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 SEPTEMBER 30, 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 October 31, 2003
Common Stock ($.01 Par Value) 5,695,064
1
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of September 30, 2003.
Statements of Operations for the three and nine month periods ended
September 30, 2003 and 2002.
Statements of Cash Flows for the nine-month periods ended September
30, 2003 and 2002.
Notes to Financial Statements.
2
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30,
2003
____________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,049,191
Trade accounts receivable 500,301
Cost and estimated earnings in excess
of billings on uncompleted contracts 9,844
Prepaid expenses and other 100,097
__________
Total current assets 1,659,433
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 11,715,344
Automobiles and trucks 842,006
Furniture and fixtures 326,108
Other 18,144
__________
12,901,602
Less accumulated depreciation
and amortization (12,175,213)
__________
726,389
OTHER ASSETS 4,824
__________
Total assets $2,390,646
==========
See notes to Financial Statements
3
TGC INDUSTRIES, INC.
BALANCE SHEET -- CONTINUED
(UNAUDITED)
SEPTEMBER 30,
2003
______________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $240,004
Accrued liabilities 170,216
Billings in excess of costs and estimated
earnings on uncompleted contracts 127,089
Current maturities of notes payable 2,489
Current portion of capital lease obligations 38,986
_________
Total current liabilities 578,784
NOTES PAYABLE, less current maturities 97,115
CAPITAL LEASE OBLIGATIONS, less current portion 52,661
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized:
8-1/2% Senior convertible preferred stock;
2,900,973 shares issued and outstanding 2,900,973
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares issued,
58,100 shares outstanding 58,100
Common stock, $.01 par value; 25,000,000
shares authorized; 5,547,008 shares issued 55,470
Additional paid-in capital 6,793,238
Accumulated deficit (7,930,381)
Treasury stock, at cost (31,944 shares) (215,314)
_________
1,662,086
_________
Total liabilities and stockholders' equity $2,390,646
=========
See notes to Financial Statements
4
TGC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ______________________
(Unaudited) (Unaudited)
2003 2002 2003 2002
_________ _________ _________ _________
Revenue $2,099,890 $1,126,169 $6,537,096 $5,698,438
Cost of services 1,725,389 1,555,672 5,532,444 5,840,573
Selling, general,
administrative 245,616 237,356 696,353 699,733
_________ _________ _________ _________
1,971,005 1,793,028 6,228,797 6,540,306
INCOME (LOSS)
FROM OPERATIONS 128,885 (666,859) 308,299 (841,868)
Interest expense 2,109 3,330 6,487 10,760
_________ _________ _________ _________
NET INCOME (LOSS) 126,776 (670,189) 301,812 (852,628)
Less dividend
requirements on
preferred stock 76,703 71,040 225,291 208,688
_________ _________ _________ _________
INCOME (LOSS) ALLOCABLE
TO COMMON STOCKHOLDERS $50,073 $(741,229) $76,521 $(1,061,316)
Income (loss)
per common share:
Basic and diluted $.01 $(.13) $.01 $(.20)
Weighted average number
of common shares:
Basic and diluted 5,515,064 5,515,064 5,515,064 5,268,292
See notes to Financial Statements
5
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
____________________
2003 2002
________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $301,812 $(852,628)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,082,525 1,148,240
Gain on disposal of property and equipment (9,349) -
Changes in operating assets and liabilities
Trade accounts receivable 161,749 803,928
Cost and estimated earnings in excess of
billings on uncompleted contracts 23,001 20,134
Prepaid expenses and other 1,868 (14,326)
Trade accounts payable 40,668 (824,831)
Accrued liabilities 48,699 (38,523)
Billings in excess of cost and estimated
earnings on uncompleted contracts (747,098) (576,569)
_______ _______
NET CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES 903,875 (334,575)
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (141,051) (100,240)
Proceeds from sale of property and equipment 9,349 -
_______ _______
NET CASH USED IN INVESTING ACTIVITIES (131,702) (100,240)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes payable - 179,861
Principal payments on notes payable (132,827) (26,286)
Principal payments on capital lease obligations (113,275) (155,030)
_______ _______
NET CASH USED IN FINANCING ACTIVITIES (246,102) (1,455)
_______ _______
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 526,071 (436,270)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 523,120 1,043,961
_______ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,049,191 $607,691
========= =======
Supplemental cash flow information
Interest paid $ 4,378 $ 10,760
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $48,460 $ 22,712
Series C Preferred Stock converted to Common Stock $ - $977,550
See notes to Financial Statements
6
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 September 30, 2003 and 2002,
respectively, and $.04 and $(.04) for the nine months ended September 30,
2003 and 2002 respectively.
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive totaled 3,100,000 and 2,652,200
for the three and nine month periods ended September 30, 2003,
respectively, and 1,176,085 and 959,890 for the three and nine month
periods ended September 30, 2002, respectively. 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 and nine month periods
ended September 30, 2003 and 2002.
7
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2003
(Continued)
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 September 30, 2003, cumulative dividends of $104,580 were in
arrears on the Company's Series C Preferred Stock.
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,
2002 and June 1, 2003 dividends in additional shares of Senior Preferred
Stock. At September 30, 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. The Company has been able to maintain a
sufficient level of backlog to keep one of its two crews employed since the
beginning of the second quarter of 2003. As a result, TGC reported a
profit for both the three and nine month periods ended September 30, 2003.
TGC reported net income, before dividend requirements on preferred stock,
of $126,776 on revenue of $2,099,890 for the three month period ended
September 30, 2003 compared with a net loss, before dividend requirements
on preferred stock, of $670,189 on revenue of $1,126,169 for the same
period of 2002. Income per common share, on a basic and diluted basis, was
$.01 for the three month period ended September 30, 2003, compared with a
loss per common share of $.13 for the same period of 2002.
For the nine month period ended September 30, 2003, TGC reported net
income, before dividend requirements on preferred stock, of $301,812 on
revenue of $6,537,096, compared with a net loss, before dividend
requirements on preferred stock, of $852,628 on revenue of $5,698,438 for
the same period of 2002. Income per common share, on a basic and diluted
basis, was $.01 for the nine month period ended September 30, 2003,
compared with a loss per common share of $.20 for the same period of 2002.
8
The number of common shares used in the income (loss) per share computation
for the three and nine month periods ended September 30, 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.
Oil and gas exploration companies have recently increased the level of
activity in their domestic oil and gas exploration programs. Though there
can be no assurance, should this increased level of activity in the
industry continue, management believes TGC may secure enough contracts to
enable the Company to improve its performance during the fourth quarter of
2003 compared with the fourth quarter of 2002.
Non-cash charges for depreciation and amortization were $1,082,525 in the
first nine months of 2003 compared with $1,148,240 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 $903,875 was provided by operations during the first nine months of
2003 compared with cash used in operations of $334,575 for the same period
of 2002. This increase was primarily the result of an increasing level of
activity in the first nine months of 2003 compared with a declining level
of activity in the same period of 2002. During the first nine months of
2003, $141,051 was spent for capital expenditures to replace certain
vehicles and equipment. In addition, $9,349 was received as proceeds from
the sale of property and equipment. As a result, net cash of $131,702 was
used in investing activities during the first nine months of 2003.
Principal payments of notes payable of $132,827 along with principal
payments of capital lease obligations of $113,275 resulted in net cash of
$246,102 being used in financing activities during the first nine 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. 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
9
were issued in consideration for the commitment to provide the line of
credit 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 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). As of October 31, 2003, the Company had no
borrowings against the line of credit.
Working capital increased $1,216,463 to $1,080,649 at September 30, 2003
from the December 31, 2002, negative working capital of $135,814. The
Company's current ratio was 2.9 at September 30, 2003, compared with .9 at
December 31, 2002. Stockholders' equity increased $301,812 to $1,662,086
at September 30, 2003 from the December 31, 2002 balance of $1,360,274.
This increase was attributable to the net income, before dividend
requirements on preferred stock, of $301,812.
Management believes, although there can be no assurance, that available
funds together with anticipated cash flows generated from future operations
will be sufficient to meet the Company's cash needs through the first six
months of 2004.
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:
31.1 Certification of Chief Executive Officer of TGC Industries,
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of Treasurer (Principal Financial and
Accounting Officer) of TGC Industries, Inc. pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer of TGC Industries,
Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 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: November 12, 2003 /s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
Date: November 12, 2003 /s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
11
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Wayne A. Whitener, Chief Executive Officer of TGC Industries, Inc.
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-15(e) and 15d-15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be
designed under our supervision, 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 and presented in this
quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures as of the end
of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that
has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting.
12
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, 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 and material weaknesses in
the design or operation of internal control over
financial reporting which are reasonably likely to
adversely affect the registrant's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal control over financial
reporting.
Date: November 12, 2003
/s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
13
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kenneth W. Uselton, Principal Financial Officer of TGC Industries, Inc.
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-15(e) and 15d-
15(e)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, 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 and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures as of the end of the period covered by
this quarterly report based on such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting.
14
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, 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 and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: November 12, 2003
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
15
EXHIBIT 32.1
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 September
30, 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: November 12, 2003
/s/ Wayne A. Whitener
Wayne A. Whitener
Chief Executive Officer
16
EXHIBIT 32.2
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 September
30, 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: November 12, 2003
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial and
Accounting Officer)
4891.00001/377523.1
17
