U.S. SECURITIES AND EXCHANGE COMMISSION
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 MARCH 31, 1996.
[ ] 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 (Zip Code)
offices)
Issuer's telephone number, including area code: 214/881-1099
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 utstanding at April 30, 1996
Common Stock ($.10 Par Value) 6,166,018
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Incorporated herein is the following unaudited financial information:
Consolidated Balance Sheet as of March 31 1996.
Consolidated Statements of Operations for the three-month periods
ended March 31, 1996 and 1995.
Consolidated Statements of Cash Flows for the three-month periods
ended March 31, 1996 and 1995.
Notes to Consolidated Financial Statements.
<TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<S> <C> <C>
March 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 124,018
Accounts receivable, net 2,458,248
Inventories 3,016,537
Prepaid expenses 591,755
Total current assets 6,190,558
PROPERTY, PLANT, AND EQUIPMENT - at cost
Buildings 1,400,951
Machinery and equipment 8,045,008
9,445,959
Less accumulated depreciation 3,994,769
5,451,190
Land 483,992
5,935,182
OTHER ASSETS 24,516
Total assets $12,150,256
See notes to consolidated financial statements.
</TABLE>
<TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET -- CONTINUED
(Unaudited)
March 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C>
Trade accounts payable $2,641,663
Accrued liabilities 868,307
Advance billings 860,509
Current maturities of long-term obligations 6,264,698
Total current liabilities 10,635,177
LONG-TERM OBLIGATIONS, less current maturities 341,666
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value - authorized
shares, 4,000,000; issued and outstanding
shares, none -
Common stock, $.10 par value - authorized
25,000,000; issued 6,232,152 shares 623,215
Additional paid-in capital 4,697,774
Accumulated deficit (3,980,054)
1,340,935
Less 66,134 shares of common stock in
treasury - at cost 167,522
1,173,413
Total liabilities and stockholders'
equity $12,150,256
See notes to consolidated financial statements.
</TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
Three Months Ended
March 31,
<S> <C> <C>
1996 1995
REVENUE
Service revenue $2,234,672 $1,950,385
Sales 2,396,817 3,760,958
4,631,489 5,711,343
COSTS AND EXPENSES
Cost of services 1,801,437 1,657,484
Cost of sales 2,391,214 3,225,722
Selling, general, and
administrative 721,861 791,248
Interest expense 186,691 186,874
5,101,203 5,861,328
LOSS BEFORE INCOME TAXES (469,714) (149,985)
Provision for income taxes - -
NET LOSS (469,714) (149,985)
Loss per common and common
equivalent share (.08) (.03)
Weighted average number of
common and common equivalent
shares 6,166,018 5,438,642
See notes to consolidated financial statements.
</TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1996 1995
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(469,714) $(149,985)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 360,740 324,884
Gain on disposal of equipment (6,085) (34,032)
Change in assets and liabilities:
Accounts receivable (64,011) 407,106
Inventories 499,807 (557,340)
Prepaid expenses (67,237) 117,159
Trade accounts payable (61,352) (64,422)
Accrued liabilities (107,621) (148,694)
Advanced billings 515,536 182,184
NET CASH PROVIDED BY
OPERATING ACTIVITIES 600,063 76,860
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to machinery and
equipment (100,279) (292,121)
Proceeds from disposal of
machinery and equipment 9,000 54,067
Decrease in other assets 453 -
NET CASH USED IN
INVESTING ACTIVITIES (90,826) (238,054)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
debt 30,000 100,000
Principal payments of debt
obligations (141,781) (338,205)
Net proceeds from (payments
on) line-of-credit (413,429) 270,159
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES (525,210) 31,954
NET DECREASE IN CASH AND
CASH EQUIVALENTS (15,973) (129,240)
Cash and cash equivalents at
beginning of period 139,991 271,260
CASH AND CASH EQUIVALENTS
AT END OF PERIOD 124,018 142,020
CASH PAID DURING THE YEAR FOR:
Interest $ 13,877 $ 93,122
Taxes $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
On January 9, 1995, options for 4,000 shares and 2,332 shares of Common Stock
at an exercise price of $.875 and $1.00 respectively per share were exercised.
The Company received 1,458 shares of its Common Stock at a market value of
$4.00 per share as payment for the exercise of the options.
See notes to consolidated financial statements.
TGC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 1995 filed on Form 10-KSB.
NOTE C -- LOSS PER SHARE
Loss per common share for the quarters ended March 31, 1996 and March 31,
1995 were calculated by dividing net loss for the respective periods by the
weighted average number of shares of Common Stock outstanding for each
period. Loss per common share does not include the weighted average number
of common shares resulting from common stock equivalents, as they are
antidilutive.
NOTE D -- DEBT OBLIGATIONS
On March 20, 1996, the Company received $30,000 in debt financing from an
executive officer of the Company. The financing consisted of a subordinated
note with a maturity date of March 20, 1998, bearing interest at a rate of
10% per annum.
NOTE E -- LOAN DEFAULTS
On January 26, 1996, Chase Packaging, and TGC as guarantor, were notified by
Union Camp Corporation that Chase was in default under the terms of the
Promissory Note dated July 30, 1993 due to nonpayment of principal and
interest and violation of certain debt covenants. On February 9, 1996, Chase
(and TGC as guarantor) received notice from its primary bank that Chase
Packaging was also in default under the terms of the bank revolving line of
credit due to the default under the terms of the Promissory Note with Union
Camp and due to the violation of the tangible net worth covenant in the
Accounts Financing Agreement with the bank. These obligations were
therefore classified as current on the March 31, 1996 balance sheet.
The Company has continued to utilize the bank revolving line of credit under
the same terms as existed prior to the notice of default and demand. The
Company's management is currently negotiating with Union Camp and the bank
in an effort to resolve these default conditions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Revenues were $4,631,489 for the first quarter ended March 31, 1996, compared
to revenues of $5,711,343 for the same period of the prior year. Net loss
was $469,714 for the first quarter of 1996 as compared to net loss of
$149,985 for the first quarter of 1995.
The 19% decrease in revenues in the first quarter of 1996 when compared to the
same quarter of 1995 is attributable to a 36% decline in packaging revenues.
The reduced revenues, combined with negligible profit margins at the
packaging operation, resulted in the $469,714 net loss for the quarter.
PACKAGING OPERATION
Revenues for Chase Packaging Corporation for the first quarter of 1996 were
$2,396,817 as compared to revenues of $3,760,958 for the first quarter of
1995. Chase recorded an operating loss before interest and tax expense of
$504,533 for the first quarter of 1996 as compared to an operating loss
before interest and tax expense of $63,412 for the first quarter of 1995.
Interest expense for the packaging operation for the 1996 first quarter
declined slightly to $170,536 from the 1995 first quarter interest expense
of $173,578.
Several factors contributed to the lower revenues and higher operating losses
at Chase in the 1996 first quarter. A weak export market in late 1995
resulted in an oversupply of domestic onions which depressed market prices
for the crop in the U.S. These lower crop prices reduced demand for Chase's
onion fabric sold to other bag converters as growers/packers have held
onions in storage rather than ship at a loss. Also contributing to the
reduced demand, as well as contributing to lower selling prices, has been an
influx of cheap import fabric and bags from Mexico. The reduced onion
shipments and the competition from Mexican fabric have been the primary
factors in a $655,000 decrease in onion fabric sales for the 1996 first
quarter when compared to the first quarter of 1995. Unfavorable market
pricing also had a negative impact on sales of Chase's consumer-size mesh
potato bags, reducing sales of such bags by $140,000 when comparing the 1996
first quarter with the 1995 first quarter. High prices paid by potato
processors to potato growers required packers to match the high prices when
purchasing their potatoes from the growers. This created very narrow
margins for the potato packers and resulted in the use of cheaper film bags
supplied by competitors for a large percentage of potato shipments to
the fresh market. In addition, the outsourcing on a commission basis of
certain circular woven polypropylene bag orders for the grass seed market
reduced revenues for this product line by approximately $166,000 during the
1996 first quarter.
The continued drop in demand for Chase's core products during the 1996 first
quarter required management to expand its program of inventory reduction and
production levels below-standard to balance plant operations with market
demand. Although variable, indirect and overhead expenses have been reduced
further during the quarter, the curtailment of weaving, printing and sewing
operations resulted in underabsorbed manufacturing overhead which increased
the cost of units produced. These unfavorable manufacturing variances
combined with downward pressure on selling prices for Chase's
products resulted in negative margins for the woven polypropylene
(onion/citrus) product line and reduced margins for the other product lines.
Chase management will continue its previously disclosed 1996 business plan of
lowering the operations' breakeven level by bringing manufacturing costs in
line with the level of sales being generated by current agricultural markets.
To compete with the inroads being made by imports, Chase will continue its
program of expense reduction and efficiency improvement to become a
lower-cost producer of fabric and bags. Chase will actively pursue
expansion of sales efforts into other geographic markets, search for new
product opportunities, eliminate unprofitable product lines and sell-off
underperforming assets. Accounts payable status will be monitored closely
with vendor communication a high priority to ensure that plant production
continues at the most efficient level possible. Due to competitive pressures
from within and outside the U.S. and the uncertain nature of predicting
agricultural crops and their impact on Chase's products, no assurance can be
given that the Company's plans for the remainder of 1996 will achieve the
intended result.
GEOPHYSICAL OPERATIONS
TGC's geophysical service revenue increased to $2,234,672 for the three months
ended March 31, 1996 compared to revenue of $1,950,385 for the same period of
1995. Operating profit before interest and taxes was $221,510 for the 1996
first quarter as compared to an operating profit before interest and taxes of
$100,301 for the first quarter of 1995. The increase in revenue and
operating profit in the 1996 first quarter was the result of a diversified
backlog that allowed for timely advance preparation of seismic program and
a lack of weather delays that improved the crews' recording efficiencies.
One of TGC's seismic crews worked in the Mid-Continent and the Gulf Coast during
the 1996 first quarter. TGC's second seismic crew worked in California (a
new market for the Company) during this same period. With minimal
interruption of the Company's planned data-acquisition schedule for these
areas, both crews were able to record sufficient quantities of seismic data
to meet the Company's schedules for its projects in these areas. The
increased efficiencies achieved by both recording crews during the first
quarter of 1996 resulted in improved operating margins and increased
profitability for the geophysical operation when compared to the same
period of 1995.
The domestic demand for 3-D data acquisition services remains positive at
this time due to the capability of this technology to provide higher quality
data at a lower cost, the increased acceptance of 3-D seismic techniques as
a viable risk management tool, and the increased success rates using 3-D
surveys for exploration and development activities. U.S. exploration
budgets are increasing since a number of major oil and gas companies have
experienced a variety of problems overseas. The Company currently has a
backlog for both crews that extends into the 1996 third quarter and includes
geophysical surveys in the Mid-Continent region and on the West Coast. The
backlog includes small and large surveys for major and independent oil and
gas companies. Management anticipates a continuation of improved revenues
and profit margins in 1996, however, a degree of risk is inherent in the
Company's turnkey contracts due to possible downtime from adverse weather
conditions and other types of delay. With the potential for contract delay
or cancellations and the unpredictable nature of forecasting weather, no
assurance can be given that management's expectations can be achieved.
FINANCIAL CONDITION
Cash of $600,063 was provided by operating activities in the first quarter of
1996 compared with cash provided by operating activities of $76,860 for the
same period of the prior year. The funds generated for the 1996 first
quarter were primarily attributable to advance billings at the geophysical
division and inventory reductions at the packaging operation, partially
offset by the consolidated net loss for the quarter. Cash used in investing
activities consisted primarily of additions to machinery and equipment at the
packaging operation. Cash used in financing activities consisted of $141,781
in principal payments on debt obligations and payments on the Chase line-of-
credit of $413,429, partially offset by $30,000 in debt financing received
from an executive officer of the Company. The loan balance of Chase's
revolving line-of-credit was $2,474,041 as of March 31, 1996.
Working capital decreased $231,719 during the 1996 first quarter to
$(4,444,619). Total accounts receivable (net of allowances) for the period
ending March 31, 1996 of $2,458,248, consisted of packaging operations
accounts receivable of $1,122,134 and geophysical operations accounts
receivable of $1,336,114. The current ratio at March 31, 1996 was .6 to 1
primarily as a result of the 1995 fourth quarter reclassification of long-
term debt to current liabilities as discussed below. Stockholders' equity
decreased $469,714 during the first quarter of 1996. The decrease was
attributable to the Company's consolidated net loss for the 1996 first
quarter of $469,714.
On January 26, 1996, Chase Packaging, and TGC as guarantor, were notified by
Union Camp Corporation that Chase was in default under the terms of the
Promissory Note dated July 30, 1993 due to nonpayment of principal and
interest and violation of certain debt covenants. On February 9, 1996,
Chase (and TGC as guarantor) received notice from its primary bank that
Chase Packaging was also in default under the terms of the bank revolving
line of credit due to the default under the terms of the Promissory Note with
Union Camp and due to the violation of the tangible net worth covenant in the
Accounts Financing Agreement with the bank. These obligations were
therefore classified as current on the March 31, 1996 balance sheet. The
Company has continued to utilize the bank revolving line of credit under the
same terms as existed prior to the notice of default and demand. The
Company's management is currently negotiating with Union Camp and the
bank in an effort to resolve these default conditions.
Management is working very closely with suppliers to ensure that any
disruption in the flow of raw materials and other key items is minimized. A
clear line of communication with vendors is a priority and, to date, the
packaging operation has been able to continue meeting the demands of its
market.
Management of the packaging operation will continue its plan to diversify
into additional geographical markets and to aggressively reduce inventory,
cut expenses, reduce trade payables and improve supply terms with vendors.
The objective of this plan will be to bring manufacturing expenses in line
with projected levels of sales, thereby generating a positive cash flow.
However, due to competitive pressures and the uncertain nature of predicting
agricultural crops, no assurance can be given that management's plan will
achieve the intended results.
Due to losses from operations, cash flow difficulties, and defaults with
secured lenders, the Company's continued existence as a going concern is
dependent on its ability to obtain additional financing or refinancing as
may be required and to improve operating results. Management believes that
any required financing or refinancing can be obtained in order to
meet the Company's liquidity needs for the foreseeable future and to enable
management to implement its plan to improve operating results. However, in
view of the Company's weakened financial condition and the uncertain timing
and strength of recovery in its markets, there can be no assurance that such
financial and operating plans can be achieved.
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: May 8, 1996 /s/ Allen T. McInnes
______________________________
Allen T. McInnes
Chairman of the Board,
President
(Principal Executive Officer)
Date: May 8, 1996 /s/ Doug Kirkpatrick
______________________________
Doug Kirkpatrick
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 124018
<SECURITIES> 0
<RECEIVABLES> 2527386
<ALLOWANCES> 69138
<INVENTORY> 3016537
<CURRENT-ASSETS> 6190558
<PP&E> 9929951
<DEPRECIATION> 3994769
<TOTAL-ASSETS> 12150256
<CURRENT-LIABILITIES> 10635177
<BONDS> 341666
<COMMON> 623215
0
0
<OTHER-SE> 550198
<TOTAL-LIABILITY-AND-EQUITY> 12150256
<SALES> 2396817
<TOTAL-REVENUES> 4631489
<CGS> 2391214
<TOTAL-COSTS> 4192651
<OTHER-EXPENSES> 715861
<LOSS-PROVISION> 6000
<INTEREST-EXPENSE> 186691
<INCOME-PRETAX> (469714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (469714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (469714)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
