UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended~~September~~June 30, ~~2017~~2022

~~( )~~☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



Colorado		75-2811855
(State or other jurisdiction of	~~(I.R.S. Employer~~
incorporation or organization)	(I.R.S. Employer Identification No.)

404 Veterans Airpark Ln., Ste ~~550~~300

Midland, Texas ~~79701~~79705

Large accelerated filer o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

~~APPLICABLE ONLY TO CORPORATE ISSUERS~~

~~Indicate the number~~As of August 8, 2022, there were 12,331,147 shares ~~outstanding of each~~ of the ~~issuer's classes of~~Registrant's common stock, ~~as of the latest practicable date.~~$0.01 par value, outstanding.


Part I - FINANCIAL INFORMATION

~~Class~~		~~October 30, 2017~~
~~Common Stock, $0.01 par value~~		~~12,941,237~~

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited)
	June 30,		December 31,
	2022		2021
ASSETS
Current Assets:
Cash and cash equivalents	$	9,828	$	22,942
Trade accounts receivable, net of allowance for doubtful accounts of $380 and $1,129, respectively	11,861		10,389
Inventory	18,478		19,329
Federal income tax receivable (Note 4)	11,538		11,538
Prepaid income taxes	41		51
Prepaid expenses and other	1,612		854
Total current assets	53,358		65,103
Long-term inventory, net of allowance for obsolescence of $37 and $64, respectively	1,630		1,582
Rental equipment, net of accumulated depreciation of $183,414 and $172,563, respectively	214,702		206,985
Property and equipment, net of accumulated depreciation of $16,667 and $15,784, respectively	20,170		20,828
Right of use assets - operating leases, net of accumulated amortization of $641 and $555, respectively	290		285

Intangibles, net of accumulated amortization of $2,196 and $2,134, respectively	963		1,025
Other assets	2,365		2,698
Total assets	$	293,478	$	298,506
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	5,238	$	4,795
Accrued liabilities	15,958		14,103


Current operating leases	88		68
Deferred income	—		1,312
Total current liabilities	21,284		20,278
Line of credit	—		—
Deferred income tax liability	39,644		39,288
Long-term operating leases	202		217

Other long-term liabilities	2,592		2,813
Total liabilities	63,722		62,596
Commitments and contingencies (Note 9)	0		0
Stockholders’ Equity:
Preferred stock, 5,000 shares authorized, no shares issued or outstanding	—		—
Common stock, 30,000 shares authorized, par value $0.01; 13,499 and 13,394 shares issued, respectively	135		134
Additional paid-in capital	114,255		114,017
Retained earnings	130,370		130,103


Treasury Shares, at cost, 1,310 and 775 shares, respectively	(15,004)		(8,344)
Total stockholders' equity	229,756		235,910
Total liabilities and stockholders' equity	$	293,478	$	298,506

NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)

September 30, December 31,
2017 2016
ASSETS
Current Assets:
Cash and cash equivalents $ 72,924
$ 64,094
Trade accounts receivable, net of allowance for doubtful accounts of $634 and $597, respectively 7,163
7,378
Inventory, net 28,379
25,833
Prepaid income taxes 2,339
1,482
Prepaid expenses and other 1,127
972
Total current assets 111,932
99,759
Rental equipment, net of accumulated depreciation of $140,865 and $126,096, respectively
162,137
174,060
Property and equipment, net of accumulated depreciation of $11,486 and $11,267, respectively
8,425
7,753
Goodwill 10,039
10,039
Intangibles, net of accumulated amortization of $1,601 and $1,508, respectively
1,558
1,651
Other assets 895
262
Total assets $ 294,986
$ 293,524
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ —
$ 417
Accounts payable 1,830
971
Accrued liabilities 3,955
2,887
Deferred income 185
2,225
Total current liabilities 5,970
6,500
Line of credit, non-current portion 417
—
Deferred income tax liability 50,512
53,745
Other long-term liabilities 880
325
Total liabilities 57,779
60,570
Commitments and contingencies (Note 9)

Stockholders’ Equity:
Preferred stock, 5,000 shares authorized, no shares issued or outstanding —
—
Common stock, 30,000 shares authorized, par value $0.01; 12,844 and 12,764 shares issued and outstanding, respectively 128
128
Additional paid-in capital 103,916
100,812
Retained earnings 133,163
132,014
Total stockholders' equity 237,207
232,954
Total liabilities and stockholders' equity $ 294,986
$ 293,524

~~See accompanying notes to these unaudited condensed consolidated financial statements.~~

NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Revenue:
Rental income $ 11,292
$ 13,157
$ 34,634
$ 44,220
Sales 4,256
2,536
15,300
9,746
Service and maintenance income 365
488
1,099
985
Total revenue 15,913
16,181
51,033
54,951
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below 4,333
4,513
13,256
15,618
Cost of sales, exclusive of depreciation stated separately below 3,237
2,191
12,405
8,359
Cost of service and maintenance 90
122
288
318
Selling, general and administrative expense 2,340
2,101
7,776
6,822
Depreciation and amortization 5,320
5,431
15,958
16,371
Total operating costs and expenses 15,320
14,358
49,683
47,488
Operating income 593
1,823
1,350
7,463
Other income (expense):
Interest expense (7 ) (2 ) (11 ) (6 )
Other income (expense), net (7 ) 10
(1 ) 22
Total other income (expense), net (14 ) 8
(12 ) 16
Income before provision for income taxes 579
1,831
1,338
7,479
Provision for income taxes 57
322
189
2,170
Net income $ 522
$ 1,509
$ 1,149
$ 5,309
Earnings per share:
Basic $ 0.04
$ 0.12
$ 0.09
$ 0.42
Diluted $ 0.04
$ 0.12
$ 0.09
$ 0.41
Weighted average shares outstanding:

Basic 12,838
12,717
12,825
12,691
Diluted 13,117
12,962
13,102
12,913

See accompanying notes to these unaudited condensed consolidated financial statements.

NATURAL GAS SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,149
$ 5,309
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,958
16,371
Deferred income taxes (3,233 ) (1,773 )
Stock-based compensation 3,231
1,739
Bad debt allowance 70
61
Inventory allowance —
32
Gain on sale of assets (49 ) (49 )
Gain on company owned life insurance (35 ) (7 )
Changes in operating assets and liabilities:
Trade accounts receivables 145
3,714
Inventory (2,535 ) 3,556
Prepaid expenses and prepaid income taxes (1,012 ) (604 )
Accounts payable and accrued liabilities 1,927
(550 )
Deferred income (2,040 ) 1,629
Other 578
133
Tax benefit from equity compensation —
(51 )
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,154
29,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,662 ) (3,359 )
Purchase of company owned life insurance (571 ) (142 )
Proceeds from sale of property and equipment 49
49
NET CASH USED IN INVESTING ACTIVITIES (5,184 ) (3,452 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments from other long-term liabilities, net (13 ) (8 )
Proceeds from exercise of stock options 517
433
Taxes paid related to net share settlement of equity awards (644 ) (909 )
Tax benefit from equity compensation —
51
NET CASH USED IN FINANCING ACTIVITIES (140 ) (433 )
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,830
25,625
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 64,094
35,532
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 72,924
$ 61,157
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Interest paid $ 11
$ 6
Income taxes paid $ 4,288
$ 4,795
NON-CASH TRANSACTIONS
Transfer of rental equipment components to inventory $ 48
$ 164


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share) (unaudited)

	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenue:
Rental income	$	18,144	$	15,613	$	35,274	$	30,954
Sales	1,292		1,573		4,184		4,284
Service and maintenance income	490		563		804		908
Total revenue	19,926		17,749		40,262		36,146
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below	9,242		9,082		18,472		16,239
Cost of sales, exclusive of depreciation stated separately below	1,440		1,777		3,428		4,392
Cost of service and maintenance, exclusive of depreciation stated separately below	234		250		407		298
Selling, general and administrative expenses	2,310		2,607		4,811		5,255
Depreciation and amortization	6,042		6,326		12,103		12,623



Total operating costs and expenses	19,268		20,042		39,221		38,807
Operating income (loss)	658		(2,293)		1,041		(2,661)
Other income (expense):
Interest expense	(24)		(14)		(49)		(16)
Other income (expense), net	(332)		50		(364)		151
Total other income (expense), net	(356)		36		(413)		135
Income (loss) before provision for income taxes	302		(2,257)		628		(2,526)
Income tax benefit (expense)	(372)		339		(361)		213
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Earnings (loss) per share:
Basic	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Diluted	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Weighted average shares outstanding:
Basic	12,305		13,305		12,421		13,284
Diluted	12,305		13,305		12,528		13,284


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited)
	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Total Stockholders' Equity
	Shares	Amount		Shares	Amount						Shares	Amount
BALANCES, January 1, 2021	—	$	—	13,296	$	133	$	112,615	$	139,286	38	$	(490)	$	251,544

Issuance of restricted stock	—	—		62	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	1		473		—		—	—		474
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(224)		—		—	—		(224)
Net income	—	—		—	—		—		(394)		—	—		(394)
BALANCES, March 31, 2021	—	—		13,358	134		112,864		138,892		38	(490)		251,400

Issuance of restricted stock	—	—		36	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	—		421		—		—	—		421
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(110)		—		—	—		(110)
Purchase of treasury shares	—	—		—	—		—		—		175	(1,892)		(1,892)
Net income	—	—		—	—		—		(1,918)		—	—		(1,918)
BALANCES, June 30, 2021	—	$	—	13,394	$	134	$	113,175	$	136,974	213	$	(2,382)	$	247,901


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) (unaudited)
	Preferred Stock			Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock			Total Stockholders' Equity
	Shares	Amount		Shares	Amount						Shares	Amount
BALANCES, January 1, 2022	—	$	—	13,394	$	134	$	114,017	$	130,103	775	$	(8,344)	$	235,910
Compensation expense on common stock options	—	—		—	—		21		—		—	—		21
Issuance of restricted stock	—	—		79	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	1		401		—		—	—		402
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(359)		—		—	—		(359)
Purchase of treasury shares	—	—		—	—		—		—		247	(2,928)		(2,928)
Net loss	—	—		—	—		—		337		—	—		337
BALANCES, March 31, 2022	—	—		13,473	135		114,080		130,440		1,022	(11,272)		233,383
Compensation expense on common stock options	—	—		—	—		147		—		—	—		147
Issuance of restricted stock	—	—		26	—		—		—		—	—		—
Compensation expense on restricted common stock	—	—		—	—		184		—		—	—		184
Taxes paid related to net shares settlement of equity awards	—	—		—	—		(156)		—		—	—		(156)
Purchase of treasury shares	—	—		—	—		—		—		288	(3,732)		(3,732)
Net loss	—	—		—	—		—		(70)		—	—		(70)
BALANCES, June 30, 2022	—	$	—	13,499	$	135	$	114,255	$	130,370	1,310	$	(15,004)	$	229,756


NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
	Six months ended
	June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	267	$	(2,313)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	12,103		12,623
Amortization of debt issuance costs	24		7
Deferred income tax (benefit) expense	356		(224)
Stock-based compensation	754		895
Bad debt allowance	—		65


Gain on sale of assets	(151)		—

Loss (gain) on company owned life insurance	557		(188)
Changes in operating assets and liabilities:
Trade accounts receivables	(1,472)		(410)
Inventory	803		(1,543)

Prepaid expenses and prepaid income taxes	(748)		(369)
Accounts payable and accrued liabilities	2,298		4,281

Deferred income	(1,312)		(410)

Other	(231)		338

NET CASH PROVIDED BY OPERATING ACTIVITIES	13,248		12,752
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of rental equipment, property and other equipment	(19,173)		(12,567)
Purchase of company owned life insurance	(236)		(55)
Proceeds from sale of property and equipment	224		—


NET CASH USED IN INVESTING ACTIVITIES	(19,185)		(12,622)
CASH FLOWS FROM FINANCING ACTIVITIES:


Payments of other long-term liabilities, net	(2)		(1)
Payments of debt issuance costs	—		(237)
Repayments of line of credit, net	—		(417)

Purchase of treasury shares	(6,660)		(1,892)
Taxes paid related to net share settlement of equity awards	(515)		(335)

NET CASH USED IN FINANCING ACTIVITIES	(7,177)		(2,882)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(13,114)		(2,752)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	22,942		28,925
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9,828	$	26,173
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid	$	25	$	9

NON-CASH TRANSACTIONS



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

See accompanying notes to these unaudited condensed consolidated financial statements.

Natural Gas Services Group, Inc.

Notes to Condensed Consolidated Financial Statements

~~(1) Basis~~1. Description of ~~Presentation and Summary of Significant Accounting Policies~~Business

~~These notes apply to the unaudited condensed consolidated financial statements of~~ Natural Gas Services Group, Inc. ~~a Colorado corporation~~ (the "Company", ~~“NGSG”~~“NGS”, "Natural Gas Services Group", "we" or "our"). (a Colorado corporation), is a provider of natural gas compression equipment and services to the energy industry. The Company manufactures, fabricates, rents, sells and maintains natural gas compressors and flare systems for oil and natural gas production and plant facilities. NGS is headquartered in Midland, Texas, with fabrication facilities located in Tulsa, Oklahoma and Midland, Texas, and service facilities located in major oil and natural gas producing basins in the U.S.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its subsidiary, NGSG Properties, LLC and the rabbi trust associated with the Company's deferred compensation plan. All significant intercompany accounts and transactions for the periods presented have been eliminated in consolidation.

These financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at ~~September~~June 30, ~~2017~~2022 and the results of our operations for the three and ~~nine~~six monthsended ~~September~~June 30,~~2017~~ 2022 and ~~2016~~2021 not misleading. As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying condensed consolidated financial statements do not include all disclosures normally required by generally accepted accounting principles in the United States of America (GAAP). These financial statements should be read in conjunctionwith the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 on file with the SEC. In our opinion, the condensed consolidated financial statements are a fair presentation of the financial position, results of operations, changes in stockholders' equity and cash flows for the periods presented.

The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, ~~2017~~.2022.

Revenue Recognition Policy

Revenue from the sales of custom and fabricated compressors, and flare systems is recognized when title passes to the customer, the customer assumes risks and rewards of ownership, collectability is reasonably assured and delivery occurs as directed by our customer. From time to time, we have customers that request units and flares to be built under a bill and hold arrangement. In order to recognizeThe Company recognizes revenue under a bill and hold arrangement the following criteria must be met: risk of ownership was passed to the customer, customer made a fixed commitment to purchase the goods, the customer requested the bill and hold, there was a fixed schedule for delivery, we no longer had any specific performance obligations, the purchase was segregated at our facility and the equipment was complete and ready to ship. For the nine months ended September 30, 2017, we recognized revenue of $5.7 million under these bill and hold arrangements. Exchange and rebuilt compressor revenue is recognized when the replacement compressor has been delivered and the rebuild assessment has been completed. Revenue from compressor service and retrofitting services is recognized upon providing services to the customer. Maintenance agreement revenue is recognized as services are rendered. Rental revenue is recognized over the terms of the respective rental agreements. Deferred income represents payments received before a product is shipped. Revenue from the sale of rental units is included in ~~sales revenue when equipment is shipped or title is transferred to the customer.~~

~~Fair Value of Financial Instruments~~

~~Our financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, deferred compensation plan (cash portion) and our line of credit. Pursuant to~~accordance with ASC 820 (Accounting Standards Codification), the fair value of our cash equivalents is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their fair values because of their nature and relatively short maturity dates or durations.

~~Recently Issued Accounting Pronouncements~~

On February 25, 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12 months. Additionally, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new standard will be effective during our first quarter ending March 31, 2019. We are currently determining the impacts of the new standard on our condensed consolidated financial statements and the additional applicable disclosure requirements.

~~On May 28, 2014, the FASB issued ASU No. 2014-09,~~606, Revenue from Contracts with Customers ~~(Topic 606)~~("ASC 606"), except for rental revenue as discussed below. Under ASC 606, revenue is measured based on a consideration specified in a customer’s contract, excluding any sale incentives and taxes collected on behalf of third parties (i.e. sales and property taxes). ~~This update provides~~Revenue is recognized when a ~~five-step analysis on how an entity should recognize revenue to depict the transfer~~customer obtains control of promised goods or services ~~to customers~~ in an amount that reflects the consideration that we expect to ~~which the entity expects to be entitled in exchange~~receive for those goods or services. To recognize revenue, we (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligation(s). Shipping and handling costs incurred are accounted for as fulfillment costs and are included in cost of revenues in our condensed consolidated statements of operations.

Nature of Goods and Services

~~services. This guidance~~

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 ~~requires more detailed disclosures~~include a fee for servicing the compressor or flare during the rental contract period. Our rental contracts typically range from six to ~~enable users~~24 months, with our larger horsepower compressors having contract terms of ~~financial statements~~up to ~~understand~~60 months. Our revenue is recognized over time, with equal monthly payments over the ~~nature,~~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 ASC 842, we have applied the practical expedient ASC 842-10-15-42A, which allows the Company to combine lease and non-lease components.

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

Custom/fabricated compressors and flare systems - The Company designs and fabricates compressors and flares based on the customer’s specifications outlined in their contract. Though the equipment being built is customized by the customer, control under these contracts does not pass to the customer until the compressor or flare package is complete and shipped, or in accordance with a bill and hold arrangement, the customer accepts title and assumes the risk and rewards of ownership. We request some of our customers to make progressive payments as the product is being built; these payments are recorded as a contract liability on the Deferred Income line on the condensed consolidated balance sheet until control has been transferred. These contracts also may include an assurance warranty clause to guarantee the product is free from defects in material and workmanship for a set duration of time; this is a standard industry practice and is not considered a performance obligation.

From time to time we recognize revenue when manufacturing is complete and the equipment is ready for shipment. At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment. The customer will formally request that we ship the equipment per their direction from our manufacturing facility at a later specified date and that we segregate 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 and satisfactory results for both the customer and us. The credit terms on these agreements are consistent with the credit terms on all other sales. All control is maintained by the customer and there are no exceptions to the customer’s commitment to accept and pay for the manufactured equipment. There was no revenue recognized for bill and hold arrangements for the six months ended June 30, 2022 and 2021.

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 ~~timing and uncertainty~~ of revenue recognized is not adjusted for expected returns, as our historical part returns have been de minimis.

Exchange or rebuilding customer owned compressors - Based on the contract, the Company will either exchange a new/rebuilt compressor for the customer’s malfunctioning compressor or rebuild the customer’s compressor. Revenue is recognized after control of the replacement compressor has transferred to the customer based on the terms of the contract, i.e., by physical delivery, delivery and ~~cash flows arising~~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. Revenue from the sale of rental equipment is recognized when the control has passed to the customer based on the terms of the contract, i.e., when the customer has taken physical possession or the equipment has been shipped.

Service and Maintenance Revenue. The Company provides routine or call-out services on customer owned equipment. Revenue is recognized after services in the contract are rendered.

Payment terms for sales revenue and service and maintenance revenue discussed above are generally 30 to 60 days, although terms for specific customers can vary. Also, transaction prices are not subject to variable consideration constraints.

Disaggregation of Revenue

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


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Compressors - sales	$	286	$	—	$	2,253	$	1,891
Flares - sales	83		29		83		75
Other (parts/rebuilds) - sales	923		1,544		1,848		2,318
Service and maintenance	490		563		804		908
Total revenue from contracts with customers	1,782		2,136		4,988		5,192
Add: ASC 842 rental revenue	18,144		15,613		35,274		30,954
Total revenue	$	19,926	$	17,749	$	40,262	$	36,146

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


	June 30, 2022		December 31, 2021
	(in thousands)
Accounts Receivable
Accounts receivable - contracts with customers	$	3,817	$	3,354
Accounts receivable - ASC 842	8,424		8,164
Total Accounts Receivable	12,241		11,518
Less: Allowance for doubtful accounts	(380)		(1,129)
Total Accounts Receivable, net	$	11,861	$	10,389

Deferred income	$	—	$	1,312

The Company recognized sales revenues of $1.3 million for the six months ended June 30, 2022 that was included in deferred income at the beginning of 2022. For the year ended December 31, 2021, the Company recognized sales revenues of $1.1 million that was included in deferred income at the beginning of 2021.

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

Remaining Performance Obligations

As of June 30, 2022, the Company did not have deferred revenue related to unsatisfied performance obligations.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in selling, general and administrative expenses on our condensed consolidated statements of operations.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense in the tax provision in our condensed consolidated statements of operations.

We account for uncertain tax positions in accordance with guidance in ASC 740, which prescribes the minimum recognition threshold a tax position taken or expected to be taken in a tax return is required to meet before being recognized in the condensed consolidated financial statements. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon settlement. A liability for unrecognized tax benefits is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards. We have no liabilities for uncertain tax positions as of June 30, 2022.

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

Recently Issued Accounting Pronouncements

In ~~August 2015,~~June 2016, the FASB issued ~~an accounting standards~~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 ~~for a one-year deferral of the revenue recognition standard’s~~are effective ~~date~~ for ~~all entities, which changed the effectiveness to~~ interim and annual ~~reporting~~ periods beginning after ~~December 15, 2017. As a result, we expect to adopt this guidance on~~ January 1, 2018. The guidance offers two transition methods: a full retrospective approach to be applied to each prior reporting period presented or a modified retrospective approach where the cumulative effect of initially applying the standard is recognized at the date of initial application. We have preliminarily selected the modified retrospective transition method.2023. We are currently ~~determining~~evaluating the ~~impacts~~impact of ~~the new standard~~ASU 2016-13 on our consolidated financial ~~statements. Our approach includes performing a detailed review of key contracts that are representative of our various revenue streams~~statements and comparing our historical accounting policies and practices to the new standard. Our sales and service and maintenance contracts are more short-term in nature or can usually be completed within the same quarter they are started; but, at this stage in our assessment we are still finalizing our evaluation of the extent to which we will have changes, upon adoption. For the impact related to our rental revenues, we are in the final stages of our review and have not concluded as to what impact, if any, there may be to our rental revenues. We also tentatively anticipate a change in our disclosures under the new standard. We expect to complete our review by mid-November 2017.note disclosures.

~~(2) Stock-Based Compensation~~

~~A summary of option activity under our 1998 Stock Option Plan as of December 31, 2016, and changes during the~~ ~~nine months endedSeptember 30, 2017~~ ~~is presented below.~~

Number
of
Stock Options

Weighted Average
Exercise
Price

Weighted
Average
Remaining
Contractual Life (years)

Aggregate
Intrinsic
Value
(in thousands)
Outstanding, December 31, 2016 350,186
$ 19.45
4.25 $ 4,453
Granted 32,750
28.15

Exercised (25,580 ) 20.19

271
Outstanding, September 30, 2017 357,356
$ 20.19
4.18 $ 3,050
Exercisable, September 30, 2017 307,108
$ 19.19
3.44 $ 2,946

~~The following table summarizes information about our stock options outstanding at~~ ~~September 30, 2017~~:

Range of Exercise Prices
Options Outstanding Options Exercisable
Shares
Weighted
Average
Remaining
Contractual
Life (years)

Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
$0.01-15.70 65,852
1.81 $ 9.82
65,852
$ 9.82
$15.71-17.81 72,750
2.04 17.53
72,750
17.53
$17.82-20.48 86,836
2.59 19.60
86,836
19.60
$20.49-33.36 131,918
7.58 27.23
81,670
27.79
357,356
4.18 $ 20.19
307,108
$ 19.19

~~The summary of the status of our unvested stock options as of~~ ~~December 31, 2016~~ ~~and changes during the~~ ~~nine months endedSeptember 30, 2017~~ ~~is presented below.~~

Unvested stock options:
Shares
Weighted Average
Grant Date Fair Value Per Share
Unvested at December 31, 2016 50,833
$ 12.67
Granted 32,750
11.93
Vested (33,335 ) 13.80
Unvested at September 30, 2017 50,248
$ 11.44

~~As of~~ ~~September 30, 2017, there was~~ ~~$349,134~~ ~~of unrecognized compensation cost related to unvested options. Such cost is expected to be recognized over a weighted-average period of two years. Total compensation expense for stock options was~~ ~~$286,500~~ ~~and~~ ~~$388,732~~ ~~for the~~ ~~nine months endedSeptember 30, 2017~~ ~~and~~ ~~2016, respectively.~~

~~Restricted Shares/Units:~~

In accordance with the Company's employment agreement with Stephen Taylor, the Company's Chief Executive Officer, the Compensation Committee reviewed his performance in determining the issuance of restricted common stock. Based on this review which included consideration of the Company's 2016 performance, Mr. Taylor, was awarded 70,464 restricted shares/units on February 14, 2017, which vest over three years, in equal installments, beginning February 14, 2018. On March 23, 2017, the Compensation Committee awarded 20,000 restricted shares/units to each of G. Larry Lawrence, our CFO, and James Hazlett, our Vice President of Technical Services. The restricted shares to Messrs. Lawrence and Hazlett vest over three years, in equal installments, beginning March 23, 2018. We also awarded and issued 15,968 shares of restricted common stock to our Board of Directors as partial payment for 2017 directors' fees. The restricted stock issued to our directors vests over one year, in quarterly installments, beginning March 31, 2018. Total compensation expense related to restricted awards was $2,945,020 and $1,350,427 for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was a total of $2,114,256 of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next two years.

Our inventory, net of allowance for obsolescence of ~~$16,458~~$37,000 at June 30, 2022 and ~~$15,000~~$64,000 at ~~September 30, 2017~~ ~~and~~ December 31, ~~2016~~,2021, consisted of the following amounts:


	June 30, 2022		December 31, 2021
	(in thousands)
Raw materials - current	$	16,880	$	17,528
Work-in-process	1,598		1,801
Inventory - current	18,478		19,329
Raw materials - long term (net of allowances of $37 and $64, respectively)	1,630		1,582
Inventory - total	$	20,108	$	20,911

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

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

A summary of our inventory allowance is as follows:


	June 30, 2022		December 31, 2021
	(in thousands)
Beginning balance	$	64	$	221
Accruals	—		208
Write-offs	(27)		(365)
Ending balance	$	37	$	64

4. Federal Income Tax Receivable

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the economic impact caused by the COVID-19 pandemic. The CARES Act allowed NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid federal income taxes. The Company generated significant NOLs during 2018 and 2019, and has filed amended returns to carryback these losses for five years. Accordingly, during 2020, the Company recorded a federal income tax receivable of $15.0 million and an increase to its deferred income tax liability of $10.1 million on its condensed consolidated balance sheet. During the third quarter of 2020, the Company received refunds totaling $3.9 million related to its 2018 NOLs, which reduced its federal income tax receivable to $11.5 million on its condensed consolidated balance sheet as of June 30, 2022.

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

September 30, 2017 December 31, 2016
(in thousands)
Raw materials $ 20,860
$ 18,365
Finished Goods 1,007
2,558
Work in process 6,512
4,910
$ 28,379
$ 25,833


	June 30, 2022		December 31, 2021
	(in thousands)
Compressor units	$	386,284	$	374,336
Work-in-process	11,832		5,212
Rental equipment	398,116		379,548
Accumulated depreciation	(183,414)		(172,563)
Rental equipment, net of accumulated depreciation	$	214,702	$	206,985

~~During the nine months ended September 30, 2017 and 2016, there were no write-offs of obsolete inventory against the allowance for obsolescence.~~

~~(4) Retirement of Long-Lived Assets~~

~~During the review of~~We evaluated our rental ~~compressor units, management looks~~equipment for any units that are 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. From our review in 2016, we determined 63 units should be retired from our rental fleet with key components from those units being re-utilized in future unit builds and/or repairs. We performed an optimization review and recorded a $545,000 loss on retirement of

rental equipment to reduce the book value of each unit to the estimated fair value of approximately $242,000 for key components being kept. This retirement was recorded in the 2016 consolidated income statement under loss on retirement of rental equipment. No retirements have been made in 2017.

~~(5) 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 unit 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 $814,000 and $149,000potential impairment as of ~~September~~June 30, ~~2017~~2022, and 2016, respectively, with a gain related to the policy of approximately $35,000 and $7,000 reported in other income in the condensed consolidated income statement for the nine months ending September 30, 2017 and 2016, 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 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 $779,000 and $151,000determined that no such impairment existed as of ~~September 30, 2017 and 2016, respectively. The deferred obligation is included in other long-term liabilities in the condensed consolidated balance sheet.~~that date.

For deferrals of restricted stock units, the plan does not allow for diversification, therefore, distributions are paid in shares of common stock and the obligation is carried at grant value. As of September 30, 2017, 97,011 unvested restricted stock units have been deferred.

~~(6)~~6. Credit Facility

Previous Credit Agreement

We ~~have~~had a senior secured revolving credit agreement the ("~~Amended~~Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") ~~with~~that matured on March 31, 2021. Prior to maturation, the outstanding balance of $417,000 was repaid. The Previous Credit Agreement had an aggregate commitment of $30 million, subject to collateral availability.

New Credit Agreement

On May 11, 2021, we entered into a five year senior secured revolving credit agreement ("New Credit Agreement") with Texas Capital Bank, National Association (the "Lender") with an initial commitment of $20 million and an accordion feature that would increase the maximum commitment to $30 million, subject to collateral availability. We also have a right to request from the Lender, on an uncommitted basis, an increase of up to ~~$20~~$30 million on the aggregate ~~commitment (which could potentially increase~~commitment; provided, however, the aggregate commitment amount is not permitted to exceed $50 ~~million). On August 31, 2017, we amended and renewed~~million. The maturity date of the ~~Amended~~New Credit Agreement ~~which was set to expire on December 31, 2017.~~is May 11, 2026. The obligations under the New Credit Agreement ~~Amendment extends the maturity date to December 31, 2020. No other material revisions were made to the credit facility.~~are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.

Borrowing ~~Base~~.Base. At any time before the maturity of the ~~Amended~~New Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the borrowing base equals the sum of (a) ~~80%~~90% of ~~our~~ eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2.0 million, plus (d) the lesser of (i) 95% of the net book value of ~~our~~the compressors that the Lender has determined are eligible ~~general inventory (not~~for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed ~~50%~~25 years, at such time and (ii) 80% of the ~~commitment amount at~~net liquidation value percentage of the ~~time) plus (c) 75% of the~~net book value of ~~our~~the eligible ~~equipment inventory.~~compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (e) 80% of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion. The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. ~~We had $29.5 million~~As of June 30, 2022, our allowable borrowing base ~~availability at September 30, 2017 under the terms of our Amended Credit Agreement.~~was $20.0 million.

Interest and ~~Fees~~.Fees. Under the terms of the ~~Amended~~New Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) ~~LIBOR multiplied~~the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin. "Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day; (b) the sum of the federal funds rate for such day plus 0.50%; and (c) the Adjusted Eurodollar Rate for such day plus 1.00%. The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the ~~Statutory Reserve~~Lender for each fiscal quarter from time to time pursuant to the New Credit Agreement. Depending on the leverage ratio, the Applicable Margin can be 0.25% to 0.75% for Base Rate Loans (as defined in the ~~Amended~~New Credit Agreement)~~, with respect~~ and 1.25% to ~~this rate,~~1.75% for ~~Eurocurrency funding, plus~~Eurodollar Rate Loans and for requested letters of credit. In addition, we are required to pay a monthly commitment fee on the Applicable Margin (“LIBOR-based”), or (b) CB Floating Rate, which is the Lender's Prime Rate less the Applicable Margin; provided, however, that no more than three LIBOR-based borrowings under the agreement may be outstanding at any one time. For purposesdaily average unused amount of the ~~LIBOR-based interest~~commitment while the New Credit Agreement is in effect at an annual rate ~~the Applicable Margin is 1.50%. For purposes~~equal to 0.25% of the ~~CB Floating Rate, the Applicable Margin is 1.50%. For the nine month period ended September 30, 2017, our weighted average interest rate was 2.49%.~~

unused commitment amount. Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on ~~LIBOR-based loans~~Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly. In addition, fees and expenses are payable in connection with our requests for letters of credit (generally equal to the Applicable Margin for LIBOR-related borrowings multiplied by the face amount of the requested letter of credit) and administrative and legal costs.

~~Maturity~~.Covenants. The maturity date of the Amended Credit Agreement is December 31, 2020, at which time all amounts borrowed under the agreement will be due and outstanding letters of credit must be cash collateralized. The agreement may be terminated early upon our request or the occurrence of an event of default.

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

~~Covenants.~~ ~~The Amended~~New Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens; enter into transactions with affiliates; 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 also have certain financial covenants that are applicable during certain trigger periods specified in the

Credit Agreement and require us during such trigger periods to maintain ~~on a consolidated basis~~ a leverage ratio less than or equal to ~~2.50~~3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration. The ~~Amended~~New Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the ~~loan~~Credit Agreement and the other transaction documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of ~~$50,000~~;$1.0 million; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of ~~$150,000~~;$1.0 million; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit ~~facility.~~agreement. Obligations outstanding under the ~~Amended~~ Credit Agreement may be accelerated upon the occurrence of an event of default.

As of ~~September~~June 30, ~~2017~~,2022, we were in compliance with all financial covenants in our ~~Amended~~New Credit Agreement. At June 30, 2022, we had no amounts outstanding under the New Credit Agreement.

7. Stock-Based and Other Long-Term Incentive Compensation

A ~~default under~~summary of all option activity as of December 31, 2021, and changes during the six months ended June 30, 2022 is presented below.


	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021	200,834	$	21.17	4.83	$	—
Granted	187,500	16.02		—	—

Cancelled / Forfeited	(8,250)	18.05		—	11
Expired	(8,500)	14.89		—	—
Outstanding, June 30, 2022	371,584	$	18.79	3.45	$	21
Exercisable, June 30, 2022	163,584	$	23.65	2.21	$	2

The following table summarizes information about our ~~Credit Agreement could trigger~~stock options outstanding at June 30, 2022:


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	238,000	3.97	$	14.87	30,000	$	14.26
$18.01-22.00	20,500	0.72	18.75		20,500	18.75
$22.01-26.00	42,167	2.79	22.90		42,167	22.90
$26.01-30.00	28,750	4.63	28.15		28,750	28.15
$30.01-34.00	42,167	1.72	30.41		42,167	30.41
	371,584	3.45	$	18.79	163,584	$	23.65

The summary of the ~~acceleration~~status of our ~~bank debt so that it is immediately due and payable. Such default would likely limit our ability to access other credit. At~~ ~~September 30, 2017~~ ~~and~~unvested stock options as of December 31, ~~2016~~2021 and changes during the six months ended June 30, 2022 is presented below:



Unvested Stock Options:	Shares	Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2021	55,500	$	5.15
Granted	187,500	4.37
Vested	(30,000)	2.85
Exercised	—	—
Cancelled/Forfeited	(5,000)	5.15
Unvested at June 30, 2022	208,000	$	4.78

As of June 30, 2022, there was $875,890 of unrecognized compensation cost related to unvested options. For the six months ended June 30, 2022 there was $168,059 of compensation expense for stock options. For the six months ended June 30, 2021, there was no compensation expense for stock options.

Restricted Shares/Units

On March 18, 2021, the Compensation Committee awarded 129,212 shares of restricted common stock to 2 executive officers that vest ratably over three years, beginning on March 18, 2022. On June 17, 2021, the Compensation Committee awarded 5,000 shares of restricted stock to an executive officer that vests ratably over three years beginning on June 17, 2022. In addition, on March 18, 2021, 5,612 shares of restricted common stock were awarded to each of our 3 independent Board members. Lastly, on April 1, 2021, 5,291 shares of restricted common stock were awarded to a newly appointed Board member. On April 26, 2022, 4,212 shares of restricted common stock were awarded to each of our 4 independent Board members. The restricted stock issued to these directors vest in one year from the date of grant.

Total compensation expense related to these and previously granted restricted stock awards was $586,000 and $896,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $1.0 million of unrecognized compensation expense related to these shares/units which is expected to be recognized over the next 2.5 years.

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


	Number of Shares	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021	276,319	$	9.67	1.77	$	2,893
Granted	16,848	11.87			200
Vested	(152,134)	10.99			1,778
Canceled/Forfeited	—	—			—
Outstanding, June 30, 2022	141,033	$	8.51	2.50	$	1,366

Other Long-Term Incentive Compensation

On March 18, 2021, the Compensation Committee issued a long-term incentive award of $1.0 million to an executive officer that vests in equal, annual tranches over 3 years beginning on the ~~line~~anniversary of ~~credit~~the grant date. In addition, on March 18, 2021, we issued a $50,000 award to 3 of our independent members of our Board of Directors as partial payment for their services in 2021. On April 1, 2021, we issued a $50,000 award to a newly appointed independent member of our Board of Directors as partial payment for his services in 2021. On April 26, 2022, we issued a $50,000 award to our 3 independent Board members. These awards vest one year from the date of grant and are payable in cash upon vesting. There were no long-term incentive awards issued to executives during the six months ended June 30, 2022. The Company accounts for these other long-term incentive awards as liabilities under accrued liabilities on our condensed consolidated balance sheet. The vesting of these awards is subject to acceleration upon certain events, such as (i) death or disability of the recipient, (ii) certain circumstances in connection with a change of control of the Company, (iii) for executive officers, termination without cause (as defined in the agreement), and (iv) for executive officers, resignation for good reason (as defined). Total compensation expense related to these other long-term incentive awards was ~~$417,000~~.approximately $431,000 and $381,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, there was a total of $935,550 of unrecognized compensation expense related to these other long-term incentive awards which is expected to be recognized over the next 1.3 years.

~~(7)~~8. (Loss) Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings (loss) per share ~~computation(in thousands, except per share data)~~:computation:


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Denominator for earnings (loss) per basic common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Denominator for earnings (loss) per diluted common share:
Weighted average common shares outstanding	12,305		13,305		12,421		13,284
Dilutive effect of stock options and restricted stock/units	—		—		107		—
Diluted weighted average shares	12,305		13,305		12,528		13,284
Earnings (loss) per common share:
Basic	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)
Diluted	$	(0.01)	$	(0.14)	$	0.02	$	(0.17)

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Numerator:
Net income $ 522
$ 1,509
$ 1,149
$ 5,309
Denominator for basic net income per common share:
Weighted average common shares outstanding 12,838
12,717
12,825
12,691

Denominator for diluted net income per share:
Weighted average common shares outstanding 12,838
12,717
12,825
12,691
Dilutive effect of stock options and restricted stock 279
245
277
222
Diluted weighted average shares 13,117
12,962
13,102
12,913
Earnings per common share:
Basic $ 0.04
$ 0.12
$ 0.09
$ 0.42
Diluted $ 0.04
$ 0.12
$ 0.09
$ 0.41

InFor the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, options to purchase 83,917 shares of common stock with exercise prices ranging from $28.15 to $33.36~~2022, 141,033 and 33,550 restricted stock/units, respectively, were not included in the computation of ~~dilutive income~~diluted earnings per share due to their antidilutive effect.

In For the three and six months ended ~~September~~June 30, ~~2016,~~2022 371,584 stock options ~~to purchase 52,500 shares of common stock with exercise prices ranging from $30.41 to $33.36~~ were not included in the computation of ~~dilutive income~~diluted loss per share due to their antidilutive effect.

InFor the ~~nine~~three and six months ended ~~September~~June 30, ~~2016,~~2021, 276,319 restricted stock/units and 145,334 stock options ~~to purchase 105,833 shares of common stock with exercise prices ranging from $22.90 to $33.36~~ were not included in the computation of ~~dilutive income~~diluted loss per share due to their antidilutive effect.

~~(8) Segment Information~~

ASC 280-10-50, “Operating Segments", defines 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 access 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.

In their analysis of product lines as potential operating segments, management also considered ASC 280-10-50-11, “Aggregation Criteria”, which allows for the aggregation of operating segments if the segments have similar economic characteristics and if the segments are similar in each of the following areas:

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. These business activities are similar in all geographic areas. Our manufacturing process is essentially the same for the entire Company and is performed in-house at our facilities in Midland, Texas and Tulsa, Oklahoma. Our customers primarily consist of entities in the business of producing natural gas and crude oil. 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. In addition, the economic characteristics of each customer arrangement are similar in that we maintain policies at the corporate level.

For the three months ended September 30, 2017 (in thousands):
Rental Sales Service & Maintenance Corporate Total
Revenue $ 11,292
$ 4,256
$ 365
$ —
$ 15,913
Operating costs and corporate expenses 4,333
3,237
90
7,660
15,320
Total other expense, net —
—

(14 ) (14 )
Income before provision for income taxes $ 6,959
$ 1,019
$ 275
$ (7,674 ) $ 579

For the three months ended September 30, 2016 (in thousands):
Rental Sales Service & Maintenance Corporate Total
Revenue $ 13,157
$ 2,536
$ 488
$ —
$ 16,181
Operating costs and corporate expenses 4,513
2,191
122
7,532
14,358
Total other income, net —
—

8
8
Income before provision for income taxes $ 8,644
$ 345
$ 366
$ (7,524 ) $ 1,831

For the nine months ended September 30, 2017 (in thousands):
Rental Sales Service & Maintenance Corporate Total
Revenue $ 34,634
$ 15,300
$ 1,099
$ —
$ 51,033
Operating costs and expenses 13,256
12,405
288
23,734
$ 49,683
Total other expense, net —
—
—
(12 ) $ (12 )
Income before provision for income taxes $ 21,378
$ 2,895
$ 811
$ (23,746 ) $ 1,338

For the nine months ended September 30, 2016 (in thousands):
Rental Sales Service & Maintenance Corporate Total
Revenue $ 44,220
$ 9,746
$ 985
$ —
$ 54,951
Operating costs and expenses 15,618
8,359
318
23,193
47,488
Total other income, net —
—
—
16
16
Income before provision for income taxes $ 28,602
$ 1,387
$ 667
$ (23,177 ) $ 7,479

~~(9)~~9. Commitments and Contingencies

From time to time, we are a party to various legal proceedings in the ordinary course of our business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow. We are not currently a party to any material legal proceedings, and we are not aware of any threatened material litigation.

10. Subsequent Events

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis of our financialcondition and results of operations are based on, and should be read in conjunction with, our condensed consolidated financial statements and the related notes included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 filed with the SEC.

This report and our Annual Report on Form 10-K contain certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, and information pertaining to us, our industry and the oil and natural gas industry that is based on the beliefs of our management, as well as assumptions made by and information currently available to our management. All statements, other than statements of historical facts contained in this report as well as our Annual Report on Form 10-K, including statements regarding our future financial position, growth strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements. We use the words “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “budget” and other similar words to identify forward-looking statements. You should read statements that contain these words carefully and should not place undue reliance on these statements because they discuss future expectations, contain projections of results of operations or of our financial condition and/or state other “forward-looking” information. We do not undertake any obligation to update or revise publicly any forward-looking statements. Although we believe our expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations or assumptions will prove to have been correct.

Please read Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2021, as it contains important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements.

We fabricate, manufacture, rent, and sell natural gas compressors and related equipment. Our primary focus is on the rental of natural gas compressors. Our rental contracts ~~generally~~typically provide for initial terms of six to 24 months, with our larger horsepower units having contract terms of up to 60 months. After the initial term of our rental contracts, many of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of ~~the~~our rented compressors. As of ~~September~~June 30, ~~2017~~,2022, we had ~~1,251~~1,281 natural gas compressors totaling ~~180,433~~311,379 horsepower rented to 8079 customers compared to ~~1,387~~1,245 natural gas compressors totaling ~~196,721~~287,365 horsepower rented to 79 customers at ~~September~~June 30, ~~2016~~.2021.

We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well pressures, production characteristics, and particular applications for which compression is sought. Fabrication of compressors involves our purchase of engines, compressors, coolers, and other components, and our assembling of these components on skids for delivery to customer locations. The major components of our ~~compressors~~compressor packages are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently ~~requires a two~~require lead times between three to ~~three month lead time~~six months with delivery dates scheduled to coincide with our estimated production schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available. ~~In the past, we~~Recent inflationary pressures have ~~not experienced any sudden and dramatic~~created price increases in ~~the prices of the~~both major and minor components for our ~~compressors. However, the occurrence of~~compressors as well as longer than normal lead times for such components. To date, we have been able to increase our rental rates and sales prices proportionally; however, if cost increases continue and we are no longer able to increase our rental rates and sales prices such an event could have a material adverse effect on the results of our operations and financial ~~condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.~~condition.

We also manufacture a proprietary line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line. We use finished CiP component products in the fabrication of compressor units for sale or rental by us or sell the finished component products to other compressor fabricators. We also design, fabricate, sell, install, and service flare stacks and related ignition and control devices for onshore and offshore incineration of gas compounds such as hydrogen sulfide, carbon dioxide, natural gas and liquefied petroleum gases. To provide customer support for our compressor and flare sales businesses, we stock varying levels of replacement parts at our Midland, Texas facility and at field service locations. We also provide an exchange and rebuild program for screw compressors and maintain an inventory of new and used compressors to facilitate this business.

We provide service and maintenance to our customers under written maintenance contracts or on an as-required basis in the absence of a service contract. Maintenance agreements typically have terms of ~~nine~~six months to one year and require payment of a monthly fee.

The oil and natural gas equipment rental and services industry is cyclical in nature. The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for oil and natural gas ~~and crude oil~~ and the corresponding changes in commodity prices. As demand and prices increase, oil and natural gas producers typically increase their capital expenditures for drilling, development and production ~~activities.~~activities, although recent equity capital constraints and demands from institutional investors to keep spending within operating cash flow have meaningfully restrained capital expenditure budgets of domestic exploration and production companies. Generally, ~~the~~ increased capital expenditures ultimately result in greater revenues and profits for ~~services~~service and equipment companies.

In general, we expect our overall business activity and revenues to track the level of activity in the oil and natural gas industry, with ~~changes in domestic natural gas production and consumption levels and prices more significantly affecting our business than~~ changes in crude oil and condensate production and consumption levels and prices affecting our business more than changes in domestic natural gas production and consumption levels and prices. ~~However, in~~In recent years we have increased our ~~rental~~rentals and sales in ~~the non-conventional~~unconventional oil shale plays, which are more dependent on crude oil prices. ~~We also believe that~~With this shift towards oil production, the demand for overall compression services and products is driven by two general factors: an increased focus by producers on artificial lift applications, e.g., production enhancement with compression assisted gas lift; and declining reservoir pressure in maturing natural gas producing fields, especially unconventional production. These types of applications have historically been serviced by wellhead size compressors, and ~~more recently,~~continue to be, but there has also been an economic move by our customers towards centralized drilling and production facilities, which have increased the market need for larger horsepower compressor packages. We recognized this need in recent years and have been shifting our cash and fabrication resources towards designing, fabricating and renting gas compressor packages that range from 400 horsepower up to 1,500 horsepower. While this is a response to market conditions and trends, it also provides us with the opportunity to compete as a full-line compression provider. In addition, recent heightened focus ~~by producers~~ on ~~non-conventional~~the emissions profile of our customers has created a shift in demand from natural gas ~~production, such as coalbed methane, gas shales and tight gas, which typically requires more~~powered compression ~~than production~~to electric motor compression in areas where the electric infrastructure can accommodate the energy demands of these units. In response to this shift, we have announced plans to convert up to 100 compressor packages from ~~conventional natural gas reservoirs.~~internal combustion engines to electric motors. The initial conversions will focus on packages in the 200-250 horsepower range.

We typically experience a decline in demand during periods of low crude oil and natural gas prices. ~~Low crude~~During the first quarter of 2020, we saw a substantial decline in the prices for oil and natural ~~gas~~gas. Commodity prices ~~experienced throughout 2016~~stabilized during 2021 with a sharp increase through the first six months of 2022. Historically, activity levels of exploration and production companies have ~~continued in 2017, with some price movement but no significant sustaining price increases. Through much of this period, producers maintained their~~been dependent on commodity prices. However, recent capital market focus on ~~non-conventional oil~~cash returns from exploration and ~~gas opportunities. The continued inconsistent~~production companies has restricted capital spending below levels that have historically been observed during higher commodity price ~~environment has caused reduced project spending on~~environments. Generally, though, we feel that production activities (in which we are involved) will fare better than drilling activity. This is reflected in both ~~conventional~~the stability of our rental revenues, which is driven by production activities, and ~~non-conventional plays. While~~ the ~~timing~~volatility of ~~a return~~our compressor sales, which tends to ~~aggressive investment in the projects is uncertain,~~fluctuate with capital allocations. As such, we ~~believe the long-term trend in our~~

~~market is favorable. We believe this outlook is supported by our ability~~still expect compressor sales to ~~withstand cyclical disruptions and position the Company~~be low for the ~~long term.~~remainder of 2022, as exploration and production companies have elected to rent compression units rather than allocating capital dollars to purchase new compression.

Results of Operations

Three months ended~~September~~ June 30, ~~2017~~,2022, compared to ~~the~~ ~~three months endedSeptember 30, 2016~~.

~~The table below shows our revenues and percentage of total revenues of each of our product lines for the~~ ~~three months endedSeptember 30, 2017~~ ~~and~~ ~~2016~~.

Revenue Three months ended September 30,
(in thousands)
2017 2016
Rental $ 11,292
71 % $ 13,157
81 %
Sales 4,256
27 % 2,536
16 %
Service and Maintenance 365
2 % 488
3 %
Total $ 15,913

$ 16,181

~~Total revenue slightly decreased to $15.9 million from $16.2 million, or 2%, for~~ the three months ended ~~September~~June 30, ~~2017, compared to the same period ended September 30, 2016. The decrease is mainly a result of a drop in rental revenue due to fewer units being rented, offset by increased sales.~~2021.

Rental revenue decreased to $11.3 million from $13.2 million for the three months ended September 30, 2017, compared to the same period ended September 30, 2016. We ended the quarter with 2,538 compressor packages in our fleet, down from 2,626 units at September 30, 2016. The rental fleet had a utilization of 49.3% as of September 30, 2017 compared to 52.8% utilization as of September 30, 2016. The drop in utilization is mainly the result of compressor rental units being returned due to the continuing depressed oil and natural gas prices. We have experienced some relief in the number of sets versus returns over the past quarter resulting in the smallest decline in our utilization rate since the start of 2015. In the event that oil and natural gas prices increase, we expect to see an increase in the utilization of our fleet.

Sales revenue increased to $4.3 million from $2.5 million for the three months ended September 30, 2017 compared to the same period ended September 30, 2016. This increase is the result of fluctuations in timing of industry activity related to capital projects. We believe this timing is reflective of the typical sales cycle, resulting in fluctuating compressor unit sales to third parties from our Tulsa and Midland operations. We also had an increase in our flares product line during this comparative period, due to customer demand.

Our overall operating income decreased $1.2 million to $593,000 from $1.8 million for the three months ended September 30, 2017 compared to the same period ended September 30, 2016, largely due to the decrease in rental revenue, net of the increase in sales revenue. Operating margin percentage decreased to 4% from 11% for the three months ended September 30, 2017 and September 30, 2016, respectively. The operating margin decreased due to the reduction in rental revenue.

Selling, general, and administrative expense increased to $2.3 million from $2.1 million for the three months ended September 30, 2017, and September 30, 2016, primarily due to an increase in stock compensation expense.

Depreciation and amortization expense decreased to $5.3 million for the three months ended September 30, 2017, compared to $5.4 million for the period ended September 30, 2016. This decrease is the result of fewer units being added to the fleet and older units becoming fully depreciated. We added only 16 units to our fleet over the past 12 months.

Provision for income tax was $57,000 and $322,000 for the three months ended September 30, 2017 and September 30, 2016, respectively. The decrease in the provision is due to a decrease in taxable income and a change in effective tax rate between the two periods.

~~Nine months ended September 30, 2017, compared to the nine months ended September 30, 2016.~~

The table below shows our revenues and percentage of total revenues of each of our product lines for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021.


	Three months ended June 30,
	2022				2021
	(in thousands)
Rental	$	18,144	91.0	%		$	15,613	88.0	%
Sales	1,292		6.5	%		1,573		8.9	%
Service and Maintenance	490		2.5	%		563		3.1	%
Total	$	19,926				$	17,749

Revenue Nine months ended September 30,
(in thousands)
2017 2016
Rental $ 34,634
68 % $ 44,220
80 %
Sales 15,300
30 % 9,746
18 %
Service and Maintenance 1,099
2 % 985
2 %
Total $ 51,033

$ 54,951

Total revenue increased 12.3% to $19.9 million for the three months ended June 30, 2022 compared to $17.7 million for the three months ended June 30, 2021. This increase was primarily a result of higher rental revenue (16.2% increase) during 2022 partially offset by lower sales revenue (18% decrease).

Rental revenue increased to $18.1 million for the three months ended June 30, 2022 compared to $15.6 million for the same period in 2021. This increase during the second quarter of 2022 was attributable to (i) an increase in high horsepower compression rentals as these units carry a higher revenue rate than our lower horsepower units and (ii) rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.

As of June 30, 2022, we had 2,043 compressor packages in our fleet, down from 2,257 units at June 30, 2021 due to the retirement of units during the fourth quarter of 2021. The Company's total unit horsepower decreased to ~~$51.0 million from $55.0 million, or 7.1%~~426,811 horsepower at June 30, 2022 compared to 446,803 horsepower at June 30, 2021, due to the aforementioned unit retirements in the fourth quarter of 2021 partially offset by the addition to the Company's fleet of 27 high horsepower compressors with 13,160 horsepower over the past 12 months. As of June 30, 2022, we had 1,281 natural gas compressors with a total of 311,379 horsepower rented to 79 customers, compared to 1,245 natural gas compressors with a total of 287,365 horsepower rented to 79 customers as of June 30, 2021. As a result, our total rented horsepower as of June 30, 2022 increased by 8.4% over the last twelve months. Our rental fleet had unit utilization as of June 30, 2022, and 2021, respectively, of 62.7% and 55.2%, and our horsepower utilization for the ~~nine~~same dates increased to 73.0% from 64.3%. Our total rented horsepower increased by 8.4% contrasted against a 2.9% increase in total rented units. This illustrates the growing demand for our high horsepower units while the demand for our smaller and medium horsepower units has not recovered in line with recent commodity price increases.

Sales revenue decreased to $1.3 million for the three months ended ~~September~~June 30, ~~2017,~~2022 compared to $1.6 million for the three months ended June 30, 2021. This decrease is mostly attributable to decreased parts and rebuild sales partially offset by increased compressor sales during the second quarter of 2022 compared to the same period in 2021.Sales are subject to fluctuations in timing of industry activity related to our customers' capital projects and, as such, can vary substantially between periods.

Cost of rentals increased to $9.2 million during the three months ended ~~September~~June 30, ~~2016. Comparing~~2022 compared to $9.1 million during the three months ended June 30, 2021. While rental revenues increased 16.2%, this 1.8% increase in costs of rentals is primarily due to inflationary pressures on labor and parts. While repair and maintenance expenses are customary in our business, the timing of such expenses can fluctuate between periods resulting in periods with larger than normal expenses.

Cost of sales decreased 19.0% to $1.4 million during the three months ended June 30, 2022 compared to $1.8 million during the three months ended June 30, 2021. This decrease was primarily due to a reduction in unabsorbed costs related to our fabrication operations during the period.

Selling, general, and administrative ("SG&A") expenses decreased 11.4% to $2.3 million for the three months ended June 30, 2022 compared $2.6 million during the same period in 2021. This decrease in SG&A expenses was primarily attributable to (i) a $392,000 decrease in our deferred compensation liability and (ii) a $188,000 decrease in restricted stock compensation expense. These decreases were partially offset by (i) a $160,000 increase in accrued bonus expense and (ii) a $147,000 increase in stock option expense.

Depreciation and amortization expense decreased to $6.0 million for the three months ended June 30, 2022 compared to $6.3 million for the three months ended June 30, 2021. This was the result of a reduction in our rental fleet due to unit retirements in the fourth quarter of 2021.

We recorded an income tax expense of approximately $372,000 for the three months ended June 30, 2022 compared to an income tax benefit of $339,000 for the three months ended June 30, 2021. For interim periods, our income tax benefit (expense) is computed based upon our estimated annual effective tax rate and any discrete items that impact the interim periods. Our estimated annual effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of expenses not deductible for income tax purposes.

Six months ended June 30, 2022, compared to the six months ended June 30, 2021.

The table below shows our revenues and percentage of total revenues of each of our product lines for the six months ended June 30, 2022 and 2021.


	Six months ended June 30,
	2022				2021
	(in thousands)
Rental	$	35,274	87.6	%	$	30,954	85.6	%
Sales	4,184		10.4	%	4,284		11.9	%
Service and Maintenance	804		2.0	%	908		2.5	%
Total	$	40,262			$	36,146

Total revenue increased 11.4% to $40.3 million for the six months ended June 30, 2022 compared to $36.1 million during the nine months ended ~~September~~June 30, ~~2017~~2021. This increase was primarily a result of higher rental revenue (14.0% increase) during the first six months of 2022 partially offset by decreased sales revenue (2.3% decrease).

Rental revenue increased to $35.3 million for the six months ended June 30, 2022 compared to $31.0 million during the six months ended June 30, 2021. This increase during the first six months of 2022 was attributable to an increase in high horsepower compression rentals as these units carry a higher revenue rate than our lower horsepower units and, to a lesser extent, rental rate increases across a portion of our fleet intended to offset inflationary pressures related to the costs of our rental fleet.

Sales revenue decreased to $4.2 million for the six months ended June 30, 2022 compared to $4.3 million for the same period in ~~2016, rental revenue decreased 22% and sales revenue increased 57%.~~

~~Rental revenue decreased to $34.6 million from $44.2 million for the nine months ended September 30, 2017, compared to the same period ended September 30, 2016.~~2021. This decrease is ~~the result of the number of units returned due~~mostly attributable to ~~low oil and natural gas prices. We ended the quarter with 2,538~~a decrease in parts sales partially offset by an increase in compressor ~~packages in our rental fleet down from 2,626 units at September 30, 2016. The rental fleet had a utilization of 49.3%, as of September 30, 2017 compared~~sales.Sales are subject to 52.8% utilization as of September 30, 2016. We have experienced some relief in the number of sets versus returns over the past quarter resulting in the smallest decline in our utilization rate since the start of 2015. In the event that oil and natural gas prices increase, we should see incremental utilization of our fleet.

~~Sales revenue increased to $15.3 million from $9.7 million for the nine months ended September 30, 2017, compared to the same period ended September 30, 2016. This increase is the result of the~~ fluctuations in timing of industry activity related to capital ~~projects. We believe this~~projects and, as such, can vary substantially between periods.

Cost of rentals increased 13.8% to $18.5 million during the six months ended June 30, 2022 compared to $16.2 million during the six months ended June 30, 2021. This increase was primarily due to inflationary pressures on labor and parts as well as increased high horsepower units being placed into service. While repair and maintenance expenses are customary in our business, the timing ~~is reflective~~ of ~~the typical sales cycle,~~such expenses can fluctuate between periods resulting in ~~fluctuating compressor unit~~periods with larger than normal expenses.

Cost of sales decreased 21.9% to ~~third parties from our Tulsa and Midland operations. There was also an increase in demand for flares~~$3.4 million during ~~this comparative period, due to customer demand.~~

~~Our overall operating income decreased $6.1 million to $1.4 million from $7.5 million for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to $4.4 million during the ~~same period~~six months ended ~~2016, largely~~June 30, 2021. This decrease during the first six months of 2022 was primarily due to a decrease in rental revenue, offset by the increase in sales revenue and by an increase in stock compensation expense. Operating margin percentage decreased to 3% from 14%, respectively, for the nine months ended September 30, 2017 compared to the same period ended September 30, 2016. Our overall operating income and operating margin decreased due the reduction in rental revenue and an increase in stock compensation expense.parts sales.

Selling, general, and administrative ~~expense increased~~expenses decreased (8.4)% to ~~$7.8 million from $6.8~~$4.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, as~~2022 compared to $5.3 million for the same period ~~ended September 30, 2016, due to an increase~~ in 2021. SG&A expenses during the first six months of 2022 were impacted by a $597,000 reduction in deferred compensation and a $201,000 reduction in restricted stock compensation ~~expense~~expenses, partially offset by a ~~decrease~~$340,000 increase in expected executive bonus compensation ~~expense.~~ expense and officer salaries related to the recent appointment of our interim President and Chief Executive Officer.

Depreciation and amortization expense decreased 4.1% to ~~$16.0~~$12.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 compared to ~~$16.4~~$12.6 million for the ~~period~~six months ended ~~September~~June 30, ~~2016.~~2021. This decrease iswas the result of ~~fewer units being added to~~unit retirements in the ~~fleet and older units becoming fully depreciated.~~ fourth quarter of 2021.

We ~~added only 16 units to our fleet over the past 12 months.~~

~~Provision for~~recorded an income tax ~~decreased~~expense of $361,000 for the six months ended June 30, 2022 compared to ~~$189,000 from $2.2 million and~~an income tax benefit of $213,000 for the six months ended June 30, 2021. For interim periods, our income tax benefit (expense) is ~~the result of the decrease in taxable income and a change in~~computed based upon our estimated annual effective tax rate ~~between~~and any discrete items that impact the ~~two~~interim periods.

Non-GAAP Financial Measures

Our definition and use of Adjusted EBITDA

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest, taxes, depreciation and amortization, as well as non-cash stock compensation, impairment of goodwill, an increase in inventory allowance and inventory write-offs, and retirement of rental equipment. This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in

accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. However, management believes Adjusted EBITDA is useful to an investor in evaluating our operating performance because:

•it is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of Adjusted EBITDA, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;

•it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating structure; and

•it is used by our management for various purposes, including as a measure of operating performance, in presentations to our Board of Directors, and as a basis for strategic planning and forecasting.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under generally accepted accounting principles. Some of these limitations are:

•Adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments;

•Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•Adjusted EBITDA does not reflect the cash requirements necessary to service interest or principal payments on our debts; and

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any capital expenditures for such replacements.

There are other material limitations to using Adjusted EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies. Please read the table below under “Reconciliation” to see how Adjusted EBITDA reconciles to our net (loss) income, the most directly comparable GAAP financial measure.

Reconciliation

The following table reconciles our net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	(in thousands)
Net income (loss)	$	(70)	$	(1,918)	$	267	$	(2,313)
Interest expense	24		14		49		16
Income tax expense (benefit)	372		(339)		361		(213)
Depreciation and amortization	6,042		6,326		12,103		12,623
Non-cash stock compensation expense	331		421		754		895



Adjusted EBITDA	$	6,699	$	4,504	$	13,534	$	11,008

For the three months ended June 30, 2022, Adjusted EBITDA increased $2.2 million (48.7%) due primarily to a $2.2 million increase in total revenues and a $0.3 million reduction in costs of sales partially offset by a $0.2 million increase in costs of rentals. For the six months ended June 30, 2022, Adjusted EBITDA increased $2.5 million (22.9%) due primarily to a $4.1 million increase in total revenues and a $1.0 million reduction in costs of sales partially offset by a $2.2 million increase in costs of rentals.

Liquidity and Capital Resources

Our working capital positions as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 are set forth below:


	June 30,		December 31,
	2022		2021
	(in thousands)
Current Assets:
Cash and cash equivalents	$	9,828	$	22,942
Trade accounts receivable, net	11,861		10,389
Inventory	18,478		19,329
Federal income tax receivable	11,538		11,538
Prepaid income taxes	41		51
Prepaid expenses and other	1,612		854
Total current assets	53,358		65,103
Current Liabilities:
Accounts payable	5,238		4,795
Accrued liabilities	15,958		14,103
Line of credit	—		—

Current operating leases	88		68
Deferred income	—		1,312
Total current liabilities	21,284		20,278
Total working capital	$	32,074	$	44,825

September 30, December 31,
2017 2016
(in thousands)
Current Assets:
Cash and cash equivalents $ 72,924
$ 64,094
Trade accounts receivable, net 7,163
7,378
Inventory, net 28,379
25,833
Prepaid income taxes 2,339
1,482
Prepaid expenses and other 1,127
972
Total current assets 111,932
99,759
Current Liabilities:

Line of credit —
417
Accounts payable 1,830
971
Accrued liabilities 3,955
2,887
Deferred income 185
2,225
Total current liabilities 5,970
6,500
Total working capital $ 105,962
$ 93,259

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we invested ~~$4.7~~$19.2 million in rental and property and other equipment ~~for~~by adding $18.8 million in new equipment to our rental fleet and ~~service vehicles. Even though we have idle~~$410,000 mostly in vehicles as well as various other machinery and equipment. Our investment in rental equipment, property and other equipment also includes any changes to work-in-process related to our rental fleet jobs at ~~times we do not have~~ the ~~specific type~~beginning of ~~equipment that our customers require, therefore we have~~the period compared to ~~build new equipment to satisfy their needs.~~the end of the period. Our rental work-in-process increased by $6.6 million during the six months ended June 30, 2022. We financed ~~this activity~~our investment in rental equipment, property and other equipment with cash flow from operations and cash on hand. We anticipate that our cash flows from operations as well as our borrowing capacity under our New Credit Agreement will provide ample liquidity for our planned capital expenditures during the remainder of 2022 and beyond.

Cash flows

At ~~September~~June 30, ~~2017,~~2022, we had cash and cash equivalents of ~~$72.9~~$9.8 million compared to ~~$64.1~~$22.9 million at December 31, ~~2016.~~2021. Our cash ~~flow~~flows from ~~operations~~operating activities of ~~$14.2~~$13.2 million ~~was~~were offset by capital expenditures of ~~$4.7~~$19.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2022. We had working capital of ~~$106.0~~$32.1 million at ~~September~~June 30, ~~2017~~2022 compared to ~~$93.3~~$44.8 million at December 31, ~~2016. On September 30, 2017 and December 31, 2016, we had outstanding debt of $417,000, which is all related to our line of credit and is classified as non-current as of September 30, 2017.~~2021. We ~~had positive net~~generated cash ~~flow~~flows from operating activities of ~~$14.2~~$13.2 million during the first ~~nine~~six months of ~~2017~~2022 compared to ~~$29.5~~cash flows provided by operating activities of $12.8 million for the first ~~nine~~six months of ~~2016.~~2021. The increase in cash ~~flow~~flows from ~~operations of $14.2 million~~operating activities was primarily driven by higher sales margins partially offset by higher costs of rentals during the ~~result~~first six months of the net income of $1.1 million and the non-cash items of depreciation of $16.0 million, $3.2 million related to the expenses associated with stock-based compensation, a decrease in deferred income taxes of $2.6 million and a decrease in working capital of $3.5 million.2022.

Strategy

For the remainder of ~~the fiscal year~~ ~~2017~~ ~~and into 2018,~~2022, our overall plan is to continue monitoring and holding expenses in line with the anticipated level of activity, fabricate rental fleet equipment only in direct response to market requirements, emphasize marketing of our idle gas compressor units and limit bank borrowing in line with market conditions. For the remainder of ~~2017~~,2022, our forecasted capital expenditures ~~will be directly dependent upon our customers’ compression requirements and~~ are not anticipated to exceed our internally generated cash flows, ~~and~~ cash on ~~hand. Any~~hand and borrowing availability under our New Credit Agreement. The majority of required capital will be for contracted, premium-priced additions to our compressor rental fleet and/or ~~addition or replacement of~~required service vehicles. We believe that cash flows from operations, our current cash position and borrowing capacity under our ~~line of credit~~New Credit Agreement will be sufficient to satisfy our capital and liquidity requirements for the foreseeable future. We may require additional capital to fund any unanticipated expenditures, including any acquisitions of other businesses, although that capital, beyond our line of credit, as discussed below may not be available to us when we need it or on acceptable terms.

Bank Borrowings

~~We have a senior secured revolving credit agreement the ("Amended~~The New Credit ~~Agreement")~~Agreement with ~~JP Morgan Chase~~Texas Capital Bank, ~~N.A.~~National Association (the "Lender") ~~with~~has an ~~aggregate~~initial commitment of ~~$30~~$20 million,, and an accordion feature that would increase the maximum commitment to $30 million, subject to collateral availability. We also have a right to request from the ~~lender,~~Lender, on an uncommitted basis, an increase of up to ~~$20~~$30 million on the aggregate ~~commitment (which could potentially increase~~commitment; provided however, the aggregate commitment amount to ~~$50 million~~). On August 31, 2017, we amended and renewed the Amended Credit Agreement, which was set to expire on December 31, 2017. The Credit Agreement Amendment extends the maturity date to December 31, 2020. No other material revisions were made to the credit facility.

~~Borrowing Base~~. At any time before the maturity of the Amended 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) ~~80%~~ ~~of our eligible accounts receivable plus (b)~~ ~~50%~~ ~~of the book value of our eligible general inventory (not~~is not permitted to exceed ~~50%~~ ~~of the commitment amount at the time) plus (c)~~ ~~75%~~ of the book value of our eligible equipment inventory. The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. We had $~~29.5 million~~ ~~borrowing base availability at~~ ~~September 30, 2017, under the terms of our Amended Credit Agreement.~~

~~Interest and Fees~~. Under the terms of the Amended Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) LIBOR multiplied by the Statutory Reserve Rate (as defined in the Amended Credit Agreement), with respect to this rate, for Eurocurrency funding, plus the Applicable Margin (“LIBOR-based”), or (b) CB Floating Rate, which is the Lender's Prime Rate less the Applicable Margin; provided, however, that no more than ~~three~~ ~~LIBOR-based borrowings under the agreement may be outstanding at any one time. For purposes of the LIBOR-based interest rate, the Applicable Margin is~~ ~~1.50%. For purposes of the CB Floating Rate, the Applicable Margin is~~ ~~1.50%. For the~~ ~~nine~~ ~~month period ended~~ ~~September 30, 2017, our weighted average interest rate was 2.49%.~~

Accrued interest is payable monthly on outstanding principal amounts, provided that accrued interest on LIBOR-based loans is payable at the end of each interest period, but in no event less frequently than quarterly. In addition, fees and expenses are payable in connection with our requests for letters of credit (generally equal to the Applicable Margin for LIBOR-related borrowings multiplied by the face amount of the requested letter of credit) and administrative and legal costs.

~~Maturity~~.$50 million. The maturity date of the ~~Amended~~New Credit Agreement is ~~December 31, 2020, at which time all amounts borrowed~~May 11, 2026. As of June 30, 2022, we did not have any borrowings outstanding under the ~~agreement will be due and outstanding letters of credit must be cash collateralized. The agreement may be terminated early upon our request or the occurrence of an event of default.~~

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

~~Covenants.~~ The Amended Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, 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 also have certain financial covenants that require us to maintain on a consolidated basis a leverage ratio less than or equal to ~~2.50~~ to ~~1.00~~ ~~as of the last day of each fiscal quarter.~~

~~Events of Default and Acceleration.~~ The Amended 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 loan documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of ~~$50,000; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of~~ ~~$150,000~~; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit facility. Obligations under the Amended Credit Agreement may be accelerated upon the occurrence of an event of default.

~~As of~~ ~~September 30, 2017, we were in compliance with all covenants in our Amended~~New Credit Agreement. A default under our Credit Agreement could trigger the acceleration of our bank debt so that it is immediately due and payable. Such default would likely limit our ability to access other credit. At ~~September 30, 2017, our balance on the line of credit was 417,000.~~

~~Contractual Obligations and Commitments~~

We have contractual obligations and commitments that affect the results of operations, financial condition and liquidity. The following table is a summary of our significant cash contractual obligations as of September 30, 2017:

Obligations Due in Period (in thousands)
Cash Contractual Obligations
2017 ⁽¹⁾
2018 2019 2020 Thereafter Total
Line of credit (secured) $ —
$ —
$ —
$ 417
$ —
$ 417
Interest on line of credit⁽²⁾
4
17
17
17
—
55
Purchase obligations⁽³⁾
80
300
300
300
639
1,619
Other long-term liabilities —
—
—
—
102
102
Facilities and office leases 104
295
72
9
1
481
Total $ 188
$ 612
$ 389
$ 743
$ 742
$ 2,674

~~(1)For the~~ ~~three~~ ~~months remaining in~~ ~~2017~~.

~~(2)Assumes an interest rate of 4.0% and no additional borrowings.~~

~~(3)Vendor exclusive purchase agreement related to paint and coatings.~~

Critical Accounting Policies and Practices

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States. Actual results could differ significantly from those estimates under different assumptions and conditions. Management has determined that our critical accounting policies are those that relate to revenue recognition, estimating the allowance for doubtful accounts, accounting for income taxes, accounting for long-lived assets and accounting for inventory.

There have been no changes in the critical accounting policies disclosed in the Company's Form 10-K for the year ended December 31, ~~2016~~.2021.

Recently Issued Accounting Pronouncements

~~On February 25, 2016, the Financial~~Please read Note 2, Summary of Significant Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12 months. Additionally, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The new standard will be effective during our first quarter ending March 31, 2019. We are currently determining the impacts of the new standard onPolicies, Recently Issued Accounting Pronouncements in our condensed consolidated financial statements ~~and the additional applicable disclosure requirements.~~in this report.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a five-step analysis on how an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an accounting standards update for a one-year deferral of the revenue recognition standard’s effective date for all entities, which changed the effectiveness to interim and annual reporting periods beginning after December 15, 2017. As a result, we expect to adopt this guidance on January 1, 2018. The guidance offers two transition methods: a full retrospective approach to be applied to each prior reporting period presented or a modified retrospective approach where the cumulative effect of initially applying the standard is recognized at the date of initial application. We have preliminarily selected the modified retrospective transition method. We are currently determining the impacts of the new standard on our consolidated financial statements. Our approach includes performing a detailed review of key contracts that are representative of our various revenue streams and comparing our historical accounting policies and practices to the new standard. Our sales and service and maintenance contracts are more short-term in nature or can usually be completed within the same quarter they are started; but, at this stage in our assessment we are still finalizing our evaluation of the extent to which we will have changes, upon adoption. For the impact related to our rental revenues, we are in the final stages of our review and have not concluded as to what impact, if any, there may be to our rental revenues. We also tentatively anticipate a change in our disclosures under the new standard. We expect to complete our review by mid-November 2017.

Off-Balance Sheet Arrangements

From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations. As of ~~September~~June 30, ~~2017,~~2022, the off-balance sheet arrangements and transactions that we have entered into include ~~operating lease agreements and~~ purchase agreements. We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of ~~or requirements for,~~ capital resources.

Special Note Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this report are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and natural gas prices, which could cause a decline in the demand for our products and services; and new governmental safety, health and environmental regulations, which could require us to make significant capital expenditures. The forward-looking statements included in this Form 10-Q are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these and other risk factors is included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no changes in the market risks disclosed in the Company's Form 10-K for the year ended December 31, ~~2016~~.2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

An evaluation was carried out under the supervision and with the participation of our management, including our Interim President and Chief Executive Officer and our Vice President and ~~Principal Accounting~~Chief Financial Officer, of the effectiveness of the design ~~and~~ of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) ofunder the Securities Exchange Act of 1934, as amended or, the “Exchange Act”) as of ~~the end of the period covered by this report~~December 31, 2021, pursuant to Exchange Act Rule 13a-15. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily applies its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Interim President and Chief Executive Officer and our Vice President and ~~Principal Accounting~~Chief Financial Officer ~~have~~ concluded that, ~~our disclosure controls and procedures~~ as of the end of the period covered by this report, were effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. These includeour disclosure controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers as appropriate to allow timely decisions regarding required disclosures. Due to the inherent limitations of control systems, not all misstatements or omissions may be detected. Those inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people. Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.were effective.

~~Changes in Internal Controls.~~

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. 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 adverse effect on our financial position, results of operations or cash ~~flow.~~flows. We are not currently a party to any material legal proceedings and we are not aware of any threatened litigation.

Item 1A. Risk Factors

Please refer to and read ~~“Risk Factors”~~Item 1A, Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2021 for a discussion of the risks associated with our Company and industry.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended June 30, 2022, we did not sell any securities which were not registered under the Securities Act of 1933. The following table summarizes our purchases of shares of common stock during this period.


ISSUER PURCHASES OF EQUITY SECURITIES1,2
	(a)	(b)	(c)	(d)
For the Three Months Ended June 30, 2022	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that may yet be Purchased Under Plans or Programs3
				(in thousands)
April 1, 2022 to April 30, 2022	119,532	$12.55	119,532	$2,094
May 1, 2022 to May 31, 2022	110,257	$12.57	110,257	$655
June 1, 2022 to June 30, 2022	58,228	$14.52	58,228	$0

1 The table summarizes repurchases of (and remaining authority to repurchase) shares of our Common Stock.

2 The figures in the table reflect transactions according to the settlement dates. For purposes of our unaudited consolidated financial statements included in this Form 10-Q, the impact of these repurchases is recorded according to the settlement dates.

3 On September 30, 2021, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding Common Stock in the open market (pursuant to Rule 10b5-1 plans or otherwise), block trades or privately negotiated transactions. As noted in this column, the repurchase authorization has been expended and thus the program has expired.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith or incorporated herein by reference, as indicated:


Exhibit No.		Description

~~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)~~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 ~~June 21, 2016.~~

February 10, 2021.

~~10.1~~4.1			~~Lease Agreement, dated March 26, 2008, between WNB Tower, LTD and Natural Gas Services Group, Inc.~~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 ~~10.15~~4.1 of the ~~Registrant’s Form 10-K for the fiscal year ended December 31, 2008~~Registrant's Registration Statement on From S-3 (No. 333-261091) and filed ~~with the Securities and Exchange Commission~~ on ~~March 9, 2009)~~November 16, 2021.)

~~10.2~~4.3			~~2009 Restricted Stock/Unit Plan, as amended~~Form of Subordinated Indenture (Incorporated by reference to Exhibit ~~99.1~~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 (Incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated June ~~3, 2014~~20, 2019 and filed with the Securities and Exchange Commission on June ~~6, 2014.~~21, 2019.)

~~10.3~~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.)



~~10.4~~10.3		~~Lease~~Retirement Agreement dated ~~December 11, 2008, between Klement-Wes Partnership, LTD and Natural Gas Services Group, Inc. and commencing on January 1, 2009~~

~~10.5~~	Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2014.)

~~10.6~~	Third Amendment of Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated November 19, 2014 (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 January 9, 2012.)

~~10.7~~	Fifth Amendment of Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated August 31, 2017 (Incorporated by reference to Exhibit 10.2 of the Registrant's Current report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2017.)

~~10.8~~	Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2010.)

~~10.9~~	Fourth Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated August 31, 2017 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2017.)

~~10.10~~	First Amendment of Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 31, 2011 (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 January 9, 2012.)

~~10.11~~	Promissory Note in the aggregate amount of $30,000,000 issued to JPMorgan Chase Bank, N.A., dated August 31, 2017, in connection with the revolving credit line under the Credit Agreement with JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 7, 2017.)

~~10.12~~	~~Amended and restated Employment Agreement dated April 27, 2015~~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 ~~April 29, 2015.~~May 19, 2022.)

~~10.13~~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~~Report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2016.)


10.5			Credit Agreement dated as of May 11, 2021, among the Natural Gas Services Group, Inc. and NGSG Properties, LLC, a Colorado limited liability company, the banks and other financial institutions identified therein as Lenders from time to time party thereto and Texas Capital Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Issuer. (Incorporated by reference to Exhibit 10.6 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)

~~10.14~~10.6			~~Annual Incentive Bonus Plan~~Pledge and Security Agreement dated as of May 11, 2021, among Natural Gas Services Group, Inc., the Loan Parties (as defined therein) and Texas Capital Bank, National Association, as Administrative Agent. (Incorporated by reference to Exhibit 10.7 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)

10.7			Note dated as of May 11, 2021, by Natural Gas Services Group, Inc. in favor of Texas Capital Bank, National Association, as Lender. (Incorporated by reference to Exhibit 10.8 of the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2021.)

10.8			Letter Agreement dated June 9, 2022 between Natural Gas Services Group, Inc. and John W. 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 ~~December 18, 2012.~~on June 13, 2022.)

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

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

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

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



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.

SIGNATURES

Pursuant to the requirements 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.


/s/ John W. Chisholm		/s/ Micah C. Foster
John W. Chisholm		Micah C. Foster
Interim President and Chief Executive Officer		Vice President and Chief Financial Officer
(Principal Executive Officer)		(Principal Accounting Officer)

~~/s/ Stephen C. Taylor~~August 15, 2022		~~/s/ G. Larry Lawrence~~August 15, 2022
~~Stephen C. Taylor~~	~~G. Larry Lawrence~~
~~President and Chief Executive Officer~~	~~Vice President and Chief Financial Officer~~
~~(Principal Executive Officer)~~	~~(Principal Accounting Officer)~~

~~November 3, 2017~~


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, Par Value $0.01	NGS	New York Stock Exchange



~~Part I - FINANCIAL INFORMATION~~

Item 1. Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets	Page	1

Unaudited Condensed Consolidated ~~Income~~ Statements of Operations	Page	2

Unaudited Condensed Consolidated Statements of Stockholders' Equity	Page	3

Unaudited Condensed Consolidated Statements of Cash Flows	Page	35

Notes to Unaudited Condensed Consolidated Financial Statements	Page	47

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	Page	1116

Item 3. Quantitative and Qualitative Disclosures about Market Risk	Page	1722

Item 4. Controls and Procedures	Page	1723

Part II - OTHER INFORMATION

Item 1. Legal Proceedings	Page	1723

Item 1A. Risk Factors	Page	1823

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	Page	23

Item 3. Defaults Upon Senior Securities	Page	24

Item 4. Mine Safety Disclosures	Page	24

Item 5. Other Information	Page	24

Item 6. Exhibits	Page	1925

Signatures	Page	2127



NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts) (unaudited)

	September 30,		December 31,
	2017		2016
ASSETS
Current Assets:
Cash and cash equivalents	$	72,924	$	64,094
Trade accounts receivable, net of allowance for doubtful accounts of $634 and $597, respectively	7,163		7,378
Inventory, net	28,379		25,833
Prepaid income taxes	2,339		1,482
Prepaid expenses and other	1,127		972
Total current assets	111,932		99,759
Rental equipment, net of accumulated depreciation of $140,865 and $126,096, respectively	162,137		174,060
Property and equipment, net of accumulated depreciation of $11,486 and $11,267, respectively	8,425		7,753
Goodwill	10,039		10,039
Intangibles, net of accumulated amortization of $1,601 and $1,508, respectively	1,558		1,651
Other assets	895		262
Total assets	$	294,986	$	293,524
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit	$	—	$	417
Accounts payable	1,830		971
Accrued liabilities	3,955		2,887
Deferred income	185		2,225
Total current liabilities	5,970		6,500
Line of credit, non-current portion	417		—
Deferred income tax liability	50,512		53,745
Other long-term liabilities	880		325
Total liabilities	57,779		60,570
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Preferred stock, 5,000 shares authorized, no shares issued or outstanding	—		—
Common stock, 30,000 shares authorized, par value $0.01; 12,844 and 12,764 shares issued and outstanding, respectively	128		128
Additional paid-in capital	103,916		100,812
Retained earnings	133,163		132,014
Total stockholders' equity	237,207		232,954
Total liabilities and stockholders' equity	$	294,986	$	293,524



NATURAL GAS SERVICES GROUP, INC. CONDENSED CONSOLIDATED INCOME STATEMENTS (in thousands, except earnings per share) (unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenue:
Rental income	$	11,292		$	13,157		$	34,634		$	44,220
Sales	4,256			2,536			15,300			9,746
Service and maintenance income	365			488			1,099			985
Total revenue	15,913			16,181			51,033			54,951
Operating costs and expenses:
Cost of rentals, exclusive of depreciation stated separately below	4,333			4,513			13,256			15,618
Cost of sales, exclusive of depreciation stated separately below	3,237			2,191			12,405			8,359
Cost of service and maintenance	90			122			288			318
Selling, general and administrative expense	2,340			2,101			7,776			6,822
Depreciation and amortization	5,320			5,431			15,958			16,371
Total operating costs and expenses	15,320			14,358			49,683			47,488
Operating income	593			1,823			1,350			7,463
Other income (expense):
Interest expense	(7		)	(2		)	(11		)	(6		)
Other income (expense), net	(7		)	10			(1		)	22
Total other income (expense), net	(14		)	8			(12		)	16
Income before provision for income taxes	579			1,831			1,338			7,479
Provision for income taxes	57			322			189			2,170
Net income	$	522		$	1,509		$	1,149		$	5,309
Earnings per share:
Basic	$	0.04		$	0.12		$	0.09		$	0.42
Diluted	$	0.04		$	0.12		$	0.09		$	0.41
Weighted average shares outstanding:
Basic	12,838			12,717			12,825			12,691
Diluted	13,117			12,962			13,102			12,913



Unvested stock options:	Shares		Weighted Average Grant Date Fair Value Per Share
Unvested at December 31, 2016	50,833		$	12.67
Granted	32,750		11.93
Vested	(33,335	)	13.80
Unvested at September 30, 2017	50,248		$	11.44



	September 30, 2017		December 31, 2016
	(in thousands)
Raw materials	$	20,860	$	18,365
Finished Goods	1,007		2,558
Work in process	6,512		4,910
	$	28,379	$	25,833



	Revenue Nine months ended September 30,
	(in thousands)
	2017				2016
Rental	$	34,634	68	%	$	44,220	80	%
Sales	15,300		30	%	9,746		18	%
Service and Maintenance	1,099		2	%	985		2	%
Total	$	51,033			$	54,951



	Obligations Due in Period (in thousands)
Cash Contractual Obligations	2017 ⁽¹⁾		2018		2019		2020		Thereafter		Total
Line of credit (secured)	$	—	$	—	$	—	$	417	$	—	$	417
Interest on line of credit⁽²⁾	4		17		17		17		—		55
Purchase obligations⁽³⁾	80		300		300		300		639		1,619
Other long-term liabilities	—		—		—		—		102		102
Facilities and office leases	104		295		72		9		1		481
Total	$	188	$	612	$	389	$	743	$	742	$	2,674



Yes x						No o



Yes x						No o



Yes o☐						No x