UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

NATURAL GAS SERVICES GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Colorado		1-31398		75-2811855
(State or other jurisdiction		(Commission File		(IRS Employer
of Incorporation or organization)		Number)		Identification No.)

2911 South County Road 1260 Midland, Texas		79706
(Address of Principal Executive Offices)		(Zip Code)

432-563-3974
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02. Results of Operations and Financial Condition.

     On February 16, 2006, Natural Gas Services Group, Inc. issued a press release announcing its results of operations for the fiscal year ended December 31, 2005. The press release issued on February 16, 2006 is furnished as Exhibit No. 99 to this Current Report on Form 8-K. Natural Gas Services Group’s Annual Report to Shareholders and its reports on Forms 10-KSB, 10-QSB and 8-K and other publicly available information should be consulted for other important information about the registrant.

     The information in this Current Report on Form 8-K, including Exhibit No. 99 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section. The information in this Current Report shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Item 9.01. Financial Statements and Exhibits.

     (c) Exhibits

     The Exhibit listed below is furnished as an Exhibit to this Current Report on Form 8-K.

Exhibit No.		Description of Exhibit
99		Press release issued February 16, 2006 (furnished pursuant to Item 2.02)

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 hereunto duly authorized.

Dated: February 17, 2006

EXHIBIT INDEX

Exhibit No.		Description
99		Press release issued February 16, 2006 (furnished pursuant to Item 2.02)

Exhibit 99

FOR IMMEDIATE RELEASE February 16, 2006		NEWS Amex – NGS

NATURAL GAS SERVICES GROUP ANNOUNCES THREE AND TWELVE MONTHS
FINANCIAL RESULTS AND CONFERENCE CALL

191% Increase In Revenue For The Three Months to $13.8 Million
209% Increase In Revenue For The Twelve Months to $49.3 Million

MIDLAND, Texas, February 16, 2006 – Natural Gas Services Group, Inc. (AMEX:NGS), a leading provider of equipment and services to the natural gas industry, announces its financial results for the three and twelve months ended December 31, 2005.

Natural Gas Services Group, Inc.

		Three Months Ended												Twelve Months Ended
(in thousands,		December 31,												December 31,
except per share amounts and		2004				2005								2004				2005
percentages)		(unaudited)								Change				(unaudited)								Change
Revenues		$	4,738			$	13,779				191	%		$	15,958			$	49,311				209	%
Net income		$	664			$	1,386				109	%		$	1,874	*		$	4,446				137	%
EPS (Basic)		$	0.11			$	0.15				36	%		$	0.34	*		$	0.59				74	%
EPS (Diluted)		$	0.09			$	0.15				67	%		$	0.29	*		$	0.52				79	%
EBITDA		$	1,980			$	3,960				100	%		$	6,296	*		$	13,282				111	%
Weighted avg. shares outstanding:
Basic			6,077				9,012								5,591				7,564
Diluted			7,049				9,240								6,383				8,481

Revenue: Revenue for the three months ended December 31, 2005 increased 191% to $13.8 million, as compared to $4.7 million for the same period in 2004. Revenues for the twelve months ended December 31, 2005 increased 209% to $49.3 million, as compared to $16.0 million for the same period in 2004. The increase in revenue during the three and twelve months of 2005 was primarily the result of the acquisition of Screw Compression Systems, Inc. (SCS) in January 2005, plus the addition of 279 compressor units to our rental fleet.

Income: Net income available to stockholders for the three months ended December 31, 2005 increased 109% to $1.4 million or $.15 per share (diluted), as compared to net income of $664,000 or $.09 per share (diluted) for the same period in 2004. Net income for the twelve months ended December 31, 2005 increased 137% to $4.4 million or $.52 per share (diluted), as compared to $1.9

million* or $.29* per share (diluted) for the same period in 2004. This is mainly due to the increase in our rental activity and compressor unit sales from SCS.

EBITDA (see discussion of EBITDA at the end of this release) increased 100% to $4.0 million for the three months ended December 31, 2005, versus $2.0 million for the same period in 2004. EBITDA increased 111% to $13.3 million for the twelve months ended December 31, 2005, versus $6.3 million* for the same period in 2004.

Rental Fleet: The Company ended the period with 865 compressor units in its rental fleet, up from 586 units at December 31, 2004. The Company added 60 natural gas compressors to its rental fleet in the quarter ended December 31, 2005.

Steve Taylor, Chairman, President and CEO of Natural Gas Services Group, Inc. said, “We are very pleased to report these record results for the company. Our 2005 revenues dramatically increased when compared to 2004 due to our continual quarterly growth from our primary revenue sources and the acquisition of SCS. As of December 31, 2005, our rental utilization rate was 94.8% and our sales backlog is at record levels and stretches through 2006. Our net income is at a record level, our balance sheet is strong and we look forward to a very successful 2006.”

The Company has scheduled a conference call Thursday, February 16, 2006 at 9:30 AM Central Standard Time to discuss 2005 Financial Results.

What: Natural Gas Services Group, Inc. 2005 Three and Twelve Months Financial Results Conference Call

When: February 16, 2006 at 9:30 AM Central Standard Time

How: Live via phone by dialing 800-936-4602. Code: Natural Gas Services. Participants to the conference call should call in at least 5 minutes prior to the start time.

Steve Taylor, President and CEO of Natural Gas Services Group, Inc. will be leading the call and discussing fourth quarter and twelve months financial results.

About Natural Gas Services Group, Inc.

NGS is a leading provider of small to medium horsepower compression equipment to the natural gas industry with a primary focus on the non-conventional gas industry, i.e., coalbed methane, gas shales and tight gas. The Company manufactures, fabricates and rents natural gas compressors that enhance the production of natural gas wells and provides maintenance services for those compressors. In addition, the Company sells custom fabricated natural gas compressors to meet customer specifications dictated by well pressures, production characteristics and particular applications. The Company also manufactures and sells flare systems for gas plant and production facilities. NGS is headquartered in Midland, Texas with manufacturing facilities located in Tulsa, Oklahoma, Lewiston, Michigan and Midland, Texas and service facilities located in major gas producing basins in the U.S.

For More Information, Contact: Jim Drewitz, Investor Relations

		972-355-6070
		jdrewitz@comcast.net
		Or visit the Company’s website at www.ngsgi.com

Reconciliation of Non-GAAP Information

“EBITDA” is a non-GAAP financial measure of earnings (net income) before interest, taxes, depreciation, and amortization. This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP’). EBITDA should not be considered in isolation or as a substitute for operating income, net income or loss, cash flows provided by operating, investing and financing activities, or other income or cash flow statement data prepared in accordance with GAAP. However, management believes EBITDA is useful to an investor in evaluating our operating performance because:

•		it is widely used by investors in the energy industry to measure a company’s operating performance without regard to items excluded from the calculation of EBITDA, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•		it helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure and asset base from our operating structure; and
•		it is used by our management for various purposes, including as a measure of operating performance, in presentations to our Board of Directors, as a basis for strategic planning and forecasting, and as a component for setting incentive compensation.

There are material limitations to using EBITDA as a measure of performance, including the inability to analyze the impact of certain recurring items that materially affect our net income or loss, and the lack of comparability of results of operations of different companies. The following table reconciles EBITDA to our net income, the most directly comparable GAAP financial measure:

		Three months ended								Twelve months ended
		December 31,								December 31,
(in thousands of dollars, except		(unaudited)								(unaudited)
per share amounts)		2004				2005				2004				2005
EBITDA		$	1,980			$	3,960			$	6,296	*		$	13,282
Adjustments to reconcile EBITDA to net income:
Amortization and depreciation			(693	)			(1,198	)			(2,444	)			(4,224	)
Interest expense			(258	)			(558	)			(838	)			(1,997	)
Provision for income tax			(365	)			(818	)			(1,140	)			(2,615	)
Net income		$	664			$	1,386			$	1,874	*		$	4,446

Exclusion of Life Insurance Proceeds – In 2004 we received $1.5 million in life insurance proceeds upon the death of our former President and Chief Executive Officer. We present certain operating measures in this release excluding the effects of the receipt of these proceeds. The following table provides a reconciliation of these as adjusted operating measures to the actual amounts including the effects of the receipt of the insurance proceeds.

		Three Months
		Ended
		December 31, 2004				Adjustment				As Adjusted
Net income		$	3,374			$	1,500			$	1,874
EBITDA		$	7,796			$	1,500			$	6,296
Earnings per share:
Basic		$	0.59			$	0.25			$	0.34
Diluted		$	0.52			$	0.23			$	0.29
Weighted average shares outstanding:
Basic			5,591								5,591
Diluted			6,383								6,383

Except for historical information contained herein, the statements in this release 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 NGS’s 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 gas prices which could cause a decline in the demand for NGS’s products and services; and new governmental safety, health and environmental regulations which could require NGS to make significant capital expenditures. The forward-looking statements included in this press release are only made as of the date of this press release, and NGS undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. A discussion of these factors is included in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission.

NATURAL GAS SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)

		December 31,
		2004				2005
ASSETS
Current Assets:
Cash and cash equivalents		$	685			$	3,271
Trade accounts receivable, net of doubtful accounts of $25 and $75, respectively			1,999				6,192
Inventory, net of allowance for obsolescence of $-0- and $361, respectively			4,470				14,723
Prepaid expenses and other			141				456
Total current assets			7,295				24,642
Rental equipment, net of accumulated depreciation of $4,827 and $7,598, respectively			27,734				41,201
Property and equipment, net of accumulated depreciation of $1,446 and $2,458, respectively			3,134				6,424
Goodwill, net of accumulated amortization of $325			2,590				10,039
Intangibles, net of accumulated amortization of $165 and $326, respectively			86				3,978
Restricted cash			2,000				—
Other assets			416				85
Total assets		$	43,255			$	86,369
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	3,728			$	5,680
Line of credit			550				300
Accounts payable and accrued liabilities			2,355				5,124
Deferred income			22				103
Total current liabilities			6,655				11,207
Long term debt, less current portion			9,290				20,225
Subordinated notes, net of discount of $90 and $-0-, respectively			1,449				2,000
Deferred income tax payable			2,958				7,247
Commitments
Stockholders’ equity:
Common stock, 30,000 shares authorized, par value $0.01; 6,104 and 9,022 shares issued and outstanding, respectively			61				90
Additional paid-in capital			16,355				34,667
Retained earnings			6,487				10,933
Total stockholders’ equity			22,903				45,690
Total liabilities and stockholders’ equity		$	43,255			$	86,369

NATURAL GAS SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)

		For the Three Months								For the Years Ended
		Ended December 31,								December 31,
		2004				2005				2004				2005
Revenue:
Sales, net		$	1,148			$	8,212			$	3,593			$	30,278
Service and maintenance income			504				654				1,874				2,424
Rental income			3,086				4,913				10,491				16,609
Total revenue			4,738				13,779				15,958				49,311
Operating costs and expenses:
Cost of sales			858				6,353				2,556				23,331
Cost of service			327				335				1,357				1,479
Cost of rental			864				1,989				3,038				6,528
Selling expenses			246				283				875				1,034
General and administrative			408				1,006				1,777				3,856
Depreciation and amortization			693				1,198				2,444				4,224
Total operating costs and expenses			3,396				11,164				12,047				40,452
Operating income			1,342				2,615				3,911				8,859
Other income (expense):
Interest expense			(257	)			(559	)			(838	)			(1,997	)
Other income (expense)			(55	)			148				1,441				199
Total other income (expense)			(312	)			(411	)			603				(1,798	)
Income before provision for income taxes			1,030				2,204				4,514				7,061
Provision for income taxes:			366				818				1,140				2,615
Net income			664				1,386				3,374				4,446
Preferred dividends			—				—				53				—
Income available to common stockholders		$	664			$	1,386			$	3,321			$	4,446
Earnings per common share:
Basic		$	0.11			$	0.15			$	0.59			$	0.59
Diluted		$	0.10			$	0.15			$	0.52			$	0.52
Weighted average common shares outstanding:
Basic			6,077				9,012				5,591				7,564
Diluted			7,049				9,240				6,383				8,481

NATURAL GAS SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

		For the Years Ended December 31,
		2003				2004				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,307			$	3,374			$	4,446
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			1,726				2,444				4,224
Deferred taxes			672				1,120				2,408
Amortization of debt issuance costs			65				65				49
Employee stock option expense			—				—				135
Loss (gain) on disposal of assets			18				71				(28	)
Changes in current assets:
Trade and other receivables			(392	)			(1,182	)			(1,352	)
Inventory and work in process			(1,078	)			(1,915	)			(5,699	)
Prepaid expenses and other			66				(34	)			(362	)
Changes in current liabilities:
Accounts payable and accrued liabilities			543				1,284				524
Deferred income			174				(185	)			(855	)
Other assets			(77	)			(344	)			299
NET CASH PROVIDED BY OPERATING ACTIVITIES			3,024				4,698				3,789
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(7,882	)			(11,596	)			(17,708	)
Assets acquired, net of cash			—				—				(7,584	)
Proceeds from sale of property and equipment			120				50				264
Change in restricted cash			—				(2,000	)			2,000
Distribution from equity method investment			108				—				—
Decrease in lease receivable			210				—				—
NET CASH USED IN INVESTING ACTIVITIES			(7,444	)			(13,546	)			(23,028	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from lines of credit			300				550				300
Proceeds from long-term debt			3,479				6,592				21,517
Repayments of long-term debt			(2,014	)			(2,589	)			(13,077	)
Repayment of line of credit			—				(300	)			—
Dividends paid on preferred stock			(121	)			(53	)			—
Proceeds from sale of stock and exercise of stock options and warrants, net of transaction costs			238				5,157				13,085
NET CASH PROVIDED BY FINANCING ACTIVITIES			1,882				9,357				21,825
NET CHANGE IN CASH			(2,538	)			509				2,586
CASH AT BEGINNING OF PERIOD			2,714				176				685
CASH AT END OF PERIOD		$	176			$	685			$	3,271