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, 1996
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: $ 9,339,970
State the aggregate market value of the voting stock (Common Stock and
Series C 8% Convertible Exchangeable Preferred Stock) held by non-affiliates
computed by reference to the price at which the stock was sold on March 20,
1997: $12,944,618
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at March 20, 1997
Common Stock ($.10 Par Value) 6,315,738
Documents Incorporated by Reference
Part of the Form 10-KSB Into
Which the Document is Incorporated
Portions of the Proxy Statement Items 9 through 12 of Part III
for Annual Meeting of shareholders
to be held on June 5, 1997
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, if, and when 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. 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 is 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 February 1997,
TGC purchased an additional 500 channels utilizing equipment financing of
$796,960. At the present time, TGC is operating two Eagle 1500 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, 1996, three customers accounted for twenty percent
(20%),fifteen percent (15%) and thirteen percent (13%) 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, 1996, TGC employed 85 employees, supporting two
seismic crews with a total of 77 crew members 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
$4,010. 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, 1996, 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 the Company's Common Stock as of
February 4, 1997, was 438. 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 1,194,620 shares in street name. On February 4, 1997, TGC's Common
Stock was quoted at a closing bid price of $1.375. High and low bid prices
of TGC's Common Stock for the period of January 1, 1995, to December 31,
1996, were as follows:
Bid Price of TGC Common Stock
Date High Low
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
October 1 --
December 31, 1995 1 3/4 3/8
July 1 --
September 30, 1995 2 1/2 1 1/4
April 1 --
June 30, 1995 3 1/4 2 1/2
January 1 --
March 31, 1995 3 3/4 2 1/2
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 were $9,339,970 for the year ended
December 31, 1996, compared with revenues from continuing operations of
$7,543,240 for the year ended December 31, 1995. Net income from continuing
operations before dividend requirements on preferred stock was $388,699 for
the year ended December 31, 1996. The net loss from continuing operations was
$24,086 for the year ended December 31, 1995. EBITDA from continuing
operations was $1,267,527 or $.19 per common share and $829,358 or $.14 per
common share for the twelve months ended December 31, 1996, and 1995,
respectively. The increase in revenue was the result of a diversified
backlog that included seismic surveys with higher contract prices in 1996 and
the addition of state-of-the-art recording equipment in the second half of
1996.
With the 23.8% increase in revenue for 1996 when compared to 1995, TGC's
cost of services, as a percentage of revenue, decreased from 89.6% in 1995 to
86.5% in 1996 due to improved operating efficiencies. Selling, general and
administrative expenses, as a percentage of revenues, decreased from 10% in
1995 to 8.7% in 1996. Interest expense increased by $12,407 in 1996 when
compared to 1995 primarily as a result of financing of geophysical equipment.
Non-cash charges for depreciation were $813,718 in 1996 as compared to
$800,796 in 1995.
The outlook for domestic 3-D data acquisition services remains positive
at this time due to the capability of this technology to provide higher
quality data at a lower cost, the increased acceptance of 3-D seismic
techniques as a viable risk management tool and the increased success rates
using 3-D surveys for exploration and development activities. 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 major and
independent oil and gas companies. With these cost advantages and the
uncertainty of foreign operations, many of the major U.S. energy companies
are increasing participation in the domestic oil and gas industry. The
Company currently has a backlog that extends into the 1997 third quarter and
includes programs in the Gulf Coast and mid-continent regions. The backlog
includes small and large surveys for major and independent oil and gas
companies.
In July of 1996, TGC purchased a 24-BIT Opseis Eagle recording system
with 1,500 channels and also acquired support equipment (cables and
geophones) for this system. The equipment was delivered in late July and
began producing revenues in early August. This equipment replaced TGC's
Sercel 368/348 system. The purchase of these assets will improve recording
capacity and marketability of TGC's seismic services, enabling the Company to
take advantage of the current favorable environment for domestic exploration.
TGC used $2,000,000 in proceeds from the July 1996 private placement of
Series C 8% Convertible Exchangeable Preferred Stock ("Preferred Stock"),
together with outside financing, to purchase this system and support
equipment. In late November 1996, the Company purchased a second 1000
channel Opseis 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 February 1997, TGC purchased an additional 500 channels utilizing
equipment financing of $796,960. At the present time, TGC is operating two
Eagle 1500 channel crews.
TGC outfitted the second Eagle crew in late November 1996, and moved it
to California. On January 1, 1997, Eagle No. 2 was immobilized and suffered
equipment losses in the California floods. TGC has been successful in
recovering its remote recording devices and partially recovered certain
cables and geophones. Management was successful in securing replacement
equipment and returned Eagle No. 2 to work at the end of February 1997. As
a result, TGC was back in full production with two crews in March 1997. Due
to the adverse California weather problems and the yet to be confirmed
proceeds from the Company's equipment and business interruption insurance
policies, TGC may experience a nominal loss in the first quarter of 1997.
Eagles No. 1 and No. 2 are under contract through August 1997.
As a result of the expanding recording capabilities and the current
backlog for the Company, Management anticipates improved revenues and profit
margins beginning in the second quarter of 1997. However, a degree of risk
is inherent in the Company's operations, due to possible downtime from
adverse weather conditions, the nature of the Company's turnkey contracts
which are subject to the risk of delay or cancellation, and the potential for
fluctuations in oil and gas prices. With the unpredictable nature of
forecasting weather, the potential for contract delay or cancellation, and
the potential for fluctuations in oil and gas prices, no assurance can be
given that Management's expectations can be achieved.
At December 31, 1996, the Company had net operating loss carry forwards
of approximately $3,900,000 available to offset future taxable income, which
expires at various dates through 2011.
Discontinued Operations
Effective July 31, 1996, the Company spun-off its wholly owned
subsidiary, Chase Packaging Corporation, formerly New Chase Corporation, to
the holders of TGC Common Stock and Preferred Stock. Prior to the spin-off,
through various corporate transactions, TGC liquidated Chase Packaging
Corporation ("Old Chase") with TGC receiving all of Old Chase's properties
and liabilities in cancellation of Old Chase stock held by TGC. TGC then
formed a new wholly owned subsidiary, New Chase Corporation, a Texas
corporation, the name of which TGC subsequently changed to Chase Packaging
Corporation ("Chase"). TGC transferred to Chase all of the properties and
liabilities previously received by TGC as a result of the liquidation of Old
Chase, except TGC retained the Portland, Oregon facility of Old Chase and
canceled all inter-company debt owed by Old Chase to TGC. 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.
TGC spun-off Chase to the holders of TGC's Common Stock, and, on an
as-if-converted basis, to the holders of TGC's Preferred Stock, which was
sold in the private placement previously discussed. The record date was July
15, 1996, and July 31, 1996, for the Common Stock and Preferred Stock
respectively ("Record Date"); however, since the TGC Common Stock and
Preferred Stock traded with "due bills" from the Record Date through the
distribution date, which was March 7, 1997, ("Distribution Date"), the
holders of TGC Common Stock and Preferred Stock as of the Distribution Date
received the dividend distribution. An additional 539,837 shares of Chase
Common Stock are held in escrow and for distribution upon exercise, if any,
of outstanding warrants and options of TGC. On the Distribution Date, the
holders of TGC Common Stock received one-half share of Chase Common Stock for
each share of TGC Common Stock held, and the holders of TGC's Preferred Stock
received Common Stock of Chase on the basis of one-half share of Chase for
each share of TGC Common Stock as if the Preferred Stockholder converted.
The $5.00 per share Preferred Stock is initially convertible at $.75 per
share of TGC Common Stock through July 1, 1998. As a result of the spin off,
the operations of Chase Packaging have been accounted for as a discontinued
operation in the accompanying financial statements. Loss from discontinued
operations for the seven month period ended July 31, 1996, was $1,402,706.
Financial Condition
Geophysical Operation (Continuing Operations)
Cash of $2,446,644 was provided by continuing operations for the twelve
months ended December 31, 1996, compared with cash provided by continuing
operations of $1,149,188 for the same period of the prior year. The funds
generated in the first twelve months of 1996 were primarily attributable to
net earnings before non-cash depreciation charges for the Company's
geophysical operation and to funds from advance billings in excess of costs
and estimated earnings on uncompleted geophysical contracts. Cash used in
investing activities for 1996 was primarily for additions to machinery and
equipment for geophysical field operations. Cash provided by financing
activities were from the net proceeds of the private placement of $4,938,847,
and proceeds from issuance of debt of $125,813. These proceeds were offset by
principal payments on debt obligation of $259,079 and a capital contribution
to Chase Packaging of $2,716,403. Included in accrued liabilities at
December 31, 1996, were dividends payable in the amount of $230,070, to
holders of the Company's Series C 8% Convertible Exchangeable Preferred
Stock. The dividend was paid January 2, 1997.
Working capital deficit increased $1,156,846 to $1,285,529 from the
December 31, 1995, balance of $128,683, primarily as a result of billing in
excess of costs and estimated earnings on uncompleted contracts and debt
incurred in the purchase of geophysical equipment. As a result, the Company's
current ratio declined to .65 to 1.0 at December 31, 1996, as compared to .92
to 1.0 at December 31, 1995. Stockholders' equity increased to $3,017,306 at
December 31, 1996, from the December 31, 1995, of $1,643,127 due primarily to
proceeds from the private placement.
In July of 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 sale 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. In late February 1997, TGC purchased
an additional 500 channels utilizing equipment financing of $796,960. At the
present time, TGC is operating two 1500 channel crews. The expanded
recording capabilities provided by these systems should increase revenue and
profit margins thereby improving the Company's operating cash flow in 1997.
However, due to the potential downtime from contract delays or cancellations
and the uncertainty of weather conditions, no assurance can be given that the
Company's liquidity will improve to levels anticipated by Management.
Discontinued Operations
As previously discussed, the operation of Chase Packaging 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.
As part of the Company's reorganization plan, TGC made a capital contribution
of $2,716,403 to Chase.
ITEM 7. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TGC INDUSTRIES, INC.
December 31, 1996 and 1995
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, 1996 and 1995, 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, 1996 and 1995, 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
GRANT THORNTON LLP
Dallas, Texas
February 14, 1997 (except for Note B, as to which
the date is March 18, 1997)
TGC Industries, Inc.
BALANCE SHEETS
December 31,
ASSETS
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 655,280 $ 114,868
Accounts receivable 887,406 1,035,335
Costs and estimated earnings in excess of
billings on uncompleted contracts 733,974 300,122
Prepaid expenses 76,543 47,724
Total current assets 2,353,203 1,498,049
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 6,587,807 3,230,782
Automobiles and trucks 567,901 560,116
Furniture and fixtures 294,822 277,072
7,450,530 4,067,970
Less accumulated depreciation (2,257,126) (2,644,963)
5,193,404 1,423,007
Property held for sale 1,329,000 1,348,832
6,522,404 2,771,839
OTHER ASSETS 31,392 1,198
$ 8,906,999 $ 4,271,086
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,483,828 $ 856,105
Accrued liabilities 424,929 471,753
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,238,379 133,320
Current maturities of long-term obligations 491,596 165,554
Total current liabilities 3,638,732 1,626,732
LONG-TERM OBLIGATIONS, less current maturities 1,025,937 240,000
NET LIABILITIES OF DISCONTINUED OPERATIONS 1,225,024 761,227
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
4,000,000 shares authorized;
1,150,350 issued and outstanding 1,150,350 -
Common stock, $.10 par value;
25,000,000 shares authorized;
6,338,652 and 6,232,152 shares issued
and outstanding in 1996 and 1995,
respectively 633,865 623,215
Additional paid-in capital 5,932,960 4,697,774
Accumulated deficit (4,524,347) 3,510,340)
Treasury stock, at cost (71,057 and 66,134
shares in 1996 and 1995, respectively) (175,522) (167,522)
3,017,306 1,643,127
$ 8,906,999 $ 4,271,086
The accompanying notes are an integral part of these statements.
3
TGC Industries, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
1996 1995
Revenue $ 9,339,970 $ 7,543,240
Cost and expenses
Cost of services 8,076,520 6,758,716
Selling, general and administrative 809,696 755,962
Interest expense 65,055 52,648
Income (loss) from continuing
operations 388,699 (24,086)
Discontinued operations
Loss from operations (1,402,706) (2,628,355)
Net loss (1,014,007) (2,652,441)
Less dividend requirement on
preferred stock (230,070) -
Loss allocable to common
stockholders $(1,244,077) $(2,652,441)
Earnings (loss) per common and
common equivalent share
Continuing operations $ .02 $ -
Discontinued operations (.21) (.46)
Loss per common and common
equivalent share $(.19) $(.46)
Weighted average number of common
and common equivalent shares 6,629,909 5,740,067
The accompanying notes are an integral part of these statements.
4
TGC Industries, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Additional
Preferred stock Common stock paid-in Accumulated Treasury
Shares Amount Shares Amount capital deficit stock Total
Balances at
January 1, 1995 - $ - 5,353,646 $535,365 $3,853,371 $ (857,899) $ - $3,530,837
Exercise of
stock options - - 131,332 13,133 92,699 - (5,832) 100,000
Private placement,
net of expenses
of $78,000 - - 747,174 74,717 590,014 - - 664,731
Capital contribution-
64,676 shares of
common stock - - - - 161,690 - ( 161,690) -
Net loss for the year - - - - - (2,652,441) - (2,652,441)
Balances at
December 31, 1995 - - 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 - - 10,000 1,000 2,750 - - 3,750
Cash dividends declared
on preferred stock - - - - (230,070) - - (230,070)
Compensation paid
in common stock - - 12,000 1,200 2,400 - - 3,600
Exercise of
stock options - - 4,500 8,450 26,150 - (8,000) 26,600
Net loss for
the year - - - - - (1,014,007) - (1,014,007)
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
The accompanying notes are an integral part of this statements
5
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
1996 1995
Cash flows from operating activities
Net loss $(1,014,007) $(2,652,441)
Adjustments to reconcile net loss to net
cash provided by operating activities
Loss from discontinued operations 1,402,706 2,628,355
Depreciation 813,718 800,796
Noncash interest expense - 4,874
Loss (gain) on disposal of property
and equipment 103,081 (308,640)
Changes in operating assets and liabilities
Accounts receivable 147,929 (8,464)
Billings in excess of costs and
estimated earnings on
uncompleted contracts 671,207 150,587
Prepaid expenses (28,819) 35,025
Refundable income taxes - 74,876
Accounts payable 627,723 418,341
Accrued liabilities (276,894) 5,879
Net cash provided by
continuing operations 2,446,644 1,149,188
Net cash used in discontinued
operations (456,687) (961,427)
Net cash provided by operating
activities 1,989,957 187,761
Cash flows from investing activities
Capital expenditures (3,195,330) (411,010)
Proceeds from sale of property and equipment 119,191 209,680
Other assets (194) (778)
Investing activities of discontinued
operations (92,442) (692,972)
Net cash used in investing activities (3,168,775) (895,080)
Cash flows from financing activities
Proceeds from issuance of debt 125,813 440,000
Proceeds from issuance of stock,
net of expenses 4,938,847 559,857
Principal payments of debt obligations (259,079) (29,835)
Capital contribution to
Chase Packaging Corporation (2,716,403) -
Financing activities of
discontinued operations (369,948) (378,373)
Net cash provided by
financing activities 1,719,230 591,649
Net increase (decrease)
in cash and cash equivalents 540,412 (115,670)
Cash and cash equivalents at beginning of year 114,868 230,538
Cash and cash equivalents at end of year $ 655,280 $ 114,868
The accompanying notes are an integral part of these statements.
6
Supplemental cash flow information
Cash paid for interest $ 64,334 $ 50,987
Noncash investing and financing activities
During 1995, 64,676 shares of common stock were contributed to the
Company. Also, 1,458 shares of common stock were received by the Company as
payment for the exercise of options. The Company included these shares as
treasury stock at $2.50 per share and $4.00 per share, respectively, the fair
market value of the Company's common stock on the dates of the transactions.
During 1995, 4,874 shares of the Company's common stock and 4,874 warrants
to purchase one share of common stock were issued to certain executive
officers and directors of the Company as payment for accrued interest.
During 1995, the Company financed the acquisition of equipment through a
note payable and a capital lease in the amounts of $186,750 and $8,639,
respectively.
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.
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.
The accompanying notes are an integral part of these statements.
7
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
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 B).
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.
8
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE A - NATURE OF OPERATIONS AND 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
Earnings (loss) per common share is based upon the weighted average
number of shares of common stock outstanding. When dilutive, stock
options are included as common stock equivalents using the treasury
stock method. Fully diluted earnings (loss) per share have not been
presented because they result in an improvement of earnings (loss) per
common share.
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 B - 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 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.
9
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE B - REORGANIZATION PLAN - Continued
(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.
Accordingly, the operations of Chase have been classified as
discontinued in the accompanying financial statements. Summary
operating results of the discontinued operations were as follows:
December 31,
1996 1995
Revenues $ 5,517,914 $ 14,278,262
Costs and expenses 6,920,620 16,906,617
Loss from discontinued operations $(1,402,706) $(2,628,355)
10
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE B - REORGANIZATION PLAN - Continued
The net assets and liabilities relating to the discontinued operations
have been segregated on the balance sheets and are as follows:
December 31,
1996 1995
Cash $ - $ 25,123
Accounts receivable, net 1,446,247 1,358,902
Inventories 2,375,400 3,516,344
Prepaid expenses 132,252 73,772
Property and equipment, net of
accumulated depreciation 3,163,272 3,421,17
Other assets 16,386 29,311
Total assets 7,133,557 8,424,631
Trade accounts payable 1,477,971 1,846,910
Accrued liabilities 486,461 504,175
Advance billings 34,476 108,753
Note payable 3,868,270 6,726,020
Capital contribution from private placement 2,491,403 -
Total liabilities 8,358,581 9,185,858
Net liabilities $1,225,024 $ 761,227
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of uncompleted contracts are as follows:
December 31,
1996 1995
Costs incurred on uncompleted
contracts and
estimated earnings $2,481,507 $549,822
Less billings to date 2,985,912 383,020
$ (504,405) $166,802
11
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS - Continued
These components are included in the accompanying balance sheet under
the following captions:
December 31,
1996 1995
Costs and estimated earnings
in excess of billings
on uncompleted contracts $ 733,974 $ 300,122
Billings in excess of costs
and estimated earnings on
uncompleted contracts (1,238,379) (133,320)
$ (504,405) $ 166,802
NOTE D - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
1996 1995
Compensation and payroll taxes $104,505 $102,259
Explosives, surveying and
drilling expenses - 114,015
Dividends payable 230,070 -
Insurance 36,769 88,112
Damaged equipment replacement - 57,865
Other 53,585 109,502
$424,929 $471,753
12
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
December 31,
1996 1995
Subordinated notes payable to related
parties, interest at 11.25%
payable quarterly and principal
payments of $90,000 on
November 15, 1997; $50,000 on
December 13, 1997; and
$100,000 on December 26, 1997 $ - $240,000
Note payable to a finance company,
interest at 10%, due in
monthly installments of
$24,220 including interest,
collateralized by equipment 696,271 -
Note payable, interest at 10%,
due in monthly installments
of $16,422 including interest - 156,915
Capital lease obligations 821,262 8,639
1,517,533 405,554
Less current maturities 491,596 165,554
$1,025,937 $240,000
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, 1996 have terms ranging from 12 to 36 months. The leases
mature from December 1997 through October 1999, with interest rates
ranging from 13% to 17.6%. These leases contain purchase options.
13
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE E - LONG-TERM OBLIGATIONS - Continued
Aggregate maturities of long-term obligations at December 31, 1996 are
as follows:
Capital
Note lease
payable obligations Total
1997 $231,433 $352,131 $ 583,564
1998 255,667 345,480 601,147
1999 209,171 287,900 497,071
696,271 985,511 1,681,782
Less amounts representing
interest - 164,249 164,249
$696,271 $821,262 $1,517,533
The following is a schedule of leased property under capital leases:
December 31,
1996 1995
Machinery and equipment $855,000 $ -
Furniture and fixtures 6,057 8,639
861,057 8,639
Less accumulated depreciation 10,179 -
$850,878 $8,639
NOTE F - STOCKHOLDERS' EQUITY
Stock-Based Compensation Plans
The Company's 1986 Incentive Stock Option Plan (the "1986 Plan") expired
during July 1996. At December 31, 1996, options covering 44,668 shares
of the Company's common stock were outstanding under the 1986 Plan. All
options will remain outstanding until they are exercised or cancelled.
Outstanding options for 32,167 shares were exercisable at December 31,
1996.
14
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE F - 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
350,000 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. Options covering 185,500 shares are
exercisable as follows: (i) 44,500 shares at date of grant, (ii)
125,000 shares after nine months following the date of grant, and (iii)
the remaining 16,000 shares based on individual performance. At
December 31, 1996, outstanding options for 67,833 shares were
exercisable, and no options were available for future grant.
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 1996 stock grants for stock-based compensation
plans been determined consistent with SFAS 123, the Company's net loss
and net loss per common share for 1996 would approximate the pro forma
amounts indicated below:
As reported Pro forma
Income from continuing operations $ 388,699 $ 210,686
Loss from discontinued operations (1,402,706) (1,402,706)
Net loss $ (1,014,007) $(1,192,020)
Net loss allocable to
common stockholders $ (1,244,077) $(1,422,090)
Earnings (loss) per common and
common equivalent share
Continuing operations $ .02 $ -
Discontinued operations (.21) (.21)
Loss per common and
common equivalent share $(.19) $(.21)
15
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE F - STOCKHOLDERS' EQUITY - Continued
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 1995. 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 1994: 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 $.58.
The following table summarizes activity under the Plans:
Weighted
Shares under average
option exercise price
Balance at January 1, 1995 618,000 $ .86
Granted - -
Exercised (131,332) .81
Cancelled (28,000) 1.17
Balance at December 31, 1995 458,668 .86
Granted 615,000 .67
Exercised (84,500) .41
Cancelled (409,000) .81
Balance at December 31, 1996 580,168 $ .76
Exercisable at December 31:
1995 302,442 $.84
1996 100,000 $.75
The following information applies to options outstanding at December 31,
1996:
Weighted average Weighted
Range of Number remaining contractual average
exercise prices outstanding life exercise price
$.375 to .40 192,500 4.3 years $ .40
$.80 to 1.00 352,668 4.1 years $ .89
$1.01 to 1.375 35,000 2.2 years $1.375
580,168 $ .76
16
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE F - STOCKHOLDERS' EQUITY - Continued
The following information applies to options exercisable at December 31,
1996:
Range of Number Weighted average
exercise prices exercisable exercise price
$.375 to .40 54,999 $ .39
$.80 to 1.00 21,668 $ .98
$1.01 to 1.375 23,333 $1.375
100,000 $ .75
Stock Warrants
At December 31, 1996, warrants to purchase 887,174 common shares were
outstanding. Warrants covering 737,174 shares, issued in the private
placement described below, 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.
Private Placements
The Company sold 542,300 units at $1.00 per unit in a private placement
during 1995. Each unit consisted of one share of common stock and one
warrant to purchase one share of common stock for $.375 per share. In
addition, officers and directors converted $200,000 of subordinated debt
into 200,000 additional units.
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.
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.
17
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE G - INCOME TAXES
The income tax provision reconciled to the tax computed at the statutory
Federal rate is as follows:
December 31,
1996 1995
Federal tax benefit at statutory rate $ 344,762 $ 901,830
State tax benefit net of
federal tax effect - 117,000
Meals and entertainment (6,860) (18,481)
Tax effect of transfer of assets
from Old Chase (Note B) (357,668) -
Other 12,214 (35,269)
Change in valuation allowance 7,552 (965,080)
$ - $ -
Deferred tax assets and liabilities consist of the following:
December 31,
1996 1995
Deferred tax assets
Net operating loss carryforward $1,316,044 $ 1,098,282
Other 6,803 -
Deferred tax liability
Property and equipment 244,709 12,592
1,078,138 1,085,690
Less valuation allowance (1,078,138) (1,085,690)
$ - $ -
At December 31, 1996, the Company had net operating loss carryforwards
of approximately $3,900,000 available to offset future taxable income,
which expire at various dates through 2011.
18
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE H - 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 matches contributions to the plan at the following rates:
(1) 75% of each participant's salary reduction contributions to the plan
up to a maximum of 3% of the participant's compensation; and (2) 50% of
each participant's salary reduction contributions to the plan which are
in excess of 3% of the participant's compensation but not in excess of
8% of the participant's compensation. The Company's matching
contribution to the plan was approximately $30,000 and $29,000 for the
years ended December 31, 1996 and 1995, respectively.
NOTE I - 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. One customer accounted for
approximately 77% of accounts receivable at December 31, 1996. At
December 31, 1995, six customers accounted for approximately 96% of
accounts receivable.
During 1996, four customers accounted for 20%, 15%, 13% and 13% of the
sales of the Company, respectively. During 1995, two customers
accounted for 21% and 12% of the sales of the Company, respectively.
NOTE J - FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of financial instruments:
Cash
The carrying amount of cash approximates fair value due to the short
term nature of the account.
Long-term Obligations
Fair value of long-term debt and capital lease obligations was estimated
using current rates offered to the Company for debt with similar
maturities.
19
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1996 and 1995
NOTE J - FINANCIAL INSTRUMENTS - Continued
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995 are as follows:
1996 1995
Carrying Carrying
amount Fair value amount Fair value
Cash $ 655,280 $ 655,280 $ 114,868 $ 114,868
Long-term
obligations (1,517,533) (1,551,423) (405,554) (412,296)
20
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.
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 21, 1997 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 21, 1997 By:/s/ Allen T. McInnes
Allen T. McInnes
Chairman of the Board
Date: March 21, 1997 By:/s/ Robert J. Campbell
Robert J. Campbell
Vice-Chairman of the Board,
(Principal Executive Officer)
and Director
Date: March 21, 1997 By:/s/ Wayne A. Whitener
Wayne A. Whitener
President, Chief Operating
Officer and Director
Date: March 21, 1997 By:/s/ Kenneth Uselton
Kenneth Uselton
Treasurer
(Principal Financial and
Accounting Officer)
Date: March 21, 1997 By:/s/ William J. Barrett
William J. Barrett
Secretary and Director
Date: March 21, 1997 By:/s/ Herbert M. Gardner
Herbert M. Gardner
Director
EXHIBIT 10.8
BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that TGC Industries, Inc., 1304 Summit
Avenue, Suite 2, Plano, Texas 75074-0846 ("Seller"), for good and valuable
consideration paid to Seller by Chase Packaging Corporation, 2550 N.W.
Nicolai Street, Portland, Oregon 97210 ("Buyer"), receipt of which is hereby
acknowledged, does hereby sell, assign, transfer, and set over unto Buyer,
the following (collectively, the "Assets"):
1. That certain personal property ("Fixed Assets") set forth on
Exhibit "A" attached hereto and made a part hereof;
2. All of Seller's spare parts, supplies, raw materials, work in
process, and non-obsolete finished goods inventory;
3. The current customer list pertaining to customers of Seller's
business and customer service files and records which are normally kept or
maintained at Seller's business facilities;
4. All printing and cutting dies and plates owned by Seller and used at
Seller's business facilities;
5. All cash representing customer deposits for future delivery of
goods;
6. All miscellaneous personal properties physically located at Seller's
manufacturing facilities which are owned by Seller, which are not listed on
Exhibit "A," and which are used in connection with the administration of the
business and assets being acquired and the marketing and distribution of the
products thereof;
7. All of Seller's rights in and to computer software, magnetic tape,
and other data processing materials located at Seller's manufacturing
facilities (provided, that Buyer shall have no right in or to the AS 400
computer or any programs or software therewith);
8. All books and records physically located at Seller's manufacturing
facilities relating to the business and assets being acquired including,
without limitation, records with respect to production, engineering, product
development, costs, inventory, machinery, and equipment; business
development, costs, inventory, machinery, and equipment; business development
plans, advertising matter, mailing lists, photographs, sales materials and
records, purchasing materials and records, personnel records of employees
whose employment will be continued with Buyer, manufacturing and quality
control records and procedures, research and development files, records,
data, and laboratory books, media materials and plates, sales order files,
plans, specifications, surveys, construction contracts, and other materials
relating to Seller's real property (which is also being conveyed by Seller to
Buyer on this date), and other records reasonably necessary to continue the
business and assets being acquired as heretofore and presently being
conducted by Seller; and
9. All trade secrets, inventions, know how, formula, processes,
procedures, research records, records of inventions, test information, market
surveys, and marketing know-how (if any) which are owned by Seller and
employed solely in the business conducted at Seller's manufacturing
facilities.
To have and to hold the same unto Buyer, its successors and assigns,
forever.
Seller hereby represents and warrants to Buyer that Seller has good and
marketable title to all of the assets specified above (subject to any
outstanding liens and encumbrances) and that Seller has full right, power,
and authority to sell, assign, and transfer the assets and to make this bill
of sale. OTHER THAN AS PROVIDED IN THE SALE AGREEMENT, SELLER MAKES NO
REPRESENTATION OR WARRANTY AS TO THE CONDITION OF ANY OF THE ASSETS BEING
SOLD HEREUNDER. BUYER HAS INSPECTED SAME TO THE EXTENT BUYER DEEMS NECESSARY
AND IS PURCHASING SAME, AS IS, WHERE IS, AND SELLER HEREBY DISCLAIMS ANY
WARRANTY IMPLIED BY LAW OR OTHERWISE.
Seller and Buyer acknowledge their understanding that Seller will be
retaining a manufacturing facility located in Portland, Oregon (the "Portland
Facility") which was a part of the packaging business being conveyed on this
date by Seller to Buyer. Seller is retaining the Portland Facility for the
reason that Seller is in the midst of complicated negotiations which are
expected to lead to a sale of the manufacturing facility to a third party.
In the event such sale is successfully consummated, Seller hereby covenants
and agrees that it shall be contractually committed hereunder to pay to Buyer
a cash sum equal to the net sale proceeds (if any) remaining after payment in
full of the mortgage debt encumbering the Portland Facility owing to Union
Camp Corporation and the payment of all costs associated with such sale
transaction.
The parties acknowledge their understanding and agreement that there are
various debts and obligations associated with the packaging business being
transferred by Seller to Buyer on this date, and Buyer hereby covenants and
agrees to assume all such debts and liabilities and to reimburse Seller, and
hold Seller harmless from, any losses and costs (of whatsoever nature) which
Seller may suffer as a result of, or in any way connected with, Buyer's
failure to assume and pay all such debts and liabilities (it being further
understood that at no time, whether in connection with the liquidation and
dissolution of (Old) Chase Packaging Corporation, or the formation of (New)
Chase Corporation, did Seller assume any of the debts and/or liabilities of
the packaging business being transferred on this date to Buyer).
IN WITNESS WHEREOF, Seller has caused these presents to be executed,
sealed, and delivered to be effective the 31st day of July, 1996.
TGC Industries, Inc.
By: /s/ Robert J. Campbell
Robert J. Campbell, Vice Chairman
of the Board
ACCEPTED AND AGREED TO:
CHASE PACKAGING CORPORATION
By: /s/ L.W. Lovell
L. W. Lovell, President
H:\DOCS3\T9140\001\63222.1
5
12-MOS
DEC-31-1996
DEC-31-1996
655,280
0
877,406
0
0
2,353,203
7,450,530
2,257,126
8,906,999
3,638,732
1,025,937
633,865
0
1,150,350
1,233,091
8,906,999
0
9,339,970
0
8,076,520
809,696
0
65,055
(1,244,077)
0
158,629
(1,402,706)
0
0
(1,244,077)
(.19)
0
