U.S. SECURITIES AND EXCHANGE
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2003.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______.
Commission File Number 0-14908
TGC INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Texas 74-2095844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1304 Summit, Suite 2
Plano, Texas 75074
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 972-881-1099
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 28,
2003
Common Stock ($.30 Par Value) 5,515,064
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of March 31, 2003.
Statements of Operations for the three-month periods ended
March 31, 2003 and 2002.
Statements of Cash Flows for the three-month periods ended
March 31, 2003 and 2002.
Notes to Financial Statements.
2
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31,
2003
___________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 890,269
Trade accounts receivable 499,724
Cost and estimated earnings in excess
of billings on uncompleted contracts 3,396
Prepaid expenses and other 2,724
_________
Total current assets 1,396,113
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 11,635,750
Automobiles and trucks 810,837
Furniture and fixtures 326,108
Other 18,144
__________
12,790,839
Less accumulated depreciation
and amortization (11,504,846)
___________
1,285,993
OTHER ASSETS 4,824
___________
Total assets $2,686,930
===========
See notes to Financial Statements
3
TGC INDUSTRIES, INC.
BALANCE SHEET -- CONTINUED
(UNAUDITED)
MARCH 31,
2003
_____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 426,741
Accrued liabilities 47,895
Billings in excess of costs and estimated
earnings on uncompleted contracts 703,510
Current maturities of notes payable 2,489
Current portion of capital lease obligations 72,344
__________
Total current liabilities 1,252,979
NOTES PAYABLE, less current maturities 98,359
CAPITAL LEASE OBLIGATIONS, less current portion 18,797
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized:
8-1/2% Senior convertible preferred stock;
2,782,708 shares issued and outstanding 2,782,708
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares issued,
58,100 shares outstanding 58,100
Common stock, $.30 par value; 25,000,000
shares authorized; 5,547,008 shares issued 1,664,102
Additional paid-in capital 5,302,871
Accumulated deficit (8,275,672)
Treasury stock, at cost (31,944 shares) (215,314)
___________
1,316,795
Total liabilities and stockholders' equity $ 2,686,930
===========
See notes to Financial Statements
4
TGC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
___________________________
(Unaudited)
2003 2002
_______ _______
Revenue $1,601,805 $2,917,860
Cost of services 1,437,431 2,601,881
Selling, general, administrative 205,749 230,521
__________ __________
1,643,180 2,832,402
INCOME (LOSS) FROM OPERATIONS (41,375) 85,458
Interest expense 2,104 3,746
__________ __________
NET INCOME (LOSS) (43,479) 81,712
Less dividend requirements on
preferred stock 73,812 68,381
__________ __________
INCOME (LOSS) ALLOCABLE TO
COMMON STOCKHOLDERS $ (117,291) $ 13,331
Income (loss) per common share:
Basic and diluted $ (.02) $ .00
Weighted average number of
common shares:
Basic and diluted 5,515,064 4,769,939
See notes to Financial Statements
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TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
____________________
2003 2002
_______ ______
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (43,479) $81,712
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 373,546 392,955
Changes in operating assets and liabilities
Trade accounts receivable 162,326 323,521
Cost and estimated earnings in excess of billings
on uncompleted contracts 29,449 (125,630)
Prepaid expenses 99,241 31,758
Trade accounts payable 227,405 (475,651)
Accrued liabilities (73,622) (18,239)
Billings in excess of cost and estimated earnings
on uncompleted contracts (170,677) (290,589)
_________ ________
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 604,189 (80,163)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40,136) (37,957)
_________ ________
NET CASH USED IN INVESTING ACTIVITIES (40,136) (37,957)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (131,583) (3,805)
Principal payments on capital lease obligations (65,321) (132,411)
_________ ________
NET CASH USED IN FINANCING ACTIVITIES (196,904) (136,216)
_________ ________
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 367,149 (254,336)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 523,120 1,043,961
________ _________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 890,269 $ 789,625
========= =========
Supplemental cash flow information
Interest paid $ 2,104 $ 3,746
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $ - $ 22,712
Series C Preferred Stock converted to Common Stock $ - $977,550
At the election of the Senior Preferred Stockholder, 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, 2002 and December 1, 2002
dividends, respectively.
See notes to Financial Statements
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TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and changes in financial position
in conformity with accounting principles generally accepted in the United
States of America.
NOTE B -- MANAGEMENT PRESENTATION
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of
financial position, results of operations, and changes in financial
position have been included. The results of the interim periods are not
necessarily indicative of results to be expected for the entire year. For
further information, refer to the financial statements and the footnotes
thereto included in the Company's Annual Report for the year ended December
31, 2002 filed on Form 10-KSB.
NOTE C -- EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share are based upon the weighted average
number of shares of common stock outstanding. Diluted earnings (loss) per
share are based upon the weighted average number of common shares
outstanding and, when dilutive, common shares issuable for stock options,
warrants and convertible securities. The effect of preferred stock
dividends on the amount of income (loss) available to common stockholders
was $(.01) and $.01 for the three months ended March 31, 2003 and 2002,
respectively.
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive totaled 2,350,000 for the
three-month period ended March 31, 2003, and 850,000 for the three-month
period ended March 31, 2002. Outstanding options that were not included in
the diluted calculation because their effect would be anti-dilutive totaled
232,100 for each of the three-month periods ended March 31, 2003 and 2002.
NOTE D DIVIDENDS
Holders of the Company's Series C 8% Convertible Exchangeable Preferred
Stock ("Series C Preferred Stock") will receive, when, as and if declared
by the Board of Directors of the Company, dividends at a rate of 8% per
annum. The dividends are payable semi-annually during January and July of
each year. At March 31, 2003, cumulative dividends of $92,960 were in
arrears on the Company's Series C Preferred Stock.
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TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
(Continued)
NOTE D DIVIDENDS (Continued)
Holders of the Company's 8-1/2% Senior Convertible Preferred Stock (the
"Senior Preferred Stock") will receive, when, as and if declared by the
Board of Directors of the Company, dividends at a rate of 8-1/2% per annum.
The dividends are payable semi-annually during June and December of each
year. Dividends paid during 2000, on the Senior Preferred Stock, were paid
in additional shares of Senior Preferred Stock, in accordance with the
terms of the Statement of Resolution Establishing the Senior Preferred
Stock. In addition, the holders elected to receive payment of the 2001 and
2002 dividends in additional shares of Senior Preferred Stock. At March
31, 2003, there were no dividends in arrears on the Company's Senior
Preferred Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's crew returned to work in late January 2003 after being idle
since early November 2002. As a result, TGC reported a significant
improvement in the first quarter of 2003 over the fourth quarter of 2002.
However, TGC was unable to generate sufficient revenue to return to
profitability in the first quarter of 2003. TGC continues to be adversely
effected by the reduced level of seismic activity in the U.S. by the oil
and gas exploration companies, the excess of domestic land based
geophysical crews and very competitive pricing. As a result, TGC reported
a net loss, before dividend requirements on preferred stock, of $43,479 on
revenue of $1,601,805, for the three month period ended March 31, 2003
compared with net income, before dividend requirements on preferred stock,
of $81,712 on revenue of $2,917,860 for the same period of 2002. Loss per
common share, on a basic and diluted basis, was $.02 for the three month
period ended March 31, 2003, compared with income per common share of $.00
for the same period of 2002.
The number of common shares used in the income (loss) per share computation
for the three-month periods ended March 31, 2003 and 2002, do not include
any common shares issuable for stock options, warrants or convertible
securities because the effect of their inclusion would be anti-dilutive.
Because oil and gas exploration companies continue to curtail their
domestic oil and gas exploration programs, there continues to be excess
capacity in the land-based geophysical services industry and pricing
remains very competitive. As a result, management continues to monitor
expenses and, where possible, implement cost containment programs to remain
competitive through this continued period of reduced industry activity. In
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the opinion of management, despite the need for more U.S. energy self-
sufficiency and the industry having favorable longer-term prospects, there
are not yet clear indications of when the geophysical industry will show
significant signs of improvement. In 2001, there were a number of
consolidations and mergers in the geophysical industry. In addition, a
major seismic competitor announced late in 2002 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.
Non-cash charges for depreciation and amortization were $373,546 in the
first three months of 2003 compared with $392,955 for the same period of
2002.
At December 31, 2002, TGC had net operating loss carryforwards of
approximately $9,000,000 available to offset future taxable income, which
expire at various dates through 2022.
FINANCIAL CONDITION
Cash of $604,189 was provided by operations during the first three months
of 2003 compared with cash used in operations of $80,163 for the same
period of 2002. This increase was primarily the result of an increasing
level of activity in the first three months of 2003 compared with a
declining level of activity in the same period of 2002. Net cash of
$40,136 was used in investing activities during the first three months of
2003 for capital expenditures to replace certain vehicles and equipment.
Principal payments of notes payable of $131,583 and principal payments of
capital lease obligations of $65,321 resulted in net cash of $196,904 being
used in financing activities during the first three months of 2003. TGC
anticipates that available funds, together with anticipated cash flows
generated from future operations will be sufficient to meet TGC's minimum
lease and note payment obligations.
In September 2002, TGC issued 1,500,000 detachable stock warrants to an
investor group that included certain directors in exchange for a line of
credit, that expired December 31, 2002, in an amount up to $300,000. The
warrants cover 1,500,000 shares of Common Stock, expire on September 10,
2012, and are exercisable at $.20 per whole share (provided, however that
the exercise price at the time of a given exercise of the warrants shall
not be less than the then per share par value of the Common Stock). During
September 2002, TGC borrowed $150,000 of the available funds. The
promissory notes, which bore interest at 6.75% per annum, were paid in full
during December 2002 and January 2003.
In March 2003 the same investor group that provided the above described
line of credit in 2002, committed to provide a line of credit up to
$300,000 through December 31, 2003, on the same terms as the 2002 line of
credit, provided that warrants covering only 750,000 shares of Common Stock
will be issued upon execution of the line of credit documents and warrants
covering the remaining 750,000 shares of Common Stock will only be issued
in proportion to the amount of the $300,000 commitment which the Company
9
determines to draw on (e.g. if the Company borrows a total of $150,000,
warrants covering 375,000 shares will be issued and if the Company borrows
the full commitment of $300,000, warrants covering 750,000 shares will be
issued).
Working capital increased $278,948 to $143,134 at March 31, 2003 from the
December 31, 2002, negative working capital of $135,814. The Company's
current ratio was 1.1 at March 31, 2003, compared with .9 at December 31,
2002. Stockholders' equity decreased $43,479 to $1,316,795 at March 31,
2003 from the December 31, 2002 balance of $1,360,274. This decrease was
attributable to the net loss, before dividend requirements on preferred
stock, of $43,479.
Management believes, although there can be no assurance, that available
funds together with anticipated cash flows generated from future operations
and the recently secured line of credit will be sufficient to meet the
Company's cash needs during 2003.
Forward-Looking Statements
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 3. PROCEDURES AND CONTROLS
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.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following is a list of exhibits to this Form 10-QSB:
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: None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TGC INDUSTRIES, INC.
Date: May 13, 2003 /s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
Date: May 13, 2003 /s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Wayne A. Whitener, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TGC
Industries, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
11
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 quarterly 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: May 13, 2003
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
12
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kenneth W. Uselton, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TGC
Industries,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
13
6. The registrant's other certifying officer and I have indicated in
this quarterly 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: May 13, 2003
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
14
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 quarterly
report on Form 10-QSB(the "Form 10-QSB") for the quarter ended March 31,
2003 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-QSB 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-QSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated:May 13, 2003
/s/ Wayne A. Whitener
Wayne A. Whitener
Chief Executive Officer
15
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 quarterly
report on Form 10-QSB(the "Form 10-QSB") for the quarter ended March 31,
2003 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-QSB 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-QSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated:May 13, 2003
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial and
Accounting Officer)
4891.00001/338401.1
16
