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, 2002
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: $6,262,206
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 20, 2003: $269,420
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of March 20, 2003
Common Stock ($.30 Par Value) 5,515,064
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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 12, 2003
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 ("Series
C Preferred Stock") received the dividend distribution of Chase Common Stock.
During July 1996, the Company issued 1,150,350 shares of 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
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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. 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 have been
paid by the issuance of additional shares of Senior Preferred Stock through
December 1, 2002. As a result, 530,263 shares of Senior Preferred Stock have
been issued to WEDGE Energy as dividend payments from June 1, 2000, through
December 1, 2002.
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
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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 and vibroseis as energy sources for such surveys.
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 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.
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, 2002, three customers accounted for thirty-
nine percent (39%), twelve percent (12%) and eleven percent (11%) 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)
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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.
Beginning approximately in mid 1998, activity in the U.S. Geophysical
Industry 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 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. However, this increased level of activity did
not continue into 2002, and TGC reduced its operations to one crew in 2002.
This lower level of activity in 2002 resulted in a significant decline in
revenues and an increase in the net loss in 2002 compared with 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.
During 2001, there were a number of consolidations and mergers in the
geophysical industry. In addition, a major seismic competitor announced in
late 2002 it was shutting down all its U.S. and Canadian land-based seismic
operations. Management is hopeful that with fewer seismic crews available in
the marketplace, TGC will be able to secure contracts with improved margins
thereby improving its future 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. 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, 2002, TGC employed 56 employees, supporting one
seismic crew with a total of 49 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
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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 $5,505. 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, 2002, 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 traded on the NASDAQ SmallCap Market under the
symbol "TGCI" from September 25, 1994, until May 24, 2002. As previously
reported, the Company was 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, was required to
satisfy these requirements for a minimum of ten (10) consecutive trading days
by May 15, 2002 and August 13, 2002, respectively. The Company's Common Stock
did not trade at sufficient levels, for ten (10) consecutive trading days, to
comply with the May 15, 2002 deadline. As a result, the Company's securities
were delisted from NASDAQ SmallCap Market at the opening of business on May
24, 2002 and now trade over-the-counter on the National Association of
Securities Dealers, Inc. Over-The-Counter Bulletin Board System. The Company
maintains its trading symbol "TGCI".
The number of shareholders of record of TGCI's Common Stock as of March
20, 2003, was 115. 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
4,184,070 shares in street name. On March 20, 2003, TGC's Common Stock was
quoted at a closing bid price of $.09. High and low sales prices of TGC's
Common Stock for the period of January 1, 2001, to December 31, 2002, were as
follows:
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Sales Price of TGC Common Stock
Date High Low
October 1 -- December 31, 2002 .140 .063
July 1 -- September 30, 2002 .230 .150
April 1 -- June 30, 2002 .400 .200
January 1 -- March 31, 2002 .550 .180
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
The above sale quotations were furnished to TGC by the Pink Sheets LLC.
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 was
$3.75. Thereafter, the conversion price per share of Common Stock is $6.00.
As of December 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 December 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.
Results of operations
Revenues for the year ended December 31, 2002 were $6,262,206 compared
with revenues of $10,101,117 for the year ended December 31, 2001. The
Company incurred a net loss, before dividend requirements on preferred stock,
of $(1,711,509) for the year ended December 31, 2002 compared with a net loss,
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before dividend requirements on preferred stock of $(1,148,843) for the year
ended December 31, 2001.
Due to continued difficult industry conditions in 2002, TGC returned to a
one-crew operation in 2002. The Company had operated two crews during the
second half of 2001. As a result, TGC experienced a significant decline in
revenues in 2002 from 2001. This decline in revenue caused TGC's cost of
services, as a percentage of revenue, to increase to 112.2% in 2002 from
102.1% in 2001. Selling, general and administrative expense decreased to
$884,572 in 2002 from $916,258 in 2001. This decrease was due primarily to a
reduction in selling expense associated with the lower level of revenues.
Interest expense decreased to $16,807 in 2002 from $18,067 in 2001. This
decrease was attributable to the lower level of debt in 2002 compared with
2001. In September 2002, the Company issued 1,500,000 detachable stock
warrants, with a value of $45,000, to certain investors in exchange for their
financial commitment for a line of credit that expired December 31, 2002, in
an amount up to $300,000.
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, TGC was unable to secure sufficient contracts to maintain its
two-crew operation returning to the one-crew level in 2002. As a result, TGC
experienced a significant decline in revenues and a greater net loss in 2002.
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. During 2001, there were a number of consolidations and mergers in
the geophysical industry and in late 2002 a major seismic competitor announced
it was shutting down all its United States and Canadian land-based seismic
operations. Though there can be no assurance, management is hopeful that with
fewer seismic crews available in the marketplace, TGC will be able to secure
contracts with improved margins thereby improving its future performance.
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
8
the Processing Center's 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.
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.
At December 31, 2002, the Company had net operating loss carry forwards
of approximately $9,000,000 available to offset future taxable income, which
expire at various dates through 2022.
Financial Condition
Cash of $404,100 was used in operations for the twelve months ended
December 31, 2002, compared with cash provided by operations of $1,435,767 for
the same period of the prior year. The primary reason for the decrease in
cash from operations in 2002 compared with 2001 was a significant decline in
the level of operations. This reduced level of operations resulted in
decreases in revenues, accounts receivable, accounts payable, billings in
excess of costs and estimated earnings on uncompleted contracts and an
increase in the net loss. Net cash of $70,377 was used in investing
activities during 2002. This was the result of capital expenditures to
replace certain vehicles and equipment that had become worn-out during 2002.
Principal payments of debt obligations in the amount of $67,731, principal
payments on capital lease obligations of $128,633, and proceeds of $150,000
from the issuance of debt resulted in net cash of $46,364 being used in
financing activities in 2002. The capital leases entered into in 2002 were
primarily for replacement of certain equipment and additional surveying
equipment. The terms 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.
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Working capital decreased $348,170 to a deficit of $135,814 at December
31, 2002 from the December 31, 2001, working capital of $212,356. The
Company's current ratio decreased to .9 to 1.0 at December 31, 2002 from 1.1
to 1.0 at December 31, 2001. Stockholders' equity decreased to $1,360,274 at
December 31, 2002, from the December 31, 2001, balance of $3,026,783 due
primarily to the net loss incurred in 2002 of $1,711,509.
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: $67,041 in 2003, and
$52,488 in 2004.
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% (5.25% at December 31, 2002) per
annum, and matures in October 2003. The Company had no borrowings under this
arrangement at December 31, 2002 or 2001, but had committed the availability
to irrevocable letters of credit totaling $125,000 which also expire in
October 2003. Therefore, the Company had no borrowing availability under this
line of credit at December 31, 2002 or 2001. The letters of credit, with an
insurance company as beneficiary, are being 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 remote.
In 2000, the Company issued 2,252,445 shares of 8.5% Senior Convertible
Preferred Stock ("Senior Preferred Stock") to a debt holder in consideration
for an outstanding debenture plus accrued interest, and in accordance with the
terms of the Debenture Agreement, issued 103,490 additional shares of Senior
Preferred Stock to the Senior Preferred stockholder as payment for 2000
dividends. At the election of the Senior Preferred stockholder, the Company
issued 100,127, 104,383, 108,819, and 113,444 additional shares of Senior
Preferred Stock to the Senior Preferred stockholders as payment for the June
1, 2001, December 1, 2001, June 1, 2002 and December 1, 2002 dividends,
respectively, resulting in 2,782,708 shares outstanding at December 31, 2002.
At a November 30, 2001 meeting, the Company's Board of Directors, in an
effort to encourage the conversion of Series C 8% Convertible Exchangeable
Preferred Stock ("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 was $3.75. Thereafter, the
conversion price per share of Common Stock is $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 during 2002. As a result,
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58,100 shares of Series C Preferred Stock remained outstanding at December 31,
2002 and the cumulative dividends in arrears on the Series C Preferred Stock
were $92,960 at December 31, 2002.
In September 2002, the Company issued 1,500,000 detachable stock
warrants, valued at $45,000, to certain investors in exchange for their
financial commitment for a line of credit that expired December 31, 2002, in
an amount up to $300,000. During September 2002, the Company used $150,000 of
available funds under the line of credit. At December 31, 2002, $120,000
remained outstanding under the line of credit and was paid by the Company in
January 2003.
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 2003, so long as the Company's one crew is
employed, of which there is no assurance. In addition, should the Company
require additional capital, an investor group has committed to loan the
Company up to $300,000.
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.
ITEM 7. FINANCIAL STATEMENTS.
Financial Statements
December 31, 2002 and 2001
CONTENTS
Report of Independent Certified Public Accountants p. 12
Financial Statements
Balance Sheets p. 13
Statements of Operations p. 15
Statement of Stockholders' Equity p. 16
Statements of Cash Flows p. 17
Notes to Financial Statements p. 19
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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, 2002 and 2001, 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, 2002 and 2001, 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.
/s/ GRANT THORNTON LLP
Dallas, Texas
February 4, 2003, except for Note C, as to
which the date is March 25, 2003
12
TGC Industries, Inc.
BALANCE SHEETS
December 31,
ASSETS 2002 2001
____ ____
CURRENT ASSETS
Cash and cash equivalents $ 523,120 $ 1,043,961
Trade accounts receivable 662,050 1,255,954
Costs and estimated earnings
in excess of billings
on uncompleted contracts 32,845 20,134
Prepaid expenses and other 101,965 72,819
_________ _________
Total current assets 1,319,980 2,392,868
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 11,635,752 11,585,080
Automobiles and trucks 833,743 887,226
Furniture and fixtures 323,323 323,323
Other - 6,810
_________ _________
12,792,818 12,802,439
Less accumulated depreciation
and amortization (11,173,415) (9,831,017)
_________ _________
1,619,403 2,971,422
OTHER ASSETS 4,824 4,824
_________ _________
$ 2,944,207 $ 5,369,114
========== =========
13
TGC Industries, Inc.
BALANCE SHEETS - CONTINUED
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
_________ _________
CURRENT LIABILITIES
Trade accounts payable $ 199,336 $ 1,067,506
Accrued liabilities 121,517 176,986
Billings in excess of costs
and estimated earnings
on uncompleted contracts 874,187 763,001
Current maturities of notes payable 133,459 15,475
Current portion of capital
lease obligations 127,295 157,544
_________ _________
Total current liabilities 1,455,794 2,180,512
NOTES PAYABLE, less current maturities 98,972 104,826
CAPITAL LEASE OBLIGATIONS, less current portion 29,167 56,993
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized; 8.5% senior convertible
preferred stock; 2,782,708 and 2,560,445
shares issued and outstanding at
December 31, 2002 and 2001, respectively 2,782,708 2,560,445
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares
issued, 58,100 and 1,035,650 shares
outstanding at December 31, 2002
and 2001, respectively 58,100 1,035,650
Common stock, $.30 par value;
25,000,000 shares authorized;
5,547,008 and 2,511,169 shares issued at
December 31, 2002 and 2001, respectively 1,664,102 753,350
Additional paid-in capital 5,302,871 5,413,336
Accumulated deficit (8,232,193) (6,520,684)
Treasury stock, at cost, 31,944 shares (215,314) (215,314)
_________ _________
1,360,274 3,026,783
_________ _________
$ 2,944,207 $ 5,369,114
========= =========
The accompanying notes are an integral part of these statements.
14
TGC Industries, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31,
2002 2001
____ ____
Revenue $ 6,262,206 $10,101,117
Cost and expenses
Cost of services 7,027,336 10,315,635
Selling, general and administrative 884,572 916,258
Interest expense 16,807 18,067
Debt financing costs 45,000 -
_________ __________
7,973,715 11,249,960
_________ __________
Net loss (1,711,509) (1,148,843)
Less dividend requirements on preferred stock (280,653) (651,112)
__________ __________
Loss allocable to common stockholders $(1,992,162) $(1,799,955)
========= =========
Loss per common share - basic and diluted $(.37) $(.75)
Weighted average number of common shares
outstanding - basic and diluted 5,330,492 2,407,036
The accompanying notes are an integral part of these statements.
15
TGC Industries, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Preferred stock Common stock Additional
_________________ ________________ paid-in Accumulated Treasury
Shares Amount Shares Amount capital deficit stock Total
______ ______ ______ ______ __________ ___________ ________ _______
Balances at
January 1, 2001 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
Conversion of
preferred stock (977,550) (977,550) 3,035,839 910,752 66,798 - - -
Dividend on 8-1/2%
senior convertible
preferred stock 222,263 222,263 - - (222,263) - - -
Issuance of
stock warrants - - - - 45,000 - - 45,000
Net loss - - - - - (1,711,509) - (1,711,509)
_______ _______ _________ _______ _________ _________ _______ _________
Balances at
December 31, 2002 2,840,808 $2,840,808 5,547,008 $1,664,102 $5,302,871 $(8,232,193) $(215,314) $1,360,274
========= ========= ========= ========= ========= ========== ======== =========
The accompanying notes are an integral part of these statements.
16
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31,
2002 2001
___________ ____________
Cash flows from operating activities
Net loss $(1,711,509) $(1,148,843)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 1,522,815 1,617,515
Gain on disposal of property
and equipment - (6,000)
Debt issuance costs 45,000 -
Changes in operating assets and liabilities
Trade accounts receivable 593,904 (361,190)
Costs and estimated earnings in excess
of billings on uncompleted contracts (12,711) (11,584)
Prepaid expenses and other (29,146) (734)
Other assets - (4,429)
Trade accounts payable (868,170) 730,630
Accrued liabilities (55,469) 36,451
Billings in excess of costs and estimated
earnings on uncompleted contracts 111,186 583,951
_______ _________
Net cash provided by (used in)
operating activities (404,100) 1,435,767
Cash flows from investing activities
Capital expenditures (70,377) (250,542)
Proceeds from sale of property and equipment - 6,000
_______ _________
Net cash used in investing activities (70,377) (244,542)
Cash flows from financing activities
Proceeds from exercise of stock warrants - 3,766
Proceeds from issuance of debt 150,000 -
Principal payments on notes payable (67,731) (244,225)
Principal payments on capital lease obligations (128,633) (165,936)
_______ _________
Net cash used in financing activities (46,364) (406,395)
_______ _________
Net increase (decrease) in cash
and cash equivalents (520,841) 784,830
Cash and cash equivalents at beginning of year 1,043,961 259,131
_________ _________
Cash and cash equivalents at end of year $ 523,120 $ 1,043,961
=========== ==========
17
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
2002 2001
___________ ______________
Supplemental cash flow information
Interest paid $ 14,332 $ 18,067
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $ 70,558 $ 376,163
Financed equipment purchase $ 29,861 $ -
At the election of the Senior Preferred Stockholder, 100,127, 104,383,
108,819 and 113,444 shares of 8.5% Senior Preferred Stock were issued to
the Senior Preferred Stockholder as payment for the June 1, 2001,
December 1, 2001, June 1, 2002 and December 1, 2002 dividends,
respectively.
The accompanying notes are an integral part of these statements.
18
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
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.
Trade Receivables
Trade accounts receivable are recorded in accordance with terms and
amounts as specified in the related contracts on an ongoing basis. The
Company evaluates the collectibility of accounts receivable on a specific
account basis using a combination of factors, including the age of the
outstanding balances, evaluation of the customer's financial condition,
and discussions with relevant Company personnel and with the customers
directly. An allowance for doubtful accounts or direct write-off is
recorded when it is determined that the receivable may not be collected,
depending on the facts known and the probability of collection of the
outstanding amount.
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.
19
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE B - 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.
Stock-Based Compensation
The Company has two stock-based employee compensation plans, which are
described more fully in Note I. The Company accounts for those plans
under the recognition and measurement principles of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. No stock-based employee compensation cost
is reflected in net income, as all options granted under those plans had
an exercise price equal to the market value of the underlying common
stock on the date of grant. The following table illustrates the effect
on net loss and loss per share allocable to common stockholders if the
Company had applied the fair value recognition provisions of Financial
Accounting Standards Board ("FASB") Statement No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation, to stock-based employee
compensation:
Year ended December 31,
_______________________
2002 2001
______ ______
Net loss allocable to common stockholders,
as reported $(1,992,162) $(1,799,955)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (54,643) (64,230)
_________ ________
Pro forma net loss allocable to
common stockholders $(2,046,805) $(1,864,185)
========= =========
Loss per common share
Basic and diluted - as reported $(.37) $(.75)
== ==
Basic and diluted - pro forma $(.38) $(.77)
== ==
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.
20
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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. 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 adopted SFAS 142 effective January 1,
2002. The adoption of this statement had no impact on the Company's
financial position or results of operations.
21
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 adopted SFAS 144 beginning January 1, 2002. The adoption of SFAS
144 had no impact on the Company's financial position or results of
operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standard No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation-
Transition and Disclosure - an amendment of SFAS No. 123". SFAS 148 was
issued to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS 123 to require disclosures in both annual and
interim financial statements about the method of accounting for stock-
based employee compensation and the effect of the method used on reported
results. Entities are still permitted to account for stock-based
compensation programs using the intrinsic value method prescribed in APB
Opinion No. 25. The Company currently accounts for stock-based
compensation using the intrinsic value method. The interim disclosure
requirements prescribed by SFAS 148 are required for interim periods
beginning after December 15, 2002.
NOTE C - LIQUIDITY
As indicated in the accompanying statements of operations and cash flows,
the Company has incurred losses of approximately $1.7 million and $1.1
million for the years ended December 31, 2002 and 2001, respectively, and
cash used in operations was $404,100 for the year ended December 31, 2002.
Management believes that current cash on hand and cash generated from
operations in 2003, based on current backlog, outstanding bids and
contracts, will be adequate to fund operations through December 31, 2003.
Should the Company require additional capital, an investor group has
committed to loan the Company up to $300,000.
22
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
Note D - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of uncompleted contracts are as follows:
December 31,
____________________
2002 2001
____ ____
Costs incurred on uncompleted contracts and
estimated earnings $ 264,751 $ 628,019
Less billings to date (1,106,093) (1,370,886)
_________ _________
$ (841,342) $ (742,867)
========= =========
The components of uncompleted contracts are reflected in the balance
sheets at December 31, 2002 and 2001 as follows:
2002 2001
____ ____
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 32,845 $ 20,134
Billings in excess of costs and estimated
earnings on uncompleted contracts (874,187) (763,001)
_______ _______
$ (841,342) $(742,867)
======= =======
NOTE E - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
____________________
2002 2001
____ ____
Compensation and payroll taxes $ 33,465 $ 77,697
Insurance 2,007 35,000
Other 86,045 64,289
_______ _______
$121,517 $176,986
======= =======
NOTE F - 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% (5.25% at
December 31, 2002) per annum, and matures in October 2003. The Company
23
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE F - DEBT - Continued
had no borrowings under this arrangement at December 31, 2002 or 2001,
but had committed the availability to irrevocable letters of credit
totaling $125,000 which also expire in October 2003. Therefore, the
Company had no borrowing availability under this line of credit at
December 31, 2002 or 2001.
Notes Payable
Notes payable consist of the following:
December 31,
___________________
2002 2001
____ ____
Note payable to a finance company, interest at
4%, due in monthly installments of $552
including interest; collateralized by
equipment and accounts receivable $101,461 $103,850
Note payable to a finance company,
interest at 4%, due in monthly installments
of $1,130 including interest; collateralized
by equipment and accounts receivable 3,365 16,451
Note payable to a finance company, interest
at 5%, due in monthly installments of
$2,556 including interest; collateralized
by equipment 7,605 -
Note payable to certain investors 120,000 -
_______ ________
$232,431 $120,301
======= =======
Aggregate annual maturities of notes payable at December 31, 2002 are as
follows:
Year ending
December 31,
________________
2003 $ 133,459
2004 2,594
2005 2,702
2006 2,816
2007 2,934
Thereafter 87,926
_______
232,431
Less current maturities (133,459)
_______
$ 98,972
=======
24
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE G - 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, 2002.
Year ending
December 31,
___________
2003 $131,754
2004 30,135
_______
Total minimum lease payments required 161,889
Less: Amount representing interest (5,427)
_______
Present value of minimum lease payments $156,462
=======
The net book value of the capital assets leased as of December 31, 2002
was approximately $285,000. Total accumulated depreciation on these
assets as of December 31, 2002 was approximately $168,000.
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,
2002 and 2001, was approximately $64,000 and $62,000, respectively.
The following is a schedule by years of future minimum rental payments
required under the operating lease as of December 31, 2002:
Year ending
December 31:
___________
2003 $ 67,041
2004 52,488
________
Total minimum payments required $ 119,529
=======
25
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE H - 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,
_____________________
2002 2001
_______ _______
Carrying value $232,431 $120,301
Fair value $201,737 $ 87,821
NOTE I - STOCKHOLDERS' EQUITY
Earnings Per Share
The effect of preferred stock dividends on the amount of loss available
to common stockholders was $.05 and $.27 for the years ended December 31,
2002 and 2001, respectively.
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive total 1,310,274 and 850,000
for the years ended December 31, 2002 and 2001, respectively.
Outstanding options that were not included in the diluted calculation
because their effect would be anti-dilutive total 232,100 and 258,827 for
the years ended December 31, 2002 and 2001, 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, 2002, outstanding options for 63,100 shares
were exercisable.
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
26
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE I - STOCKHOLDERS' EQUITY - Continued
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, 2002, 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, 2002, outstanding
options covering 112,666 shares were exercisable.
The following table summarizes activity under the Plans:
Weighted
Shares under average
option exercise price
___________ ______________
Balance at January 1, 2001 345,497 1.47
Canceled/expired (113,397) .33
_______
Balance at December 31, 2001 232,100 .96
Canceled/expired - -
_______
Balance at December 31, 2002 232,100 .96
Exercisable at December 31:
2002 175,766 $ .95
2001 108,400 $ .95
The following information applies to options outstanding at December 31, 2002:
Weighted
average
remaining Weighted
Range of Number contractual average
exercise prices outstanding life (in years) exercise price
_______________ ___________ _______________ ______________
$.75 - $1.00 232,100 6.14 $.96
======= ==== ===
27
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE I - STOCKHOLDERS' EQUITY - Continued
The following information applies to options exercisable at December 31,
2002:
Range of Number Weighted average
exercise prices exercisable exercise price
_______________ ___________ ________________
$.75 - $1.00 175,766 $.95
======= ===
Stock Warrants
At December 31, 2002 and 2001, warrants covering 2,350,000 and 850,000
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, 2002. In
connection with the issuance of debt during 2002, certain investors
received warrants covering 1,500,000 shares with a value of $45,000.
These warrants have a strike price of $.20 and expire on September 12,
2012. As the strike price is below the par value of the Company's common
stock, and therefore not currently exercisable at $.20, the warrant
agreements contain a provision whereby in the event the per share par
value is not reduced to $.01 before March 10, 2004, each warrant
certificate entitles the holder to purchase (in lieu of one share of
common stock) one unit, such unit consisting of one share of the
Company's common stock and one warrant containing the same terms and
provisions as the current warrant, at the then per share par value of the
common stock per unit.
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
28
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE I - STOCKHOLDERS' EQUITY - Continued
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
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 remained December 31, 2002. In January 2002, the Series C
Preferred shareholders converted 977,550 shares of Series C Preferred
Stock into 3,030,539 shares of common stock. No other Series C Preferred
Stock has been converted and, as a result, 58,100 shares of Series C
Preferred Stock remain outstanding at December 31, 2002.
In 2000, the Company issued 2,252,445 shares of 8.5% Senior Convertible
Preferred Stock (Senior Preferred Stock) to a debt holder in
consideration for an outstanding debenture plus accrued interest, and 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 2000 dividends. At the election of the Senior Preferred
stockholder, the Company issued 100,127, 104,383, 108,819, and 113,444
additional shares of Senior Preferred Stock to the Senior Preferred
stockholder as payment for the June 1, 2001, December 1, 2001, June 1,
2002 and December 1, 2002 dividends, respectively, resulting in 2,782,708
shares outstanding at December 31, 2002.
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. As of December 31, 2002, following the
conversion of 977,550 shares of the Series C Preferred Stock as noted
above, cumulative dividends of $92,960 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 2002 and 2001 were
paid in additional shares of Senior Preferred Stock, at the election of
the Senior Preferred Stockholder.
29
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE J - INCOME TAXES
The income tax benefit reconciled to the tax computed at the statutory
Federal rate is as follows:
Years ended
December 31,
_____________________
2002 2001
____ ____
Federal tax benefit at statutory rate $(581,913) $(390,607)
Non-deductible expenses 24,109 29,103
Change in prior year estimates - (5,015)
Change in valuation allowance 557,804 366,519
_________ _________
$ - $ -
======== ========
Deferred tax assets and liability consist of the following:
December 31,
_____________________
2002 2001
____ ____
Deferred tax assets
Net operating loss carryforwards $ 3,159,224 $ 2,877,025
Other 3,502 14,605
_________ _________
3,162,726 2,891,630
Deferred tax liability
Property and equipment (260,463) (547,171)
_________ _________
2,902,263 2,344,459
Less valuation allowance (2,902,263) (2,344,459)
__________ __________
Net deferred tax asset $ - $ -
========== ==========
At December 31, 2002, the Company had net operating loss carryforwards of
approximately $9,000,000 available to offset future taxable income, which
expire at various dates through 2022. Future tax benefits, such as net
operating loss carryforwards, are recognized to the extent that
realization of such benefits are more likely than not.
30
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE K - 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
participant's compensation. The Company's matching contribution to the
plan was approximately $17,000 and $13,000 for the years ended December
31, 2002 and 2001, respectively.
NOTE L - 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, 2002 and 2001 consist of the
following:
Accounts
Sales receivable
_____________ _____________
Company 2002 2001 2002 2001
_______ ____ ____ ____ ____
A 39% - - 20%
B 12% - - 19%
C 11% - - -
D - 38% - 23%
E - 14% - -
F - 13% - -
G - 13% - -
As of December 31, 2002, two additional customers accounted for 53% and
37% of outstanding accounts receivable, respectively. At December 31,
2001, two additional customers accounted for 23% and 13% of accounts
receivable.
NOTE M - 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.
31
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2002 and 2001
NOTE M - CONTINGENCIES - Continued
On November 7, 2001, the Company obtained unsecured irrevocable letters
of credit totaling $125,000, expiring on October 25, 2003. 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 is remote.
32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 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.
34
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, and incorporated herein
by reference.
4.6 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 11, 2002.
4.7 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.
4.8 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.
4.9 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.
4.10 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.
4.11 Statement of Resolution regarding 8-1/2% Senior
Convertible Preferred Stock of TGC Industries, Inc.
as filed with the Secretary of State of Texas on
November 27, 2002.
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.
35
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 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.
36
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
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.
99.1 Certification of Chief Executive Officer of TGC
Industries, Inc. pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of Treasurer (Principal Financial and
Accounting Officer) of TGC Industries, Inc. pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b). Reports on Form 8-K.
Two (2) reports under Item 5 of Form 8-K were filed during the
reporting period, as follows:
(1) Form 8-K was filed on May 21, 2002, to announce that the
Company had been notified by Nasdaq that the Company's securities would
be delisted from the Nasdaq SmallCap Market at the opening of business
on May 24, 2002, due to the Company's common stock, as previously
reported, having failed to maintain a minimum market value of publicly
held shares of $1,000,000 as required by Marketplace Rule 4310(c)(7);
and
37
(2) Form 8-K was filed on October 22, 2002, to report that one of
the Company's contracts for geophysical services was canceled, which
contract represented approximately 55% of the Company's current
backlog.
Item 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
Principal Financial and Accounting Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Securities Exchange Act Rule 13a-14. Based upon that evaluation, the Chief
Executive Officer and Principal Financial and Accounting Officer concluded
that the Company's disclosure controls and procedures are effective. There
were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date
of their evaluation.
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, 2003 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, 2003 By: /s/ Allen T. McInnes
Allen T. McInnes
Chairman of the Board
and Secretary
Date: March 26, 2003 By: /s/ Edward L. Flynn
Edward L. Flynn
Director
Date: March 26, 2003 By: /s/ Wayne A. Whitener
Wayne A. Whitener
President, Chief Executive
Officer and Director
Date: March 26, 2003 By: /s/ Kenneth Uselton
Kenneth Uselton, Treasurer
(Principal Financial and
Accounting Officer)
38
Date: March 26, 2003 By: /s/ William J. Barrett
William J. Barrett
Director
Date: March 26, 2003 By: /s/ Herbert M. Gardner
Herbert M. Gardner
Director
Date: March 26, 2003 By: /s/ James M. Tidwell
James M. Tidwell
Director
Date: March 26, 2003 By: /s/ Pasquale V. Scaturro
Pasquale V. Scaturro
Director
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Wayne A. Whitener, certify that:
1. I have reviewed this annual report on Form 10-KSB of TGC
Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
39
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kenneth W. Uselton, certify that:
1. I have reviewed this annual report on Form 10-KSB of TGC Industries,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
40
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
41
Exhibit 4.6
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 (the "Series C Preferred Stock") for the purpose
of decreasing the number of authorized shares of the Series C Preferred Stock:
1. The name of the Corporation is TGC Industries, Inc.; and
2. A resolution adopting the Statement of Resolution Regarding the
Series C 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 (Telephone) Meeting of the Board
of Directors of the Corporation held on November 12, 2002.
Dated December 3, 2002.
TGC INDUSTRIES, INC.
By: /s/ Rice M. Tilley, Jr.
Rice M. Tilley, Jr., Assistant
Secretary
42
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 (Telephone) Meeting of the Board
of Directors held on November 12, 2002, for the purpose of decreasing the
number of authorized shares 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, 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, July 2, 1999, and December 4,
2001, by adopting the modification to said resolution to decrease the number
of authorized shares of the Series C 8% Convertible Exchangeable Preferred
Stock from 1,250,000 shares to 100,000 shares. Except as modified as set
forth above, 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.
43
Exhibit 4.11
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 8-1/2% Senior Convertible
Preferred Stock (the "Senior Preferred Stock") for the purpose of increasing
the number of authorized shares of the Senior Preferred Stock:
1. The name of the Corporation is TGC Industries, Inc.; and
2. A resolution adopting the Statement of Resolution Regarding the 8-
1/2% Senior Convertible 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 by an unanimous written
consent of the Board of Directors of the Corporation dated November 26, 2002.
Dated November 27, 2002.
TGC INDUSTRIES, INC.
By: /s/ Rice M. Tilley, Jr.
Rice M. Tilley, Jr., Assistant
Secretary
44
EXHIBIT "A"
STATEMENT OF RESOLUTION REGARDING
8-1/2% SENIOR CONVERTIBLE 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, by an unanimous written consent of the Board
of Directors of the Corporation dated November 26, 2002, for the purpose of
increasing the number of authorized shares of its 8-1/2% Senior Convertible
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 its 8-1/2% Senior
Convertible Preferred Stock (the "Senior Preferred Stock"), which Statement of
Resolution was originally filed with the Secretary of State of Texas on May
17, 2002, by adopting a modification to said resolution to increase the number
of authorized shares of the Senior Preferred Stock from 2,750,000 shares to
3,900,000 shares. Except as modified herein, the Statement of Resolution
Establishing the 8-1/2% Senior Convertible Preferred Stock as filed with the
Secretary of State on May 17, 2000, shall remain in full force and effect.
45
Exhibit 99.1
Certification of
Chief Executive Officer
of TGC Industries, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the annual report
on Form 10-KSB(the "Form 10-KSB") for the fiscal year ended December 31, 2002
of TGC Industries, Inc. (the "Company"). I, Wayne A. Whitener, the Chief
Executive Officer of the Company, certify that, to the best of my knowledge:
(1) The Form 10-KSB fully complies with the requirements of Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-KSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: March 26, 2003
/s/ Wayne A. Whitener
Wayne A. Whitener
Chief Executive Officer
46
Exhibit 99.2
Certification of
Treasurer (Principal Financial and Accounting Officer)
of TGC Industries, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the annual report
on Form 10-KSB(the "Form 10-KSB") for the fiscal year ended December 31, 2002
of TGC Industries, Inc. (the "Company"). I, Kenneth W. Uselton, Treasurer
(Principal Financial and Accounting Officer) of the Company, certify that, to
the best of my knowledge:
(1) The Form 10-KSB fully complies with the requirements of Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-KSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: March 26, 2003
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial and
Accounting Officer)
328143.1
47
