statements, see “Index to Consolidated Financial Statements” incorporated herein by reference. (a)(3) Exhibits A list of exhibits to this Annual Report on Form 10-K is set forth below: Exhibit No. Description 3.1 Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed and dated November 10, 2004). 3.2 Bylaws, as amended (Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2021.) 4.1 Description of Securities (Incorporated by reference to the Registrant's Registration Statement on From 8-A, filed with the SEC on October 27, 2008.) 4.2 Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on From S-3 (No. 333-261091) and filed on November 16, 2021) 4.3 Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.4 of the Registrant's Registration Statement on Form S-3 (No. 333-261091) and filed on November 16, 2021 10.1 † 2019 Equity Incentive Plan, as amended (Incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 12, 2022.) 10.2 † Stock Option Plan, as amended and restated (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 21, 2016.) 10.3 † Retirement Agreement dated May 17, 2022 between Natural Gas Services Group, Inc. and Stephen C. 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.) 10.4 † 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.) 10.5 Amended and Restated Credit Agreement dated February 28, 2023, among Natural Gas Services Group, Inc., the other Loan Parties thereto, Texas Capital Bank, in its capacity as Administrative Agent and the Lenders party thereto (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 March 6, 2023.) 10.6 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.) 10. 7 † 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.) 38 10. 8 † 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.) 10. 9 † 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.) 10.1 0 † 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.) 10.1 1 † 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.) 10.12*† Form of Restricted Stock Unit Award under the Natural Gas Services Group, Inc. 2019 Equity Incentive Plan, as amended. 10.13*† Form of Performance Stock Unit Award under the Natural Gas Services Group, Inc. 2019 Equity Incentive Plan, as amended. *21.1 Subsidiaries of the registrant *23.1 Consent of Ham, Langston & Brezina L.L.P. *31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2 Certification of Interim Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *32.2 Certification of Interim Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97.1* Natural Gas Services Group, Inc. Clawback Policy 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith. ITEM 16. FORM 10-K SUMMARY None. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATURAL GAS SERVICES GROUP, INC. April 1, 2024 By: /s/ Justin C. Jacobs Justin C. Jacobs 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 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: Signature Title Date /s/ Stephen C. Taylor Chairman of the Board of Directors April 1, 2024 Stephen C. Taylor /s/ John Bittner Interim Chief Financial Officer (Principal Accounting Officer) April 1, 2024 John Bittner /s/ Don Tringali Director April 1, 2024 Don Tringali /s/ Nigel J. Jenvey Director April 1, 2024 Nigel J. Jenvey /s/ David L. Bradshaw Director April 1, 2024 David L. Bradshaw /s/ Georganne Hodges Director April 1, 2024 Georganne Hodges 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm ( Ham, Langston & Brezina, LLP ; Houston, Texas ; PCAOB ID 298 F- 1 Consolidated Balance Sheets as of December 31, 2023 and 2022 F- 2 Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022 F- 3 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2023 and 2022 F- 4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022 F- 5 Notes to Consolidated Financial Statements F- 6 41 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 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 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 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 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 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 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 Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Ham, Langston & Brezina LLP Houston, Texas April 1, 2024 We have served as the Company's auditor since 2022. F - 1 NATURAL GAS SERVICES GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands) December 31, 2023 2022 ASSETS Current Assets: Cash and cash equivalents $ 2,746 $ 3,372 Trade accounts receivable, net of allowance for doubtful accounts of $ 823 and $ 338 , respectively 39,186 14,668 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 expenses and other 1,162 1,155 Total current assets 76,271 54,147 Long-term inventory, net of allowance for obsolescence of $ 1,168 and $ 120 , respectively 701 1,557 Rental equipment, net of accumulated depreciation of $ 191,745 and $ 177,729 , respectively 373,649 246,450 Property and equipment, net of accumulated depreciation of $ 17,649 and $ 16,981 , respectively 20,550 22,176 Intangibles, net of accumulated amortization of $ 2,384 and $ 2,259 , respectively 775 900 Other assets 6,783 3,016 Total assets $ 478,729 $ 328,246 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 17,628 $ 6,481 Accrued liabilities 15,085 23,918 Total current liabilities 32,713 30,399 Credit facility 164,000 25,000 Deferred income tax liability 41,636 39,798 Other long-term liabilities 4,486 2,973 Total liabilities 242,835 98,170 Commitments and contingencies (Note 15) Stockholders’ Equity: Preferred stock, 5,000 shares authorized, no shares issued or outstanding — — Common stock, 30,000 shares authorized, par value $ 0.01 ; 13,688 and 13,519 shares issued, respectively 137 135 Additional paid-in capital 116,480 115,411 Retained earnings 134,281 129,534 Treasury shares, at cost, 1,310 shares ( 15,004 ) ( 15,004 ) Total stockholders' equity 235,894 230,076 Total liabilities and stockholders' equity $ 478,729 $ 328,246 See accompanying notes to these consolidated financial statements. F - 2 NATURAL GAS SERVICES GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) Year Ended December 31, 2023 2022 Revenue: Rental income $ 106,159 $ 74,465 Sales 8,921 8,568 Aftermarket services 6,087 1,792 Total revenue 121,167 84,825 Operating costs and expenses: Cost of rentals, exclusive of depreciation stated separately below 48,877 37,750 Cost of sales, exclusive of depreciation stated separately below 8,919 7,650 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 Retirement of rental equipment 505 196 Total operating costs and expenses 110,710 84,394 Operating income 10,457 431 Other income (expense): Interest expense ( 4,082 ) ( 364 ) Other income (expense) 245 ( 108 ) Total other expense, net ( 3,837 ) ( 472 ) Income (loss) before income taxes: 6,620 ( 41 ) Provision for income taxes: Current ( 35 ) ( 17 ) Deferred ( 1,838 ) ( 511 ) Total income tax expense ( 1,873 ) ( 528 ) Net income (loss) $ 4,747 $ ( 569 ) Earnings (loss) per share: Basic $ 0.39 $ ( 0.05 ) Diluted $ 0.38 $ ( 0.05 ) Weighted average shares outstanding: Basic 12,316 12,305 Diluted 12,383 12,305 See accompanying notes to these consolidated financial statements. F - 3 NATURAL GAS SERVICES GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Preferred Stock Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Stockholders' Equity Shares Amount Shares Amount Shares Amount BALANCES, December 31, 2021 — $ — 13,394 $ 134 $ 114,017 $ 130,103 775 $ ( 8,344 ) $ 235,910 Compensation expense on common stock options — — — — 255 — — — 255 Issuance of restricted stock — — 125 — — — — — — Compensation expense on restricted common stock — — — 1 1,654 — — — 1,655 Taxes paid related to net shares settlement of equity awards — — — — ( 515 ) — — — ( 515 ) Purchase of treasury shares — — — — — — 535 ( 6,660 ) ( 6,660 ) Net loss — — — — — ( 569 ) — — ( 569 ) BALANCES, December 31, 2022 — — 13,519 135 115,411 129,534 1,310 ( 15,004 ) 230,076 Compensation expense on common stock options — — — — 97 — — — 97 Issuance of restricted stock — — 169 — — — — — — Compensation expense on restricted common stock — — — 2 1,955 — — — 1,957 Taxes paid related to net shares settlement of equity awards — — — — ( 983 ) — — — ( 983 ) Net income — — — — — 4,747 — — 4,747 BALANCES, December 31, 2023 — $ — 13,688 $ 137 $ 116,480 $ 134,281 1,310 $ ( 15,004 ) $ 235,894 See accompanying notes to these consolidated financial statements. F - 4 NATURAL GAS SERVICES GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 CASH FLOWS FROM 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 Amortization of debt issuance costs 425 48 Deferred taxes 1,838 511 Gain on disposal of assets ( 481 ) ( 250 ) Impairment expense 779 — Retirement of rental equipment 505 196 Provision for credit losses 492 — Inventory allowance 3,965 83 Stock-based compensation 2,054 1,910 Loss on company owned life insurance 235 389 Changes in operating assets and liabilities: Trade accounts receivables ( 25,010 ) ( 4,279 ) Inventory ( 669 ) ( 4,143 ) Prepaid income taxes and prepaid expenses ( 7 ) ( 250 ) Accounts payable and accrued liabilities 2,436 10,033 Other 174 ( 31 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 18,033 27,764 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of rental equipment, property and other equipment ( 153,943 ) ( 65,122 ) Purchase of company owned life insurance ( 422 ) ( 329 ) Proceeds from sale of property and equipment 477 372 NET CASH USED IN INVESTING ACTIVITIES ( 153,888 ) ( 65,079 ) CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Proceeds from line of credit 139,000 25,000 Payments of other long term liabilities ( 95 ) ( 3 ) Payments of debt issuance costs ( 2,693 ) ( 77 ) Purchase of treasury shares — ( 6,660 ) Taxes paid related to net share settlement of equity awards ( 983 ) ( 515 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 135,229 17,745 NET CHANGE IN CASH AND CASH EQUIVALENTS ( 626 ) ( 19,570 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,372 22,942 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,746 $ 3,372 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 7,053 $ 276 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 See accompanying notes to these consolidated financial statements. F - 5 NATURAL GAS SERVICES GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business Natural Gas Services Group, Inc. (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. 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. 2. Summary of Significant Accounting Policies Principles of Consolidation The accompanying 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, see Note 10. All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation. Use of Estimates The preparation of our consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires our management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from those estimates. 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. Throughout the review, determining factors are based on estimates that can significantly impact the carrying value of these assets. It is at least reasonably possible these estimates could be revised in the near term and the revisions could be material. Cash Equivalents and Financial Instruments 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. At times, cash balances at banks and financial institutions may exceed federally insured amounts. Accounts Receivable Our trade receivables consist of customer obligations for the sale of compressors and flare systems due under normal trade terms, and operating leases for the use of our natural gas compressors. The receivables are not collateralized except as provided for under lease agreements. However, we typically require deposits of as much as 50 % or use of progress payments for large custom sales contracts. We perform ongoing credit evaluations of our customers and adjust credit limits based on management's assessment of the customer's financial condition and payment history, as well as industry conditions and general economic conditions. We continuously monitor collections and payments from our customers, and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. 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. 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. F - 6 A summary of our allowance for credit losses is as follows: Year Ended December 31, 2023 2022 (in thousands) Beginning balance $ 338 $ 1,129 Accruals 492 — Write-offs ( 7 ) ( 791 ) Ending balance $ 823 $ 338 Revenue Recognition Policy 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 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 and flare systems to our customers. These contracts, which all qualify as operating leases under ASC Topic 842, Leases (ASC 842), may also include a fee for servicing the compressor or flare during the rental contract. 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. 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 – Leases, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components. Sales Revenue . The Company generates revenue by the sale of custom/fabricated compressors, flare systems and parts, as well as exchange/rebuilding customer owned compressors and sale of used rental equipment. 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; these payments are recorded as a contract liability on the Deferred Income line on the 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. 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 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. F - 7 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. 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 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. Disaggregation of Revenue The following table shows the Company's revenue disaggregated by product or service type for the years ended: Year Ended December 31, 2023 2022 (in thousands) Compressors - sales $ 1,800 $ 3,601 Flares - sales 87 239 Other (Parts/Rebuilds) - sales 7,034 4,728 Aftermarket services 6,087 1,792 Total revenue from contracts with customers 15,008 10,360 Add: ASC 842 rental revenue 106,159 74,465 Total revenue $ 121,167 $ 84,825 Contract Balances As of December 31, 2023 and 2022, we had the following receivables and deferred income from contracts with customers: December 31, 2023 2022 (in thousands) Accounts Receivable Accounts receivable - contracts with customers $ 7,138 $ 4,353 Accounts receivable - ASC 842 32,871 10,653 Total Accounts Receivable 40,009 15,006 Less: Allowance for doubtful accounts ( 823 ) ( 338 ) Total Accounts Receivable, net $ 39,186 $ 14,668 Deferred income $ 418 $ 37 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) 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, 2023, the Company had $ 0.4 million of revenue related to unsatisfied performance obligations. F - 8 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 expense on our Consolidated Statements of Operations. Leases Accounting Standards Codification ("ASC") 842 requires all leases to be reported on the balance sheet as right-of-use ("ROU") assets and lease obligations. We determine if an arrangement is a lease at inception and determine lease classification and recognize ROU assets and liabilities on the lease commencement date based on the present value of lease payments over the lease term. As the discount rate implicit in the lease is rarely readily determinable, we estimate our incremental borrowing rate using information available at the commencement date in determining the present value of the lease payments. We, as a lessee, apply the practical expedient to not separate non-lease components from lease components, therefore, accounting for each separate lease component and its associated non-lease component, as a single lease component. For each lease that 1) contains the same timing and pattern of transfer for lease and non-lease components and 2) if the lease component, if accounted for separately, would be classified as an operating lease, the Company has elected to not separate non-lease components from lease components. Major Customers and Concentration of Credit Risk Sales and rental income from Occidental Permian, LTD. ("Oxy") in 2023 and 2022 amounted to 50 % and 42 % of revenue, respectively. No other single customer accounted for more than 10% of our revenues in 2023 and 2022. Oxy's accounts receivable balances amounted to 64 % and 55 % of our accounts receivable as of December 31, 2023 and 2022, respectively. No other customers amounted to more than 10% of our accounts receivable as of December 31, 2023 and 2022. Inventory Inventory (current and long-term) is valued at the lower of cost and net realizable value. The cost of inventories is determined by the weighted average method. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on current and anticipated customer demand and production requirements. 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 useable but which the Company does not expect to sell or use within the next year. Rental Equipment and Property and Equipment Rental equipment and property and equipment are recorded at cost less accumulated depreciation, except for work-in-progress on new rental equipment which is recorded at cost until it’s complete and added to the fleet. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. 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. We assess the impairment of rental equipment and property and equipment whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows; significant adverse changes in the extent or manner in which asset (or asset group) is being used or its condition, including a meaningful drop in fleet utilization over the prior four quarters; significant negative industry or company-specific trends or actions, including meaningful capital expenditure budget reductions by our major customers or other sizable exploration and production or midstream companies, as well as significant declines in oil and natural gas prices; legislative changes prohibiting us from leasing our units or flares; or poor general economic conditions. An impairment loss is recognized if the future undiscounted cash flows associated with the asset (or asset group) and the estimated fair value of the asset are less than the asset's carrying value. 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 within selling, general, and administrative expenses. Maintenance and repairs are charged to cost of rentals as incurred. F - 9 Intangibles At December 31, 2023 and 2022, NGS had intangible assets, which relate to developed technology and a trade name. Developed technology is amortized on a straight-line basis with a useful life of 20 years, with a weighted average remaining life of approximately four years as of December 31, 2023. NGS has an intangible asset related to the trade name of SCS which was acquired in our acquisition of Screw Compression Systems in January 2005. This asset is not being amortized as it has been deemed to have an indefinite life. 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. We review intangibles through an assessment of the estimated future cash flows related to such assets. In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets. Warranty When warranted, we accrue amounts for estimated warranty claims based upon current and historical product warranty costs and any other related information known. There was no warranty reserve as of December 31, 2023 and 2022. 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 net operating losses and tax credit carry-forwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the statutory enactment date. 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. ASC Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In order to record any financial statement benefit, we are required to determine, based on technical merits of the position, whether it is more likely than not (a likelihood of more than 50 percent) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. If that step is satisfied, then we must measure the tax position to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of the benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We have no uncertain tax positions as of December 31, 2023. 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 Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. ASC Topic 820 established a fair value hierarchy, which requires an entity to maximize the use of observable inputs when measuring fair value. These inputs are categorized as follows: Level 1- quoted prices in an active market for identical assets or liabilities; Level 2- quoted prices in an active market for similar assets or liabilities, inputs other than quoted prices that are observable for similar assets or liabilities, inputs derived principally from or corroborated by observable market data by correlation or other means; and F - 10 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, 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 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 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. 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. The regulatory environment is similar in every jurisdiction in that the most impacting regulations and practices are the result of federal energy policy. 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. 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. 3. Inventory 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: F - 11 December 31, 2023 2022 (in thousands) Inventory, net of allowance for obsolescence of $ 2,836 and $ 0 , respectively $ 20,227 $ 21,354 Work-in-process 1,412 2,060 Inventory current 21,639 23,414 Raw materials - long term (net of allowances of $ 1,168 and $ 120 , respectively) 701 1,557 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 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: Year Ended December 31, 2023 2022 (in thousands) Beginning balance $ 120 $ 64 Additions 3,965 83 Write-offs ( 81 ) ( 27 ) Ending balance $ 4,004 $ 120 4. Rental Equipment, Property and Equipment Rental Equipment Our rental equipment and associated accumulated depreciation as of December 31, 2023 and 2022, respectively, consisted of the following: December 31, 2023 2022 (in thousands) Compressor units $ 514,527 $ 387,145 Work-in-progress 50,867 37,034 Rental equipment 565,394 424,179 Accumulated depreciation ( 191,745 ) ( 177,729 ) Rental equipment, net of accumulated depreciation $ 373,649 $ 246,450 Our rental equipment has an estimated useful life between 15 and 25 years. Depreciation expense for rental equipment was $ 24.0 million and $ 21.9 million for the years ended December 31, 2023 and 2022, respectively. F - 12 Retirement of Rental Equipment 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 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 Property and equipment consists of the following at December 31, 2023 and 2022: December 31, Useful Lives (Years) 2023 2022 (in thousands) Land — $ 1,680 $ 1,680 Building 39 19,140 19,166 Leasehold improvements 39 1,295 1,218 Office equipment and furniture 5 2,039 2,016 Software 5 573 573 Machinery and equipment 7 4,113 4,052 Vehicles 3 8,770 9,858 Work-in-progress 589 594 Total 38,199 39,157 Less accumulated depreciation ( 17,649 ) ( 16,981 ) Total $ 20,550 $ 22,176 Depreciation expense for property and equipment was $ 2.4 million and $ 2.1 million for the year ended December 31, 2023 and 2022, respectively. Depreciation Expense by Product Line The following table depicts annual depreciation expense associated with each product line as well as our corporate activities at December 31, 2023 and 2022: December 31, 2023 2022 (in thousands) Rentals $ 25,507 $ 23,243 Sales 260 275 Service & Maintenance 89 33 Corporate 569 440 Total $ 26,425 $ 23,991 5. Rental Activity We rent natural gas compressor packages to entities in the petroleum industry. These rental arrangements are classified as operating leases and generally have original terms of six months to sixty months and continue on a month-to-month basis thereafter. F - 13 Future minimum rent payments for arrangements not on a month-to-month basis at December 31, 2023, are as follows: Years Ending December 31, (in thousands) 2024 $ 71,965 2025 54,402 2026 41,127 2027 32,650 2028 18,463 Thereafter — Total $ 218,607 6. Leases 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 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. Right of use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. 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 following table reflects the amounts related to leases that are recorded on our consolidated balance sheets as of December 31, 2023 and 2022: Classification on Consolidated December 31, Balance Sheets 2023 2022 ($ in thousands) 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 Weighted average remaining lease term in years 3.1 4.5 Implicit Rate 9.1 % 5.2 % Operating lease costs are recognized on a straight-line basis over the lease term. 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. F - 14 December 31, 2023 2022 (in thousands) Cash paid for amounts included in the measurement of lease liabilities Operating lease cost (1) (2) $ 485 $ 384 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 $ 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: Year Ending December 31, Lease Liabilities (in thousands) 2024 $ 437 2025 419 2026 328 2027 38 2028 38 Thereafter 16 Total lease payments 1,276 Less: Imputed interest ( 15 ) 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. 7. Intangibles 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, 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. The following table represents the identified intangible assets by major asset class (in thousands): December 31, 2023 December 31, 2022 Useful Life (years) Gross Carrying Value Accumulated Amortization Net Book Value Gross Carrying Value Accumulated Amortization Net Book Value Developed Technology 20 $ 2,505 $ 2,384 $ 121 $ 2,505 $ 2,259 $ 246 Trade Name Indefinite 654 — 654 654 — 654 Total $ 3,159 $ 2,384 $ 775 $ 3,159 $ 2,259 $ 900 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 F - 15 impairment are present. We review intangibles through an assessment of the estimated future cash flows related to such assets. In the event that assets are found to be carried at amounts in excess of estimated undiscounted future cash flows, then the assets will be adjusted for impairment to a level commensurate with a discounted cash flow analysis of the underlying assets. Based upon our analysis, we experienced no impairment of intangible assets during the years ended December 31, 2023 or 2022. 8. Credit Facility 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 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; 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. 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. 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. 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 . 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 this component not to exceed $ 2.5 million, plus (c) the lesser of (i) 95 % of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80 % of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (d) 80 % of the net book value, valued at the lower of cost (excluding any costs for capitalized interest or other noncash 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 material deviations in the collateral are discovered in future audits of the collateral. 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 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 F - 16 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. 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 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 ending on or prior to December 31, 2024 and 3.25 to 1.00 for the fiscal quarter ending March 31, 2025 and for 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. Obligations outstanding under the Amended and Restated Credit Agreement may be accelerated upon the occurrence of an event of default. 9. Income Taxes The provision for income taxes for the years ended December 31, 2023 and 2022, consists of the following (in thousands): 2023 2022 Current expense State expense $ ( 35 ) $ ( 17 ) Total current expense ( 35 ) ( 17 ) Deferred (expense) benefit: 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: 2023 2022 Statutory rate 21.0 % 21.0 % State and local taxes ( 1.3 ) % 812.2 % Stock based compensation 0.7 % ( 58.5 ) % Nondeductible compensation 8.2 % ( 1,846.3 ) % Other ( 0.3 ) % ( 217.1 ) % Effective rate 28.3 % ( 1,288.7 ) % 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, among other things, permits federal income tax net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. 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 F - 17 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. In conjunction with the $ 11.5 million income tax refund claim, on March 8, 2023, the Company received a notice from the Internal Revenue Service that its 2015, 2016, 2017 and 2019 income tax returns were selected for examination. The income tax effects of temporary differences that give rise to significant portions of deferred income tax assets and (liabilities) as of December 31, 2023 and 2022, are as follows (in thousands): 2023 2022 Deferred income tax assets: Net operating loss $ 22,190 $ 6,391 Research and development credits 1,313 1,338 Stock compensation 153 121 Interest expense 991 — Inventory reserves 893 — Deferred compensation 792 617 Other 285 354 Total deferred income tax assets 26,617 8,821 Deferred income tax liabilities: Property and equipment ( 68,110 ) ( 48,427 ) Goodwill and other intangible assets ( 143 ) ( 192 ) Total deferred income tax liabilities ( 68,253 ) ( 48,619 ) Net deferred income tax liabilities $ ( 41,636 ) $ ( 39,798 ) As of December 31, 2023, the Company had NOL carryforwards for federal income tax purposes of $ 96.0 million, which may be carried forward indefinitely and can offset up to 80% of future taxable income in any given year. Future changes in ownership, as defined by Section 382 of the Internal Revenue Code ("IRC"), could limit the amount of NOL carryforwards used in any one year. In general, under Section 382 and 383 of the IRC, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and certain tax credits, to offset future taxable income and tax. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders changes by more than 50 percentage points over such stockholders’ lowest percentage of ownership during the testing period (generally three years). We account for uncertain tax positions in accordance with guidance in FASB 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 financial statements. The Company assessed whether it had any uncertain tax positions related to open tax years and concluded there were none. Accordingly, no reserve for uncertain tax positions has been recorded as of December 31, 2023 and 2022. Our policy regarding income tax interest and penalties is to expense those items as incurred. During the years ended December 31, 2023 and 2022, there were no significant income tax interest or penalty items in the statement of operations. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2015. 10. Deferred Compensation Plans Effective January 1, 2016, the Company established a non-qualified deferred compensation plan for executive officers, directors and certain eligible employees. 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 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 $ 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 F - 18 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. The deferred obligation to pay the deferred compensation and the deferred director fees is adjusted to reflect the positive or negative performance of investment measurement options selected by each participant and was $ 3.6 million and $ 2.8 million as of December 31, 2023 and 2022, respectively. The deferred obligation is included in other long-term liabilities in the consolidated balance sheets. For deferrals of restricted stock units, the plan does not allow for diversification, therefore, distributions are paid in shares of our common stock and the obligation is carried at grant value. As of December 31, 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. 11. Stockholders' Equity Preferred Stock We have a total of 5.0 million authorized preferred shares which may be issued in series with rights and preferences as designated by the Board of Directors. As of December 31, 2023 and 2022, there were no issued or outstanding preferred shares. 12. Stock-Based and Other Long-Term Incentive Compensation Restricted 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, 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. On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our four independent Board members. The restricted stock issued to our directors vests 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 common stock to Mr. Stephen Taylor, our Interim Chief Executive Officer. The restricted shares granted to Mr. 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. Taylor. 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. As of December 31, 2023, there was a total of approximately $ 0.7 million of unrecognized compensation expense related to the unvested portion of these restricted shares/units. This expense is expected to be recognized over the next three years . F - 19 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. Number of Shares Grant Date Fair Value Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2021 276,319 $ 9.67 1.77 $ 2,893 Granted 126,662 $ 10.21 — $ 1,294 Vested ( 152,134 ) $ 10.99 — $ 1,778 Outstanding, December 31, 2022 250,847 $ 9.14 1.42 $ 2,681 Granted 164,640 $ 10.65 — $ 1,754 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 Other Long-Term Incentive Compensation 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 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 . On March 18, 2021, we issued a $ 50,000 award to each of our three independent Board members. On April 1, 2021, we issued a $ 50,000 award to a newly appointed independent Board member. These awards vest one year from the date of grant and 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 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 $ 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 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. Option awards are generally granted with an exercise price equal to the market price of our stock at the date of grant; those option awards generally vest in equal increments over three years of continuous service and have ten-year contractual terms. Certain option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the Stock Option Plan). The last date that grants can be made under the Stock Option Plan is February 28, 2026. As of December 31, 2023, 415,085 shares were still available to be granted under the Stock Option Plan. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of options granted is based on the vesting period and historical exercise and post-vesting employment termination behavior for similar grants. We use historical data to estimate option exercise and employee termination within the valuation model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. F - 20 Weighted average Black -Scholes fair value assumption during the year ended December 31, are as follows: 2023 2022 Risk free rate 3.99 % 2.99 % Expected life 6.5 2.67 Expected volatility 47 % 54.5 % Expected dividend yield — % — % 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: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding December 31, 2021 200,834 $ 21.17 4.83 $ — Granted 215,000 $ 16.07 — $ — Canceled/Forfeited ( 200,750 ) $ ( 18.09 ) — $ — Expired ( 13,500 ) $ 13.29 — $ — Outstanding, December 31, 2022 201,584 $ 19.32 3.90 $ — Granted 6,000 $ 9.80 — $ 1 Canceled/Forfeited ( 39,833 ) $ 16.33 — $ 11 Expired ( 38,000 ) $ 16.28 — $ — Outstanding, December 31, 2023 129,751 $ 20.59 4.10 $ 274 Exercisable, December 31, 2023 105,416 $ 22.85 3.08 $ 146 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. F - 21 The following table summarizes information about our stock options outstanding at December 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 51,667 8.25 $ 10.77 27,332 $ 10.76 $ 22.01 -$ 26.00 28,667 1.28 $ 22.90 28,667 $ 22.90 $ 26.01 -$ 30.00 19,750 3.13 $ 28.15 19,750 $ 28.15 $ 30.01 -$ 30.41 29,667 0.22 $ 30.41 29,667 $ 30.41 129,751 4.10 $ 20.59 105,416 $ 22.85 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. Unvested stock options: Shares Weighted Average Grant Date Fair Value Unvested at December 31, 2022 39,000 $ 10.95 Granted 6,000 $ 9.80 Vested ( 14,998 ) $ 10.90 Canceled/Forfeited ( 5,667 ) $ 10.58 Unvested at December 31, 2023 24,335 $ 10.79 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. 13. 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. F - 22 The following table sets forth the computation of basic and diluted loss per share (in thousands, except per share amounts): Year Ended December 31, 2023 2022 Numerator: 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 income (loss) per share: Weighted average common shares outstanding 12,316 12,305 Dilutive effect of stock options and restricted shares 67 — Diluted weighted average shares 12,383 12,305 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 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. 14. Accrued Liabilities Accrued liabilities consisted of the following as of December 31, 2023 and 2022 (in thousands): 2023 2022 Accrued purchases $ 8,629 $ 17,763 Accrued compensation 2,137 4,472 Accrued other 4,319 1,683 Total $ 15,085 $ 23,918 15. Commitments and Contingencies Legal Proceedings 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 effect on our financial position, results of operations or cash flow. We are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any other threatened litigation. 16. Related Party 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, 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. 17. Subsequent Events On February 1, 2024, the Company announced that it had appointed Justin Jacobs as Chief Executive Officer, effective February 12, 2024. Mr. Jacobs is a member of our board of directors . F - 23