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NATURAL GAS SERVICES GROUP INC - Quarter Report: 2015 March (Form 10-Q)



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
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 registrant as specified in its charter)
Colorado
 
75-2811855
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
508 W. Wall St., Ste 550
Midland, Texas 79701
(Address of principal executive offices)
(432) 262-2700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes   x
 
No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer   x
Non-accelerated filer o
Smaller reporting company o
 
 
 (Do not check if smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
 
No x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
 
May 1, 2015
Common Stock, $0.01 par value
 
12,733,527




Part I - FINANCIAL INFORMATION
 
 
 
 
 
Item 1.  Financial Statements
 
 
 
 
 
Page
 
 
 
Page
 
 
 
Page
 
 
 
Page
 
 
 
Page
 
 
 
Page
 
 
 
Page
 
 
 
Part II - OTHER INFORMATION
 
 
 
 
 
Page
 
 
 
Page
 
 
 
Page
 
 
 
Page





PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements
 NATURAL GAS SERVICES GROUP, INC.
CONDENSED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
 
 
 
 
 
March 31,
 
December 31,
 
2015
 
2014
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
8,620

 
$
6,181

Trade accounts receivable, net of allowance for doubtful accounts of $670 and $507, respectively
9,629

 
10,408

Inventory, net
27,478

 
32,624

Prepaid income taxes
5,007

 
6,242

Prepaid expenses and other
426

 
472

Total current assets
51,160

 
55,927

Rental equipment, net of accumulated depreciation of $111,538 and $106,179, respectively
209,807

 
208,292

Property and equipment, net of accumulated depreciation of $10,776 and $10,830 respectively
8,802

 
7,362

Goodwill
10,039

 
10,039

Intangibles, net of accumulated amortization of $1,288 and $1,257, respectively
1,871

 
1,902

Other assets
41

 
41

Total assets
$
281,720

 
$
283,563

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
2,325

 
4,990

Accrued liabilities
2,963

 
6,624

Current income tax liability
1,501

 
851

Deferred income
907

 
1,635

Total current liabilities
7,696

 
14,100

Line of credit, non-current portion
417

 
417

Deferred income tax liability
58,895

 
58,304

Other long-term liabilities
148

 
155

Total liabilities
67,156

 
72,976

Commitments and contingencies (Note 7)

 

Stockholders’ Equity:
 
 
 
Preferred stock, 5,000 shares authorized, no shares issued or outstanding

 

Common stock, 30,000 shares authorized, par value $0.01; 12,578 and 12,466 shares issued and outstanding, respectively
126

 
124

Additional paid-in capital
95,346

 
95,065

Retained earnings
119,092

 
115,398

Total stockholders' equity
214,564

 
210,587

Total liabilities and stockholders' equity
$
281,720

 
$
283,563


See accompanying notes to these unaudited condensed financial statements.

1



NATURAL GAS SERVICES GROUP, INC.
CONDENSED INCOME STATEMENTS
(in thousands, except earnings per share)
(unaudited)
 
 
 
Three months ended
 
March 31,
 
2015
 
2014
Revenue:
 
 
 
Rental income
$
20,603

 
$
18,789

Sales, net
3,912

 
3,338

Service and maintenance income
226

 
195

Total revenue
24,741

 
22,322

Operating costs and expenses:
 
 
 
Cost of rentals, exclusive of depreciation stated separately below
7,727

 
7,956

Cost of sales, exclusive of depreciation stated separately below
2,813

 
2,235

Cost of service and maintenance, exclusive of depreciation and amortization stated separately below
38

 
84

Selling, general, and administrative expense
2,588

 
2,643

Depreciation and amortization
5,788

 
5,042

Total operating costs and expenses
18,954

 
17,960

Operating income
5,787

 
4,362

Other income (expense):
 
 
 
Interest expense
(3
)
 
(2
)
Other income
42

 
5

Total other income (expense)
39

 
3

Income before provision for income taxes
5,826

 
4,365

Provision for income taxes
2,132

 
1,509

Net income
$
3,694

 
$
2,856

Earnings per share:
 
 
 
Basic
$
0.30

 
$
0.23

Diluted
$
0.29

 
$
0.23

Weighted average shares outstanding:
 

 
 
Basic
12,504

 
12,373

Diluted
12,713

 
12,692


See accompanying notes to these unaudited condensed financial statements.


2



NATURAL GAS SERVICES GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
 
Three months ended
 
March 31,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
3,694

 
$
2,856

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
5,788

 
5,042

Deferred income taxes
591

 
40

Stock based compensation
794

 
749

Bad debt allowance
160

 
49

Gain on disposal of assets
(44
)
 

Changes in current assets and liabilities:
 
 
 
Trade accounts receivables
619

 
94

Inventory
5,146

 
1,068

Prepaid expenses
1,184

 
1,578

Accounts payable and accrued liabilities
(6,229
)
 
(781
)
Current income tax liability
307

 
(289
)
Deferred income
(728
)
 
(742
)
Other

 
(6
)
Tax benefit from equity compensation
343

 
(43
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
11,625

 
9,615

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of property and equipment
(8,712
)
 
(13,439
)
Proceeds from sale of property and equipment
44

 

NET CASH USED IN INVESTING ACTIVITIES
(8,668
)
 
(13,439
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Payments from other long-term liabilities, net
(7
)
 
(9
)
Repayments of line of credit, net

 
(80
)
Proceeds from exercise of stock options
492

 
34

Taxes paid related to net share settlement of equity awards
(660
)
 

Tax benefit from equity compensation
(343
)
 
43

NET CASH USED IN FINANCING ACTIVITIES
(518
)
 
(12
)
NET CHANGE IN CASH AND CASH EQUIVALENTS
2,439

 
(3,836
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
6,181

 
24,443

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
8,620

 
$
20,607

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Interest paid
$
3

 
$
2

Income taxes paid
$

 
$


See accompanying notes to these unaudited condensed financial statements.

3



Natural Gas Services Group, Inc.
Notes to Condensed Financial Statements
(unaudited)

(1) Basis of Presentation and Summary of Significant Accounting Policies

These notes apply to the unaudited condensed financial statements of Natural Gas Services Group, Inc. a Colorado corporation (the "Company", “NGSG”, "Natural Gas Services Group", "we" or "our").  

The accompanying unaudited condensed financial statements include all adjustments, consisting of only normal recurring adjustments, which are necessary to make our financial position at March 31, 2015 and the results of our operations for the three months ended March 31, 2015 and 2014 not misleading.  As permitted by the rules and regulations of the Securities and Exchange Commission (SEC), the accompanying condensed financial statements do not include all disclosures normally required by generally accepted accounting principles in the United States of America (GAAP).  These financial statements should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 on file with the SEC.  In our opinion, the condensed 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 months ended March 31, 2015 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2015.

Revenue Recognition

Revenue from the sales of custom and fabricated compressors, and flare systems is recognized upon shipment of the equipment to customers or when all conditions have been met and title is transferred to the customer. Exchange and rebuild compressor revenue is recognized when both the replacement compressor has been delivered and the rebuild assessment has been completed. Revenue from compressor services is recognized upon providing services to the customer. Maintenance agreement revenue is recognized as services are rendered. Rental revenue is recognized over the terms of the respective rental agreements based upon the classification of the rental agreement. Deferred income represents payments received before a product is shipped.  Revenue from the sale of rental units is included in sales revenue when equipment is shipped or title is transferred to the customer.

Fair Value of Financial Instruments

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

On May 28, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as part of a joint project with the International Accounting Standards Board (IASB) to clarify revenue-recognizing principles and develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU No. 2014-09 finalizes Proposed ASU Nos. 1820-100, 2011-230 and 2011-250 and is expected, among other things, to remove inconsistencies and weaknesses in revenue requirements and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. In particular, the amendments in this ASU will be added to the FASB Accounting Standards Codification (FASB ASC) as Topic 606, Revenue from Contracts with Customers, and will supersede the revenue recognition requirements in FASB ASC 605, Revenue Recognition, as well as some cost guidance in FASB ASC Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. For public entities, the amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is prohibited. In April 2015, the FASB proposed a one-year deferral of the effective date for ASU 2014-09. Additionally, an entity should apply the amendments either retrospectively to each

4



prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects the latter, transition method, then it must also provide the additional disclosures in reporting periods that include the date of initial application of (1) the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and (2) an explanation of the reasons for significant changes. The new standard will be effective during our first quarter ending March 31, 2017. Under the proposal, the new standard will be effective during our first quarter ending March 31, 2018.We are currently evaluating the new standard to determine which reporting option allows us to report the most meaningful information and are still evaluating the potential impact this new standard may have on our financial statements.


5



(2) Stock-Based Compensation

Stock Options:

A summary of option activity under our 1998 Stock Option Plan as of December 31, 2014, and changes during the three months ended March 31, 2015 is presented below.

 
Number
 of
Stock Options
 
Weighted Average
Exercise
 Price
 
Weighted
Average
Remaining
Contractual Life (years)
 
Aggregate
Intrinsic
Value
(in thousands)
Outstanding, December 31, 2014
432,269

 
$
17.55

 
10.10
 
$
2,786

Granted

 

 

 


Exercised
(50,000
)
 
9.84

 

 


Canceled/Forfeited
(1,500
)
 
30.41

 
 
 


Outstanding, March 31, 2015
380,769

 
$
18.52

 
5.17
 
$
957

Exercisable, March 31, 2015
325,599

 
$
17.05

 
4.56
 
$
951

    
The following table summarizes information about our stock options outstanding at March 31, 2015:

 
Range of Exercise Prices
Options Outstanding
 
Options Exercisable
Shares
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Weighted
Average
Exercise
Price
 
Shares
 
Weighted
Average
Exercise
Price
$0.01-15.70
95,852

 
3.96
 
$
11.26

 
95,852

 
$
11.26

$15.71-17.81
102,750

 
4.44
 
17.51

 
102,750

 
17.51

$17.82-20.48
124,667

 
4.93
 
19.60

 
111,167

 
19.71

$20.49-33.36
57,500

 
9.04
 
30.05

 
15,830

 
30.41

 
380,769

 
5.17
 
$
18.52

 
325,599

 
$
17.05



The summary of the status of our unvested stock options as of December 31, 2014 and changes during the three months ended March 31, 2015 is presented below.

 
 
 
Unvested stock options:
Shares
 
Weighted Average
Grant Date Fair Value
Unvested at December 31, 2014
91,834

 
$
14.19

Granted

 

Vested
(35,164
)
 
12.88

Canceled/Forfeited
(1,500
)
 
16.79

Unvested at March 31, 2015
55,170

 
$
14.95


As of March 31, 2015, there was $693,517 of unrecognized compensation cost related to unvested options.  Such cost is expected to be recognized over a weighted-average period of 1.8 years. Total compensation expense for stock options was $114,002 and $56,790 for the three months ended March 31, 2015 and 2014, respectively.




6



Restricted Stock:

In accordance with the Company's employment agreement with Stephen Taylor, the Company's Chief Executive Officer, the Compensation Committee reviewed his performance in determining the issuance of restricted common stock. Based on this review which included consideration of the Company's 2014 performance, Mr. Taylor, was awarded 83,590 restricted shares on January 16, 2015, which vest one year from the date of grant. On March 19, 2015, the Compensation Committee awarded 20,000 shares of restricted common stock to each of G. Larry Lawrence, our CFO, and James Hazlett, our Vice President of Technical Services. The restricted shares to Messrs. Hazlett and Lawrence vest one year from the grant date. We also awarded and issued 21,968 shares of restricted common stock to our Board of Directors as partial payment for 2015 directors' fees. The restricted stock issued to our directors vests over one year, in quarterly installments, beginning March 31, 2016. Total compensation expense related to restricted stock awards was $679,770 and $692,682 for the three months ended March 31, 2015 and 2014, respectively. As of March 31, 2015, there was a total of $2,715,334 of unrecognized compensation expense related to these shares which is expected to be recognized over the next twelve months.

(3) Inventory

Our inventory, net of allowance for obsolescence of $225,000 at March 31, 2015 and December 31, 2014, consisted of the following amounts:
 
March 31, 2015
 
December 31, 2014
 
(in thousands)
Raw materials
$
21,596

 
$
25,984

Work in process
5,882

 
6,640

 
$
27,478

 
$
32,624


During the three months ended March 31, 2015 and 2014, there were no write offs of obsolete inventory against the allowance for obsolescence.

(4) Credit Facility

We have a senior secured revolving credit agreement with JP Morgan Chase Bank, N.A (the "Amended Credit Agreement") with an aggregate commitment of $30 million, subject to collateral availability. We also have a right to request from the lender, on an uncommitted basis, an increase of up to $20 million on the aggregate commitment (which could potentially increase the commitment amount to $50 million).

Borrowing Base. At any time before the maturity of the Amended Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the borrowing base equals the sum of (a) 80% of our eligible accounts receivable plus (b) 50% of the book value of our eligible general inventory (not to exceed 50% of the commitment amount at the time) plus (c) 75% of the book value of our eligible equipment inventory.  JPMorgan Chase Bank (the “Lender”) may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. We had $29.6 million borrowing base availability at March 31, 2015 under the terms of our Amended Credit Agreement.
 
Interest and Fees.  Under the terms of the Amended Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) LIBOR multiplied by the Statutory Reserve Rate (as defined in the Amended Credit Agreement), with respect to this rate, for Eurocurrency funding, plus the Applicable Margin (“LIBOR-based”), or (b) CB Floating Rate, which is the Lender's Prime Rate less the Applicable Margin; provided, however, that no more than three LIBOR-based borrowings under the agreement may be outstanding at any one time. For purposes of the LIBOR-based interest rate, the Applicable Margin is 1.50%. For purposes of the CB Floating Rate, the Applicable Margin is 1.50%. For the three month period ended March 31, 2015, our weighted average interest rate was 1.42%.

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

7



Maturity . The maturity date of the Amended Credit Agreement is December 31, 2017, at which time all amounts borrowed under the agreement will be due and outstanding letters of credit must be cash collateralized. The agreement may be terminated early upon our request or the occurrence of an event of default.
 
Security. The obligations under the Amended Credit Agreement are secured by a first priority lien on all of our inventory and accounts and leases receivables, along with a first priority lien on a variable number of our leased compressor equipment the book value of which must be maintained at a minimum of 2.00 to 1.00 commitment coverage ratio (such ratio being equal to (i) the amount of the borrowing base as of such date to (ii) the amount of the commitment as of such date.)
 
Covenants. The Amended Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, limit our ability to incur additional indebtedness and liens; enter into transactions with affiliates; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we also have certain financial covenants that require us to maintain on a consolidated basis a leverage ratio less than or equal to 2.50 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration. The Amended Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the loan documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of $50,000; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of $150,000; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit facility. Obligations under the Amended Credit Agreement may be accelerated upon the occurrence of an event of default.
 
As of March 31, 2015, we were in compliance with all covenants in our Amended Credit Agreement.  A default under our Credit Agreement could trigger the acceleration of our bank debt so that it is immediately due and payable.  Such default would likely limit our ability to access other credit. At March 31, 2015 and December 31, 2014, our outstanding balance on the line of credit was $417,000.

(5) Earnings per Share

The following table reconciles the numerators and denominators of the basic and diluted earnings per share computation(in thousands, except per share data).
 
Three months ended
 
March 31,
 
2015
 
2014
Numerator:
 
 
 
Net income
$
3,694

 
$
2,856

Denominator for basic net income per common share:
 
 
 
Weighted average common shares outstanding
12,504

 
12,373

 
 
 
 
Denominator for diluted net income per share:
 
 
 
Weighted average common shares outstanding
12,504

 
12,373

Dilutive effect of stock options and restricted stock
209

 
319

Diluted weighted average shares
12,713

 
12,692

Earnings per common share:
 
 
 
Basic
$
0.30

 
$
0.23

Diluted
$
0.29

 
$
0.23




8



(6) Segment Information
 
ASC 280-10-50, “Operating Segments”, defines the characteristics of an operating segment as a) being engaged in business activity from which it may earn revenue and incur expenses, b) being reviewed by the company's chief operating decision maker (CODM) for decisions about resources to be allocated and assess its performance and c) having discrete financial information.  Although we indeed look at our products to analyze the nature of our revenue, other financial information, such as certain costs and expenses, net income and EBITDA are not captured or analyzed by these categories.  Our CODM does not make resource allocation decisions or access the performance of the business based on these categories, but rather in the aggregate. Based on this, management believes that it operates in one business segment.
 
In their analysis of product lines as potential operating segments, management also considered ASC 280-10-50-11, “Aggregation Criteria”, which allows for the aggregation of operating segments if the segments have similar economic characteristics and if the segments are similar in each of the following areas:
 
The nature of the products and services;

The nature of the production processes;

The type or class of customer for their products and services;

The methods used to distribute their products or provide their services; and

The nature of the regulatory environment, if applicable.
 
We are engaged in the business of designing and manufacturing compressors and flares. Our compressors and flares are sold and rented to our customers. In addition, we provide service and maintenance on compressors in our fleet and to third parties. These business activities are similar in all geographic areas.  Our manufacturing process is essentially the same for the entire Company and is performed in-house at our facilities in Midland, Texas and Tulsa, Oklahoma.  Our customers primarily consist of entities in the business of producing natural gas and crude oil.  The maintenance and service of our products is consistent across the entire Company and is performed via an internal fleet of vehicles.  The regulatory environment is similar in every jurisdiction in that the most impacting regulations and practices are the result of federal energy policy.  In addition, the economic characteristics of each customer arrangement are similar in that we maintain policies at the corporate level.

For the three months ended March 31, 2015 (in thousands):
 
Rental
 
Sales
 
Service & Maintenance
 
Corporate
 
Total
Revenue
$
20,603

 
$
3,912

 
$
226

 
$

 
$
24,741

Operating costs and expenses
7,727

 
2,813

 
38

 
8,376

 
18,954

Other income, net

 

 

 
39

 
39

Income before provision for income taxes
$
12,876

 
$
1,099

 
$
188

 
$
(8,337
)
 
$
5,826


For the three months ended March 31, 2014 (in thousands):
 
Rental
 
Sales
 
Service & Maintenance
 
Corporate
 
Total
Revenue
$
18,789

 
$
3,338

 
$
195

 
$

 
$
22,322

Operating costs and expenses
7,956

 
2,235

 
84

 
7,685

 
17,960

Other income, net

 

 

 
3

 
3

Income before provision for  income taxes
$
10,833

 
$
1,103

 
$
111

 
$
(7,682
)
 
$
4,365




9




(7)  Commitments and Contingencies

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


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

The discussion and analysis of our financial condition and results of operations are based on, and should be read in conjunction with, our condensed financial statements and the related notes included elsewhere in this report and  in our  Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC.

Overview

We fabricate, manufacture, rent and sell natural gas compressors and related equipment. Our primary focus is on the rental of natural gas compressors. Our rental contracts generally provide for initial terms of six to 24 months. After the initial term of our rental contracts, most of our customers have continued to rent our compressors on a month-to-month basis. Rental amounts are billed monthly in advance and include maintenance of the rented compressors. As of March 31, 2015, we had 2,116 natural gas compressors totaling 292,527 horsepower rented to 100 customers compared to 2,076 natural gas compressors totaling 287,355 horsepower rented to 95 customers at March 31, 2014.

We also fabricate natural gas compressors for sale to our customers, designing compressors to meet unique specifications dictated by well pressures, production characteristics and particular applications for which compression is sought. Fabrication of compressors involves our purchase of engines, compressors, coolers and other components, and our assembling of these components on skids for delivery to customer locations. The major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a two to three month lead time with delivery dates scheduled to coincide with our estimated production schedules. Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available. In the past, we have not experienced any sudden and dramatic increases in the prices of the major components for our compressors. However, the occurrence of such an event could have a material adverse effect on the results of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.

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

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

The oil and natural gas equipment rental and services industry is cyclical in nature. The most critical factor in assessing the outlook for the industry is the worldwide supply and demand for natural gas and crude oil and the corresponding changes in commodity prices. As demand and prices increase, oil and natural gas producers increase their capital expenditures for drilling, development and production activities. Generally, the increased capital expenditures ultimately result in greater revenues and profits for services and equipment companies.

In general, we expect our overall business activity and revenues to track the level of activity in the natural gas industry, with changes in domestic natural gas production and consumption levels and prices more significantly affecting our business than changes in crude oil and condensate production and consumption levels and prices. However, we have increased our rental and sales in the non-conventional shale plays which are more dependent on crude oil prices. We also believe that demand for compression services and products is driven by declining reservoir pressure in maturing natural gas producing fields and, more recently, by

10



increased focus by producers on non-conventional natural gas production, such as coalbed methane, gas shales and tight gas, which typically requires more compression than production from conventional natural gas reservoirs.
 
Demand for our products and services have been historically strong, but in 2009 and early 2010 the demand declined due to lower natural gas prices, decreased demand for natural gas and the economic recession.  This began to show signs of easing during the latter part of 2010 and through 2013. However, natural gas prices have had only slight movements up followed by downward movements. Meanwhile, opportunities have developed in non-conventional shale plays. The economics of these shale plays is more dependent on oil prices. While shale plays continued to offer opportunities, natural gas prices have not surged. In late 2014, oil prices dropped significantly. The low price environment for both oil and natural gas has left demand for compression in conventional areas uncertain.
 
Natural gas and oil prices continue at levels that do not encourage energy companies to invest capital in drilling projects. In addition, the domestic economy has not fully recovered. Notwithstanding the continuing uncertain economy and financial markets, we believe the long-term trend in our market is favorable.  We believe this outlook is supported by our ability to withstand temporary disruptions and position the Company for the long term.

11




Results of Operations

Three months ended March 31, 2015, compared to the three months ended March 31, 2014.

The table below shows our revenues and percentage of total revenues of each of our product lines for the three months ended March 31, 2015 and 2014.

 
Revenue Three months ended March 31,
 
(in thousands)
 
2015
 
2014
Rental
$
20,603

83
%
 
$
18,789

84
%
Sales
3,912

16
%
 
3,338

15
%
Service and Maintenance
226

1
%
 
195

1
%
Total
$
24,741

 

 
$
22,322

 


Total revenue increased to $24.7 million from $22.3 million, or 11%, for the three months ended March 31, 2015, compared to the same period ended March 31, 2014. The $2.4 million increase in revenue was due to an increase in rental revenue of $1.8 million, or 10% and an increase in sales revenue of $574,000, or 17%.

Rental revenue increased to $20.6 million from $18.8 million for the three months ended March 31, 2015, compared to the same period ended March 31, 2014.  This increase is the result of continued demand for low to mid horsepower compression.  We ended the quarter with 2,918 compressor packages in our rental fleet, up from 2,643 units at March 31, 2014.  The rental fleet had a utilization of 72.5% as of March 31, 2015 compared to 78.6% utilization as of March 31, 2014. This drop in utilization is mainly the result of compressor rental units being returned in older, dry gas areas. We continue to increase the number of compressors rented in non-conventional areas. In the event that natural gas prices increase, we should see additional utilization of our fleet due to a possible leveling of returns related to dry gas.

Sales revenue increased to $3.9 million from $3.3 million for the three months ended March 31, 2015, compared to the same period ended March 31, 2014.  This increase is the result of timing of industry activity related to the completion of capital projects. We believe this timing is reflective of the typical sales cycle, resulting in inconsistent compressor units sales to third parties from our Tulsa and Midland operations. There was also an increase in demand for flares during this comparative period.

Our overall operating income increased $1.4 million to $5.8 million from $4.4 million with the margin percentage increasing to 23% from 20% for the three months ended March 31, 2015 and March 31, 2014. The operating margin increased primarily due to containment of costs.

Selling, general, and administrative expense remained steady at $2.6 million for the three months ended March 31, 2015, as compared to the same period ended March 31, 2014.  
 
Depreciation and amortization expense increased to $5.8 million for the three months ended March 31, 2015, compared to $5.0 million for the period ended March 31, 2014.  This was the result of new gas compressor rental units being added to the rental fleet from March 31, 2014 to March 31, 2015. We added a net of 39 compressors to our rental fleet during the three month period ending March 31, 2015.

Provision for income tax was $2.1 million and $1.5 million for the three months ended March 31, 2015 and March 31, 2014, respectively. The provision is the result of an increase in taxable income for the three months ended March 31, 2015 compared to the three months ended March 31, 2014.






12




Liquidity and Capital Resources

Our working capital positions as of March 31, 2015 and December 31, 2014 are set forth below:

 
March 31,
 
December 31,
 
2015
 
2014
 
(in thousands)
Current Assets:
 
 
 
Cash and cash equivalents
$
8,620

 
$
6,181

Trade accounts receivable, net
9,629

 
10,408

Inventory, net
27,478

 
32,624

Prepaid income taxes
5,007

 
6,242

Prepaid expenses and other
426

 
472

Total current assets
51,160

 
55,927

Current Liabilities:
 

 
 
Accounts payable
2,325

 
4,990

Accrued liabilities
2,963

 
6,624

Current portion of tax liability
1,501

 
851

Deferred income
907

 
1,635

Total current liabilities
7,696

 
14,100

Total working capital
$
43,464

 
$
41,827


For the three months ended March 31, 2015, we invested $8.7 million in equipment for our rental fleet and service vehicles. Even though we have idle rental equipment, at times we do not have the specific type of equipment that our customers require, therefore we have to build new equipment to satisfy their needs.  We financed this activity with cash flow from operations and cash on hand.

Cash flows

At March 31, 2015, we had cash and cash equivalents of $8.6 million compared to $6.2 million at December 31, 2014.  Our cash flow from operations of $11.6 million was offset by capital expenditures of $8.7 million, during the three months ended March 31, 2015.  We had working capital of $43.5 million at March 31, 2015 compared to $41.8 million at December 31, 2014. On March 31, 2015 and December 31, 2014, we had outstanding debt of $417,000, which is all related to our line of credit and is classified as non-current. We had positive net cash flow from operating activities of $11.6 million during the first three months of 2015 compared to $9.6 million for the first three months of 2014.  The cash flow from operations of $11.6 million was primarily the result of the net income of $3.7 million and the non-cash items of depreciation of $5.8 million and $794,000 related to the expenses associated with stock options and restricted shares.

Strategy

For the remainder of the fiscal year 2015 and into 2016, our overall plan is to continue monitoring and holding expenses in line with the anticipated level of activity, fabricate rental fleet equipment only in direct response to market requirements, emphasize marketing of our idle gas compressor units and limit bank borrowing in line with market conditions.  For the remainder of 2015, our forecasted capital expenditures will be directly dependent upon our customers’ compression requirements and are not anticipated to exceed our internally generated cash flows and cash on hand.  Any required capital will be for additions to our compressor rental fleet and/or addition or replacement of service vehicles.  We believe that cash flows from operations and our line of credit will be sufficient to satisfy our capital and liquidity requirements for the foreseeable future.  We may require additional capital to fund any unanticipated expenditures, including any acquisitions of other businesses, although that capital, beyond our line of credit, as discussed below may not be available to us when we need it or on acceptable terms. Capital expenditures for the year ending December 31, 2015 are not anticipated to exceed our internal cash generating capacity and our line of credit.  We may require additional capital to fund any unanticipated expenditures, including any acquisitions of other businesses. 



13



Bank Borrowings

We have a senior secured revolving credit agreement with JP Morgan Chase Bank, N.A (the "Amended Credit Agreement") with an aggregate commitment of $30 million, subject to collateral availability. We also have a right to request from the lender, on an uncommitted basis, an increase of up to $20 million on the aggregate commitment (which could potentially increase the commitment amount to $50 million).

Borrowing Base. At any time before the maturity of the Amended Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above. Generally, the borrowing base equals the sum of (a) 80% of our eligible accounts receivable plus (b) 50% of the book value of our eligible general inventory (not to exceed 50% of the commitment amount at the time) plus (c) 75% of the book value of our eligible equipment inventory.  JPMorgan Chase Bank (the “Lender”) may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral. We had $29.6 million million borrowing base availability at March 31, 2015, under the terms of our Amended Credit Agreement.
 
Interest and Fees.  Under the terms of the Amended Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) LIBOR multiplied by the Statutory Reserve Rate (as defined in the Amended Credit Agreement), with respect to this rate, for Eurocurrency funding, plus the Applicable Margin (“LIBOR-based”), or (b) CB Floating Rate, which is the Lender's Prime Rate less the Applicable Margin; provided, however, that no more than three LIBOR-based borrowings under the agreement may be outstanding at any one time. For purposes of the LIBOR-based interest rate, the Applicable Margin is 1.50%. For purposes of the CB Floating Rate, the Applicable Margin is 1.50%. For the three month period ended March 31, 2015, our weighted average interest rate was 1.42%.

Accrued interest is payable monthly on outstanding principal amounts, provided that accrued interest on LIBOR-based loans is payable at the end of each interest period, but in no event less frequently than quarterly. In addition, fees and expenses are payable in connection with our requests for letters of credit (generally equal to the Applicable Margin for LIBOR-related borrowings multiplied by the face amount of the requested letter of credit) and administrative and legal costs.
 
Maturity. The maturity date of the Amended Credit Agreement is December 31, 2017, at which time all amounts borrowed under the agreement will be due and outstanding letters of credit must be cash collateralized. The agreement may be terminated early upon our request or the occurrence of an event of default.
 
Security. The obligations under the Amended Credit Agreement are secured by a first priority lien on all of our inventory and accounts and leases receivables, along with a first priority lien on a variable number of our leased compressor equipment the book value of must be maintained at a minimum of 2.00 to 1.00 commitment coverage ratio (such ratio being equal to (i) the amount of the borrowing base as of such date to (ii) the amount of the commitment as of such date.)
 
Covenants. The Amended Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, limit our ability to incur additional indebtedness and liens; enter into transactions with affiliates; make acquisitions in excess of certain amounts; pay dividends; redeem or repurchase capital stock or senior notes; make investments or loans; make negative pledges; consolidate, merge or effect asset sales; or change the nature of our business. In addition, we also have certain financial covenants that require us to maintain on a consolidated basis a leverage ratio less than or equal to 2.50 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration. The Amended Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults; defaults in performance of covenants or other agreements contained in the loan documents; inaccuracies in representations and warranties; certain defaults, termination events or similar events; certain defaults with respect to any other Company indebtedness in excess of $50,000; certain bankruptcy or insolvency events; the rendering of certain judgments in excess of $150,000; certain ERISA events; certain change in control events and the defectiveness of any liens under the secured revolving credit facility. Obligations under the Amended Credit Agreement may be accelerated upon the occurrence of an event of default.
 
As of March 31, 2015, we were in compliance with all covenants in our Amended Credit Agreement.  A default under our Credit Agreement could trigger the acceleration of our bank debt so that it is immediately due and payable.  Such default would likely limit our ability to access other credit. At March 31, 2015, our balance on the line of credit was $417,000.





14



Contractual Obligations and Commitments

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

 
 
Obligations Due in Period (in thousands)
Cash Contractual Obligations
 
2015 (1)
 
2016
 
2017
 
2018
 
Thereafter
 
Total
Line of credit (secured)
 
$

 
$

 
$
417

 
$

 
$

 
$
417

Interest on line of credit(2)
 
13

 
17

 
17

 

 

 
47

Purchase obligations
 
357

 
476

 
476

 
476

 
568

 
2,353

Other long-term liabilities
 

 

 

 

 
148

 
148

Facilities and office leases
 
216

 
261

 
241

 
113

 
15

 
846

Equipment leases
 
10

 
7

 
2

 

 

 
19

Total
 
$
596

 
$
761

 
$
1,153

 
$
589

 
$
731

 
$
3,830


(1)For the nine months remaining in 2015.
(2)Assumes an interest rate of 4.0% and no additional borrowings.

Critical Accounting Policies and Practices

There have been no changes in the critical accounting policies disclosed in the Company's Form 10-K for the year ended December 31, 2014.

Recently Issued Accounting Pronouncements

On May 28, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as part of a joint project with the International Accounting Standards Board (IASB) to clarify revenue-recognizing principles and develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS). ASU No. 2014-09 finalizes Proposed ASU Nos. 1820-100, 2011-230 and 2011-250 and is expected, among other things, to remove inconsistencies and weaknesses in revenue requirements and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. In particular, the amendments in this ASU will be added to the FASB Accounting Standards Codification (FASB ASC) as Topic 606, Revenue from Contracts with Customers, and will supersede the revenue recognition requirements in FASB ASC 605, Revenue Recognition, as well as some cost guidance in FASB ASC Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. For public entities, the amendments in ASU No. 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is prohibited. In April 2015, the FASB proposed a one-year deferral of the effective date for ASU 2014-09. Additionally, an entity should apply the amendments either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an entity elects the latter, transition method, then it must also provide the additional disclosures in reporting periods that include the date of initial application of (1) the amount by which each financial statement line item is affected in the current reporting period, as compared to the guidance that was in effect before the change, and (2) an explanation of the reasons for significant changes. The new standard will be effective during our first quarter ending March 31, 2017. Under the proposal, the new standard will be effective during our first quarter ending March 31, 2018.We are currently evaluating the new standard to determine which reporting option allows us to report the most meaningful information and are still evaluating the potential impact this new standard may have on our financial statements.





15



Off-Balance Sheet Arrangements

From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations.  As of March 31, 2015, the off-balance sheet arrangements and transactions that we have entered into include operating lease agreements and purchase agreements.  We do not believe that these arrangements are reasonably likely to materially affect our liquidity, availability of, or requirements for, capital resources.
                          
Special Note Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this report are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results.  Those risks include, among other things, the loss of market share through competition or otherwise; the introduction of competing technologies by other companies; a prolonged, substantial reduction in oil and natural gas prices which could cause a decline in the demand for our products and services; and new governmental safety, health and environmental regulations which could require us to make significant capital expenditures. The forward-looking statements included in this Form 10-Q are only made as of the date of this report, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these and other risk factors is included in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

There have been no changes in the market risks disclosed in the Company's Form 10-K for the year ended December 31, 2014.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

An evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Vice President and Principal Accounting Officer, of the effectiveness of the design and of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended or, the “Exchange Act”) as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the President and Chief Executive Officer and our Vice President and Principal Accounting Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.  These include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our principal executive and financial officers as appropriate to allow timely decisions regarding required disclosures.  Due the inherent limitations of control systems, not all misstatements or omissions may be detected.  Those inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes.  Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people.  Our controls and procedures can only provide reasonable, not absolute, assurance that the above objectives have been met.

Changes in Internal Controls.

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

PART II – OTHER INFORMATION
Item 1.  Legal Proceedings
 
From time to time, we are a party to various legal proceedings in the ordinary course of our business.  While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our financial position, results of operations or cash flow.  We are not currently a party to any material legal proceedings and we are not aware of any other threatened litigation.


16



Item 1A.  Risk Factors

Please refer to and read “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 for a discussion of the risks associated with our Company and industry.

17



Item 6.   Exhibits

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

Exhibit No.
Description
 
 
3.1
Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed and dated November 10, 2004)
 
 
3.2
Bylaws (Incorporated by reference to Exhibit 3.4 of the Registrant's Registration Statement on Form SB-2, No.  333-88314)
 
 
4.1
Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on August 30, 2005)
 
 
4.2
Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 (No. 333-161346) and filed on August 14, 2009)
 
 
10.1
Lease Agreement, dated March 26, 2008, between WNB Tower, LTD and Natural Gas Services Group, Inc. (Incorporated by reference to Exhibit 10.15 of the Registrant’s  Form 10-K for the fiscal year ended December 31, 2008 and filed with the Securities and Exchange Commission on March 9, 2009)
 
 
10.2
2009 Restricted Stock/Unit Plan, as amended (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K dated June 3, 2014 and filed with the Securities and Exchange Commission on June 6, 2014.)
 
 
10.3
1998 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K dated September 18, 2009 and filed with the Securities and Exchange Commission on September 18, 2009.)
 
 
10.4
Lease Agreement, dated December 11, 2008, between Klement-Wes Partnership, LTD and Natural Gas Services Group, Inc. and commencing on January 1, 2009
 
 
10.5
Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2014.)
 
 
10.6
Third Amendment of Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated November 19, 2014 (Incorporated by reference to Exhibit 10.1 of the Registrant's Current report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2012.)
 
 
10.7
Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2011.)
 
 
10.8
First Amendment of Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 31, 2011 (Incorporated by reference to Exhibit 10.2 of the Registrant's Current report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2012.)
 
 
10.9
Promissory Note in the aggregate amount of $30,000,000 issued to JPMorgan Chase Bank, N.A., dated December 31, 2014, in connection with the revolving credit line under the Credit Agreement with JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2014.)
 
 

18



10.10
Amended and restated Employment Agreement dated April 27, 2015 between Natural Gas Services Group, Inc. and Stephen C. Taylor (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2015.)
 
 
*31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
*31.2
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
*32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
*32.2
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
* Filed herewith.

19



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NATURAL GAS SERVICES GROUP, INC.


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

May 8, 2015



20



INDEX TO EXHIBITS

The following exhibits are filed herewith or incorporated herein by reference, as indicated:
Exhibit No.
Description
 
 
3.1
Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 of the 10-QSB filed and dated November 10, 2004)
 
 
3.2
Bylaws (Incorporated by reference to Exhibit 3.4 of the Registrant's Registration Statement on Form SB-2, No.  333-88314)
 
 
4.1
Non-Statutory Stock Option Agreement (Incorporated by reference to Exhibit 10.2 to Form 8-K filed with the SEC on August 30, 2005)
 
 
4.2
Form of Senior Indenture (Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-3 (No. 333-161346) and filed on August 14, 2009)
 
 
10.1
Lease Agreement, dated March 26, 2008, between WNB Tower, LTD and Natural Gas Services Group, Inc. (Incorporated by reference to Exhibit 10.15 of the Registrant’s  Form 10-K for the fiscal year ended December 31, 2008 and filed with the Securities and Exchange Commission on March 9, 2009)
 
 
10.2
2009 Restricted Stock/Unit Plan, as amended (Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K dated June 3, 2014 and filed with the Securities and Exchange Commission on June 6, 2014.)
 
 
10.3
1998 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K dated September 18, 2009 and filed with the Securities and Exchange Commission on September 18, 2009.)
 
 
10.4
Lease Agreement, dated December 11, 2008, between Klement-Wes Partnership, LTD and Natural Gas Services Group, Inc. and commencing on January 1, 2009
 
 
10.5
Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2014.)
 
 
10.6
Third Amendment of Credit Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated November 19, 2014 (Incorporated by reference to Exhibit 10.1 of the Registrant's Current report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2012.)
 
 
10.7
Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 10, 2010 (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2011.)
 
 
10.8
First Amendment of Security Agreement between Natural Gas Services Group, Inc. and JPMorgan Chase Bank, N.A., dated December 31, 2011 (Incorporated by reference to Exhibit 10.2 of the Registrant's Current report on Form 8-K filed with the Securities and Exchange Commission on January 9, 2012.)
 
 
10.9
Promissory Note in the aggregate amount of $30,000,000 issued to JPMorgan Chase Bank, N.A., dated December 31, 2014, in connection with the revolving credit line under the Credit Agreement with JPMorgan Chase Bank, N.A. (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 24, 2014.)
 
 
10.10
Amended and restated Employment Agreement dated April 27, 2015 between Natural Gas Services Group, Inc. and Stephen C. Taylor (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 29, 2015.)

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*31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
*31.2
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
*32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
*32.2
Certification of Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
* Filed herewith.

22