U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDING JUNE 30, 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 July 31, 1998
Common Stock ($.10 Par Value) 6,512,985
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial
information:
Balance Sheet as of June 30, 1998.
Statements of Income for the three and six-month
periods ended June 30, 1998 and 1997.
Statements of Cash Flows for the six-month periods
ended June 30, 1998 and 1997.
Notes to Financial Statements.
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C> <C>
JUNE 30,
1998
___________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,094,417
Accounts receivable 1,192,761
Prepaid expenses and other 399,566
Deferred income taxes 170,000
---------
Total current assets 2,856,744
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 10,024,511
Automobiles and trucks 706,906
Furniture and fixtures 317,167
----------
11,048,584
Less accumulated depreciation (3,990,914)
-----------
7,057,670
OTHER ASSETS 35,057
----------
Total assets $ 9,949,471
============
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
BALANCE SHEET -- CONTINUED
(UNAUDITED)
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<S> <C> <C>
JUNE 30,
1998
__________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,277,609
Accrued liabilities 576,181
Billings in excess of costs and
estimated earnings on
uncompleted contracts 1,141,047
Current maturities of long-term
obligations 1,281,442
---------
Total current liabilities 4,276,279
LONG-TERM OBLIGATIONS, less
current maturities 1,061,635
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;
6,608,817 shares issued 660,882
Additional paid-in capital 5,164,388
Accumulated deficit (2,127,749)
Treasury stock, at cost
(95,832 shares) (215,314)
----------
4,611,557
Total liabilities and stockholders'
equity $9,949,471
=========
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
STATEMENTS OF INCOME
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<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ _________________
(Unaudited) (Unaudited)
1998 1997 1998 1997
____ ____ ____ ____
Revenue $ 5,520,738 $ 4,740,670 $ 9,840,067 $ 7,481,023
Cost of services 4,292,770 3,998,589 8,068,977 6,526,504
Selling, general, adm. 284,546 248,374 542,838 457,682
--------- --------- --------- ---------
4,577,316 4,246,963 8,611,815 6,984,186
INCOME FROM OPERATIONS 943,422 493,707 1,228,252 496,837
Interest expense 68,386 42,965 137,693 85,947
--------- --------- --------- ---------
NET INCOME 875,036 450,742 1,090,559 410,890
Less dividend requirement on
preferred stock 112,935 114,885 225,870 229,770
--------- --------- --------- ---------
INCOME ALLOCABLE TO
COMMON STOCKHOLDERS $ 762,101 $ 335,857 $ 864,689 $ 181,120
Earnings per common share
Basic $.12 $.05 $.13 $.03
Diluted $.06 $.03 $.08 $.03
Weighted average number of
common shares
Basic 6,504,331 6,315,738 6,483,551 6,312,661
Diluted 14,414,471 14,519,082 14,461,066 14,628,562
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
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<S> <C> <C> <C>
Six Months Ended
June 30,
___________________________
1998 1997
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,090,559 $ 410,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 841,636 596,815
Gain on disposal of property and equipment - (208,985)
Changes in operating assets and liabilities
Accounts receivable 1,309,121 (432,505)
Billings in excess of cost and estimated earnings
on uncompleted contracts (1,084,664) 98,793
Prepaid expenses (210,613) (414,868)
Accounts payable (133,058) 455,310
Accrued liabilities 308,188 261,296
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,121,169 766,746
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (291,711) (680,320)
Proceeds from sale of property and equipment - 210,332
(Increase) decrease in other assets 175 (33,840)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (291,536) (503,828)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (225,870) (459,840)
Proceeds from issuance of debt - 142,700
Proceeds from exercise of stock options and warrants 14,062 -
Principal payments of debt obligations (646,756) (337,002)
Other 2,813 (13,060)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (855,751) (667,202)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 973,882 (404,284)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 120,535 655,280
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,094,417 $ 250,996
========== ========
Supplemental cash flow information
Cash paid during the period
Cash paid for interest $ 137,693 $ 85,947
Cash paid for income taxes $ 15,230 $ -
See notes to Financial Statements
</TABLE>
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 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 (LOSS) 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 (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 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
$5,520,738 for the three months ended June 30, 1998, from
$4,740,670 for the same period of the prior year. Net
income, before dividend requirements on preferred stock
increased to $875,036, compared with net income, before
dividend requirements on preferred stock, of $450,742 for
the same period of the prior year. Income per common share,
on a diluted basis, was $.06 for the second quarter of
1998, as compared with income of $.03 per common share for
the same period of 1997.
For the six month period ended June 30, 1998, revenues
increased to $9,840,067 from $7,481,023 for the same period
of the prior year. Net income, for the first six months of
1998, before dividend requirements on preferred stock,
increased to $1,090,559, compared with net income, before
dividend requirements on preferred stock, of $410,890 for
the same period the prior year. Income per common share,
on a diluted basis, was $.08 for the first six months of
1998, as compared with income of $.03 per common share for
the same period of 1997.
TGC's cost of services, as a percentage of revenue, were
77.8% for the second quarter of 1998, compared to 84.3% for
the same period of 1997. Selling, general and
administrative expense, as a percentage of revenue, was 5.2%
for the second quarter of 1998 and 1997, respectively.
Interest expense increased by $25,421 in the second 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
82% for the first six months of 1998, compared to 87.2% for
the same period of 1997. Selling, general and
administrative expense, as a percentage of revenue, was 5.5%
for the first six months of 1998, compared to 6.1% for the same
period of the 1997. Interest expense increased by $51,746
in the first six 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 $841,636 in the first
six months of 1998 compared with $596,815 for the same
period of 1997.
TGC operates two land seismic crews primarily conducting
Three-D ("3-D") data gathering for clients in the oil and
gas business. If the 1998 exploration budgets of oil and
gas companies are reduced significantly due to the
reduction in oil prices, TGC's revenues and earnings may be
adversely affected.
TGC announced a recent purchase of the latest technologies
in central recording units from Sercel Inc. to enhance
seismic recording capabilities. This equipment will up-
grade one of TGC's existing crews enabling the crew to
acquire 3-D surveys more efficiently. In addition, TGC
will be entering the shot hole drilling business with the
initial purchase of three drilling rigs. With these rigs,
TGC will reduce costs and its dependence on third-party
drilling contractors. With the addition of this equipment,
TGC will be better positioned to service our clients on their
future contracts. TGC will finance this purchase using
internal cash flow and equipment financing.
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.
FINANCIAL CONDITION
Cash of $2,121,169 was provided from operations for the
first six months of 1998 compared with cash provided from
operations of $766,746 for the same period of 1997. The
funds generated in the first six months of 1998 were
primarily attributable to net earnings before non-cash
depreciation charges. Cash used in investing activities for
the first six months of 1998 was primarily for the
replacement of equipment in the amount of $291,711. Cash
used in financing activities for the first six months of
1998 was primarily for principal payments of debt
obligations in the amount of $646,756, and dividend payments
on preferred stock of $225,870.
Working capital deficit decreased $828,352 to $1,419,535
from the December 31, 1997 balance of $2,247,887. The
Company's current ratio was .67 to 1.0 at June 30, 1998,
compared with .57 to 1.0 at December 31, 1997. Stockholders
equity increased $881,564 from the December 31, 1997 balance
of $3,729,993 to $4,611,557 at June 30, 1998. This
increase was primarily attributable to net income for the
six months ended June 30, 1998, of $1,090,559.
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 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.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on June 4, 1998.
The following matters were voted upon and approved by the
Company's shareholders:
a. Nominated and elected to the Board of Directors
were Messrs. William J. Barrett, Robert J. Campbell, Herbert M.
Gardner, Allen T. McInnes and Wayne A. Whitener.
b. Ratification of the selection of the Company's
auditors, Grant Thornton LLP was approved by the
shareholders by a majority vote.
c. Approval of the amendment to the 1993 Stock Option
Plan increasing the number of shares from 750,000 to 850,000
was approved by the shareholders by a majority vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits -- None.
b. Reports -- No reports on Form 8-K have been filed
during the quarter for which this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TGC INDUSTRIES, INC.
Date: August 12, 1998
/s/ Robert J. Campbell
ROBERT J. CAMPBELL
Vice Chairman of the Board
(Principal Executive Officer)
Date: August 12, 1998 /s/ Kenneth W. Uselton
KENNETH W. USELTON
Treasurer (Principal Financial
and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,094,417
<SECURITIES> 0
<RECEIVABLES> 1,192,761
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,856,744
<PP&E> 11,048,584
<DEPRECIATION> 3,990,914
<TOTAL-ASSETS> 9,949,471
<CURRENT-LIABILITIES> 4,276,279
<BONDS> 1,061,635
<COMMON> 660,882
0
1,129,350
<OTHER-SE> 2,821,325
<TOTAL-LIABILITY-AND-EQUITY> 9,949,471
<SALES> 0
<TOTAL-REVENUES> 9,840,067
<CGS> 0
<TOTAL-COSTS> 8,068,977
<OTHER-EXPENSES> 542,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,693
<INCOME-PRETAX> 864,689
<INCOME-TAX> 0
<INCOME-CONTINUING> 864,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 864,689
<EPS-PRIMARY> 0.13
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