U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number 0-14908
TGC INDUSTRIES, INC.
(Name of small business issuer 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: (214) 881-1099
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock ($.10 Par Value)
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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year: $21,821,502
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold on March 12,
1996: $2,523,168
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at March 12, 1996
Common Stock ($.10 Par Value) 6,166,018
Documents Incorporated by Reference
Document Part of the Form 10-KSB Into Which
the Document is Incorporated
Portions of the Proxy Statement Items 9 through 12 of Part III
for Annual Meeting of shareholders
to be held on June 6, 1996
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
TGC Industries, Inc. ("TGC" or the "Company") is a Texas corporation whose
principal business office is located at 1304 Summit Avenue, Suite 2, Plano,
Texas 75074, (Telephone: 214/881-1099). TGC's wholly-owned subsidiary is
Chase Packaging Corporation ("Chase"), a Texas corporation whose principal
business office is located at 2550 NW Nicolai, Portland, Oregon 97210
(Telephone: 503/228-4366).
History
In April 1980, ESI Industries, Inc. ("ESI") formed a wholly-owned subsidiary
which acquired certain equipment, instruments and related supplies of
Tidelands Geophysical Co., Inc. ("Tidelands"), a Houston-based corporation
which had been organized in 1967 and was engaged in the business of
conducting seismic, gravity, and magnetic surveys under contracts to
companies in the exploration for oil and gas. In July 1986, Tidelands' name
was changed to "TGC Industries, Inc."
On June 30, 1986, the Board of Directors of ESI and TGC approved a spin-off
whereby substantially all of the shares of TGC owned by ESI were distributed
as a stock dividend to ESI security holders. Each ESI shareholder as of the
July 15, 1986 record date received one share of TGC Common Stock for every
ten shares of ESI Common Stock owned by such shareholder. No fractional
shares of TGC were issued in connection with the stock dividend; cash payments
were made in lieu of the issuance of fractional shares. Distribution of the
TGC Common Stock to the ESI shareholders was made on November 5, 1986, which
followed the effective date of the registration statement filed with the
Securities and Exchange Commission by approximately five (5) business days.
In connection with the spin-off, ESI executed an Agreement for Spin- Off of
Subsidiary Stock pursuant to which it transferred its geophysical services
assets to TGC and made a capital contribution to TGC of approximately
$600,000 to cover the costs incurred in the Distribution and to provide TGC
with working capital.
On July 30, 1993, the Company acquired, through a wholly-owned subsidiary,
Chase Packaging Corporation, a specialty packaging business, principally
supplying products to the agricultural industry, through the purchase of
certain assets of the Chase Packaging division of Union Camp Corporation
("Chase Bag"). The Company financed the acquisition through a combination
of debt and equity financing. The debt portion of the financing was provided by
means of a purchase money mortgage note from Chase Packaging to Union Camp
Corporation, and guaranteed by TGC, in the principal amount of $3,761,537. The
note provides for a five-year maturity with monthly principal payments of
$31,346 amortized over a period of ten years and commenced on August 1, 1994.
Interest accrues at the rate of 8% for the first three years, 9% for the
fourth year and 10% for the fifth year, and was payable semi-annually in the
first year and monthly thereafter. Under the terms of such note, Chase
Packaging Corporation may not take any of the following actions, among others,
without obtaining the prior written consent of Union Camp Corporation:
(i) except in the ordinary course of business, consolidate with, merge with,
or acquire the stock or assets of another person, firm or entity, whether by
merger, consolidation, purchase of stock or otherwise; (ii) except in the
ordinary course of business, make loans to any person, firm or entity unless
such loans are, in the aggregate, less than $50,000; (iii) incurring, creating,
or permitting to exist any other mortgage, assignment, hypothecation, security
interest, lien or other encumbrances of the assets securing such note, except
for a subordinated security interest therein to the Company's principal
lender, Congress Financial Corporation; and (iv) changing, altering,
modifying or amending its Articles of Incorporation or Bylaws or other
governing documents. The equity portion of the financing resulted in cash of
$2,955,000 being raised by TGC through private placement of its securities.
$2,383,000 of such proceeds was utilized to purchase inventory (and certain
miscellaneous assets) and the balance of $572,000 has been utilized by the
Company for working capital. The private financing consisted of the issuance
and sale by TGC of 3,068,750 shares of its $.10 par value Common Stock at $.80
per share and 500,000 shares of Convertible Preferred Stock at $1.00 per share
(convertible into a maximum of 1,530,000 shares of Common Stock). Also on
July 30, 1993, Chase obtained from its primary bank a $2,500,000 working
capital revolving line of credit (guaranteed by TGC) which is secured
primarily by a first and prior security interest covering all of Chase's
inventory and accounts receivable. On September 19, 1994 the maximum credit on
the revolving line of credit was increased by Chase's primary bank to
$4,000,000.
On January 26, 1996, Chase Packaging was informed by Union Camp Corporation that
it was in default under the terms of the Promissory Note dated July 30, 1993
for non-payment of principal and interest and violation of certain debt
covenants. On February 9, 1996, Chase was notified by its primary bank that it
was in default on the revolving line of credit due to the default on the
Union Camp promissory note and due to violation of the tangible net worth
covenant in the Accounts Financing Agreement with the bank. (See Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
On May 25, 1994, TGC Industries, Inc. acquired, through its wholly-owned
subsidiary Chase Packaging Corporation, from Fisher Bag Company, Inc. ("Fisher
Bag") of Seattle, Washington, substantially all of its business of
manufacturing and marketing agricultural and industrial
bags and other packaging materials. The business and assets acquired from
Fisher Bag consist of all operating assets of Fisher Bag, including all
equipment, inventories, accounts receivable, and proprietary information,
but excluding all real property and interests in real estate.
The purchase price paid by Chase Packaging amounted to a total of approximately
$1.77 million, which amount was determined on the basis of the fair market
value of the current assets acquired, the appraised value of the fixed and
other assets acquired, and goodwill in the amount of $785,149. The goodwill
included $60,751 for legal and accounting fees related to the purchase that
were recorded in July of 1994. The Company financed the acquisition through
a combination of purchase money debt and bank debt financing as follows: (1)
Two purchase money notes payable by Chase to Fisher Bag in the aggregate
principal amount of $537,500; and (2) with respect to the balance of the
purchase price, which was paid by delivery of $1,083,145 cash at closing
and the assumption of $93,500 in liabilities of Fisher Bag, the cash
portion was financed under Chase's revolving credit agreement with its
principal lender (which debt is guaranteed by TGC).
With respect to the purchase money notes, the first note in the amount of
$137,500 (the "Note") bore interest at the rate of ten percent (10%) per annum
with monthly payments of interest only which commenced June 30, 1994, and
with the entire balance of principal and accrued interest paid on the due
date of January 2, 1995. The second note in the amount of $400,000
("Installment Note") bears interest at the rate of ten percent (10%) per
annum with monthly payments of interest only which commenced June 30, 1994,
and continued through September 30, 1994. Thereafter, the Installment Note
is payable in consecutive monthly installments of $13,333 principal plus
interest on the declining principal balance which commenced with the
payment on October 31, 1994, and will conclude with the payment on March
31, 1997. Both the Note and the Installment Note are guaranteed by TGC and
are secured by a security interest in all of the equipment included in the
assets acquired from Fisher Bag, which security interest is, in part,
subordinate to a first lien security interest granted by Chase Packaging to
its senior lender.
General Description of the Company's Business
TGC Industries, Inc. is engaged in (1) the domestic geophysical services
business principally through conducting seismic surveys and, to a lesser
extent, through sales of gravity information from the Company's Data Bank
to companies engaged in exploration for oil and gas, and (2) through its
wholly-owned subsidiary, Chase Packaging Corporation, the specialty
packaging business, principally supplying products to the agricultural industry.
As of December 31, 1995, TGC employed 273 employees. At such date, TGC had 66
employees in its geophysical business, including two seismic crews with a
total of 47 crew members. Chase Packaging employed 207 employees as of
December 31, 1995 with 38 employees at the Idaho Falls, Idaho facility, 3
employees in Seattle, Washington, and 166 employees at the Portland, Oregon
facility. One hundred forty-two (142) employees in Portland are represented by
a collective bargaining unit. The Company believes its relationship with its
employees to be satisfactory.
Geophysical Business
TGC is engaged in the domestic geophysical services business principally
through conducting seismic surveys and to a lesser extent through sales of
gravity information from the Company's Data Bank to companies engaged in the
exploration for oil and gas. Geophysics is the study of the structure and
composition of the earth's interior and involves the measuring and
interpretation of the earth's properties with appropriate instruments. Such
studies are generally conducted by means of surveys performed by field
crews employing seismic, gravity, or magnetic instruments to acquire data
which is then interpreted by various means to obtain useful information for
oil and gas companies. The two survey techniques used by the Company in
acquiring geophysical data are seismic and gravity. Land seismic surveys are
TGC's principal method of data acquisition and are by far the most widely used
geophysical technique. TGC's seismic crews use dynamite as the primary
energy source for such surveys.
In 1989 the Company exchanged two conventional seismic systems and a cash
consideration for two seismic telemetry systems. The Company believes the
telemetry system's capabilities of recording a high number of channels from
one location has enabled TGC to expand its client base and stay competitive
with other major geophysical contractors. The Company also utilizes
three-dimensional ("3-D") recording capabilities that give TGC's crews the
ability to acquire a very dense grid of seismic data over a precisely
defined area. The greater precision and improved subsurface resolution
obtainable from 3-D seismic data have enabled energy companies in the U.S.
to better evaluate important subsurface features.
The processing and interpretation of the gravity and magnetic data acquired
by TGC are performed at its offices located in Plano, Texas. Because of the
specialized computer technology required, the digital seismic tapes acquired
by TGC from its digital seismic surveys are transmitted by the Company to
data processing centers (not owned or operated by the Company) designated
by the customers for processing.
The Company's Data Bank contains gravity data, and to a lesser extent magnetic
data, from many of the major oil and gas producing areas located within the
United States. TGC does not have a seismic data bank. Data Bank information
has been amassed through participatory surveys as well as speculative
surveys funded by TGC alone. All data and interpretations may be licensed
to customers at a fraction of the cost of newly acquired data.
As a service business, the Company's domestic geophysical services business
is not dependent upon the supply of raw materials or any other products and,
therefore, the Company does not have arrangements with any raw material
suppliers.
The Company utilizes two seismic crews to perform its geophysical services and,
in any given period, these crews may generate a significant portion of their
respective revenues from one or more customers. For the year ended December
31, 1995, the Company generated twenty-one percent (21%) of its geophysical
revenues from contracts with Marathon Oil Company and twelve percent (12%)
of such revenues from contracts with Slawson Exploration Company. Management
does not believe that the Company has any other material customers at the
present time. The Company enters into a general or master agreement with
each of its customers for the provision of geophysical services and a
supplementary agreement (which becomes a part of the general agreement)
with respect to each particular job that the Company performs for a
customer. Under the terms of such agreements the Company generally contracts
to supply all personnel, transportation and equipment to perform seismic
surveys for a given prospect for a fixed price plus reimbursement for certain
third party charges. The Company generally bills its customers on a
progressive basis over the term of the contract. The Company is generally
obligated to maintain insurance against injury or damage to persons or
equipment arising from the performance of its services and to indemnify its
customers against all claims and liability arising therefrom.
Activity in the U.S. Geophysical Industry has increased with the success and
acceptance of 3-D surveys. 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 the major and independent oil companies.
With these cost advantages and the uncertainty of foreign operations, many
of the major U.S. oil companies are increasing participation in the domestic
oil industry.
Due to the Company's marketing efforts, TGC has been able to establish a new
West Coast market for one of its geophysical crews. The other crew is working
in the Mid-Continent and the Gulf Coast regions. With the addition of this new
market area, TGC should see an increase in revenues and operating profits.
However, due to uncertainties related to weather, permits, and oil and gas
prices, there can be no assurance that such improvement in revenues and
operating profits can be achieved.
Packaging Business
The Company purchased certain assets of Union Camp Corporation's Chase
Packaging division on July 30, 1993, for a purchase price of approximately
$6.14 million. The Company's wholly-owned subsidiary, Chase Packaging
Corporation, a Texas corporation, was the entity acquiring the assets.
These assets include substantially all of the business of weaving and
constructing Saxolin (R) paper mesh and polypropylene plastic mesh bagging
material for agricultural and industrial applications, and substantially
all of the properties related to Chase Bag.
The business and properties acquired by Chase consist of Union Camp's plant
facilities located in Portland, Oregon and Idaho Falls, Idaho, and all
machinery, equipment, and inventories connected with these facilities.
Union Camp retained all accounts receivable owing as of the July 30, 1993,
closing date.
On May 25, 1994, the Company acquired for approximately $1.77 million, through
its wholly-owned subsidiary Chase Packaging Corporation, from Fisher Bag
Company, Inc. ("Fisher Bag") of Seattle, Washington, substantially all of
its business of manufacturing and marketing agricultural and industrial
bags and other packaging materials. The business and assets acquired from
Fisher Bag consist of all operating assets of Fisher Bag, including all
equipment, inventories, accounts receivable, and proprietary information, but
excluding all real property and interests in real estate.
Chase Bag's operation in Portland, Oregon began production in 1939. Primary
products included burlap and cotton bags. Due to shortages of raw
materials in the early 1940's, paper weaving was added to provide packaging
materials for potatoes, onions, and citrus fruits. The weaving process was
modernized in the mid-1970's with the purchase of technologically superior
Sulzer weaving machines.
In 1965, Chase Bag acquired the assets of Ames, Harris, Neville Company, a
local competitor. Included in the purchase was a warehouse in Idaho Falls,
Idaho. This facility was expanded in 1978 to include conversion of Saxolin
(R) paper mesh material for potato and other agricultural product bags.
Saxolin (R) is created by slitting, treating, and twisting paper into
individual threads before weaving and dyeing the mesh. This biodegradable
paper mesh is then converted into finished bags or sold as yardage for
conversion by others or sold for industrial applications. The Portland
plant has become a leading supplier of Saxolin (R) paper mesh to the Idaho
potato market. Predominantly used for consumer size Idaho potato bags,
Chase has extended the use of Saxolin (R) paper mesh to new areas, including
covers for rail cars carrying wood chips and erosion control blankets.
The capability to extrude and weave polypropylene mesh materials was added in
the early 1980's to service the needs of the large onion markets on the
West Coast for polypropylene mesh bags. Approximately $650,000 has been
expended during 1993-95 to upgrade the Company's weaving machines enabling
41 of the 44 looms to weave polypropylene mesh to meet the demand
for agricultural and industrial polypropylene woven products.
During the fourth quarter of 1994 the manufacturing operation of Fisher Bag was
phased into Chase Packaging's Portland facility. Substantially all of the
machinery and equipment and a major portion of the inventory was transferred to
the Portland plant. Chase has leased a sales/warehousing center in Seattle
to continue market coverage of the local area that had been previously
serviced by Fisher Bag.
Chase Packaging has (1) two principal suppliers of paper from which it
manufactures Saxolin (R) paper mesh, P.L. Thomas, Inc. and Mosinee Paper
Corp., and (2) three principal suppliers of polypropylene resin from which
it manufactures polypropylene mesh, Fina Oil & Chemical Co., Solvay Polymers,
Inc. and Techmer PM. Management does not believe that there is any material
risk of disruption in supply of either of such raw materials; however, Chase
has experienced a 13% increase in the price of polypropylene resin in the last
twelve months.
Sales by the Portland, Idaho Falls and Seattle locations are currently handled
on a direct basis through eight sales people covering California, Oregon,
Idaho, Washington, Colorado, and Texas. At the present time, about 84% of
the sales of the field representatives are Chase Packaging's products, with
the balance being consumer and industrial multiwall packaging, corrugated
containers, as well as cotton and circular woven polypropylene bags produced
by other companies.
Chase Packaging's top twenty customers account for approximately 49% of Chase
Packaging's revenues. One customer, Kenneth Fox Supply Co., accounted for
10% of the packaging operation's revenue during 1995. Management does not
believe that any one of such customers is material or that Chase's business
is dependent upon one or a few major customers. Sales are generally made
to customers pursuant to the terms of standard purchase orders or order
confirmations.
Prior to its acquisition by the Company, Chase Bag had failed to adequately
respond to the needs of the market and the challenges of competition,
resulting in a loss of market share of the Idaho potato market. During the
past several years, label quality has been improved and product lines
expanded to include polyknit mesh bags and woven polypropylene mesh bags.
New customers have been gained from Chase's improved product offerings;
however, Chase's net market share of the Idaho potato market has continued
to decline due to the loss of a key customer and competition from cheaper
poly film bags. In the onion and citrus markets, Chase's market share of
woven polypropylene bags has increased due to the success of its high
quality pre-print onion bags; however, the size of the overall market
decreased in 1995. Onion bag revenues for 1995 were down from 1994 levels
due to a large decline in the Pacific Rim export market. The reduced
exports created an oversupply of domestic onions which lowered U.S. market
prices and reduced shipments in the 1995 fourth quarter. Chase experienced
a loss of market share in sales of woven polypropylene fabric to various
onion and citrus markets due to increased competition from imported fabric,
particularly from Mexico. Chase will continue to aggressively market its
high quality fabric and bags but given the uncertain nature of predicting
agricultural markets and increasing competition from imports, there can be
no assurance that management's plans will achieve the intended results.
ITEM 2. DESCRIPTION OF PROPERTY.
TGC and its wholly-owned subsidiary, Chase Packaging Corporation, currently
lease the following properties:
1. 8,000 square feet of office/warehouse space and an outdoor storage area of
approximately 10,000 square feet in Plano, Texas. The monthly rent is
$3,860. This facility is used to house corporate offices and serves as the
headquarters for the geophysical business.
2. 80,000 square feet of manufacturing/warehouse space with a four bay
loading dock in Portland, Oregon. The monthly rent is $13,850. 20,000 square
feet of this facility is used for Chase Packaging's printing, warehousing and
delivery operations. 60,000 square feet is sub-leased to one tenant for
$15,000 per month.
3. 12,000 square feet of warehouse space in Idaho Falls, Idaho. The monthly
rent is $2,000. This facility is used for storage of material and finished
goods for Chase's Idaho operations.
4. 9,600 square feet of warehouse space in Portland, Oregon. The monthly
rent is $960. This facility is used for storage of obsolete inventory and
spare parts for machinery and equipment.
5. 11,200 square feet of office/warehouse space in Seattle, Washington. The
monthly rent is $3,100. This facility is used for storage and sale of Chase
Packaging's finished goods and bags produced by other companies.
TGC, through its wholly-owned subsidiary, Chase Packaging Corporation, owns
the following properties which were purchased as part of the $3,761,537
purchase money note payable to Union Camp with the final outstanding balance
on the note due and payable on July 30, 1998.
1. 88,000 square feet of office and manufacturing space with outdoor resin
silos and parking lot in Portland, Oregon. This facility houses the main
offices of Chase Packaging Corporation and the material manufacturing and
conversion operations of Chase.
2. 24,000 square feet of office, manufacturing and warehouse space in
Idaho Falls, Idaho. This facility is used for bag conversion, storage and
delivery for Chase's Idaho operations.
The condition of all the above facilities is good and TGC management believes
that these properties are suitable and adequate for the Company's foreseeable
needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in various legal actions that arose out of the
normal course of business. In the opinion of management, none of the actions
will result in any significant loss to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted by the Company during the fourth quarter of the
fiscal year ended December 31, 1995 to a vote of the Company's security
holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has been traded under the symbol "TGCI" since
October 31, 1986. From that date to September 22, 1994 the stock traded in
the over-the-counter market with quotations available in the National Daily
Quotation Source's "Pink Sheets" or on the "OTC Bulletin Board" of the
National Association of Securities Dealers. Effective September 25, 1994,
TGC's Common Stock began trading on NASDAQ (SmallCap Issues) under the same
symbol (TGCI). The number of shareholders of record of TGC's Common Stock as
of March 12, 1996 was 455. Due to the number of shares held in nominee or
street name, the Company believes that there is a significantly greater
number of beneficial owners of its Common Stock. As of such date, CEDE &
Co. held 801,432 shares in street name. On March 12, 1996, TGC's Common
Stock was quoted at a closing bid price of $.6875. High and low bid prices of
TGC's Common Stock for the period of January 1, 1994 to December 31, 1995,
were as follows:
Bid Price of TGC Common Stock
<TABLE>
<C> <C> <C>
High Low
October 1 - December 31, 1995 1 3/4 3/8
July 1 - September 30, 1995 2 1/2 1 1/4
April 1 - June 30, 1995 3 1/4 2 1/2
January 1 - March 31, 1995 3 3/4 2 1/2
October 1 - December 31, 1994 4 3/4 3
July - September 30, 1994 3 3/4 1 1/2
April 1 - June 30, 1994 2 1/2 1 1/4
January 1 - March 31, 1994 1 3/8 1 1/4
</TABLE>
The above bid quotations were furnished to TGC by the National Quotation Bureau.
On May 31, 1994 the holder of the 9% Convertible Subordinated Debentures
elected to convert the Debentures into 26,666 shares of TGC Common Stock.
On July 12, 1994, 500,000 shares of Convertible Preferred Stock held by
certain affiliates of the Company were converted into 1,530,000 shares of
the Company's Common Stock. Pursuant to the terms governing the Preferred
Stock and based upon the Company having achieved a trading price for its
Common Stock of $1.60 per share for thirty consecutive trading days, all
holders of the Convertible Preferred Stock elected to exercise their
conversion privilege as of this date.
Dividends are payable on TGC's Common Stock at the discretion of the Board
of Directors. TGC has paid no cash dividends, and in light of the working
capital needs of TGC, it is unlikely that cash dividends will be declared
and paid on TGC's Common Stock in the foreseeable future. In addition,
under the terms of the Note with Union Camp, the payment of dividends by
the Company is restricted until the Note is paid in full.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Revenues were $21,821,502 for the year ended December 31, 1995 compared with
revenues of $22,914,022 for the year ended December 31, 1994. Net loss was
$2,652,441 for the year ended December 31, 1995 as compared to net income
of $49,258 for the same period of 1994. The decrease in consolidated
revenues was attributable to a 16% decline in sales at the packaging
operation for 1995 when compared to 1994. Profit margins for the year
ended December 31, 1995 decreased 47% when compared to the year ended December
31, 1994 primarily due to higher crew operating expenses in the geophysical
operation and lower revenues combined with an unfavorable sales mix at the
packaging operation. Selling expenses increased 29% during 1995 primarily
due to the addition of a sales office in Seattle for the packaging operation.
Interest expense increased $159,758 to $803,582 in 1995 due to increased
borrowing at the packaging operation. The reduced profit margins, higher
selling expenses, additional interest expense, and write-down for goodwill
impairment (see Financial Condition) resulted in net losses for TGC for the
twelve months ended December 31, 1995.
At December 31, 1995, TGC had a net operating loss carryforward for federal
income tax purposes of approximately $3,100,000. The loss carryforward
includes $610,000 that is subject to limitations under Section 382 of the
Internal Revenue Code. The utilization of the $610,000 portion of the net
operating loss carryforward is limited to approximately $24,000 per year,
plus an additional $300,000 in any one year, prior to expiration in 2007.
Any of the limited loss which is not utilized in one year is carried forward
and adds to the succeeding year's loss limitation amount on a cumulative basis.
The $2,490,000 balance of the net operating loss carryforward available to
offset future taxable income will expire at various dates through 2010.
Due to the uncertainty of TGC's ability to utilize the loss carryforwards,
a valuation allowance equal to the Company's deferred tax asset was recorded
at December 31, 1995.
Packaging Operation
The Company's wholly-owned subsidiary, Chase Packaging Corporation, had sales
of $14,278,262 and an operating loss before interest and tax expense of
$1,877,421 for the year ended December 31, 1995 as compared to revenue of
$17,046,671 and an operating loss before interest and tax expense of
$52,149 for the same period of 1994. Included in the 1995 loss was a
$701,378 write down for the impairment of goodwill (see Financial Condition).
Interest expense for the packaging operation was $750,934 in 1995 as
compared to $615,857 in 1994 with the additional expense attributable to
increased borrowing activity to finance working capital requirements.
Prior to its acquisition by the Company, Chase Bag had lost market share by
failing to respond to competitive challenges and the needs of its market.
During the past two years Chase management has introduced a number of
changes with the objective of reversing this trend and expanding Chase's
customer base. The purchase of high quality printing and labeling
equipment, consolidation of sewing operations, retraining personnel, and
upgrading and expanding weaving operations were all implemented during 1994.
Also, in May of 1994 the Company acquired substantially all of the assets of
Seattle-based Fisher Bag Company with the intention of merging the two
companies' market share in a manner that would expand and strengthen
Chase's presence in the Pacific Northwest. In 1995, Chase continued to refine
its pre-print label quality and expended $250,000 on weaving upgrades to
expand woven polypropylene weaving capacity to 41 of 44 looms (the remaining 3
looms will continue to weave Chase's paper mesh products). The addition of
polyknit and woven polypropylene mesh bags to the potato product line was
also fully implemented during 1995. These manufacturing modifications and
expansion programs, combined with new product offerings, have positioned
the packaging operation to take advantage of various market opportunities;
however, these opportunities have not materialized for the reasons to be
described herein.
Chase's primary products, Saxolin (R) paper and polypropylene mesh bags for
the potato, onion and citrus industries amounted to approximately 38% of
total packaging revenues in 1995 as compared to 44% of total revenue in 1994.
An additional 7% of sales was contributed by polyknit and woven polypropylene
potato bags. Saxolin (R) and woven polypropylene mesh yardage sold to
other converters for potato, onion, citrus, industrial, and environmental
applications decreased to 23% of total sales (29% in 1994). Sales of lower
margin burlap bags for bulk potatoes and circular woven polypropylene bags for
grass seed, animal feed and beans increased to 22% of total revenue from
13% in 1994. The remaining revenue was generated by sales of cartons,
multi-wall bags and other miscellaneous items.
The bag markets served by Chase in order of importance are: (1)
Idaho/Washington potato, (2) Western Idaho/Eastern Oregon onion, (3)
Washington/Western Oregon onion, (4) California onion, and (5)
Oregon/Washington grass seed and other miscellaneous crops. Chase's mesh
yardage goes to converters serving the Idaho potato market; the Colorado,
Texas, California, New Mexico and Arizona onion markets; and the California,
Texas and Florida citrus markets.
Due to the seasonal nature of agricultural crops, sales of Chase's products to
the various markets mentioned above fluctuate during the Company's fiscal
year. Historically, the Northwest onion and potato harvests commence late in
the third quarter with sales of Chase's products reaching a peak during the
fourth quarter and the first quarter of the following year.
Growing conditions in the Northwest for the 1994/1995 onion and potato season
were excellent, resulting in crops with large sizing and yield. Onion
shipments commenced earlier than usual in the second half of 1994 as a large
number of onions were packed for export to foreign markets. This created a
heavy demand for Chase's products in the third and fourth quarters of 1994,
but depressed demand for Chase's onion bags in early 1995 as onion inventory
levels diminished quickly in the Northwest. The high yield and large sizing
of the Idaho potato crop resulted in low market prices for Idaho potatoes in
the 1994/1995 season. Demand for Chase's mesh products was down throughout
the season as growers/shippers sold at higher prices to processors, sold
bulk potatoes in burlap, or shipped in cartons rather than move potatoes in
Chase's consumer-size bags at extremely low prices.
During 1995 the packaging operation did experience a sales increase for
products outside its core business. The success of the Seattle sales/service
center resulted in a $560,000 increase in sales of products to the
construction, shipping and seafood industries. Sales of circular woven
polypropylene bags increased approximately $300,000 in 1995 when compared
to 1994 as Chase captured a larger share of the Western grass seed, pea and
lentil markets. The increased sales of these lower margin products, however,
did not offset the decline in sales of Chase's more profitable onion and
potato bags.
The 1995/96 season for onions has been very poor for domestic bag suppliers as
a weak export market in late 1995 resulted in an oversupply of onions in the
Northwest. Demand for Chase's onion fabric and bags has been low as
depressed market prices for onions has forced growers/packers to hold onions
rather than ship at a loss. Also contributing to the reduced demand has
been an influx of cheap import fabric and bags from Mexico. The decline in
onion exports and competition from Mexican fabric have been the primary
factors in the 35% decline of onion fabric sales in 1995 when compared to 1994.
he 1995-96 potato season, after a promising start, turned unfavorable for
Chase's mesh potato bags. Traditionally, 70% of the potato harvest is sold
to processors in bulk and 30% is sold to the fresh market. In the current
season, the high prices being paid by processors has reduced the incentive
for growers to sell at lower prices to the fresh market. In addition, as a
result of the high prices being paid by processors to growers, the potatoes
that are purchased by packers from growers at such higher prices for sale
to the fresh market are being shipped in cheaper film bags to minimize
packing costs. Sales of Chase's consumer-size mesh bags were much lower
than anticipated during the 1995 fourth quarter as potatoes were purchased by
processors, held by growers in inventory with the expectation of higher prices
or were shipped in lower cost film bags to the fresh market.
The result of these unfavorable market conditions has been reduced revenues and
a seven percentage point drop in gross profit margins at the packaging
operation in 1995 when compared to 1994. Inventories were increased in the
1995 third quarter in anticipation of large potato and onion crops with
normal seasonal movement. The unexpected drop in demand for Chase's core
products in the 1995 fourth quarter required management to scale back
production and reduce inventories to balance plant operations with market
demand. As weaving, printing and sewing operations were curtailed, indirect
and overhead expenses were underabsorbed, thereby increasing unit costs and
reducing profit margins to extremely low levels. In addition, although
polypropylene resin prices have moderated, the cost of resin at year-end
1995 remained 13% higher than at December 1994. These higher raw material costs
also depressed profit margins as competitive pricing pressures prevented Chase
from passing these increased costs through to customers.
Chase's management business plan for 1996 will be to lower its 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
Mexican (and to a lesser extent Asian) imports, programs to reduce expenses
and increase efficiencies have been initiated to enable Chase to become a
lower-cost producer of fabric and bags. Labor expenses were reduced 30% in
the 1995 fourth quarter and inventory was reduced $863,000 during this same
period. Chase will actively pursue expansion of sales efforts into other
geographic markets and will continue to search for new opportunities to expand
its product lines. Each product line will be evaluated with unprofitable
lines eliminated. Manufacturing processes may be changed with the possible
outsourcing of some semi-finished and finished goods production. 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 1996 will achieve the intended results.
Geophysical Operation
Geophysical revenues for the twelve months ended December 31, 1995 increased
29% to $7,543,240 from the 1994 annual revenues of $5,867,351. Operating
income (before interest expense and taxes) was $28,562 for the year ended
December 31, 1995 compared to operating income before interest and taxes of
$717,068 for the twelve months ended December 31, 1994. Interest expense was
$52,648 which was attributable to the financing of equipment additions for
seismic operations.
The 29% increase in revenues for 1995 when compared to 1994 can be attributed
to a full year's operation of a second seismic crew which commenced
operations in the 1994 third quarter when the Company's Sercel 368 data
acquisition system was placed into service. In spite of this revenue
increase, profit margins in 1995 decreased substantially when compared to
1994 due to unusually poor summer weather in Texas and Oklahoma. Also, several
contracts were cancelled by clients due to lease problems on their 3-D areas of
interest, resulting in interruption of the Company's planned data acquisition
schedule. The ability of TGC's two crews to record large quantities of data in
a short period of time, which is essential for profitability, was limited
by these various problems and resulted in lower operating margins. In
addition, financial results were negatively impacted by a significant increase
in non-cash charges for depreciation ($800,795 for 1995 as compared to $393,579
for 1994) as a result of the Company's capital expansion program in the 1994
third quarter.
The trend in oil and gas exploration for a number of years has been to focus on
the larger potential of oil and gas fields outside the United States. In the
past two years more of the Company's clients became familiar with 3-D surveys
and have had discoveries of oil and gas in the United States using 3-D data.
The result was an increase in domestic exploration activity from which the
Company benefitted in 1994 as one of the few remaining domestic geophysical
contractors. In 1995, however, the increased activity has attracted additional
geophysical contractors, primarily from Canada, to the U.S. market. These
additional contractors created a competitive bidding environment, but with an
increased number of contracts available during 1995, the Company was able to
maintain its revenue base. However, profit margins were depressed due to TGC's
geographic concentration in the Mid-Continent region where crew
operations were hampered by unusually poor weather in such region during
1995. In addition, work slow downs due to contract cancellations (as
previously discussed) in the third quarter contributed to TGC's 1995 profit
margin decline.
The domestic demand for 3-D data acquisition services remains positive at this
time. A number of major oil and gas companies have experienced a variety of
problems overseas and are increasing their U.S. exploration budgets. The
Company currently has a backlog for both crews that extends into the 1996
third quarter and includes program 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. The Company generally works under turnkey
contracts which have more profit potential than fixed term contracts; however,
turnkey contracts involve more risk because of the potential downtime from
unfavorable weather and other types of delay. With improvements in existing
contracts and advance preparatory work, geographic diversification into
other regions, and with the improved efficiency now being achieved by the
second crew's Sercel 368/348 data gathering system, management anticipates an
increase in revenues and profit margins in 1996. Due to competitive forces and
the unpredictable nature of forecasting weather, however, no assurance can be
given that management's expectations can be achieved.
Financial Condition
Cash of $172,162 was provided by operating activities for the twelve months
ended December 31, 1995 compared with cash provided by operating activities of
$1,337,334 for the same period of the prior year. The cash generated in 1995
was primarily attributable to an increase in trade accounts payable at the
packaging operation. The 1995 net loss and book gain on disposal of
geophysical assets were offset by non-cash depreciation and amortization
charges, a non-cash write down for impairment of goodwill and a reduction of
approximately $916,000 in trade accounts receivable. Cash used in investing
activities consisted of additions to recording equipment at the geophysical
division, additions to weaving, printing and sewing equipment at the packaging
operation partially offset by proceeds from the voluntary and involuntary
disposal of geophysical assets. Cash provided by financing activities was
generated from the issuance of 125,000 shares of Common Stock upon exercise
of stock options, proceeds from the issuance of $440,000 of subordinated notes
to certain executive offices and directors of the Company ($200,000 of these
notes were exchanged for equity units as discussed below), proceeds from the
private placement of equity units and funds provided by Chase's revolving line
of credit, offset by $814,426 in principal payments of debt obligations.
The loan balance on Chase's revolving line of credit was $2,887,470 at
December 31, 1995.
Working capital decreased $6,787,483 during 1995 to ($4,212,900) at December
31, 1995 primarily due to a reclassification of long-term debt to current
liabilities as discussed below. As a result, the current ratio declined to .6
to 1 at December 31, 1995 as compared to 1.6 to 1 at December 31, 1994.
Stockholders' equity decreased $1,887,710 from the December 31, 1994 balance to
$1,643,127 at December 31, 1995. The decrease was attributable to the
Company's net loss of $2,652,441 for the twelve months ending December 31, 1995
partially offset by the issuance of Common Stock of $764,731. The stock
issuance consisted of $100,000 from the exercise of stock options by the
Company's chairman (125,000 shares of Common Stock at a price of $.80 per
share) and $664,731 (after sales commissions and other expenses) from the
private placement sale of equity units ("Units"). The sale of Units was
concluded pursuant to terms on September 30, 1995 with total proceeds before
sales commissions and other expenses of $742,300. The private placement
offering, which commenced in July of 1995, was for a minimum of 400,000 and
a maximum of 1,000,000 of Units at $1.00 per Unit, with each Unit consisting
of one share of the Company's Common Stock and one Warrant to purchase one
share of the Company's Common Stock for a period of three years at $1.50 per
share for the first 18 months and $2.00 per share thereafter. The private
placement of Units included the exchange of $200,000 in short-term debt held
by certain executive officers and directors of the Company who exchanged such
debt for the Units offered in the private placement. As privately-placed
Units, such securities are subject to restrictions against transfer. A
Placement Agent received a commission equal to 6% of the gross proceeds of the
sale of the Units. Two directors of the Company, because of their affiliation
with the Placement Agent, received compensation in connection with this
private placement.
As a result of the recent cash flow problems at Chase Packaging, the Company
conducted a review for asset impairment. Since the expected future
undiscounted net cash flows at the packaging operation are negative, the
Company determined that the goodwill from the Fisher Bag asset acquisition
may not be recoverable. As a result of this review process, the Company
recorded a $701,378 write down for impairment of goodwill as of December 31,
1995.
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 December 31, 1995 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 the 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.
ITEM 7. FINANCIAL STATEMENTS.
<TABLE>
Financial Statements.
Year Ended December 31, 1995
CONTENTS
<S> <C>
Report of Independent Certified Public Accountants........... p.
Consolidated Financial Statements
Balance Sheet................................................ p.
Statements of Operations..................................... p.
Statement of Stockholders' Equity............................ p.
Statements of Cash Flows..................................... p.
Notes to Financial Statements................................ p.
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
TGC Industries, Inc.
We have audited the accompanying consolidated balance sheet of TGC Industries,
Inc. (a Texas corporation) and Subsidiary as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TGC Industries,
Inc. and Subsidiary as of December 31, 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the two years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note B to the financial
statements, the Company incurred a net loss of $2,652,441 during the year
ended December 31, 1995 and has defaulted on certain loan payments and
certain loan covenants which could result in termination of the Company's
credit agreements raising substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Portland, Oregon
February 7, 1996
</TABLE>
<TABLE>
TGC Industries, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 139,991
Accounts receivable, net 2,394,237
Inventories 3,516,344
Prepaid expenses 524,518
Total current assets 6,575,090
PROPERTY, PLANT AND EQUIPMENT - at cost
Buildings 1,400,951
Machinery and equipment 7,971,506
9,372,457
Less accumulated depreciation 3,663,431
5,709,026
Land 483,992
6,193,018
OTHER ASSETS 30,509
Total assets $12,798,617
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 2,703,015
Accrued liabilities 975,928
Advance billings 344,973
Current maturities of long-term obligations 6,764,074
Total current liabilities 10,787,990
LONG-TERM OBLIGATIONS, less current maturities 367,500
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value - authorized shares,
4,000,000; issued and outstanding shares, none -
Common stock, $.10 par value - authorized shares,
25,000,000; issued 6,232,152 shares 623,215
Additional paid-in capital 4,697,774
Accumulated deficit (3,510,340)
1,810,649
Less 66,134 shares of common stock in treasury - at cost 167,522
1,643,127
Total liabilities and stockholders' equity $12,798,617
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
TGC Industries, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
<S> <C> <C>
1995 1994
Revenue
Service revenue 7,543,240 $ 5,867,351
Sales 14,278,262 17,046,671
21,821,502 22,914,022
Cost and expenses
Cost of services 6,758,716 4,419,883
Cost of sales 13,068,812 14,756,673
Selling, general and administrative 3,141,455 3,072,547
Interest expense 803,582 643,824
Write-down for impairment of goodwill 701,378 -
24,473,943 22,892,927
Income (loss) before income taxes (2,652,441) 21,095
Income tax benefit - 28,163
NET INCOME (LOSS) $(2,652,441) $ 49,258
Earnings (loss) per common and common
equivalent share $(.46) $.01
Weighted average number of common and common
equivalent shares 5,740,067 5,740,285
The accompanying notes are an integral part of these statements.
</TABLE>
TGC Industries, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995 and 1994
<TABLE>
<S> <C> <C> <C> <C>
Preferred Stock Common Stock
Shares Amount Shares Amount
Balance at January 1, 1994 500,000 $500,000 3,796,980 $379,699
Conversion of subordinated
debentures - - 26,666 2,666
Conversion of preferred stock (500,000) (500,000) 1,530,000 153,000
Net income for the year - - - -
Balance at December 31, 1994 - - 5,353,646 535,365
Exercise of stock options - - 131,332 13,133
Private placement - - 747,174 74,717
Stock contribution - - - -
Net loss for the year - - - -
Balance at December 31, 1995 - $ - 6,232,152 $623,215
</TABLE>
TGC Industries, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995 and 1994
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Retained
Additional Earnings
Paid-in (Accumulated Treasury
Capital Deficit) Stock Total
Balance at January 1, 1994 $3,489,037 $(907,157) $ - $3,461,579
Converstion of subordinated
debentures 17,334 - - 20,000
Conversion of preferred stock 347,000 - - -
Net income for the year - 49,258 - 49,258
Balance at December 31, 1994 3,853,371 (857,899) - 3,530,837
Exercise of stock options 92,699 - (5,832) 100,000
Private placement 590,014 - - 664,731
Stock contribution 161,690 - (161,690) -
Net loss for the year - (2,652,441) - (2,652,441)
Balance at December 31, 1995 $4,697,774 $(3,510,340) $(167,522) $1,643,127
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
TGC Industries, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<S> <C> <C>
1995 1994
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net income (loss) $(2,652,441) $ 49,258
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 1,380,071 833,435
Noncash interest expense 4,874 -
Gain on disposal of equipment (308,653) (38,861)
Write-down for impairment of goodwill 701,378 -
Change in assets and liabilities
Accounts receivable 915,745 (455,825)
Inventories (723,455) 197,104
Prepaid expenses (20,332) (248,621)
Refundable income taxes 74,876 (28,055)
Trade accounts payable 495,819 1,138,347
Accrued liabilities 172,427 (48,939)
Advance billings 131,853 (60,509)
Net cash provided by operating activities 172,162 1,337,334
Cash flows from investing activities
Additions to machinery and equipment (1,102,697) (2,502,356)
Proceeds from disposal of machinery and
equipment 210,490 38,861
Increase in intangible and other assets (2,873) (62,401)
Acquisition of business - (1,083,145)
Net cash used in investing activities (895,080) (3,609,041)
Cash flows from financing activities
Proceeds from the issuance of debt 440,000 650,000
Proceeds from the issuance of stock 559,857 -
Principal payments of debt obligations (814,426) (343,695)
Net proceeds from line of credit 406,218 1,606,395
Net cash provided by financing
activities 591,649 1,912,700
NET DECREASE IN CASH AND CASH EQUIVALENTS (131,269) (359,007)
Cash and cash equivalents at beginning of year 271,260 630,267
Cash and cash equivalents at end of year $ 139,991 $ 271,260
</TABLE>
<TABLE>
TGC Industries, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Year ended December 31,
Cash paid during the year for:
<S> <C> <C>
1995 1994
Interest $709,136 $721,695
Income taxes - 32,516
Noncash investing and financing activities:
1995 1994
Assets and liabilities acquired in
business acquisitions
Accounts receivable $ - $339,219
Inventories - 446,032
Other assets - 368
Goodwill and other - 724,398
Property, plant and equipment - 220,867
Notes payable - 537,500
Accrued liabilities and
accounts payable - 110,239
</TABLE>
During 1994, $20,000 of 9% convertible subordinated debentures and
500,000 shares of convertible preferred stock were converted into
26,666 and 1,530,000 shares, respectively, of common stock.
During 1995, 64,676 shares of common stock were contributed to the
Company. Also, 1,458 shares of common stock were received by the
Company as payment for the exercise of options. The Company included
these shares as treasury stock at $2.50 per share and $4.00 per
share, respectively, the fair market value of the Company's common
stock on the dates of the transactions.
During 1995, 4,874 units were issued to certain executive officers
and directors of the Company as payment for accrued interest on
$200,000 in short-term debt that were exchanged for private placement
units on July 31, 1995.
During 1995, the Company financed the acquisition of equipment
through a note payable and a capital lease in the amounts of $186,750
and $8,639, respectively.
At December 31, 1995, the Company had a $214,472 net receivable from
the disposal of equipment.
The accompanying notes are an integral part of these statements.
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995 and 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
A summary of TGC Industries, Inc. and Subsidiary's (TGC or the
Company) significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements
follows:
1. Principles of Consolidation
The Company consolidates the accounts of its wholly-owned subsidiary,
Chase Packaging Corporation (Chase). All significant intercompany
transactions and balances have been eliminated in consolidation.
2. Cash Equivalents
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
3. Inventories
Inventories are stated at the lower of cost or market using the
first-in, first-out method to determine cost.
4. Property, Plant and Equipment
For financial statement purposes, depreciation of plant and equipment
is calculated using the straight-line method over the estimated
useful lives (3 to 10 years for equipment and 30 years for buildings)
of the individual assets.
Expenditures for maintenance and repairs are charged to income.
Betterments and major renewals are capitalized and charged to
appropriate asset accounts. The cost of assets retired or otherwise
disposed of and the related accumulated depreciation are eliminated
from the accounts in the year of disposal. Gains or losses on
disposal of equipment are credited or charged to income.
5. Income Taxes
Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for tax
purposes. These deferred taxes are measured by applying the enacted
tax rates which are expected to be in effect when these temporary
differences reverse.
6. Revenue Recognition
The Company recognizes geophysical services revenue as the services
are performed and the related costs are incurred. Revenue from the
Company's packaging operations is recognized when the orders are
filled and shipped.
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE A - SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Advance Billings
TGC provides geophysical services and data primarily to companies
engaged in the search for hydrocarbons. Certain charges related to
specific geophysical projects are billed in advance. The related
revenue is included in advance billings and taken into income as
earned. Also, certain customers of TGC's packaging subsidiary pay in
advance. The related revenue is included in advance billings and
taken into income as shipments are made.
8. Other Assets
Other assets consist principally of deferred loan costs which are
being amortized over 5 years.
9. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE B - GOING CONCERN
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However,
the Company incurred substantial losses from operations during the
past year and the Company is delinquent in the payment of principal
and interest on the note payable to Union Camp. In addition, the
Company is out of compliance with certain debt covenants of the Union
Camp note and the bank revolving line of credit. Subsequent to year
end, these conditions of default resulted in Union Camp and the bank
calling the notes due and payable. Management has entered into
negotiations with Union Camp in an effort to restructure the note to
remedy such conditions of default. 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. Management
believes it will satisfactorily resolve the Union Camp note and bank
revolving line of credit issues.
The Company's continued existence as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to comply with the terms and covenants
of its financing agreements and to obtain additional financing or
refinancing as may be required. Although it cannot be assured that
the Company will be able to continue as a going concern in view of
its weakened financial condition and the uncertain timing and
strength of recovery in its markets, management believes that
continued diversification into additional geographical markets and
successful completion of cost savings efforts at the packaging
operation should enable the Company to meet its obligations and
sustain its operations.
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE C - BUSINESS ACQUISITIONS
On May 25, 1994, TGC acquired through its wholly-owned subsidiary
substantially all of the business of manufacturing and marketing
agricultural and industrial bags and other packaging materials from
Fisher Bag Company, Inc. (Fisher Bag). The business and assets
acquired consist of all operating assets, including all equipment,
inventories, accounts receivable, and proprietary information, and
exclude all real property and interests in real estate.
The purchase price paid by Chase amounted to a total of $1,770,000,
which amount was determined on the basis of the fair market value of
the current assets acquired, the appraised value of the fixed and
other assets acquired, and goodwill. The Company financed the
acquisition through a combination of purchase money debt and bank
debt financing. The bank debt portion was financed under Chase's
revolving credit agreement with its principal lender (which debt is
guaranteed by TGC).
<TABLE>
NOTE D - INVENTORIES
Inventories at December 31, 1995 consist of the following:
<S> <C>
Raw materials $ 384,278
Work in progress 170,423
Finished goods 2,961,643
$3,516,344
NOTE E - ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 consist of the following:
Compensation and payroll taxes $232,781
Escrow - third-party data 52,421
Professional services 59,335
Explosives, surveying and
drilling expenses 114,015
Interest 120,149
Insurance 96,525
Damaged equipment replacement 57,865
Other 242,837
$975,928
</TABLE>
<TABLE>
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1995 consist of the following:
<S> <C>
Note payable to Union Camp, interest at 8%
through July 30, 1996, 9% from July 31, 1996
to July 30, 1997, 10% from July 31, 1997 to
maturity on January 30, 1998, monthly
principal payments of $31,346 plus interest* $3,384,383
Note payable to a bank, revolving line of credit
for Chase, interest rate of prime plus 2.5%,
expires July 30, 1997* 2,887,470
10% note payable to Fisher Bag, monthly
principal payments of $13,333 plus interest 200,000
Notes payable to a bank, interest at prime plus
2.5%, payable monthly through Chase's
revolving line of credit, monthly principal
payments of $22,222 254,167
Subordinated notes payable to related parties,
interest at 11.25% payable quarterly and
principal payments of $90,000 on November 15,
1997; $50,000 on December 13, 1997; and
$100,000 on December 26, 1997 240,000
10% note payable, total monthly principal and
interest payments of $16,422 156,915
Capital lease payable 8,639
7,131,574
Less current maturities (6,764,074)
Balance, due in 1997 $367,500
</TABLE>
* At December 31, 1995, the Company was delinquent in the payment of
principal and interest and was in violation of certain loan
covenants on the note payable to Union Camp and on the bank
revolving line of credit. These obligations are classified as
current at December 31, 1995.
The note payable to Union Camp is collateralized by all real,
intangible and personal property of Chase and contains certain loan
covenants. Among other things, the covenants restrict Chase's
ability to pay dividends, define an acceptable level of tangible net
worth and require prior written consent to acquire stock or assets of
another company. This note is guaranteed by TGC. The note payable
to Fisher Bag is secured by a security interest in all of the
equipment acquired from Fisher Bag and is guaranteed by TGC. The
Company has a $4,000,000 line of credit with its bank. However, the
maximum available at December 31, 1995 was $2,823,858 due to
collateral base limitations. In addition, the bank granted a
temporary extension of $200,000 of which $63,612 was utilized at
December 31, 1995. The line of credit is guaranteed by TGC and is
secured by all inventory and accounts receivable of Chase. The line
of credit also contains certain loan covenants similar to those of
the Union Camp note. The notes payable to a bank are secured by a
security interest in the geophysical equipment acquired for the
benefit of TGC's geophysical division.
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE F - LONG-TERM OBLIGATIONS - Continued
Total capital lease payments required in 1996 are $8,639, plus $816
of interest.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company conducts a portion of its operations utilizing leased
facilities and vehicles. The approximate minimum rental commitments
under operating leases are as follows:
Year Ended
December 31,
[S] [C]
1996 $ 305,000
1997 230,500
1998 203,000
1999 191,700
2000 148,700
Thereafter 191,700
Total minimum payments $1,270,600
Rent expense was approximately $233,300 and $241,000 in 1995 and
1994, respectively.
The Company is a defendant in various legal actions in the normal
course of business. In the opinion of management, none of the
litigation is expected to result in any significant loss to the
Company.
NOTE H - STOCKHOLDERS' EQUITY
Stock Option Plan
Under the Company's 1986 Incentive Stock Option Plan (the "1986
Plan"), 49,668 shares of the Company's common stock are subject to outstanding
options which have been granted under the Plan. The Company currently has in
effect a 1993 Stock Option Plan (the "1993 Plan") covering a total of 750,000
shares of the Company's common stock. Incentive stock options granted under
the 1993 Plan must be at prices not less than the market price at the date of
grant. Options granted under the 1993 Plan must be exercised in chronological
order and within ten (10) years from the date of grant. Except for certain
options granted to the Chairman of the Board of the Company, none of the
options that have been granted under either the 1986 Plan or the 1993 Plan are
exercisable during the first year following the date of grant. During the
second year following the date of grant, options representing up to one-third
of the shares may be exercised. During the third year, options covering up
to two-thirds of such shares may be exercised. Thereafter, and until the
options expire, the options are fully exercisable. Of the 500,000 share ten
year options granted to the Chairman of the Board on June 3, 1993, 125,000
shares were exercised in 1995, 250,000 additional shares were exercisable at
December 31,1995 and the additional 125,000 shares will become exercisable on
January 1, 1996.
<TABLE>
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE H - STOCKHOLDERS' EQUITY - Continued
The following table summarizes activity under the Plans for the two
years ending December 31, 1995:
<S> <C> <C> <C>
Shares Under Payable on
Option Exercise Price Exercise
Balance at December 31, 1993 568,000 $ .80 - 1.00 $464,625
Granted 50,000 1.375 68,750
Exercised - - -
Cancelled - - -
Balance at December 31, 1994 618,000 .80 - 1.375 533,375
Granted - - -
Exercised (131,332) .80 - 1.000 (105,832)
Cancelled (27,000) 1.00 - 1.375 (32,625)
Balance at December 31, 1995 459,668 $.80 - 1.375 $394,918
</TABLE>
At December 31, 1995, 302,442 of outstanding options were exercisable
and options for 215,000 shares were available for future grant.
Earnings (Loss) Per Share
Loss per common share in 1995 does not include the weighted average
number of common shares resulting from common stock equivalents, as
they are antidilutive. Included in earnings per share for 1994 are
1,943,305 shares from common stock equivalents. Fully-diluted
earnings per share have not been presented as any resulting dilution
would be less than 3%.
Private Placement
During 1995, the Company sold 542,300 units at $1.00 per unit. Each
unit consists of one share of common stock and one warrant to
purchase one share of common stock for $1.50 per share during the
first eighteen months and $2.00 per share thereafter. In addition,
the Company converted $200,000 of short-term debt payable to officers
and directors into 200,000 additional units. The Company incurred
approximately $78,000 of expenses associated with the private
placement.
<TABLE>
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE I - INCOME TAXES
The income tax (expense) benefit reconciled to the tax computed at
the statutory Federal rate is as follows:
<S> <C> <C>
1995 1996
Federal tax (expense) benefit at
statutory rate $902,000 $(7,100)
State tax (expense) benefit net of
federal tax effect 117,000 (1,000)
Permanent differences (18,481) (10,000)
Other (35,269) 18,084
Prior year over accrual - 28,179
Change in valuation allowance (965,250) -
$ - $28,163
Deferred tax assets and liabilities consist of the following:
1995 1994
Deferred tax assets
Net operating loss carryforward $1,173,494 $390,655
Write-down of impaired assets 266,000 -
Other 50,413 40,218
Deferred tax liability
Depreciation of property and equipment (377,883) (284,099)
1,112,024 146,774
Less valuation allowance (1,112,024) (146,774)
$ - $ -
</TABLE>
The Company has net operating loss carryforwards of approximately
$3,100,000 available to offset future taxable income, which expire at
various dates through 2010. Due to the uncertainty of the Company's
ability to utilize the loss carryforwards, a valuation allowance
equal to its deferred tax asset was recorded at December 31, 1995 and
1994.
NOTE J - SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION
The Company's 1995 and 1994 operations consist of two industry
segments. The first segment provides geophysical services and data,
primarily to companies engaged in the search for hydrocarbons. The
second segment manufactures woven paper mesh and polypropylene mesh
fabric bags for agricultural and industrial use. Financial
information about these activities appears in the schedules that
follow.
<TABLE>
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE J - SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION - Continued
<S> <C> <C> <C> <C>
1995 Industry Geophysical Packaging
Segment Information Services Operations Eliminations Consolidated
Total revenue $7,632,139 $14,278,262 $ (88,899) $21,821,502
Income (loss) before
income taxes $ 64,813 $(2,717,254) $ - $(2,652,441)
Identifiable assets $7,669,926 $10,030,092 $(4,901,401) $12,798,617
Corporate assets -
Total assets $12,798,617
Additions to property,
plant and equipment $ 604,804 $ 693,282 $ - $ 1,298,086
Depreciation and
amortization $ 800,795 $ 579,276$ - $ 1,380,071
1994 Industry Geophysical Packaging
Segment Information Services Operations Eliminations Consolidated
Total revenue $5,899,840 $17,046,671 $ (32,489) $22,914,022
Income (loss) before
income taxes $ 721,590 $ (700,495) $ - $ 21,095
Identifiable assets $6,043,525 $11,131,933 $(3,316,411) $13,859,047
Corporate assets -
Total assets $13,859,047
Additions to property,
plant and equipment $1,726,212 $ 997,011 $ - $ 2,723,223
Depreciation and
amortization $ 393,579 $ 439,856 $ - $ 833,435
</TABLE>
NOTE K - 401(k) PLAN
The Company has a 401(k) salary deferral plan which covers all
salaried and certain nonsalaried employees who have reached the age
of 20.5 years and have been employed by the Company for at least one
year. The covered employees may elect to have an amount deducted
from their wages for investment in a retirement plan. The Company
matches contributions to the plan at the following rates: (1) 75% of
each participant's salary reduction contributions to the plan up to
a maximum of 3% of the participant's compensation; and (2) 50% of
each participant's salary reduction contributions to the plan which
are in excess of 3% of the participant's compensation but not in
excess of 8% of the participant's compensation. The Company's
matching contribution to the plan was approximately $73,000 for 1995
and $78,000 for 1994.
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE L - PENSION PLAN
The Company sponsors a defined benefit pension plan that covers all
hourly employees at Chase's Portland, Oregon and Idaho Falls, Idaho
locations. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with
the Company and compensation rates near retirement. Contributions to
the plan reflect benefits attributed to employees' services to date,
as well as services expected to be earned in the future.
<TABLE>
<S> <C> <C>
1995 1994
Pension cost includes the
following components:
Service cost of the current period $36,080 $34,341
Interest cost on the projected benefit
obligation 3,636 1,136
Expected return on plan assets (4,051) (1,883)
Net amortization 322 -
Pension cost $35,987 $33,594
</TABLE>
The following sets forth the funded status of the plan and the
amounts included in the accompanying balance sheet at December 31,
1995:
<TABLE>
<S> <C>
1995
Actuarial present value of benefit obligations:
Vested benefits $56,198
Nonvested benefits 27,393
Accumulated benefit obligation 83,591
Effect of anticipated future compensation
levels and other events -
Projected benefit obligation 83,591
Less fair value of assets held in the plan 58,142
Unfunded excess of projected benefit
obligation over plan assets $25,449
The unfunded excess consists of the following:
Net unrecognized loss from past
experience different than assumed $13,093
Pension liability included in the balance 12,356
sheet
$25,449
</TABLE>
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE L - PENSION PLAN - Continued
The weighted average discount rate used to measure the projected benefit
obligation and the expected long-term rate of return on assets is 7.5%. The
Company uses the straight-line method of amortization for prior service cost
and unrecognized gains and losses. Actuarial valuations of the plan are made
each year. The most recent valuation was dated January 1, 1995.
NOTE M - UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information presents the condensed
combined results of operations for the year ended December 31, 1994 as though
the Fisher Bag acquisitions had occurred at the beginning of the year
presented. It does not purport to be indicative of the results which actually
would have been obtained if the acquisition had been effected on the date
indicated or of those results which may be obtained in the future. The pro
forma information is based on the estimates and assumptions set forth below.
(in thousands, except for per share data)
<TABLE>
<S> <C> <C> <C> <C>
TGC Industries,
Inc. and Fisher Bag
Subsidiary Five Months
Year Ended Ended Pro Forma
December 31, 1994 May 25, 1994(1) Adjustments Combined
Revenue $22,914 $1,820 $ - $24,734
Cost of service and 19,176 1,524 - 20,700
sales
Gross margin 3,738 296 - 4,034
Selling, general and 3,073 312 22 (2) 3,407
administrative
Operating profit 665 (16) (22) 627
(loss)
Interest expense 644 1 60 (3) 705
Income (loss) before 21 (17) (82) (78)
taxes
Provision for income (28) (6) (14)(4) (48)
taxes
Net income (loss) $ 49 $ (11) $ (68) $ (30)
Earnings (loss) per $ .01 $ - $(.02) $ (.01)
common share
</TABLE>
(1) Results of operations of Fisher Bag Company from January 1, 1994 to May
25, 1994 (acquisition date).
(2) Five months amortization of goodwill related to the Fisher asset purchase.
(3) Interest expense for five months for the Fisher asset purchase related to
notes payable and additional debt from revolving line of credit.
(4) Income tax effect of the adjustments.
TGC Industries, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Years ended December 31, 1995 and 1994
NOTE N - IMPAIRMENT OF GOODWILL
The Company reviews for asset impairment when events or changes in
circumstances indicate that the carrying amount of goodwill may not be
recoverable. As the goodwill arose from an acquisition by the packaging
division, the Company estimates the sum of expected future undiscounted net
cash flows from the packaging operations. If the estimated net cash flows are
less than the carrying amount of the goodwill, the Company recognizes an
impairment loss in an amount necessary to write down the goodwill to fair value
as determined from expected future cash flows.
At December 31, 1995, the Company had a $701,378 write-down for impairment of
goodwill as a result of the Company's review process.
NOTE O - RECENT ACCOUNTING STANDARD
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." Upon future adoption of this statement, the Company anticipates
electing to continue to apply the accounting provision for APB Opinion 25 with
disclosure of the required proforma amounts. Accordingly, the only impact
expected by management on the Company's future financial statements will be
additional disclosures required by the new standard.
NOTE P - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company incurred a write-down for
impairment of goodwill in the amount of $701,378 and incurred a gain of
$274,608 on the involuntary conversion of assets which were lost or destroyed.
SUPPLEMENTARY INFORMATION
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Certain information required by Item 9 of the Form 10-KSB is hereby incorporated
by reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for the
year covered by this report, under the caption "Nominees for Directors" in the
proxy statement.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 of Form 10-KSB is hereby incorporated by
reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for the
year covered by this report, under the caption "Executive Compensation" in the
proxy statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 of Form 10-KSB is hereby incorporated by
reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for the
year covered by this report, under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the proxy statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information provided by Item 12 of Form 10-KSB is hereby incorporated by
reference from the Company's definitive proxy statement, which will be filed
pursuant to Regulation 14A within 120 days after the Company's year end for the
year covered by this report, under the caption "Transactions with Management" in
the proxy statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Restated Articles of Incorporation as of July 31, 1986, filed as Exhibit
3(a) to the Company's Registration Statement on Form 10 (Registration No.
0-14908), filed with the Commission and incorporated herein by reference.
3.2 Certificate of Amendment to the Company's Restated Articles of
Incorporation, as of July 5, 1988, filed as Exhibit 3.2 to the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1988, and
incorporated herein by reference.
3.3 First Amended Bylaws of the Company as amended, filed as Exhibit 3.2 to the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1987, and incorporated herein by reference.
3.4 Amendment to the Company's First Amended Bylaws as adopted by the Board of
Directors on March 7, 1988, filed as Exhibit 3.3 to the Company's annual report
on Form 10-K for the fiscal year ended December 31, 1987, and incorporated
herein by reference.
3.5 Statement of Resolution Establishing Series of Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State of Texas on July 16, 1993,
filed as Exhibit 2 to the Company's Form 8-K (Commission File No. 0-14908) dated
July 30, 1993, filed with the Commission and incorporated herein by reference.
4.1 Promissory Note dated July 30, 1993 in the principal amount of $3,761,537
payable by Chase Packaging Corporation to Union Camp Corporation, filed as
Exhibit 3 to the Company's Form 8-K (Commission File No. 0-14908) dated July
30, 1993, filed with the Commission and incorporated herein by reference.
4.2 Accounts Financing Agreement [Security Agreement] dated July 30, 1993
between Congress Financial Corporation (Northwest) and Chase Packaging
Corporation, filed as Exhibit 4 to the Company's Form 8-K (Commission File No.
0-14908) dated July 30, 1993, filed with the Commission and incorporated herein
by reference.
4.3 First Amendment to Accounts Financing Agreement [Security Agreement] dated
May 25, 1994, between Congress Financial Corporation (Northwest) and Chase
Packaging Corporation, filed as Exhibit 4.3 to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference.
4.4 Letter Agreement dated July 25, 1994, amending Accounts Financing Agreement
[Security Agreement], between Congress Financial Corporation (Northwest) and
Chase Packaging Corporation, filed as Exhibit 4.4 to the Company's annual
report on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
4.5 Second Amendment to Accounts Financing Agreement [Security Agreement] dated
September 19, 1994, between Congress Financial Corporation (Northwest) and Chase
Packaging Corporation, filed as Exhibit 4.5 to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference.
4.6 Third Amendment to Accounts Financing Agreement [Security Agreement] dated
February 27, 1995, between Congress Financial Corporation (Northwest) and Chase
Packaging Corporation, filed as Exhibit 4.6 to the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by
reference.
4.7 Fourth Amendment to Accounts Financing Agreement [Security Agreement] dated
July 26, 1995 between Congress Financial Corporation (Northwest) and Chase
Packaging Corporation.
10.2 Service Mark License Agreement dated as of July 31, 1986, between the
Company and ESI, relating to the use of the Company's logo, filed as Exhibit
10(b) to the Company's Registration Statement on Form 10 (Registration
No. 0-14908), filed with the Commission and incorporated herein by reference.
10.3 The Company's 1986 Incentive and Nonqualified Stock Option Plan, filed as
Exhibit 10(c) to the Company's Registration Statement on Form 10 (Registration
No. 0-14908), filed with the Commission and incorporated herein by reference.
10.4 Amendment Number One to the Company's 1986 Incentive and Nonqualified
Stock Option Plan as adopted by the Board of Directors on May 1, 1987, filed as
Exhibit 10.4 to the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1987, and incorporated herein by reference.
10.5 Purchase and Sale Agreement Between Union Camp Corporation and Chase
Packaging Corporation dated June 27, 1993, filed as Exhibit 1 to the Company's
Form 8-K (Commission File No. 0-14908) dated July 30, 1993, filed with the
Commission and incorporation herein by reference.
10.6 1993 Stock Option Plan, filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-2 (Registration No. 33-73216), filed with the
Commission and incorporated herein by reference.
10.7 Employment Contract between the Company and Allen T. McInnes dated August
2, 1993, filed as Exhibit 10.7 to the Company's Registration Statement on Form
S-2 (Registration No. 33-73216), filed with the Commission and incorporated
herein by reference.
10.8 Master Contract for Geophysical Services-Onshore dated April 18, 1990
between Marathon Oil Co. and the Company together with a form of Supplementary
Agreement thereto, filed as Exhibit 10.8 to the Company's Registration Statement
on Form S-2 (Registration No. 33-73216), filed with the Commission and
incorporated herein by reference.
10.9 Agreement for Geophysical Services dated May 19, 1992, between DLB Oil &
Gas, Inc. and the Company together with a form of Supplementary Agreement
thereto, filed as Exhibit 10.9 to the Company's Registration Statement on Form
S-2 (Registration No. 33-73216), filed with the Commission and incorporated
herein by reference.
10.10 Asset Purchase Agreement among Fisher Bag Company, Inc. and all of its
shareholders and Chase Packaging Corporation dated April 25, 1994, filed as
Exhibit 1 to the Company's Form 8-K (Commission File No. 0-14908) dated May 25,
1994, filed with the Commission and incorporated herein by reference.
10.11 Closing Agreement among Fisher Bag Company, Inc. and all of its
shareholders and Chase Packaging Corporation dated May 25, 1994, amending and
supplementing the Asset Purchase Agreement, filed as Exhibit 2 to the Company's
Form 8-K (Commission File No. 0-14908) dated May 25, 1994, filed with the
Commission and incorporated herein by reference.
21. Subsidiaries of the Company.
(b) Reports on Form 8-K
No Report on Form 8-K was filed during the Company's fourth quarter ended
December 31, 1995.
SIGNATURES
In accordance with Section 13 or 15(d) 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: March 21, 1996 By: /s/ Allen T. McInnes
Allen T. McInnes
Chairman of the Board,
President
(Principal Executive
Officer)
<PAGE>
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 21, 1996 By: /s/ Allen T. McInnes
Allen T. McInnes
Chairman of the Board,
President
(Principal Executive
Officer)
Date: March 21, 1996 By: /s/ Robert J. Campbell
Robert J. Campbell
Vice-Chairman of the Board
and Director
Date: March 21, 1996 By: /s/ Wayne A. Whitener
Wayne A. Whitener
Vice-President and Director
Date: March 21, 1996 By: /s/ Doug Kirkpatrick
Doug Kirkpatrick
(Principal Financial and
Accounting Officer)
Date: March 21, 1996 By: /s/ William J. Barrett
William J. Barrett
Secretary and Director
Date: March 21, 1996 By: /s/ Herbert M. Gardner
Herbert M. Gardner
Director
EXHIBIT 4.7
FOURTH AMENDMENT TO ACCOUNTS FINANCING AGREEMENT [SECURITY AGREEMENT] DATED JULY
26, 1995 BETWEEN CONGRESS FINANCIAL CORPORATION (NORTHWEST) AND CHASE PACKAGING
CORPORATION.
July 26, 1995
Congress Financial Corporation (Northwest)
101 SW Main Street, Suite 725
Portland, Oregon 97204
Re: Chase Packaging Corporation/Fourth Amendment to Accounts
Financing Agreement
Ladies and Gentlemen:
This Fourth Amendment to Accounts Financing Agreement is made for the purpose of
amending the Accounts Financing Agreement [Security Agreement] which we entered
into with you on or about July 30, 1993, as it has previously been amended (the
"Accounts Financing Agreement").
We ask that you temporarily increase the maximum credit available to us under
the Accounts Financing Agreement. Therefore, for valuable consideration,
receipt and sufficiency of which are acknowledged, we agree as follows:
1. Paragraph 1.7 of the Accounts Financing Agreement is amended in its entirety
to read as follows:
1.7 "Maximum Credit" shall mean the amount of $4,300,000 during the period
beginning on July 26 through and including October 25, 1995 and shall mean the
amount of $4,000,000 thereafter.
2. As consideration for this accommodation, we shall pay you the sum of $1,000
and we shall pay all of your expenses, including attorney fees, incurred in
connection with the preparation of this Amendment and related documents.
Congress Financial Corporation (Northwest)
Page 2
3. Except as specifically provided above, the Accounts Financing Agreement and
all related agreements and documents shall remain fully valid, binding, and
enforceable according to their terms.
4. We hereby waive and discharge any and all defenses, claims, counterclaims,
and offsets which we may have against you and which have arisen or accrued
through the date of this Amendment. We acknowledge that you or your employees,
agents, and attorneys have made no representations or promises to us except as
specifically reflected in this Amendment and the written agreements which have
been previously executed.
Very truly yours,
CHASE PACKAGING CORPORATION
/s/ Doug Kirkpatrick
By Doug Kirkpatrick
Title Vice President
Accepted and agreed.
CONGRESS FINANCIAL CORPORATION (Northwest)
/s/ Rodney S. Davis
By Rodney S. Davis
Title Vice President
The undersigned Guarantor acknowledges that Congress Financial Corporation
(Northwest) ("Congress") has no obligation to provide it with notice of, or
obtain its consent to, the terms of this Amendment. The undersigned Guarantor
nevertheless hereby: (i) acknowledges and agrees to the terms and conditions of
this Amendment; (ii) acknowledges that its
Congress Financial Corporation
(Northwest)
Page 3
Guaranty remains fully valid, binding, and enforceable; and (iii) waives any and
all defenses, claims, counterclaims, and offsets against Congress which may have
arisen or accrued through the date of this Amendment.
TGC INDUSTRIES, INC.
/s/ Robert J. Campbell
By Robert J. Campbell
Title Vice Chairman
EXHIBIT 21 SUBSIDIARIES OF THE COMPANY
CHASE PACKAGING CORPORATION
STATE OF INCORPORATION - TEXAS
DOES BUSINESS AS - CHASE PACKAGING CORPORATION
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000799165
<NAME> TGC INDUSTRIES, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 139,991
<SECURITIES> 0
<RECEIVABLES> 2,478,855
<ALLOWANCES> 84,618
<INVENTORY> 3,516,344
<CURRENT-ASSETS> 6,575,090
<PP&E> 9,856,449
<DEPRECIATION> 3,663,431
<TOTAL-ASSETS> 12,798,617
<CURRENT-LIABILITIES> 10,787,990
<BONDS> 367,500
<COMMON> 623,215
0
0
<OTHER-SE> 1,019,912
<TOTAL-LIABILITY-AND-EQUITY> 12,798,617
<SALES> 14,278,262
<TOTAL-REVENUES> 21,821,502
<CGS> 13,068,812
<TOTAL-COSTS> 19,827,528
<OTHER-EXPENSES> 3,842,833<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 803,582
<INCOME-PRETAX> (2,652,441)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,652,441)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,652,441)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
<FN>
<F1>Includes 701,378 for impairment of goodwill
</FN>
</TABLE>
