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 June 30, 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 Outstanding at July 31, 1996
Common Stock ($.10 Par Value) 6,188,018
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Incorporated herein is the following unaudited financial information:
Consolidated Balance Sheet as of June 30, 1996.
Consolidated Statements of Operations for the three and six
month periods ended June 30, 1996 and 1995.
Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 1996 and 1995.
Notes to Consolidated Financial Statements.
TGC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<S> <C> <C>
PRO FORMA
ASSETS June 30, 1996 June 30, 1996
CURRENT ASSETS
Cash and cash equivalents $ 129,609 $2,129,609
Accounts receivable, net 993,587 993,587
Prepaid expenses 777,752 777,752
Total current assets 1,900,948 3,900,948
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 3,361,725 3,361,725
Automobiles and trucks 529,505 529,505
Furniture and fixtures 294,822 294,822
4,186,052 4,186,052
Less accumulated depreciation 2,956,986 2,956,986
1,229,066 1,229,066
Property held for sale 1,331,834 1,331,834
2,560,900 2,560,900
OTHER ASSETS 2,217 2,217
Total assets $ 4,464,065 $ 6,464,065
See notes to Consolidated Financial Statements.
</TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET -- CONTINUED
(Unaudited)
<TABLE>
<S> <C> <C>
PRO FORMA
June 30, 1996 June 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 866,372 $ 866,372
Accrued liabilities 500,667 500,667
Advance billings 711,013 711,013
Current maturities of long-term
obligations 68,839 68,839
Private placement proceeds 150,000 -
Total current liabilities 2,296,891 2,146,891
LONG-TERM OBLIGATIONS, less current
maturities 365,813 -
NET LIABILITIES OF DISCONTINUED
OPERATION 1,303,202 -
PAYABLE TO CHASE PACKAGING - 1,331,834
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value -
authorized shares, 4,000,000;
issued and outstanding
shares, none - 1,150,350
Common stock, $.10 par value -
authorized 25,000,000;
issued 6,254,152 shares 625,415 625,415
Additional paid-in capital 4,702,924 6,039,755
Accumulated deficit (4,662,658) (4,662,658)
Treasury stock, at cost
(66,134 shares) (167,522) (167,522)
498,159 2,985,340
Total liabilities and $4,464,065 $6,464,065
stockholders' equity
See notes to Consolidated Financial Statements.
</TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months ended June 30, Six Months ended June 30,
1995 1996 1995 1996
SERVICE REVENUE $1,782,067 $2,225,255 $3,732,452 $4,459,927
COSTS AND EXPENSES
Cost of service 1,507,372 1,972,973 3,164,856 3,774,410
Selling, general,
and administrative 190,502 187,852 383,102 399,577
Interest expense 15,120 16,988 28,416 33,143
1,712,994 2,177,813 3,576,374 4,207,130
Income from continuing
operations before
income taxes 69,073 47,442 156,078 252,797
Provision for income taxes - - - -
Income from continuing
operations 69,073 47,442 156,078 252,797
Loss from discontinued
operations (272,464) (730,046) (509,454) (1,405,115)
NET LOSS $(203,391) $(682,604) $(353,376) $(1,152,318)
Earnings (loss) per common
and common equivalent share
Continuing operations $ .01 $ .01 $ .03 $ .04
Discontinued operations $ (.05) $(.12) $ (.09) $ (.23)
Earnings (loss) per
common and common
equivalent share $ (.04) $(.11) $ (.06) $ (.19)
Weighted average number
of common and equivalent
shares 5,483,520 6,176,699 5,461,205 6,171,359
See notes to consolidated financial statements.
</TABLE>
TGC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<S> <C> <C>
Six Months Ended June 30,
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(353,376) $(1,152,318)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Loss from discontinued operations 509,454 1,405,115
Depreciation and amortization 391,570 388,721
Gain on disposal of property and
equipment (34,032) (8,585)
Changes in operating assets and
liabilities
Accounts receivable 215,359 41,748
Prepaid expenses (96,181) (327,006)
Refundable income taxes 46,626 -
Accounts payable (39,015) 10,267
Accrued liabilities 35,591 28,914
Advance billings 160,015 474,793
NET CASH PROVIDED BY
CONTINUING OPERATIONS 836,011 861,649
NET CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS (1,176,125) 150,682
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (340,114) 1,012,331
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (260,238) (197,695)
Proceeds from sale of property
and equipment 54,067 11,500
Other assets - (1,019)
Investing activities of
discontinued operations (188,054) (88,063)
NET CASH USED IN INVESTING
ACTIVITIES (394,225) (275,277)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from private placement - 150,000
Proceeds from issuance of debt 200,000 125,813
Proceeds from issuance of stock 100,000 3,750
Principal payments of debt
obligations - (96,715)
Financing activities of
discontinued operations 450,834 (905,161)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 750,834 (722,313)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 16,495 14,741
Cash and cash equivalents at beginning
of period 230,538 114,868
Cash and cash equivalents at end
of period $ 247,033 $129,609
Supplemental cash flow information
Cash paid during the year
Interest $ - $ 2,575
Income taxes $ - $ -
</TABLE>
Noncash investing and financing
activities (1)
____________________________________
(1) 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)
June 30, 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 quarter and six months ended June 30, 1996 and
June 30, 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.
On April 9, 1996, the Company received $62,813 in debt financing from an
executive officer of the Company. The financing consisted of a subordinated
note with a maturity date of April 9, 1998, bearing interest at a rate of
10% per annum. On May 13, 1996, the Company received an additional $33,000
in debt financing from an executive officer of the Company. This financing
consisted of a subordinated note with a maturity date of May 13, 1998,
bearing interest at a rate of 10% per annum.
On May 29 and May 30, 1996, the Company received $150,000 from certain
executive officers and directors of the Company as an advance on proceeds
from the private placement of Series C 8% Convertible Exchangeable Preferred
Stock ("Preferred Stock"). The proceeds are part of the closing in July
1996 of 1,150,350 shares of Preferred Stock (See Note E).
In July of 1996 subordinated notes totaling $365,813 were exchanged for
Preferred Stock offered in the private placement described in Note E.
NOTE E -- REORGANIZATION PLAN
In May 1996, a formal plan was adopted to reorganize the Company. Pursuant
to the plan, the following actions have been taken:
a. In July of 1996, the Company closed the private placement of
1,150,350 shares of Series C 8% Convertible Exchangeable Preferred
Stock. The gross proceeds received from the closings were
$5,751,750, which amount includes the exchange by holders
of subordinated notes of the Company totalling $365,813 for
Preferred Stock.
The Preferred Stock sold in the private placement entitles the
holder to receive cumulative cash dividends as and when declared
by the Board of Directors at a rate of 8% per year prior to any
dividend or distribution in cash or other property on any class
or series of stock junior to the preferred stock. The dividends
on the preferred stock are payable as declared by the Board of
Directors on January 1 and July 1 of each year, commencing January
1, 1997. The dividends on the preferred stock are cumulative but
do not bear interest.
The holder of any shares of Preferred Stock has the right at any
time to convert the Preferred Stock into fully paid and
non-assessable shares of Common Stock of TGC at the conversion
price per share of (1) prior to the close of business on
July 1, 1998, the conversion price per share of common stock of
$.75; (2) after July 1, 1998 and prior to the close of business
on July 1, 1999, the conversion price per share of common stock
of $1.25, and (3) thereafter, the conversion price per share
of common stock of $2.00. A cash adjustment will be paid in lieu
of fractional shares.
Shares of the preferred stock are exchangeable in whole at the
sole option of the Company at any time after January 1, 1998 for
the Company's 8% Subordinated Convertible Debentures, Series A
("Debentures") due the later of July 1, 2000 or two years from
the date of exchange. This is conditioned upon the Company paying,
on or prior to the date of exchange, to the holders of the
outstanding shares of preferred stock all accumulated and unpaid
dividends to the date of exchange.
b. Upon closing of the private placement, the Company contributed
approximately $2,650,000 as a capital contribution to Chase Packaging.
c. Effective July 31, 1996, the Company spun-off its wholly owned
subsidiary, Chase Packaging Corporation, formerly New Chase
Corporation. Prior to the spin-off, TGC liquidated Chase
Packaging Corporation ("Old Chase") with TGC receiving all of
Chase's properties and liabilities in cancellation of the Chase
stock held by TGC. TGC then formed a new wholly-owned subsidiary,
New Chase Corporation, a Texas corporation, the name of which
TGC subsequently changed to Chase Packaging Corporation
("Chase"). TGC transferred all of the properties and liabilities
previously received by TGC as a result of the liquidation of Old
Chase, except TGC retained the Portland,Oregon facility of Old
Chase, which TGC intends to sell. TGC anticipates that most of
the sale proceeds from the Portland, Oregon facility will
be contributed to Chase to be applied against the mortgage
indebtedness currently encumbering such facility.
TGC spun-off Chase to the holders of TGC's Common Stock and, on
an as-if-converted basis, to the holders of TGC's Series C 8%
Convertible Exchangeable Preferred Stock (the "Preferred Stock"),
which was sold in a private placement that closed in July,
1996. The record date was July 15, 1996 ("Record Date");
however, the TGC Common Stock has traded with "due bills" since
the Record Date and will continue to do so until the distribution
of Chase Common Stock, which date will be the first business
day following the effectiveness of the Registration Statement which
the Company intends to file with the Securities and Exchange
Commission. The holders of 6,252,694 shares of TGC Common Stock and
1,150,350 shares of TGC Preferred Stock will receive the spin-off
distribution of Chase Common Stock. An additional 539,837 shares
of Chase Common Stock wil be held in escrow and distributed upon the
exercise, if any, of outstanding warrants and options of TGC. On the
distribution date, the holders of TGC Common Stock will receive
one-half share of Chase Common Stock for each share of TGC Common
Stock held, and the holders of TGC Preferred Stock will receive
one-half share of Chase Common Stock for each share of Common
Stock of TGC as if the preferred stockholders had converted. The
$5.00 per share Preferred Stock is initially convertible at $.75 per
share of Common Stock through July, 1998. As a result of this
spin-off, the operations of Chase have been reflected as
discontinued operations in the consolidated financial statements.
NOTE F -- PRO FORMA BALANCE SHEET
The Pro Forma balance sheet reflects the closing of the private placement of
Preferred Stock and the spin-off of Chase Packaging Corporation, assuming
these transactions were consummated as of June 30, 1996. Substantially all
of the Company's cash was used as a partial payment on the Company's 24-Bit
Opseis Eagle recording system.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
GEOPHYSICAL OPERATIONS (CONTINUING OPERATIONS)
Geophysical service revenue increased to $2,225,255 for the three months ended
June 30, 1996 compared to revenue of $1,782,067 for the same period of 1995.
Revenue for the first six months of 1996 was $4,459,927, a 19% increase from
revenue of $3,732,452 for the first six months of 1995. Operating profit
before interest and taxes was $64,430 for the 1996 second quarter as
compared to operating profit before interest and taxes of $84,193 for the
second quarter of 1995. Operating profit before interest and taxes for the six
months ended June 30, 1996 was $285,940 as compared to operating profit
before interest and taxes of $184,494 for the same period of 1995. The
increase in revenue was the result of a diversified backlog which included
seismic surveys with higher contract prices in 1996 when compared to the
Company's 1995 program. Although profit margins for the 1996 second quarter
were down due to start-up costs on a seismic contract, timely preparation
of seismic program improved the crew's recording efficiencies, resulting in
increased operating margins for the first six months of 1996 when compared to
the same period of 1995.
One of TGC's seismic crews worked in the Gulf Coast during the 1996 second
quarter. TGC's second seismic crew continued work in California (a new market
for the Company) during this same period. With minimal interruption of the
Company's planned data - acquisition schedules, both crews were able to record
sufficient quantities of seismic data in the allotted time periods. The
increased efficiencies achieved by both recording crews during the first
half of 1996 resulted in improved operating margins and increased
profitability for the geophysical operation when compared to the first half of
1995.
The outlook for domestic 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. The improved cost effectiveness
gained from the data acquisition and processing of 3-D surveys has resulted
in increased profits for the U.S. operations of major and independent oil and
gas companies. With these cost advantages and the uncertainty of foreign
operations, many of the major U.S. energy companies are increasing
participation in the domestic oil and gas industry. The Company currently
has a backlog that extends into the 1996 fourth quarter and includes
programs in the Gulf Coast and Mid-Continent regions and on the West Coast.
The backlog includes small and large surveys for major and independent oil and
gas companies.
In July of 1996, TGC purchased a 24-Bit Opseis Eagle recording system with
1,500 channels and also acquired support equipment (cables and geophones) for
this system. The purchase of these assets will improve recording capacity and
marketability of TGC's seismic services, enabling the Company to take
advantage of the current favorable environment for domestic exploration.
TGC used $2,000,000 in proceeds from the July 1996 private placement of Series
C 8% Convertible Exchangeable Preferred Stock ("Preferred Stock"), together
with some bank financing, to purchase this system and support equipment.
As a result of the expanded recording capabilities and current backlog for
the Company, management anticipates a continuation of improved revenues and
profit margins for the remainder of 1996. However, a degree of risk is
inherent in the Company's operations, due to possible downtime from adverse
weather conditions and the nature of the Company's turnkey contracts which are
subject to the risk of delay or cancellation. With the unpredictable
nature of forecasting weather and the potential for contract delay or
cancellation, no assurance can be given that management's expectations can
be achieved.
DISCONTINUED OPERATIONS
Effective July 31, 1996, the Company spun-off its wholly-owned subsidiary,
Chase Packaging Corporation, formerly New Chase Corporation, to the holders
of TGC Common Stock and Preferred Stock. Prior to the spin-off, through
various corporate transactions, TGC liquidated Chase Packaging Corporation
("Old Chase") with TGC receiving all of Old Chase's properties and
liabilities in cancellation of Old Chase stock held by TGC. TGC then formed a
new subsidiary, New Chase Corporation, a Texas corporation, the name of
which TGC subsequently changed to Chase Packaging Corporation ("Chase"),
and transferred all of the properties and liabilities of Old Chase, except
TGC retained the Portland,Oregon facility of Old Chase, which TGC intends
to sell. TGC anticipates that most of the sale proceeds from the Portland,
Oregon facility will be contributed to Chase to be applied against the
mortgage indebtedness currently encumbering such facility. TGC spun-off
Chase to the holders of TGC's Common Stock, and, on an as-if-converted
basis, to the holders of TGC's Preferred Stock sold in the private
placement previously discussed. TGC has obtained the approval of the primary
lenders to Chase of the spin-off transaction. The record date was July 15,
1996 ("Record Date"); however, the TGC Common Stock has traded with "due
bills" since the Record Date and will continue to do so until the
distribution of Chase Common Stock, which date will be the first business
day following the effectiveness of the Registration Statement which the Company
intends to file with the Securities and Exchange Commission. Such
effective date is currently expected to take place in September, 1996.
The holders of 6,252,694 shares of TGC Common Stock outstanding and
1,150,350 shares of Preferred Stock outstanding will receive the spin-off
distribution of Chase Common Stock. An additional 539,837 shares of Chase
Common Stock will be held in escrow and distributed upon the exercise, if any,
of outstanding warrants and options of TGC. On the distribution date, the
holders of TGC's Common Stock will receive one-half share of Chase Common
Stock for each share of TGC Common Stock held, and the holders of TGC's
Preferred Stock will receive common stock of Chase on the basis of one-half
share of Chase for each share of TGC Common Stock as if the Preferred
Stockholder converted. The $5.00 per share Preferred Stock is initially
convertible at $.75 per share of TGC Common Stock through July 1, 1998.
Following the spin-off, the Company anticipates that Chase's Common Stock
will trade over-the-counter and will be quoted on the OTC Bulletin Board.
However, no assurance can be given that a market in Chase common stock will
develop. As a result of the spin-off, the operations of Chase Packaging have
been accounted for as a discontinued operation in the accompanying
consolidated financial statements. Loss from discontinued operations for
the quarter and six months ended June 30, 1996 includes a projected loss of
$180,000 representing estimated losses incurred from discontinued operations
for the period June 30, 1996 to the date of the spin-off of Chase Packaging.
Revenues for Chase were $2,317,866 for the second quarter of 1996 as compared
to revenue of $3,933,095 for the second quarter of 1995. Operating losses
before interest and taxes were $394,997 for the 1996 second quarter as
compared to operating losses before interest and taxes of $85,946 for the same
period of 1995. Revenues for Chase were $4,714,683 for the six months ended
June 30, 1996 as compared to revenues of $7,694,053 for the same period of
1995. Operating losses before interest and taxes were $899,530 for the first
half of 1996 as compared to operating losses before interest and taxes of
$149,358 for the first half of 1995.
Factors that contributed to the lower revenues and higher operating losses at
Chase in 1996 were a weak export market for domestic onions which reduced
onion bag and fabric shipments and increased competition from an influx of
cheap import fabric and bags from Mexico. The result has been a $1.1
million decrease in sales of Chase's woven polypropylene fabric to other
bag converters for the first half of 1996 when compared to the first half of
1995. Also, unfavorable market pricing had a negative impact on sales of
Chase's consumer-size mesh potato bags, reducing sales of such bags by
$350,000 when comparing the first six months of 1996 with the first six months
of 1995. 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
$710,000 during the first half of 1996.
The continued drop in demand for Chase's core products during 1996 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
second 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.
The business plan includes the sale by TGC of the facility located in
Portland, Oregon. TGC anticipates that most of the proceeds from this sale
will be contributed to Chase to be applied against Chase's outstanding debt
with Union Camp. In addition, Chase management plans to sell Chase's woven
polypropylene extrusion and weaving equipment with proceeds to be utilized
for debt reduction and for working capital purposes at Chase. Chase will
continue to operate as a producer of paper mesh fabric and as a converter and
distributor of agricultural bags and other specialty packaging. 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 Chase's plans for
the remainder of 1996 will achieve the intended result.
FINANCIAL CONDITION
GEOPHYSICAL OPERATION
Cash of $861,649 was provided by continuing operations for the first six
months of 1996 compared to cash provided by continuing operations of $836,011
for the first six months of 1995. The funds generated in the first half of
1996 were primarily attributable to net earnings before non-cash depreciation
charges for the Company's geophysical operation and to funds received from
advance billings on geophysical contracts. Cash used in investing
activities for the first six months of 1996 was primarily for additions to
machinery and equipment for geophysical field operations. Cash provided by
financing activities for the first six months of 1996 consisted of $150,000
advance on proceeds from the private placement of TGC Preferred Stock,
$125,813 in proceeds from subordinated notes issued to an executive officer
of the Company and $3,750 from the issuance of stock, partially offset by
$96,715 in debt principal payments.
Working capital decreased $267,260 to $(395,943) from the December 31, 1995
balance of $(128,683) primarily due to cash transferred to the Company's
discontinued operations, Chase Packaging Corporation, during the first six
months of 1996. As a result of this working capital decrease, the Company's
current ratio declined to .8 to 1 at June 30, 1996 as compared to .9 to 1
at December 31, 1995. Stockholder's equity decreased $1,144,968 from the
December 31, 1995 balance of $1,643,127 to $498,159 primarily due to the
consolidated net loss of $1,152,318 for the first half of 1996. Adding to
stockholder's equity was the issuance of 22,000 shares of TGC Common Stock for
$7,350 during the 1996 second quarter.
In July of 1996, TGC closed the private placement of 8% Convertible
Exchangeable Preferred Stock. TGC's geophysical operation received
approximately $2,000,000 from the private placement and utilized the proceeds,
together with bank financing, to purchase a state-of-the-art geophysical
recording system. The Company placed this system into service in early
August 1996. The expanded recording capabilities provided by this system
should increase revenue and profit margins thereby improving the Company's
operating cash flow for the remainder of 1996. Due to the potential for
downtime from contract delays and the uncertainty of weather, however, no
assurance can be given that the Company's liquidity will improve to levels
anticipated by management.
DISCONTINUED OPERATIONS
As previously discussed, the operations of Chase Packaging have been accounted
for as a discontinued operation in the accompanying consolidated statements
due to the July 31, 1996 spin-off of Chase to TGC shareholders.
Cash of $150,682 was provided by discontinued operations for the six months
ended June 30, 1996 as compared to cash used in discontinued operations of
$1,176,125 for the first six months of 1995. The funds generated for the
first half of 1996 were primarily attributable to inventory reductions at
Chase Packaging during this period. Cash used in investing activities at
Chase was primarily additions to machinery and equipment for the packaging
operation. Cash used in financing activities was attributable to payments on
the Chase line of credit of $720,160 and $185,001 in principal payments of
debt obligations.
During the 1996 first quarter the Company experienced certain defaults
under the terms of the Chase Packaging Promissory Note with Union Camp and
under terms of the Chase revolving line of credit with the bank. As a
result of proceeds received from the previously discussedprivate placement,
payments were made to Union Camp and the bank in July, 1996 which cured the
payment defaults and released TGC as guarantor of these obligations. Chase
remains in default under the terms of the Union Camp Promissory Note for
violation of the tangible net worth covenant and under the terms of the bank
revolving line of credit as a result of a cross - default related to the Union
Camp default. The Company's management is currently engaged in
negotiations with Union Camp and the bank that are expected to result in a
waiver (at least on a temporary basis) of the default conditions. As
previously discussed, TGC plans to sell the facility located in Portland,
Oregon with proceeds to be appiled against the mortgage indebtedness
encumbering the facility. In addition, Chase management plans to dispose of
Chase's woven polypropylene extrusion and weaving equipment. Future fabric
requirements for Chase's woven polypropylene bag conversion operations will be
met with the purchase of fabric from other domestic and foreign fabric
suppliers. Although there can be no assurance as to the timing and amount
of these asset sales, management of TGC and Chase anticipate that proceeds
from such sales will enable Chase to eliminate the Union Camp debt and
further reduce the loan balance with the bank thereby curing all remaining
defaults.
As part of the Company's reorganization plan, TGC contributed approximately
$2,650,000 a capital contribution to Chase. The proceeds were utilized by
Chase to pay down loan balances with the operation's lenders and to make
payments to trade creditors. As a result, the Company's relationships with
its suppliers are improved. However, Management continues to work 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 continued
to meet 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.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders was held on June 6, 1996. The following
matters were voted upon and approved by the Company's shareholders:
a. Nominated and elected to the Board of Directors were Messrs.
William J. Barrett, Robert J. Campbell, Herbert M. Gardner, Allen T.
McInnes and Wayne A. Whitener.
b. Ratification of the selection of the Company's auditors, Grant
Thornton LLP was approved by the shareholders by a vote of
3,652,180 to 471.
ITEM 5. OTHER INFORMATION
a. In July of 1996, TGC Industries, Inc. completed the closing of its
private placement of the Company's Series C 8% Convertible
Exchangeable Preferred Stock, and effective July 31, 1996,
spun-off its Chase Packaging Corporation subsidiary to the
holders of TGC Common Stock and Preferred Stock. (See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Note E. - Reorganization Plan to the
Financial Statements" contained herein.)
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. However, the following reports on
Form 8-K have been or will be filed subsequent to June 30, 1996:
(1) A report under item 5 of Form 8-K was filed on July 15, 1996 to
report the completion of the initial closing of the Company's
private placement of Preferred Stock. Such report contains pro
forma financial statements of the Company reflecting the
private placement and the spin-off of the Company's Chase
Packaging Corporation subsidiary at May 31, 1996; and
(2) A report under Item 2 of Form 8-K will be filed on or about
August 15, 1996 to report the effective date of the spin-off by
the Company of its Chase Packaging Corporation subsidiary. Such
report contains pro forma financial statements of the Company
reflecting the private placement and the spin-off transaction
at June 30, 1996.
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, 1996
/s/ Robert J. Campbell
Robert J. Campbell
Vice Chairman of the Board
(Principal Executive Officer)
Date: August 12, 1996
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
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