U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
Commission File Number 0-14908
TGC INDUSTRIES, INC.
(Name of small business issuer in its charter)
Texas 74-2095844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 ($.30 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: $10,101,117
State the aggregate market value of the registered voting stock (Common Stock,
$.30 par value and Series C 8% Convertible Exchangeable Preferred Stock, $1.00
par value) held by non-affiliates computed by reference to the price at which
the stock was sold on March 22, 2002: $967,440
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of March 22, 2002
Common Stock ($.30 Par Value) 5,509,764
Documents Incorporated by Reference
Document Part of the Form 10-KSB Into Which
Portions of the Proxy Statement the Document is Incorporated
for Annual Meeting of shareholders Items 9 through 12 of Part III
to be held on June 13, 2002
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.
During July 1996, the Company issued 1,150,350 shares of Series C 8%
Convertible Exchangeable Preferred Stock ("Series C Preferred Stock") in a
private placement offering with gross proceeds of approximately $5,800,000.
The Series C Preferred Stock sold in the private placement entitles the
holder to receive cumulative cash dividends as, when and if declared by the
Board of Directors at a rate of 8% per annum prior to any dividend or
distribution in cash or other property on any class or series of stock junior
to the Series C Preferred Stock. The dividends on the Series C 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 Series C 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.
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The distribution of Chase Stock was March 7, 1997. On March 18, 1997, TGC
sold the Portland, Oregon facility for $2,430,000 and applied such proceeds in
satisfaction of the mortgage indebtedness with respect to such facility and in
satisfaction of a debt obligation owing by TGC to Chase to pay to Chase any
such proceeds in excess of the amount of the mortgage indebtedness.
As of July 31, 1996, the effective date of the spin-off, TGC Industries,
Inc.'s only business has been the geophysical service business, primarily
conducting Three-D ("3-D") surveys for clients in the oil and gas business.
On December 13, 1999, WEDGE Energy Services, L.L.C., ("WEDGE Energy") an
affiliate of WEDGE Group Incorporated, a diversified Houston, Texas firm with
interests in oil and gas services, purchased a $2,500,000 8.5% Convertible
Subordinated Debenture, Series B due December 1, 2009 (the "Debenture"), of
the Company. Proceeds of the financing together with other available funds
were utilized for working capital and an expanded capital expenditure program.
The Debenture, at WEDGE's option, could be converted into either preferred
stock or common at a price of $1.15 per share.
The holders of the Company's outstanding Series C Preferred Stock, voted
at the Annual Meeting held May 11, 2000, to consent to a new series of 8.5%
Senior Convertible Preferred Stock ("Senior Preferred Stock"). The
affirmative vote of the holders of two-thirds (2/3) of the outstanding shares
of Series C Preferred Stock approved the new series of Senior Preferred Stock.
As a result of the consent to the new series of Senior Preferred Stock by the
Series C Preferred Stock shareholders and in accordance with the terms of the
Debenture Agreement, WEDGE Energy, on May 17, 2000, converted its Debenture
plus accrued interest into 2,252,445 shares of Senior Preferred Stock. Per
the Debenture Agreement, dividends on the Senior Preferred Stock were paid by
the issuance of additional shares of Senior Preferred Stock through December
1, 2000. As a result, 7,445 and 96,045 shares of Senior Preferred Stock were
issued to WEDGE Energy as payment of the June 1, 2000, and December 1, 2000,
dividends, respectively. WEDGE Energy elected to receive payment of the June
1, 2001, and December 1, 2001, dividends in additional shares of Senior
Preferred Stock. As a result, 100,127 and 104,383 shares of Senior Preferred
Stock were issued to WEDGE Energy as payment of the June 1, 2001, and December
1, 2001, dividends, respectively.
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
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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 and vibroseis as energy sources 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 Series C Preferred Stock private
placement, a $750,000 equipment loan, and funds from internal cash flow. In
late November 1996, the Company purchased a second 1000 channel Eagle system
using the proceeds and trade-in from TGC's two older systems along with
equipment financing of $855,000 and internal cash flow. In 1997, TGC
purchased an additional 1500 channels utilizing equipment financing of
$2,242,685. 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.
In January 2002, the Company entered into a two year Joint Venture
Agreement (the "Joint Venture") with a gravity data processing center, (the
"Processing Center"). Per the Joint Venture the Company will furnish the
Processing Center with approximately 100,000 stations of the Company's
digitized gravity data, and the Processing Center, using industry standards
along with the latest technological gravity data processing software and
techniques will process the digitized data producing a data set (the "Data
Set"). During the term of this Agreement the Company and the Processing
Center will endeavor to market and license the Data Set. In consideration for
the Processing Center's processing services utilizing its unique state-of-the-
art gravity processing software and techniques, upon licensing by the Company
or the Processing Center of any or all of the Data Set, the Company agrees to
pay the Processing Center a twenty percent commission. Upon expiration of the
Joint Venture, the Data Set and all related information provided the
Processing Center will be returned to the Company. Revenue from the licensing
of gravity data represents a small portion of the Company's total revenue,
however, because the Data Bank has been fully amortized and only minimal
expenses are incurred with each license agreement, revenues from the licensing
of gravity data are very profitable. Though there can be no assurance,
management believes the addition of the Data Set will enhance the Company's
future gravity revenue thereby improving the Company's performance.
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 has the capability of utilizing 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 clients.
For the year ended December 31, 2001, four customers accounted for
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thirty-eight percent (38%), fourteen percent (14%), thirteen percent (13%) and
thirteen percent (13%) of the Company's revenue, respectively. The Company
enters into a general or master agreement with each of its clients 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 client. 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 clients 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.
Prior to the second half of 1998, activity in the U.S. Geophysical
Industry had 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 had 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
increased participation in the domestic oil industry. However, beginning
approximately in mid 1998, activity declined significantly due to a decline in
the price of oil. As a result, TGC reduced its operations to one crew in 1999
and continued to operate one crew during 2000.
TGC experienced an increase in demand for its services in 2001 compared
with 2000 securing a sufficient number of contracts to deploy a second seismic
crew during the second quarter of 2001. TGC's other seismic crew was employed
the majority of 2001. This increased level of activity resulted in a
significant increase in revenue in 2001 over 2000. As a result of this
increased revenue, TGC significantly reduced its loss from operations in 2001
compared with 2000. Although TGC experienced significant improvement in 2001,
excess capacity remains in the land-based geophysical service industry and
pricing continues to be very competitive. Company management continues to
monitor expenses and, where possible, implement cost containment programs to
remain highly competitive through this continued period of reduced industry
activity. Despite the recent difficult industry conditions, management
believes that bidding activity for seismic services will remain at or near
current levels and the geophysical services industry has favorable long-term
prospects.
In February 2002, the Company entered into an agreement with a
corporation to dispose of the Company's shot hole drilling equipment, and to
use the proceeds of the disposal to acquire five buggy-mounted Vibroseis units
and purchase certain additional equipment needed to make the Vibroseis
equipment compatible with the Company's recording equipment. A one-year
$30,000 note payable to the corporation financed this additional equipment.
The acquisition of this equipment opens up an opportunity in an existing
market, in which the Company has not participated, thereby increasing its
bidding opportunities. Though there can be no assurance, management believes
the Company will be successful in securing its share of existing business in
this market thereby improving its performance.
As of December 31, 2001, TGC employed 89 employees, supporting two
seismic crews with a total of 82 crew members and direct support members. The
Company believes its relationship with its employees to be satisfactory.
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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 $5,245. 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.
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, 2001, to a vote of the Company's security
holders, through the solicitation of proxies or otherwise.
Part II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded on the NASDAQ SmallCap Market under
the symbol "TGCI" since September 25, 1994.
The number of shareholders of record of TGCI's Common Stock as of March
22, 2002, was 112. 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
4,176,893 shares in street name. On March 22, 2002, TGC's Common Stock was
quoted at a closing sales price of $0.32. High and low sales prices (adjusted
for the Reverse Split effective November 6, 1998) of TGC's Common Stock for
the period of January 1, 2000, to December 31, 2001, were as follows:
Sales Price of TGC Common Stock
Date High Low
October 1 -- December 31, 2001 .750 .150
July 1 -- September 30, 2001 1.000 .500
April 1 -- June 30, 2001 1.590 .760
January 1 -- March 31, 2001 1.250 .625
October 1 -- December 31, 2000 1.250 .500
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July 1 -- September 30, 2000 1.250 .625
April 1 -- June 30, 2000 1.875 .625
January 1 -- March 31, 2000 1.875 .688
The above sale quotations were furnished to TGC by the NASD.
On November 6, 1998, the Company effected a one-for-three reverse stock
split of its Common Stock, whereby each three shares of issued and outstanding
Common Stock was converted and combined into one share of Common Stock (the
"Reverse Split"). The Common Stock commenced trading on a post-Reverse Split
basis on November 9, 1998.
As a consequence of the Reverse Split: (1) pursuant to the provisions
for adjustment of the conversion ratio of the Company's Series C Preferred
Stock, the conversion price per share of Common Stock on a post-Reverse Split
basis increased from $0.75 to $2.25 per share; and (2) pursuant to the terms
for adjustment to the exercise price of the Company's Common Share Purchase
Warrants, each Warrant purchased on a post-Reverse Split basis, 1/3 of a share
of Common Stock at a price of $1.125 per share of Common Stock. Under the
terms of the Warrant Agreement dated July 28, 1995 (and all amendments
thereto) for the Company's Common Share Purchase Warrants, that have expired,
any outstanding unexercised Warrant Certificates were automatically deemed
exercised on behalf of each record holder of Warrant Certificates into shares
of the Company's Common Stock at the rate of one-tenth (1/10th) of a share of
common stock for each three Warrants. There was no exercise price payable to
the Company in connection with this deemed exercise.
On June 3, 1999, the TGC Board of Directors voted that in lieu of
declaring the July 1999 semi-annual dividend on the Series C Preferred Stock
to reduce, on a post-Reverse Split basis, the initial conversion price of the
Series C Preferred Stock from $2.25 per share of Common Stock to $2.00 per
share of Common Stock and delay the increase in the conversion price of the
Series C Preferred Stock until the close of business on December 31, 2001.
The increase in the conversion price of the Series C Preferred Stock from
$2.00 per share of Common Stock to $3.75 per share of Common Stock, following
the reduction described above, was otherwise scheduled to increase at the
close of business on December 31, 2000. As a result of the adjustments
described above, the conversion price of the Series C Preferred Stock was
$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 was
$3.75. Thereafter, the conversion price will be $6.00 per share of Common
Stock.
At a November 30, 2001 meeting, the Company's Board of Directors, in an
effort to encourage the conversion of Series C Preferred Stock into shares of
Common Stock, voted to reduce, on a post-Reverse Split basis, the conversion
price of the Series C Preferred Stock from $2.00 per share of Common Stock to
$1.61 per share of Common Stock. In addition, the Board of Directors voted to
extend the conversion price increase date of the Series C Preferred Stock from
the close of business on December 31, 2001 until the close of business on
January 31, 2002. As a result, the conversion price was $1.61 per share of
Common Stock if converted prior to the close of business on January 31, 2002.
After January 31, 2002, and prior to the close of business on December 31,
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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.
As of January 31, 2002, a total of 1,092,250 shares of Series C Preferred
Stock had been converted into shares of Common Stock. As a result, 58,100
shares of Series C Preferred Stock remained outstanding at January 31, 2002.
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.
The Company has been notified by NASDAQ of potential delisting of the
Company's Common Stock for: (1) having failed to maintain a minimum market
value of publicly held shares of $1,000,000, and (2) having failed to equal or
exceed the minimum bid price requirement of $1 per share, in each case for
thirty (30) consecutive trading days. The Company, as a condition to
continued listing of its securities on the SmallCap Market, must satisfy these
requirements for a minimum of ten (10) consecutive trading days by May 15,
2002 and August 13, 2002, respectively. As of March 22, 2002, the Company's
market value of publicly held shares was $942,651. As set forth in the
notification from NASDAQ, if at any time before May 15, 2002 the market value
of publicly held shares of the Company's Common Stock is $1,000,000 or more
for a minimum of ten (10) consecutive trading days, the NASDAQ staff will
provide written notification to the Company that it complies with this
requirement. If the Company fails to satisfy this requirement, the NASDAQ
staff will provide written notification that the Company's Common Stock will
be delisted. At that time the Company may appeal the staff's determination to
a Listing Qualifications Panel. Although there can be no assurance,
management of the Company believes that the Company's market value of publicly
held shares will meet this requirement before May 15, 2002. With respect to
the requirement that the Company's Common Stock equal or exceed the minimum
bid price requirement of $1 per share, if at any time before August 13, 2002,
the Company's Common Stock closes at $1 per share or more for a minimum of ten
(10) consecutive trading days, the NASDAQ staff will provide written
notification to the Company that it complies with this requirement. If the
Company fails to satisfy this requirement, the NASDAQ staff will provide
written notification that the Company's Common Stock will be delisted. At
that time the Company may appeal the staff's determination to a Listing
Qualifications Panel. At the present time, the Board of Directors of the
Company has not made a determination as to what action, if any, may be taken
with respect to addressing the failure of the Company's Common Stock to meet
the minimum bid price requirement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Geophysical Operation (Continuing Operations)
Revenues for the year ended December 31, 2001 were $10,101,117 compared
with revenues of $6,455,915 for the year ended December 31, 2000. The Company
incurred a net loss, before dividend requirements on preferred stock, of
$(1,148,843) for the year ended December 31, 2001 compared with a net loss,
before dividend requirements on preferred stock of $(1,912,064) for the
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year ended December 31, 2000. The net loss of $(1,912,064), before dividend
requirements on preferred stock, for the year ended December 31, 2000 included
a charge of $202,000 for deferred income tax expense, due to an increase to
provide a 100% valuation allowance on the Company's net deferred tax assets.
The Company's shareholders, at a special meeting of shareholders on
November 5, 1998, approved an Amendment to the Company's Articles of
Incorporation to effect a one-for-three reverse stock split of its Common
Stock (the "Reverse Split"). The Reverse Split was effected on November 6,
1998, and the Common Stock commenced trading on a post-Reverse Split basis on
November 9, 1998. All references to number of shares, except shares
authorized, and to per share information have been adjusted to reflect the
reverse stock split.
TGC's cost of services, as a percentage of revenue, decreased to 102.1%
in 2001 from 109.3% in 2000. This percentage decrease was principally a result
of the increased revenue level in 2001. Selling, general and administrative
expense decreased to $916,258 in 2001 from $969,875 in 2000. This decrease
was primarily the result of TGC closing its Colorado sales office in mid 2000
and a reduction in legal expenses in 2001. Interest expense decreased by
$124,258 to $18,067 in 2001 compared to $142,325 in 2000. This decrease was
the result of the conversion by WEDGE Energy in May 2000, of its Debenture,
plus accrued interest, into Senior Preferred Stock and certain debt issues
that matured in late 2000. Non-cash charges for depreciation and amortization
were $1,617,515 in 2001 compared with $1,644,331 in 2000.
For over thirty years, TGC has successfully served the geophysical
industry. However, due to a significant decline in spending for seismic
services, that began in mid 1998, by a number of oil and gas clients as a
result of significantly lower oil prices, TGC reduced its operations to one
seismic acquisition crew in 1999. TGC continued to operate at this one crew
level during 2000. Early in 2001, TGC experienced an increase in demand for
its services securing a sufficient number of contracts to deploy a second
seismic crew during the second quarter of 2001. Operating at a two-crew level
enabled TGC to significantly increase revenues and decrease its losses in
2001. However, 2001 revenues failed to attain sufficient levels to return the
Company to profitability in 2001. Excess capacity remains in the land-based
geophysical service industry and pricing continues to be very competitive.
Company management continues to monitor expenses and, where possible,
implement cost containment programs to remain highly competitive through this
continued period of reduced industry activity. Despite the recent difficult
industry conditions, management believes that bidding activity for seismic
services will remain at or near current levels and the geophysical services
industry has favorable long-term prospects.
In January 2002, the Company entered into a two year Joint Venture
Agreement (the "Joint Venture") with a gravity data processing center, (the
"Processing Center"). Per the Joint Venture the Company will furnish the
Processing Center with approximately 100,000 stations of the Company's
digitized gravity data, and the Processing Center, using industry standards
along with the latest technology gravity data processing software and
techniques, will process the digitized data producing a data set (the "Data
Set"). During the term of this Agreement the Company and the Processing
Center will endeavor to market and license the Data Set. In consideration for
the Processing Center's processing services utilizing its unique state-of-the-
art gravity processing software and techniques, upon licensing by the Company
or the Processing Center of any or all of the Data Set, the Company
9
agrees to pay the Processing Center a twenty percent commission. Upon
expiration of the Joint Venture, the Data Set and all related information
provided the Processing Center will be returned to the Company. Revenue from
the licensing of gravity data represents a small portion of the Company's
total revenue, however, because the Data Bank has been fully amortized and
only minimal expenses are incurred with each license agreement, revenues from
the licensing of gravity data are very profitable. Although there can be no
assurance, management believes the addition of the Data Set will enhance the
Company's future gravity revenue thereby improving the Company's performance.
In February 2002, the Company entered into an agreement with a
corporation to dispose of the Company's shot hole drilling equipment, and to
use the proceeds of the disposal to acquire five buggy-mounted Vibroseis units
and purchase certain additional equipment needed to make the Vibroseis
equipment compatible with the Company's recording equipment. A one-year
$30,000 note payable to the corporation financed this additional equipment.
The acquisition of this equipment opens up an opportunity in an existing
market, in which the Company has not participated, thereby increasing its
bidding opportunities. Although there can be no assurance, management
believes the Company will be successful in securing its share of existing
business in this market thereby improving its performance.
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, but are not limited
to the dependence upon energy industry spending for seismic services, the
unpredictable nature of forecasting weather, the potential for contract delay
or cancellation, the potential for fluctuations in oil and gas prices, and the
availability of capital resources. The forward-looking statements contained
herein reflect the current views of the Company's management and the Company
assumes no obligation to update the forward-looking statements or to update
the reasons actual results could differ from those contemplated by such
forward-looking statements.
At December 31, 2001, the Company had net operating loss carry forwards
of approximately $8,100,000 available to offset future taxable income, which
expires at various dates through 2021.
Discontinued Operations
During June 1996, the Board of Directors approved the spin-off of Chase
Packaging Corporation ("Chase"), whereby all of the shares of 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 date of the distribution of Chase's stock was March 7, 1997. The spin-off
distribution of Chase to TGC stockholders reduced stockholders' equity by
$103,976, which represents the book value of the net assets of Chase as of
March 7, 1997. In addition, on March 18, 1997, TGC sold the Portland, Oregon
manufacturing facility of Chase for approximately $2,400,000, 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.
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Financial Condition
Cash of $1,435,767 was provided by operations for the twelve months
ended December 31, 2001, compared with cash used in operations of $383,582 for
the same period of the prior year. The reasons for the increase in cash from
operations in 2001 compared with 2000 were a significant increase in revenue
that resulted in a decrease in the net loss, a higher level of receivable
collections and the Company's management of payables. Net cash of $244,542 was
used in investing activities during 2001. This was principally the result of
capital expenditures in the amount of $250,542 required to deploy the second
seismic crew during the second quarter of 2001 and to replace certain vehicles
and equipment that had become worn-out during 2001. Principal payments of
debt obligations in the amount of $244,225, principal payments on capital
lease obligations of $165,936, and proceeds of $3,766 from the exercise of
warrants resulted in net cash of $406,395 being used in financing activities
in 2001. The capital leases entered into in 2001 were primarily for equipment
to field the second crew and replace certain other equipment. The lives of
these capital-leases range in length from six months to three years. The
Company anticipates that available funds, together with anticipated cash flows
generated from future operations will be sufficient to meet the Company's
minimum lease and note payment obligations.
Working capital decreased $117,178 to $212,356 at December 31, 2001 from
the December 31, 2000, working capital of $329,534. The Company's current
ratio decreased to 1.1 to 1.0 at December 31, 2001 from 1.4 to 1.0 at December
31, 2000. Stockholders' equity decreased to $3,026,783 at December 31, 2001,
from the December 31, 2000, balance of $4,171,860 due primarily to the net
loss incurred in 2001 of $1,148,843.
In September 2001, the Company entered into a three year operating lease
for the Company's headquarters facility located in Plano, Texas. The Company
anticipates that available funds, together with anticipated cash flows
generated from future operations will be sufficient to meet the Company's
minimum rental payment obligations that are as follows: $63,720 in 2002,
$67,041 in 2003, and $52,488 in 2004.
On November 7, 2001, the Company entered into an unsecured revolving line
of credit arrangement with a bank, providing for borrowings of up to $125,000.
The facility bears interest at prime plus 1% (5.75% at December 31, 2001) per
annum, and matures in October 2002. The Company has no borrowings under this
arrangement but has committed the availability to irrevocable letters of
credit totaling $125,000 which also expire in October 2002. Therefore, the
Company has no borrowing availability under this line of credit. The letters
of credit, with an insurance company as beneficiary, will be used to guarantee
continuing seismic insurance bonds totaling $125,000, issued by the insurance
company to two states in which the Company performs seismic surveys. In the
opinion of management, the chances that the insurance company will draw on the
letters of credit are improbable.
The holders of the Company's outstanding Series C 8% Convertible
Exchangeable Preferred Stock ("Series C Preferred Stock"), voted at the Annual
Meeting held May 11, 2000, to consent to a new series of Senior Preferred
Stock. The affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of Series C Preferred Stock approved the new series of
Senior Preferred Stock. As a result of the consent to the new series of
Senior Preferred Stock by the Series C Preferred Stock shareholders and in
accordance with the terms of the Debenture Agreement, WEDGE Energy, on May
11
17, 2000, converted its Debenture plus accrued interest into 2,252,445 shares
of Senior Preferred Stock. Per the Debenture Agreement, dividends on the
Senior Preferred Stock were paid by the issuance of additional shares of
Senior Preferred Stock through December 2000. As a result, 103,490 shares of
Senior Preferred Stock were issued to WEDGE Energy as payment for the June and
December 2000 dividends. WEDGE Energy elected to receive payment of the June
2001, and December 2001, dividends in additional shares of Senior Preferred
Stock. As a result, 100,127 and 104,383 shares of Senior Preferred Stock were
issued to WEDGE Energy as payment of the June and December 2001, dividends,
respectively.
At a November 30, 2001 meeting, the Company's Board of Directors, in an
effort to encourage the conversion of Series C Preferred Stock into shares of
Common Stock, voted to reduce, on a post-Reverse Split basis, the conversion
price of the Series C Preferred Stock from $2.00 per share of Common Stock to
$1.61 per share of Common Stock. In addition, the Board of Directors voted to
extend the conversion price increase date of the Series C Preferred Stock from
the close of business on December 31, 2001 until the close of business on
January 31, 2002. As a result, the conversion price was $1.61 per share of
Common Stock if converted prior to the close of business on January 31, 2002.
After January 31, 2002, 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.
This action by the Board of Directors has resulted in 977,550 shares of Series
C Preferred Stock being converted into 3,030,539 shares of Common Stock since
December 31, 2001. As a result, 58,100 shares of Series C Preferred Stock
remained outstanding at January 31, 2002 and the cumulative dividends in
arrears on the Series C Preferred Stock were $69,720 at January 31, 2002
compared with $1,242,780 at December 31, 2001 as noted in Note H of Notes To
Financial Statements.
The Company anticipates that available funds, together with anticipated
cash flows generated from future operations will be sufficient to meet the
Company's cash needs during 2002, so long as one of the Company's two crews is
employed, of which there is no assurance.
ITEM 7. FINANCIAL STATEMENTS.
Financial Statements
December 31, 2001 and 2000
CONTENTS
Report of Independent Certified Public Accountants p. 13
Financial Statements
Balance Sheets p. 14
Statements of Operations p. 16
Statement of Stockholders' Equity p. 17
Statements of Cash Flows p. 18
Notes to Financial Statements p. 20
12
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, 2001 and 2000, 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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
GRANT THORNTON LLP
Dallas, Texas
February 19, 2002
13
TGC Industries, Inc.
BALANCE SHEETS
December 31,
ASSETS 2001 2000
___________ ___________
CURRENT ASSETS
Cash and cash equivalents $ 1,043,961 $ 259,131
Trade accounts receivable 1,255,954 894,764
Costs and estimated earnings
in excess of billings
on uncompleted contracts 20,134 8,550
Prepaid expenses and other 72,819 72,085
___________ ___________
Total current assets 2,392,868 1,234,530
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 11,585,080 11,187,043
Automobiles and trucks 887,226 757,111
Furniture and fixtures 323,323 323,323
Other 6,810 4,536
___________ ___________
12,802,439 12,272,013
Less accumulated depreciation
and amortization (9,831,017) (8,309,781)
___________ ___________
2,971,422 3,962,232
OTHER ASSETS 4,824 395
___________ __________
$ 5,369,114 $ 5,197,157
=========== ===========
14
TGC Industries, Inc.
BALANCE SHEETS - CONTINUED
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
___________ ___________
CURRENT LIABILITIES
Trade accounts payable $ 1,067,506 $ 336,876
Accrued liabilities 176,986 140,535
Billings in excess of costs
and estimated earnings
on uncompleted contracts 763,001 179,050
Current maturities of notes payable 15,475 244,225
Current portion of capital lease obligations 157,544 4,310
___________ __________
Total current liabilities 2,180,512 904,996
NOTES PAYABLE, less current maturities 104,826 120,301
CAPITAL LEASE OBLIGATIONS, less current portion 56,993 -
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized;
8.5% senior convertible preferred stock;
2,560,445 and 2,355,935 shares issued
and outstanding in 2001 and 2000,
respectively 2,560,445 2,355,935
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares
issued, 1,035,650 and 1,085,550 shares
outstanding at 2001 and 2000,
respectively 1,035,650 1,085,550
Common stock, $.30 par value; 25,000,000 shares
authorized; 2,511,169 and 2,360,818 shares
issued in 2001 and 2000, respectively 753,350 708,245
Additional paid-in capital 5,413,336 5,609,285
Accumulated deficit (6,520,684) (5,371,841)
Treasury stock, at cost
(31,944 shares in 2001 and 2000) (215,314) (215,314)
___________ __________
3,026,783 4,171,860
___________ __________
$ 5,369,114 $ 5,197,157
=========== ==========
The accompanying notes are an integral part of these statements.
15
TGC Industries, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
2001 2000
___________ ___________
Revenue $10,101,117 $ 6,455,915
Cost and expenses
Cost of services 10,315,635 7,053,779
Selling, general and administrative 916,258 969,875
Interest expense 18,067 142,325
___________ ___________
11,249,960 8,165,979
___________ ___________
Loss from operations before income taxes (1,148,843) (1,710,064)
Income tax expense
Deferred - 202,000
___________ __________
Net loss (1,148,843) (1,912,064)
Less dividend requirements on preferred stock (651,112) (572,426)
__________ _________
Loss allocable to common stockholders $ (1,799,955) $(2,484,490)
=========== ===========
Loss per common share - basic and diluted $(.75) $(1.08)
Weighted average number of common shares -
basic and diluted 2,407,036 2,296,210
The accompanying notes are an integral part of these statements.
16
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 1,2000 1,115,750 $1,115,750 2,285,318 $685,595 $5,367,358 $(3,459,777) $(215,314) $3,493,612
Conversion of note into
preferred stock 2,252,445 2,252,445 - - 337,867 - - 2,590,312
Conversion of preferred stock (30,200) (30,200) 75,500 22,650 7,550 - - -
Dividend on 8-1/2% senior
convertible preferred stock 103,490 103,490 - - (103,490) - - -
Net loss - - - - - (1,912,064) - (1,912,064)
________ _________ ________ ________ _________ _________ _______ _________
Balances at December 31, 2000 3,441,485 3,441,485 2,360,818 708,245 5,609,285 (5,371,841) (215,314) 4,171,860
Exercise of stock warrants - - 3,333 1,000 2,766 - - 3,766
Common stock issued for
redeemed stock warrants - - 22,268 6,680 (6,680) - - -
Conversion of preferred stock (49,900) (49,900) 124,750 37,425 12,475 - - -
Dividend on 8-1/2% senior
convertible preferred stock 204,510 204,510 - - (204,510) - - -
Net loss - - - - - (1,148,843) - (1,148,843)
_________ __________ _________ ________ __________ ___________ _________ __________
Balances at December 31, 2001 3,596,095 $3,596,095 2,511,169 $753,350 $5,413,336 $(6,520,684) $(215,314) $3,026,783
========= ========== ========= ======== ========= =========== ======== ==========
The accompanying notes are an integral part of these statements.
17
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
2001 2000
_________ ________
Cash flows from operating activities
Net loss $(1,148,843) $(1,912,064)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 1,617,515 1,644,331
Gain on disposal of property
and equipment (6,000) (22,508)
Deferred income taxes - 202,000
Changes in operating assets and liabilities
Trade accounts receivable (361,190) (894,764)
Costs and estimated earnings in excess of
billings on uncompleted contracts (11,584) (8,550)
Prepaid expenses and other (734) (27,606)
Other assets (4,429) 100
Trade accounts payable 730,630 285,944
Accrued liabilities 36,451 170,485
Billings in excess of costs and estimated
earnings on uncompleted contracts 583,951 179,050
_________ ________
Net cash provided by (used in)
operating activities 1,435,767 (383,582)
Cash flows from investing activities
Capital expenditures (250,542) (543,311)
Proceeds from sale of property and equipment 6,000 22,508
_________ ________
Net cash used in investing activities (244,542) (520,803)
Cash flows from financing activities
Proceeds from exercise of warrants 3,766 -
Proceeds from issuance of debt - 79,304
Principal payments on notes payable (244,225) (808,428)
Principal payments on capital lease obligations (165,936) (6,034)
_________ ________
Net cash used in financing activities (406,395) (735,158)
_________ ________
Net increase (decrease) in cash
and cash equivalents 784,830 (1,639,543)
_________ __________
Cash and cash equivalents at beginning of year 259,131 1,898,674
_________ __________
Cash and cash equivalents at end of year $ 1,043,961 $ 259,131
=========== ==========
18
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
2001 2000
_________ ________
Supplemental cash flow information
Interest paid $ 18,067 $ 153,360
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $ 376,163 $ 10,344
During 2000, the holder of the Company's $2,500,000 debenture payable
converted the debenture and accrued interest of $90,312 into 2,252,445
shares of 8.5% Senior Preferred Stock. In accordance with the terms of
the Debenture Agreement, dividends payable through December 1, 2000 were
paid by the issuance of additional 103,490 shares of 8.5% Senior
Preferred Stock. At the election of the Senior Preferred Stockholder,
100,127 and 104,383 shares of 8.5% Senior Preferred Stock were issued to
the Senior Preferred Stockholder as payment for the June 1, 2001 and
December 1, 2001 dividends, respectively.
The accompanying notes are an integral part of these statements.
19
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE A - NATURE OF OPERATIONS
TGC Industries, Inc. (TGC or the Company) is engaged in the domestic
geophysical services business and primarily conducts seismic surveys and
sells gravity data to companies engaged in exploration in the oil and gas
industry.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with original
maturity dates of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful
lives of the individual assets ranging from 1 to 7 years. Expenditures
for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expenses as incurred.
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For the purposes of
evaluating the recoverability of long-lived assets, the recoverability
test is performed using undiscounted cash flows estimated to be generated
by those 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
The Company accounts 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 Statement of Financial Accounting
Standards No. 123.
20
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Financial Instruments
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents, accounts receivable, accounts payable and
debt. The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value because of the
short-term nature of these items. Fair value of long-term debt is based
on rates available to the Company for debt with similar terms and
maturities.
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
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.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
New Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations," which eliminates the pooling method of
accounting for business combinations initiated after June 30, 2001. In
addition, SFAS 141 addresses the accounting for intangible assets and
goodwill acquired in a business combination. This portion of SFAS 141 is
effective for business combinations completed after June 30, 2001. The
Company does not expect SFAS 141 will have a material impact on the
Company's financial position or results of operations.
21
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Intangible Assets," which revises the
accounting for purchased goodwill and intangible assets. Under SFAS 142,
goodwill and intangible assets with indefinite lives will no longer be
amortized, but will be tested for impairment annually as well as in the
event of an impairment indicator. The Company will adopt SFAS 142
effective January 1, 2002. The adoption of this statement is expected to
have no impact on the Company's financial position or results of
operations.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121") and related literature and
establishes a single accounting model, based on the framework established
in SFAS 121, for long-lived assets to be disposed of by sale. The
Company is required to adopt SFAS 144 for fiscal years beginning after
December 15, 2001. The Company does not expect SFAS 144 will have a
material impact on the Company's financial position or results of
operations.
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of uncompleted contracts are as follows:
December 31,
2001 2000
_________ ________
Costs incurred on uncompleted contracts
and estimated earnings $ 628,019 $ 127,680
Less billings to date (1,370,886) (298,180)
_________ _______
$ (742,867) $(170,500)
========= =======
The components of uncompleted contracts are reflected in the balance
sheets at December 31, 2001 and 2000 as follows:
2001 2000
_________ ________
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 20,134 $ 8,550
Billings in excess of costs and estimated
earnings on uncompleted contracts (763,001) (179,050)
_________ ________
$(742,867) $(170,500)
========= =======
22
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE D - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
2001 2000
_________ ________
Compensation and payroll taxes $ 77,697 $ 25,994
Insurance 35,000 48,000
Other 64,289 66,541
_______ _______
$176,986 $140,535
======= =======
NOTE E - DEBT
Line of Credit
During 2001, the Company entered into an unsecured revolving line of
credit arrangement with a bank, providing for borrowings of up to
$125,000. The facility bears interest at prime plus 1% (5.75% at
December 31, 2001) per annum, and matures in October 2002. The Company
had no borrowings under this arrangement at December 31, 2001, but had
committed the availability to irrevocable letters of credit totaling
$125,000 which also expire in October 2002. Therefore, the Company had
no borrowing availability under this line of credit at December 31, 2001.
Notes Payable
Notes payable consist of the following:
December 31,
2001 2000
_________ ________
Note payable to a finance company, interest at
4%, due in monthly installments of $552
including interest; collateralized by
equipment and accounts receivable $103,850 $106,142
Note payable to a finance company, interest at
4%, due in monthly installments of $1,130
including interest; collateralized by equipment
and accounts receivable 16,451 28,962
Note payable to a finance company, interest at
9.5%, due in monthly installments of $5,143
including interest; collateralized by equipment - 34,928
Note payable to a finance company, interest at
8.7%, due in monthly installments of $5,038
including interest; collateralized by equipment - 43,796
Note payable to a finance company, interest at
8.8%, due in monthly installments of $4,974
including interest; collateralized by equipment - 57,061
23
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE E - DEBT - Continued
Note payable to a finance company, interest at
9.4%, due in monthly installments of $12,104
including interest, collateralized by equipment - 93,637
_______ _______
$120,301 $364,526
======= =======
Aggregate annual maturities of notes payable at December 31, 2001 are as
follows:
Year ending
December 31,
____________
2002 $ 15,475
2003 5,854
2004 2,594
2005 2,702
2006 2,816
Thereafter 90,860
_______
120,301
Less current maturities 15,475
_______
$104,826
=======
Subordinated Debt
On December 14, 1999, the Company issued a $2,500,000 convertible
subordinated debenture to a corporation. The debenture bore interest at
8.5%, payable semi-annually, and was to mature in December 2009. The
debenture was converted into 8.5% Senior Preferred Stock at a conversion
price of $1.15 per share on May 17, 2000.
24
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE F - LEASES
Capital Leases
The Company leases certain specialized seismic equipment under leases
classified as capital leases. The following is a schedule showing the
future minimum lease payments under capital leases by years and the
present value of the minimum lease payments as of December 31, 2001.
Year ending
December 31,
____________
2002 $164,283
2003 38,913
2004 22,384
_______
Total minimum lease payments required 225,580
Less: Amount representing interest 11,043
_______
Present value of minimum lease payments $214,537
=======
The net book value of the capital assets leased as of December 31, 2001
was $344,536. Total accumulated depreciation on these assets as of
December 31, 2001 was $31,627.
Operating Leases
The Company leases office space under an operating lease that expires
September 30, 2004. The lease expense for the years ended December 31,
2001 and 2000, was $61,617 and $58,584, respectively.
The following is a schedule by years of future minimum rental payments
required under the operating lease as of December 31, 2001:
Year ending
December 31:
____________
2002 $ 63,720
2003 67,041
2004 52,488
______
Total minimum payments required $183,249
=======
25
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE G - FAIR VALUE OF DEBT OBLIGATIONS
The fair value of debt obligations is estimated using discounted cash
flows based on the Company's incremental borrowing rate for similar types
of borrowings. A comparison of the carrying value and fair value of
these instruments is as follows:
December 31,
______________________
2001 2000
_________ ________
Carrying value $ 120,301 $364,526
Fair value $ 87,821 $311,033
NOTE H - STOCKHOLDERS' EQUITY
Earnings Per Share
The effect of preferred stock dividends on the amount of loss available
to common stockholders was $.27 and $.25 for the years ended December 31,
2001 and 2000, respectively.
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive total 850,000 and 1,136,575
for the years ended December 31, 2001 and 2000, respectively.
Outstanding options that were not included in the diluted calculation
because their effect would be anti-dilutive total 258,827 and 185,757 for
the years ended December 31, 2001 and 2000, respectively.
Stock-Based Compensation Plans
The Company's 1986 Incentive Stock Option Plan (the "1986 Plan") expired
during July 1997. All 6,335 options outstanding at December 31, 2000
expired unexercised during 2001.
The Company currently has in effect a 1993 Stock Option Plan (the "1993
Plan") covering a total of 283,334 shares of the Company's common stock.
Options under the 1993 Plan must be granted at prices not less than the
market price at the date of grant and must be exercised within five years
from the date of grant. Options covering 54,004 shares expired or were
canceled during 2001. Options covering 30,000 shares are exercisable as
follows: (i) one-third of the shares on January 1, 1999, and (ii) all of
the shares after January 1, 2000. Options covering 33,100 shares are
exercisable as follows: (i) one-third of the shares after the 12 month
period following the date of the grant, (ii) two-thirds of the shares
after the 24 month period following the date of the grant, and (iii) all
of the shares of stock after the 36 month period following the date of
the grant. At December 31, 2001, outstanding options for 52,067 shares
were exercisable.
26
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE H - STOCKHOLDERS' EQUITY - CONTINUED
In conjunction with the spin-off of the Company's wholly-owned
subsidiary, Chase Packaging Corporation (Chase), in 1996, options held by
employees of Chase under the 1993 Plan were converted into a nonqualified
plan. All 53,058 options outstanding at December 31, 2000 expired
unexercised during 2001.
The Company currently has in effect a 1999 stock option plan (the "1999
Plan") covering up to 300,000 shares of the Company's common stock.
Options under the 1999 Plan must be granted at prices not less than the
lesser of the par value per share of the stock or the fair market value
per share of the Company's stock on the date of the grant, and their term
cannot exceed ten years from the date of the grant. Options outstanding
at December 31, 2001, covering 169,000 shares, expire five years from the
date of the grant and are exercisable as follows: (i) one-third of the
shares after the 12 month period following the date of the grant, (ii)
two-thirds of the shares after the 24 month period following the date of
the grant, and (iii) all of the shares of stock after the 36 month period
following the date of the grant. At December 31, 2001, outstanding
options covering 56,333 shares were exercisable.
27
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE H - STOCKHOLDERS' EQUITY - CONTINUED
The following table summarizes activity under the Plans:
Weighted
Shares under average
option exercise price
____________ ______________
Balance at January 1, 2000 176,497 $1.92
Granted 169,000 1.00
________
Balance at December 31, 2000 345,497 1.47
Canceled/expired (113,397) .33
________
Balance at December 31, 2001 232,100 $.96
======== ====
Exercisable at December 31:
2001 108,400 $ .95
2000 151,762 $2.11
The following information applies to options outstanding at December 31,
2001:
Weighted
average
remaining Weighted
Range of Number contractual average
exercise prices outstanding life (in years) exercise price
_______________ ___________ ______________ ______________
$.75 - $1.00 232,100 7.14 $.96
======= ===
The following information applies to options exercisable at December 31,
2001:
Range of Number Weighted average
exercise prices exercisable exercise price
_______________ ___________ ________________
$.75 - $1.00 108,400 $.95
======= ===
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 stock grants been determined consistent with SFAS 123,
the Company's net loss and net loss per common share for 2001 and 2000
would approximate the pro forma amounts indicated below:
28
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE H - STOCKHOLDERS' EQUITY - Continued
2001 2000
________________________ _______________________
As reported Pro forma As reported Pro forma
___________ _________ ___________ _________
Net loss $(1,148,843) $(1,213,073) $(1,912,064) $(1,926,337)
========= ========= ========= =========
Net loss allocable to
common stockholders $(1,799,955) $(1,864,185) $(2,484,490) $(2,498,763)
========= ========= ========= =========
Loss per common share
basic and diluted $(.75) $(.77) $(1.08) $(1.09)
The fair value of the options granted during 2000 was estimated at the
date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants: expected
volatility of 192%; risk-free interest rate of 5.5%; and expected life of
5 years. The weighted average fair value of options granted was $.97.
Stock Warrants
At December 31, 2001 and 2000, warrants covering 850,000 and 1,136,575
shares were outstanding, respectively. In connection with the issuance
of subordinated notes payable during 1999, certain officers and directors
received warrants covering 850,000 shares with a value of $391,000.
These warrants have a strike price of $.30 and expire on July 31, 2009.
Effective January 1, 2001, 10,000 warrants covering 3,333 shares of
common stock were exercised and 849,674 warrants covering 283,224 shares
of common stock expired. Per the warrant agreement, any unexercised
warrants were automatically deemed exercised at the rate of one share of
the Company's common stock for each 30 warrants held. During 2001,
668,040 warrants were redeemed for 22,268 shares of the Company's common
stock, and 181,634 warrants remain unredeemed at December 31, 2001.
Preferred Stock
During 1996, the Company issued 1,150,350 shares of Series C 8%
convertible exchangeable preferred stock ("Series C Preferred Stock") at
$5.00 per share in a private placement offering with gross proceeds of
approximately $5,800,000. The Series C Preferred Stock is, at the option
of the Company, exchangeable into 8% subordinated convertible debentures.
Prior to November 30, 2001, the Series C Preferred Stock and debentures
were convertible into shares of the Company's common stock at the
conversion price of (i) $2.00 per share if exercised by December 31,
2001, (ii) $3.75 per share if exercised from January 1, 2002 through
December 31, 2002, and (iii) $6.00 per share thereafter. At a November
30, 2001 meeting, the Company's Board of Directors approved amendments to
the conversion terms of the Series C Preferred Stock. The amendments
29
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE H - STOCKHOLDERS' EQUITY - Continued
were as follows: the conversion price was reduced from $2.00 per share to
$1.61 per share and the date of the conversion price increase to $3.75
per share was delayed from December 31, 2001, until January 31, 2002.
The subsequent date of the increase in the conversion price to $6.00 per
share will remain December 31, 2002. Since December 31, 2001, the Series
C Preferred shareholders have converted 977,550 shares of Series C
Preferred Stock into 3,030,539 shares of common stock. As a result,
58,100 shares of Series C Preferred Stock remained outstanding as of
January 31, 2002.
During 2000, the holders of the Series C Preferred Stock voted to consent
to a new series of 8.5% Senior Convertible Preferred Stock ("Senior
Preferred Stock"). As a result, in accordance with the terms of a
debenture agreement, the $2,500,000 debenture on the books of the Company
at December 31, 1999, plus accrued interest, was converted into 2,252,445
shares of the Senior Preferred Stock. The Company, in accordance with
the terms of the agreement, issued 103,490 additional shares of Senior
Preferred Stock to the Senior Preferred stockholder as payment for the
June and December 2000 dividends. In addition, at the election of the
Senior Preferred stockholder, the Company issued 100,127 and 104,383
additional shares of Senior Preferred Stock to the Senior Preferred
stockholder as payment for the June 1, 2001 and December 1, 2001
dividends, respectively, resulting in 2,560,445 shares outstanding at
December 31, 2001.
Dividends
Holders of the Company's Series C 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. At December 31, 2001, cumulative
dividends of $1,242,780 ($1.20 per share) were in arrears. As of January
31, 2002, following the conversion of 977,550 shares of the Series C
Preferred Stock as noted above, cumulative dividends of $69,720 were in
arrears.
Holders of the Company's Senior Preferred Stock will receive, when, as
and if declared by the Board of Directors of the Company, dividends at a
rate of 8.5% per annum. The dividends are payable semi-annually during
June and December of each year. Dividends payable in 2001 and 2000 were
paid in additional shares of Senior Preferred Stock, in accordance with
the terms of the agreement in 2000 and at the election of the Senior
Preferred Stockholder in 2001.
30
December 31, 2001 and 2000
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE I - INCOME TAXES
The income tax provision (benefit) reconciled to the tax computed at the
statutory Federal rate is as follows:
Years ended
December 31,
___________________
2001 2000
_______ ________
Federal tax benefit at statutory rate $(390,607) $(581,422)
Non-deductible expenses 29,103 22,916
Change in prior year estimates (5,015) (212,210)
Change in valuation allowance 366,519 972,716
_______ _______
$ - $ 202,000
======= =======
Deferred tax assets and liability consist of the following:
December 31,
____________
2001 2000
_______ _______
Deferred tax assets
Net operating loss carryforwards $ 2,877,025 $ 2,636,873
Other 14,605 20,661
Deferred tax liability
Property and equipment (547,171) (679,594)
_________ _________
2,344,459 1,977,940
Less valuation allowance (2,344,459) (1,977,940)
_________ _________
Net deferred tax asset $ - $ -
========= =========
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $8,100,000 available to offset future taxable income, which
expire at various dates through 2021. Future tax benefits, such as net
operating loss carryforwards, are recognized to the extent that
realization of such benefits are more likely than not.
NOTE J - 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 makes contributions to the plan equal to 100% of each
participant's salary reduction contributions to the plan up to 2% of the
31
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2001 and 2000
NOTE J 401(k) PLAN - CONTINUED
participant's compensation. The Company's matching contribution to the
plan was approximately $13,000 and $14,000 for the years ended December
31, 2001 and 2000, respectively.
NOTE K - CONCENTRATION OF CREDIT RISK
The Company sells its geophysical services primarily to large independent
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.
Sales and accounts receivable from the Company's largest customers as of
and for the years ended December 31, 2001 and 2000 consist of the
following:
Accounts
Sales receivable
_____________ _____________
Company 2001 2000 2001 2000
_____ _____ _____ _____
A 38% - 23% -
B 14% - - -
C 13% 19% - -
D 13% - - 20%
E - 23% - 2%
F - 18% - 63%
G - 15% - -
As of December 31, 2001, four additional customers accounted for 23%,
20%, 19%, and 13% of outstanding accounts receivable, respectively. At
December 31, 2000, one additional customer accounted for 14% of accounts
receivable.
NOTE L - CONTINGENCIES
In conducting its activities, the Company from time to time is the
subject of various claims arising from the ordinary course of business.
In the opinion of management, the ultimate resolution of such claims is
not expected to have a material adverse effect upon the financial
position of the Company.
On November 7, 2001, the Company obtained unsecured irrevocable letters
of credit totaling $125,000, expiring on October 25, 2002. These letters
of credit, with an insurance company as beneficiary, will be used to
guarantee continuing seismic insurance bonds totaling $125,000, issued by
the insurance company to two states in which the Company performs seismic
surveys. In the opinion of management, the chances that the insurance
company will draw on the letters of credit are improbable.
32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTER 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 AND REPORTS ON FORM 8-K.
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.
33
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 Restated Articles of Incorporation (with amendment)
as of November 6, 1998, filed as Exhibit 3.3 to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1998, and incorporated herein
by reference.
3.4 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.
3.5 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 Statement of Resolution Regarding Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on December 30, 1998, filed as Exhibit 4.3
to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 30, 1998, and incorporated
herein by reference.
4.4 Statement of Resolution Regarding Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on July 9, 1999 filed as Exhibit 4.4 to the
Company's Annual Report on Form 10-KSB for fiscal
year ended December 31, 2000, and incorporated herein
by reference.
4.5 Statement of Resolution regarding Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on December 4, 2001.
34
4.6 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.
4.7 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.
4.8 Debenture Agreement dated December 10, 1999, with
respect to the Company's $2,500,000 8 1/2%
Convertible Subordinated Debenture, Series B payable
to Wedge Energy Services, L.L.C., filed as Exhibit
4.6 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999, and
incorporated herein by reference.
4.9 Statement of Resolution Establishing 8-1/2% Senior
Convertible Preferred Stock of TGC Industries, Inc.
as filed with the Secretary of State of Texas on May
17, 2000, filed as Exhibit 4.8 to the Company's
Annual Report on Form 10-KSB for fiscal year ended
November 31, 2000, 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.
35
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 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.
10.7 Bill of Sale dated July 31, 1996 between TGC
Industries, Inc. and Chase Packaging Corporation,
filed as Exhibit 10.8 to the Company's annual report
on Form 10-KSB for the fiscal year ended December 31,
1996, and incorporated herein by reference.
10.8 Amendment No. 1 to the 1993 Stock Option Plan as
adopted by the Board of Directors on July 24, 1996,
filed as Exhibit 10.9 to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31,
1998, and incorporated herein by reference.
10.9 Amendment No. 2 to the 1993 Stock Option Plan as
adopted by the Board of Directors and approved by
Company's Shareholders on June 4, 1998, filed as
Exhibit 10.10 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998,
and incorporated herein by reference.
10.10 Warrant Agreements and Warrant Certificates dated
July 30, 1999 issued by the Company to JMS Inc. Cust
FBO William J. Barrett Keogh, JMS Inc. Cust FBO
Herbert M. Gardner Keogh, Edward L. Flynn, Allen T.
McInnes, and Wayne A. Whitener in connection with the
issuance by the Company of notes payable to such
persons, filed as Exhibit 10.10 to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1999, and incorporated herein by
reference.
10.11 Debenture Purchase Agreement dated December 10, 1999,
between WEDGE Energy Services, L.L.C. and the Company
with respect to the purchase by WEDGE of the Company's
8 1/2% Convertible Subordinated Debenture, Series B,
for the cash consideration of $2,500,000 paid by WEDGE
to the Company, filed as Exhibit 10.11 to the Company's
Annual Report filed on Form 10-KSB for the fiscal year
ended December 31, 1999, and incorporated herein by
reference.
10.12 Voting Agreement dated December 10, 1999, between the
Company, WEDGE Energy Services, L.L.C., and the
following shareholders of the Company: Allen McInnes,
Wayne Whitener, Herbert Gardner, William J. Barrett and
Edward L. Flynn, filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-KSB for the fiscal
36
year ended December 31, 1999, and incorporated herein
by reference.
10.13 The Company's 1999 Stock Option Plan as adopted by the
Board of Directors on December 14, 1999, filed as
Exhibit 10.13 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999, and
incorporated herein by reference.
(b). Reports on Form 8-K.
A report under Item 5 of Form 8-K was filed on December 5, 2001, to
announce the conversion price reduction of the Company's Series C 8%
Convertible Exchangeable Preferred Stock from $2.00 per share to
$1.61 per share, and the delay of the conversion price increase from
December 31, 2001, to January 31, 2002.
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 26, 2002 By: /s/ Wayne A. Whitener
Wayne A. Whitener
President (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 26, 2002 By: /s/ Allen T. McInnes
Allen T. McInnes
Chairman of the Board
and Secretary
Date: March 26, 2002 By: /s/ Edward L. Flynn
Edward L. Flynn
Director
Date: March 26, 2002 By: /s/ Wayne A. Whitener
Wayne A. Whitener
President, Chief Executive
Officer and Director
Date: March 26, 2002 By: /s/ Kenneth Uselton
Kenneth Uselton, Treasurer
(Principal Financial and
Accounting Officer)
Date: March 26, 2002 By: /s/ William J. Barrett
William J. Barrett
Director
Date: March 26, 2002 By: /s/ Herbert M. Gardner
Herbert M. Gardner
Director
37
Date: March 26, 2002 By: /s/ William H. White
William H. White
Director
Date: March 26, 2002 By: /s/ Pasquale V. Scaturro
Pasquale V. Scaturro
Director
38
EXHIBIT 4.5
Statement of Resolution Regarding
Series of Preferred Stock of
TGC Industries, Inc.
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, and the Articles of Incorporation, as amended, of the
undersigned Corporation, the Corporation submits the following with respect to
its Statement of Resolution Establishing its Series C 8% Convertible
Exchangeable Preferred Stock for the purpose of modifying certain terms of the
Series C Preferred Stock, which Statement of Resolution was originally filed
with the Secretary of State of Texas on July 9, 1996, and was modified by
Statements of Resolution filed with the Secretary of State of Texas on July
22, 1998, December 9, 1998, December 30, 1998, and July 2, 1999.
1. The name of the Corporation is TGC Industries, Inc.; and
2. A resolution adopting the Statement of Resolution Regarding Series
C 8% Convertible Exchangeable Preferred Stock is attached as Exhibit "A"
hereto and incorporated herein by reference. Such resolution was duly adopted
by all necessary action on the part of the Corporation at a Special Meeting of
the Board of Directors of the Corporation held on November 30, 2001.
Dated December 3, 2001.
TGC INDUSTRIES, INC.
By: /s/Rice M. Tilley, Jr.
Rice M. Tilley, Jr., Assistant
Secretary
39
EXHIBIT "A"
STATEMENT OF RESOLUTION REGARDING
SERIES C 8% CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OF
TGC INDUSTRIES, INC.
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act and the Articles of Incorporation, as amended, of TGC
Industries, Inc., a Texas corporation (the "Corporation" or the "Company"),
the Corporation has adopted the following resolution by all necessary action
on the part of the Corporation, at a Special Meeting of the Board of Directors
held on November 30, 2001, for the purpose of modifying certain terms of its
Series C 8% Convertible Exchangeable Preferred Stock as provided therein:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article 4.b of the Corporation's Articles of
Incorporation, as amended, the Corporation hereby approves a modification with
respect to its Statement of Resolution Establishing Series C 8% Convertible
Exchangeable Preferred Stock (the "Preferred Stock"), which Statement of
Resolution was originally filed with the Secretary of State of Texas on July
9, 1996, and was modified by Statements of Resolution filed with the Secretary
of State of Texas on July 22, 1998, December 9, 1998, December 30, 1998 and
July 2, 1999, by adopting the following modification to subparagraph 3(d)
thereof to (i) reduce the conversion price per share of Common Stock and (ii)
delay the date of the increase of the conversion price of the Preferred Stock
from December 31, 2001 until January 31, 2002, so that subparagraph 3(d) of
such Statement of Resolution shall read in its entirety as set forth below.
Except as modified as set forth below, the Statement of Resolution
Establishing Series C 8% Convertible Exchangeable Preferred Stock as filed
with the Secretary of State on July 9, 1996, shall remain in full force and
effect.
"(d)Conversion Ratio. Each share of Preferred
Stock may, at the discretion of the holder thereof,
be converted into shares of Common Stock of the
Corporation at the conversion price per share of
(i) prior to the close of business on January 31, 2002,
the conversion price per share of Common Stock of
One Dollar and Sixty-One Cents ($1.61), (ii) after
January 31, 2002 and prior to the close of business
on December 31, 2002, the conversion price per share
of Common Stock of Three Dollars and Seventy-Five
Cents ($3.75), and (iii) thereafter, the conversion
price per share of Common Stock of Six Dollars ($6.00),
as such conversion price may be adjusted and readjusted
from time to time in accordance with subparagraph 3(g)
hereof (such conversion price, as adjusted and readjusted
and in effect at any time, being herein called the
"Conversion Price" or the "Conversion Ratio"), into the
number of fully paid and non-assessable shares of Common
Stock determined by dividing (x) the $5.00 per share
price of the Preferred Stock to be so converted by (y) the
Conversion Price in effect at the time of such conversion.
The Conversion Ratios referred to above will be subject to
adjustment as set forth in subparagraph 3(g)."
[END]
40