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 September 30, 1999.
[ ] 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 October 29, 1999
Common Stock ($.30 Par Value) 2,253,184
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of September 30, 1999.
Statements of Operations for the three and nine month periods
ended September 30, 1999 and 1998.
Statements of Cash Flows for the nine month periods ended
September 30, 1999 and 1998.
Notes to Financial Statements.
TGC INDUSTRIES, INC
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30,
1999
_____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 121,421
Accounts receivable 478,103
Prepaid expenses and other 199,911
Deferred income taxes 202,000
___________
Total current assets $ 1,001,435
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 10,839,241
Automobiles and trucks 600,704
Furniture and fixtures 317,167
Other 18,144
__________
11,775,256
Less accumulated depreciation
and amortization (6,278,472)
__________
5,496,784
OTHER ASSETS 395
__________
Total assets $ 6,498,614
==========
See notes to Financial Statements
TGC INDUSTRIES, INC
BALANCE SHEET -- CONTINUED
(UNAUDITED)
SEPTEMBER 30,
1999
_____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $269,196
Accrued liabilities 278,456
Billings in excess of costs and estimated
earnings on uncompleted contracts -
Current maturities of long-term obligations 998,981
_________
Total current liabilities 1,546,633
LONG-TERM OBLIGATIONS, less current
maturities 627,476
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized; 1,127,050 issued
and outstanding 1,127,050
Common stock, $.30 par value; 25,000,000
shares authorized; 2,256,877 shares issued 677,063
Additional paid-in capital 4,973,588
Accumulated deficit (2,237,882)
Treasury stock, at cost (31,944 shares) (215,314)
_________
4,324,505
_________
Total liabilities and stockholders' equity $6,498,614
=========
See notes to Financial Statements
TGC INDUSTRIES, INC
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited) (Unaudited)
1999 1998 1999 1998
Revenue $983,187 $5,536,737 $4,517,546 $15,376,804
Cost of services 1,150,631 4,233,053 4,550,459 12,302,030
Selling, general, adm. 228,152 287,802 669,868 830,640
_________ _________ _________ __________
1,378,783 4,520,855 5,220,327 13,132,670
INCOME (LOSS) FROM OPERATIONS (395,596) 1,015,882 (702,781) 2,244,134
Interest expense 44,623 58,057 148,396 195,750
_________ _________ _________ __________
NET INCOME (LOSS) (440,219) 957,825 (851,177) 2,048,384
Less dividend requirement on
preferred stock 112,705 112,935 338,345 338,805
_________ _________ _________ __________
INCOME (LOSS) ALLOCABLE TO
COMMON STOCKHOLDERS $(552,924) $844,890 $(1,189,522) $1,709,579
Earnings (loss) per common share
Basic $ (.25) $ .39 $ (.54) $ .79
Diluted $ (.25) $ .20 $ (.54) $ .43
Weighted average number of
common shares:
Basic 2,224,934 2,171,473 2,222,074 2,164,651
Diluted 2,224,934 4,774,347 2,222,074 4,803,397
See notes to Financial Statements
TGC INDUSTRIES, INC
Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $(851,177) $2,048,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,451,779 1,297,335
Loss (gain) on disposal of property and equipment (9,894) 4,488
Changes in operating assets and liabilities
Trade accounts receivable 635,081 1,806,603
Billings in excess of cost and estimated
earnings on uncompleted contracts (387,474) (2,025,691)
Prepaid expenses (9,239) (58,242)
Other assets 569
Accounts payable (307,109) (956,224)
Accrued liabilities 94,665 180,528
_________ _________
NET CASH PROVIDED BY OPERATING ACTIVITIES 617,201 2,297,181
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (9,221) (385,289)
Proceeds from sale of property and equipment 46,300 3,400
Decrease (increase) in other assets - 34,269
_________ ________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 37,079 (347,620)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (178,044) (225,870)
Proceeds from issuance of debt 200,000 -
Proceeds from exercise of stock
options and warrants - 15,187
Principal payments of debt obligations (1,257,814) (997,446)
Other - 2,813
_________ ________
NET CASH USED IN FINANCING ACTIVITIES (1,235,858) (1,205,316)
_________ ________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (581,578) 744,245
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 702,999 120,535
_________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $121,421 $864,780
========= ========
Supplemental cash flow information
Interest paid $147,004 $195,750
Income taxes paid $78,774 $15,230
See notes to Financial Statements
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
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 generally accepted accounting principles.
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, 1998 filed on Form 10-KSB.
NOTE C -- EARNINGS PER SHARE
Basic earnings per common share is based upon the weighted average number of
shares of common stock outstanding. Diluted earnings per share is based upon
the weighted average number of common shares outstanding and, when dilutive,
common shares issuable for stock options, warrants and convertible securities.
On November 5, 1998, the Board of Directors declared a one-for-three reverse
stock split on the Company's common stock. All references to number of
shares, except shares authorized, and to per share information in the
financial statements have been adjusted to reflect the reverse stock split on
a retroactive basis.
NOTE D -- DIVIDENDS
Holders of the Company's Series C 8% convertible exchangable 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 September 30, 1999,
cumulative preferred dividends were in arrears aggregating $225,410 or $.20
per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
TGC Industries, Inc. ("TGC") reported revenues of $4,517,546 and a net loss,
before dividend requirements on preferred stock of $851,177 for the nine month
period ended September 30, 1999, compared with revenue of $15,376,804 and net
income, before dividend requirements on preferred stock of $2,048,384 for
1998. Net loss per common share, on a diluted basis, was $.54 for the first
nine months of 1999, compared with income per common share, on a diluted
basis, of $.43 for 1998.
For the three month period ended September 30, 1999, TGC had revenue of
$983,187 and a net loss, before dividend requirements on preferred stock, of
$440,219. This compares with revenue of $5,536,737 and net income, before
dividend requirements on preferred stock, of $957,825 for 1998. Net loss per
common share, on a diluted basis, was $.25 for the three month period ended
September 30, 1999, compared with income per common share, on a diluted basis,
of $.20 for 1998.
Because of insufficient contracts, revenue in the first nine months of 1999
has declined significantly which resulted in the losses for the three and nine
month periods ended September 30, 1999.
TGC's cost of services, as a percentage of revenue, were 100.7% for the first
nine months of 1999, compared to 80.0% for the same period of 1998. This
percentage increase was attributable to the low level of revenue for the first
nine months of 1999. Selling, general and administrative expense decreased by
$160,772 during the first nine months of 1999 when compared with the same
period of 1998. This decrease was attributable to expense reductions
implemented to remain competitive during this period of reduced industry
activity. Interest expense decreased by $47,354 in the first nine months of
1999 when compared with the same period of 1998. This decrease was primarily
a result of the reducing loan balances for the purchase of geophysical
equipment.
TGC's cost of services, as a percentage of revenue, were 117.0% for the third
quarter of 1999, compared to 76.5% for the same period of 1998. This
percentage increase was attributable to the significantly lower level of
revenue for the third quarter of 1999. Selling, general and administrative
expense decreased by $59,650 during the third quarter of 1999 when compared
with the same period of 1998. This decrease was attributable to expense
reductions implemented to remain competitive during this period of reduced
industry activity. Interest expense decreased by $13,434 in the third quarter
of 1999 when compared with the same period of 1998. This decrease was
primarily a result of the reducing loan balances for the purchase of
geophysical equipment.
Non-cash charges for depreciation and amortization were $1,451,779 in the
first nine months of 1999 compared with $1,297,335 for 1998.
At December 31, 1998, TGC had net operating loss carryforwards of
approximately $3,600,000 available to offset future taxable income, which
expire at various dates through 2013.
The first nine months of 1999 has been a difficult period for the Company and
compares unfavorably with the same period of 1998. The Company has
substantially reduced its break-even levels to increase competitiveness.
There has been a recent increase in seismic bidding activity and management is
aggressively pursing contract opportunities. However, the Company was not
awarded a sufficient amount of contracts to return to profitability in the
third quarter. In addition, there can be no assurance that the fourth quarter
of 1999 will show any improvement.
Management believes that the geophysical market conditions should materially
improve beginning in calendar year 2000 and seismic services should be in
greater demand due to the recent increase in levels of seismic bidding
activity and the prospect of oil and gas prices remaining at their current
levels. Although there can be no assurance, such conditions should enable the
Company to secure contracts and improve its performance.
FINANCIAL CONDITION
Cash of $617,201 was provided from operations for the first nine months of
1999 compared with cash provided from operations of $2,297,181 for the same
period of 1998. The funds generated in the first nine months of 1999 were
primarily attributable to non-cash depreciation and amortization charges.
Cash provided by investing activities for the first nine months of 1999 was
$37,079. $46,300 of proceeds from the sale of equipment less the replacement
of equipment in the amount of $9,221. Cash used in financing activities for
the first nine months of 1999 was for principal payments of debt obligations
in the amount of $1,257,814, dividend payments on preferred stock of $178,044,
less proceeds from the issuance of debt in the amount of $200,000.
Working capital deficit decreased $325,523 to $545,198 from the December 31,
1998 balance of $870,721. The Company's current ratio was .65 to 1.0 at
September 30, 1999, compared with .72 to 1.0 at December 31, 1998.
Stockholders equity decreased $803,351 from the December 31, 1998 balance of
$5,127,856 to $4,324,505 at September 30, 1999. This decrease was primarily
attributable to net losses, before dividend requirements on preferred stock,
for the three and nine month periods ended September 30, 1999, of $440,219 and
$851,177 respectively.
During the fourth quarter of 1998, the Company renewed its revolving bank line
of credit with a major bank in an amount of up to $1,000,000. The line of
credit bears interest at prime plus 1.5%, is collateralized by equipment and
accounts receivable and requires the maintenance of certain financial ratios.
As a result of the losses reported for the three and nine month periods ended
September 30, 1999, TGC is not in compliance with certain covenants required
by its revolving line of credit agreement. The Bank has decided not to waive
the covenant violation. As a result, TGC cannot borrow against its revolver
for working capital requirements until it is in compliance with the covenants.
It is clear that the covenant violations will not be corrected during the
balance of 1999. In order to provide additional working capital, TGC has been
attempting to re-finance some of its equipment. However, to date the re-
financing of certain equipment has been unsuccessful and there can be no
assurance that a re-financing transaction will be completed.
The Board of Directors at its regular meeting on June 3, 1999, determined that
in lieu of declaring a semi-annual dividend payable in July 1999 on its Series
C 8% Convertible Exchangable Preferred Stock, the initial Preferred Stock
conversion price per share of Common Stock would be reduced from $2.25 per
share to $2.00 per share and the conversion price increase would be delayed.
The Preferred Stock Dividends, if declared, are payable at a rate of 8% per
annum, payable semi-annually in January and July of each year. The date of
the increase of the conversion price of the Preferred Stock will be delayed
from December 31, 2000 until December 31, 2001 and the subsequent date of the
increase of the conversion price of the Preferred Stock will be delayed from
December 31, 2001 to December 31, 2002. As a result, the conversion price is
$2.00 per share of Common Stock if exercised prior to the close of business on
December 31, 2001. After December 31, 2001 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.
The Company began preparation for the year 2000 issues during 1996. In late
1996, TGC upgraded and replaced its accounting software. In addition, TGC
installed a small personal computer network. The cost of these additions,
which are year 2000 compliant, was approximately $15,000. TGC uses an outside
source for its payroll services and has been assured by this vendor that its
software is year 2000 compliant. TGC will need to make a few additional
hardware upgrades in order for the total system to be year 2000 compliant.
These upgrades will be completed by November 30, 1999, at which time the
Company will be fully year 2000 compliant. The Cost of these upgrades will be
approximately $2,000.
At October 1, 1999, both of the Company's crews were inactive. The Company
anticipates that available funds, together with anticipated cash flows
generated from future operations and the re-financing of some of its equipment
(of which there is no assurance) will be sufficient to meet the Company's cash
needs during 1999.
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, without limitation,
the unpredictable nature of forecasting weather, the potential for contract
delay or cancellation, and the potential for fluctuations in oil and gas
prices. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -- None.
b. Reports -- No reports on Form 8-K have been filed during the quarter
for which this report is filed.
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: November 12, 1999 /s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
Date: November 12, 1999 /s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)