U.S. SECURITIES AND EXCHANGE
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING MARCH 31, 2004.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________.
Commission File Number 0-14908
TGC INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
Texas 74-2095844
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1304 Summit, Suite 2
Plano, Texas 75074
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 972-881-1099
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 2004
Common Stock ($.01 Par Value) 5,729,948
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Incorporated herein is the following unaudited financial information:
Balance Sheet as of March 31, 2004.
Statements of Operations for the three-month periods ended
March 31, 2004 and 2003.
Statements of Cash Flows for the three-month periods ended
March 31, 2004 and 2003.
Notes to Financial Statements.
2
TGC INDUSTRIES, INC.
BALANCE SHEET
(UNAUDITED)
MARCH 31,
2004
_______________
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,081,885
Trade accounts receivable 3,440,822
Cost and estimated earnings in excess
of billings on uncompleted contracts 2,814
Prepaid expenses and other 83,224
____________
Total current assets 5,608,745
PROPERTY AND EQUIPMENT - at cost
Machinery and equipment 12,494,751
Automobiles and trucks 982,066
Furniture and fixtures 326,108
____________
13,802,925
Less accumulated depreciation
and amortization (12,507,540)
____________
1,295,385
OTHER ASSETS 3,395
____________
Total assets $ 6,907,525
============
See notes to Financial Statements
3
TGC INDUSTRIES, INC
BALANCE SHEET -- CONTINUED
(UNAUDITED)
MARCH 31,
2004
________________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 966,269
Accrued liabilities 81,191
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,736,750
Current maturities of notes payable 63,688
Current portion of capital lease obligations 91,357
___________
Total current liabilities 3,939,255
NOTES PAYABLE, less current maturities 95,740
CAPITAL LEASE OBLIGATIONS, less current portion 125,124
COMMITMENTS AND CONTINGENCIES -
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 4,000,000
shares authorized:
8-1/2% Senior convertible preferred stock;
3,024,264 shares issued and outstanding 3,024,264
8% Series C convertible exchangeable
preferred stock; 1,150,350 shares issued,
58,100 shares outstanding 58,100
Common stock, $.01 par value; 25,000,000
shares authorized; 5,727,008 shares issued 57,270
Additional paid-in capital 6,710,599
Accumulated deficit (6,887,513)
Treasury stock, at cost (31,944 shares) (215,314)
__________
2,747,406
____________
Total liabilities and stockholders' equity $ 6,907,525
============
See notes to Financial Statements
4
TGC INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
____________________________
(Unaudited)
2004 2003
____________ ____________
Revenue $2,970,872 $1,601,805
Cost of services 1,877,894 1,437,431
Selling, general, administrative 300,395 205,749
_________ __________
2,178,289 1,643,180
INCOME (LOSS) FROM OPERATIONS 792,583 (41,375)
Interest expense 3,068 2,104
_________ _________
NET INCOME (LOSS) 789,515 (43,479)
Less dividend requirements on
preferred stock 79,715 73,812
___________ ____________
INCOME (LOSS) ALLOCABLE TO
COMMON STOCKHOLDERS $ 709,800 $ (117,291)
=========== ============
Earnings (loss) per common share:
Basic $ .13 $ (.02)
Diluted $ .07 $ (.02)
Weighted average number of
shares outstanding:
Basic 5,695,064 5,515,064
Diluted 11,435,921 5,515,064
See notes to Financial Statements
5
TGC INDUSTRIES, INC.
Statements of Cash Flows (Unaudited)
Three Months Ended
March 31,
_________________________
(Unaudited)
2004 2003
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 789,515 $ (43,479)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 194,360 373,546
Directors fees 11,512 -
Warrants issued for services 3,039 -
Changes in operating assets and
liabilities
Trade accounts receivable (2,643,368) 162,326
Cost and estimated earnings
in excess of billings
on uncompleted contracts 27,680 29,449
Prepaid expenses 23,098 99,241
Other assets 1,429 -
Trade accounts payable 846,120 227,405
Accrued liabilities (24,116) (73,622)
Billings in excess of cost
and estimated earnings on
uncompleted contracts 2,440,771 (170,677)
___________ ___________
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,670,040 604,189
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (581,809) (40,136)
___________ ___________
NET CASH USED IN INVESTING ACTIVITIES (581,809) (40,136)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (638) (131,583)
Principal payments on capital lease obligations (30,929) (65,321)
___________ ___________
NET CASH USED IN FINANCING ACTIVITIES (31,567) (196,904)
___________ ___________
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,056,664 367,149
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,025,221 523,120
____________ ___________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,081,885 $ 890,269
============ ===========
Supplemental cash flow information
Interest paid $ 3,068 $ 2,104
Income taxes paid $ - $ -
Noncash investing and financing activities
Capital lease obligations incurred $ 52,207 $ -
Financed equipment purchase $ 61,094 $ -
At the election of the Senior Preferred Stockholder, 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, 2003 and December 1, 2003 dividends,
respectively.
See notes to Financial Statements
6
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2004
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and changes in financial position in
conformity with accounting principles generally accepted in the United
States of America.
NOTE B -- MANAGEMENT PRESENTATION
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of
financial position, results of operations, and changes in financial position
have been included. The results of the interim periods are not necessarily
indicative of results to be expected for the entire year. For further
information, refer to the financial statements and the footnotes thereto
included in the Company's Annual Report for the year ended December 31, 2003
filed on Form 10-KSB.
NOTE C -- EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share are based upon the weighted average
number of shares of common stock outstanding. Diluted earnings (loss) per
share are based upon the weighted average number of common shares
outstanding and, when dilutive, common shares issuable for stock options,
warrants and convertible securities. The effect of preferred stock
dividends on the amount of income (loss) available to common stockholders
was $.01 and $(.01) for the three months ended March 31, 2004 and 2003,
respectively.
Outstanding warrants that were not included in the diluted calculation
because their effect would be anti-dilutive totaled 8,000 and 2,350,000 for
the three-month period ended March 31, 2004 and 2003, respectively.
Outstanding options that were not included in the diluted calculation
because their effect would be anti-dilutive totaled 143,000 and 222,100 for
the three months ended March 31, 2004 and 2003, respectively.
NOTE D DIVIDENDS
Holders of the Company's Series C 8% Convertible Exchangeable Preferred
Stock ("Series C Preferred Stock") will receive, when, as and if declared by
the Board of Directors of the Company, dividends at a rate of 8% per annum.
The dividends are payable semi-annually during January and July of each
year. At March 31, 2004, cumulative dividends of $116,200 were in arrears
on the Company's Series C Preferred Stock.
7
TGC INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2004
NOTE D DIVIDENDS - (Continued)
Holders of the Company's 8-1/2% Senior Convertible Preferred Stock (the
"Senior Preferred Stock") will receive, when, as and if declared by the
Board of Directors of the Company, dividends at a rate of 8-1/2% per annum.
The dividends are payable semi-annually during June and December of each
year. Dividends paid during 2000, on the Senior Preferred Stock, were paid
in additional shares of Senior Preferred Stock, in accordance with the terms
of the Statement of Resolution Establishing the Senior Preferred Stock. In
addition, the holders elected to receive payment of the 2001, 2002 and 2003
dividends in additional shares of Senior Preferred Stock. At March 31,
2004, there were no dividends in arrears on the Company's Senior Preferred
Stock.
NOTE E INCOME TAXES
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. Current year federal taxable income
is being offset with net operating loss carryforwards, therefore, no federal
tax expense is reflected on the statements of operations. Presently
deferred tax assets are fully reserved.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company experienced an increase in demand for its services in late 2003
and secured a sufficient number of contracts to keep both of its crews
employed during the first quarter of 2004. As a result, TGC reported net
income, before dividend requirements on preferred stock, of $789,515 on
revenue of $2,970,872, for the three month period ended March 31, 2004
compared with a net loss, before dividend requirements on preferred stock,
of $43,479 on revenue of $1,601,805 for the same period of 2003. Income per
common share, on a basic and diluted basis, was $.13 and $.07, respectively,
for the three month period ended March 31, 2004, compared with a loss per
common share, on a basic and diluted basis, of $.02 for the same period of
2003. At December 31, 2003, TGC had net operating loss carryforwards of
approximately $7,900,000 available to offset future taxable income, which
expire at various dates through 2023. As a result, the basic and diluted
earnings per common share for the three months ended March 31, 2004, was
based on net income before any provision for income taxes. See Note E.
The number of common shares used in the (loss) per share computation for the
three month period ended March 31, 2003 do not include any common shares
issuable for stock options, warrants or convertible securities because the
effect of their inclusion would be anti-dilutive.
8
Oil and gas exploration companies have recently increased the level of
activity in their domestic oil and gas exploration programs. Though there
can be no assurance, should this increased level of activity in the industry
continue, management believes TGC may secure enough contracts to enable the
Company to improve its performance during 2004 compared with 2003.
Non-cash charges for depreciation and amortization were $194,360 in the
first three months of 2004 compared with $373,546 for the same period of
2003.
FINANCIAL CONDITION
Cash of $1,670,040 was provided by operations during the first three months
of 2004 compared with cash provided by operations of $604,189 for the same
period of 2003. This increase was primarily the result of an increasing
level of activity in the first three months of 2004 compared with the same
period of 2003. During the first three months of 2004, $581,809 was used in
investing activities for capital expenditures for additional vehicles and
seismic equipment. Principal payments of notes payable of $638 along with
principal payments of capital lease obligations of $30,929 resulted in net
cash of $31,567 being used in financing activities during the first three
months of 2004. TGC anticipates that available funds, together with
anticipated cash flows generated from future operations, will be sufficient
to meet TGC's minimum lease and note payment obligations.
In September 2002, TGC issued 1,500,000 stock warrants to certain directors
in exchange for a line of credit, that expired December 31, 2002, in an
amount up to $300,000. The warrants cover 1,500,000 shares of Common Stock,
expire on September 10, 2012, and are exercisable at $.20 per whole share.
During September 2002, TGC borrowed $150,000 of the available funds. The
promissory notes, which bore interest at 6.75% per annum, were paid in full
during December 2002 and January 2003.
In March 2003, the same group of directors committed to provide a line of
credit up to $300,000 through December 31, 2003. Warrants covering 750,000
shares of Common Stock were issued in consideration for the commitment to
provide the line of credit. The warrants expire on June 12, 2013, and are
exercisable at $.20 per whole share. The Company had no borrowings against
the line of credit in 2003.
Working capital increased $342,896 to $1,669,490 at March 31, 2004 from the
December 31, 2003, working capital of $1,326,594. The Company's current
ratio was 1.4 at March 31, 2004, compared with 3.1 at December 31, 2003.
Stockholders' equity increased $804,067 to $2,747,406 at March 31, 2004 from
the December 31, 2003 balance of $1,943,339. This increase was primarily
attributable to the net income, before dividend requirements on preferred
stock, of $789,515.
Management believes, although there can be no assurance, that available
funds together with anticipated cash flows generated from future operations
will be sufficient to meet the Company's cash needs during 2004.
9
Forward-Looking Statements
This report contains forward-looking statements which reflect the view of
Company's management with respect to future events. Although management
believes that the expectations reflected in such forward-looking statements
are reasonable; it can give no assurance that such expectations will prove
to have been correct. Important factors that could cause actual results to
differ materially from such expectations are disclosed in the Company's
Securities and Exchange Commission filings, and include, but are not limited
to the dependence upon energy industry spending for seismic services, the
unpredictable nature of forecasting weather, the potential for contract
delay or cancellation, the potential for fluctuations in oil and gas prices,
and the availability of capital resources. The forward-looking statements
contained herein reflect the current views of the Company's management and
the Company assumes no obligation to update the forward-looking statements
or to update the reasons actual results could differ from those contemplated
by such forward-looking statements.
ITEM 3. 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 II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following is a list of exhibits to this Form 10-QSB:
31.1 Certification of Chief Executive Officer of TGC Industries,
Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification of Treasurer (Principal Financial and
Accounting Officer) of TGC Industries, Inc. pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer of TGC Industries,
Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Treasurer (Principal Financial and
Accounting Officer) of TGC Industries, Inc. pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
10
b. Reports on Form 8-K:
Three reports under Item 5 of Form 8-K were filed during the
reporting period, as follows:
Form 8-K was filed on January 16, 2004, to report an increase in
demand for the Company's services, securing a sufficient number of
contracts to deploy a second crew.
Form 8-K was filed on February 27, 2004, to report WEDGE Energy
Services, L.L.C. ("WEDGE Energy") had completed a transaction,
selling all 3,024,264 outstanding shares of the Company's 8.5%
Senior Convertible Preferred Stock to a group of purchasers in
private transactions. The group of purchasers includes 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.
Form 8-K was filed on March 2, 2004, to report the Company issued
a press release reporting its results for the fiscal year ended
December 31, 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TGC INDUSTRIES, INC.
Date: May 12, 2004 /s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
Date: May 12, 2004 /s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
11
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Wayne A. Whitener, Chief Executive Officer of TGC Industries, Inc.
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TGC
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures as of the end of the period covered by
this quarterly report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
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):
12
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: May 12, 2004
/s/ Wayne A. Whitener
Wayne A. Whitener
President & Chief
Executive Officer
(Principal Executive Officer)
13
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Kenneth W. Uselton, Principal Financial Officer of TGC Industries, Inc.
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of TGC
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures as of the end of the period covered by
this quarterly report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
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):
14
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: May 12, 2004
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer (Principal Financial
and Accounting Officer)
15
EXHIBIT 32.1
Certification of
Chief Executive Officer
of TGC Industries, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the quarterly
report on Form 10-QSB(the "Form 10-QSB") for the quarter ended March 31,
2004 of TGC Industries, Inc. (the "Company"). I, Wayne A. Whitener, the
Chief Executive Officer of the Company, certify that, to the best of my
knowledge:
(1) The Form 10-QSB fully complies with the requirements of section
13(a) or section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: May 12, 2004
/s/ Wayne A. Whitener
Wayne A. Whitener
Chief Executive Officer
16
EXHIBIT 32.2
Certification of
Treasurer (Principal Financial and Accounting Officer)
of TGC Industries, Inc. Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
This certification is furnished solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the quarterly
report on Form 10-QSB (the "Form 10-QSB") for the quarter ended March 31,
2004 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-QSB fully complies with the requirements of section
13(a) or section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Form 10-QSB fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: March 12, 2004
/s/ Kenneth W. Uselton
Kenneth W. Uselton
Treasurer
(Principal Financial and
Accounting Officer)
414308.1
17
