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, 2003
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 ($.01 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: $8,468,051
State the aggregate market value of the registered voting stock (Common Stock,
$.01 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 16, 2004: $2,410,566
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of March 16, 2004
Common Stock ($.01 Par Value) 5,695,064
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 and Item 14
to be held on June 10, 2004 of Part III
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.
2
The Series C Preferred Stock sold in the private placement entitles the
holder to receive cumulative cash dividends as, when and if declared by the
Board of Directors at a rate of 8% per annum prior to any dividend or
distribution in cash or other property on any class or series of stock
junior to the Series C Preferred Stock. The dividends on the Series C
Preferred Stock are payable as, when and if declared by the Board of
Directors on January 1 and July 1 of each year, commencing January 1, 1997.
The dividend on the Series C Preferred Stock is cumulative.
From the proceeds of the private placement, TGC made a capital
contribution to Chase of $2,716,403 to facilitate the spin-off; and TGC
retained $2,000,000 for the purchase of state-of-the-art geophysical
recording equipment. Under the terms of the spin-off, the effective date of
which was July, 31, 1996, TGC completed the spin-off of the business and
assets relating to the Chase operations, except TGC retained the Portland,
Oregon facility and canceled all inter-company debt owed by Chase to TGC.
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, 2003. As a result,
771,819 shares of Senior Preferred Stock have been issued to WEDGE Energy as
dividend payments from June 1, 2000, through December 1, 2003.
3
In February 2004, WEDGE Energy completed a transaction, selling all of
its 3,024,264 shares of Senior Preferred Stock to a small number of
investors that included several members of the Company's Board of Directors
who purchased 1,772,200 of such shares. In addition, WEDGE Energy's two
designated Board members have resigned.
General Description of the Company's Business
Geophysical Business
Since its formation, TGC has engaged in the domestic geophysical
services business principally through conducting seismic surveys and to a
lesser extent through sales of gravity information from the Company's Data
Bank to companies engaged in the exploration for oil and gas in the United
States. Geophysics is the study of the structure and composition of the
earth's interior and involves the measuring and interpretation of the
earth's properties with appropriate instruments. Such studies are generally
conducted by means of surveys performed by field crews employing seismic,
gravity, or magnetic instruments to acquire data that is then interpreted by
various means to obtain useful information for oil and gas companies. The
two survey techniques used by the Company in acquiring geophysical data are
seismic and gravity. Land seismic surveys are the Company's principal
method of data acquisition and are by far the most widely used geophysical
technique. TGC's seismic crews use dynamite 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
4
Venture, the Data Set and all related information provided the Processing
Center will be returned to the Company. In February 2004, the Company and
the Processing Center entered into an agreement to extend the Joint Venture
for a period of three years. 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, 2003, two customers accounted for
fifteen percent (15%) and twelve percent (12%) of the Company's revenue,
respectively. The Company enters into a general or master agreement with
each of its clients for the provision of geophysical services and a
supplementary agreement (which becomes a part of the general agreement) with
respect to each particular job that the Company performs for a client.
Under the terms of such agreements, the Company generally contracts to
supply all personnel, transportation and equipment to perform seismic
surveys for a given prospect for a fixed price plus reimbursement for
certain third party charges. The Company generally bills its clients on a
progressive basis over the term of the contract. The Company is generally
obligated to maintain insurance against injury or damage to persons or
equipment arising from the performance of its services and to indemnify its
customers against all claims and liability arising therefrom. Management
believes this insurance coverage is sufficient.
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 operate at a
two-crew level during the second half of 2001. However, this increased
level of activity was short-lived, and TGC reduced its operations to one
crew in 2002. As a result, management began exploring ways of increasing
bidding opportunities in existing markets. 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 financed this
additional equipment. The acquisition of this equipment opened up an
opportunity in an existing market, in which the Company had not
participated, thereby increasing its bidding opportunities. The Company has
5
been successful in the Vibroseis market with a significant portion of the
Company's 2003 revenue being generated from Vibroseis contracts. Although
the Company continued to operate at the one-crew level during 2003, revenue
increased 35% over 2002. The Company announced in mid January 2004 that,
given that oil and gas exploration companies had increased the level of
activity in their domestic oil and gas exploration programs, it had acquired
three additional Vibroseis units and deployed a second seismic crew.
Although there can be no assurance, should this increased level of activity
in the industry continue during 2004, management believes the Company will
be able to operate at the two-crew level for the remainder of 2004. 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 difficult period in the industry.
During 2001, there were a number of consolidations and mergers in the
geophysical industry. In addition, in late 2002 a major seismic competitor
shut down all its U.S. and Canadian land-based seismic operations. Although
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.
As of December 31, 2003, TGC employed 67 employees, supporting one
seismic crew with a total of 60 crew members and direct support members.
The Company believes its relationship with its employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's headquarters are in leased facilities located in Plano,
Texas from which it conducts all its current operations. These facilities
include 8,000 square feet of office and warehouse space and an outdoor
storage area of approximately 10,000 square feet. The monthly rent is
$5,832. 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, 2003, to a vote of the Company's security
holders, through the solicitation of proxies or otherwise.
6
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
16, 2004, was 120. 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
4,142,998 shares in street name. On March 17, 2004, TGC's Common Stock was
quoted at a closing bid price of $.86. The high and low bid prices shown
below represent prices among the dealers and do not include retail mark-ups,
mark-downs, or commissions, and do not necessarily represent actual
transactions.
Bid Price of TGC Common Stock
Date High Low
Bid Price Bid Price
_________ _________
October 1 -- December 31, 2003 .700 .380
July 1 -- September 30, 2003 .380 .150
April 1 -- June 30, 2003 .150 .075
January 1 -- March 31, 2003 .100 .063
October 1 -- December 31, 2002 .150 .063
July 1 -- September 30, 2002 .230 .150
April 1 -- June 30, 2002 .350 .150
January 1 -- March 31, 2002 .520 .150
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.
7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS.
Results of operations
Revenues for the year ended December 31, 2003 were $8,468,051 compared
with revenues of $6,262,206 for the year ended December 31, 2002. The
Company reported net income, before dividend requirements on preferred
stock, of $555,165 for the year ended December 31, 2003 compared with a net
loss, before dividend requirements on preferred stock of $(1,711,509) for
the year ended December 31, 2002. 2003 is the first year since 1998 that
the Company has reported net income.
In 2003, the Company was able to secure a sufficient number of
contracts to keep one of its crews employed the entire year. As a result,
TGC reported a 35% increase in revenues in 2003 over 2002. This increase in
revenue was principally the result of the Company's successful entry into
the Vibrosesis market with a significant portion of the 2003 revenue being
generated from Vibroseis contracts. Vibroseis contracts tend to have higher
margins than dynamite contracts because they do not incur the additional
third-party costs associated with dynamite contracts of drilling and
explosives. As a result of higher revenue and reduced costs, TGC's cost of
services, as a percentage of revenue, decreased to 82.1% in 2003 from 112.2%
in 2002. Selling, general and administrative expense increased to $932,709
in 2003 from $884,572 in 2002. This increase was due primarily to an
increase in expenses associated with the higher level of revenues. Interest
expense decreased to $8,792 in 2003 from $16,807 in 2002. This decrease was
attributable to the lower level of debt in 2003 compared with 2002. In June
2003, the Company issued 750,000 detachable stock warrants, with a value of
$22,500, to certain directors in exchange for their financial commitment for
a line of credit that expired December 31, 2003, in an amount up to
$300,000. During 2003, the Company had no borrowings against the line of
credit.
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 operate at a two-
crew during the second half of 2001. However, this increased level of
activity was short-lived, and TGC reduced its operations to one crew in
2002. As a result, management began exploring ways of increasing bidding
opportunities in existing markets. 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 financed this additional
equipment. The acquisition of this equipment opened up an opportunity in an
8
existing market, in which the Company had not participated, thereby
increasing its bidding opportunities. The Company has been successful in
the Vibroseis market with a significant portion of the Company's 2003
revenue being generated from Vibroseis contracts. Although the Company
continued to operate at the one-crew level during 2003, revenue increased
35% over 2002. The Company announced in mid January 2004 that, given that
oil and gas exploration companies had increased the level of activity in
their domestic oil and gas exploration programs, it had acquired three
additional Vibroseis units and deployed a second seismic crew. Though there
can be no assurance, should this increased level of activity in the industry
continue during 2004, management believes the Company will be able to
operate at the two-crew level for the remainder of 2004. Excess capacity
remains in the land-based geophysical services 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 difficult period in the industry.
During 2001, there were a number of consolidations and mergers in the
geophysical industry. In addition, in late 2002 a major seismic competitor
shut down all its U.S. and Canadian land-based seismic operations. Although
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 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. In February 2004, the Company and
the Processing Center entered into an agreement to extend the Joint Venture
for a period of three years. 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.
At December 31, 2003, the Company had net operating loss carry forwards of
approximately $7,900,000 available to offset future taxable income, which
expire at various dates through 2022.
9
Financial Condition
Cash of $1,066,743 was provided by operations for the twelve months
ended December 31, 2003, compared with cash used in operations of $404,100
for the same period of the prior year. The primary reason for the increase
in cash from operations in 2003 compared with 2002 was a significant
increase in revenue and net income in 2003 compared with 2002. Net cash of
$295,610 was used in investing activities during 2003. This was primarily
the result of capital expenditures of $314,959 to acquire three additional
Vibroseis units and replace certain vehicles and equipment that had become
worn-out during 2003. Principal payments of debt obligations in the amount
of $133,458 and principal payments on capital lease obligations of $135,574
resulted in net cash of $269,032 being used in financing activities in 2003.
The capital leases entered into in 2003 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.
Working capital increased $1,462,408 to $1,326,594 at December 31,
2003 from the December 31, 2002, working capital deficit of $135,814. The
Company's current ratio increased to 3.1 to 1.0 at December 31, 2003 from .9
to 1.0 at December 31, 2002. Stockholders' equity increased to $1,943,339
at December 31, 2003, from the December 31, 2002, balance of $1,360,274 due
primarily to the net income reported in 2003 of $555,165.
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: $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 bore interest at prime plus 1% per annum, and matured in
October 2003. The Company had committed the availability to irrevocable
letters of credit totaling $125,000 which also expired in October 2003.
Therefore, the Company had no borrowing availability under this line of
credit. The letters of credit, with an insurance company as beneficiary,
were 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 October 2003, the Company was able to secure
replacement seismic bonds from an insurance company that did not require
letters of credit.
10
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,
113,444, 118,265 and 123,291 additional shares of Senior Preferred Stock to
the Senior Preferred Stockholder as payment for the June 1, 2001, December
1, 2001, June 1, 2002, December 1, 2002, June 1, 2003 and December 1, 2003
dividends, respectively, resulting in 3,024,264 shares outstanding at
December 31, 2003.
In February 2004, WEDGE Energy completed a transaction, selling all of
its 3,024,264 shares of Senior Preferred Stock to a small number of
investors that included several members of the Company's Board of Directors
who purchased 1,772,200 of such shares. In addition, WEDGE Energy's two
designated Board members have resigned.
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 resulted in 977,550 shares
of Series C Preferred Stock being converted into 3,035,839 shares of Common
Stock during 2002. As a result, 58,100 shares of Series C Preferred Stock
remained outstanding at December 31, 2003 and the cumulative dividends in
arrears on the Series C Preferred Stock were $116,200 at December 31, 2003.
In September 2002, the Company issued 1,500,000 detachable common
stock purchase warrants exercisable at the then market price of $.20 per
share ("2002 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. In June 2003, the Company issued 750,000
detachable common stock purchase warrants on the same terms ("2003
Warrants"), with a value of $22,500, to certain directors in exchange for
their financial commitment for a line of credit that expired December 31,
2003, in an amount up to $300,000. During 2003, the Company had no
borrowings against the line of credit. Both the 2002 and 2003 Warrant
Agreements contain provisions whereby the warrant holders are entitled to
11
exercise their warrants for additional common shares of the Company as a
result of the Senior Preferred Stockholder electing to receive additional
shares of Senior Preferred Stock as Dividends. As a result, at December 31,
2003, the 2002 Warrants and the 2003 Warrants were exercisable into
1,855,000 and 811,645 shares of common stock, respectively.
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 2004, so long as one of the Company's two crews
is employed, of which there is no assurance.
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 7. FINANCIAL STATEMENTS.
Financial Statements
December 31, 2003 and 2002
CONTENTS
Reports of Independent Certified Public Accountants p. 13
Financial Statements
Balance Sheets p. 15
Statements of Operations p. 17
Statement of Stockholders' Equity p. 18
Statements of Cash Flows p. 19
Notes to Financial Statements p. 20
12
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
TGC Industries, Inc.
We have audited the accompanying balance sheet of TGC Industries, Inc. as of
December 31, 2003, and the related statements of operations, stockholders'
equity and cash flows for the year 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 audit.
We conducted our audit 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
audit provides 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, 2003, and the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Lane Gorman Trubitt, L.L.P.
Dallas, Texas
January 30, 2004
13
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
TGC Industries, Inc.
We have audited the accompanying balance sheet of TGC Industries, Inc. as of
December 31, 2002, and the related statements of operations, stockholders'
equity and cash flows for the year 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 audit.
We conducted our audit 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
audit provides 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 the results of its operations and its cash flows
for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Grant Thornton LLP
Dallas, Texas
February 4, 2003
14
TGC Industries, Inc.
BALANCE SHEETS
December 31,
2003 2002
____________ ___________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,025,221 $523,120
Trade accounts receivable 797,454 662,050
Costs and estimated earnings in excess
of billings on uncompleted contracts 30,494 32,845
Prepaid expenses and other 106,322 101,965
__________ _________
Total current assets 1,959,491 1,319,980
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 11,888,410 11,635,752
Automobiles and trucks 893,297 833,743
Furniture and fixtures 326,108 323,323
___________ __________
13,107,815 12,792,818
Less accumulated depreciation
and amortization (12,313,180) (11,173,415)
___________ ___________
794,635 1,619,403
OTHER ASSETS 4,824 4,824
___________ ____________
$2,758,950 $2,944,207
=========== ============
The accompanying notes are an integral part of these statements.
15
TGC Industries, Inc.
BALANCE SHEETS - Continued
December 31,
2003 2002
__________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 120,149 $ 199,336
Accrued liabilities 105,307 121,517
Billings in excess of costs and
estimated earnings on
uncompleted contracts 295,979 874,187
Current maturities of notes payable 2,594 133,459
Current portion of capital lease
obligations 108,868 127,295
__________ _________
Total current liabilities 632,897 1,455,794
NOTES PAYABLE, less current maturities 96,379 98,972
CAPITAL LEASE OBLIGATIONS, less current
portion 86,335 29,167
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
4,000,000 shares authorized; 8.5%
senior convertible preferred stock;
3,024,264 and 2,782,708 shares issued
and outstanding at December 31,2003 and
2002, respectively 3,024,264 2,782,708
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares issued,
58,100 shares outstanding 58,100 58,100
Common stock, $.01 and $.30 par value;
25,000,000 shares authorized; 5,727,008
and 5,547,008 issued at December 31,
2003 and 2002, respectively 57,270 1,664,102
Additional paid-in capital 6,696,047 5,302,871
Accumulated deficit (7,677,028) (8,232,193)
Treasury stock, at cost, 31,944 shares (215,314) (215,314)
__________ __________
1,943,339 1,360,274
__________ __________
$2,758,950 $2,944,207
========== ==========
The accompanying notes are an integral part of these statements.
16
TGC Industries, Inc.
STATEMENTS OF OPERATIONS
Year Ended December 31,
2003 2002
__________ __________
Revenue $8,468,051 $6,262,206
Cost and expenses
Cost of services 6,948,885 7,027,336
Selling, general and administrative 932,709 884,572
Interest expense 8,792 16,807
Debt financing costs 22,500 45,000
__________ __________
7,912,886 7,973,715
Net income(loss) 555,165 (1,711,509)
Less dividend requirements on preferred stock (302,998) (280,653)
__________ ___________
Income(loss) allocable to common
stockholders $ 252,167 $(1,992,162)
========== ===========
Earnings(loss) per common share
Basic $ 0.05 $ (0.37)
Diluted $ 0.04 $ (0.37)
Weighted average number of shares outstanding
Basic 5,546,132 5,330,492
Diluted 6,279,109 5,330,492
The accompanying notes are an integral part of these statements.
17
TGC Industries, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2003 and 2002
Additional
Preferred stock Common stock Paid-in
Accumulated Treasury
Shares Amount Shares Amount capital
deficit stock Total
______ ______ ______ ______ __________
___________ _________ _____
Balances at
January 1, 2002 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
Reduction in Par Value
of Common Stock
from $.30 to $.01 - - - (1,608,632) 1,608,632
- - - -
Dividend on 8-1/2%
senior convertible
preferred stock 241,556 241,556 - - (241,556)
- - - -
Issuance of
stock warrants - - - - 22,500
- - - 22,500
Issuance of
Common Stock - - 180,000 1,800 3,600
- - - 5,400
Net income - - - - -
555,165 - 555,165
_________ __________ _________ _______ __________
___________ _________ __________
Balances at
December 31, 2003 3,082,364 $3,082,364 5,727,008 $57,270 $6,696,047
$(7,677,028) $(215,314) $1,943,339
========= ========== ========= ======= ==========
=========== ========= ==========
The accompanying notes are an integral part of these statements.
18
TGC Industries, Inc.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002
__________ __________
Cash flows from operating activities
Net income (loss) $ 555,165 $(1,711,509)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization 1,314,042 1,522,815
Gain on disposal of property and equipment (19,349) -
Debt issuance costs 22,500 45,000
Director fees 5,400
Changes in operating assets and liabilities
Trade accounts receivable (135,404) 593,904
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,351 (12,711)
Prepaid expenses and other (4,357) (29,146)
Trade accounts payable (79,187) (868,170)
Accrued liabilities (16,210) (55,469)
Billings in excess of costs and estimated
earnings on uncompleted contracts (578,208) 111,186
_________ _________
Net cash provided by (used in)
operating activities 1,066,743 (404,100)
Cash flows from investing activities
Capital expenditures (314,959) (70,377)
Proceeds from sale of property and equipment 19,349 -
_________ _________
Net cash used in investing activities (295,610) (70,377)
Cash flows from financing activities
Proceeds from issuance of debt - 150,000
Principal payments on notes payable (133,458) (67,731)
Principal payments on capital lease obligations (135,574) (128,633)
________ _________
Net cash used in financing activities (269,032) (46,364)
________ _________
Net increase (decrease) in cash and cash
equivalents 502,101 (520,841)
Cash and cash equivalents at beginning of year 523,120 1,043,961
__________ _________
Cash and cash equivalents at end of year $1,025,221 $ 523,120
========== =========
Supplemental cash flow information
Interest paid $ 11,267 $ 14,332
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $ 174,315 $ 70,558
Financed equipment purchase $ - $ 29,861
At the election of the Senior Preferred Stockholder, 108,819, 113,444,
118,265 and 123,291 shares of 8.5% Senior Preferred Stock were issued
to the Senior Preferred Stockholder as payment for the June 1, 2002,
December 2002, June 1, 2003 and December 1, 2003 dividends, respectively.
The accompanying notes are an integral part of these statements.
19
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
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. The Company maintains
its accounts at financial institutions located in Texas. The bank accounts
are insured by the Federal Deposit Insurance Corporation up to $100,000.
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.
20
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
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 H. 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 income
(loss) and income (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,
____________________________________
2003 2002
_________________ ________________
Net income (loss) allocable to common
stockholders, as reported $ 252,167 $(1,992,162)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects $ (39,123) (54,643)
___________ ___________
Pro forma net income (loss) allocable
TO common stockholders $ 213,044 (2,046,805)
=========== ===========
Income (loss) per common share
Basic - as reported $0.05 $(.37)
Diluted - as reported $0.04 $(.37)
Basic - pro forma $0.04 $(.38)
Diluted - pro forma $0.03 $(.38)
21
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Financial Instruments
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents, accounts receivable, accounts payable and debt.
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short-term nature of
these items. Fair value of long-term debt is based on rates available to the
Company for debt with similar terms and maturities.
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
Recent Accounting Pronouncements - During 2003, the FASB released Statement
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities", and Statement No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The FASB
also revised Statement No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits and amendment of Statements No. 87, 88, and
103." The Company believes that the impact of these new standards will not
have a material effect on the Company's financial position, results of
operations or disclosures.
22
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
Note C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The components of uncompleted contracts are as follows at December 31,:
2003 2002
____________ ____________
Costs incurred on uncompleted contracts
and estimated earnings $ 111,567 $ 264,751
Less billings to date (377,052) (1,106,093)
__________ __________
$ (265,485) $ (841,342)
========== ==========
The components of uncompleted contracts are reflected in the balance sheets
at December 31, 2003 and 2002 as follows:
2003 2002
__________ __________
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 30,494 $ 32,845
Billings in excess of costs and
Estimated earnings on uncompleted
contracts (295,979) (874,187)
_________ _________
$(265,485) $(841,342)
========= =========
NOTE D - ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
2003 2002
__________ __________
Compensation and payroll taxes $ 65,690 $ 33,465
Other 39,617 88,052
_________ _________
$ 105,307 $ 121,517
========= =========
NOTE E - DEBT
Line of Credit
During 2001, the Company entered into an unsecured revolving line of credit
arrangement with a bank, providing for borrowings of up to $125,000. The
facility bore interest at prime plus 1% per annum, and matured in October
23
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE E - DEBT - Continued
2003. The Company had committed the availability to irrevocable letters of
credit totaling $125,000 which also expired in October 2003. Therefore, the
Company had no borrowing availability under this line of credit. The
letters of credit, with an insurance company as beneficiary, were 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 October 2003, the Company was able to secure replacement
seismic bonds from an insurance company that did not require letters of
credit.
On June 12, 2003, certain Directors extended a line of credit with a
$300,000 credit limit. The line of credit accrued interest at 6.75% and
matured December 31, 2003. There were no advances made under this line of
credit.
Notes Payable
Notes payable consist of the following at December 31:
2003 2002
__________ __________
Note payable to a finance company,
interest at 4%, due in monthly
installments of $552 including
interest; collateralized by
equipment and accounts receivable $ 98,973 $ 101,461
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
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
_________ _________
$ 98,973 $ 232,431
========= =========
Aggregate annual maturities of notes payable at December 31, 2003 are as
follows:
Year Ending
December 31,
______________
2004 $ 2,594
2005 2,702
2006 2,816
2007 2,934
2008 3,058
Thereafter 84,869
_________
98,973
Less current maturities (2,594)
_________
$ 96,379
=========
24
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE F - LEASES
Capital Leases
The Company leases certain specialized seismic equipment under leases
classified as capital leases. The following is a schedule showing the future
minimum lease payments under capital leases by years and the present value
of the minimum lease payments as of December 31, 2003.
Year Ending
December 31,
____________
2004 $ 115,555
2005 51,484
2006 45,681
_________
Total minimum lease payments required 212,720
Less: Amount representing interest (17,517)
_________
Present value of minimum lease payments 195,203
Less current maturities (108,868)
_________
$ 86,335
=========
The net book value of the capital assets leased was approximately $259,000
and $285,000 as of December 31, 2003 and 2002, respectively. Total
accumulated depreciation on these assets was approximately $132,000 and
$168,000 as of December 31, 2003 and 2002, respectively.
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, 2003
and 2002, was approximately $69,000 and $64,000, respectively.
The following is a schedule by years of future minimum rental payments
required under the operating lease as of December 31, 2003:
Year Ending
December 31:
____________
2004 $ 52,488
Thereafter -
_________
Total minimum payments required $ 52,488
=========
25
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE G FAIR VALUE OF DEBT OBLIGATIONS
The fair value of debt obligations is estimated using discounted cash flows
based on the Company's incremental borrowing rate for similar types of
borrowings. A comparison of the carrying value and fair value of these
instruments is as follows:
December 31,
_________________________
2003 2002
__________ __________
Carrying value $98,973 $232,431
Fair value $98,973 $201,737
NOTE H - STOCKHOLDERS' EQUITY
Earnings Per Share
The following is a reconciliation of net income and weighted average common
shares outstanding for purposes of calculating basic and diluted net income
per share:
December 31,
_________________________
2003 2002
__________ __________
Numerator:
Net income (loss) $ 555,165 $(1,711,509)
Less dividend requirements
on preferred stock (302,998) (280,653)
Income (loss) allocable to _________ ___________
common stockholders $ 252,167 $(1,992,162)
========= ===========
Denominator:
Basic - weighted average common
shares outstanding 5,546,132 5,330,492
Dilutive effect of warrants 732,977 -
_________ _________
Diluted outstanding shares 6,279,109 5,330,492
========= =========
Basic net income (loss) per share $ .05 $ (0.37)
Diluted net income (loss) per share $ .04 $ (0.37)
The effect of preferred stock dividends on the amount of income (loss)
available to common stockholders was $.05 and $.05 for the years ended
December 31, 2003 and 2002, respectively.
26
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE H - STOCKHOLDERS' EQUITY - Continued
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive total 850,000 and 1,310,274 for
the years ended December 31, 2003 and 2002, respectively.
Outstanding options that were not included in the diluted calculation
because their effect would be anti-dilutive total 182,100 and 232,100 for
the years ended December 31, 2003 and 2002, respectively.
Stock-Based Compensation Plans
The Company currently has in effect a 1993 Stock Option Plan (the "1993
Plan"). Options for up to 283,334 shares of the Company's common stock may
be granted under the 1993 Plan. 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. As of December 31,
2002, options covering 63,100 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. Options covering 34,000 shares
expired or were canceled during 2003. At December 31, 2003, outstanding
options for 29,100 shares were exercisable.
The Company currently has in effect a 1999 stock option plan (the "1999
Plan"). Options for up to 300,000 shares of the Company's common stock may
be granted under the 1999 Plan. 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 five years from the date of the grant.
As of December 31, 2002, options 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. Options covering 16,000 shares were
canceled during 2003. At December 31, 2003, outstanding options covering
153,000 shares were exercisable.
27
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE H - STOCKHOLDERS' EQUITY - Continued
The following table summarizes activity under the Plans:
Shares under Weighted average
option exercise price
____________ ________________
Balance at January 1, 2002 232,100 $ .96
Canceled/expired - -
_________ _________
Balance at December 31, 2002 232,100 .96
Canceled/expired (50,000) .98
_________ _________
Balance at December 31, 2003 182,100 $ .96
========= =========
Exercisable at December 31:
2003 182,100 $ .96
2002 175,766 $ .95
The following information applies to options outstanding and exercisable at
December 31, 2003:
Weighted
average
remaining Weighted
Range of Number contractual average
Exercise prices outstanding life (in years) exercise price
_______________ ___________ _______________ ______________
$.75 - $1.00 182,100 1.72 $.96
Stock Warrants
Effective January 1, 2001, 181,634 warrants covering 6,054 shares of common
stock expired. Per the warrant agreement, any unexercised warrants are
automatically deemed exercised at the rate of one share of the Company's
common stock for each 30 warrants held. These warrants remain unredeemed at
December 31, 2003 and 2002, 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.
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.
28
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE H - STOCKHOLDERS' EQUITY - Continued
In connection with the commitment to provide the Company with a line of
credit up to $300,000 during 2003, certain Directors received warrants
covering 750,000 shares with a value of $22,500. These warrants have a
strike price of $.20 and expire on June 12, 2013.
The agreements covering the warrants issued in 2002 and 2003 contain
provisions that in the event dividends are declared and paid on the
Company's Senior Preferred Stock in additional shares of Senior Preferred
Stock the number of additional common shares for which the warrants are
exercisable and the purchase price shall be adjusted. At December 31, 2003,
the warrants issued in 2002 and the warrants issued in 2003 were exercisable
into 1,855,000 shares at $.16 per share and 811,645 shares at $.18 per
share, respectively.
Preferred Stock
During 1996, the Company issued 1,150,350 shares of Series C 8% convertible
exchangeable preferred stock ("Series C Preferred Stock") at $5.00 per share
in a private placement offering with gross proceeds of approximately
$5,800,000. The Series C Preferred Stock is, at the option of the Company,
exchangeable into 8% subordinated convertible debentures. Prior to November
30, 2001, the Series C Preferred Stock and debentures were convertible into
shares of the Company's common stock at the conversion price of (i) $2.00
per share if exercised by December 31, 2001, (11) $3.75 per share if
exercised from January 1, 2002 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 3,035,839 shares of common stock. As a result, 58,100
shares of Series C Preferred Stock remain outstanding at December 31, 2003.
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, 113,444, 118,265 and 123,291 additional
shares of Senior Preferred Stock to the Senior Preferred stockholder as
payment for the June 1, 2001, December 1, 2001, June 1, 2002, December 1,
2002, June 1, 2003 and December 1, 2003 dividends, respectively, resulting
in 3,024,264 shares outstanding at December 31, 2003.
29
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE H - STOCKHOLDERS' EQUITY - Continued
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, 2003, following the conversion of
977,550 shares of the Series C Preferred Stock as noted above, cumulative
dividends of $116,200 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 2003 and 2002 were paid in
additional shares of Senior Preferred Stock, at the election of the Senior
Preferred Stockholder.
NOTE I - INCOME TAXES
The income tax provision (benefit) reconciled to the tax computed at the
statutory Federal rate is as follows:
Years Ended
December 31,
________________________
2003 2002
__________ __________
Federal tax provision (benefit) at statutory rate $ 188,756 $(581,913)
Non-deductible expenses 33,370 24,109
Change in valuation allowance (222,126) 557,804
_________ _________
$ - $ -
========= =========
30
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE I - INCOME TAXES - Continued
Deferred tax assets and liability consist of the following:
December 31,
________________________
2003 2002
__________ __________
Deferred tax assets
Net operating loss carryfowards $2,783,950 $3,159,224
Other 3,280 3,502
__________ __________
2,787,230 3,162,726
Deferred tax liability
Property and equipment (107,093) (260,463)
__________ __________
2,680,137 2,902,263
Less valuation allowance (2,680,137) (2,902,263)
__________ __________
Net deferred tax asset $ - $ -
========== ==========
At December 31, 2003, the Company had net operating loss carryforwards of
approximately $7,900,000 available to offset future taxable income, which
expire at various dates through 2023. Future tax benefits, such as net
operating loss carryforwards, are recognized to the extent that realization
of such benefits are more likely than not.
NOTE J - 401(k) PLAN
The Company has a 401(k) salary deferral plan which covers all employees who
have reached the age of 20.5 years and have been employed by the Company for
at least one year. The covered employees may elect to have an amount
deducted from their wages for investment in a retirement plan. The Company
makes contributions to the plan equal to 100% of each participant's salary
reduction contributions to the plan up to 2% of the participant's
compensation. The Company's matching contribution to the plan was
approximately $21,000 and $17,000 for the years ended December 31, 2003 and
2002, respectively.
31
TGC Industries, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2003 and 2002
NOTE K - CONCENTRATION OF CREDIT RISK
The Company sells its geophysical services primarily to large independent
oil and gas companies operating in the United States. The Company performs
ongoing credit evaluations of its customer's financial condition and,
generally, requires no collateral from its customers.
Sales and accounts receivable from the Company's largest customers as of and
for the years ended December 31, 2003 and 2002 consist of the following:
Accounts
Sales Receivable
_______________ _______________
Company 2003 2002 2003 2002
_______ ____ ____ ____ ____
A 15% - - 37%
B 12% - - 53%
C - 39% - -
D - 12% - -
E - 11% - -
As of December 31, 2003, three additional customers accounted for 64%, 11%
and 10% of outstanding accounts receivable, respectively.
NOTE L - CONTINGENCIES
In conducting its activities, the Company from time to time is the subject
of various claims arising from the ordinary course of business. In the
opinion of management, the ultimate resolution of such claims is not
expected to have a material adverse effect upon the financial position of
the Company.
32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
As reported on Form 8-K filed with the Securities and Exchange
Commission on April 9, 2003, Grant Thornton LLP ("Grant Thornton") notified
the Audit Committee (the "Audit Committee") of TGC and the Board of
Directors of the TGC that Grant Thornton declined to stand for re-election
as the Company's principal accountants. In addition, the Audit Committee
and the Board of Directors approved the engagement of Lane Gorman Trubitt,
L.L.P. as the Company's principal accountants.
The reports of Grant Thornton on the Company's consolidated financial
statements for the years ended December 31, 2001 and 2002 contained no
adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principle.
As stated in the Form 8-K, in connection with its audits for years
ended December 31, 2001 and 2002, there were no disagreements with Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Grant Thornton, would have caused
them to make reference thereto in their reports on the Company's
consolidated financial statements for such years.
Item 8A. 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.
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.
33
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 AND RELATED STOCKHOLDER MATTERS.
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 required 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.
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 Restated Articles of Incorporation (with amendment) as
filed with the Secretary of State of Texas on June 20,
2003.
34
3.5 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.
3.6 Amendment to the Company's First Amended Bylaws as
adopted by the Board of Directors on March 7, 1988,
filed as Exhibit 3.3 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31,
1987, and incorporated herein by reference.
4.1 Statement of Resolution Establishing Series of
Preferred Stock of TGC Industries, Inc. filed with
the Secretary of State of Texas on July 16, 1993,
filed as Exhibit 2 to the Company's Current Report on
Form 8-K dated August 11, 1993, and incorporated
herein by reference.
4.2 Statement of Resolution Establishing Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on July 9, 1996, filed as Exhibit B to the
Company's current report on Form 8-K dated July 11,
1996, filed with the Commission and incorporated
herein by reference.
4.3 Statement of Resolution Regarding Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on December 30, 1998, filed as Exhibit 4.3
to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 30, 1998, and incorporated
herein by reference.
4.4 Statement of Resolution Regarding Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on July 9, 1999, filed as Exhibit 4.4 to the
Company's Annual Report on Form 10-KSB for fiscal
year ended December 31, 2000, and incorporated herein
by reference.
4.5 Statement of Resolution regarding Series C 8%
Convertible Exchangeable Preferred Stock of TGC
Industries, Inc. as filed with the Secretary of State
of Texas on December 4, 2001, filed as Exhibit 4.5 to
the Company's Annual Report on Form 10-KSB for fiscal
year ended December 31, 2001, and incorporated herein
by reference.
35
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, filed as Exhibit 4.6 to
the Company's Annual Report on Form 10-KSB for fiscal
year ended December 31, 2002, and incorporated herein
by reference.
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
December 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, filed as Exhibit 4.11 to the
Company's Annual Report on Form 10-KSB for fiscal year
ended December 31, 2002, and incorporated herein by
reference.
10.1 Service Mark License Agreement dated as of July 31,
1986, between the Company and Supreme Industries,
Inc. (formerly ESI Industries, Inc.), relating to
the use of the Company's logo, filed as Exhibit 10(b)
to the Company's Registration Statement on Form 10
(Registration No. 0-14908), filed with the Commission
and incorporated herein by reference.
36
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.
37
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.
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.
38
Item 13 (b) Reports on Form 8-K.
One report under Item 4 of Form 8-K was filed during the
reporting period, as follows:
Form 8-K was filed on April 9, 2003, to report changes in
the registrant's certifying accountant.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by item 14 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
"Principal Accountant Fees and Services" in the proxy statement.
39
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 23, 2004 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 23, 2004 By: /s/ Wayne A. Whitener
Wayne A. Whitener
President, Chief Executive
Officer and Director
Date: March 23, 2004 By: /s/ Kenneth Uselton
Kenneth Uselton, Secretary and
Treasurer (Principal Financial and
Accounting Officer)
Date: March 23, 2004 By: /s/ William J. Barrett
William J. Barrett
Director
Date: March 23, 2004 By: /s/ Herbert M. Gardner
Herbert M. Gardner
Director
Date: March 23, 2004 By: /s/ Allen T. McInnes
Allen T. McInnes
Director
Date: March 23, 2004 By: /s/ Edward L. Flynn
Edward L. Flynn
Director
Date: March 23, 2004 By: /s/ William C. Hurtt, Jr.
William C. Hurtt, Jr.
Director
40
EXHIBIT 3.4
RESTATED ARTICLES OF INCORPORATION
(with amendment)
OF
TGC INDUSTRIES, INC.
ARTICLE ONE
TGC INDUSTRIES, INC., pursuant to the provisions of Article 4.07 of
the Texas Business Corporation Act, hereby adopts Restated Articles of
Incorporation which accurately copy the Articles of Incorporation and all
amendments thereto that are in effect to date and as further amended by such
Restated Articles of Incorporation as hereinafter set forth and which
contain no other change in any provision thereof.
ARTICLE TWO
The Articles of Incorporation of the Corporation are amended by the
Restated Articles of Incorporation as follows:
A. Article 4 is amended by amending Article 4.a. to read in its
entirety as follows:
4.a. Common Stock . The aggregate number of shares of Common
Stock which the Corporation may issue is 25,000,00 shares,
each having a par value of $.01. The shares shall be
designated as Common Stock and shall have identical rights
and privileges in every respect.
ARTICLE THREE
Each such amendment made by these Restated Articles of Incorporation
has been effected in conformity with the provisions of the Texas Business
Corporation Act, and each such amendment made by the Restated Articles of
Incorporation was duly adopted by the shareholders of the Corporation on the
12th day of June, 2003.
ARTICLE FOUR
The number of shares of capital stock of the Corporation outstanding at
the time of such adoption was 8,355,872; and the number of shares entitled
to vote thereon was 8,355,872.
The designation and number of outstanding shares of each class or
series entitled to vote thereon as a class were as follows:
41
Number of Shares Outstanding
Class or Series and Entitled to Vote
_______________ ____________________________
Common Stock 5,515,064
ARTICLE FIVE
The number of shares of capital stock voted for such amendment was
7,464,141; and the number of shares voted against such amendment was 15,345.
The number of shares of each class or series entitled to vote thereon
as a class, voting for or against such amendment were as follows:
Number of Shares Voted
Class or Series For Against
_______________ ___ _______
Common Stock 4,623,333 15,345
ARTICLE SIX
The Articles of Incorporation and all amendments and supplements
thereto are hereby superseded by the following Restated Articles of
Incorporation which accurately copy the entire text thereof and as amended
as above set forth:
1. Name. The name of the Corporation is TGC INDUSTRIES, INC.
2. Duration. The period of its duration is perpetual.
3. Purposes. The Corporation is being organized under the Texas
Business Corporation Act for the purpose of carrying out any lawful purpose
or purposes.
4. Shares. The Corporation may issue two classes of shares as
follows:
a. Common Stock. The aggregate number of shares of Common Stock
which the Corporation may issue is 25,000,000 shares, each having a par
value of $.01. The shares shall be designated as Common Stock and shall have
identical rights and privileges in every respect.
b. Preferred Stock. The aggregate number of shares of Preferred
Stock which the Corporation may issue is 4,000,000, each having a par value
of $1.00. The Preferred Stock authorized by these Restated Articles of
Incorporation may be issued from time to time in series. The shares of each
series shall be subject not only to the provisions of this Article 4b which
is applicable to all series of preferred shares, but also to the additional
provisions with respect to such series as are fixed from time to time by the
42
Board of Directors. All preferred shares of each series shall be identical
and of equal rank, except as may be modified by the Board of Directors. Each
share of each series shall be identical in all respects with the other
shares of such series, except as to the date from which dividends thereon
shall be cumulative in the event the Board designates any such series to be
cumulative preferred. The Board of Directors is hereby authorized and
required to fix, in the manner and to the full extent provided and permitted
by law, all provisions of the shares of each series not otherwise set forth
in these Articles, including, but not limited to:
(1) Designation of Series-Number of Shares. The distinctive
designation of each series and the number of shares constituting such
series, which number may be increased (except where otherwise provided by
the Board of Directors in its resolution creating such series) or decreased
(but not below the number of shares thereof then outstanding) from time to
time by resolution of the Board of Directors;
(2) Dividend Rates and Rights. The annual rate and
frequency of payment of dividends payable on the shares of all series and
the dividend rights applicable thereto, including, in the event of
Cumulative Preferred Stock, the date from which dividends shall be
cumulative on all shares of any series issued prior to the record date for
the first dividend on shares of such series;
(3) Redemption. The rights, if any, of the Corporation to
redeem; the terms and conditions of redemption; and the redemption price or
prices, if any, for the shares of each, any, or all series;
(4) Sinking Fund. The obligation, if any, of the
Corporation to maintain a sinking fund for the periodic redemption of shares
of any series and to apply the sinking fund to the redemption of such
shares;
(5) Voluntary Liquidation Preferences. The amount payable
on shares of each series in the event of any voluntary liquidation,
dissolution, or winding up of the affairs of the Corporation;
(6) Conversion Rights. The rights, if any, of the holders
of shares of each series to convert such shares into the Corporation's
Common Stock and the terms and conditions of such conversion; and
(7) Voting Rights. The voting rights, if any, of the
holders of the shares of each series, and any other preferences, and
relative, participating, optional, or other special rights, and any
qualifications, limitations, or restrictions thereof.
c. Reverse Stock Split. Effective as of 5:00 p.m. Central
Standard Time, on November 6, 1998 (referred to herein as "Effective Time"),
every three shares of the Common Stock, par value $.10, issued and
outstanding as of the Effective Time were automatically, and without action
on the part of the stockholders, converted and combined into one validly
issued, fully paid and non-assessable share of Common Stock, par value $.30,
43
(the "Reverse Split"). In the case of a holder of shares not evenly
divisible by three, such holders received in lieu of any fraction of a
share, an additional share of Common Stock. As of the Effective Time and
thereafter, a certificate(s) representing shares of Common Stock prior to
the Reverse Split were deemed to represent the number of new shares into
which the old shares were convertible.
5. Commencement Of Business. The corporation will not commence
business until it has received for the issuance of its shares consideration
having a minimum value of ONE THOUSAND AND N0/100 DOLLARS ($1,000.00) and
consisting only of labor done or money or property actually received.
6. No preemptive Rights. No shareholder or other person may have any
preemptive rights.
7. Special Provisions Permitted To Be Set Forth In Articles Of
Incorporation:
a. Interested Directors, Officers, and Shareholders.
(1) If paragraph (2) below is satisfied, no contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of the corporation's
directors or officers are directors or officers or have a financial
interest, shall be void or voidable solely for this reason, solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such
purpose.
(2) Paragraph (1) above will apply only if:
(a) The contract or transaction is fair as to the
corporation as of the time it is authorized, approved, or ratified by the
Board of Directors, a committee of the board, or the shareholders;
(b) The material facts as to the relationship or
interest of the director or officer and as to the contract or transaction
are disclosed or are known to the Board of Directors or the committee, and
the Board or committee in good faith authorizes the contract or transaction
by the affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(c) The material facts as to the relationship or
interest of the director or officer and as to the contract or transaction
are disclosed or are known to the shareholders entitled to vote thereon, and
the contract or transaction is specifically approved in good faith by a vote
of the shareholders.
44
(3) For purposes of paragraphs (1) and (2) above, common or
interested directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
b. Indemnification.
(1) The corporation shall indemnify, to the extent provided
in the following paragraphs, any person who is or was a director, officer,
agent, or employee of the corporation and any person who serves or served at
the corporation's request as a director, officer, agent, employee, partner,
or trustee of another corporation or of a partnership, joint venture, trust,
or other enterprise. In the event the provisions of indemnification set
forth below are more restrictive than the provisions of indemnification
allowed by Article 2.02-1 of the Texas Business Corporation Act, then such
persons named above shall be indemnified to the full extent permitted by
Article 2.02-1 of the Texas Business Corporation Act as it may exist from
time to time.
(2) In case of a suit by or in the right of the corporation
against a person named in paragraph (1) above by reason of such person's
holding a position named in such paragraph (1) hereafter referred to as a
derivative suit, the corporation shall indemnify such person for reasonable
expenses actually incurred by such person in connection with the defense or
settlement of the suit, but only if such person satisfies the standard in
paragraph (4) to follow.
(3) In case of a threatened or pending suit, action, or
proceeding (whether civil, criminal, administrative, or investigative),
other than a derivative suit, hereafter referred to as a non-derivative
suit, against a person named in paragraph (1) above by reason of such
person's holding a position named in such paragraph (1), the corporation
shall indemnify such person if such person satisfies the standard contained
in paragraph (4), for amounts actually and reasonably incurred by such
person in connection with the defense or settlement of the non-derivative
suit as expenses (including court costs and attorneys' fees), amounts paid
in settlement, judgments, and fines.
(4) Whether in the nature of a derivative suit or non-
derivative suit, a person named in Paragraph (1) above will be indemnified
only if it is determined in accordance with paragraph (5) above that such
person:
(a) acted in good faith in the transaction which is the
subject of the suit;
(b) reasonably believed:
(i) his conduct was in the best interests of the
corporation; and
45
(ii) in all other cases, that his conduct was not
opposed to the best interests of the
corporation; and
(c) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was
unlawful.
The termination of a proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent will not, of itself,
create a presumption that this person failed to satisfy the standard
contained in this paragraph.
(5) A determination that the standard of paragraph (4) above
has been satisfied must be made:
(a) by a majority vote of a quorum consisting of
directors who at the time of the vote are not named defendants or
respondents in the proceeding; or
(b) if such quorum cannot be obtained, by a majority
vote of a committee of the board of directors, designated to act in the
matter by a majority vote of all directors, consisting solely of two or more
directors who at the time of the vote are not named defendants or
respondents in the proceeding; or
(c) by special legal counsel selected by the board of
directors or a committee of a board by vote as set forth in subparagraphs
(a) and (b) above, or, if such quorum cannot be obtained and such committee
cannot be established, by a majority vote of all directors; or
(d) by the shareholders in a vote that excludes the
vote of directors who are named defendants or respondents in the proceeding.
(6) Authorization of indemnification and determination as to
reasonableness of expenses must be made in the same manner as the
determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special legal
counsel, authorization of indemnification and determination as to
reasonableness of expenses must be made in the manner specified by
subparagraph (5)(c) above for the selection of special legal counsel.
(7) The corporation may reimburse or pay in advance any
reasonable expenses (including court costs and attorneys' fees) which may
become subject to indemnification under paragraphs (1) through (6) above,
but only in accordance with the provisions as stated in paragraph (5) above,
and only after the person to receive the payment (i) signs a written
affirmation of his good faith belief that he has met the standard of conduct
necessary for indemnification under paragraph (4), and (ii) undertakes in
writing to repay such advances unless it is ultimately determined that such
46
person is entitled to indemnification by the corporation. The written
undertaking required by this paragraph must be an unlimited general
obligation of the director but need not be secured. It may be accepted
without reference to financial ability to make repayment.
(8) The indemnification provided by paragraphs (1) through
(6) above will not be exclusive of any other rights to which a person may be
entitled by law, bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise.
(9) The indemnification and advance payment provided by
paragraphs (1) through (7) above will continue as to a person who has ceased
to hold a position named in paragraph (1) above and will inure to such
person's heirs, executors, and administrators.
(10) The corporation may purchase and maintain insurance on
behalf of any person who holds or has held any position named in paragraph
(1) above against any liability incurred by such person in any such
position, or arising out of such person's status as such, whether or not the
corporation would have power to indemnify such person against such liability
under paragraphs (1) through (7) above.
(11) Indemnification payments and advance payments made under
paragraphs (1) through (10) above are to be reported in writing to the
shareholders of the corporation in the next notice or waiver of notice of
annual meeting, or within twelve months, whichever is sooner.
c. Bylaws. The power to alter, amend, or repeal the Bylaws is
hereby vested in the Board of Directors.
d. Non-Cumulative Voting. Directors are to be elected by
plurality vote. Cumulative voting is not permitted.
e. Purchase Own Stock. The corporation may, directly or
indirectly, purchase its own shares to the extent of the aggregate of
unrestricted capital surplus available therefor and unrestricted reduction
surplus available therefor.
f. Supermajority Vote for Business Combinations.
The affirmative vote of the holders of eighty percent (80%)
or more of the issued and outstanding shares of the Corporation at a duly
called meeting of the stockholders shall be required for the approval or
authorization of (1) any merger or consolidation of the Corporation with or
into another corporation or entity, or (2) any sale of all or substantially
all of the Corporation's assets to another corporation or entity.
g. Consideration of Fairness of Business Combinations.
The Board of Directors of the Corporation, when evaluating
any offer of another party to (1) purchase or otherwise acquire all or
substantially all of the properties or assets of the Corporation, (2) merge
or consolidate the Corporation with or into another corporation or entity,
47
or (3) make a tender or exchange offer for any equity security of the
Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration to all relevant factors, including,
without limitation: (a) the fairness of the price or financial terms of the
proposal, (b) the relationship of the proposal to the value of the
Corporation in a transaction of a similar type resulting from arm's length
negotiations; and (c) the social and economic effects of the proposed
transaction on the employees, shareholders and other constituents of the
Corporation and on the communities in which the Corporation operates or is
located.
h. Number and Classification of Directors.
The Board of Directors shall consist of not less than three
(3) nor more than nine (9) directors. The number of Directors may be
increased or decreased (within the limits stated above) by resolution of the
Board of Directors, but no decrease may have the effect of shortening the
term of any incumbent director. A director may be removed prior to the end
of the term for which he is elected only for cause and by the affirmative
vote of the holders of eighty percent (80%) or more of the issued and
outstanding shares of the Corporation at a meeting of the stockholders duly
called for the consideration of such removal. At any such time as the Board
of Directors shall consist of nine (9) directors, the Board of Directors may
by resolution classify the Board into three (3) classes, each class to
consist of three (3) directors. The term of office of directors of the first
class shall expire at the first annual meeting of shareholders after their
election, that of the second class shall expire at the second annual meeting
after their election, and that of the third class shall expire at the third
annual meeting after their election. At each annual meeting after such
classification the number of directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting.
i. Supermajority Vote for Amendment of this Article.
The provisions set forth in this Article 7 may not be
amended, altered, changed or repealed in any respect unless such action is
approved by the affirmative vote of the holders of eighty percent (80%) or
more of the issued and outstanding shares of the corporation at a meeting of
the stockholders duly called for the consideration of such amendment,
alteration, change or repeal.
j. Limitation of Liability.
No director of the corporation shall be personally liable to
the corporation or its shareholders for monetary damages for an act or
omission in the director's capacity as a director, except that this
paragraph does not eliminate or limit the liability of a director for (1)
48
breach of a director's duty of loyalty to the corporation, (2) an act or
omission not in good faith or that involves intentional misconduct or a
knowing violation of the law, (3) a transaction from which a director
received an improper benefit, whether or not the benefit resulted from an
action taken within the scope of the director's office, (4) an act or
omission for which the liability of a director is expressly provided for by
statute, or (5) an act related to an unlawful corporate distribution.
Neither the amendment nor repeal of this paragraph shall eliminate or reduce
the effect of this paragraph in respect of any matter occurring, or any
cause of action, suit or claim that, but for this paragraph, would accrue or
arise, prior to such amendment or repeal. If the Texas Business Corporation
Act or the Texas Miscellaneous Corporation Laws Act is hereinafter amended
to authorize corporate action further eliminating or limiting their personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Texas
Business Corporation Act or the Texas Miscellaneous Corporation Laws Act, as
so amended from time to time.
8. Registered Office and Agent. The street address of the
Corporation's present registered office and the name of its initial
registered agent at such address are as follows:
CT Corporation System
350 N. St. Paul
Dallas, Texas 75201
9. Directors. The number of directors constituting the present board
of directors is eight, and the names and addresses of the persons who will
serve as directors until the next annual meeting and until their successors
are duly elected and qualified are:
Name Address
William J. Barrett 636 River Road
Fair Haven, New Jersey 07704
Edward L. Flynn 75 - 11 Myrtle Avenue
Glendale, New York 11385
Herbert M. Gardner 636 River Road
Fair Haven, New Jersey 07704
William C. Hurtt, Jr. 236 Navesink Avenue
Navesink, New Jersey 07752
Allen T. McInnes TGC Industries, Inc.
1304 Summit Avenue, Suite 2
Plano, Texas 75074
Pasquale V. Scaturro 1415 Louisiana, Suite 3000
Houston, Texas 77002
49
James M. Tidwell 1415 Louisiana, Suite 3000
Houston, Texas 77002
Wayne A. Whitener TGC Industries, Inc.
1304 Summit, Suite 2
Plano, Texas 75074
DATED this 18th day of June, 2003.
TGC INDUSTRIES, INC.
By: /s/ Wayne A. Whitener
Wayne A. Whitener, President and CEO
50
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 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-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 annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this
annual report based on such evaluation; and
c) disclosed in this annual report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal year that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
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):
51
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: March 23, 2004
/s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
52
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 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-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 annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls
and procedures as of the end of the period covered by this
annual report based on such evaluation; and
c) disclosed in this annual report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal year that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
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):
53
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: March 23, 2004
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Secretary/Treasurer (Principal Financial
and Accounting Officer)
54
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 annual
report on Form 10-KSB (the "Form 10-KSB") for the fiscal year ended December
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-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 23, 2004
/s/ Wayne A. Whitener
Wayne A. Whitener
Chief Executive Officer
55
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 annual
report on Form 10-KSB (the "Form 10-KSB") for the fiscal year ended December
31, 2003 of TGC Industries, Inc. (the "Company"). I, Kenneth W. Uselton,
Secretary/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 23, 2004
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Secretary/Treasurer (Principal
Financial and Accounting Officer)
4891.00001/401663.1
56