UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to________
Commission File Number 1-31398
NATURAL GAS SERVICES GROUP, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 75-2811855
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2911 SCR 1260
Midland, Texas 79706
(Address of principal executive offices)
(432) 563-3974
(Issuer's telephone number, including area code)
N/A
----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Outstanding at
Class May 16, 2005
Common Stock, $.01 par value 6,782,764
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
NATURAL GAS SERVICES GROUP, INC.
Part I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet......................................Page 1
Unaudited Consolidated Income Statements..................................Page 2
Unaudited Consolidated Statements of Cash Flows...........................Page 3
Notes to Unaudited Consolidated Financial Statements......................Page 4
Item 2. Management's Discussion and Analysis or Plan of Operation........Page 7
-------
Item 3. Control and Procedures..........................................Page 10
-------
Part II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................Page 11
-------
Item 6. Exhibits........................................................Page 11
-------
Signatures...............................................................Page 17
Natural Gas Services Group, Inc.
Condensed Consolidated Balance Sheet
(unaudited)
March 31, 2005
ASSETS
Current Assets:
Cash and cash equivalents $ 1,370,843
Accounts receivable - trade, net of allowance 3,494,876
Inventory 10,620,317
Prepaid expenses 218,955
-----------
Total current assets 15,704,991
Lease equipment, net of accumulated depreciation 31,150,928
Other property, plant and equipment, net of depreciation 6,421,495
Goodwill, net of accumulated amortization 8,124,216
Intangible, net of accumulated amortization 4,219,767
Restricted cash 2,000,000
Other assets 137,403
-----------
Total Assets $67,758,800
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 5,399,056
Bank line of credit 18,087
Accounts payable and accrued liabilities 5,429,194
Unearned Income 731,673
-----------
Total current liabilities 11,578,010
Long term debt, less current portion 18,998,407
Subordinated notes, net of discount 4,465,538
Deferred income tax payable 3,485,610
-----------
Total liabilities 38,527,565
Common Stock 67,825
Paid in Capital 21,778,261
Retained Earnings 7,385,149
-----------
Shareholders' Equity 29,231,235
-----------
Total Liabilities and Shareholders' Equity $67,758,800
===========
See accompanying notes to these condensed consolidated financial statements.
1
Natural Gas Services Group, Inc.
Condensed Consolidated Income Statements
(unaudited)
Three months ended March 31,
2005 2004
------------ ------------
Revenue:
Sales $ 7,146,137 $ 889,965
Service and maintenance income 463,781 423,602
Leasing income 3,431,317 2,254,784
------------ ------------
11,041,235 3,568,351
------------ ------------
Cost of revenue:
Cost of sales 5,622,167 646,394
Cost of service and maintenance 290,099 336,250
Cost of leasing 1,207,758 568,409
------------ ------------
Total cost of revenue 7,120,024 1,551,053
------------ ------------
Gross Margin 3,921,211 2,017,298
Operating Cost:
Selling expense 229,691 177,389
General and administrative expense 903,800 488,260
Amortization & depreciation 950,815 526,685
------------ ------------
2,084,306 1,192,334
------------ ------------
Operating income 1,836,905 824,964
Interest expense (421,773) (180,608)
Other income 10,835 1,501,081
------------ ------------
Income before income taxes 1,425,967 2,145,437
Income tax expense 527,607 251,698
------------ ------------
Net income 898,360 1,893,739
Preferred dividends -- 27,922
------------ ------------
Net income available to common shareholders $ 898,360 $ 1,865,817
============ ============
Earnings per share:
Basic $ 0.13 $ 0.37
Diluted $ 0.11 $ 0.36
Weighted average Shares:
Basic 6,728,095 5,065,327
Diluted 7,827,206 5,221,441
See accompanying notes to these condensed consolidated financial statements.
2
Natural Gas Services Group, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three Months Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 898,360 $ 1,893,739
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 950,815 526,686
Deferred taxes 527,610 251,698
Amortization of debt issuance costs 16,239 16,239
Gain on disposal of assets (45,846) --
Changes in current assets and liabilities:
Trade and other receivables 1,342,909 (1,732,493)
Inventory and work in progress (1,596,502) (709,403)
Prepaid expenses and other (30,672) (53,012)
Accounts payable and accrued liabilities 829,651 1,213,472
Deferred income (226,640) (204,104)
Other assets 297,858 3,273
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,963,782 1,206,095
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (4,667,716) (2,530,447)
Assets acquired, net of cash (7,553,965) --
Proceeds from sale of property and equipment 180,166 --
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (12,041,515) (2,530,447)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank loans 13,469,113 1,952,778
Repayments of long term debt (4,014,839) (604,143)
Dividends paid on preferred stock -- (27,922)
Proceeds from exercise of warrants and stock options 309,115 23,575
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,763,389 1,344,288
-------------- --------------
NET INCREASE IN CASH 685,656 19,936
CASH AT BEGINNING OF PERIOD 685,187 176,202
-------------- --------------
CASH AT END OF PERIOD $ 1,370,843 $ 196,138
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 378,027 $ 180,608
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired for issuance of subordinated debt $ 3,000,000
==============
Assets acquired for issuance of common stock $ 5,120,438
==============
See accompanying notes to these condensed consolidated financial statements.
3
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited financial statements present the
consolidated results of our company taken from our books and records. In our
opinion, such information includes all adjustments, consisting of only normal
recurring adjustments, which are necessary to make our financial position at
March 31, 2005 and the results of our operations for the three month period
ended March 31, 2005 and 2004 not misleading. As permitted by the rules and
regulations of the Securities and Exchange Commission (SEC) the accompanying
financial statements do not include all disclosures normally required by
accounting principles generally accepted in the United States of America. These
financial statements should be read in conjunction with the financial statements
included in our Annual Report on Form 10-KSB for the year ended December 31,
2004 on file with the SEC. In our opinion, the consolidated financial statements
are a fair presentation of the financial position, results of operations and
cash flows for the periods presented.
The results of operations for the three month period ended March 31,
2005 are not necessarily indicative of the results of operations to be expected
for the full fiscal year ending December 31, 2005.
(2) Stock-based Compensation
Statement of Financial Accounting Standards No. 123 ("SFAS
123"),"Accounting for Stock-Based Compensation," encourages, but does not
require, the adoption of a fair value-based method of accounting for employee
stock-based compensation transactions. However we have elected to apply the
provisions of Accounting Principles Board Opinion No. 25 ("Opinion 25"),
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for our employee stock-based compensation plans. Under Opinion 25,
compensation cost is measured as the excess, if any, of the quoted market price
of our stock at the date of the grant above the amount an employee must pay to
acquire the stock.
Had compensation costs for options granted to our employees been
determined based on the fair value at the grant dates consistent with the method
prescribed by SFAS No. 123, our net income and earnings per share would have
been reduced to the pro forma amounts listed below:
Three Months Ended
March 31,
2005 2004
----------- -------------
Pro forma impact of fair value method
Net income available to common shareholders, as reported $ 898,360 $ 1,865,817
Pro-forma stock-based compensation costs under the fair
value method, net of related tax (46,000) (10,000)
----------- -------------
Pro-forma income applicable to common shares under the
fair-value method $ 852,360 $ 1,855,817
Earnings per common share
Basic earnings per share reported 0.13 0.37
Diluted earnings per share reported 0.11 0.36
Pro-forma basic earnings per share under the fair value method 0.13 0.37
Pro-forma diluted earnings per share under the fair value method 0.11 0.36
4
Weighted average Black-Scholes fair value assumptions:
Risk free rate 4.0%-6.8% 4.0%-5.2%
Expected life 0-10 yrs 5-10 yrs
Expected volatility 39.0% 44.0%
Expected dividend yield 0.0% 0.0%
(3) Acquisition
On October 18, 2004, we entered into a Stock Purchase Agreement with
Screw Compression Systems, Inc., or "SCS", and the stockholders of SCS. Under
this agreement, we agreed to purchase all of the outstanding shares of capital
stock of SCS for the purpose of expanding our product line, production capacity
and customer base.
SCS is a manufacturer of natural gas compressors, with its principal
offices located in Tulsa, Oklahoma.
The stockholders of SCS received, in proportionate shares (based on
their stock ownership of SCS), a total of $16.1 million.
o $8 million in cash;
o promissory notes issued by Natural Gas Services in the
aggregate principal amount of $3 million bearing interest at
the rate of 4.00% per annum, maturing three years from the
date of closing and secured by a letter of credit in the face
amount of $2 million; and
o 609,576 shares of Natural Gas Services common stock valued at
$5.1 million. All of the shares are "restricted" securities
within the meaning of Rule 144 under the Securities Act of
1933, as amended, and bear a legend to that effect.
This transaction was completed January 3, 2005 and we began reporting
combined financial results for the first quarter 2005 included in this report.
The total purchase price was $16.1 million and we recorded goodwill of
$4,984,561 and intangibles assets of $4,218,000.
The following table represents the combined results of operations on a
proforma basis with Natural Gas Services Inc. and Screw Compression Systems,
Inc. as if the acquisition had occured on January 1, 2004.
(Unaudited)
Pro Forma Results
Three Months Ended March 31, 2004
Revenue $8,900,478
Net income $2,303,348
Net Income per share, basic $0.41
Net income per share, diluted $0.40
(4) Long Term Debt
On Jan 3, 2005 we amended our existing loan agreement with Western
Natural Bank to provide additional borrowings for the cash portion of the SCS
acquisition of $8 million for 84 months and interest of 1% over the prime rate.
This funding was provided by entering into a Third Amended and Restated Loan
Agreement made and entered into by and among Natural Gas Services Group, Inc.,
and Screw Compression Systems, Inc., and Western National Bank.
5
On March 14, 2005 we amended our existing loan agreement with Western
Natural Bank to provide additional borrowings of $10 million for 60 months and
interest of 1% over the prime rate. This funding will be used to invest in the
growth of our rental fleet for the current year. This funding was provided by
entering into a Fourth Amended and Restated Loan Agreement made and entered into
by and among Natural Gas Services Group, Inc., and Screw Compression Systems,
Inc., and Western National Bank.
On May 1, 2005 we modified our existing loan agreement with Western
National Bank to reduce the current interest rate from 1% over prime to .50%
over prime and changed the current ratio calculation from 1.5 to 1.4 and this
modification also allowed us to add the $2 million restricted cash item on our
balance sheet to our current assets for calculating the bank covenants.
(5) Earnings per common share
The following table reconciles the numerators and denominators of the
basic and diluted earnings per share computation.
Three Months Ended
March 31,
-------------------------
2005 2004
----------- -----------
Basic earnings per share
Numerator:
Net income $ 898,360 $ 1,893,739
Less: dividends on preferred shares -- (27,922)
----------- -----------
Net income available to common shareholders $ 898,360 $ 1,865,817
=========== ===========
Denominator -
Weighted average common shares outstanding 6,728,095 5,065,327
=========== ===========
Basic earnings per share $ 0.13 $ 0.37
=========== ===========
Diluted earnings per share Numerator:
Net income $ 898,360 $ 1,893,739
Less: dividends on preferred shares (1) -- (27,922)
----------- -----------
Net income available to common shareholders $ 898,360 $ 1,865,817
=========== ===========
Denominator :
Weighted average common shares outstanding 6,728,095 5,065,327
Dilutive effect of common stock options
and warrants 1,099,111 156,114
Conversion of preferred shares (1) -- --
----------- -----------
7,827,206 5,221,441
=========== ===========
Diluted earnings per share $ 0.11 $ 0.36
=========== ===========
(1) Preferred shares were anti-dilutive for the three months ended March 31,
2004.
(6) Segment information
FAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for public companies relating to the
reporting of financial and descriptive information about their operating
segments in financial statements. Operating segments are components of an
6
enterprise about which separate financial information is available that is
evaluated regularly by chief operating decision makers in deciding how to
allocate resources and in assessing performance.
The Company identifies its segments based upon major revenue sources as follows:
For the three months ended March 31,2005 (in thousands of dollars)
Service &
Sales Maintenance Leasing Corporate Total
--------------------------------------------------------------------
Revenue $ 7,146 $ 464 $ 3,431 -- $ 11,041
Cost of Sales 5,622 290 1,208 -- 7,120
--------------------------------------------------------------------
Gross Margin $ 1,524 $ 174 $ 2,223 -- $ 3,921
Operating Expenses -- -- -- 2,084 2,084
Other Income/(Expense) -- -- -- (411) (411)
--------------------------------------------------------------------
Income before Provision for
Income Taxes $ 1,524 $ 174 $ 2,223 $ (2,495) $ 1,426
====================================================================
*Segment Assets -- -- -- $ 67,759 $ 67,759
====================================================================
For the three months ended March 31, 2004 (in thousands of dollars)
Service &
Sales Maintenance Leasing Corporate Total
--------------------------------------------------------------------
Revenue $ 890 $ 424 $ 2,254 -- $ 3,568
Cost of Sales 647 336 568 -- 1,551
--------------------------------------------------------------------
Gross Margin $ 243 $ 88 $ 1,686 -- $ 2,017
Operating Expenses -- -- -- 1,192 1,192
Other Income/(Expense) -- -- -- 1,320 1,320
--------------------------------------------------------------------
Income before Provision for
Income Taxes $ 243 $ 88 $ 1,686 $ 128 $ 2,145
====================================================================
*Segment Assets -- -- -- $ 32,786 $ 32,786
====================================================================
* Management does not track assets by segment.
Item 2. Management's Discussion and Analysis, or Plan of Operation
Overview
Our company provides products and services to the oil and gas industry
and is engaged in (1) the manufacture, service, sale, and rental of natural gas
compressors to enhance the productivity of oil and gas wells, and (2) the
manufacture, sale and rental of flares and flare ignition systems for plant and
production facilities.
7
Critical Accounting Policies and New Accounting Pronouncements
See our December 31, 2004 Form 10-KSB on file with the SEC for a
discussion of our critical accounting policies and new accounting
pronouncements. There have been no substantive changes since that time.
Liquidity and Capital Resources
We have funded our operations through public and private offerings of
our common and preferred stock, subordinated debt, regular bank debt and cash
flow. Proceeds were primarily used to pay debt and to fund the manufacture and
fabrication of additional units for our rental fleet of natural gas compressors.
At March 31, 2005, we had cash and cash equivalents of approximately
$1,371,000, working capital of $4,127,000 and bank debt of $24,400,000 of which
approximately $5,399,000 was classified as current. We had positive net cash
flow from operating activities of approximately $2,964,000 during the first
three months of 2005. This was primarily from net income of $898,000 plus
depreciation and amortization of $951,000 an increase in deferred taxes of
$528,000, an increase in accounts payable and accrued liabilities of $830,000, a
decrease in accounts receivable-trade of $1,343,000, and an increase in other
asset of $299,000, offset by an increase in deferred income of $226,000, and an
increase in inventory of $1,597,000.
For the three months ended March 31, 2005, we invested approximately
$4,668,000 in equipment for our rental fleet and in service vehicles. We
financed this activity with bank debt of approximately $3,685,000 and the
remainder from operations.
On January 3, 2005, Natural Gas Services Group, Inc. finalized and
funded the Stock Purchase Agreement, with Screw Compression Systems, Inc., or
"SCS", and the stockholders of SCS, dated October 18, 2004. Under this
agreement, Natural Gas Services Group purchased all of the outstanding shares of
capital stock of SCS.
SCS manufacturers natural gas compressors, and maintains its principal
offices located in Tulsa, Oklahoma.
The stockholders of SCS received, in proportionate shares (based on
their stock ownership of SCS), a total of $16.1 million, consisting of:
o $8 million in cash;
o promissory notes issued by Natural Gas Services in the
aggregate principal amount of $3 million, bearing interest at
the rate of four percent (4.00%) per annum, maturing three
years from the date of closing and secured by a letter of
credit in the face amount of $2 million; and
o 609,576 shares of Natural Gas Services common stock valued at
$5.1 million, based on the average of the daily closing prices
of the common stock for the ninety consecutive trading days
ended April 28, 2004. All of the shares issued are
"restricted" securities within the meaning of Rule 144 under
the Securities Act of 1933, as amended, and bear a legend to
that effect.
On March 14, 2005 we amended our existing loan agreement with Western
Natural Bank to provide additional borrowings of $10 million for 60 months and
interest of 1.0% over the prime rate. This funding will be used to invest in the
growth of our rental fleet for the current year. This funding was provided by
entering into a Fourth Amended and Restated Loan Agreement made and entered into
by and among Natural Gas Services Group, Inc., and Screw Compression Systems,
Inc., and Western National Bank.
8
Results of Operations
Three months ended March 31, 2005, Compared to the Three months ended March 31,
2004.
Total revenue increased from $3,568,000 to $11,041,000 or 209% for the
three months ended March 31, 2005 compared to the same period ended March 31,
2004. This was mainly the result of increased leasing income and the addition of
revenue from the acquisition of SCS.
Sales revenue from outside sources increased from $890,000 to
$7,146,000, or 703% for the three months ended March 31, 2005 compared to the
same period ended March 31, 2004. Sales from outside sources included: (1)
Compressor unit sales, (2) Flare sales, (3) Parts sales and (4) Compressor
rebuilds. This increase was mainly the result of the sale of compressor units to
outside third parties by SCS in the three months ended March 31, 2005 compared
to the same period in 2004. SCS's outside sales were $6,756,000 for three months
ended March 31, 2005.
Service and maintenance revenue increased from $424,000 to $464,000, or
9% for the three months ended March 31, 2005 compared to the same period ended
March 31, 2004.
Leasing revenue increased from $2,255,000 to $3,431,000, or 52% for the
three months ended March 31, 2005 compared to the same period ended March 31,
2004. This increase was the result of additional units added to our rental fleet
and leased to third parties. The company ended the period with 661 compressor
packages in its rental fleet, up from 585 units at December 31, 2004 and 444
units at March 31, 2004.
-------------------------------------------------------------------
Total Revenue Percentage Breakdown for Three months ended March 31,
2005
-------------------------------------------------------------------
Sales Revenue 65%
----------------------------------- ------ ------------------------
Service & Maintenance Revenue 4%
----------------------------------- ------ ------------------------
Leasing Revenue 31%
----------------------------------- ------ ------------------------
The gross margin percentage decreased from 57% for the three months
ended March 31, 2004, to 36% for the same period ended March 31, 2005. This
decrease resulted mainly from the relative increase in compressor sales revenue
as a percentage of the total revenue. Our rental fleet carries a gross margin
averaging 65%, and compressor sales margins average 21% therefore the total
margins decrease as the lower margin product sales increase.
Selling, general and administrative expense increased from $666,000 to
$1,133,000 or 70% for the three months ended March 31, 2005, as compared to the
same period ended March 31, 2004. This was mainly the result of the increased
expenses attributed to the SCS acquisition. The selling, general and
administrative expenses for SCS for the quarter amount to 70% of the increase.
Depreciation and amortization expense increased 81% from $527,000 to
$951,000 for the three months ended March 31, 2005, compared to the same period
ended March 31, 2004. This increase was the result of 217 new gas compressor
rental units being added to rental equipment from March 31, 2004 to March 31,
2005.
9
Other income and expense decreased approximately $1,490,000 for the
three months ended March 31, 2005, compared to the same period ended March 31,
2004. This decrease was due mainly to the receipt of $1,500,000 in life
insurance payable upon the death of Mr. Wayne L. Vinson, our former President
and C.E.O in early 2004. His death on March 15, 2004 left the company as the
beneficiary of two life insurance policies, one for $1,000,000, and one for
$500,000.
Interest expense increased 134% for the three months ended March 31,
2005 compared to the same period ended March 31, 2004, mainly due to increased
loan balances financing rental equipment and the loan for acquisition of SCS.
Provision for income tax increased $276,000 or 110%, because taxable
income increased after giving effect to the non taxable life insurance proceeds
received in 2004.
Forward Looking Statements
Some statements contained in this Report, and the documents
incorporated by reference, are "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 (or Securities Act) and Section 21E
of the Exchange Act. These statements include, without limitation, statements
relating to oil and gas prices, demand for oil and gas, budgets, business
strategies and other plans, intentions and objectives of our management for
future operations and activities and other such matters. The words "believe",
"budget", "plan", "estimate", "expect", "intend", "strategy", "project", "will",
"could", "may", "anticipate", "continue", and similar expressions identify
forward-looking statements. We believe the assumptions and expectations
reflected in these forward-looking statements are reasonable. However, we cannot
give any assurance that our expectations will prove to be correct or that we
will be able to take any actions that are presently planned. Actual results
could differ materially from those expressed in the forward-looking statements.
Factors that could cause such a difference include:
o fluctuations in prices of oil and gas;
o future capital requirements and availability of financing;
o competition;
o general economic conditions;
o governmental regulations;
o receipt of amounts owed to us by our customers;
o events similar to 9/11; and
o fluctuations in interest rates and availability of capital.
You are cautioned not to place undue reliance on any of our
forward-looking statements, which speak only as of the date of the document or
in the case of documents incorporated by reference, the date of those documents.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
10
1934) as of the end of the period covered by this report. Based upon that
evaluation, our chief executive officer and chief financial officer concluded
that, as of the end of the period covered by this report, our disclosure
controls and procedures were effective with respect to timely communicating to
them and other members of management responsible for preparing periodic reports
all material information required to be disclosed in our periodic filings with
the SEC.
(b) Changes in internal controls.
There were no changes in our internal controls during the period
covered by this report that have materially affected or are reasonably likely to
materially affect our internal controls over financial reporting. In addition,
to our knowledge there were no changes in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
11
PART II - OTHER INFORMATION
NATURAL GAS SERVICES GROUP, INC.
Item 1. Legal Proceedings
From time to time, we are a party to ordinary routine litigation
incidental to our business. We are not currently a party to any pending
litigation, and we are not aware of any threatened litigation, except for one
claim made by Karifico Consultants in connection with our acquisition of Screw
Compression Systems, Inc. As we have previously reported, Karifico Consultants
has advised us that a finder's fee in the amount of $300,000 is owed to Karifico
under terms of an agreement dated November 3, 2003 between Karifico and us.
However, in reliance on a subsequent verbal amendment of the agreement, we
tendered payment in the amount of $150,000 in full satisfaction of Karifico's
claim under the November 3, 2003 agreement. Karifico disputes that its claims
have been fully satisfied.
Item 6. Exhibits
The following exhibits are filed herewith or incorporated herein by
reference, as indicated:
Exhibit No. Description
----------- -----------
2.1 Purchase and Sale Agreement by and between Hy-Bon Engineering
Company, Inc. and NGE Leasing, Inc. (Incorporated by reference
to Exhibit 2.1 of the Registrant's Current Report on Form 8-K
dated February 28, 2003 and filed with the Securities and
Exchange Commission on March 6, 2003)
3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1 of the 10QSB filed and dated November
10, 2004)
3.2 Bylaws (Incorporated by reference to Exhibit 3.4 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
4.1 Form of warrant certificate (Incorporated by reference to
Exhibit 4.1 of the Registrant's Registration Statement on Form
SB-2, No. 333-88314)
4.2 Form of warrant agent agreement (Incorporated by reference to
Exhibit 4.2 of the Registrant's Registration Statement on Form
SB-2, No. 333-88314)
4.3 Form of lock-up agreement (Incorporated by reference to
Exhibit 4.3 of the Registrant's Registration Statement on Form
SB-2, No. 333-88314)
4.4 Form of representative's option for the purchase of common
stock (Incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
12
4.5 Form of representative's option for the purchase of warrants
(Incorporated by reference to Exhibit 4.5 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
4.6 Stockholders Agreement, dated January 3, 2005 among Paul D.
Hensley, Tony Vohjesus, Jim Hazlett and Natural Gas Services
Group, Inc. (Incorporated by reference to Exhibit 4.3 of the
Registrant's From 8-K Report, dated January 3, 2005, as filed
with the Securities and Exchange Commission on January 7,
2005)
Executive Compensation Plans and Arrangements (Exhibits 10.1,
10.24, 10.25 and 10.26)
10.1 1998 Stock Option Plan (Incorporated by reference to Exhibit
10.1 of the Registrant's Registration Statement on Form SB-2,
No. 333-88314)
10.2 Asset Purchase Agreement, dated January 1, 2001, between the
Registrant and Great Lakes Compression, Inc. (Incorporated by
reference to Exhibit 10.2 of the Registrant's Registration
Statement on Form SB-2, No. 333-88314)
10.3 Exhibits 3(c)(1), 3(c)(2), 3(c)(3), 3(c)(4), 13(d)(1),
13(d)(2) and 13(d)(3) to Asset Purchase Agreement, dated
January 1, 2001, between the Registrant and Great Lakes
Compression, Inc. (Incorporated by reference to Exhibit 10.14
of the Registrant's Registration Statement on Form SB-2, No.
333-88314)
10.4 Amendment to Guaranty Agreement between Natural Gas Services
Group, Inc. and Dominion Michigan Production Services, Inc.
(Incorporated by reference to Exhibit 10.3 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
10.5 Form of Series A 10% Subordinated Notes due December 31, 2006
(Incorporated by reference to Exhibit 10.8 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
10.6 Form of Five-Year Warrants to Purchase Common Stock
(Incorporated by reference to Exhibit 10.9 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
10.7 Warrants issued to Berry-Shino Securities, Inc. (Incorporated
by reference to Exhibit 10.10 of the Registrant's Registration
Statement on Form SB-2, No. 333-88314)
10.8 Warrants issued to Neidiger, Tucker, Bruner, Inc.
(Incorporated by reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
10.9 Form of warrant issued in March 2001 for guaranteeing debt
(Incorporated by reference to Exhibit 10.12 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
13
10.10 Form of warrant issued in April 2002 for guaranteeing debt
(Incorporated by reference to Exhibit 10.13 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
10.11 Articles of Organization of Hy-Bon Rotary Compression, L.L.C.,
dated April 17, 2000 (Incorporated by reference to Exhibit
10.18 of the Registrant's Registration Statement on Form SB-2,
No. 333-88314)
10.12 Regulations of Hy-Bon Rotary Compression, L.L.C. (Incorporated
by reference to Exhibit 10.19 of the Registrant's Registration
Statement on Form SB-2, No. 333-88314)
10.13 First Amended and Restated Loan Agreement between the
Registrant and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K, dated March 27, 2003 and filed with the
Securities and Exchange Commission on April 14, 2003)
10.14 Form of Termination of Employment Agreement Letter relating to
the Employment Agreement of Alan Kurus (Incorporated by
reference to Exhibit 10.25 of the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2002)
10.15 Form of Termination of Employment Agreement Letter relating to
the Employment Agreement of Wayne Vinson (Incorporated by
reference to Exhibit 10.26 of the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2002)
10.16 Form of Termination of Employment Agreement Letter relating to
the Employment Agreement of Earl Wait (Incorporated by
reference to Exhibit 10.27 of the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2002)
10.17 Triple Net Lease Agreement, dated June 1, 2003, between NGE
Leasing, Inc. and Steven J. & Katherina L. Winer (Incorporated
by reference to Exhibit 10.17 of the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2003)
10.18 Lease Agreement, dated June 19, 2003, between NGE Leasing,
Inc. and Wise Commercial Properties (Incorporated by reference
to Exhibit 10.18 of the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2003)
10.19 Lease Agreement, dated March 1, 2004, between the Registrant
and the City of Midland, Texas (Incorporated by reference to
Exhibit 10.19 of the Registrant's Form 10-QSB for the fiscal
quarter ended June 30, 2004)
10.20 Second Amended and Restated Loan Agreement, dated November 3,
2003, between the Registrant and Western National Bank
(Incorporated by reference to Exhibit 10.20 of the
Registrant's Form 10-QSB for the fiscal quarter ended June 30,
2004)
14
10.21 Securities Purchase Agreement, dated July 20, 2004, between
the Registrant and CBarney Investments, Ltd. (Incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated July 20, 2004 and filed with the Securities and
Exchange Commission on July 27, 2004)
10.22 Stock Purchase Agreement, dated October 18, 2004, by and among
the Registrant, Screw Compression Systems, Inc., Paul D.
Hensley, Jim Hazlett and Tony Vohjesus (Incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated October 18, 2004 and filed with the Securities
and Exchange Commission on October 21, 2004)
10.23 Fourth Amended and Restated Loan Agreement (Incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K, dated March 14, 2005 as filed with the Securities
and Exchange Commission on March 18, 2005)
10.24 Employment Agreement between Paul D. Hensley and Natural Gas
Services Group, Inc. (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report, dated January 3,
2005, as filed with the Securities and Exchange Commission on
January 7, 2005)
10.25 Employment Agreement between William R. Larkin and Natural Gas
Services Group, Inc. (Incorporated by reference to Exhibit
10.25 of the Registrant's Form 10-KSB for the fiscal year
ended December 31, 2004, and filed with the Securities and
Exchange Commission on March 30, 2005)
10.26 Promissory Note, dated January 3, 2005, in the original
principal amount of $2,100,000.00 made by Natural Gas Services
Group, Inc. payable to Paul D. Hensley (Incorporated by
reference to Exhibit 10.26 of the Registrant's Form 10-KSB for
the fiscal year ended December 31, 2004, and filed with the
Securities and Exchange Commission on March 30, 2005)
10.27 Third Amended and Restated Loan Agreement, dated as of January
3, 2005, among Natural Gas Services Group, Inc., Screw
Compression Systems, Inc. and Western National Bank
(Incorporated by reference to Exhibit 10.1 of the Registrant's
current Report on form 8-K, dated January 3, 2005, and filed
with the Securities and Exchange Commission on January 7,
2005)
10.28 Modification Agreement, dated as of January 3, 2005, by and
between Natural Gas Services Group, Inc. and Western National
Bank (Incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K, dated January 3,
2005, and filed with the Securities and Exchange Commission on
January 7, 2005)
10.29 Guaranty Agreement, dated as of January 3, 2005, made by
Natural Gas Service Group, Inc., for the benefit of Western
National Bank (Incorporated by reference to Exhibit 10.3 of
the Registrant's Current Report on Form 8-K, dated January 3,
2005, and filed with the Securities and Exchange Commission on
January 7, 2005)
10.30 Guaranty Agreement, dated as of January 3, 2005, made by Screw
Compression Systems, Inc., for the benefit of Western National
Bank (Incorporated by reference to Exhibit 10.4 of the
Registrant's Current Report on Form 8-K, dated January 3,
2005, and filed with the Securities and Exchange Commission on
January 7, 2005)
15
10.31 Third Amended and Restated Loan Agreement (Incorporated by
reference to Exhibit 10.1 of the Registrant's Form 8-K dated
January 3, 2005 and filed with the Securities and Exchange
Commission January 3, 2005)
10.32 First Modification to Fourth Amended and Restated Loan
Agreement (Incorporated by reference Exhibit 10.1 of the
Registrant's Form 8-K dated May 1, 2005 and filed with
Securities and Exchange Commission May 13, 2005)
14.0 Code of Ethics (Incorporated by reference to Exhibit 14.0 of
the Registrant's Form 10-KSB for the fiscal year ended
December 31, 2004, and filed with the Securities and Exchange
Commission on March 30, 2005)
21.0 Subsidiaries (Incorporated by reference to Exhibit 21.0 of the
Registrant's Form 10-KSB for the fiscal year ended December
31, 2004, and filed with the Securities and Exchange
Commission on March 30, 2005)
*31.1 Certification of Chief Executive Officer required by Section
302 of the Sarbanes-Oxley Act of 2002
*31.2 Certification of Chief Financial Officer required by Section
302 of the Sarbanes-Oxley Act of 2002
*32.1 Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002
*32.2 Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002
* Filed herewith.
16
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NATURAL GAS SERVICES GROUP, INC.
By: /s/ Stephen Taylor
-----------------------------
Stephen Taylor
President and Chief Executive
Officer
By: /s/ Earl R. Wait
------------------------------
Earl R. Wait
Chief Financial Officer
And Treasurer
May 16, 2005
17
INDEX TO EXHIBITS:
Exhibit No. Description
----------- -----------
2.1 Purchase and Sale Agreement by and between Hy-Bon Engineering
Company, Inc. and NGE Leasing, Inc. (Incorporated by reference
to Exhibit 2.1 of the Registrant's Current Report on Form 8-K
dated February 28, 2003 and filed with the Securities and
Exchange Commission on March 6, 2003)
3.1 Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1 of the 10QSB filed and dated November
10, 2004)
3.2 Bylaws (Incorporated by reference to Exhibit 3.4 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
4.1 Form of warrant certificate (Incorporated by reference to
Exhibit 4.1 of the Registrant's Registration Statement on Form
SB-2, No. 333-88314)
4.2 Form of warrant agent agreement (Incorporated by reference to
Exhibit 4.2 of the Registrant's Registration Statement on Form
SB-2, No. 333-88314)
4.3 Form of lock-up agreement (Incorporated by reference to
Exhibit 4.3 of the Registrant's Registration Statement on Form
SB-2, No. 333-88314)
4.4 Form of representative's option for the purchase of common
stock (Incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
4.5 Form of representative's option for the purchase of warrants
(Incorporated by reference to Exhibit 4.5 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
4.6 Stockholders Agreement, dated January 3, 2005 among Paul D.
Hensley, Tony Vohjesus, Jim Hazlett and Natural Gas Services
Group, Inc. (Incorporated by reference to Exhibit 4.3 of the
Registrant's From 8-K Report, dated January 3, 2005, as filed
with the Securities and Exchange Commission on January 7,
2005)
Executive Compensation Plans and Arrangements (Exhibits 10.1,
10.24, 10.25 and 10.26)
10.1 1998 Stock Option Plan (Incorporated by reference to Exhibit
10.1 of the Registrant's Registration Statement on Form SB-2,
No. 333-88314)
10.2 Asset Purchase Agreement, dated January 1, 2001, between the
Registrant and Great Lakes Compression, Inc. (Incorporated by
reference to Exhibit 10.2 of the Registrant's Registration
Statement on Form SB-2, No. 333-88314)
10.3 Exhibits 3(c)(1), 3(c)(2), 3(c)(3), 3(c)(4), 13(d)(1),
13(d)(2) and 13(d)(3) to Asset Purchase Agreement, dated
January 1, 2001, between the Registrant and Great Lakes
Compression, Inc. (Incorporated by reference to Exhibit 10.14
of the Registrant's Registration Statement on Form SB-2, No.
333-88314)
18
10.4 Amendment to Guaranty Agreement between Natural Gas Services
Group, Inc. and Dominion Michigan Production Services, Inc.
(Incorporated by reference to Exhibit 10.3 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
10.5 Form of Series A 10% Subordinated Notes due December 31, 2006
(Incorporated by reference to Exhibit 10.8 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
10.6 Form of Five-Year Warrants to Purchase Common Stock
(Incorporated by reference to Exhibit 10.9 of the Registrant's
Registration Statement on Form SB-2, No. 333-88314)
10.7 Warrants issued to Berry-Shino Securities, Inc. (Incorporated
by reference to Exhibit 10.10 of the Registrant's Registration
Statement on Form SB-2, No. 333-88314)
10.8 Warrants issued to Neidiger, Tucker, Bruner, Inc.
(Incorporated by reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
10.9 Form of warrant issued in March 2001 for guaranteeing debt
(Incorporated by reference to Exhibit 10.12 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
10.10 Form of warrant issued in April 2002 for guaranteeing debt
(Incorporated by reference to Exhibit 10.13 of the
Registrant's Registration Statement on Form SB-2, No.
333-88314)
10.11 Articles of Organization of Hy-Bon Rotary Compression, L.L.C.,
dated April 17, 2000 (Incorporated by reference to Exhibit
10.18 of the Registrant's Registration Statement on Form SB-2,
No. 333-88314)
10.12 Regulations of Hy-Bon Rotary Compression, L.L.C. (Incorporated
by reference to Exhibit 10.19 of the Registrant's Registration
Statement on Form SB-2, No. 333-88314)
10.13 First Amended and Restated Loan Agreement between the
Registrant and Western National Bank (Incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K, dated March 27, 2003 and filed with the
Securities and Exchange Commission on April 14, 2003)
10.14 Form of Termination of Employment Agreement Letter relating to
the Employment Agreement of Alan Kurus (Incorporated by
reference to Exhibit 10.25 of the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2002)
19
10.15 Form of Termination of Employment Agreement Letter relating to
the Employment Agreement of Wayne Vinson (Incorporated by
reference to Exhibit 10.26 of the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2002)
10.16 Form of Termination of Employment Agreement Letter relating to
the Employment Agreement of Earl Wait (Incorporated by
reference to Exhibit 10.27 of the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 2002)
10.17 Triple Net Lease Agreement, dated June 1, 2003, between NGE
Leasing, Inc. and Steven J. & Katherina L. Winer (Incorporated
by reference to Exhibit 10.17 of the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31,
2003)
10.18 Lease Agreement, dated June 19, 2003, between NGE Leasing,
Inc. and Wise Commercial Properties (Incorporated by reference
to Exhibit 10.18 of the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2003)
10.19 Lease Agreement, dated March 1, 2004, between the Registrant
and the City of Midland, Texas (Incorporated by reference to
Exhibit 10.19 of the Registrant's Form 10-QSB for the fiscal
quarter ended June 30, 2004)
10.20 Second Amended and Restated Loan Agreement, dated November 3,
2003, between the Registrant and Western National Bank
(Incorporated by reference to Exhibit 10.20 of the
Registrant's Form 10-QSB for the fiscal quarter ended June 30,
2004)
10.21 Securities Purchase Agreement, dated July 20, 2004, between
the Registrant and CBarney Investments, Ltd. (Incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated July 20, 2004 and filed with the Securities and
Exchange Commission on July 27, 2004)
10.22 Stock Purchase Agreement, dated October 18, 2004, by and among
the Registrant, Screw Compression Systems, Inc., Paul D.
Hensley, Jim Hazlett and Tony Vohjesus (Incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated October 18, 2004 and filed with the Securities
and Exchange Commission on October 21, 2004)
10.23 Fourth Amended and Restated Loan Agreement (Incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K, dated March 14, 2005 as filed with the Securities
and Exchange Commission on March 18, 2005)
10.24 Employment Agreement between Paul D. Hensley and Natural Gas
Services Group, Inc. (Incorporated by reference to Exhibit
10.1 of the Registrants Form 8-K Report, dated January 3,
2005, as filed with the Securities and Exchange Commission on
January 7, 2005)
10.25 Employment Agreement between William R. Larkin and Natural Gas
Services Group, Inc. (Incorporated by reference to Exhibit
10.25 of the Registrant's Form 10-KSB for the fiscal year
ended December 31, 2004, and filed with the Securities and
Exchange Commission on March 30, 2005)
20
10.26 Promissory Note, dated January 3, 2005, in the original
principal amount of $2,100,000.00 made by Natural Gas Services
Group, Inc. payable to Paul D. Hensley (Incorporated by
reference to Exhibit 10.26 of the Registrant's Form 10-KSB for
the fiscal year ended December 31, 2004, and filed with the
Securities and Exchange Commission on March 30, 2005)
10.27 Third Amended and Restated Loan Agreement, dated as of January
3, 2005, among Natural Gas Services Group, Inc., Screw
Compression Systems, Inc. and Western National Bank
(Incorporated by reference to Exhibit 10.1 of the Registrant's
current Report on form 8-K, dated January 3, 2005, and filed
with the Securities and Exchange Commission on January 7,
2005)
10.28 Modification Agreement, dated as of January 3, 2005, by and
between Natural Gas Services Group, Inc. and Western National
Bank (Incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K, dated January 3,
2005, and filed with the Securities and Exchange Commission on
January 7, 2005)
10.29 Guaranty Agreement, dated as of January 3, 2005, made by
Natural Gas Service Group, Inc., for the benefit of Western
National Bank (Incorporated by reference to Exhibit 10.3 of
the Registrant's Current Report on Form 8-K, dated January 3,
2005, and filed with the Securities and Exchange Commission on
January 7, 2005)
10.30 Guaranty Agreement, dated as of January 3, 2005, made by Screw
Compression Systems, Inc., for the benefit of Western National
Bank (Incorporated by reference to Exhibit 10.4 of the
Registrant's Current Report on Form 8-K, dated January 3,
2005, and filed with the Securities and Exchange Commission on
January 7, 2005)
10.31 Third Amended and Restated Loan Agreement (Incorporated by
reference to Exhibit 10.1 of the Registrant's Form 8-K dated
January 3, 2005 and filed with the Securities and Exchange
Commission January 3, 2005)
10.32 First Modification to Fourth Amended and Restated Loan
Agreement (Incorporated by reference Exhibit 10.1 of the
Registrant's Form 8-K dated May 1, 2005 and filed with
Securities and Exchange Commission May 13, 2005)
14.0 Code of Ethics (Incorporated by reference to Exhibit 14.0 of
the Registrant's Form 10-KSB for the fiscal year ended
December 31, 2004, and filed with the Securities and Exchange
Commission on March 30, 2005)
21.0 Subsidiaries (Incorporated by reference to Exhibit 21.0 of the
Registrant's Form 10-KSB for the fiscal year ended December
31, 2004, and filed with the Securities and Exchange
Commission on March 30, 2005)
21
*31.1 Certification of Chief Executive Officer required by Section
302 of the Sarbanes-Oxley Act of 2002
*31.2 Certification of Chief Financial Officer required by Section
302 of the Sarbanes-Oxley Act of 2002
*32.1 Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002
*32.2 Certification required by Section 906 of the Sarbanes-Oxley
Act of 2002
-------------------------
* Filed herewith.