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 June 30, 1999.
[ ] 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 30, 1999
Common Stock ($.30 Par Value) 2,224,933
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial
information:
Balance Sheet as of June 30, 1999.
Statements of Operations for the three and six month periods
ended June 30, 1999 and 1998.
Statements of Cash Flows for the three and six month periods
ended June 30, 1999 and 1998.
Notes to Financial Statements.
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C> <C>
JUNE 30,
1999
______________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 302,090
Accounts receivable 5,000
Prepaid expenses and other 312,543
Deferred income taxes 202,000
______________
Total current assets 821,633
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 10,839,241
Automobiles and trucks 669,248
Furniture and fixtures 317,167
Other 18,144
______________
11,843,800
Less accumulated depreciation
and amortization (5,837,911)
______________
6,005,889
OTHER ASSETS 395
Total assets $6,827,917
==============
</TABLE>
See notes to Financial Statements
TGC INDUSTRIES, INC.
BALANCE SHEET -- CONTINUED
(UNAUDITED)
<TABLE>
<S> <C> <C>
JUNE 30,
1999
______________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 55,389
Accrued liabilities 352,795
Billings in excess of costs and estimated
earnings on uncompleted contracts -
Current maturities of long-term obligations 956,028
______________
Total current liabilities 1,364,212
LONG-TERM OBLIGATIONS, less current
maturities 698,981
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized; 1,127,050 issued
and outstanding 1,127,050
Common stock, $.30 par value; 25,000,000
shares authorized; 2,256,877 shares issued 677,063
Additional paid-in capital 4,973,588
Accumulated deficit (1,797,663)
Treasury stock, at cost (31,944 shares) (215,314)
_______________
4,764,724
_______________
Total liabilities and stockholders' equity $6,827,917
===============
</TABLE>
See notes to Financial Statements
TGC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
____________________ _________________
(Unaudited) (Unaudited)
1999 1998 1999 1998
_________ __________ __________ __________
Revenue $ 924,212 $5,520,738 $3,534,359 $9,840,067
Cost of services 1,331,147 4,292,770 3,399,828 8,068,977
Selling, general, adm. 231,305 284,546 441,716 542,838
_________ __________ __________ __________
1,562,452 4,577,316 3,841,544 8,611,815
INCOME(LOSS)FROM OPERATIONS (638,240) 943,422 (307,185) 1,228,252
Interest expense 47,695 68,386 103,773 137,693
_________ __________ __________ __________
NET INCOME(LOSS) (685,935) 875,036 (410,958) 1,090,559
Less dividend requirement on
preferred stock 112,705 112,935 225,640 225,870
_________ _________ __________ __________
INCOME(LOSS)ALLOCABLE TO
COMMON STOCKHOLDERS $ (798,640) $ 762,101 $ (636,598) $ 864,689
Earnings(loss) per common share
Basic $ (.36) $ .35 $ (.29) $ .40
Diluted $ (.36) $ .18 $ (.29) $ .23
Weighted average number of
common shares:
Basic 2,224,035 2,168,110 2,220,620 2,161,183
Diluted 2,224,035 4,804,823 2,220,620 4,820,355
</TABLE>
See notes to Financial Statements
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended
June 30,
____________________________
1999 1998
______________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (410,958) $ 1,090,559
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 975,739 841,636
(Gain) on disposal of property and equipment (1,159) -
Changes in operating assets and liabilities
Trade accounts receivable 1,108,184 1,309,121
Billings in excess of cost and estimated
earnings on uncompleted contracts (387,474) (1,084,664)
Prepaid expenses (121,871) (210,613)
Other assets 569
Accounts payable (520,916) (133,058)
Accrued liabilities 156,504 308,188
_____________ ___________
NET CASH PROVIDED BY OPERATING ACTIVITIES 798,618 2,121,169
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (9,221) (291,711)
Proceeds from sale of property and equipment 4,500 -
Decrease (increase) in other assets - 175
_____________ ___________
NET CASH USED IN INVESTING ACTIVITIES (4,721) (291,536)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (178,044) (225,870)
Proceeds from issuance of debt - -
Proceeds from exercise of stock options
and warrants - 14,062
Principal payments of debt obligations (1,016,762) (646,756)
Other - 2,813
_____________ ___________
NET CASH USED IN FINANCING ACTIVITIES (1,194,806) (855,751)
_____________ ___________
NET INCREASE(DECREASE)IN CASH AND CASH
EQUIVALENTS (400,909) 973,882
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 702,999 120,535
_____________ ___________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 302,090 $1,094,417
============ ===========
Supplemental cash flow information
Interest paid $ 103,773 $ 137,693
Income taxes paid $ 48,391 $ 15,230
</TABLE>
See notes to Financial Statements
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1999
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, 1998 filed on Form 10-KSB.
NOTE C -- EARNINGS PER SHARE
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. On November 5, 1998, the
Board of Directors declared a one-for-three reverse stock split on the
Company's common stock. All references to number of shares, except
shares authorized, and to per share information in the financial
statements have been adjusted to reflect the reverse stock split on a
retroactive basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
TGC Industries, Inc. ("TGC") reported revenues of $3,534,359 and a net
loss, before dividend requirements on preferred stock, of $410,958 for
the six month period ended June 30, 1999, compared with revenue of
$9,840,067 and net income, before dividend requirements on preferred
stock of $1,090,559 for 1998. Net loss per common share, on a diluted
basis, was $.29 for the first six months of 1999, compared with income
per common share, on a diluted basis, of $.23 for 1998.
For the three month period ended June 30, 1999, TGC had revenue of
$924,212 and a net loss, before dividend requirements on preferred
stock, of $685,935. This compares with revenue of $5,520,738 and net
income, before dividend requirements on preferred stock, of $875,036 for
1998. Net loss per common share, on a diluted basis, was $.36 for the
three month period ended June 30, 1999, compared with income per common
share, on a diluted basis, of $.18 for 1998.
Because of insufficient contracts, revenues in the first and second
quarters declined significantly which resulted in the losses for the
three and six month periods ended June 30, 1999.
TGC's cost of services, as a percentage of revenue, were 96.2% for the
first six months of 1999, compared to 82.0% for the same period of 1998.
This percentage increase was attributable to the low level of revenues
for the first six months of 1999. Selling, general and administrative
expense decreased by $101,122 during the first six months of 1999 when
compared with the same period of 1998. This decrease was attributable
to expense reductions implemented to remain competitive during this
period of reduced industry activity. Interest expense decreased by
$33,920 in the first six months of 1999 when compared with the same
period of 1998. This decrease was primarily a result of the reducing
loan balances for the purchase of geophysical equipment.
TGC's cost of services, as a percentage of revenue, were 144.0% for the
second quarter of 1999, compared to 77.8% for the same period of 1998.
This percentage increase was attributable to the significantly lower
level of revenues for the second quarter of 1999. Selling, general and
administrative expense decreased by $53,241 during the second quarter of
1999 when compared with the same period of 1998. This decrease was
attributable to expense reductions implemented to remain competitive
during this period of reduced industry activity. Interest expense
decreased by $20,691 in the second quarter of 1999 when compared with
the same period of 1998. This decrease was primarily a result of the
reducing loan balances for the purchase of geophysical equipment.
Non-cash charges for depreciation and amortization were $975,739 in the
first six months of 1999 compared with $841,636 for 1998.
At December 31, 1998, TGC had net operating loss carryforwards of
approximately $3,600,000 available to offset future taxable income,
which expire at various dates through 2013.
The second quarter was a difficult period for the Company and compared
unfavorably with the second quarter of 1998. The Company has
substantially reduced its break-even levels to increase competitiveness.
There has been a recent increase in seismic bidding activity and
management is aggressively pursing contract opportunities. However,
there can be no assurance that the second half of 1999 will show any
improvement. It is clear that the Company's revenue for 1999 will be
significantly less than reported for 1998.
Management believes that the geophysical market conditions should
materially improve beginning in calendar year 2000 and seismic services
should be in greater demand due to the recent increase in levels of
seismic bidding activity and the prospect of oil and gas prices
remaining at their current levels. Though there can be no assurance,
such conditions should enable the Company to secure contracts and
improve its performance.
FINANCIAL CONDITION
Cash of $798,618 was provided from operations for the first six months
of 1999 compared with cash provided from operations of $2,121,169 for
the same period of 1998. The funds generated in the first six months of
1999 were primarily attributable to non-cash depreciation and
amortization charges. Cash used in investing activities for the first
six months of 1999 was $4,721. $9,221 for the replacement of equipment
less proceeds from the sale of equipment in the amount of $4,500. Cash
used in financing activities for the first six months of 1999 was for
principal payments of debt obligations in the amount of $1,016,762, and
dividend payments on preferred stock of $178,044.
Working capital deficit decreased $328,142 to $542,579 from the December
31, 1998 balance of $870,721. The Company's current ratio was .6 to 1.0
at June 30, 1999, compared with .72 to 1.0 at December 31, 1998.
Stockholders' equity decreased $363,132 from the December 31, 1998
balance of $5,127,856 to $4,764,724 at June 30, 1999. This decrease
was primarily attributable to net losses, before dividend requirements
on preferred stock, for the three and six month periods ended June 30,
1999, of $685,935 and 410,958 respectively.
During the fourth quarter of 1998, the Company renewed its revolving
bank line of credit with a major bank in an amount of up to $1,000,000.
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. As a result of the losses reported for the
three and six month periods ended June 30, 1999, TGC is not in
compliance with certain covenants required by its revolving line of
credit agreement. The Bank has decided not to waive the covenant
violation. As a result, TGC cannot borrow against its revolver for
working capital requirements until it is in compliance with the
covenants. Management anticipates that the covenant violations will not
be corrected during the balance of 1999. In order to provide additional
working capital, TGC is attempting to re-finance some of its equipment.
However, there can be no assurance that a re-financing transaction will
be completed.
The Board of Directors at its regular meeting on June 3, 1999,
determined, with respect to the Company's Series C 8% Convertible
Exchangeable Preferred Stock, that the initial conversion price per
share of Common Stock would be reduced from $2.25 per share to $2.00 per
share and that the conversion price increase would be delayed in lieu of
declaring a semi-annual dividend payable in July 1999 on the Preferred
Stock. The Preferred Stock dividends, if declared, are payable at a
rate of 8% per annum, payable semi-annually in January and July of each
year. The date of the increase of the conversion price of the Preferred
Stock was delayed from December 31, 2000 until December 31, 2001 and the
subsequent date of the increase of the conversion price of the Preferred
Stock was delayed from December 31, 2001 to December 31, 2002. As a
result, the conversion price is $2.00 per share of Common Stock if
exercised prior to the close of business on December 31, 2001; after
December 31, 2001, and prior to the close of business on December 31,
2002, the conversion price per share of Common Stock shall be $3.75;
thereafter, the conversion price per share of Common Stock shall be
$6.00.
The Company began preparation for the year 2000 issues during 1996. In
late 1996, TGC upgraded and replaced its accounting software. In
addition, TGC installed a small personal computer network. The cost of
these additions, which are year 2000 compliant, was approximately
$15,000. TGC uses an outside source for its payroll services and has
been assured by this vendor that its software is year 2000 compliant.
TGC will need to make a few additional hardware upgrades in order for
the total system to be year 2000 compliant. These upgrades will be
completed by September 30, 1999, at which time the Company will be fully
year 2000 compliant. The cost of these upgrades will be approximately
$2,000.
At July 1, 1999, only one of the Company's two crews was active on a
job. The Company anticipates that available funds, together with
anticipated cash flows generated from future operations and the re-
financing of some of its equipment (of which there can be no assurance)
will be sufficient to meet the Company's cash needs during 1999.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on June 3, 1999. 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, Edward L. Flynn, 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.
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,
thereto duly authorized.
TGC INDUSTRIES, INC.
Date: August 12, 1999 /s/ WAYNE A. WHITENER
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
Date: August 12, 1999 /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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 302,090
<SECURITIES> 0
<RECEIVABLES> 5,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 821,633
<PP&E> 11,843,800
<DEPRECIATION> 5,837,911
<TOTAL-ASSETS> 6,827,917
<CURRENT-LIABILITIES> 1,364,212
<BONDS> 698,981
0
1,127,050
<COMMON> 677,063
<OTHER-SE> 2,960,611
<TOTAL-LIABILITY-AND-EQUITY> 6,827,917
<SALES> 0
<TOTAL-REVENUES> 3,534,359
<CGS> 0
<TOTAL-COSTS> 3,399,828
<OTHER-EXPENSES> 441,716
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 103,773
<INCOME-PRETAX> (636,598)
<INCOME-TAX> 0
<INCOME-CONTINUING> (636,598)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636,598)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
