Forward-looking statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking information. Forward-looking information is based on projections, assumptions and estimates, not historical information. Some statements in this Form 10-Q are forward-looking and may be identified as such through the use of words like "may," "may not," "believes," "do not believe," "expects," "do not expect," "do not anticipate," and other similar expressions. We may also provide oral or written forward-looking information on other materials we release to the public. Forward-looking information involves risks and uncertainties and reflects our best judgment based on current information. Actual events and our results of operations may differ materially from expectations because of inaccurate assumptions we make or by known or unknown risks and uncertainties. As a result, no forward-looking information can be guaranteed.

While it is not possible to identify all factors, the risks and uncertainties that could cause actual results to differ from our forward-looking statements include those contained in this 10-Q, and our Forms 10-Q, 8-K and 10-K filed with the United States Securities and Exchange Commission (SEC). We do not assume any responsibility to publicly update any of our forward-looking statements regardless of whether factors change as a result of new information, future events or for any other reason.

Overview

We provide a suite of integrated pressure control and related services to onshore and offshore oil and gas exploration and development companies, principally in North America, South America, North Africa, West Africa, the Middle East and Asia, including training, contingency planning, well plan reviews, audits, inspection services, engineering services, pressure control equipment rental services, hydraulic snubbing workovers, well completions and plugging and abandonment services.

On March 3, 2006, we acquired the hydraulic well control business (HWC) of Oil States International, Inc. As a result of the acquisition, we acquired the ability to provide hydraulic units for emergency well control situations and various well intervention solutions involving workovers, well drilling, well completions and plugging and abandonment services. Hydraulic units may be used for both routine and emergency well control situations in the oil and gas industry. A hydraulic unit is a specially designed rig used for moving tubulars in and out of a wellbore using hydraulic pressure. These units may also be used for snubbing operations to service wells under pressure. When a unit is snubbing, it is pushing pipe or tubulars into the wellbore against wellbore pressures.

On July 31, 2007, we acquired Rock Springs, Wyoming-based StassCo Pressure Control, LLC (StassCo), and the transaction was effective for accounting and financial purposes as of August 1, 2007. StassCo operates four hydraulic rig assist units in the Cheyenne Basin, Wyoming, and its presence in the Rockies is a key to our strategy to expand North America land operations.

We added our pressure control equipment rental service line to our suite of pressure control services during the fourth quarter of 2007. Our pressure control equipment and operating personnel are utilized primarily during the drilling and completion phases of oil and gas wells. We are currently operating this business in our North America regions, classified as the Gulf of Mexico, Mid Continent and Southeast and our Middle East international region. We plan to expand into other operating areas where we provide pressure control services.

On February 10, 2009, we purchased John Wright Company (JWC) for approximately $10 million in a combination of cash and subordinated debt. Based in Houston, JWC provides a suite of relief well drilling and risk management services to the oil and gas industry worldwide. We are integrating the company's proprietary technology into our Safeguard program, which is currently our fastest growing service line.

Demand for services depends on factors beyond our control, including the volume and type of drilling and workover activity, which is substantially influenced by fluctuations in oil and natural gas prices. Wars, acts of terrorism and other unpredictable factors may affect demand for our services on a regional basis. Demand for our emergency well control, or critical well event, services is volatile and inherently unpredictable. As a result we expect to experience large fluctuations in our revenues from these services. Non-critical services, included in our well intervention segment, while subject to typical industry volatility associated with commodity prices, drilling activity levels and the like, provide more stable revenues and our strategy continues to be to expand these product and service offerings while focusing on our core strength of pressure control services.

Segment Information

Our operating segments are our service lines, which we aggregate into three reporting segments. These reporting segments are pressure control, well intervention and equipment services.

Intercompany transfers between segments were not material. Our accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. While cost of sales expenses are variable based upon the type of revenue generated, most of our operating expenses represent fixed costs for base labor charges, rent and utilities. For purposes of this presentation, operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and a pro rata allocation of remaining non-segment specific expenses are assigned between segments based upon relative revenues. Selling, general and administrative and corporate expenses have been allocated between segments in proportion to their relative revenue. Business segment operating data from continuing operations is presented for purposes of management discussion and analysis of operating results.

The Pressure Control segment consists of personnel and services provided during a critical well event. These services also include snubbing and pressure control services provided during a response which are designed to minimize response time and mitigate damage while maximizing safety. These services primarily utilize existing personnel to maximize utilization with only slight increases in fixed operating costs. This segment also includes services that are designed to reduce the number and severity of critical well events offered through our prevention and risk management programs, including training, contingency planning, well plan reviews, audits, inspection services and engineering services.

Our Well Intervention segment consists of services that are designed to enhance production for oil and gas operators. This segment includes services performed by hydraulic workover and snubbing units that are used to enhance production of oil and gas wells. These units are used for underbalanced drilling, workover, well completions and plugging and abandonment services.

The Equipment Services segment includes our pressure control equipment rental and service business, which began as an expansion of the Company's existing services in 2007. We cross-sell pressure control equipment, rentals and services to customers of our Pressure Control and Well Intervention businesses, which has driven its growth to date.

Results of operations

Information concerning operations in different business segments for the three months and nine months ended September 30, 2009 and 2008 is presented below. Certain reclassifications have been made to the prior periods to conform to the current presentation.

                                          Three Months Ended           Nine Months Ended
                                             September 30,               September 30,
                                                            (Unaudited)
                                                              (000's)
                                           2009          2008         2009          2008
Revenues
Pressure Control                        $   14,860     $ 28,270     $  64,481     $  65,300
Well Intervention                           18,743       23,589        57,827        73,597
Equipment Services                           6,714        4,593        19,719        14,474
                                        $   40,317     $ 56,452     $ 142,027     $ 153,371
Cost of Sales
Pressure Control                        $    8,571     $ 15,963     $  42,858     $  35,458
Well Intervention                           14,510       17,165        42,663        51,171
Equipment Services                           3,051        3,030         8,836         8,740
                                        $   26,132     $ 36,158     $  94,357     $  95,369
Operating Expenses(1)
Pressure Control                        $    2,393     $  3,848     $   9,766     $  10,082
Well Intervention                            2,193        3,199         8,478         9,027
Equipment Services                             951          634         3,360         1,712
                                        $    5,537     $  7,681     $  21,604     $  20,821
Selling, General and Administrative Expenses(2)
Pressure Control                        $      744     $  1,192     $   3,382     $   3,228
Well Intervention                              928        1,050         3,208         3,903
Equipment Services                             335          194         1,027           738
                                        $    2,007     $  2,436     $   7,617     $   7,869
Depreciation and Amortization(1)
Pressure Control                        $      161     $    178     $     468     $     818
Well Intervention                            2,200        1,800         6,412         4,879
Equipment Services                             909          405         2,343           960
                                        $    3,270     $  2,383     $   9,223     $   6,657
Operating Income (Loss)
Pressure Control                        $    2,991     $  7,089     $   8,007     $  15,714
Well Intervention                           (1,088 )        375        (2,934 )       4,617
Equipment Services                           1,468          330         4,153         2,324
                                        $    3,371     $  7,794     $   9,226     $  22,655


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(1) Operating expenses and depreciation and amortization have been charged to each segment based upon specific identification of expenses and the remaining non-segment specific expenses have been allocated pro-rata between segments in proportion to their relative revenues.

(2) Selling, general and administrative expenses have been allocated pro-rata between segments based upon relative revenues and includes foreign exchange translation gains and losses.

Comparison of the Three Months Ended September 30, 2009 with the Three Months Ended September 30, 2008

Revenues

Pressure Control revenues were $14,860,000 for the quarter ended September 30, 2009, compared to $28,270,000 for the quarter ended September 30, 2008, representing a decrease of $13,410,000, or 47.4% in the current quarter. The decrease is primarily due to revenue from a non-recurring third quarter 2008 international project totaling $17,982,000, offset by other prevention and risk management projects and an increase in response revenue.

Well Intervention revenues were $18,743,000 for the quarter ended September 30, 2009, compared to $23,589,000 for the quarter ended September 30, 2008, representing a decrease of $4,846,000, or 20.5%, in the current quarter. The decrease was primarily due to the lower utilization rates in Venezuela and the Middle East as well as a slowdown in the North American regions of the Gulf of Mexico and Rocky Mountains that were partially offset by improved results in the Northeast and Southeast regions. In addition, the decreases where partially offset by the increased revenue in North Africa and Algeria.

Equipment service revenues were $6,714,000 for the quarter ended September 30, 2009, compared to $4,593,000 for the quarter ended September 30, 2008, an increase of $2,121,000, or 46.2%, in the current quarter. This increase is primarily due to domestic and international expansion of our equipment rental and services business.

Cost of Sales

Pressure Control cost of sales was $8,571,000 for the quarter ended September 30, 2009, compared to $15,963,000 for the quarter ended September 30, 2008, a decrease of $7,392,000, or 46.3%, in the current quarter. For the quarter ended September 30, 2009, cost of sales represented 57.7% of revenues compared to 56.5% of revenues for the quarter ended September 30, 2008. The decrease in cost of sales is generally attributable to the decrease in revenue.

Well Intervention cost of sales was $14,510,000 for the quarter ended September 30, 2009, compared to $17,165,000 for the quarter ended September 30, 2008, a decrease of $2,655,000, or 15.5%, in the current quarter. For the quarter ended September 30, 2009, cost of sales represented 77.4% of revenues compared to 72.8% of revenues for the quarter ended September 30, 2008. The decrease in cost of sales is generally attributable to the decrease in revenue.

Equipment Services cost of sales was $3,051,000 for the quarter ended September 30, 2009, compared to $3,030,000 for the quarter ended September 30, 2008, an increase of $21,000, or 0.7%, in the current quarter. For the quarter ended September 30, 2009, cost of sales was 45.4% of revenue compared to 66.0% of revenue for the quarter ended September 30, 2008. The percentage of revenue decrease was primarily due to lower related third party costs in 2009 in relation to 2008.

Operating Expenses

Consolidated operating expenses were $5,537,000 for the quarter ended September 30, 2009, compared to $7,681,000 for the quarter ended September 30, 2008, a decrease of $2,144,000, or 27.9%, in the current quarter. During the current quarter, operating expenses represented 13.7% of revenues compared to 13.6% of revenues in the prior year quarter. The decrease in operating expense is primarily due to decreases in bonus accruals and an increase in the gain on disposal of assets.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) and foreign currency translation expenses were $2,007,000 for the quarter ended September 30, 2009, compared to $2,436,000 for the quarter ended September 30, 2008, a decrease of $429,000, or 17.6%, in the current quarter. During the current quarter, SG&A and foreign currency translation expenses represented 5.0% of revenues compared to 4.3% of revenues in the prior year quarter. The decrease in total SG&A expense was primarily due to decreases in bonus accruals, and advertising and customer relations expenses which were partially offset by an increase in professional fees.

Depreciation and Amortization

Depreciation and amortization expense increased by $887,000 in the quarter ended September 30, 2009 compared to the quarter ended September 30, 2008, primarily due to the depreciation increase of $752,000 resulting from an increase in capitalized assets since September 30, 2008. Amortization of intangible assets related to our acquisition of StassCo Pressure Control LLC in August 2007 and John Wright Company in first quarter 2009 was $240,000 for the quarter ended September 30, 2009 and $105,000 for the quarter ended September 30, 2008. The intangible assets related to StassCo purchase consists of customer relationships being amortized over a 13 year period and management non-compete agreements being amortized over 5.5 and 3.5 year periods. Intangible assets related to the John Wright purchase consists of trade name, non-compete agreement, proprietary software, process diagrams and customer relationships being amortized over 10, 5, 15, 10, and 10 years, respectively.

Interest Expense

Interest expense increased by $266,000, or 38.3%, compared to the prior year quarter and includes an increase of $148,000 in amortization of deferred financing charges resulting from the new syndicated credit agreement we entered into in February 2009. The remaining increase was primarily a result of higher borrowings due to acquisition and working capital requirements in the current year quarter.

Other Expense, Net

Other expense, net increased by $27,000 in the quarter ended September 30, 2009 compared to the prior year quarter due to a reduction in interest income.

Income Tax Expense

Income taxes for the quarter ended September 30, 2009 totaled $1,568,000, or 65.6% of pre-tax income compared to the quarter ended September 30, 2008 which totaled $1,658,000, or 23.3% of pre-tax income. The Company's estimated annual effective tax rate reflects, among other items, our best estimates of operating results and foreign currency exchange rates. A change in the mix of pretax income from these various jurisdictions can have a significant impact on the Company's effective tax rate. Our effective tax rate was adversely impacted by consolidating certain foreign losses for reported earnings without being able to correspondingly consolidate such losses in calculating book tax.

Comparison of the Nine Months Ended September 30, 2009 with the Nine Months Ended September 30, 2008

Revenues

Pressure Control revenues were $64,481,000 for the nine months ended September 30, 2009, compared to $65,300,000 for the nine months ended September 30, 2008, representing a decrease of $819,000, or 1.3%, in the current period. The decrease was primarily due to a decrease in response revenue offset by an increase in international revenue from prevention and risk management projects.

Well Intervention revenues were $57,827,000 for the nine months ended September 30, 2009, compared to $73,597,000 for the nine months ended September 30, 2008, representing a decrease of $15,770,000, or 21.4%, in the current period. The decrease was primarily due to the one time project in Bangladesh that was included in the revenue for the prior year period, the suspension of operations in Venezuela during the first quarter and for most of the second quarter of 2009, reduced business in the Middle East, the loss of a tender in Egypt and a slowdown in the North American regions of the Rocky Mountains, Mid-Continent and Gulf of Mexico that were partially offset by improved results in the Northeast and Southeast regions. In addition, the current year first nine months had revenue increases in Algeria as well as revenue from the commencement of operations in North Africa.

Equipment service revenues were $19,719,000 for the nine months ended September 30, 2009, compared to $14,474,000 for the nine months ended September 30, 2008, an increase of $5,245,000, or 36.2%, in the current period. This increase is due to the expansion of our equipment rental and services business.

Cost of Sales

Pressure Control cost of sales was $42,858,000 for the nine months ended September 30, 2009, compared to $35,458,000 for the nine months ended September 30, 2008, an increase of $7,400,000, or 20.9%, in the current period. For the nine months ended September 30, 2009, cost of sales represented 66.5% of revenues compared to 54.3% of revenues for the nine months ended September 30, 2008. The increase in cost of sales is generally attributable to a higher proportion of lower margin revenue with related third party costs in 2009 in relation to 2008 as well as reduced emergency response activity in the current nine month period.

Well Intervention cost of sales was $42,663,000 for the nine months ended September 30, 2009, compared to $51,171,000 for the nine months ended September 30, 2008, a decrease of $8,508,000, or 16.6%, in the current period. For the nine months ended September 30, 2009, cost of sales represented 73.8% of revenues compared to 69.5% of revenues for the nine months ended September 30, 2008. The decrease in cost of sales is generally attributable to the decrease in revenues, while the increase in cost of sales as a percentage of revenue is primarily due to carrying costs associated with our operations in Venezuela during our suspension of operations there.

Equipment Services cost of sales was $8,836,000 for the nine months ended September 30, 2009, compared to $8,740,000 for the nine months ended September 30, 2008, an increase of $96,000, or 1.1%, in the current period. For the nine months ended September 30, 2009, cost of sales was 44.8% of revenue compared to 60.4% of revenue for the nine months ended September 30, 2008. The increase in cost of sales is generally attributable to increased revenues, while the cost of sales percentage of revenue decrease was primarily due to a lower proportion of revenue with related third party costs in 2009 in relation to 2008.

Operating Expenses

Consolidated operating expenses were $21,604,000 for the nine months ended September 30, 2009, compared to $20,821,000 for the nine months ended September 30, 2008, an increase of $783,000, or 3.8%, in the current period. During the current year first nine month period, operating expenses represented 15.2% of revenues compared to 13.6% of revenues in the prior year first nine months. The increase in operating expenses was primarily due to increases in salaries and benefits, liability insurance and facility rental associated with increased staffing in our Business Development group as we expand our capacity to pursue opportunities to grow our geographic presence and product offerings. Also included in the increase are start up expenses associated with new facilities in Libya for Pressure Control and Well Intervention and in the US for our Equipment Services business. In addition, increases occurred in support services in order to maintain ongoing operational growth. The increases were offset by decreases in bonus accruals.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) and foreign currency translation expenses were $7,617,000 for the nine months ended September 30, 2009, compared to $7,869,000 for the nine months ended September 30, 2008, a decrease of $252,000, or 3.2%, in the current period. During the nine months ended September 30, 2009, SG&A and foreign currency translation expenses represented 5.4% of revenues compared to 5.1% of revenues in the prior year first nine months. The decrease in total SG&A expense was primarily due to decreases in bonus accruals, and advertising and customer relations expenses which were partially offset by an increase in professional fees.

Depreciation and Amortization

Depreciation and amortization expense increased by $2,566,000 in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily due to the depreciation increase of $2,296,000 resulting from an increase in capitalized assets since September 30, 2008. Amortization of intangible assets related to our acquisitions of StassCo Pressure Control LLC in August 2007 and the John Wright Company in February 2009 was $674,000 for the nine months ended September 30, 2009 and $403,000 in 2008. The intangible assets related to StassCo purchase consists of customer relationships being amortized over a 13 year period and management non-compete agreements being amortized over 5.5 and 3.5 year periods. Intangible assets related to the John Wright purchase consists of trade name, non-compete agreement, proprietary software, process diagrams and customer relationships being amortized over 10, 5, 15, 10, and 10 years, respectively.

Interest Expense

Interest expense increased by $890,000, or 44.4%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This includes $542,000 for the increase in amortization of deferred financing charges resulting from the new syndicated credit agreement we entered into in February 2009 and the required write off of $146,000 of the remaining deferred financing charges related to the previous loan. The remaining increase was primarily a result of higher borrowings in the current year period.

Other(Income)Expense, Net

Other expense, net increased by $91,000 in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 due to a reduction in interest income.

Income Tax Expense

Income taxes for the nine months ended September 30, 2009 totaled $2,755,000, or 44.1% of pre-tax income compared to the nine months ended September 30, 2008 which totaled $3,974,000, or 19.2% of pre-tax income. The Company's estimated annual effective tax rate reflects, among other items, our best estimates of operating results and foreign currency exchange rates. A change in the mix of pretax income from these various jurisdictions can have a significant impact on the Company's effective tax rate. Our effective tax rate was adversely impacted by consolidating certain foreign losses for reported earnings without being able to correspondingly consolidate such losses in calculating book tax.

Liquidity and Capital Resources

Liquidity

At September 30, 2009, we had working capital of $45,513,000 compared to $40,169,000 at December 31, 2008. Our cash balance at September 30, 2009 was $6,336,000 compared to $6,220,000 at December 31, 2008. We ended the quarter with stockholders' equity of $106,571,000 which increased $4,810,000 when compared to $101,761,000 at December 31, 2008 primarily due to our net income of $3,487,000 for the nine months ended September 30, 2009.

Our primary liquidity needs are to fund working capital, capital expenditures such as expanding our equipment services fleet of equipment and replacing support equipment for our hydraulic workover and snubbing service line, debt service and acquisitions. Our primary sources of liquidity are cash, cash flows from operations and borrowings under the revolving credit facility.

In the first nine months of 2009, we generated cash from operating activities of $5,195,000 compared to $16,517,000 during the first nine months of 2008. Cash was provided by operations primarily through net income of $3,487,000, non-cash charges of $11,446,000 and decreases in receivables of $5,378,000. Non-cash charges were comprised primarily of $9,223,000 of depreciation and amortization, deferred tax expense of $1,053,000, stock-based compensation of $1,179,000, and bad debt provision of $92,000, all of which were offset by a reduction due to excess tax benefit from stock options exercised. These positive cash flows were offset by decreases in accounts payable and accrued liabilities of $10,236,000, increases in other assets of $2,438,000, increases in prepaid expenses and other current assets of $1,222,000, increases in inventory of $573,000, and a gain on sale/disposal of assets of $647,000. Receivables decreased due to the timing of collections in the first nine months, primarily . . .