U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 0-14908
TGC INDUSTRIES, INC.
(Name of small business issuer of its charter)
Texas 74-2095844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1304 Summit, Suite 2
Plano, Texas 75074
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (972) 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)
Series C 8% Convertible Exchangeable Preferred Stock ($1.00 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 (from continuing operations) for its most recent
fiscal year: $16,307,577
State the aggregate market value of the voting stock (Common Stock and
Series C Preferred Stock) held by non-affiliates computed by reference to
the price at which the stock was sold on March 10, 1998: $11,710,491
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at March 10, 1998
Common Stock ($.10 Par Value) 6,475,485
Documents Incorporated by Reference
Document Part of the Form 10-KSB Into Which
Portions of the Proxy Statement the Document is Incorporated
for Annual Meeting of shareholders Items 9 through 12 of Part III
to be held on June 4, 1998
Part I
ITEM 1. DESCRIPTION OF BUSINESS.
TGC Industries, Inc. ("TGC" or the "Company") is a Texas corporation
engaged in the geophysical service business, primarily conducting Three-D
("3-D") surveys for clients in the oil and gas business. TGC's principal
business office is located at 1304 Summit Avenue, Suite 2, Plano, Texas
75074. (Telephone: 972-881-1099).
History
In April 1980, Supreme Industries, Inc., formerly ESI Industries,
Inc., ("Supreme") formed a wholly owned subsidiary that acquired certain
equipment, instruments, and related supplies of Tidelands Geophysical Co.,
Inc. ("Tidelands"), a Houston-based corporation that 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.
("TGC"). On June 30, 1986, the Board of Directors of Supreme and TGC
approved a spin-off whereby substantially all of the shares of TGC owned by
Supreme were distributed as a stock dividend to Supreme security holders.
On July 30, 1993, TGC acquired, through a wholly owned subsidiary,
Chase Packaging Corporation ("Chase"), 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.
In June 1996, the Board of Directors of TGC approved the spin-off of
Chase, effective July 31, 1996, whereby all of the shares of Chase owned by
TGC were distributed as a stock dividend to the shareholders of TGC under
the terms of the spin-off transaction. Pursuant to the terms of the spin-
off, and following clearance by the Securities and Exchange Commission on
March 7, 1997, the holders of TGC's Common Stock and, on an as-if-converted
basis, the holders of TGC's Series C 8% Convertible Exchangeable Preferred
Stock received the dividend distribution of Chase Common Stock. Since July
31, 1996, Chase has operated as an independent company as a specialty
packaging business principally supplying products to the agricultural
industry.
During July 1996, the Company issued 1,150,350 shares of Series C 8%
Convertible Exchangeable Preferred Stock in a private placement offering
with gross proceeds of approximately $5,800,000.
The preferred stock sold in the private placement entitles the holder
to receive cumulative cash dividends as, when and if declared by the Board
of Directors at a rate of 8% per annum prior to any dividend or
distribution in cash or other property on any class or series of stock
junior to the preferred stock. The dividends on the preferred stock are
payable as, when and if declared by the Board of Directors on January 1 and
July 1 of each year, commencing January 1, 1997. The dividend on the
preferred stock is cumulative.
From the proceeds of the private placement, TGC made a capital
contribution to Chase of $2,716,403 to facilitate the spin-off; and TGC
retained $2,000,000 for the purchase of state-of-the-art geophysical
recording equipment. Under the terms of the spin-off, the effective date
of which was July, 31, 1996, TGC completed the spin-off of the business and
assets relating to the Chase operations, except TGC retained the Portland,
Oregon facility and canceled all inter-company debt owed by Chase to TGC.
The distribution of Chase Stock was March 7, 1997. On March 18, 1997, TGC
sold the Portland, Oregon facility for $2,430,000 and applied such proceeds
in satisfaction of the mortgage indebtedness with respect to such facility
and in satisfaction of a debt obligation owing by TGC to Chase to pay to
Chase any such proceeds in excess of the amount of the mortgage
indebtedness.
As of July 31, 1996, the effective date of the spin-off, TGC
Industries, Inc.'s only business has been the geophysical service business,
primarily conducting Three-D ("3-D") surveys for clients in the oil and gas
business. Since July 31, 1996, the Chase operation has been reported as
discontinued operations.
General Description of the Company's Business
Geophysical Business
Since its formation, TGC has 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 in the United
States. 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 that 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 the
Company'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 July 1996, the Company purchased an Opseis Eagle 24-BIT 1500
channel recording system, cables and geophones for approximately
$2,900,000, using $2,000,000 from proceeds from the Company's preferred
stock private placement, a $750,000 equipment loan, and funds from internal
cash flow. In late November 1996, the Company purchased a second 1000
channel Eagle system using the proceeds and trade-in from TGC's two older
systems along with equipment financing of $855,000 and internal cash flow.
In 1997, TGC purchased an additional 1500 channels utilizing equipment
financing of $2,242,685. At the present time, TGC is operating two Eagle
2000 channel crews. 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 seismic data acquired by TGC are
transmitted by the Company to data processing centers (not owned or
operated by the Company) designated by the clients 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, 1997, two customers accounted for thirty-one
percent (31%) and twenty eight percent (28%), of the Company's revenue,
respectively. 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.
Management believes this insurance coverage is sufficient.
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 recent acquisition of two state-of-the-art instruments by
the Company, management believes that TGC should experience an increase in
revenues and operating profits. However, due to uncertainties related to
weather, the potential for contract delay or cancellation, and the
potential for fluctuations in oil and gas prices, there can be no
assurances that such improvement in revenue and operating profits can be
achieved.
As of December 31, 1997, TGC employed 108 employees, supporting two
seismic crews with a total of 100 crewmembers and direct support members.
The Company believes its relationship with its employees to be
satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's headquarters are in leased facilities located in Plano,
Texas from which it conducts all its current operations. These facilities
include 8,000 square feet of office and warehouse space and an outdoor
storage area of approximately 10,000 square feet. The monthly rent is
$4,210. This facility is used to house corporate offices and serves as the
headquarters for the geophysical business. The Company is not responsible
for insuring the facilities. The condition of the Company's facilities is
good and TGC management believes that these properties are suitable and
adequate for the Company's foreseeable needs.
In July 1996, the Company retained the Portland, Oregon facility from
the spin-off of the Company's wholly owned subsidiary, Chase Packaging
Corporation. The facility is 88,000 square feet of office and
manufacturing space with outdoor resin silos and a parking lot. Chase had
previously acquired the facility when Chase purchased certain assets of
Union Camp Corporation's packaging division in July 1993. On March 18,
1997, TGC sold the Portland, Oregon facility for $2,430,000 and applied
such proceeds in satisfaction of the mortgage indebtedness with respect to
such facility and in satisfaction of a debt obligation owing by TGC to
Chase to pay to Chase any such proceeds in excess of the amount of the
mortgage indebtedness.
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, 1997, 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 traded on the NASDAQ SmallCap Market under
the symbol "TGCI" since September 25, 1994.
The number of shareholders of record of TGCI's Common Stock as of March 10,
1998, was 413. Due to the number of shares held in nominee or street name,
the Company believes that there are a significantly greater number of
beneficial owners of its Common Stock. As of such date, CEDE & CO. held
2,509,100 shares in street name. On March 10, 1998, TGC's Common Stock was
quoted at a closing bid price of $1.125. High and low bid prices of TGC's
Common Stock for the period of January 1, 1996, to December 31, 1997, were
as follows:
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Date High Low
October 1 -- December 31, 1997 1 1/2 1
July 1 -- September 30, 1997 1 5/8 1
April 1 -- June 30, 1997 1 1/4 7/8
January 1 -- March 31, 1997 1 5/8 1
October 1 -- December 31, 1996 1 1/2 1
July 1 -- September 30, 1996 1 1
April 1 -- June 30, 1996 1 3/8
January 1 -- March 31, 1996 3/8 3/8
</TABLE>
The above bid quotations were furnished to TGC by the National Quotation
Bureau
Dividends are payable on the Company's Common Stock at the discretion
of the Board of Directors. In light of the working capital needs of the
Company, it is unlikely that cash dividends will be declared and paid on
the Company's Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
Results of operations
Geophysical Operation (Continuing Operations)
Revenues from continuing operations for the year ended December 31,
1997, increased 75% to $16,307,577 from revenue of $9,339,970 for the year
ended December 31, 1996. Net earnings from continuing operations before
dividend requirements on preferred stock was $1,306,039 for the year ended
December 31, 1997. Included in the 1997 net earnings was a $170,000 income
tax benefit. Net earnings from continuing operations before dividend
requirements on preferred stock was $388,699 for the year ended December
31, 1996. EBITDA from continuing operations was $2,764,014 or $.19 per
share on a fully diluted basis for the year ended December 31, 1997,
compared with $1,267,472 or $.12 per share on a fully diluted basis for the
year ended December 31, 1996. The increase in revenue was the result of
the operation of state-of-the-art recording equipment which was acquired in
the second half of 1996 for the full year of 1997. In addition, a
diversified backlog which included seismic surveys with higher contract
prices contributed to the increase in the 1997 revenue.
TGC's cost of services, as a percentage of revenue, was 86.1% in 1997,
compared with 86.5% in 1996. Selling, general and administrative expense,
as a percentage of revenue, decreased from 8.7% in 1996 to 5.6% in 1997.
Interest expense increased by $137,103 in 1997 when compared to 1996
primarily as a result of the financing of additional geophysical equipment
in the first half of 1997 and the financing of geophysical equipment
acquired in the second half of 1996. Non-cash charges for depreciation
were $1,425,817 in 1997 compared with $813,718 in 1996.
During 1997, TGC purchased approximately $3,900,000 of additional
equipment to better serve our clients in their pursuit of Three-D ("3-D")
seismic data acquisition. With this additional recording capacity, TGC's
two crews are equipped with 24-Bit high resolution equipment capable of
recording up to 4,000 channels. This additional equipment was financed
with a combination of equipment-related financing, internal cash flow and
insurance claim proceeds from the Company's equipment and business
interruption insurance policies.
For over thirty years TGC has successfully served the geophysical
industry and TGC crews are under contract through August 1998. We are
currently working on securing contracts for the last part of 1998. If the
1998 exploration budgets of oil and gas companies are reduced significantly
due to low oil prices, TGC's revenues and earnings may be adversely
affected. However, a large portion of the Company's current contract
backlog is in natural gas exploration, which, due to higher natural gas
prices than a year ago, may soften the adverse impact of lower oil prices.
This report contains forward-looking statements which reflect the view
of Company's management with respect to future events. Although management
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove
to have been correct. Important factors that could cause actual results to
differ materially from such expectations are disclosed in the Company's
Securities and Exchange Commission filings, and include, without
limitation, the unpredictable nature of forecasting weather, the potential
for contract delay or cancellation, and the potential for fluctuations in
oil and gas prices. The forward-looking statements contained herein
reflect the current views of the Company's management and the Company
assumes no obligation to update the forward-looking statements or to update
the reasons actual results could differ from those contemplated by such
forward-looking statements.
At December 31, 1997, the Company had net operating loss carry
forwards of approximately $4,400,000 available to offset future taxable
income, which expires at various dates through 2012.
Discontinued Operations
The operations of the Company's former wholly owned subsidiary, Chase
Packaging Corporation ("Chase"), are reflected as discontinued operations
in the Company's financial statements. The effective date of the spin-off
of Chase was July 31, 1996, and the date of the distribution of Chase
Packaging Corporation's stock was March 7, 1997. In addition, on March 18,
1997, TGC sold the Portland, Oregon manufacturing facility of Chase for
approximately $2,430,000, and applied such proceeds in satisfaction of the
mortgage indebtedness with respect to such facility and in satisfaction of
a debt obligation owing by TGC to Chase to pay to Chase any such proceeds
in excess of the amount of the mortgage indebtedness.
Financial Condition
Geophysical Operations (Continuing Operations)
Cash of $2,426,320 was provided by continuing operations for the
twelve months ended December 31, 1997, compared with cash provided by
continuing operations of $2,446,450 for the same period of the prior year.
The funds generated in the first twelve months of 1997 were primarily
attributable to net earnings before non-cash depreciation charges for the
Company's geophysical operation. Cash used in investing activities for
1997 was primarily for additions to equipment for geophysical field
operations. In addition, during 1997, the Company financed the acquisition
of geophysical equipment through a note payable and capital leases in the
amounts of $1,366,029 and $876,656, respectively. Cash used in financing
activities were primarily for the payment of dividends on the Company's
Series C 8% Convertible Exchangeable Preferred Stock in the amount of
$685,710 and principal payments on debt obligations in the amount of
$951,384.
Working capital deficit increased $962,358 to $2,247,887 from the
December 31, 1996, balance of $1,285,529, primarily as a result of an
increase in billings in excess of costs and estimated earnings on
uncompleted contracts and debt incurred in the purchase of geophysical
equipment. The Company's current ratio declined to .57 to 1.0 at December
31, 1997, compared to .65 to 1.0 at December 31, 1996. Stockholders'
equity increased to $3,729,993 at December 31, 1997, from the December 31,
1996, balance of $3,017,306 due primarily to the net earnings of the
Company.
During the fourth quarter of 1997, to support future growth of the
Company, a $1,000,000 revolving bank line of credit was secured from a
major bank. The line of credit bears interest at prime plus 1.5%, is
collateralized by equipment and accounts receivable and requires the
maintenance of certain financial ratios. At December 31, 1997, TGC was in
compliance with all the financial ratios.
In July 1996, TGC closed the private placement of 8% Convertible
Exchangeable Preferred Stock. TGC's geophysical operation received
approximately $2,000,000 from the private placement and utilized the
proceeds, together with outside financing of $750,000 and internally
generated funds, to purchase a state-of-the-art geophysical 1500 channel
recording system. The Company placed this system into service in early
August 1996. In late November 1996, the Company purchased a second 1000
channel system using the proceeds and a trade-in from TGC's two older
systems along with equipment financing of $855,000 and internal cash flow.
This system was placed into service in December 1996.
The Company anticipates that available funds, together with
anticipated cash flows generated from future operations and amounts
available under its revolving line of credit will be sufficient to meet the
Company's cash needs during 1998.
Discontinued Operations
As previously discussed, the operations of Chase has been accounted
for as a discontinued operation in the accompanying financial statements
due to the July 31, 1996, spin-off of Chase to TGC shareholders.
ITEM 7. FINANCIAL STATEMENTS
December 31, 1997 and 1996
CONTENTS
Report of Independent Certified Public Accountants ............... p. 11
Financial Statements
Balance Sheets.................................................... p. 12
Statements of Operations.......................................... p. 14
Statement of Stockholders' Equity................................. p. 15
Statements of Cash Flows.......................................... p. 17
Notes to Financial Statements..................................... p. 20
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
TGC Industries, Inc.
We have audited the accompanying balance sheets of TGC Industries, Inc. as
of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. 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 financial position of TGC Industries, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
\s\ GRANT THORNTON LLP
Dallas, Texas
February 6, 1998
TGC Industries, Inc.
BALANCE SHEETS
December 31,
<TABLE>
<S> <C> <C> <C> <C>
ASSETS 1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 120,535 $ 655,280
Trade accounts receivable 2,501,882 758,193
Costs and estimated earnings
in excess of billings
on uncompleted contracts - 733,974
Prepaid expenses and other 134,629 205,756
Deferred income taxes 170,000 -
Total current assets 2,927,046 2,353,203
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 9,876,691 6,587,807
Automobiles and trucks 672,515 567,901
Furniture and fixtures 317,167 294,822
10,866,373 7,450,530
Less accumulated depreciation (3,258,778) (2,257,126)
7,607,595 5,193,404
Property held for sale - 1,329,000
7,607,595 6,522,404
OTHER ASSETS 35,232 31,392
$10,569,873 $ 8,906,999
========== =========
</TABLE>
TGC Industries, Inc.
BALANCE SHEETS - CONTINUED
December 31,
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
CURRENT LIABILITIES
Trade accounts payable $ 1,410,668 $ 1,483,828
Accrued liabilities 213,667 424,929
Billings in excess of costs and
estimated earnings
on uncompleted contracts 2,225,711 1,238,379
Current maturities of long-term
obligations 1,324,887 491,596
Total current liabilities 5,174,933 3,638,732
LONG-TERM OBLIGATIONS,
less current maturities 1,664,947 1,025,937
NET LIABILITIES OF DISCONTINUED OPERATIONS - 1,225,024
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
4,000,000 shares authorized;
1,129,350 and 1,150,350 shares
issued and outstanding in 1997
and 1996, respectively 1,129,350 1,150,350
Common stock, $.10 par value;
25,000,000 shares authorized;
6,571,317 and 6,338,652 shares
issued in 1997 and 1996,
respectively 657,132 633,865
Additional paid-in capital 5,377,133 5,932,960
Accumulated deficit (3,218,308) (4,524,347)
Treasury stock, at cost (95,832 and
71,057 shares in 1997 and
1996, respectively) (215,314) (175,522)
3,729,993 3,017,306
$10,569,873 $ 8,906,999
========== =========
The accompanying notes are an integral part of these statements.
</TABLE>
TGC Industries, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
<TABLE>
<S> <C> <C>
1997 1996
Revenue $16,307,577 $ 9,339,970
Cost and expenses
Cost of services 14,048,852 8,076,520
Selling, general and administrative 920,528 809,696
Interest expense 202,158 65,055
15,171,538 8,951,271
Income from continuing
operations before income taxes 1,136,039 388,699
Income tax benefit 170,000 -
Income from continuing operations 1,306,039 388,699
Discontinued operations
Loss from operations - (1,402,706)
Net earnings (loss) 1,306,039 (1,014,007)
Less dividend requirement
on preferred stock (455,640) (230,070)
Earnings (loss) allocable to
common stockholders $ 850,399 $(1,244,077)
======= =========
Basic earnings (loss) per common share
Continuing operations $.13 $ .03
Discontinued operations - (.23)
Earnings (loss) per common share $.13 $ (.20)
Diluted earnings (loss) per common share
Continuing operations $.09 $ .02
Discontinued operations - (.21)
Earnings (loss) per common share $.09 $ (.19)
Weighted average number of common shares
Basic 6,356,806 6,196,142
Diluted 14,666,920 6,691,689
The accompanying notes are an integral part of these statements.
</TABLE>
TGC Industries, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<C> <C> <S> <C> <S> <C> <C> <C> <C> <C> <C>
Additional
Preferred Stock Common Stock paid-in Accumulated Treasury
Shares Amount Shares Amount capital deficit stock Total
Balances at
January 1, 1996 - $ - 6,232,152 $623,215 $4,697,774 $(3,510,340) $(167,522) $1,643,127
Private placement,
net of expenses
of $451,041 1,150,350 1,150,350 - - 4,150,359 - - 5,300,709
Capital
contribution
to Chase
Packaging
Corporation - - - - (2,716,403) - - (2,716,403)
Exercise of
warrants and
stock options - - 94,500 9,450 28,900 - (8,000) 30,350
Cash dividends
declared on
preferred stock
($.20 per share) - - - - (230,070) - - (230,070)
Compensation paid
in common stock - - 12,000 1,200 2,400 - - 3,600
Net loss - - - - - (1,014,007) - (1,014,007)
</TABLE>
TGC Industries, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996 1,150,350 1,150,350 6,338,652 633,865 5,932,960 (4,524,347) (175,522) 3,017,306
Conversion of
preferred stock (21,000) (21,000) 139,997 14,000 7,000 - - -
Exercise of stock
options - - 92,668 9,267 30,525 - (39,792) -
Spin-off of
Chase Packaging
Corporation - - - - (103,976) - - (103,976)
Expenses associated
with private
placement - - - - (33,736) - - (33,736)
Cash dividends on
preferred stock
($.40 per share) - - - - (455,640) - - (455,640)
Net earnings - - - - - 1,306,039 - 1,306,039
Balances at
December 31,
1997 1,129,350 $1,129,350 6,571,317 $657,132 $5,377,133 $(3,218,308) $(215,314) $3,729,993
========= ========= ========= ======= ========= ========= ======= =========
The accompanying notes are an integral part of these statements.
</TABLE>
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<S> <C> <C> <C>
1997 1996
Cash flows from operating activities
Net earnings (loss) $ 1,306,039 $(1,014,007)
Adjustments to reconcile
net earnings (loss) to net cash
provided by operating activities
Loss from discontinued operations - 1,402,706
Depreciation 1,425,817 813,718
Loss (gain) on disposal of
property and equipment (126,088) 103,081
Deferred income taxes (170,000) -
Changes in operating assets and liabilities
Trade accounts receivable (1,743,689) 277,142
Billings in excess of costs
and estimated earnings
on uncompleted contracts 1,721,306 671,207
Prepaid expenses 71,127 (158,032)
Other assets (3,840) (194)
Accounts payable (73,160) 627,723
Accrued liabilities 18,808 (276,894)
Net cash provided by
continuing operations 2,426,320 2,446,450
Net cash used in discontinued
operations - (456,687)
Net cash provided by
operating activities 2,426,320 1,989,763
Cash flows from investing activities
Capital expenditures (1,685,162) (3,195,330)
Proceeds from sale of
property and equipment 213,927 119,191
Investing activities of
discontinued operations - (92,442)
Net cash used in investing
activities (1,471,235) (3,168,581)
</TABLE>
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31,
<TABLE>
<S> <C> <S>
1997 1996
Cash flows from financing activities
Dividends paid (685,710) -
Proceeds from issuance of debt 181,000 125,813
Proceeds from issuance of stock,
net of expenses - 4,938,847
Principal payments of debt obligations (951,384) (259,079)
Capital contribution to Chase
Packaging Corporation - (2,716,403)
Financing activities of
discontinued operations - (369,948)
Other (33,736) -
Net cash provided by (used in)
financing activities (1,489,830) 1,719,230
Net increase (decrease) in cash
and cash equivalents (534,745) 540,412
Cash and cash equivalents at
beginning of year 655,280 114,868
Cash and cash equivalents at
end of year $ 120,535 $ 655,280
======= =======
Supplemental cash flow information
Cash paid for interest $ 201,934 $ 64,334
</TABLE>
Noncash investing and financing activities
During 1996, the Company received 4,923 shares of common stock as payment
for the exercise of options. The Company included these shares as treasury
stock at $1.63 per share, the fair market value of the Company's common stock
on the date of the transaction.
During 1996, the Company financed the acquisition of equipment through a
note payable and capital leases in the amounts of $750,000 and $861,057,
respectively.
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31, 1997 and 1996
During 1996, the Company issued 6,000 shares of the Company's Series C 8%
convertible exchangeable preferred stock in exchange for notes receivable
amounting to $30,000. Subordinated convertible debt in the amount of
$365,812 was exchanged for 73,162 shares of the Company's preferred stock.
The Company issued 45,938 shares of preferred stock for payment of commission
expenses totaling $229,690.
During 1997, the Company received 14,025 and 10,750 shares of common stock,
respectively, as payments for the exercise of options. The Company included
these shares as treasury stock at $1.69 and $1.50 per share, respectively,
the fair market value of the Company's common stock on the dates of the
transactions.
During 1997, the Company financed the acquisition of equipment through a
note payable and capital leases in the amounts of $1,366,029 and $876,656,
respectively.
During 1997, the Company sold a manufacturing facility of its former
wholly-owned Subsidiary, Chase Packaging Corporation (Chase). All proceeds
were contributed to New Chase (Note C).
During 1997, the Company spun-off New Chase (Note C) resulting in a stock
dividend to TGC stockholders amounting to $103,976.
During 1997, holders of 21,000 shares of convertible exchangeable preferred
stock converted these shares into 139,997 shares of the Company's common
stock.
The accompanying notes are an integral part of these statements.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - NATURE OF OPERATIONS
TGC Industries, Inc. (TGC or the Company) is engaged in the
domestic geophysical services business and primarily conducts
seismic surveys and sells gravity data to companies engaged in
exploration in the oil and gas industry. The operations of its
former wholly-owned subsidiary, Chase Packaging Corporation
(Chase), which manufactures woven paper mesh and polypropylene
mesh fabric bags for agricultural and industrial use, are
reflected as discontinued in the accompanying financial
statements. (See Note C).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with
original maturity dates of three months or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
provided using the straight-line method over the estimated
useful lives of the individual assets.
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.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation" encourages, but does
not require, companies to record compensation cost for stock-
based employee compensation plans at fair value. The Company
has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees" and provides the required pro forma
disclosures prescribed by SFAS 123.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition
Revenues from conducting seismic surveys are recognized over
the term of the contract using the percentage-of-completion
method. Under this method, revenues are recognized on the
units-of-production method. Revenues for the sale of gravity
data are recognized when services are rendered.
Earnings (Loss) Per Share
For the year ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings Per Share." Under SFAS 128, basic earnings (loss)
per common share is based upon the weighted average number of
shares of common stock outstanding. Diluted earnings (loss) per
share is based upon the weighted average number of common
shares outstanding and, when dilutive, common shares issuable
for stock options, warrants and convertible securities.
Earnings (loss) per share data for 1996 has been restated to
conform to the provisions of SFAS 128.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and 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 C - REORGANIZATION PLAN
In May 1996, a formal plan was adopted to reorganize TGC and
Chase. Pursuant to the plan, the following actions have been
taken:
(a) During July 1996, the Company issued 1,150,350 shares
of Series C 8% convertible exchangeable preferred stock
in a private placement offering with gross proceeds of
approximately $5,800,000. The preferred stock is, at
the option of the Company, exchangeable into 8%
subordinated convertible debentures. The preferred
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE C - REORGANIZATION PLAN - Continued
stock and debentures are convertible into shares of the
Company's common stock for a period of four years and
are convertible in years one and two at $.75 per share,
year three at $1.25 and thereafter at $2.00.
(b) Upon closing of the private placement, the Company
contributed $2,716,403 as a capital contribution to
Chase.
(c) TGC liquidated its wholly-owned subsidiary, Chase
Packaging Corporation (Old Chase), with TGC receiving
all of Old Chase's properties and liabilities in
cancellation of the Old Chase stock held by TGC. TGC
formed a new wholly-owned subsidiary, New Chase
Corporation (New Chase), and subsequently changed the
name to Chase Packaging Corporation. TGC transferred
all of the properties and liabilities received in the
liquidation of Old Chase to New Chase, except TGC
retained the manufacturing facility of Old Chase
located in Portland, Oregon. On March 18, 1997, TGC
sold the facility for proceeds of approximately
$2,400,000. TGC applied such proceeds in satisfaction
of the mortgage indebtedness with respect to such
facility and in satisfaction of a debt obligation owing
by TGC to New Chase to pay to New Chase any such
proceeds in excess of the amount of the mortgage
indebtedness.
(d) During June 1996, the Board of Directors approved the
spin-off of New Chase whereby all of the shares of New
Chase would be distributed as a stock dividend to the
shareholders of TGC common stock and, on an as if
converted basis, TGC preferred stock, effective July
31, 1996. The New Chase common stock was distributed
on March 7, 1997.
The spin-off distribution of New Chase to TGC stockholders
reduced stockholders' equity by $103,976, which represents the
book value of the net assets of New Chase as of March 7, 1997.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE C - REORGANIZATION PLAN - Continued
Accordingly, the operations of Chase have been classified as
discontinued in the accompanying financial statements. Summary
operating results of the discontinued operations for the year
ended December 31, 1996, were as follows:
<TABLE>
<S> <C>
Revenues $ 5,517,914
Costs and expenses 6,920,620
Loss from discontinued operations $(1,402,706)
=========
</TABLE>
The net assets and liabilities relating to the discontinued
operations have been segregated on the balance sheet at
December 31, 1996, and are as follows:
<TABLE>
<S> <C> <S>
Cash $ -
Accounts receivable, net 1,446,247
Inventories 2,375,400
Prepaid expenses 132,252
Property and equipment, net
of accumulated depreciation 3,163,272
Other assets 16,386
Total assets 7,133,557
Trade accounts payable 1,477,971
Accrued liabilities 486,461
Advance billings 34,476
Note payable 3,868,270
Capital contribution from private placement 2,491,403
Total liabilities 8,358,581
Net liabilities $1,225,024
=========
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE D - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of uncompleted contracts are as follows:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Costs incurred on uncompleted
contracts and
estimated earnings $ 3,488,065 $2,481,507
Less billings to date 5,713,776 2,985,912
$ (2,225,711) $ (504,405)
</TABLE>
These components are included in the accompanying balance sheet
under the following captions:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Costs and estimated earnings in
excess of billings
on uncompleted contracts $ - $ 733,974
Billings in excess of costs and
estimated earnings on
uncompleted contracts (2,225,771) (1,238,379)
$(2,225,711) $ (504,405)
</TABLE>
NOTE E - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Compensation and payroll taxes $137,751 $104,505
Dividends payable - 230,070
Insurance 8,424 36,769
Other 67,492 53,585
$213,667 $424,929
======= =======
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<S> <C> <C> <S>
December 31,
1997 1996
Note payable, interest at 4%, due
in monthly installments of $552
including interest; collateralized
by equipment and accounts
receivable $ 112,480 $ -
Note payable, interest at 4%, due
in monthly installments of $1,130
including interest; collateralized
by equipment and accounts
receivable 63,288 -
Notes payable to a finance
company, interest at 11%, due
in monthly installments of
$41,367 including interest;
collateralized by equipment 1,173,393 -
Note payable to a bank,
interest at 9.83%, due in
monthly installments
of $22,959 including interest;
collateralized by equipment and
accounts receivable 498,384 -
Note payable to a finance company,
interest at 10%, due in monthly
installments of $24,220 including
interest, collateralized
by equipment - 696,271
Capital lease obligations 1,142,289 821,262
2,989,834 1,517,533
Less current maturities 1,324,887 491,596
$1,664,947 $1,025,937
========= =========
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE F - LONG-TERM OBLIGATIONS - Continued
The Company has a revolving $1,000,000 bank line of credit
which matures during November 1998. The line of credit bears
interest at prime plus 1.5% (10% at December 31, 1997), and is
collateralized by equipment and accounts receivable.
Some of the above notes have restrictive covenants which, among
other things, require the maintenance of certain financial
ratios.
Capital Lease Obligations
The Company has entered into lease agreements which have been
accounted for as capital leases. The assets and liabilities
under capital leases have been recorded at the lower of the
present value of the minimum lease payments or the fair value
of the assets. Outstanding leases at December 31, 1997 have
terms ranging from 24 to 36 months. The leases mature from
April 1999 through October 1999, with interest rates ranging
from 10% to 13%. Some of these leases contain purchase
options.
Aggregate maturities of long-term obligations at December 31,
1997 are as follows:
<TABLE>
<C> <C> <C> <C> <C> <C>
Capital
Notes lease
payable obligations Total
1998 $ 635,026 $ 751,560 $1,386,586
1999 707,451 469,116 1,176,567
2000 369,963 - 369,963
2001 14,803 - 14,803
2002 15,475 - 15,475
Thereafter 104,827 - 104,827
1,847,545 1,220,676 3,068,221
Less amounts
representing
interest - (78,387) (78,387)
$1,847,545 $1,142,289 $2,989,834
========= ========= =========
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE F - LONG-TERM OBLIGATIONS - Continued
The following is a schedule of leased property under capital
leases:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Machinery and equipment $1,732,066 $855,000
Furniture and fixtures - 6,057
1,732,066 861,057
Less accumulated depreciation 221,330 10,179
$1,510,736 $850,878
========= =======
</TABLE>
The fair value of long-term debt is estimated using discounted
cash flows based on the Company's incremental borrowing rate
for similar types of borrowings. A comparison of the carrying
value and fair value of these instruments is as follows:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Carrying value $2,989,834 $1,517,533
Fair value $2,897,020 $1,551,423
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY
Earnings Per Share
A reconciliation of the numerators and denominators of the
basic earnings per common share and diluted earnings per common
share for the year ended December 31, 1997 is as follows:
<TABLE>
<S> <C> <C> <C>
Per-share
Income Shares amount
Net earnings $1,306,039
Less dividend requirement
on preferred stock (455,640)
Basic earnings per common share
Income allocable to
common stockholders 850,399 6,356,806 $.13
===
Effect of dilutive securities
Stock options 124,214
Warrants 561,689
Convertible preferred stock 455,640 7,624,211
Diluted earnings per common share
Income available to common
stockholders plus
assumed conversions $1,306,039 14,666,920 $.09
========= ========== ===
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
A reconciliation of the numerators and denominators of the
basic earnings per common share and diluted earnings per common
share for the year ended December 31, 1996 is as follows:
<TABLE>
<S> <C> <C> <C>
Per-share
Income Shares amount
Income from continuing
operations $ 388,699
Less dividend requirement
on preferred stock (230,070)
Basic earnings per common share
Income allocable to
common stockholders 158,629 6,196,142 $.03
===
Effect of dilutive securities
Stock options 96,703
Warrants 398,844
Diluted earnings per common share
Income available to common
stockholders plus
assumed conversions $ 158,629 6,691,689 $.02
======= ========= ===
</TABLE>
Stock-Based Compensation Plans
The Company's 1986 Incentive Stock Option Plan (the "1986
Plan") expired during July 1996. At December 31, 1997, options
covering 37,000 shares of the Company's common stock were
outstanding under the 1986 Plan. All options were exercisable
at December 31, 1997, and will remain outstanding until they
are exercised or canceled.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
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, and options must be granted at prices
at not less than the market price at the date of grant.
Options granted under the 1993 Plan must be exercised within
five years from the date of grant. Options covering 180,000
shares are exercisable as follows: (i) one-third of the shares
after the first twelve-month period following the date of
grant, (ii) up to two-thirds of the shares after the first
twenty-four month period following the date of grant, and (iii)
all of the shares of stock subject to the option at any time
after the first thirty-six month period following the date of
grant. At December 31, 1997, outstanding options for 83,333
shares were exercisable. Options covering 116,333 shares were
available for future grant.
In conjunction with the spin-off of New Chase, options held by
employees of New Chase under the 1993 Plan were converted into
a nonqualified plan. Options covering 159,167 shares are
exerciseable as follows: (i) 135,833 shares at date of grant,
(ii) 11,666 shares after 18 months following the date of grant,
and (iii) 11,668 after 30 months following the date of grant.
At December 31, 1997, outstanding options for 135,833 shares
were exercisable.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
The Company has adopted only the disclosure provisions of SFAS
123. The Company will continue to apply APB 25 and related
interpretations in accounting for its stock-based compensation
plans. Had compensation cost for the Company's 1997 and 1996
stock grants for stock-based compensation plans been determined
consistent with SFAS 123, the Company's net income (loss) and
net earnings (loss) per common share for 1997 and 1996 would
approximate the pro forma amounts indicated below:
<TABLE>
<S> <C> <C> <C> <C> <C>
1997 1996
As reported Pro forma As reported Pro forma
Income from
continuing
operations $1,306,039 $1,221,249 $ 388,699 $ 120,909
Loss from
discontinued
operations - - (1,402,706) (1,402,706)
Net earnings
(loss) $1,306,039 $1,221,249 $(1,014,007) $(1,281,797)
========= ========= ========= =========
Net earnings
(loss)
allocable
to common
stockholders $ 850,399 $ 765,609 $(1,244,077) $(1,511,867)
======= ======= ========= =========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Basic earnings
(loss) per
common share
Continuing
operations $.13 $.12 $ .03 $(.02)
Discontinued
operations - - (.23) (.22)
Earnings (loss)
per common
share $.13 $.12 $(.20) $(.24)
=== === === ===
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
<TABLE>
<S> <C> <C> <C> <C>
1997 1996
As reported Pro forma As reported Pro forma
Diluted earnings
(loss) per
common share
Continuing
operations $.09 $.08 $ .02 $(.02)
Discontinued
operations - - (.21) (.21)
Earnings (loss)
per common
share $.09 $.08 $(.19) $(.23)
=== === === ===
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure
are not indicative of future disclosures because they do not
take into effect pro forma compensation expense related to
grants made before December 31, 1994. The fair value of these
options was estimated at the date of grant using the Black-
Scholes option-pricing model with the following weighted
average assumptions used for grants after January 1, 1995:
expected volatility of 150%; risk-free interest rate of 6.25%;
and expected life of 4 years. The weighted average fair value
of options granted during 1996 was $.55. No options were
granted during 1997.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
The following table summarizes activity under the Plans:
<TABLE>
<S> <C> <C> <C> <C>
Weighted
Shares under average
option exercise price
Balance at January 1, 1996 458,668 $ .86
Granted 774,167 .70
Exercised (84,500) .41
Canceled (568,167) .75
Balance at December 31, 1996 580,168 .83
Granted - -
Exercised (92,668) .37
Canceled (111,333) .80
Balance at December 31, 1997 376,167 $.91
======= ===
Exercisable at December 31:
1996 235,835 $.81
1997 256,166 $.92
</TABLE>
The following information applies to options outstanding at
December 31, 1997:
<TABLE>
<C> <S><C> <C> <C> <S> <C> <C>
Weighted
average
remaining Weighted
Range of Number contractual average
exercise prices outstanding life exercise price
$.375 to .40 25,000 3.3 years $ .375
$.80 to 1.00 316,167 3.0 years .90
$1.01 to 1.375 35,000 1.2 years 1.375
376,167 $ .91
======= ===
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
The following information applies to options exercisable at
December 31, 1997:
<TABLE>
<C> <S><C> <C> <C>
Range of Number Weighted average
exercise prices exercisable exercise price
$.375 to .40 22,000 $ .375
$.80 to 1.00 199,166 .89
$1.01 to 1.375 35,000 1.375
256,166 $ .92
======= ===
</TABLE>
Stock Warrants
At December 31, 1997 and 1996, warrants to purchase 887,174
common shares were outstanding. Warrants covering 737,174
shares, issued in a private placement during 1995 , are
exercisable over a three year period and have a strike price of
$.375 per share. In connection with the issuance of
subordinated notes payable during 1995, certain officers and
directors received warrants covering 150,000 shares. These
warrants are exercisable over a five year period and have a
strike price of $.80 per share. All warrants were issued with
exercises prices equal to the fair market value at the date of
grant.
Preferred Stock
During 1996, the Company issued 1,150,350 shares of Series C 8%
convertible exchangeable preferred stock at $5.00 per share in
a private placement offering with gross proceeds of
approximately $5,800,000. The preferred stock is, at the
option of the Company, exchangeable into 8% subordinated
convertible debentures. The preferred stock and debentures are
convertible into shares of the Company's common stock for a
period of four years and are convertible in years one and two
at $.75 per share, year three at $1.25 and thereafter at $2.00.
In connection with the private placement, officers and
directors converted approximately $366,000 of subordinated
notes payable to 73,162 additional shares of preferred stock.
The Company incurred expenses associated with the private
placement of $451,041, of which $229,690 was paid by issuance
of 45,938 shares of preferred stock.
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE G - STOCKHOLDERS' EQUITY - Continued
Dividends
Holders of the Company's Series C 8% convertible exchangeable
preferred stock will receive, when, as and if declared by the
Board of Directors of the Company, dividends at a rate of 8%
per annum. The dividends are payable semi-annually during
January and July of each year, commencing January 1997.
NOTE H - INCOME TAXES
The income tax provision (benefit)
reconciled to the tax computed at the
statutory Federal rate is as follows:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Federal tax expense (benefit)
at statutory rate $ 386,253 $(344,762)
Meals and entertainment 7,135 6,860
Tax effect of transfer of assets
from Old Chase (Note C) - 357,668
Losses from Old and New Chase
not recorded by TGC - (504,684)
Other 71,328 (12,214)
Change in valuation allowance (634,716) 497,132
$(170,000) $ -
======= =======
</TABLE>
Deferred tax assets and liabilities
consist of the following:
<TABLE>
<S> <C> <C>
December 31,
1997 1996
Deferred tax assets
Net operating loss carryforwards $1,493,587 $ 1,461,430
Other 2,864 6,803
Deferred tax liability
Property and equipment (574,840) (81,906)
921,611 1,386,327
Less valuation allowance (751,611) (1,386,327)
Net deferred tax asset $ 170,000 $ -
======= =========
</TABLE>
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1997 and 1996
NOTE H - INCOME TAXES - Continued
At December 31, 1997, the Company had net operating loss
carryforwards of approximately $4,400,000 available to offset
future taxable income, which expire at various dates through
2012. Future tax benefits, such as net operating loss
carryforwards, are recognized to the extent that realization of
such benefits are more likely than not.
NOTE I - 401(k) PLAN
The Company has a 401(k) salary deferral plan which covers all
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 matched
contributions to the plan in 1996 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. On January 1, 1997, the
Company amended the plan to make contributions to the plan
equal to 100% of each participant's salary reduction
contributions to the plan up to 4.75% of the participant's
compensation. The Company's matching contribution to the plan
was approximately $41,000 and $30,000 for the years ended
December 31, 1997 and 1996, respectively.
NOTE J - CONCENTRATION OF CREDIT RISK
The Company sells its geophysical services to large oil and gas
companies operating in the United States. The Company performs
ongoing credit evaluations of its customer's financial
condition and, generally, requires no collateral from its
customers. Three customers accounted for approximately 85% of
accounts receivable at December 31, 1997. At December 31,
1996, one customer accounted for approximately 77% of accounts
receivable.
During 1997, two customers accounted for 31% and 28% of the
sales of the Company, respectively. During 1996, four
customers accounted for 20%, 15%, 13% and 13% of the sales of
the Company, respectively.
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.
Item 13 (a). The following is a list of exhibits to this Form 10-KSB:
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.
4.1 Statement of Resolution Establishing Series of
Preferred Stock of TGC Industries, Inc. filed with
the Secretary of State of Texas on July 16, 1993,
filed as Exhibit 2 to the Company's Current Report on
Form 8-K dated August 11, 1993, and incorporated
herein by reference.
4.2 Statement of Resolution Establishing Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on July 9, 1996, filed as Exhibit B to the
Company's current report on Form 8-K dated July 11,
1996, filed with the Commission and incorporated
herein by reference.
4.3 Form of Debenture Agreement and Debenture for 8%
Subordinated Convertible Debentures, Series A, filed
as Exhibit 4.2 to the Company's Registration
Statement on Form SB-2 (Registration No. 333-12269),
as amended, filed with the Commission and
incorporated herein by reference.
4.4 Form of Warrant Agreement dated July 28, 1995, as
amended, and Warrant, filed as Exhibit 4.3 to the
Company's Registration Statement on Form SB-2
(Registration No. 333-12269), as amended, filed with
the Commission and incorporated herein by reference.
10.1 Service Mark License Agreement dated as of July 31,
1986, between the Company and Supreme Industries,
Inc. (formerly ESI Industries, Inc.), 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.
10.2 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.
10.3 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.
10.4 The Company's 1993 Stock Option Plan as adopted by
the Board of Directors on June 3, 1993, 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 by reference.
10.5 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.
10.6 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.
10.7 Agreement for Spin-off of Subsidiary Stock filed as
Exhibit 1 to the Company's Form 8-K filed with the
Commission on August 9, 1996 and incorporated herein
by reference.
10.8 Bill of Sale dated July 31, 1996 between TGC
Industries, Inc. and Chase Packaging Corporation,
filed as Exhibit 10.8 to the Company's annual report
on Form 10-KSB for the fiscal year ended December 31,
1996, and incorporated herein by reference.
27. Financial Data Schedule.
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 23, 1998 By: /s/ Robert J. Campbell
Robert J. Campbell
Vice Chairman of the Board,
(Principal Executive Officer)
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 23, 1998 By: /s/ Allen T. McInnes
Allen T. McInnes
Chairman of the Board
and Secretary
Date: March 23, 1998 By: /s/ Robert J. Campbell
Robert J. Campbell
Vice-Chairman of the Board,
(Principal Executive Officer)
and Director
Date: March 23, 1998 By: /s/ Wayne A. Whitener
Wayne A. Whitener
President, Chief Operating Officer
and Director
Date: March 23, 1998 By: /s/ Kenneth Uselton
Kenneth Uselton
(Principal Financial and
Accounting Officer)
Date: March 23, 1998 By: /s/ William J. Barrett
William J. Barrett
Director
Date: March 23, 1998 By: /s/ Herbert M. Gardner
Herbert M. Gardner
Director
H:\DOCS6\T9140\001\4472.1
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