U.S. SECURITIES AND EXCHANGE
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING SEPTEMBER 30, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
______________.
Commission File Number 0-14908
TGC INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Texas 74-2095844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1304 Summit, Suite 2
Plano, Texas 75074
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 972-881-1099
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at October 30, 1998
Common Stock ($.10 Par Value) 6,515,985
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of September 30, 1998.
Statements of Income for the three and nine-month periods ended
September 30, 1998 and 1997.
Statements of Cash Flows for the nine-month periods ended
September 30, 1998 and 1997.
Notes to Financial Statements.
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C> <C>
SEPTEMBER 30,
1998
______________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 864,780
Accounts receivable 696,479
Prepaid expenses and other 245,995
Deferred income taxes 170,000
______________
Total current assets 1,977,254
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 10,720,033
Automobiles and trucks 723,360
Furniture and fixtures 317,167
______________
11,760,560
Less accumulated depreciation (4,439,554)
______________
7,321,006
OTHER ASSETS 963
______________
Total assets $ 9,299,223
=============
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
BALANCE SHEET -- CONTINUED
(UNAUDITED)
<TABLE>
<S> <C>
SEPTEMBER 30,
1998
______________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 454,446
Accrued liabilities 448,521
Billings in excess of costs and estimated
earnings on uncompleted contracts 200,020
Current maturities of long-term obligations 1,482,028
_________
Total current liabilities 2,585,015
LONG-TERM OBLIGATIONS, less current
maturities 1,143,701
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized; 1,129,350 issued
and outstanding 1,129,350
Common stock, $.10 par value; 25,000,000
shares authorized; 6,611,817 shares issued 661,182
Additional paid-in capital 5,165,213
Accumulated deficit (1,169,924)
Treasury stock, at cost (95,832 shares) (215,314)
__________
5,570,507
__________
Total liabilities and
stockholders' equity $9,299,223
=========
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ______________________
(Unaudited) (Unaudited)
1998 1997 1998 1997
_________ __________ _________ __________
Revenue $5,536,737 $4,166,333 $15,376,804 $11,647,356
Cost of services 4,233,053 3,598,677 12,302,030 10,125,181
Selling, general, adm. 287,802 217,059 830,640 674,741
_________ _________ __________ __________
4,520,855 3,815,736 13,132,670 10,799,922
INCOME FROM OPERATIONS 1,015,882 350,597 2,244,134 847,434
Interest expense 58,057 40,245 195,750 126,192
_________ ________ _________ _________
NET INCOME 957,825 310,352 2,048,384 721,242
Less dividend requirement
on preferred stock 112,935 114,885 338,805 344,655
_________ _______ _________ ________
INCOME ALLOCABLE TO
COMMON STOCKHOLDERS $ 844,890 $ 195,467 $1,709,579 $ 376,587
Earnings per common share
Basic $ .13 $ .03 $ .26 $ .06
Diluted $ .07 $ .02 $ .14 $ .05
Weighted average number of
common shares
Basic 6,514,420 6,341,426 6,493,954 6,322,355
Diluted 14,323,043 14,697,868 14,410,191 14,649,687
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
_______________________
1998 1997
__________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,048,384 $721,242
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,297,335 929,798
Loss (gain) on disposal of property
and equipment 4,488 (208,985)
Changes in operating assets and liabilities
Accounts receivable 1,806,603 (1,123,767)
Billings in excess of cost and
estimated earnings
on uncompleted contracts (2,025,691) 1,251,375
Prepaid expenses (58,242) (252,414)
Accounts payable (956,224) (225,792)
Accrued liabilities 180,528 122,217
________ ________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,297,181 1,213,674
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (385,289) (1,087,286)
Proceeds from sale of property
and equipment 3,400 210,332
Decrease (increase) in other assets 34,269 (33,840)
________ ________
NET CASH USED IN INVESTING ACTIVITIES (347,620) (910,794)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (225,870) (459,840)
Proceeds from issuance of debt - 337,401
Proceeds from exercise of stock
options and warrants 15,187 -
Principal payments of debt obligations (997,446) (562,335)
Other 2,813 (18,736)
________ ________
NET CASH USED IN FINANCING ACTIVITIES ( 1,205,316) (703,510)
________ ________
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 744,245 (400,630)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 120,535 655,280
________ ________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $864,780 $254,650
======== =======
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited) Continued
Nine Months Ended
September 30,
_______________________
1998 1997
__________ _________
Supplemental cash flow information
Cash paid during the period
Cash paid for interest $195,750 $126,192
Cash paid for income taxes $ 15,230 $ -
</TABLE>
Noncash investing and financing activities
During the third quarter of 1998, the Company financed the acquisition of
equipment through notes payable in the amounts of $144,787, $343,768 and
$144,787, respectively.
See notes to Financial Statements
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and changes in financial position in
conformity with generally accepted accounting principles.
NOTE B -- MANAGEMENT PRESENTATION
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of financial position,
results of operations, and changes in financial position have been included.
The results of the interim periods are not necessarily indicative of results
to be expected for the entire year. For further information, refer to the
financial statements and the footnotes thereto included in the Company's
Annual Report for the year ended December 31, 1997 filed on Form 10-KSB.
NOTE C -- EARNINGS PER SHARE
During December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128),"Earnings Per Share." Under SFAS 128, basic
earnings per common share is based upon the weighted average number of shares
of common stock outstanding. Diluted earnings per share is based upon the
weighted average number of common shares outstanding and, when dilutive,
common shares issuable for stock options, warrants and convertible securities.
Earnings per share data for 1997 has been restated to conform to the
provisions of SFAS 128.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
TGC Industries, Inc. ("TGC") reported revenues increased to $5,536,737 for the
three months ended September 30, 1998, from $4,166,333 for the same period of
the prior year. Net income, before dividend requirements on preferred stock
increased to $957,825, compared with net income, before dividend requirements
on preferred stock, of $310,352 for the same period of the prior year. Income
per common share, on a diluted basis, was $.07 for the third quarter of 1998,
as compared with income of $.02 per common share for the same period of 1997.
For the nine month period ended September 30, 1998, revenues increased to
$15,376,804 from $11,647,356 for the same period of the prior year. Net
income, for the first nine months of 1998, before dividend requirements on
preferred stock, increased to $2,048,384, compared with net income, before
dividend requirements on preferred stock, of $721,242 for the same period of
the prior year. Income per common share, on a diluted basis, was $.14 for the
first nine months of 1998, as compared with income of $.05 per common share
for the same period of 1997.
TGC's cost of services, as a percentage of revenue, were 76.5% for the third
quarter of 1998, compared to 86.4% for the same period of 1997. Selling,
general and administrative expense, as a percentage of revenue, was 5.2% for
the third quarter of 1998 and 1997 respectively. Interest expense increased
by $17,812 in the third quarter of 1998 when compared with the same period of
1997. This increase was primarily a result of the financing of additional
geophysical equipment in the second half of 1997.
TGC's cost of services, as a percentage of revenue, were 80% for the first
nine months of 1998, compared to 86.9% for the same period of 1997. Selling,
general and administrative expense, as a percentage of revenue, was 5.4% for
the first nine months of 1998, compared to 5.8% for the same period of 1997.
Interest expense increased by $69,558 in the first nine months of 1998, when
compared with the same period of the prior year. This increase was
principally attributable to the financing of additional geophysical equipment
in the second half of 1997.
Non-cash charges for depreciation were $1,297,335 in the first nine months of
1998 compared with $929,798 for the same period of 1997.
At December 31, 1997, TGC had net operating loss carryforwards of
approximately $4,400,000 available to offset future taxable income, which
expire at various dates through 2012.
TGC operates two land seismic crews primarily conducting Three-D ("3-D")
seismic surveys for clients in the oil and gas business. Oil and gas prices
(principally oil prices) have declined significantly during 1998. As a result,
related service industries have been negatively impacted. Many oil and gas
exploration projects have been put on hold, canceled, or postponed until
favorable prices return. The Company's nine month financial results are at
record levels, but unsettled pricing conditions in the Oil and Gas Industry
will negatively impact results for the fourth quarter of 1998 and are expected
to continue into early 1999.
FINANCIAL CONDITION
Cash of $2,297,181 was provided from operations for the first nine months of
1998 compared with cash provided from operations of $1,213,674 for the same
period of 1997. The funds generated in the first nine months of 1998 were
primarily attributable to net earnings before non-cash depreciation charges.
Cash used in investing activities for the first nine months of 1998 was
primarily for the replacement of equipment in the amount of $385,289. Cash
used in financing activities for the first nine months of 1998 was primarily
for principal payments of debt obligations in the amount of $997,446, and
dividend payments on preferred stock of $225,870.
Working capital deficit decreased $1,640,126 to $607,761 from the December 31,
1997 balance of $2,247,887. The Company's current ratio was .76 to 1.0 at
September 30, 1998, compared with .57 to 1.0 at December 31, 1997.
Stockholders equity increased $1,840,514 from the December 31, 1997 balance of
$3,729,993 to $5,570,507 at September 30, 1998. This increase was primarily
attributable to net income for the nine months ended September 30, 1998, of
$2,048,384.
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.
The Company is working to resolve the potential impact of the year 2000 on the
ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. The Company utilizes a number
of computer programs across its entire operation. None of these computer
programs have been custom written for the Company. The Company is completing
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
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.
The Company has been notified by Nasdaq of potential delisting of the
Company's Common Stock due to having failed to equal or exceed the minimum bid
price requirement of $1.00 per share for thirty consecutive trading days. The
Company, as a condition to continued listing of its securities on the SmallCap
Market, must satisfy the minimum bid price requirement. On September 3, 1998,
the Company filed a Proxy Statement with the Securities and Exchange
Commission with respect to a special meeting of its shareholders to be held on
November 5, 1998, to approve a 1-for-3 reverse stock split of the Company's
Common Stock. The record date for the special meeting was September 22, 1998,
and the Proxy Statements were mailed to shareholders on September 24, 1998.
The Company is confident that the shareholders will approve the 1-for-3
reverse stock split of its Common Stock. The Company's Board of Directors
believes that the reverse stock split, which will cause the price of the
Common Stock to increase, will satisfy the minimum bid price requirement. On
October 26, 1998, Nasdaq informed the Company of the determination of the
Nasdaq Listing Qualifications Panel following a written hearing on October 23,
1998, to continue the listing of the Company's securities provided that the
Company effect its 1-for-3 reverse stock split on or before November 11, 1998,
and thereafter evidence a closing bid price for its Common Stock that meets or
exceeds $1.00 per share for a minimum of ten consecutive trading days. The
Company believes that it can meet these conditions. As stated above, the
Company is confident that the shareholders will approve the 1-for-3 reverse
stock split of its Common Stock at the special meeting on November 5, 1998,
and the Company intends to effect the reverse stock split effective with the
close of business on Friday, November 6, 1998, and for the Common Stock to
commence trading on a post-reverse split basis on Monday, November 9, 1998.
This report contains forward-looking statements which reflect the view of
Company's management with respect to future events. Although management
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to
differ materially from such expectations are disclosed in the Company's
Securities and Exchange Commission filings, and include, without limitation,
the unpredictable nature of forecasting weather, the potential for contract
delay or cancellation, and the potential for fluctuations in oil and gas
prices. The forward-looking statements contained herein reflect the current
views of the Company's management and the Company assumes no obligation to
update the forward-looking statements or to update the reasons actual results
could differ from those contemplated by such forward-looking statements.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -- None.
b. Reports --
1. A report under Item 5 of Form 8-K was filed on June 1,1998 to
report amending the Company's Warrant Agreement to extend the term of the
Warrants from July 31, 1998, to December 31, 1998; and also delaying the
increase in the conversion price (from $0.75 to $1.25) of the Company's Series
C 8% Convertible Exchangable Preferred Stock from July 1, 1998, to December
31, 1998, and also to delay the increase from $1.25 to $2.00 in the conversion
price of the Preferred Stock from July 1, 1999, to December 31, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TGC INDUSTRIES, INC.
Date: October 30, 1998 /s/ Robert J. Campbell
Robert J. Campbell
Vice Chairman of the Board
(Principal Executive Officer)
Date: October 30, 1998 /s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 864,780
<SECURITIES> 0
<RECEIVABLES> 696,479
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,977,254
<PP&E> 11,760,560
<DEPRECIATION> 4,439,554
<TOTAL-ASSETS> 9,299,223
<CURRENT-LIABILITIES> 2,585,015
<BONDS> 1,143,701
0
1,129,350
<COMMON> 661,182
<OTHER-SE> 3,779,975
<TOTAL-LIABILITY-AND-EQUITY> 9,299,223
<SALES> 0
<TOTAL-REVENUES> 15,376,804
<CGS> 0
<TOTAL-COSTS> 12,302,030
<OTHER-EXPENSES> 830,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,750
<INCOME-PRETAX> 1,709,579
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,709,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,709,579
<EPS-PRIMARY> .26
<EPS-DILUTED> .14
</TABLE>
