Note

- Summary of Significant Accounting Policies

Going Concern

Our financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realization of assets and settlement of liabilities in the normal course of business. We incurred a net loss of

$7.7

million for the year ended

December 31, 2019

and have recorded net income of

$8.4

million and

$1.2

million for the

three

and

nine

months ended

September 30, 2020,

respectively. As of the balance sheet date of this report we had total current liabilities of

$4.5

million, which exceeded our total current assets of

$3.0

million by

$1.5

million. On

August 10, 2017,

we entered into the

2017

Credit Agreement, as amended, with East West Bank (the

"2017

Credit Agreement") which provides for a

three

-year,

$37.0

million senior secured revolving credit facility (the "Credit Facility"). On

September 23, 2020,

the Company and East West Bank entered into the Fifth Amendment to Loan and Security Agreement and Waiver (the "Fifth Amendment") which, among other things, provided for a loan concession of

$16.0

million in exchange for

8,000,000

shares of Company common stock and a warrant to purchase up to

15,000,000

additional shares of Company common stock in the future. On

August 13, 2020,

the Company exchanged

50%,

$1.25

million, of our subordinated debt with a related party, as well as

$265,000

in accrued interest, for

6,054,022

of Company common stock.

The Fifth Amendment modifies certain covenants and cured our previous breaches of

two

covenants, as well as extending the maturity date for the repayment of the Credit Facility to

October 15, 2021.

Since the Fifth Amendment cured the covenant breaches under the

2017

Credit Agreement, we are now in compliance with both our Credit Facility and subordinated debt agreements with a related party, and maturities of these debts were reclassified from current to long-term during the

third

quarter (see Note

of the accompanying Notes to the Condensed Consolidated Financial Statements).

September 28, 2020,

the Company filed a prospectus supplement to finalize the S-

(the "Shelf Registration") that was filed on

July 24, 2020.

September 29, 2020,

in connection with the Shelf Registration, the Company, through its sales agent Alliance Global Partners ("AGP"), released an at-the-market offering (the "Public Offering") which has been designed to raise capital by issuing approximately

15,000,000

securities into the trading market, over-time, at the then-market price of the securities at the time they are sold.

Our ability to continue as a going concern is dependent on our ability to paydown and/or refinance the

2017

Credit Agreement prior to its maturity on

October 15, 2021,

raising further capital and our ability to further reduce costs, of which there can be

assurance. These factors raise substantial doubt over our ability to continue as a going concern and whether we will realize our assets and extinguish our liabilities in the normal course of business and at the amounts stated in the financial statements. Given our current financial situation we

may

be required to accept onerous terms on the transactions that we are seeking.

Recent Market Conditions

The COVID-

pandemic has significantly impacted the world economic conditions including in the United States, with significant effects beginning in

February 2020,

and continuing through the issuance of this report, as federal, state and local governments react to the public health crisis, creating significant uncertainties relating to the United States economy. Consequently, the Company has experienced and expects to further experience a material adverse impact on its revenues, results of operations and cash flows. COVID-

related quarantines and business restrictions had a depressing impact on United States oil demand, and hence our business, during the latter half of

March

through much of the

second

quarter. The situation continues to change rapidly and additional impacts to our business

may

arise that we are

not

aware of currently. We cannot predict whether, when or the manner in which the conditions surrounding COVID-

will change including the timing of lifting any restrictions or office closure requirements.

In addition, certain producing countries within the Organization of Petroleum Exporting Countries and their allies ("OPEC+") group attempted to increase market share through pricing activity that has had limited impact on the severe decline in domestic oil prices that occurred during the

first

quarter of

2020,

and drilling and operating activity within our markets has remained depressed. There is

assurance that such efforts will

not

re-occur in the future.

The full extent of the impact of COVID-

and OPEC+ actions on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets, any new information that

may

emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, production response of domestic oil producers to lower oil prices, and the adherence to and continuity of OPEC+ production cuts, among others.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. The Company maintains its excess cash in various financial institutions, where deposits

may

exceed federally insured amounts at times.

Accounts Receivable

Accounts receivable are stated at the amounts billed to customers, net of an allowance for uncollectible accounts. The Company provides an allowance for uncollectible accounts based on a review of outstanding receivables, historical collection information and existing economic conditions. The allowance for uncollectible amounts is continually reviewed and adjusted to maintain the allowance at a level considered adequate to cover future losses. The allowance is management's best estimate of uncollectible amounts and is determined based on historical collection experience related to accounts receivable coupled with a review of the current status of existing receivables. The losses ultimately incurred could differ materially in the near term from the amounts estimated in determining the allowance. As of

September 30, 2020,

and

December 31, 2019,

the Company had an allowance for doubtful accounts of approxim

ately

$544,000

and

$246,000,

respectively, an increase directly related to some of our customers in the depressed oil market during that period. For t

three

and

nine

months ended

September 30, 2020,

the Compan

y recorded approximately

$64,000

and

$362,000

to bad debt expense. For t

three

and

nine

months ended

September 30, 2019,

the Compan

y recorded approximately

$168,000

and

$171,000

to bad debt expense.

Inventories

Inventory consists primarily of propane, diesel fuel and chemicals that are used in the servicing of oil wells and is carried at the lower of cost or net realizable value in accordance with the

first

in,

first

out method (FIFO). The Company periodically reviews the value of items in inventory and provides write-downs or write-offs, of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold. For the

three

and

nine

months ended September

2020

and

2019,

the Compan

y did

not

recognize any

write-downs or write-offs of inventory

Property and Equipment

Property and equipment consists of (i) trucks, trailers and pickups; (ii)

water transfer pumps, pipe, lay flat hose, trailers, and other support equipment;

(iii) real property which includes land and buildings used for office and shop facilities and wells used for the disposal of water; (iv) other equipment such as tools used for maintaining and repairing vehicles, and (v) office furniture and fixtures, and computer equipment. Property and equipment is stated at cost less accumulated depreciation. The Company capitalizes interest on certain qualifying assets that are undergoing activities to prepare them for their intended use. Interest costs incurred during the fabrication period are capitalized and amortized over the life of the assets. The Company charges repairs and maintenance against income when incurred and capitalizes renewals and betterments, which extend the remaining useful life, expand the capacity or efficiency of the assets. Depreciation is recorded on a straight-line basis over estimated useful lives of

years.

Any difference between net book value of the property and equipment and the proceeds of an assets' sale or settlement of an insurance claim is recorded as a gain or loss in the Company's earnings.

Leases

The Company assesses whether an arrangement is a lease at inception. Leases with an initial term of

months or less are

not

recorded on the balance sheet. We have elected the practical expedient to

not

separate lease and non-lease components for all assets. Operating lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date. As most of our leases do

not

provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments. The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred. The lease term includes options to renew or terminate the lease when it is reasonably certain that we will exercise that option. The exercise of lease renewal options is at our sole discretion. The depreciable life of lease assets and leasehold improvements are limited by the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company conducts a major part of its operations from leased facilities. Each of these leases is accounted for as an operating lease. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments

not

yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.

The Company amortizes leasehold improvements over the shorter of the life of the lease or the life of the improvements.

The Company has leased trucks and equipment in the normal course of business, which

may

be recorded as operating or financing leases, depending on the term of the lease. The Company recorded

rental expense on equipment under operating leases over the lease term as it becomes payable; there were

rent escalation terms associated with these equipment leases. The Company records amortization expense on equipment under financing leases on a straight-line basis as well as interest expense based on our implicit borrowing rate at the date of the lease inception. The equipment leases contain purchase options that allow the Company to purchase the leased equipment at the end of the lease term, based on the market price of the equipment at the time of the lease termination.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets

may

not

be recovered. During the

first

quarter of

2020,

the combination of the COVID-

pandemic and actions taken by the OPEC+ countries caused oil and gas commodity demand to decrease significantly. The Company determined that these were triggering events which could indicate impairment of its long-lived assets. The Company reviewed both qualitative and quantitative aspects of the business during the analysis of impairment. During the quantitative review, the Company reviewed the undiscounted future cash flows in its assessment of whether long-lived assets were impaired. The Company determined that there was

impairment of its long-lived assets during the

three

months and

nine

months ended September

30,

2020.

During the

three

and

nine

months ended September

30,

2019,

the Company recorded impairment charges of approximately

and

$127,000

related to its saltwater disposal wells. The Company divested the last saltwater disposal well during the

second

quarter of

2020.

Goodwill and Other Intangible Assets

Goodwill represents the excess purchase price over the fair value of identifiable assets received attributable to business acquisitions and combinations. Goodwill and other intangible assets are measured for impairment at least annually and/or whenever events and circumstances arise that indicate impairment

may

exist, such as a significant adverse change in the business climate. In assessing the value of goodwill, assets and liabilities are assigned to the reporting units and the appropriate valuation methodologies are used to determine fair value at the reporting unit level. Identified intangible assets are amortized using the straight-line method over their estimated useful lives.

During the

first

nine

months of

2020,

the combination of the COVID-

pandemic and actions taken by the OPEC+ countries caused oil and gas commodity demand to decrease significantly. The Company determined that these were triggering events during the

three

months ended

March 31, 2020,

which could indicate impairment of its goodwill and other intangible assets. The Company reviewed both qualitative and quantitative aspects of the business during the analysis of impairment. During the quantitative review, the Company reviewed the undiscounted future cash flows in its assessment of whether goodwill and other intangible assets were impaired. The Company concluded that there were

further triggering events during the

nine

months ended

September 30, 2020.

Further, the Company determined that there was

impairment of its goodwill and other intangible assets during the

three

months and

nine

months ended

September 30,

2020.

Revenue Recognition

The Company evaluates revenue when we can identify the contract with the customer, the performance obligations in the contract, the transaction price, and we are certain that the performance obligations have been met. Revenue is recognized when the service has been provided to the customer. The vast majority of the Company's services and product offerings are short-term in nature. The time between invoicing and when payment is due under these arrangements is generally

days. Revenue is

not

generated from contractual arrangements that include multiple performance obligations.

The Company's agreements with its customers are often referred to as “price sheets” and sometimes provide pricing for multiple services. However, these agreements generally do

not

authorize the performance of specific services or provide for guaranteed throughput amounts. As customers are free to choose which services, if any, to use based on the Company's price sheet, the Company prices its separate services on the basis of their standalone selling prices. Customer agreements generally do

not

provide for performance, cancellation, termination, or refund type provisions. Services based on price sheets with customers are generally performed under separately issued “work orders” or “field tickets” as services are requested.

Revenue is recognized for certain projects that take more than

one

day projects over time based on the number of days during the reporting period and the agreed upon price as work progresses on each project.

Disaggregation of Revenue

See Note

- Segment Reporting for disaggregation of revenue.

Earnings (Loss) Per Share

Earnings per Common Share - Basic is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Earnings per Common Share - Diluted earnings is calculated by dividing net income (loss) by the diluted weighted average number of common shares. The diluted weighted average number of common shares is computed using the treasury stock method for common stock that

may

be issued for outstanding stock options and warrants.

As of

September

30 of 2020 and 2019

, there were outstanding stock options, warrants and unvested restricted stock awards to acquire an aggregate

17,500,997

and

4,011,499

shares of Company common stock, respectively, which have a potentially dilutive impact on earnings per share. As of

September

30, 2020,

these outstanding stock options, warrants and unvested restricted stock awards had

aggregate intrinsic value

(the difference between the estimated fair value of the Company's common stock on

September 30

, 2020,

and the exercise price, multiplied by the number of in-the-money instruments)

Offering Costs

The Company complies with the requirements of ASC

340

S99

and SEC Staff Accounting Bulletin (SAB) Topic

- "Expenses of Offering". Offering costs consist principally of commissions and fees associated with the sale of the offered securities, as well as professional and other fees associated with the negotiation and filing of the Public Offering, that were incurred through the balance sheet date and were charged to stockholders' equity upon the completion and continuing sale of the Public Offering. As the securities are being offered into the market over-time by AGP, the Company will continue to incur commissions and fees associated with the sales until all of the securities in the Public Offering are sold into the market. At

September 30, 2020

and

December 31, 2019,

offering costs totaling approximately

$165,000

and

$0,

respectively, have been charged to stockholders' equity (deficit).

Derivative Instruments

From time to time, the Company has

interest rate swap agreements in place to hedge against changes in interest rates. The fair value of the Company's derivative instrument is reflected as an asset or liability on the balance sheet. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative instrument and the resulting designation. Transactions related to the Company's derivative instruments accounted for as hedges are classified in the same category as the item hedged in the consolidated statement of cash flows. The Company did

not

hold derivative instruments at September

30, 2020

December 31, 2019,

for trading purposes.

February 23, 2018,

we entered into an interest rate swap agreement with East West Bank in order to hedge against the variability in cash flows from future interest payments related to the

2017

Credit Agreement. The terms of the interest rate swap agreement included an initial notional amount of

$10.0

million, a fixed payment rate of

2.52%

paid by us and a floating payment rate equal to LIBOR paid by East West Bank. The purpose of the swap agreement is to adjust the interest rate profile of our debt obligations. The fair value of the interest rate swap agreement is recorded in other liabilities as of December

31,

2019,

and changes to the fair value are recorded to other income (expense). The swap agreement matured during the

second

quarter of

2020,

the balance was adjusted to

and a

$23,000

gain was recorded to other income.

Income Taxes

The Company recognizes deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in income in the period that includes the enactment date. A deferred tax asset or liability that is

not

related to an asset or liability for financial reporting is classified according to the expected reversal date. The Company records a valuation allowance to reduce deferred tax assets to an amount that it believes is more likely than

not

expected to be realized.

The Company accounts for any uncertainty in income taxes by recognizing the tax benefit from an uncertain tax position only if, in the Company's opinion, it is more likely than

not

that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company measures the tax benefits recognized in the financial statements from such a position based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, the Company is required to make many subjective assumptions and judgments regarding income tax exposures. Interpretations of and guidance surrounding income tax law and regulations change over time and

may

result in changes to the Company's subjective assumptions and judgments which can materially affect amounts recognized in the consolidated balance sheets and consolidated statements of income. The result of the reassessment of the Company's tax positions did

not

have an impact on the consolidated financial statements.

Interest and penalties associated with tax positions are recorded in the period assessed as other expense. The Company files income tax returns in the United States and in the states in which it conducts its business operations. The Company

's United States federal income tax filings for tax years

2016

through

2019

remain open to examination. In general, the Company's various state tax filings remain open for tax years

2015

2019.

In response to the COVID-

pandemic, many governments have enacted or are contemplating measures to provide aid and economic stimulus. These measures

may

include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on

March 27, 2020

in the U.S., includes measures to assist companies, including temporary changes to income and non-income-based tax laws. For the

three

and

nine

months ended

September 30, 2020,

there were

material tax impacts to our condensed consolidated financial statements relating to COVID-

measures. We continue to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, and others.

Fair Value

The Company follows authoritative guidance that applies to all financial assets and liabilities required to be measured and reported on a fair value basis. The Company also applies the guidance to non-financial assets and liabilities measured at fair value on a nonrecurring basis, including non-competition agreements and goodwill. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances. Beginning in

2017

the Company valued its warrants using the Binomial Lattice model ("Lattice"). The Company did

not

have any transfers between hierarchy levels during the

three

and

nine

months ended September

30, 2020

. The financial and nonfinancial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

The hierarchy is broken down into

three

levels based on the reliability of the inputs as follows:

Level

Quoted prices are available in active markets for identical assets or liabilities;

Level

Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or

Level

Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.

Stock-Based Compensation

Stock-based compensation cost is measured at the date of grant, based on the calculated fair value of the award as described below, and is recognized over the requisite service period, which is generally the vesting period of the equity grant.

The Company uses the Black-Scholes pricing model as a method for determining the estimated grant date fair value for all stock options awarded to employees, independent contractors, officers, and directors. The expected term of the options is based upon evaluation of historical and expected exercise behavior. The risk-free interest rate is based upon U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life of the grant. Volatility is determined upon historical volatility of our stock and adjusted if future volatility is expected to vary from historical experience. The dividend yield is assumed to be

none

as we have

not

paid dividends, nor do we anticipate paying any dividends in the foreseeable future.

The Company

uses a Lattice model to determine the fair value of certain warrants. The expected term used was the remaining contractual term. Expected volatility is based upon historical volatility over a term consistent with the remaining term. The risk-free interest rate is derived from the yield on

zero

-coupon U.S. government securities with a remaining term equal to the contractual term of the warrants. The dividend yield is assumed to be zero.

The Company used the market-value of Company stock to determine the fair value of the performance-based restricted stock awarded in

2018

and

2019.

The fair-value is updated quarterly based on actual forfeitures.

The Company used a lattice model to determine the fair value of market-based restricted stock awarded in

2020

and

2019.

Management Estimates

The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the realization of accounts receivable, evaluation of impairment of long-lived assets, stock-based compensation expense, income tax provision, the valuation of warrant liability and the Company's interest rate swaps, undiscounted future cash flow projections and the valuation of deferred taxes. Actual results could differ from those estimates.

Reclassifications

Certain prior-period amounts have been reclassified for comparative purposes to conform to the current

presentation. These reclassifications have

effect on the Company's consolidated statements of operations.

Related Parties

From time-to-time, the Company enters into other transactions and agreements with certain related parties for various professional services.

The restructuring of the Credit Facility through the Fifth Amendment, pursuant to which the Company issued

8,000,000

shares of common stock and

one

warrant to acquire up to

15,000,000

shares of common stock to East West Bank on

September 23, 2020,

resulted in East West Bank becoming a related party given that its beneficial ownership exceeds

of the Company's outstanding common stock. See Note

- Debt for additional information regarding the restructuring of the Credit Facility.

August 13, 2020,

the Company, upon receiving approval from the Company's Board of Directors, agreed to exchange

50%,

$1.25

million, of our subordinated debt with Cross River Partners, L.P., a related party, as well as

$265,000

in accrued interest, for

6,054,022

of Company common stock. The discount that the Company received was recorded to additional paid-in capital.

Business Combinations

We recognize and measure the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, with any remaining difference recorded as goodwill or gain from a bargain purchase. For material acquisitions, management typically engages an independent valuation specialist to assist with the determination of fair value of the assets acquired, liabilities assumed, noncontrolling interest, if any, and goodwill, based on recognized business valuation methodologies. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate will be recorded. Subsequent to the acquisition, and

not

later than

one

year from the acquisition date, we will record any material adjustments to the initial estimate based on new information obtained about facts and circumstances that existed as of the acquisition date. An income, market or cost valuation method

may

be utilized to estimate the fair value of the assets acquired, liabilities assumed, and noncontrolling interest, if any, in a business combination. The income valuation method represents the present value of future cash flows over the life of the asset using: (i) discrete financial forecasts, which rely on management's estimates of volumes, commodity prices, revenue and operating expenses; (ii) long-term growth rates; and (iii) appropriate discount rates. The market valuation method uses prices paid for a reasonably similar asset by other purchasers in the market, with adjustments relating to any differences between the assets. The cost valuation method is based on the replacement cost of a comparable asset at prices at the time of the acquisition reduced for depreciation of the asset. See Note

– Business Combinations

for additional information regarding our business combinations.

Recently Adopted Accounting Pronouncements

June 2016,

the FASB issued ASU

2016

13,

Financial Statements - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to ascertain credit loss estimates. The standard is effective for fiscal years beginning after

December 15, 2022.

The Company does

not

expect the adoption of ASU

2016

to have a material impact on its consolidated financial statements.