U.S. SECURITIES AND EXCHANGE
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING JUNE 30, 2002.
[ ] 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 0-14908
TGC INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Texas 74-2095844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1304 Summit, Suite 2
Plano, Texas 75074
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 972-881-1099
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
State the number of shares outstanding of each of the issuer's classes of
common
equity, as of the latest practicable date.
Class Outstanding at July 30, 2002
Common Stock ($.30 Par Value) 5,515,064
1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of June 30, 2002.
Statements of Operations for the three and six month
periods ended June 30, 2002 and 2001.
Statements of Cash Flows for the six month periods
ended June 30, 2002 and 2001.
Notes to Financial Statements.
2
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
JUNE 30,
2002
_____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 837,499
Accounts receivable 194,260
Cost and estimated earnings in excess
of billings on uncompleted contracts 162,679
Prepaid expenses and other 106,871
__________
Total current assets 1,301,309
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 11,587,905
Automobiles and trucks 833,743
Furniture and fixtures 323,323
Other 18,144
___________
12,763,115
Less accumulated depreciation
and amortization (10,440,779)
___________
2,322,336
OTHER ASSETS 4,824
___________
Total assets $ 3,628,469
===========
See notes to Financial Statements
3
TGC INDUSTRIES, INC.
BALANCE SHEET -- CONTINUED
(UNAUDITED)
JUNE 30,
2002
_________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 261,683
Accrued liabilities 120,467
Billings in excess of costs and estimated
earnings on uncompleted contracts 174,653
Current maturities of notes payable 38,010
Current portion of capital lease obligations 39,247
_________
Total current liabilities 634,060
NOTES PAYABLE, less current maturities 97,174
CAPITAL LEASE OBLIGATIONS, less current portion 52,891
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized:
8-1/2% Senior convertible preferred stock;
2,669,264 shares issued and outstanding 2,669,264
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares issued,
58,100 shares outstanding 58,100
Common stock, $.30 par value; 25,000,000
shares authorized; 5,547,008 shares issued 1,664,102
Additional paid-in capital 5,371,315
Accumulated deficit (6,703,123)
Treasury stock, at cost (31,944 shares) (215,314)
__________
2,844,344
__________
Total liabilities and stockholders' equity $3,628,469
==========
See notes to Financial Statements
4
TGC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
____________________ ___________________
(Unaudited) (Unaudited)
2002 2001 2002 2001
______ ______ ______ ______
Revenue $ 1,654,409 $2,573,480 $4,572,269 $3,455,632
Cost of services 1,683,020 2,606,298 4,284,901 3,787,357
Selling, general, adm. 231,856 254,688 462,377 491,286
__________ __________ __________ __________
1,914,876 2,860,986 4,747,278 4,278,643
LOSS FROM OPERATIONS (260,467) (287,506) (175,009) (823,011)
Interest expense 3,684 5,439 7,430 11,304
__________ _________ _________ _________
NET LOSS (264,151) (292,945) (182,439) (834,315)
Less dividend requirements
on preferred stock 69,267 164,514 137,648 330,092
_________ _________ _________ _________
LOSS ALLOCABLE TO
COMMON STOCKHOLDERS $(333,418) $(457,459) $(320,087) $(1,164,407)
Loss per common share:
Basic and diluted $ (.06) $ (.19) $ (.06) $ (.49)
Weighted average number
of common shares:
Basic and diluted 5,511,686 2,368,786 5,142,861 2,354,659
See notes to Financial Statements
5
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
Six Months Ended
June 30,
___________________________
2002 2001
___________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (182,439) $(834,315)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 772,038 806,252
Gain on disposal of property and equipment - (500)
Changes in operating assets and liabilities
Trade accounts receivable 1,061,694 219,013
Cost and estimated earnings in excess of
billings on uncompleted contracts (142,545) (31,414)
Prepaid expenses (34,052) (54,126)
Other assets - (1,429)
Accounts payable (805,823) 539,029
Accrued liabilities (56,519) 258
Billings in excess of cost and estimated
earnings on uncompleted contracts (588,348) 820,464
___________ _________
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,006 1,463,232
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (100,240) (225,854)
Proceeds from sale of property and Equipment - 500
___________ _________
NET CASH USED IN INVESTING ACTIVITIES (100,240) (225,354)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of warrants - 3,766
Proceeds from issuance of debt 29,861 43,300
Principal payments on notes payable (14,978) (171,013)
Principal payments on capital lease obligations (145,111) -
___________ _________
NET CASH USED IN FINANCING ACTIVITIES (130,228) (123,947)
___________ _________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (206,462) 1,113,931
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,043,961 259,131
__________ __________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 837,499 $1,373,062
========== ==========
Supplemental cash flow information
Interest paid $ 7,430 $ 11,304
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $ 22,712 $ -
Series C preferred stock converted to
common stock 977,550 -
See notes to Financial Statements
6
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2002
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and changes in financial position in
conformity with accounting principles generally accepted in the United States
of America.
NOTE B -- MANAGEMENT PRESENTATION
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial position,
results of operations, and changes in financial position have been included.
The results of the interim periods are not necessarily indicative of results
to be expected for the entire year. For further information, refer to the
financial statements and the footnotes thereto included in the Company's
Annual Report for the year ended December 31, 2001 filed on Form 10-KSB.
NOTE C -- EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share are based upon the weighted average
number of shares of common stock outstanding. Diluted earnings (loss) per
share are based upon the weighted average number of common shares outstanding
and, when dilutive, common shares issuable for stock options, warrants and
convertible securities. The effect of preferred stock dividends on the amount
of loss available to common stockholders was $.01 and $.07 for the three
months ended June 30, 2002 and 2001, respectively, and $.03 and $.14 for the
six months ended June 30, 2002 and 2001 respectively.
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive totaled 850,000 for each of the
three and six month periods ended June 30, 2002, and 2001. Outstanding
options that were not included in the diluted calculation because their
effect would be anti-dilutive totaled 232,100 for each of the three and six
month periods ended June 30, 2002; 260,987 and 285,997 for the three and
six month periods ended June 30, 2001, respectively.
7
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2002
(Continued)
NOTE D DIVIDENDS
Holders of the Company's Series C 8% Convertible Exchangeable Preferred Stock
("Series C Preferred Stock") will receive, when, as and if declared by the
Board of Directors of the Company, dividends at a rate of 8% per annum. The
dividends are payable semi-annually during January and July of each year. At
June 30, 2002, cumulative dividends of approximately $81,340 were in arrears
on the Company's Series C Preferred Stock.
Holders of the Company's 8-1/2% Senior Convertible Preferred Stock (the
"Senior Preferred Stock") will receive, when, as and if declared by the Board
of Directors of the Company, dividends at a rate of 8-1/2% per annum. The
dividends are payable semi-annually during June and December of each year.
Dividends paid during 2000, on the Senior Preferred Stock, were paid in
additional shares of Senior Preferred Stock, in accordance with the terms of
the Statement of Resolution Establishing the Senior Preferred Stock. In
addition, the holders elected to receive payment of the June and December
2001, and the June 2002 dividends in additional shares of Senior Preferred
Stock. At June 30, 2002, there were no dividends in arrears on the Company's
Senior Preferred Stock.
NOTE E CONVERSION OF SERIES C PREFERRED STOCK
At a November 30, 2001 meeting, the Company's Board of Directors voted to
reduce, on a post-reverse split basis, the conversion price of the Series C
Preferred Stock from $2.00 per share of Common Stock to $1.61 per share of
Common Stock. In addition, the Board of Directors voted to extend the
conversion price increase date of the Series C Preferred Stock from the close
of business on December 31, 2001 until the close of business on January 31,
2002. As a result, the conversion price was $1.61 per share of Common Stock
if converted prior to the close of business on January 31, 2002. After
January 31, 2002, and prior to the close of business on December 31, 2002, the
conversion price per share of Common Stock shall be $3.75. Thereafter, the
conversion price per share of Common Stock shall be $6.00. As of January 31,
2002, a total of 1,092,250 shares of Series C Preferred Stock had been
converted into shares of Common Stock. The 58,100 shares of Series C
Preferred Stock that were not converted as of January 31, 2002, remain
outstanding at July 31, 2002. Had these conversions taken place at the
beginning of 2001, loss per common share would have been reduced by $0.12 and
$0.31 for the three and six month periods ended June 30, 2001, respectively.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
TGC Industries, Inc. ("TGC") was unable to maintain its first quarter 2002
profitability during the second quarter. As a result, TGC reported a net
loss, before dividend requirements on preferred stock, of $(264,151) on
revenue of $1,654,409, for the three month period ended June 30, 2002 compared
with a net loss, before dividend requirements on preferred stock, of
$(292,945) on revenue of $2,573,480 for the same period of 2001. Loss per
common share, on a basic and diluted basis, was $(.06) for the three month
period ended June 30, 2002, compared with a loss per common share of $(.19)
for the same period of 2001.
For the six month period ended June 30, 2002, TGC reported a net loss, before
dividend requirements on preferred stock, of $182,439 on revenue of
$4,572,269, compared with a net loss, before dividend requirements on
preferred stock, of $834,315 on revenue of $3,455,632 for the same period of
2001. Loss per common share, on a basic and diluted basis, was $.06 for the
six month period ended June 30, 2002, compared with a loss per common share of
$.49 for the same period of 2001.
As a result of reporting a loss for the three and six month periods ended June
30, 2002 and 2001, the number of common shares used in the diluted loss per
share computation does not include any common shares issuable for stock
options, warrants or convertible securities because the effect of their
inclusion would be anti-dilutive.
TGC's seismic crew experienced adverse weather conditions during the second
quarter of 2002 and was unable to operate at sufficient production levels to
maintain profitability. Because oil and gas exploration companies continue to
curtail their domestic oil and gas exploration programs, there continues to be
excess capacity in the land-based geophysical services industry and pricing
remains very competitive. As a result, management continues to monitor
expenses and, where possible, implement cost containment programs to remain
highly competitive through this continued period of reduced industry activity.
In the opinion of management, despite the need for more U.S. energy self-
sufficiency and the industry having favorable longer-term prospects, there are
not as yet clear indications of when the geophysical industry will show
significant signs of improvement. During 2001 there were a number of
consolidations and mergers in the geophysical industry. Management is hopeful
that with fewer seismic crews available in the marketplace that TGC will be
able to secure contracts with improved margins thereby continuing to improve
its performance in 2002.
Non-cash charges for depreciation and amortization were $772,038 in the first
six months of 2002 compared with $806,252 for the same period of 2001.
At December 31, 2001, TGC had net operating loss carryforwards of
approximately $8,100,000 available to offset future taxable income, which
expire at various dates through 2021.
9
As previously reported, TGC had been notified by Nasdaq of potential delisting
of the Company's Common Stock from the Nasdaq SmallCap Market. TGC announced
on May 20, 2002, that the Company had been notified by Nasdaq that, in
accordance with Marketplace Rule 4310(c)(8)(B), the Company's securities were
being delisted from Nasdaq SmallCap Market at the opening of Business on May
24, 2002, due to the Company's Common Stock, as previously reported, having
failed to maintain a minimum market value of publicly held shares of
$1,000,000 as required by Marketplace Rule 4310(c)(7). Also, as previously
reported, following the delisting, the Company's securities now trade over-
the-counter on the National Association of Securities Dealers, Inc. Over-The-
Counter Bulletin Board System.
FINANCIAL CONDITION
Cash of $24,006 was provided by operations for the first six months of 2002
compared with cash provided by operations of $1,463,232 for the same period of
2001. This decrease in cash from operations in the first six months of 2002
was primarily the result of a decrease in billings in excess of cost and
estimated earnings on uncompleted contracts and a decrease in accounts
payable, partially offset by a decrease in accounts receivable, resulting from
a decline in the level of activity during the first six months of 2002 as
compared with the last three months of 2001. Net cash of $100,240 was used in
investing activities during the first six months of 2002 for capital
expenditures to replace certain vehicles and equipment. Principal payments of
notes of $14,978, principal payments of capital lease obligations of $145,111
and proceeds from the issuance of debt of $29,861 resulted in net cash of
$130,228 being used in financing activities during the first six months of
2002. TGC anticipates that available funds, together with anticipated cash
flows generated from future operations will be sufficient to meet TGC's
minimum lease and note payment obligations.
Working capital increased $454,893 to $667,249 at June 30, 2002 from the
December 31, 2001, working capital of $212,356. The Company's current ratio
was 2.1 at June 30, 2002, compared with 1.1 at December 31, 2001.
Stockholders' equity decreased $182,439 to $2,844,344 at June 30, 2002 from
the December 31, 2001 balance of $3,026,783. This decrease was attributable
to the net loss, before dividend requirements on preferred stock, of $182,439.
Management believes adequate sources of financing are available to enable the
Company to continue operations in the event operating revenue does not provide
sufficient cash to fund the Company's existing and ongoing obligations.
Forward-Looking Statements
This report contains forward-looking statements which reflect the view of
Company's management with respect to future events. Although management
believes that the expectations reflected in such forward-looking statements
are reasonable; it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to
differ materially from such expectations are disclosed in the Company's
Securities and Exchange Commission filings, and include, but are not limited
10
to the dependence upon energy industry spending for seismic services, the
unpredictable nature of forecasting weather, the potential for contract delay
or cancellation, the potential for fluctuations in oil and gas prices, and the
availability of capital resources. The forward-looking statements contained
herein reflect the current views of the Company's management and the Company
assumes no obligation to update the forward-looking statements or to update
the reasons actual results could differ from those contemplated by such
forward-looking statements.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on June 13, 2002. The following
matters were voted upon and approved by the Company's shareholders:
a. Election to the Board of Directors of Messrs. William J. Barrett,
Edward L. Flynn, Herbert M. Gardner, Allen T. McInnes, Pasquale V. Scaturro,
William H. White and Wayne A. Whitener was approved by the shareholders by a
majority vote by a vote of 7,483,722 to 21,078.
b. Ratification of the selection of the Company's auditors, Grant
Thornton LLP, was approved by the shareholders by a majority vote by a vote of
7,498,837 shares voted for, 5,920 voted against(with 93 shares abstaining).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following is a list of exhibits to this Form 10-QSB;
99.1 Certificate of Chief Executive Officer of TGC
Industries, Inc. pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certificate of Treasurer (Principal Financial
and Accounting Officer) of TGC Industries, Inc.
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b. Reports - A report under Item 5 of Form 8-K was filed on May 20,
2002, to announce that the Company had been notified by Nasdaq that, in
accordance with Marketplace Rule 4310(c)(8)(B), the Company's securities were
being delisted from Nasdaq SmallCap Market at the opening of Business on May
24, 2002, due to the Company's Common Stock, as previously reported, having
failed to maintain a minimum market value of publicly held shares of
$1,000,000 as required by Marketplace Rule 4310(c)(7). Also, as previously
reported, following the delisting, the Company's securities now trade over-
the-counter on the National Association of Securities Dealers, Inc. Over-The-
Counter Bulletin Board System.
11
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.
TGC INDUSTRIES, INC.
Date: August 12, 2002 /s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
Date: August 12, 2002 /s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
12
Exhibit 99.1
Certification of
Chief Executive Officer
of TGC Industries, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the quarterly
report on Form 10-QSB(the "Form 10-QSB") for the quarter ended June 30, 2002
of TGC Industries, Inc. (the "Company"). I, Wayne A. Whitener, the Chief
Executive Officer of the Company, certify that, to the best of my knowledge:
(1) The Form 10-QSB fully complies with the requirements of section 13(a)
or section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: August 13, 2002
/s/ Wayne A. Whitener
Wayne A. Whitener
Chief Executive Officer
13
Exhibit 99.2
Certification of
Treasurer (Principal Financial and Accounting Officer)
of TGC Industries, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the quarterly
report on Form 10-QSB(the "Form 10-QSB") for the quarter ended June 30, 2002
of TGC Industries, Inc. (the "Company"). I, Kenneth W. Uselton, Treasurer
(Principal Financial and Accounting Officer) of the Company, certify that, to
the best of my knowledge:
(1) The Form 10-QSB fully complies with the requirements of section 13(a)
or section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: August 13, 2002
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial and
Accounting Officer)
14
4891.00001/285175.1