**U.S. SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-KSB**

(MarkOne)

**x**                              ANNUALREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe Fiscal Year Ended December 31, 2006**

**o**                                 TRANSITIONREPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

**Forthe period from                to                **

**CommissionFile Number 0-14908**

**TGC INDUSTRIES, INC.**

(Name of small business issuer in its charter)

| **Texas**                                                       |   | **74-2095844**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction  of incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| **101 E. Park Blvd. Suite 955, Plano, Texas**                   |   | **75074**                             |
| (Address of  principal executive offices)                       |   | (Zip Code)                            |
| Issuer’s  telephone number:**(972) 881-1099**              |

Securitiesregistered under Section 12(b) of the Exchange Act:  **NONE**

Securities registered under Section 12(g) of theExchange Act:

| **Title of each class**        |   | **Name of  exchange on which registered** |
|--------------------------------|--------|-------------------------------------------|
| Common Stock  ($.01 Par Value) |   | American Stock  Exchange                  |

Check whether the issueris not required to file reports pursuant to Section 13 or 15(d) of the ExchangeAct.  Yes o   No x

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes  x  No  o

Checkif there is no disclosure of delinquent filers in response to Item 405 of RegulationS-B contained in this form, and no disclosure will be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. x

Indicateby check mark whether the registrant is a shell company as defined by Rule 12b-2of the Exchange Act. Yes  o   No  x
| State issuer’s revenues (from continuing  operations) for its most recent fiscal year: | **$67,760,306** |
|---------------------------------------------------------------------------------------------|-----------------|

 
| State the aggregate market value of the voting  and non-voting common equity held by non-affiliates computed by reference     |
|-------------------------------------------------------------------------------------------------------------------------------|
| to the price at which the common equity was sold, or  the average bid and asked price of such common equity, as of March      |
| 19, 2007 (for the purpose of this calculation only  directors, executive officers, and 10% or greater stockholders are deemed |
| to be affiliates):                                                                                                            | **$88,368,540** |

 

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date.

| **Class**                               | ** ** | **Outstanding  as of March 19, 2007**   |
|-----------------------------------------|------------|-----------------------------------------|
| Common Stock  ($.01 Par Value)          |       | 15,745,717                              |
| **Document**                            | ** ** | **Documents Incorporated by Reference** |
| Portions of the  Proxy Statement        |       | Parts of the  Form 10-KSB Into Which    |
| For the Annual  Meeting of Shareholders |       | the Document is  Incorporated:          |
| To be held on  June 5, 2007             |       | Part III                                |

Transitional Small Business Disclosure Format (checkone).  Yes  o   No  x

 

 

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**Part I**

**ITEM 1. DESCRIPTION OF BUSINESS.**

     TGC Industries, Inc. (“TGC” or the “Company”)is a Texas corporation engaged in the geophysical service business of primarilyconducting Three-D (“3-D”) surveys for clients in the oil and gasbusiness.  TGC’s principal businessoffice is located at 101 E. Park Blvd., Suite 955, Plano, Texas 75074.  (Telephone: 972-881-1099).

# **BUSINESS**

**History**

In April of 1980, Supreme Industries, Inc., formerly ESIIndustries, Inc., (“Supreme”) formed a wholly-owned subsidiary, TidelandsGeophysical Co., Inc., that acquired certain equipment, instruments, andrelated supplies from a Houston-based corporation that was engaged in thebusiness of conducting seismic, gravity, and magnetic surveys under contractsfor oil and natural gas companies.  OnJune 30, 1986, the Boards of Directors of Supreme and TGCIndustries, Inc. approved a spin-off of substantially all of the shares ofTGC Industries, Inc., owned by Supreme which were distributed as a stockdividend to Supreme’s security holders. In July of 1986, our name was changed from “Tideland’s GeophysicalCo. Inc.” to “TGC Industries, Inc.”

We are a leading provider of seismic data acquisition servicesthroughout the continental U.S. As of December 31, 2006, we operated eightseismic crews.  These  seismic crews supply seismic data to companies engaged in the domestic exploration anddevelopment of oil and natural gas on land and in land-to-water transitionareas. Our customers rely on seismic data to identify areas where subsurface conditionsare favorable for the accumulation of existing hydrocarbons, to optimize thedevelopment and production of hydrocarbon reservoirs, to better delineateexisting oil and natural gas fields, and to augment reservoir managementtechniques.

We acquire geophysical data using the latest in 3-D survey techniques.We introduce acoustic energy into the ground by using vibration equipment ordynamite detonation, depending on the surface terrain and subsurfacerequirements. The reflected energy, or echoes, is received through geophones,converted into a digital signal at a multi-channel recording unit, and thentransmitted to a central recording vehicle. Subsurface requirements dictate thenumber of channels necessary to perform our services. With our state-of-the-artseismic equipment, including computer technology and multiple channels, weacquire, on a cost effective basis, immense volumes of seismic data that whenprocessed and interpreted produce more precise images of the earth’ssubsurface. Our customers then use our seismic data to generate 3-D geologicmodels that help reduce finding costs and improve recovery rates from existingwells.

**TheIndustry**

Technological advances in seismic equipment and computing allow theseismic industry to economically acquire and process immense volumes of seismicdata which produce more precise images of the earth’s subsurface. The latestaccepted method of seismic data acquisition, processing, and the subsequentinterpretation of the processed data is the 3-D seismic method. Geophysicistsuse computer workstations to interpret 3-D data volumes, identify subsurfaceanomalies, and generate a geologic model of subsurface features.

3-D seismic data are used in the exploration and development for newreserves and enable oil and natural gas companies to better delineate existingfields and to augment their reservoir management techniques. Benefits ofincorporating high resolution 3-D seismic surveys into exploration anddevelopment programs include reducing drilling risk, decreasing oil and naturalgas finding costs, and increasing the efficiencies of reservoir location,delineation, and management. In order to meet the requirements necessary tofully realize the benefits of 3-D seismic data, there is an increasing demandfor improved data quality with greater subsurface resolution.

Currently, the seismic data acquisition industry is made up of a numberof companies divided into two groups. The first group is made up of fivepublicly-traded companies with long operating histories who field numerouscrews and work in a number of different regions and terrain.  This group includes us, Dawson GeophysicalCompany, Geo Kinetics, Inc., CGG-Veritas, and Petroleum Geo Services.  These companies field approximately 50% ofthe estimated 55****seismic crews currently operatingin the continental U.S.  The second groupis made up of smaller companies who generally run one or two seismic crews andoften specialize in specific regions or type of operation.

We provide our seismic data acquisition services primarily to domesticonshore oil and natural gas exploration and development companies for use inthe onshore drilling and production of oil and natural gas in the continentalU.S. The main factors influencing demand for seismic data acquisition servicesin our industry are the level of drilling activity by oil and natural gascompanies and the sizes of such companies’ exploration and development budgets,which, in turn, depend largely on current and anticipated future crude oil andnatural gas prices and depletion rates.

**Equipmentand Crews**

 In the fourth quarter of 2004,we acquired, and placed into service, our first new ARAM ARIES recordingsystem.  In July of 2005, wedeployed our fourth seismic data acquisition crew along with our second newARAM ARIES recording system.  In Novemberof 2005, we deployed our fifth seismic data acquisition crew along with ourthird new ARAM ARIES recording system. In December of 2005, we completed a loan transaction with a commerciallender for the purpose of providing funds for the purchase 

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of our fourthnew ARAM ARIES recording system.  InJanuary of 2006, we deployed a sixth crew to operate this fourth new ARAM ARIESrecording system.    In May of 2006, wedeployed our seventh seismic data acquisition crew along with our fifth newARAM ARIES recording system.  In Octoberof 2006, we deployed our eighth seismic data acquisition crew along with oursixth new ARAM ARIES recording system.

Six of our crews utilize the new state-of-the-art ARAM ARIES recordingsystems.  These systems employ cabletelemetry technology enhanced by multiple baseline and redundant cableconnections that provide seismic data acquisition services with increasedreliability.  The other two crews utilizethe Opseis Eagle data gathering system. This system employs radio-frequency (“RF”)telemetry technology providing seismic data-gathering services to land-to-watertransition areas, rivers, lakes, inaccessible terrain, deserts, and man-madebarriers such as highways and cities.

We currently own equipment for eight land-based seismic dataacquisition crews and 48 vibration vehicles equipped with Pelton electronics.Each crew consists of approximately 35 to 45 technicians with associatedvehicles, geophones, a seismic recording system, energy sources, cables, and avariety of other equipment. Each crew has one central recording vehicle whichcaptures seismic data. This data is recorded on a CD ROM or data tape which isdelivered to a data processing center selected by the customer.

**CapitalExpenditures**

We believe that it is essential to take advantage of advances inseismic technology and to commit capital to purchase and update our equipmentcost effectively. Purchasing and updating seismic equipment and technologyinvolves a continuing commitment to capital spending. For fiscal year 2006,capital expenditures, including the $1,800,000 purchase of the assets ofHighland Industries, were approximately $24,667,000 compared with approximately$20,525,000 for 2005.

**Customersand Consultants**

Our customers are major and independent oil and natural gas explorationand development companies. The services we provide to our customers varyaccording to the size and needs of each customer. Our services are marketed bysupervisory and executive personnel who contact customers to determine theirneeds and respond to customer inquiries regarding the availability of crews.Contacts are based principally upon professional relationships developed over anumber of years. There are a number of consultants in the oil and natural gasindustry who process and interpret seismic data for oil and natural gascompanies. These consultants can have an influence in determining which companytheir customers use to acquire seismic data.

One of the benefits from the rapid growth we experienced in 2006 and2005 is the fact that we have been able to reduce our customerconcentration.  As a result, for the yearended December 31, 2006, no customer accounted for more than 10% of ourrevenues.  For the year endedDecember 31, 2005, two customers accounted for approximately 11.6% and10.6% of our revenues.   We expect thatthis reduction in customer concentration will continue during 2007.

In order to avoid potential conflicts of interest with our customers,we do not participate in oil and natural gas ventures. The results of a seismicsurvey conducted for a customer belong to that customer. All of our customer’sinformation is maintained in strictest confidence.

**Contracts**

Our contracts are obtained either through competitive bidding or as a resultof customer negotiations. Our services are conducted under general serviceagreements for seismic data acquisition services which define certainobligations for us and for our customers. A supplemental agreement settingforth the terms of a specific project, which may be cancelled by either partyupon 60 days advance written notice, is entered into for every project. Wecurrently operate under supplemental agreements that are either “turnkey”agreements providing for a fixed fee to be paid to us for each unit of dataacquired or “term” agreements providing for a fixed hourly, daily, or monthlyfee during the term of the project or projects.

**Competition**

The acquisition of seismic data for the oil and natural gas industry isa highly competitive business. There are approximately  55 seismic crews currently operating in thecontinental United States. Contracts for such services generally are awarded onthe basis of price quotations, crew experience, and the availability of crewsto perform in a timely manner, although factors other than price, such as crewsafety performance history, technological and operational expertise, are oftendeterminative. Our competitors include companies with financial resources thatare significantly greater than our own as well as companies of comparable andsmaller size. Our primary competitors are Dawson Geophysical Company, GeoKinetics, Inc., Petroleum Geo Services, and to a lesser extent,CGG-Veritas. In addition to the previously named companies, we also compete forprojects from time to time with smaller seismic companies which operate inlocal markets with only one or two crews. We believe that our long-term industry expertise, the customerrelationships developed over our history, and our financial stability give usan advantage over most of our competitors in the industry.

**Employees**

As of December 31, 2006, we employed a total of 481 full-time(non-union) employees, of which 13 consisted of management, sales andadministrative personnel with the remainder being crew and crew supportpersonnel. We also hire contract labor for our crews on an as-needed basis. Webelieve our relationship with our employees to be satisfactory.

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**Data Bank**

We own a data bank which contains gravity data, and to a lesser extentmagnetic data, from many of the major oil and natural gas producing areaslocated within the U.S. We do not have a seismic data bank. Our data bankinformation has been amassed through participatory surveys as well asspeculative surveys historically funded by us alone. All data andinterpretations may be licensed to customers at a fraction of the cost of newlyacquired data. However, the licensing of this data is not a significant portionof our revenues.

**OperatingRisks and Insurance**

Our business is subject to the hazards inherent in conducting seismicdata acquisition activities in hostile environments with dangerous machinery,and in some instances explosives. These activities can cause personal injury orloss of life, damage to or destruction of property, equipment, the environment,and marine life, and suspension of operations.

In addition, we could be subject to personal injury or real propertydamage claims in the normal operation of our business. Such claims may not becovered by the indemnification provisions in our general service agreements tothe extent that the damage is due to our negligence or intentional misconduct.

We do not carry insurance against certainrisks that we could experience such as business interruption resulting fromequipment maintenance or weather delays. We obtain insurance against certainproperty and personal casualty risks and other risks when such insurance isavailable and when our management considers it advisable to do so. Currently,our insurance coverage consists of employers liability with limits of$1,000,000 per accident and $2,000,000 in the aggregate, commercial generalliability of $1,000,000 per accident and $2,000,000 in the aggregate, pollutionliability of $1,000,000 per accident and $2,000,000 in the aggregate,automobile liability with a $1,000,000 combined single limit, and a $10,000,000umbrella policy. Our general service agreements require us to have specificamounts of insurance. There can be no assurance, however, that any insuranceobtained by us will be adequate to cover any losses or liabilities, or thatthis insurance will continue to be available or available on terms which areacceptable to us. Liabilities for which we are not insured, or which exceed thepolicy limits of our applicable insurance, could have a material adverse effecton us.

**ITEM 2.DESCRIPTION OF PROPERTY.**

In April of 2004, we executed an addendum to an operating lease for afacility that includes approximately 10,500 square feet of office and warehousespace and an outdoor storage area of approximately 20,000 square feet.  The monthly rent is $6,878.  This facility is used to repair geophysicalequipment and housed our corporate offices until September 2006.  In September of 2005, we leased an additionalfacility, in Plano, Texas, with approximately 10,000 square feet of office andwarehouse space and an additional 10,000 square feet of outdoor storage toaccommodate our recent growth.  Thisfacility is used primarily to repair geophysical equipment.  The monthly rent is $3,542.  In January of 2006, we leased a 600 squarefoot facility in Houston, Texas, to be used as a sales office.  The monthly rent is $734.    In July of 2006, we entered into anoperating lease for 7,269 square feet of office space located in Plano,Texas.  In September of 2006, werelocated our corporate offices to this facility.  The monthly rent is $9,995.  In October of 2006, we leased an 800 squarefoot facility in Oklahoma City, Oklahoma, to be used as a sales office.  The monthly rent is $665.  The Company is not responsible for insuringthese facilities.  The conditions ofthese facilities are good, and we believe that these properties are suitableand adequate for our foreseeable needs.

**ITEM 3.LEGAL PROCEEDINGS.**

Currentlywe are not a defendant in any legal actions. However, we have been or may become a defendant in other legal actionsthat arose or may arise out of the normal course of business.  In our opinion, none of these actions have orwill result in any significant loss to us.

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS.**

Nomatters were submitted by the Company, during the fourth quarter of the fiscalyear ended December 31, 2006, to a vote of our security holders through thesolicitation of proxies or otherwise.

# **Part II**

**ITEM 5.MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.**

**MarketPrices**

FromMay 25, 2002, through April 15, 2005, our common stock was tradedover-the-counter on the National Association of Securities Dealers, Inc.Over-The-Counter Bulletin Board System (using the trading symbol “TGCI”).  Because of our improved financial conditionwhich has led to a substantial increase in our stock price and the market valueof our publicly-held shares, we 

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qualified for, andbegan trading on, the American Stock Exchange (“AMEX”) on April 18, 2005, underour current trading symbol “TGE.”

Inthe following table, the prices shown through April 15, 2005, represent pricesamong the dealers on the Over-The-Counter Bulletin Board System and do notinclude retail mark-ups, mark-downs, or commissions, and do not necessarilyrepresent actual transactions.  Beginningon April 18, 2005, the following table shows the high and low sales pricesreported for our common stock on the AMEX. On April 25, 2006, the Company paid a 5% stock dividend to stockholdersof record at the close of business on April 11, 2006.  All prior share and per share amounts havebeen restated to reflect the stock dividend.

|                  | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------|------------|----------|------------|----------|------------|
| ** **       | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| 1st quarter |       | $        | 10.42      |     | $          | 6.88 |   | $ | 4.43 |   | $ | 2.59 |   |
| 2nd quarter |       | 15.18    |       | 9.35     |       | 5.81 |   | 3.15 |   |
| 3rd quarter |       | 11.94    |       | 7.20     |       | 11.14 |   | 5.32 |   |
| 4th quarter |       | 9.55     |       | 7.29     |       | 8.10 |   | 5.83 |   |
|                  |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

Thenumber of shareholders of record of TGE’s Common Stock as of March 19, 2007,was 145.  Due to the number of sharesheld in nominee or street name, we believe that there are a significantlygreater number of beneficial owners of our common stock.  As of such date, CEDE & CO. held12,077,780 shares in street name.  OnMarch 19, 2007, our common stock was quoted at a closing sales price of $8.30.

Whilethere are currently no restrictions prohibiting us from paying cash dividendsto our shareholders, we have not paid any cash dividends on our common stock inthe past, and we do not anticipate paying any dividends in the foreseeablefuture.  Payment of any cash dividends inthe future, however, is in the discretion of our board of directors and willdepend on our financial condition, results of operations, capital and legalrequirements, and other factors deemed relevant by our board of directors.  Earnings, if any, are expected to be retainedto fund our future operations.

**ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS.**

*The following discussion and analysis should be read in conjunctionwith our financial statements and related notes thereto included elsewhere inthis Form 10-KSB. Portions of this document that are not statements ofhistorical or current fact are forward-looking statements that involve risk anduncertainties, such as statements of our plans, objectives, expectations, andintentions. The cautionary statements made in this Form 10-KSB should be readas applying to all related forward-looking statements wherever they appear inthis Form 10-KSB. Our actual results could differ materially from thoseanticipated in the forward-looking statements. Factors that could cause ouractual results to differ materially from those anticipated include thosediscussed in “Business,” “Forward-Looking Statements,” and “Risk Factors.”*

**Results of Operations**

***Year Ended December 31, 2006, Comparedto Year Ended December 31, 2005***

*Revenues*.   Our revenues were $67,760,306 for the yearended December 31, 2006, compared to $30,851,963 for the same period of 2005,an increase of 119.6%.  This increase inrevenues was attributable to several factors including increasing the number ofseismic data acquisition crews operating in 2006 compared with the number ofcrews operating in 2005, increased demand for our services due to increasedexploration and development activity by domestic oil and natural gas companies,price improvements and more favorable contract terms in our agreements withcustomers, and the increased productivity derived from our new ARAM ARIESrecording systems.  In July of 2005, wedeployed our fourth seismic data acquisition crew along with our second newARAM ARIES recording system.  In Novemberof 2005, we deployed our fifth seismic data acquisition crew along with ourthird ARAM ARIES recording system.  InJanuary of 2006, we deployed our sixth seismic data acquisition crew along withour fourth ARAM ARIES recording system.  In May of 2006, we deployed our seventh seismic data acquisition crewalong with our fifth ARAM ARIES recording system, and in October of 2006, wedeployed our eighth seismic data acquisition along with our sixth ARAM ARIESrecording system.

*Cost of services*.  Cost of services includes the wages andexpenses directly related to our field crews and support operations, as well asthird party costs associated with certain contracts provided by non-employeecontractors, but excludes depreciation and amortization and interestexpense.  Our cost of services was$40,831,650 for the year ended December 31, 2006, compared to $18,152,118 forthe same period of 2005, an increase of 124.9%. This increase was principally attributable to our increase in revenues.

*Selling, general, and administrative*.  SG&A expenses include the wages andsalaries of administrative and sales personnel, as well as other generaloverhead costs not directly related to field operations.  SG&A expenses were $2,988,892 for theyear ended 

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December 31, 2006,compared to $2,149,350 for the same period of 2005, an increase of 39.1%. Thisincrease was primarily attributable to additional expenses associated withadditional personnel in 2006 compared with 2005 and increased selling expensesassociated with the higher revenues and level of activity.

*Depreciation and amortization**expense*.  Depreciation and amortization expense was$9,540,171 for the year ended December 31, 2006, compared to $3,201,236 for thesame period of 2005, an increase of 198.0%. This increase was attributable to capital expenditures of $20,525,672 in2005 and to that portion of the $24,667,156 in capital expenditures during 2006that were placed into service during that year.

*Income from operations*.  Income from operations was $14,399,593 forthe year ended December 31, 2006, compared to $7,349,259 for the same period of2005, an increase of 95.9%.  Thisincrease was primarily attributable to the increase in revenues partiallyoffset by increases in our cost of services, SG&A and depreciation andamortization expenses.  EBITDA increased$13,389,269 to $23,939,764 for the year ended December 31, 2006, from$10,550,495 in the same period of 2005, an increase of 126.9%.  This increase was a result of those factorsmentioned above.  For a definition ofEBITDA, a reconciliation of EBITDA to net income, and a discussion of EBITDA,see the section entitled “Non-GAAP Financial Measure” which follows.

*Interest expense*.  Interest expense was $780,782 for the yearended December 31, 2006, compared to $364,848 for the same period of2005.  This increase was primarilyattributable to the debt incurred for the purchase of our fourth ARAM ARIESseismic recording system and the debt associated with vehicles leased undercapital leases for the additional seismic data acquisition crews that werefielded in 2006.

*Income tax expense*.  Income tax expense was $5,507,386 for theyear ended December 31, 2006, compared to $783,633 for the same period of2005.  As of December 31, 2004, we hadnet operating loss carryforwards of approximately $4,980,000 available tooffset future taxable income.  These netoperating loss carryforwards were fully utilized during 2005.  As a result, the Company began incurringfederal (and various state income) taxes in 2006 at regular statutory rates.

**Non-GAAP Financial Measure**

We define EBITDA as net income plus expenses of interest, income taxes,depreciation, and amortization. We use EBITDA as a supplemental financialmeasure to assess:

·       thefinancial performance of our assets without regard to financing methods,capital structures, taxes, or historical cost basis;

·       ourliquidity and operating performance over time and in relation to othercompanies that own similar assets and that we believe calculate EBITDA in amanner similar to us; and

·       theability of our assets to generate cash sufficient for us to pay potentialinterest expenses.

We alsounderstand that such data is used by investors to assess our performance.However, EBITDA is not a measure of operating income, operating performance, orliquidity presented in accordance with General Accepted Accounting Principals(GAAP). When assessing our operating performance or our liquidity, you shouldnot consider this data in isolation or as a substitute for our net income, cashflow from operating activities, or other cash flow data calculated inaccordance with GAAP. EBITDA excludes some, but not all, items that affect netincome and operating income, and these measures may vary among other companies.Therefore, EBITDA as presented below may not be comparable to similarly titledmeasures of other companies. Further, the results presented by EBITDA cannot beachieved without incurring the costs that the measure excludes: interest,taxes, depreciation, and amortization.

The followingtable reconciles our EBITDA to our net income:

|                                        | ** ** | ** Year Ended** | ** ** |
|----------------------------------------|------------|---------------------------|------------|
| ** **                             | ** ** | **December 31,**     | ** ** |
| ** **                             | ** ** | **2006**                  | ** ** | **2005** | ** ** |
| Net income                             |       | $                         | 8,111,425  |   | $ | 6,200,778 |   |
| Depreciation and  amortization expense |       | 9,540,171                 |       | 3,201,236 |   |
| Interest expense                       |       | 780,782                   |       | 364,848 |   |
| Income tax  expense                    |       | 5,507,386                 |       | 783,633 |   |
| EBITDA                                 |       | $                         | 23,939,764 |   | $ | 10,550,495 |   |

** **

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**Liquidity and Capital Resources**

**Liquidity**

*Cash flows from operating activities.*

Netcash provided by operating activities was $28,684,807 for the year endedDecember 31, 2006, compared to $5,739,614 for the same period of 2005.  The $22,945,193 increase was principallyattributable to the increased level of activity in 2006, timing of receipt andpayment of invoices, the timing of billings and revenue recognition, and themix of contracts.  Changes in significantcomponents of net cash provided by operations were a $1,910,647 increase in netincome, a $6,338,935 increase in depreciation and amortization expense, a$2,988,758 increase in trade accounts receivable, a $2,696,433 decrease incosts and estimated earnings in excess of billings on uncompleted contracts, a$2,987,319 increase in trade accounts payable, and a $4,738,830 increase inbillings in excess of costs and estimated earnings on uncompleted contracts.

Workingcapital decreased $8,773,769 to $1,178,380 as of December 31, 2006, from theDecember 31, 2005, working capital of $9,952,149.  This decrease was due primarily to a decreasein costs and estimated earnings in excess of billings on uncompleted contractsof $2,696,433, an increase in trade accounts payable of $2,987,319, and anincrease in billings in excess of costs and estimated earnings on uncompletedcontracts of $4,738,830 (partially offset by an increase in trade accounts receivableof $2,988,758).  These changes wereprimarily the result of the increased level of activity in 2006.

*Cash flows used in investing activities*.

Netcash used in investing activities was $22,889,549 for the year ended December31, 2006, and $11,358,108 for the year ended December 31, 2005.  The $11,531,441 increase was mainly due to anincrease in capital expenditures during 2006 of $9,727,452 and $1,800,000 forthe purchase of the assets of Highland Industries.

*Cashflows provided by (used in) financing activities.*

Net cash used infinancing activities was $5,905,898 for the year ended December 31, 2006.  Net cash provided by financing activities was$13,287,999 for the year ended December 31, 2005.  The change was due primarily to net proceedsfrom the issuance of common stock of $40,002,839 in 2005, offset by theredemption of stock purchase warrants of $24,001,298, an increase in principalpayments on notes payable of $2,599,403 and an increase in principal paymentson capital lease obligations of $349,200.

*Capital expenditures*.

Duringthe year ended December 31, 2006, capital expenditures of $21,219,238 were usedto acquire additional seismic equipment and vehicles.  This additional seismic equipment andvehicles were used primarily to field our seventh and eighth data acquisitioncrews that were placed into service in May and October of 2006respectively.  In addition, during 2006we purchased 15 additional vibration vehicles giving us a total of 42 vibrationvehicles as of December 31, 2006.  In Januaryof 2007, we entered into an equipment sales contract to purchase six new buggymounted vibration vehicles.  These unitswere delivered during the first quarter of 2007.  In May of 2006, we acquired the assets ofHighland Industry for our shot-hole contract business.  In January of 2007, we entered into anequipment sales contract to purchase two new shot-hole drill rigs.  We anticipate delivery of these units duringthe second  quarter of 2007.  After delivery of these two new shot-holedrill rigs, we will have a total of nine shot-hole drill rigs.  Although we do not budget for our capitalexpenditures, we may purchase additional equipment during 2007 as the demandfor our services increases.

**Capital Resources**

Historically,we have relied on cash generated from operations and short-term borrowings fromcommercial banks and equipment lenders and loans from directors to fund ourworking capital requirements and capital expenditures.

In April of 2005, we entered into a revolving credit agreement with a commercialbank.  On September 16, 2005, weamended our revolving line of credit under which we could borrow, repay, andre-borrow, from time to time until September 16, 2006, up to $3,500,000.Effective September 16, 2006, we renewed our revolving credit agreement andincreased the borrowing limit from $3,500,000 to $5,000,000.  The revolving credit agreement will expire onSeptember 16, 2007.  Our obligationsunder this agreement are secured by a security interest in our accountsreceivable.  Interest on the outstandingamount under the line of credit loan agreement is payable monthly at the primerate of interest. The credit loan agreement provides for non-financial andfinancial covenants including a minimum debt service coverage ratio in excessof 2.0 to 1.0 and a ratio of debt to worth not in excess of 1.25 to 1.0.  As of December 31, 2006, we had noborrowings****outstanding under the  line of credit loan agreement.

In June of 2005, we completed a $3,366,253 loan transaction with acommercial lender for the purpose of providing funds for the purchase of oursecond new ARAM ARIES recording system. This loan is repayable over a period of36 months at a fixed per annum interest rate of 7.25%. This loan iscollateralized by the new recording system equipment and the recording vehiclesand two semi-trailers that transport the newly purchased equipment betweenjobs.  During the third quarter of 2005,we obtained financing from a commercial lender for $858,705 of the purchaseprice of three new buggy mounted vibration vehicles for a period of 36 monthsat a 

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fixed perannum simple interest rate of 7.25%. These loans are collateralized by the three new buggy mounted vibrationvehicles.  In December of 2005, wecompleted a $3,791,338 loan transaction with a commercial lender for thepurpose of providing funds for the purchase of our fourth new ARAM ARIESrecording system.  This loan is repayableover a period of  36 months at a fixedper annum interest rate of 7.78%.  Thisloan is collateralized by the new recording system equipment.

The board of directors, at its regular meeting held on June 7,2005, approved the redemption by the Company of the Series C PreferredStock. The redemption privilege was contained in the resolution establishingsuch preferred stock. The redemption price was $5.00 per share plus a premiumof 40% per share (i.e., $2.00 per share). In addition, each share was entitledto receive the regular $.20 dividend that had accrued during the first half ofthe year. Thus, the redemption price was $7.20 per share.  On June 30, 2005, the Company redeemedall 5,250 shares of its Series C Preferred Stock for $36,750 plus accrueddividends of $1,050.

Our board of directors approved a resolution providing for redemptionof all of our outstanding 81⁄2% Senior Convertible Preferred Stock upon theconsummation of our public offering in October of 2005. Under the terms of theresolution creating such 81⁄2% Senior Convertible Preferred Stock, each share wasredeemable at $1.75 per share, and each holder of our 81⁄2% Senior ConvertiblePreferred Stock had an option to convert each share of our 81⁄2% SeniorConvertible Preferred Stock into one share of our common stock. All of theholders of our 81⁄2% Senior Convertible Preferred Stock elected to convert theirshares of 81⁄2% Senior Convertible Preferred Stock into shares of our commonstock.  As a result, in October of 2005all of the outstanding shares of our 81⁄2% Senior Convertible Preferred Stockwere converted into shares of our common stock.

In October of 2001, the Company entered into a three-yearoperating lease for the Company’s headquarters facility located in Plano,Texas.  In April of 2004, weexecuted an addendum to this operating lease. The addendum extended the term ofthe lease until March 31, 2009, and increased the square footage of theoffice and outdoor storage area.  InAugust of 2005, the Company entered into a 38 month operating leasefor additional office and warehouse space in Plano, Texas.  This operating lease will expire in Octoberof 2008.  In January of 2006, the Companyentered into a two-year operating lease for a sales office in Houston,Texas.  This operating lease will expirein January of 2008.   In July of 2006,the Company entered into an operating lease for additional office space for itscorporate offices in Plano, Texas.  InSeptember of 2006, the Company relocated its corporate offices to thisfacility.  This lease will expire inJanuary 2012.  Additionally, in Octoberof 2006, the Company entered into a one-year lease for a sales office in OklahomaCity, Oklahoma.

**Contractual Obligations**

The following table summarizes payments due in specific periods relatedto our contractual obligations as of December 31, 2006: 
| ** **                       | ** ** | **Payments Due by Period (1)** | ** ** |
|----------------------------------|------------|----------------------------------------------------|------------|
| ** **                       | ** ** | ** **                                         | ** ** | **Within** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** |
| **Contractual Obligations** | ** ** | **Total**                                          | ** ** | **1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **5 Years** | ** ** |
| ** **                       | ** ** | **(In thousands)**                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating lease  obligations     |       | $                                                  | 915        |   | $ | 249 |   | $ | 390 |   | $ | 265 |   | $ | 11 |   |
| Debt obligations                 |       | $                                                  | 5,676      |   | $ | 3,629 |   | $ | 2,047 |   | $ | — |   | $ | — |   |
| Capital lease  obligations       |       | $                                                  | 2,100      |   | $ | 1,083 |   | $ | 1,017 |   | $ | — |   | $ | — |   |
| Total                            |       | $                                                  | 8,691      |   | $ | 4,961 |   | $ | 3,454 |   | $ | 265 |   | $ | 11 |   |

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(1)             See“Capital Resources” above for a discussion of the contractual obligations wehave incurred since December 31, 2006.

We believe that our capital resources, including our short-terminvestments, funds available under our line of credit loan agreement, and cashflow from operations, are adequate to meet our current operational needs. Webelieve that we will be able to finance our 2007 capital expenditures throughcash flow from operations, borrowings from commercial lenders, and the fundsavailable under our line of credit loan agreement.  However, our ability to satisfy workingcapital requirements, meet debt repayment obligations, and fund future capitalrequirements will depend principally upon our future operating performancewhich is subject to the risks inherent in our business.

**Off-Balance Sheet Arrangements**

As ofDecember 31, 2006, we had no off-balance sheet arrangements.

**Critical Accounting Policies**

The preparation of our financial statements in conformity with GAAPrequires us to make certain assumptions and estimates that affect the reportedamounts of assets and liabilities at the date of our financial statements andthe reported amounts of revenues and expenses during the reporting period. Becauseof the use of assumptions and estimates inherent in the reporting process,actual results could differ from those estimates.

 

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*Revenue Recognition.*

Our services are provided under cancelable service contracts. Thesecontracts are either “turnkey” or “term” agreements. The Company recognizesrevenues when services are performed under both types of agreements. Servicesare defined as the commencement of seismic data acquisition. Under turnkeyagreements, revenue is recognized on a per-unit-of-data acquired rate asservices are performed. Under term agreements, revenue is recognized on aper-unit-of-time worked rate as services are performed. In the case of acancelled service contract, we recognize revenue and bill our customer forservices performed up to the date of cancellation.

In some instances, we bill customers in advance of the servicesperformed. In those cases, we recognize the liability as deferred revenue.

*Allowance for Doubtful Accounts.*

We prepare our allowance for doubtful accounts receivable based on ourpast experience of historical write-offs, our current customer base and ourreview of past due accounts. The inherent volatility of the energy industry’sbusiness cycle can cause swift and unpredictable changes in the financialstability of our customers.

*Impairment of Long-lived Assets.*

We review long-lived assets for impairment when triggering events occursuggesting deterioration in the assets’ recoverability or fair value.Recognition of an impairment charge is required if future expected net cashflows are insufficient to recover the carrying value of the asset. Our forecastof future cash flows used to perform impairment analysis includes estimates offuture revenues and profitability based on our historical results and analysisof future oil and natural gas prices which are fundamental to assessing demandfor our services. If we are unable to achieve these cash flows, our estimateswill be revised which could result in an impairment charge for the period ofrevision.

*Depreciable Lives of Property, Plant, andEquipment.*

Our property, plant, and equipment are capitalized at historical costand depreciated over the useful life of the asset. Our estimate of this usefullife is based on circumstances that exist in the seismic industry andinformation available at the time of the purchase of the asset. The technologyof the equipment used to gather data in the seismic industry has historicallyevolved such that obsolescence does not occur quickly. As circumstances changeand new information becomes available, these estimates could change. Weamortize these capitalized items using the straight-line method. Capital assetsare depreciated over their useful lives ranging from one to seven years,depending on the classification of the asset.

*Tax Accounting.*

We account for our income taxes in accordance with Statement ofFinancial Accounting Standards (SFAS) No. 109, “Accounting for IncomeTaxes,” which requires the recognition of amounts of taxes payable orrefundable for the current year and an asset and liability approach inrecognizing the amount of deferred tax liabilities and assets for the futuretax consequences of events that have been recognized in our financialstatements or tax returns. We determine deferred taxes by identifying the typesand amounts of existing temporary differences, measuring the total deferred taxasset or liability using the applicable tax rate, and reducing the deferred taxasset by a valuation allowance if, based on available evidence, it is morelikely than not that some portion or all of the deferred tax assets will not berealized. Our methodology for recording income taxes requires judgment regardingassumptions and the use of estimates, including determining our annualeffective tax rate and the valuation of deferred tax assets, which can createvariance between actual results and estimates. This process involves makingforecasts of current and future years’ taxable income, and unforeseen eventsmay significantly affect these estimates. Those factors, among others, couldhave a material impact on our provision or benefit for income taxes.

*Stock Based Compensation.*

Prior to January 1, 2006, the Company accounted forits stock options under the recognition and measurement principles of APBOpinion No. 25, and related interpretations. Accordingly, no stock-based employee compensation cost was reflected inour financial statements prior to January 1, 2006 since all options to purchasecommon stock of the Company had an exercise price equal to, or greater than,the market value of the underlying common stock on the date of grant.

Effective January 1, 2006, the Company implementedStatement of Financial Accounting Standards (SFAS) No. 123R, “Share BasedPayment (SFAS 123R),” for stock-based compensation awards granted after thatdate and for unvested awards outstanding at that date using the modifiedprospective application method.  Werecognize the fair value of the stock-based compensation awards as wages in theStatements of Income on a straight-line basis over the vesting period.  Such implementation is expected to haveminimal impact on our results of operations, financial position andliquidity.  The adoption of SFAS 123Rresulted in the recognition of compensation expense, relative to stock-basedawards, in wages in the Statements of Income of approximately $306,000, orapproximately $0.02 per share, for the year ended December 31, 2006.  In accordance with the modified prospectiveapplication

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method permitted by SFAS 123R, prior period amounts have not beenrestated to reflect the recognition of stock-based compensation costs.

In April of 2006, 96,500 shares of restricted stock were issued toemployees of the Company under the Company’s 2006 Stock Award Plan.  As of December 31, 2006, there wasapproximately $892,000 of unrecognized compensation expense related to ourtwo-share based compensation plans.

**Recently Issued Accounting Pronouncements**

In December of 2004, the Financial Accounting Standards Board(FASB) issued SFAS No. 123R, “Share Based Payment” (SFAS 123R), whichrequires that compensation costs relating to share-based payments be recognizedin our financial statements. Prior to January 1, 2006, we accounted for thosepayments under the recognition and measurement principles of APB OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations. The Company implemented this standard effectiveJanuary 1, 2006. This implementation had minimal impact on our results ofoperations, financial position, and liquidity.

In December of 2004, the FASB issued SFAS No. 153, “Exchange of Nonmonetary Assets,—an Amendment of APBOpinion No. 29,” (SFAS 153), which became effective for our asset-exchangetransactions on July 1, 2005. Under APB 29, assets received in certaintypes of nonmonetary exchanges were permitted to be recorded at the carryingvalue of the assets that were exchanged (i.e., recorded on a carryover basis).As amended by SFAS 153, assets received in some circumstances will have to berecorded instead at their fair values. In the past, we have not engaged insignificant amounts of nonmonetary asset exchanges.

InSeptember of 2006, SFAS No. 158, “Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans — an amendment of SFAS No. 87, 88, 106,and 132(R),” was issued.  SFAS No. 158requires the funded status of pension and post-retirement plans to be recordedas assets or liabilities and unrecognized gains or losses to be recorded asaccumulated other comprehensive loss in the balance sheet.  The Company has no defined benefit pension orother postretirement plans.  As a result,SFAS No. 158 will not have an effect on the Company’s results.

InJuly of 2006, FIN 48, “Accounting for Uncertainty in Income Taxes — aninterpretation of FASB Statement No. 109,” was issued.  FIN 48 prescribes a recognition threshold andmeasurement attribute for tax positions. The Company is required to adopt FIN 48 at the beginning of fiscal year2007 and does not expect any material impact to the financial statements.

InSeptember 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS157”), which defines fair value, establishes guidelines for measuring fair valueand expands disclosures regarding fair value measurements. SFAS 157 does notrequire any new fair value measurements but rather eliminates inconsistenciesin guidance found in various prior accounting pronouncements. SFAS 157 iseffective for fiscal   years beginning after November 15, 2007. TheCompany is currently evaluating the impact of SFAS 157, but does not expect theadoption of SFAS 157 to have a material effect on its consolidated financialposition, results of operations or cash flows.

**Effect of Inflation**

We do not believe that inflation has had a material effect on ourbusiness, results of operations, or financial condition during the past twoyears.

**Qualitative and Quantitative Disclosure aboutMarket Risk**

We have not entered into any hedging agreements or swap agreements. Ourprincipal market risk is the risk related to the concentration of our customersin the oil and natural gas industry. Since all of our customers are involved inthe oil and natural gas industry, there may be a positive or a negative effecton our exposure to credit risk in that our customers may be similarly affectedby changes in economic and industry conditions. For the year endedDecember 31, 2006, no customer accounted for 10% or more of our revenues.  For the year ended December 31, 2005, our toptwo customers accounted for approximately 11.6% and 10.6% of our revenues.

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**FORWARD-LOOKING STATEMENTS**

This Form 10-KSB includes “forward-lookingstatements” as defined in Section 27A of the Securities Act of 1933, asamended (the “Securities Act”), and Section 21E of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), which reflect our view withrespect to future events. We base these forward-looking statements on ourcurrent expectations and projections about future events. These forward lookingstatements are subject to risks, uncertainties, and assumptions about theCompany, including:

·       dependence upon energyindustry spending for seismic data acquisition services;

·       the unpredictable nature offorecasting weather;

·       the potential for contractdelay or cancellation;

·       the potential forfluctuations in oil and natural gas prices; and

·       the availability of capitalresources.

 

Weuse the words “may,” “will,” “can,” “could,” “should,” “expect,” “anticipate,” “estimate,”“believe,” “target,” “continue,” “intend,” “plan,” “budget,” and other similarwords to identify forward-looking statements. You should read statements thatcontain these words carefully because they discuss future expectations, containprojections of results of operations or of our financial condition, and/orstate other “forward-looking” information. We do not undertake any obligationto update or revise publicly any forward-looking statements, except as requiredby law. These statements also involve risks and uncertainties that could causeour actual results or financial condition to materially differ from ourexpectations in this Form 10-KSB.

Webelieve that it is important to communicate our expectations of futureperformance to our investors. However, events may occur in the future that weare unable to accurately predict or over which we have no control. Whenconsidering our forward-looking statements, you should keep in mind the riskfactors and other cautionary statements in this Form 10-KSB and other factorsnoted throughout this Form 10-KSB. There are many risks, uncertainties, andevents that may cause our actual results to differ materially from thosecontained in any forward-looking statement. Please read the section entitled “RiskFactors” for a discussion of certain risks of our business and an investment inour common stock.

**MARKET DATA AND FORECASTS**

Unlessotherwise indicated, information in this Form 10-KSB concerning economicconditions and our industry is based on information from independent industryanalysts and publications as well as our estimates. Our estimates are derivedfrom publicly available information released by third-party sources, as well asdata from our internal research, and are based on such data and our knowledgeof our industry, which we believe to be reasonable. None of the independentindustry publications used in this Form 10-KSB were prepared on our or ouraffiliates’ behalves, and none of the sources cited in this Form 10-KSB hasconsented to the inclusion of any data from its reports, nor have we soughtconsent from any of them.

**RISK FACTORS**

Anyinvestment in our common stock involves a high degree of risk. You shouldcarefully consider the risks and uncertainties described below and the otherinformation included in this Form 10-KSB before purchasing our common stock.Although the risks described below are the risks that we believe are material,they are not the only risks relating to our business and our common stock.Additional risks and uncertainties, including those that are not yet identifiedor that we currently believe are immaterial, may also adversely affect ourbusiness, financial condition, or results of operations. If any of the eventsdescribed below occur, our business and financial results could be materiallyand adversely affected. The market price of our common stock could decline dueto any of these risks, perhaps significantly, and you could lose all or part ofyour investment.

**Company Risks**

**We have a history of losses, and we may incur lossesagain**.

Althoughwe reported net income of approximately $8,111,000 for the year ended December31, 2006, and net income (before dividend requirements on preferred stock) ofapproximately $6,201,000 for the year ended December 31, 2005, we have ahistory of losses with only four profitable years since 1998.  In 2004, we had net income (before dividendrequirements on preferred stock) of approximately $2,868,000, and in 2003 wehad net income (before dividend requirement on preferred stock) of approximately$555,000. Our ability to be profitable in the future will depend on manyfactors beyond our control, but primarily on the level of demand for land-basedseismic data acquisition services by oil and natural gas exploration anddevelopment companies. Even if we do achieve profitability, we may not be ableto sustain or increase profitability on a quarterly or annual basis.

**Our revenues and operating results can be expected to fluctuate fromperiod to period.**

Our revenues, operating results, and profitability may fluctuate fromperiod to period. These fluctuations are attributable to the level of newbusiness in a particular period, the timing of the initiation, progress, orcancellation of significant projects, higher 

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revenues andexpenses on our dynamite contracts, and costs we incur to train new crews wemay add in the future to meet increased customer demand. Fluctuations in ouroperating results may also be affected by other factors that are outside of ourcontrol such as permit delays, weather delays, and crew productivity. Oil andnatural gas prices are at record highs and have resulted in increasing demandfor our services. There can be no assurance that such high prices willcontinue. The demand for our services will be adversely affected by a significantreduction in oil and natural gas prices. Since our business has high fixedcosts, the negative effect of one or more of these factors could trigger widevariations in our operating revenues, EBITDA margin, and profitability fromquarter to quarter, which factors render quarter-to-quarter comparisonsunreliable as an indicator of performance. Due to the factors discussed above,you should not expect sequential growth in our quarterly revenues andprofitability.

**We are implementing a growth strategy which,if successful, will place significant demands on us and subject us to numerousrisks.**

Growing businesses often have difficulty managing their growth. If ourgrowth strategy is successful, significant demands will be placed on ourmanagement, accounting, financial, information, and other systems and on ourbusiness. We will have to expand our management and continue recruiting andemploying experienced executives and key employees capable of providing thenecessary support. In addition, to manage our anticipated growth we will needto continue to improve our financial, accounting, information, and othersystems in order to effectively manage our growth.  Doing so could cause substantial additionalexpenses that could harm our financial results. We cannot assure you that ourmanagement will be able to manage our growth effectively or successfully. Ourfailure to meet these challenges could materially impair our business.

**We are dependent upon significant customers.**

Although for the year ended December 31, 2006, no customer accountedfor 10% of our revenues, in the past we have derived a significant amount ofour revenues from a small number of oil and natural gas exploration anddevelopment companies.  During 2005, ourtwo largest customers accounted for approximately 22.2% of revenues. While ourrevenues are derived from a concentrated customer base, our significantcustomers may vary between years. If we lose one or more major customers in thefuture, or if one or more customers encounter financial difficulties, ourbusiness, financial condition, and results of operations could be materiallyand adversely affected.

**We receive revenues from customers who engage consultants forprocessing and interpreting the seismic data we provide.**

We receive revenues from customers who have engaged consultants toprocess and interpret the seismic data provided by us. Consultants can have aninfluence in determining which company its customers use to acquire seismicdata. A consultant could recommend that its customers consider using otherseismic companies.

**We face intense competition in our business from companies with greaterfinancial resources.**

The seismicdata acquisition services industry is a highly competitive business in thecontinental U.S. Our competitors include companies with financial resourcesthat are significantly greater than our own as well as companies of comparableand smaller size.

**Technological change in our business creates risks of technologicalobsolescence and requirements for future capital expenditures. If we are unableto keep up with these technological advances, we may not be able to competeeffectively.**

Seismic data acquisition technologies historically have steadilyimproved and progressed, and we expect this progression to continue. Our strategyis to upgrade our seismic data acquisition equipment on a regular basis tomaintain our competitive position. However, since we are in a capital intensiveindustry and have limitations on our ability to obtain the financing necessaryto enable us to purchase state-of-the-art equipment, some of our competitorsmay be able to purchase newer equipment when we may not be able to do so.

**We are dependent on our management team and key employees, and the lossof any of them could harm our business.**

We have limited management depth with the result that the loss, whetherby death, departure, or illness, of Wayne A. Whitener, our President and ChiefExecutive Officer, or other senior executives, could have a material adverseeffect on the ability of management to continue operations at the same level ofefficiency. We have key man insurance on the life of our President and ChiefExecutive Officer so that, in the event of his untimely death, we would receiveinsurance proceeds of $1,000,000 under this policy.

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**Certain members of our management team are not subject to employment ornon-competition agreements and may leave our employment at any time.**

None of the members of our management team,other than our President and Chief Executive Officer, are subject to employmentagreements or non-competition agreements; therefore, any of these members ofour management team could leave upon little or no notice which could have amaterial adverse effect on our management’s ability to continue operations atthe same level of effectiveness. Additionally, the lack of non-competitionagreements would allow these members of our management team to immediatelybegin working for one of our competitors upon the termination of theirrelationship with us. This could have a negative impact on our strategic planand our relationships with customers.

**We extend credit to our customers without requiring collateral, and adefault by a customer could have a material adverse effect on our operatingrevenues.**

We perform ongoing credit evaluations of our customers’ financialconditions and, generally, require no collateral from our customers. A defaultin payment from one of these large customers could have a material adverseeffect on our operating revenues for the period involved.

**Certain of our core assets are pledged as collateral for short termnotes that require large monthly payments.**

Certain assets that are critical to our operations, including three ofour ARAM ARIES recording systems, are pledged as collateral to our equipmentlenders and could be subject to foreclosure in the event that we default on ourindebtedness having 36 month terms. We currently have debt obligations coveringthe purchase of three of our six ARAM ARIES recording systems that requiremonthly payments between approximately $67,000 and $82,000 for the first ARAMARIES recording system, between approximately $94,000 and $114,000 for thesecond ARAM ARIES recording system, and between approximately $106,000 and$130,000 for the fourth ARAM ARIES recording system. These debt obligationsmature in November 2007, June 2008, and December 2008, respectively.  Any decline in our operations could inhibitour ability to make these substantial monthly payments. In light of the shortterms of these notes, a failure to make the monthly payments on these notescould cause our lenders to promptly foreclose on the assets securing thesenotes. The foreclosure of certain of our core assets securing these notes couldseverely limit our ability to continue operations.

**We may be subject to liability claims that are not covered by ourinsurance.**

Our business is subject to the general risks inherent in land-basedseismic data acquisition activities. Our activities are often conducted inremote areas under dangerous conditions, including the detonation of dynamite.These operations are subject to risks of injury to personnel and equipment. Ourcrews are mobile, and equipment and personnel are subject to vehicularaccidents. These risks could cause us to experience equipment losses, injuriesto our personnel, and interruptions in our business.

In addition, we could be subject to personal injury or real propertydamage claims in the normal operation of our business. Such claims may not becovered under the indemnification provisions contained in our general serviceagreements to the extent that the damage is due to our negligence orintentional misconduct.

We do not carry insurance against certainrisks that we could cause losses, including business interruption resultingfrom equipment maintenance or weather delays. We obtain insurance againstcertain property and personal casualty risks and other risks when suchinsurance is available and when our management considers it advisable to do so.Our current insurance coverage consists of employers liability with limits of$1,000,000 per accident and $2,000,000 in the aggregate, commercial generalliability of $1,000,000 per accident and $2,000,000 in the aggregate, pollutionliability of $1,000,000 per accident and $2,000,000 in the aggregate,automobile liability with a $1,000,000 combined single limit, and a $10,000,000umbrella policy.

Our general service agreements require us tohave specific amounts of insurance. There can be no assurance, however, thatany insurance obtained by us will be adequate to cover all losses orliabilities or that this insurance will continue to be available or availableon terms which are acceptable to us. Liabilities for which we are not insured,or which exceed the policy limits of our applicable insurance, could have a materiallyadverse effect on us.

**We are subject to the requirements ofSection 404 of the Sarbanes-Oxley Act. If we are unable to timely complywith Section 404 or if the costs related to compliance are significant,our profitability, stock price, and results of operations and financialcondition could be materially adversely affected.**

We will be required to comply with the provisions of Section 404of the Sarbanes-Oxley Act of 2002 by December 31, 2007. Section 404requires that we document and test our internal control over financialreporting and issue management’s assessment of our internal control overfinancial reporting. This section also requires that our independent registeredpublic accounting firm opine on those internal controls and management’s assessmentof those controls. We are currently evaluating our existing controls againstthe standards adopted by the Committee of Sponsoring Organizations of theTreadway Commission, or COSO. During the course of our ongoing evaluation andintegration of the internal control over financial reporting, we may identifyareas requiring improvement, and we may have to design enhanced processes andcontrols to address issues identified through this review.

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We believe that the out-of-pocket costs, the diversion of management’sattention from running the day-to-day operations, and operational changescaused by the need to comply with the requirements of Section 404 of theSarbanes-Oxley Act could be significant. If the time and costs associated withsuch compliance exceed our current expectations, our profitability could beadversely affected.

We cannot be certain at this time that wewill be able to successfully complete the procedures, certification, andattestation requirements of Section 404 or that we or our auditors willnot identify material weaknesses in internal control over financial reporting.If we fail to comply with the requirements of Section 404 or if we or ourauditors identify and report any material weakness, the accuracy and timelinessof the filing of our annual and quarterly reports may be negatively affectedand could cause investors to lose confidence in our reported financialinformation, which could have a negative effect on the trading price of ourcommon stock. In addition, a material weakness in the effectiveness of ourinternal control over financial reporting could result in an increased chanceof fraud and the loss of customers, reduce our ability to obtain financing,and/or require additional expenditures to comply with these requirements, eachof which could negatively impact our business, profitability, and financialcondition.

**Industry Risks**

**We derive all of our revenues from companiesin the oil and natural gas exploration and development industry, a historicallycyclical industry, with levels of activity that are significantly affected bythe levels and volatility of oil and natural gas prices.**

Any prolonged reduction in the overall levelof exploration and development activities, whether resulting from changes inoil and natural gas prices or otherwise, could adversely impact us in many waysby negatively affecting:

·       our revenues, cash flows,and profitability;

·       our ability to maintain orincrease our borrowing capacity;

·       our ability to obtainadditional capital to finance our business and the cost of that capital; and

·       our ability to attract andretain skilled personnel whom we would need in the event of an upturn in thedemand for our services.

Worldwide political, economic, and militaryevents have contributed to oil and natural gas price volatility and are likelyto continue to do so in the future. Depending on the market prices of oil andnatural gas, oil and natural gas exploration and development companies maycancel or curtail their drilling programs, thereby reducing demand for ourservices. Oil and natural gas prices have been highly volatile historicallyand, we believe, will continue to be so in the future. Many factors beyond ourcontrol affect oil and natural gas prices, including:

·       thecost of exploring for, producing, and delivering oil and natural gas;

·       thediscovery rate of new oil and natural gas reserves;

·       therate of decline of existing and new oil and natural gas reserves;

·       availablepipeline and other oil and natural gas transportation capacity;

·       theability of oil and natural gas companies to raise capital;

·       actionsby OPEC (the Organization of Petroleum Exporting Countries);

·       politicalinstability in the Middle East and other major oil and natural gas producingregions;

·       economicconditions in the U.S. and elsewhere;

·       domesticand foreign tax policy;

·       weatherconditions in the U.S. and elsewhere;

·       thepace adopted by foreign governments for the exploration, development, andproduction of their national reserves;

·       theprice of foreign imports of oil and natural gas; and

·       theoverall supply and demand for oil and natural gas.

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**The high fixed costs of our operations couldresult in operating losses.**

Companies within our industry are typicallysubject to high fixed costs which consist primarily of depreciation (a non-cashitem) and maintenance expenses associated with seismic data acquisition andequipment and crew costs. In addition, ongoing maintenance capitalexpenditures, as well as new equipment investment, can be significant. As aresult, any extended periods of significant downtime or low productivity causedby reduced demand, weather interruptions, equipment failures, permit delays, orother causes could adversely affect the results of our operations.

**Our operations are subject to delays relatedto obtaining land access rights of way from third parties which could affectour results of operations.**

Our seismic data acquisition operations could be adversely affected byour inability to obtain timely right of way usage from both public and privateland and/or mineral owners. Delays associated with obtaining such rights of waycould negatively affect our results of operations.

**Our industry has recently experiencedshortages in the availability of equipment. Any difficulty we experiencereplacing or adding equipment could adversely affect our business.**

We may not be able to acquire equipment to replace our existingequipment or add additional equipment. The high demand for the services that weprovide has decreased the supply of geophysical equipment, thereby resulting inextended delivery dates on orders of new equipment. Any delay in obtainingequipment could delay the implementation of additional crews and restrict theproductivity of our existing crews.  Adelay in obtaining equipment essential to our operations could have a materialadverse effect on our operations.

**Our business is subject to governmentregulation which may adversely affect our future operations.**

Our operations are subject to a variety of federal, state, and locallaws and regulations, including laws and regulations relating to the protectionof the environment and archeological sites. We are required to expend financialand managerial resources to comply with such laws and related permitrequirements in our operations, and we anticipate that we will continue to berequired to do so in the future. Although such expenditures historically havenot been material to us, the fact that such laws or regulations changefrequently makes it impossible for us to predict the cost or impact of such lawsand regulations on our future operations. The adoption of laws and regulationsthat have the effect of reducing or curtailing exploration and developmentactivities by energy companies could also adversely affect our operations byreducing the demand for our services.

**Risks Related To Our Common Stock**

**Our common stock has experienced, and may continue to experience, pricevolatility and low trading volume.**

Our stock price is subject to significant volatility. Overall marketconditions including a decline in oil and natural gas prices, in addition toother risks and uncertainties described in this “Risk Factors” section andelsewhere in this Form 10-KSB, could cause the market price of our common stockto fall. Our high and low closing stock prices for the twelve months endedDecember 31, 2006, were $15.18 and $6.88, respectively.

Our common stock is listed on the American Stock Exchange under thesymbol “TGE.” However, daily trading volumes for our common stock are, and maycontinue to be, relatively small compared to many other publicly tradedsecurities. For example, since April 18, 2005, when we began trading onthe American Stock Exchange, our daily trading volume has been as low as 1,600shares.  It may be difficult for you tosell your shares in the public market at any given time at prevailing prices,and the price of our common stock may, therefore, be volatile.

**Our officers and directors own a largepercentage of our common stock, and they may exercise control over our businessand affairs.**

Our officers and directors as a group beneficially own approximately32.7% of our common stock. As a result, they will continue to be able toexercise significant influence, and in most cases control, over mattersrequiring shareholder approval, including the election of directors, changes toour charter documents, and significant corporate transactions. Thisconcentration of ownership makes it unlikely that any other holder or group ofholders of our common stock will be able to affect the way we are managed or thedirection of our business. The continued concentrated ownership of our commonstock will make it difficult for another company to acquire us and for you toreceive any related takeover premium for your shares (unless the controllinggroup approves the acquisition).

**Certain provisions of our Restated Articlesof Incorporation may make it difficult for a third party to acquire us or mayadversely impact your rights as a common shareholder.**

Our Restated Articles of Incorporation contain provisions that requirethe approval of holders of 80% of our issued and outstanding shares before wecan enter into a merger or other business combination or sell all orsubstantially all of our assets. Additionally, if we increase the size of ourboard from the current six to nine directors, we could be required to staggerour directors’ 

15

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terms, and ourdirectors could not be removed without approval of holders of 80% of our issuedand outstanding shares. These provisions could discourage or impede a tenderoffer, proxy contest, or other similar transaction involving control of us.

In addition, our board of directors has the right to issue preferredstock upon such terms and conditions as it deems to be in the best interest ofthe Company. The terms of such preferred stock may adversely impact thedividend and liquidation rights of the common shareholders without the approvalof the common shareholders.

**We do not intend to pay cash dividends on our common stock in theforeseeable future, and therefore only appreciation of the price of our commonstock will provide a return to our shareholders.**

While there are currently no restrictions prohibiting us from payingdividends to our shareholders, we have not paid any cash dividends on ourcommon stock in the past, and we do not anticipate paying any dividends in theforeseeable future. Payment of any cash dividends in the future, however, is inthe discretion of our board of directors and will depend on our financialcondition, results of operations, capital and legal requirements, and otherfactors deemed relevant by our board of directors. Earnings, if any, areexpected to be retained to fund our future operations.

**ITEM 7. FINANCIAL STATEMENTS**.

**Financial Statements**

**December31, 2006 and 2005**

# **CONTENTS**

| Report of Independent  Registered Public Accounting Firm |
|----------------------------------------------------------|
|                                                     |
| Financial  Statements                                    |
|                                                     |
| Balance  Sheets                                          |
|                                                     |
| Statements  of Income                                    |
|                                                     |
| Statements of Stockholders’ Equity                  |
|                                                     |
| Statements  of Cash Flows                                |
|                                                     |
| Notes  to Financial Statements                           |

 

16

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Report ofIndependent Registered Public Accounting Firm

Board of Directors and

Shareholders ofTGC Industries, Inc.

We have auditedthe accompanying balance sheets of TGC Industries, Inc. as of December 31, 2006and 2005, and the related statements of income, stockholders’ equity, and cashflows for the years then ended.  Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

We conducted ouraudits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audits to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the financial position of TGC Industries, Inc. as of December 31,2006 and 2005, and the results of its operations and its cash flows for theyears then ended, in conformity with accounting principles generally acceptedin the United States of America.

As discussed inNote B — Summary of Significant Accounting Policies to the financialstatements, TGC Industries, Inc. changed its method of accounting forshare-based payments in accordance with Statement of Financial AccountingStandards No. 123 (revised 2004) on January 1, 2006.

 
| /s/ Lane Gorman Trubitt, L.L.P. |   |
|---------------------------------|--------|
| Dallas, Texas                   |
| March 22, 2007                  |

 

17

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TGCIndustries, Inc.

BALANCE SHEETS

December31, 

 
| ** **                                                                   | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ASSETS                                                                       |       |        |       |        |       |
|                                                                         |       |        |       |        |       |
| CURRENT ASSETS                                                               |       |        |       |        |       |
| Cash and cash  equivalents                                                   |       | $           | 9,388,769  |        | $          | 9,499,409 |   |
| Trade accounts  receivable                                                   |       | 7,448,602   |       | 4,459,844   |       |
| Costs and  estimated earnings in excess of billings on uncompleted contracts |       | 989,451     |       | 3,685,884   |       |
| Prepaid expenses  and other                                                  |       | 508,925     |       | 330,991     |       |
| Prepaid federal  income tax                                                  |       | 183,705     |       | 318,243     |       |
| Current deferred  tax asset                                                  |       | 9,075       |       | 98,925      |       |
| Total current  assets                                                        |       | 18,528,527  |       | 18,393,296  |       |
|                                                                         |       |        |       |        |       |
| PROPERTY AND EQUIPMENT  - at cost                                            |       |        |       |        |       |
| Machinery and  equipment                                                     |       | 55,234,222  |       | 34,409,975  |       |
| Automobiles and  trucks                                                      |       | 6,609,057   |       | 3,578,802   |       |
| Furniture and  fixtures                                                      |       | 342,447     |       | 296,466     |       |
| Leasehold  improvements                                                      |       | 14,994      |       | 14,994      |       |
|                                                                         |       | 62,200,720  |       | 38,300,237  |       |
| Less accumulated  depreciation and amortization                              |       | (24,552,074 | )          | (15,503,597 | )          |
|                                                                         |       | 37,648,646  |       | 22,796,640  |       |
|                                                                         |       |        |       |        |       |
| Long-term  deferred tax asset                                                |       | —      |       | 47,791      |       |
| Goodwill                                                                     |       | 201,530     |       | —      |       |
| Other Assets                                                                 |       | 20,817      |       | 8,212       |       |
|                                                                         |       | 222,347     |       | 56,003      |       |
|                                                                         |       |        |       |        |       |
|                                                                         |       | $           | 56,399,520 |        | $          | 41,245,939 |   |

 

 

Theaccompanying notes are an integral part of these statements.

18

----

 
| ** **                                                                                                                                 | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                 |       |       |       |       |       |
|                                                                                                                                       |       |       |       |       |       |
| CURRENT LIABILITIES                                                                                                                        |       |       |       |       |       |
| Trade accounts  payable                                                                                                                    |       | $          | 4,951,985  |       | $          | 1,964,666 |   |
| Accrued  liabilities                                                                                                                       |       | 1,111,023  |       | 596,541    |       |
| Billings in  excess of costs and estimated earnings on uncompleted contracts                                                               |       | 6,159,514  |       | 1,420,684  |       |
| State income  taxes payable                                                                                                                |       | 415,501    |       | 229,732    |       |
| Current  maturities of notes payable                                                                                                       |       | 3,629,395  |       | 3,558,521  |       |
| Current portion  of capital lease obligations                                                                                              |       | 1,082,729  |       | 671,003    |       |
|                                                                                                                                       |       |       |       |       |       |
| Total current  liabilities                                                                                                                 |       | 17,350,147 |       | 8,441,147  |       |
|                                                                                                                                       |       |       |       |       |       |
| NOTES PAYABLE, less  current maturities                                                                                                    |       | 2,046,908  |       | 5,450,010  |       |
|                                                                                                                                       |       |       |       |       |       |
| CAPITAL LEASE OBLIGATIONS,  less current portion                                                                                           |       | 1,017,154  |       | 749,354    |       |
|                                                                                                                                       |       |       |       |       |       |
| LONG-TERM DEFERRED TAX  LIABILITY                                                                                                          |       | 942,153    |       | —     |       |
|                                                                                                                                       |       |       |       |       |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                             |       | —     |       | —     |       |
|                                                                                                                                       |       |       |       |       |       |
| STOCKHOLDERS’ EQUITY                                                                                                                  |       |       |       |       |       |
| Preferred stock,  $1.00 par value; 4,000,000 shares authorized;                                                                            |       |       |       |       |       |
|                                                                                                                                       |       |       |       |       |       |
| 8.5% senior  convertible preferred stock; -0- shares issued and outstanding at December  31,2006 and 2005, respectively                    |       | —     |       | —     |       |
|                                                                                                                                       |       |       |       |       |       |
| 8% Series C  convertible exchangeable preferred stock; -0- shares issued and outstanding  at December 31, 2006 and 2005, respectively      |       | —     |       | —     |       |
|                                                                                                                                       |       |       |       |       |       |
| Common stock,  $.01 par value; 25,000,000 shares authorized; 15,753,396 and 14,887,412  issued at December 31, 2006 and 2005, respectively |       | 157,535    |       | 148,875    |       |
| Additional  paid-in capital                                                                                                                |       | 26,461,640 |       | 25,321,787 |       |
| Unearned restricted  stock; 96,500 and -0- shares                                                                                          |       | (822,208   | )          | —     |       |
| Retained  earnings                                                                                                                         |       | 9,503,514  |       | 1,392,089  |       |
| Treasury stock,  at cost, 37,803 shares                                                                                                    |       | (257,323   | )          | (257,323   | )          |
|                                                                                                                                       |       | 35,043,158 |       | 26,605,428 |       |
|                                                                                                                                       |       |       |       |       |       |
|                                                                                                                                       |       | $          | 56,399,520 |       | $          | 41,245,939 |   |

 

The accompanying notes are anintegral part of these statements.

 

19

----

 

TGCIndustries, Inc.

STATEMENTS OF INCOME

YearsEnded December 31,

 
| ** **                                     | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|
|                                           |       |       |       |       |       |
| Revenue                                        |       | $          | 67,760,306 |       | $          | 30,851,963 |   |
|                                           |       |       |       |       |       |
| Cost and expenses                              |       |       |       |       |       |
| Cost of services                               |       | 40,831,650 |       | 18,152,118 |       |
| Selling, general  and administrative           |       | 2,988,892  |       | 2,149,350  |       |
| Depreciation  expense                          |       | 9,540,171  |       | 3,201,236  |       |
|                                           |       | 53,360,713 |       | 23,502,704 |       |
|                                           |       |       |       |       |       |
| Income from  operations                        |       | 14,399,593 |       | 7,349,259  |       |
|                                           |       |       |       |       |       |
| Interest expense                               |       | 780,782    |       | 364,848    |       |
|                                           |       |       |       |       |       |
| Income before  income taxes                    |       | 13,618,811 |       | 6,984,411  |       |
|                                           |       |       |       |       |       |
| Income tax  expense                            |       | 5,507,386  |       | 783,633    |       |
|                                           |       |       |       |       |       |
| NET INCOME                                     |       | 8,111,425  |       | 6,200,778  |       |
|                                           |       |       |       |       |       |
| Less dividend  requirements on preferred stock |       | —     |       | (204,989   | )          |
|                                           |       |       |       |       |       |
| Income allocable  to common stockholders       |       | $          | 8,111,425  |       | $          | 5,995,789 |   |
|                                           |       |       |       |       |       |
| Earnings per common  share                     |       |       |       |       |       |
| Basic                                          |       | $          | 0.52       |       | $          | 0.70 |   |
| Diluted                                        |       | $          | 0.51       |       | $          | 0.45 |   |
|                                           |       |       |       |       |       |
| Weighted average number  of shares outstanding |       |       |       |       |       |
| Basic                                          |       | 15,664,634 |       | 8,531,484  |       |
| Diluted                                        |       | 15,777,960 |       | 13,683,992 |       |

 

Theaccompanying notes are an integral part of these statements.

20

----

 

TGCIndustries, Inc. 

 STATEMENTS OFSTOCKHOLDERS’ EQUITY 

 Years Ended December 31, 2006 and 2005 

 
| ** **                                                     | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **   | ** ** | **Additional** | ** ** | **Retained**  | ** ** | **Unearned** | ** ** | ** ** | ** ** | ** **  | ** ** |
|----------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|-------------|------------|--------------|------------|----------------|------------|---------------|------------|--------------|------------|------------|------------|-------------|------------|
| ** **                                                     | ** ** | **Preferred stock** | ** ** | **Common stock** | ** ** | **Paid-in** | ** ** | **earnings** | ** ** | **Restricted** | ** ** | **Treasury**  | ** ** | ** **   | ** ** |
| ** **                                                     | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares**  | ** ** | **Amount**   | ** ** | **capital**    | ** ** | **(deficit)** | ** ** | **Stock**    | ** ** | **stock**  | ** ** | **Total**   | ** ** |
| Balances at January 1,  2005                                   |       | 2,835,914                |       | $                     | 2,835,914  |        | 6,102,067  |         | $          | 61,021         |       | $             | 6,697,133  |         | $          | (4,808,689 | )          | $           | —     |   | $ | (215,314 | ) | $ | 4,570,065 |   |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Cash dividends on  preferred stock                             |       | —                   |       | —                |       | —      |       | —       |       | (233,271       | )          | —        |       | —       |       | (233,271   | )          |        |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Conversion of preferred  stock                                 |       | (2,830,664               | )          | (2,830,664            | )          | 2,850,314   |       | 28,504       |       | 2,802,160      |       | —        |       | —       |       | —     |       |        |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Exercise of stock  options                                     |       | —                   |       | —                |       | 149,331     |       | 1,493        |       | 143,580        |       | —        |       | (42,009      | )          | 103,064    |       |        |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Redemption of 8% series  C convertible referred stock          |       | (5,250                   | )          | (5,250                | )          | —      |       | —       |       | (31,500        | )          | —        |       | —       |       | —     |       | (36,750     | )          |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Issuance of common stock                                       |       | —                   |       | —                |       | 5,785,700   |       | 57,857       |       | 39,944,983     |       | —        |       | —       |       | —     |       | 40,002,840  |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Repurchase of stock  purchase warrants                         |       | —                   |       | —                |       | —      |       | —       |       | (24,001,298    | )          | —        |       | —       |       | —     |       | (24,001,298 | )          |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Net income                                                     |       | —                   |       | —                |       | —      |       | —       |       | —         |       | 6,200,778     |       | —       |       | —     |       | 6,200,778   |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Balances at December 31,  2005                                 |       | —                   |       | —                |       | 14,887,412  |       | 148,875      |       | 25,321,787     |       | 1,392,089     |       | —       |       | (257,323   | )          | 26,605,428  |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| 5% common stock dividend                                       |       | —                   |       | —                |       | 743,292     |       | 7,433        |       | (8,363         | )          | —        |       | —       |       | —     |       | (930        | )          |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Exercise of stock  options                                     |       | —                   |       | —                |       | 26,192      |       | 262          |       | 20,539         |       | —        |       | —       |       | —     |       | 20,801      |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Issuance of restricted  common stock                           |       | —                   |       | —                |       | 96,500      |       | 965          |       | 1,070,185      |       | —        |       | (1,071,150   | )          | —     |       | —      |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Amortization of unearned  compensation restricted stock awards |       | —                   |       | —                |       | —      |       | —       |       | —         |       | —        |       | 248,942      |       | —     |       | 248,942     |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Amortization of compensation  cost of unvested stock options   |       | —                   |       | —                |       | —      |       | —       |       | 57,492         |       | —        |       | —       |       | —     |       | 57,492      |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Net income                                                     |       | —                   |       | —                |       | —      |       | —       |       | —         |       | 8,111,425     |       | —       |       | —     |       | 8,111,425   |       |
|                                                           |       |                     |       |                  |       |        |       |         |       |           |       |          |       |         |       |       |       |        |       |
| Balances at December 31, 2006                                  |       | —                   |       | $                     | —     |        | 15,753,396 |         | $          | 157,535        |       | $             | 26,461,640 |         | $          | 9,503,514  |       | $           | (822,208   | ) | $ | (257,323 | ) | $ | 35,043,158 |   |

 

The accompanying notes are an integral part of these statements.

 

21

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| TGC  Industries, Inc.     |
|---------------------------|
| STATEMENTS OF CASH FLOWS  |
| Years  Ended December 31, |

 
| ** **                                                                        | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
|                                                                              |       |        |       |        |       |
| Cash flows from  operating activities                                             |       |        |       |        |       |
| Net income                                                                        |       | $           | 8,111,425  |        | $          | 6,200,778 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities |       |        |       |        |       |
| Depreciation and  amortization                                                    |       | 9,540,171   |       | 3,201,236   |       |
| Gain on disposal  of property and equipment                                       |       | (56,240     | )          | (122,716    | )          |
| Non-cash  compensation                                                            |       | 306,434     |       | —      |       |
| Deferred income  taxes                                                            |       | 1,079,794   |       | (146,716    | )          |
| Changes in  operating assets and liabilities                                      |       |        |       |        |       |
| Trade accounts  receivable                                                        |       | (2,988,758  | )          | (2,804,760  | )          |
| Costs and  estimated earnings in excess of billings on uncompleted contracts      |       | 2,696,433   |       | (3,454,360  | )          |
| Prepaid expenses  and other                                                       |       | 1,447,215   |       | 741,904     |       |
|                                                                              |       |        |       |        |       |
| Prepaid federal  income tax                                                       |       | 134,538     |       | (318,243    | )          |
| Other assets                                                                      |       | (12,605     | )          | (4,817      | )          |
| Trade accounts  payable                                                           |       | 2,987,319   |       | 1,222,884   |       |
| Accrued  liabilities                                                              |       | 514,482     |       | 246,315     |       |
| Billings in  excess of costs and estimated earnings on uncompleted contracts      |       | 4,738,830   |       | 762,728     |       |
| Income taxes  payable                                                             |       | 185,769     |       | 215,381     |       |
|                                                                              |       |        |       |        |       |
| Net cash  provided by operating activities                                        |       | 28,684,807  |       | 5,739,614   |       |
|                                                                              |       |        |       |        |       |
| Cash flows from  investing activities                                             |       |        |       |        |       |
| Capital  expenditures                                                             |       | (21,219,238 | )          | (11,491,786 | )          |
| Purchase of the  assets of Highland Industries                                    |       | (1,800,000  | )          | —      |       |
| Proceeds from  sale of property and equipment                                     |       | 129,689     |       | 133,678     |       |
|                                                                              |       |        |       |        |       |
| Net cash used in  investing activities                                            |       | (22,889,549 | )          | (11,358,108 | )          |
|                                                                              |       |        |       |        |       |
| Cash flows from  financing activities                                             |       |        |       |        |       |
| Principal  payments on notes payable                                              |       | (4,957,377  | )          | (2,357,974  | )          |
| Principal  payments on capital lease obligations                                  |       | (968,392    | )          | (619,192    | )          |
| Proceeds from  issuance of debt                                                   |       | —      |       | 430,581     |       |
| Proceeds from  exercise of stock options                                          |       | 20,801      |       | 103,064     |       |
| Net proceeds  from issuance of common stock                                       |       | —      |       | 40,002,839  |       |
| Redemption of  stock purchase warrants                                            |       | —      |       | (24,001,298 | )          |
| Redemption of 8%  Series C preferred stock                                        |       | —      |       | (36,750     | )          |
| Payment of  dividends                                                             |       | (930        | )          | (233,271    | )          |
|                                                                              |       |        |       |        |       |
| Net cash  provided by (used in) financing activities                              |       | (5,905,898  | )          | 13,287,999  |       |
|                                                                              |       |        |       |        |       |
| Net increase  (decrease) in cash and cash equivalents                             |       | (110,640    | )          | 7,669,505   |       |
|                                                                              |       |        |       |        |       |
| Cash and cash  equivalents at beginning of year                                   |       | 9,499,409   |       | 1,829,904   |       |
|                                                                              |       |        |       |        |       |
| Cash and cash  equivalents at end of year                                         |       | $           | 9,388,769  |        | $          | 9,499,409 |   |
|                                                                              |       |        |       |        |       |
| Supplemental cash flow  information                                               |       |        |       |        |       |
| Interest paid                                                                     |       | $           | 790,171    |        | $          | 333,478 |   |
| Income taxes  paid                                                                |       | $           | 4,107,285  |        | $          | 1,033,211 |   |
|                                                                              |       |        |       |        |       |
| Noncash investing and  financing activities                                       |       |        |       |        |       |
| Capital lease  obligations incurred                                               |       | $           | 1,647,918  |        | $          | 1,448,171 |   |
| Financed  equipment purchases                                                     |       | $           | —     |        | $          | 7,585,715 |   |
| Financed  insurance premiums                                                      |       | $           | 1,625,149  |        | $          | 952,175 |   |
| Restricted stock  awards to employees                                             |       | $           | 1,071,150  |        | $          | — |   |
|                                                                              |       |        |       |        |       |
| The accompanying notes are an integral part of these statements.                  |       |        |       |        |       |

 

22

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TGCIndustries, Inc.

NOTES TO FINANCIAL STATEMENTS

December 31, 2006 and 2005

NOTE A - NATURE OF OPERATIONS

TGC Industries, Inc. (TGCor the Company) is engaged in the domestic geophysical services business andprimarily conducts seismic surveys and sells gravity data to companies engagedin exploration in the oil and gas industry.

NOTEB - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents 

The Companyconsiders all highly liquid investments with original maturity dates of threemonths or less to be cash equivalents. The Company maintains its accounts atfinancial institutions located in Texas. The bank accounts are insured by the Federal Deposit InsuranceCorporation up to $100,000.

Trade Receivables 

Trade accountsreceivable are recorded in accordance with terms and amounts as specified inthe related contracts on an ongoing basis. The Company evaluates thecollectibility of accounts receivable on a specific account basis using acombination of factors, including the age of the outstanding balances,evaluation of the customer’s financial condition, and discussions with relevantCompany personnel and with the customers directly. An allowance for doubtfulaccounts or direct write-off is recorded when it is determined that thereceivable may not be collected, depending on the facts known and theprobability of collection of the outstanding amount.

Property and Equipment 

Property and equipmentare stated at cost. Depreciation and amortization are provided using thestraight-line method over the estimated useful lives of the individual assetsranging from 1 to 7 years.  Thedepreciation expense on assets acquired under capital leases is included withdepreciation expense on owned assets. Expenditures for major renewals and betterments that extend the usefullives of property and equipment are capitalized.  Expenditures for maintenance and repairs arecharged to expenses as incurred.

 

Long-Lived Assets 

Long-lived assetsheld and used by the Company are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. For the purposes of evaluating the recoverability of long-livedassets, the recoverability test is performed using undiscounted cash flowsestimated to be generated by those assets.

Income Taxes 

Deferred incometaxes reflect the impact of temporary differences between the amounts of assetsand liabilities recognized for financial reporting purposes and such amountsrecognized for tax purposes.

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Revenue Recognition 

Revenues fromconducting seismic surveys are recognized over the term of the contract usingthe percentage-of-completion method. Under this method, revenues are recognizedon the units-of-production method. Revenues for the sale of gravity data arerecognized when services are rendered.

Stock-Based Compensation

Prior to March 2006,the Company had one stock based compensation plan.  The Company now has two stock-basedcompensation plans, which are described more fully in Note H. Prior to January1, 2006, the Company accounted for stock options under the recognition andmeasurement principles of Accounting Principles Board (“APB”) Opinion No. 25, “Accountingfor Stock Issued to Employees,” and related interpretations. Accordingly, nostock-based employee compensation cost was reflected in net income prior toJanuary 1, 2006, as all options granted under the older plan had an exerciseprice equal to the market value of the underlying common stock on the date ofgrant. Effective January 1, 2006 the Company implemented Statement ofAccounting Standards (SFAS) No. 123R “Share Based Payment (SFAS 123R)” forstock-based compensation awards granted after that date and for unvested awardsoutstanding at that date using the modified prospective applicationmethod.  The Company recognizes the fairvalue of the stock-based compensation awards as wages in the Statements ofIncome on a straight-line basis over the vesting period.  As a result, during the year ended December31, 2006, the Company recognized compensation expense for unvested stockoptions and restricted stock of $57,492 and $248,942, respectively.  The following table illustrates the effect onnet income and income per share allocable to common stockholders if the Companyhad applied the fair value recognition provisions of Financial Accounting StandardsBoard (“FASB”) Statement No. 123 (“SFAS 123”), “Accounting for Stock-BasedCompensation”, to stock-based employee compensation:

                                 
| ** **                                                                                                                                    | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
|                                                                                                                                          |       | **2006**                                   |       | **2005** |   |
| Net income  allocable to common stockholders, as reported                                                                                     |       | $                                          | 8,111,425  |   | $ | 5,995,789 |   |
|                                                                                                                                          |       |                                       |       |   |   |
| Deduct: Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | —                                     |       | (37,357 | ) |
|                                                                                                                                          |       |                                       |       |   |   |
| Pro forma net  income allocable to common stockholders                                                                                        |       | $                                          | 8,111,425  |   | $ | 5,958,432 |   |
|                                                                                                                                          |       |                                       |       |   |   |
| Income per  common share                                                                                                                      |       |                                       |       |   |   |
| Basic - as reported                                                                                                                           |       | $                                          | 0.52       |   | $ | 0.74 |   |
| Diluted - as reported                                                                                                                         |       | $                                          | 0.51       |   | $ | 0.48 |   |
| Basic - pro forma                                                                                                                             |       | $                                          | 0.52       |   | $ | 0.73 |   |
| Diluted - pro  forma                                                                                                                          |       | $                                          | 0.51       |   | $ | 0.47 |   |

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The fair value ofeach option grant is estimated on the date of grant using the Black-Scholesoption pricing model with the following assumptions used for outstandinggrants: risk-free interest rate of 4.20%, expected dividend yields of 0.0%, expected lives of 5.0 years;and expected volatility of 92.72% to 96.54%.

Financial Instruments 

The Company’sfinancial instruments recorded on the balance sheet include cash and cashequivalents, accounts receivable, accounts payable and debt. The carryingamounts of cash and cash equivalents, accounts receivable and accounts payableapproximate fair value because of the short-term nature of these items. Fairvalue of long-term debt is based on rates available to the Company for debtwith similar terms and maturities.

Earnings Per Share

Basic earnings percommon share is based upon the weighted average number of shares of commonstock outstanding.  Diluted earnings pershare is based upon the weighted average number of common shares outstandingand, when dilutive, common shares issuable for stock options, warrants andconvertible securities.

All share and per share amounts for the twelve months ended December31, 2006 and 2005 have been adjusted to reflect a 5% stock dividend paid April25, 2006 to shareholders of record as of April 11, 2006.

Useof Estimates

The preparation of financialstatements in accordance with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

Recent Accounting Standards 

In December 2004, the FASB issued FASB StatementNo.123R, “Share-Based Payment” (SFAS 123R), which requires that compensationcosts relating to share-based payments be recognized in the Company’s financialstatements.  Until January 1, 2006, theCompany accounted for those payments under the recognition and measurementprinciples of Accounting Principles Board (APB) Opinion No. 25, “Accounting forStock Issued to Employees,” and related interpretations.  Effective January 1, 2006, the Companyimplemented this standard using the modified prospective application.  Refer to Note B, for the Company’scalculation of the pro forma impact on net income of SFAS 123, which would besimilar to that under SFAS 123R.

In December 2004, the FASB issued FASB Statement No. 153, “Exchanges ofNonmonetary Assets, — an Amendment of APB Opinion No. 29,” (SFAS 153), which iseffective for the Company for asset-exchange transactions beginning July 1,2005. Under APB 29, assets received in certain types of nonmonetary exchangeswere permitted to be recorded at the

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carrying value ofthe assets that were exchanged (i.e., recorded on a carryover basis).  As amended by SFAS 153, assets received insome circumstances will have to be recorded instead at their fair values. Inthe past, the Company has not engaged in nonmonetary asset exchanges forsignificant amounts.

In July of 2006,FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation ofFASB Statement No. 109,” was issued. FIN 48 prescribes a recognitionthreshold and measurement attribute for tax positions. The Company is requiredto adopt FIN 48 at the beginning of fiscal year 2007 and does not expect anymaterial impact to the financial statements.

In September of2006, SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans—an amendment of SFAS No. 87, 88, 106, and132(R),” was issued. SFAS No. 158 requires the funded status of pensionand postretirement plans to be recorded as assets or liabilities andunrecognized gains or losses to be recorded as accumulated other comprehensiveloss in the balance sheet. The Company has no defined benefit pension or otherpostretirement plans. As a result, SFAS No. 158 will not have an effect onthe Company’s results.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(“SFAS 157”), which defines fair value, establishes guidelines for measuringfair value and expands disclosures regarding fair value measurements. SFAS 157does not require any new fair value measurements but rather eliminatesinconsistencies in guidance found in various prior accounting pronouncements.SFAS 157 is effective for fiscal   yearsbeginning after November 15, 2007. The Company is currently evaluating theimpact of SFAS 157, but does not expect the adoption of SFAS 157 to have amaterial effect on its consolidated financial position, results of operationsor cash flows.

NOTEC - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The components of uncompleted contracts are as follows at December 31,:
| ** **                                                      | ** ** | **2006**    | ** ** | **2005**   | ** ** | ** ** |
|-----------------------------------------------------------------|------------|-------------|------------|------------|------------|------------|
| Costs incurred  on uncompleted contracts and estimated earnings |       | $           | 7,044,699  |       | $          | 4,737,139  |   |   |
| Less billings to  date                                          |       | (12,214,762 | )          | (2,471,939 | )          |       |
|                                                            |       | $           | (5,170,063 | )          | $          | 2,265,200  |   |   |

 

The components of uncompleted contracts are reflectedin the balance sheets at December 31, 2006 and 2005 as follows:
| ** **                                                                   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                         |       |       |       |       |       |
| Costs and  estimated earnings in excess of billings on uncompleted contracts |       | $          | 989,451    |       | $          | 3,685,884 |   |
| Billings in  excess of costs and estimated earnings on uncompleted contracts |       | (6,159,514 | )          | (1,420,684 | )          |
|                                                                         |       | $          | (5,170,063 | )          | $          | 2,265,200 |   |

 

NOTE D - ACCRUED LIABILITIES

Accrued liabilitiesconsist of the following at December 31,:
| ** **                      | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Compensation and  payroll taxes |       | $          | 849,758    |       | $          | 417,497 |   |
| Accrued sales  and use tax      |       | 8,980      |       | 5,678      |       |
| Insurance                       |       | 116,100    |       | 85,435     |       |
| Accrued interest                |       | 36,182     |       | 45,571     |       |
| Other                           |       | 100,003    |       | 42,360     |       |
|                            |       | $          | 1,111,023  |       | $          | 596,541 |   |

 

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NOTEE - DEBT

 

Lineof Credit 

 

On August 2, 2004, theCompany obtained a line of credit from a bank with a $500,000 creditlimit.  The line of credit accruedinterest at the bank’s prime rate plus 1% and per the credit loan agreementmatured on August 2, 2005.  Collateralfor this line of credit was accounts receivable.  Advances were limited to eligiblereceivables.  There were no advances madeunder this line of credit and the company terminated this line of credit in May2005.  

 

In April 2005, the Companyentered into a revolving line of credit arrangement with a bank, providing forborrowings of up to $500,000.  OnSeptember 16, 2005, the company amended the revolving line of credit allowingthe company to borrow, repay and re-borrow, from time to time up to$3,500,000.  The amended revolving lineof credit matured in September 2006.  InSeptember 2006, the Company amended the revolving line of credit allowing thecompany to borrow, repay and re-borrow, from time to time up to$5,000,000.  The revolving line of creditis secured by a security interest in the company’s accounts receivable andmatures in September 2007.  Interest onthe outstanding amount under the line of credit loan agreement is payablemonthly at the prime rate of interest. The credit loan agreement provides for non-financial and financialcovenants, including a debt to worth ratio not in excess of 1.25 to 1.0 and aminimum debt service coverage ratio in excess of 2.0 to 1.0.  At December 31, 2006, the company had noborrowings outstanding under the line of credit loan agreement.

 

NotesPayable****

 

Notes payable consist of the following at December 31:

 
| ** **                                                                                                                                                 | ** ** | **2006**  | ** ** | **2005**  | ** ** |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|-----------|
| Note payable to a  finance company, Interest at 6.85%, due in fixed principal monthly  installments of $66,296 plus interest; collateralized by equipment  |       | $    | 729,254    |      | $     | 1,524,804 |   |   |
| Note payable to a  finance company, Interest at 7.25%, due in fixed principal monthly  installments of $93,507 plus interest; collateralized by equipment  |       | 1,683,127 |       | 2,805,211 |       |      |
| Note payable to a  finance company, Interest at 7.25%, due in fixed principal monthly  installments of $7,951 plus interest; collateralized by equipment   |       | 166,970   |       | 263,882   |       |      |
| Note payable to a  finance company, Interest at 7.25%, due in fixed principal monthly installments  of $7,951 plus interest; collateralized by equipment   |       | 166,970   |       | 262,382   |       |      |
| Note payable to a  finance company, Interest at 7.25%, due in fixed principal monthly  installments of $7,972 plus interest; collateralized by equipment   |       | 174,630   |       | 270,291   |       |      |
| Note payable to a finance company, Interest at 7.78%, due in fixed  principal monthly installments of $105,315 plus interest; collateralized by  equipment |       | 2,527,559 |       | 3,791,338 |       |      |
| Notes payable to a  finance company, interest at 7.85% to 8.21%, due in monthly installments of  $29,905 to $140,190 including interest                    |       | 227,793   |       | 90,623    |       |
|                                                                                                                                                       |       | $         | 5,676,303  |      | $          | 9,008,531 |   |
|                                                                                                                                                            |            |           |            |           |            |           |  |  |  |  |  |  |

 

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None of the above notesrequire the maintenance of financial ratios.

Aggregate annualmaturities of notes payable at December 31, 2006 are as follows:
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2007                                        |       | $          | 3,629,395  |   |
| 2008                                        |       | 2,046,908  |       |
| 2009                                        |       | —     |       |
| Thereafter                                  |       | —     |       |
|                                        |       | 5,676,303  |       |
| Less current  maturities                    |       | (3,629,395 | )          |
|                                        |       | $          | 2,046,908  |   |

 

NOTE F - LEASES

Capital Leases 

The Company leasesvehicles and certain specialized seismic equipment under leases classified ascapital leases. The following is a schedule showing the future minimum leasepayments under capital leases by years and the present value of the minimumlease payments as of December 31, 2006.
| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2007                                        |       | $          | 1,249,358  |   |
| 2008                                        |       | 856,786    |       |
| 2009                                        |       | 241,106    |       |
| Total minimum  lease payments required      |       | 2,347,250  |       |
| Less: Amount  representing interest         |       | (247,367   | )          |
| Present value of  minimum lease payments    |       | 2,099,883  |       |
| Less current  maturities                    |       | (1,082,729 | )          |
|                                        |       | $          | 1,017,154  |   |

 

The net book valueof the capital assets leased was approximately $1,202,000 and $2,214,000 as ofDecember 31, 2006 and 2005, respectively. Total accumulated depreciation onthese assets was approximately $1,835,000 and $947,000 as of December 31, 2006and 2005, respectively.

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Operating Leases

The Company leasesthree office and two warehouse facilities under operating leases that expire atvarious dates between October 2007 and January 2012.  One of the office facilities, used by theCompany as its corporate headquarters, and the two warehouse facilities, usedas equipment repair facilities, are located in Plano, Texas.  The other two office facilities are used assales offices and are located in Houston, Texas and Oklahoma City, Oklahoma.  Rent expense for these facilities wereapproximately $149,000 and $86,000 for the years ended December 31, 2006 and2005.

The following is aschedule by years of future minimum rental payments required under theoperating leases as of December 31, 2006:
| **Year Ending December 31:** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2007                                        |       | $          | 249,471    |   |
| 2008                                        |       | 241,957    |       |
| 2009                                        |       | 147,539    |       |
| 2010                                        |       | 130,539    |       |
| 2011 and thereafter                         |       | 145,380    |       |
| Total minimum  payments required            |       | $          | 914,886    |   |

 

NOTE G — FAIR VALUE OF DEBT OBLIGATIONS

Thefair value of debt obligations is estimated using discounted cash flows basedon the Company’s incremental borrowing rate for similar types ofborrowings.  A comparison of the carryingvalue and fair value of these instruments is as follows:
| ** **     | ** ** | **December 31,** | ** ** |
|----------------|------------|-----------------------|------------|
| ** **     | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Carrying value |       | $                     | 5,676,303  |   | $ | 9,008,531 |   |
| Fair value     |       | $                     | 5,676,303  |   | $ | 9,008,531 |   |

 

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NOTEH — STOCKHOLDERS’ EQUITY

The following is areconciliation of net income and weighted average common shares outstanding forpurposes of calculating basic and diluted net income per share:

Earnings Per Share
| ** **                                          | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|
| ** **                                          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Numerator:                                          |       |                  |       |   |   |
| Net income                                          |       | $                     | 8,111,425  |   | $ | 6,200,778 |   |
| Less dividend  requirements on preferred stock      |       | —                |       | (204,989 | ) |
| Income allocable  to common stockholders            |       | $                     | 8,111,425  |   | $ | 5,995,789 |   |
| Denominator:                                        |       |                  |       |   |   |
| Basic - weighted  average common shares outstanding |       | 15,664,634            |       | 8,531,484 |   |
| Effect of  dilutive securities:                     |       |                  |       |   |   |
| Warrants                                            |       | 24,584                |       | 2,797,570 |   |
| Stock options                                       |       | 88,742                |       | 160,205 |   |
| Convertible  preferred stock                        |       | —                |       | 2,194,733 |   |
|                                                |       | 15,777,960            |       | 13,683,992 |   |
| Basic net income  per share                         |       | $                     | .52        |   | $ | .70 |   |
| Diluted net income per  share                       |       | $                     | .51        |   | $ | .45 |   |

 

The effect of preferredstock dividend requirements on the amount of income available to commonstockholders was $.02 for the year ended December 31, 2005.

Outstanding options thatwere not included in the diluted calculation because their effect would beanti-dilutive total 6,153 for the year ended December 31, 2005.

All share and per shareamounts have been adjusted to reflect a 5% stock dividend paid April 25, 2006to shareholders of record as of April 11, 2006.

Stock-Based Compensation Plans

The Company had a 1993Stock Option Plan (the “1993 Plan”). Options for up to 283,334 shares of the Company’s common stock couldhave been granted under the 1993 Plan. Options under the 1993 Plan must havebeen granted at prices not less than the market price at the date of grant andmust have been exercised within five years from the date of grant. At December31, 2003, outstanding options for 29,100 shares were exercisable, and wereexercised during 2004.  At December 31,2004 the 1993 Plan had expired.

The Company currently hasin effect a 1999 stock option plan (the “1999 Plan”).  Options for up to 300,000 shares of theCompany’s common stock may be granted. Options under the 1999 Plan must begranted at prices not less than the lesser of the par value per share of thestock or the fair market value per share of the Company’s stock on the date ofthe grant, and their term cannot exceed five years from the date of thegrant.  Options outstanding at December31, 2005, covering 15,530 shares, expire five years from the date of the grantand are exercisable as follows: (i) one-third of the shares after the 12 monthperiod following the date of the grant, (ii) two-thirds of the shares after the24 month period following the date of the grant, and (iii) all of the shares ofstock after the 36 month period following the date of the grant.  During 2006, no options were

 

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granted or cancelled andoptions covering 26,192 shares were exercised. At December 31, 2006, options covering 124,663 shares were outstanding,of which 47,452 were exercisable. During 2006, the Company recognized $57,492of compensation expense associated with the unvested stock options.

The Company currently hasin effect a 2006 stock award plan (the “2006 Plan”).  The 2006 Plan provides for the granting ofstock options, common stock, and restricted stock.  The Company can issue up to 1,000,000 sharesof the Company’s common stock pursuant to awards under the 2006 Plan. The 2006Plan will be administered by a committee of the Board of Directors (“theCommittee”).  Currently the Committee iscomprised of three directors.  Any stockoptions granted under the 2006 Plan will be exercisable as set forth in theoption agreements pursuant to which they are issued, but in no event will stockoptions be exercisable after the expiration of ten (10) years from the date ofgrant.  No options were granted under the2006 Plan during the year ended December 31, 2006. Restricted stock consists ofshares that are transferred by the Company to a participant, but are subject tosubstantial risk of forfeiture and to restrictions on their sale or othertransfer by the participant.  In April2006, the Committee granted 96,500 shares of restricted stock.  The shares of restricted stock were issued inthe names of the grantees and have restrictive legends prohibiting their salesprior to vesting.  One-third (1/3) of thegranted restricted shares vest each year on the annual anniversary of thegrant.  Upon vesting, a new certificatewill be issued for the vested portion without the restrictive legend.  During 2006, the Company recognized $248,942of compensation expense associated with the restricted stock.

The following tablesummarizes activity under the Plans:
| ** **                    | ** ** | **Shares under  option** | ** ** | **Weighted average  exercise price** | ** ** |
|-------------------------------|------------|-------------------------------|------------|------------------------------------------------|------------|
| Balance at  December 31, 2005 |       | 150,855                       |       | $                                              | 2.82       |   |
| Granted                       |       | —                        |       | $                                              | —     |   |
| Exercised                     |       | (26,192                       | )          | $                                              | .79        |   |
| Canceled                      |       | —                        |       | $                                              | —     |   |
| Balance at December 31,  2006 |       | 124,663                       |       | $                                              | 3.25       |   |

 

The following informationapplies to options outstanding and exercisable at December 31, 2006:
| **Range of Exercise prices** | ** ** | **Number  outstanding** | ** ** | **Weighted average  remaining  contractual life  (in years)** | ** ** | **Weighted average  exercise price** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| $.76 - $7.51                                |       | 124,663                 |       | 2.88                                                                         |       | $                                              | 3.25       |   |
|                                             |            |                         |            |                                                                              |            |                                                |            |  |

 

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Stock Warrants 

In connection with theissuance of subordinated notes payable during 1999, certain officers anddirectors 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 October 2005, these warrants wereredeemed.

In connection with theissuance of debt during 2002, certain investors received warrants covering1,500,000 shares with a value of $45,000. These warrants have a strike price of$.20 and expire on September 12, 2012. In October 2005, these warrants wereredeemed.

In connection with thecommitment to provide the Company with a line of credit up to $300,000 during2003, certain Directors received warrants covering 750,000 shares with a valueof $22,500. These warrants have a strike price of $.20 and expire on June 12,2013.  In October 2005, these warrantswere redeemed.

The agreements coveringthe warrants issued in 2002 and 2003 contain provisions that in the eventdividends are declared and paid on the Company’s Senior Preferred Stock inadditional shares of Senior Preferred Stock the number of additional commonshares for which the warrants are exercisable and the purchase price shall beadjusted.  At December 31, 2004, thewarrants issued in 2002 and the warrants issued in 2003 were exercisable into1,855,000 shares at $.16 per share and 811,645 shares at $.18 per share,respectively.

During 2004, the Companyissued 27,300 warrants to a public relations firm as part of its fee forservices provided the Company.  Thewarrants have a strike price of $.95 per share and expire December 15,2007.  During January 2005, the publicrelations firm sold the 27,300 warrants to a group of investors that includedcertain Directors of the Company.  Thesewarrants remain outstanding at December 31, 2006.  The number of warrants, issued in 2004, havebeen adjusted to reflected the 5% stock dividend paid in April 2006.

As noted above, inOctober 2005, the company used $24,001,298 of the Company’s public offeringproceeds to redeem all of the outstanding 1999, 2002 and 2003 warrants.

Preferred Stock 

During 1996, the Companyissued 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 offeringwith gross proceeds of approximately $5,800,000. The Series C Preferred Stockis, at the option of the Company, exchangeable into 8% subordinated convertibledebentures. Prior to November 30, 2001, the Series C Preferred Stock anddebentures were convertible into shares of the Company’s common stock at theconversion 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, theCompany’s Board of Directors approved amendments to the conversion terms of theSeries C Preferred Stock. The amendments were as follows: the conversion pricewas reduced from $2.00 per share to $1.61 per share and the date of theconversion price increase to $3.75 per share was delayed from December 31,2001, until January 31, 2002. The subsequent date of the increase in theconversion price to $6.00 per share remained December 31, 2002.

In January 2002, theSeries C Preferred stockholders converted 977,550 shares of Series C PreferredStock into 3,035,839 shares of common stock. As a result, 58,100 shares of

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Series C Preferred Stockremained outstanding at December 31, 2003. At a September 24, 2004 meeting, the Company’s Board of Directorsapproved amendments to the conversion terms of the Series C PreferredStock.  The amendments were asfollows:  the conversion price wasreduced from $6.00 per share to $2.00 per share for a period beginning onSeptember 24, 2004 and ending on January 31, 2005.  As a result, the Series C Preferredstockholders converted 39,750 shares of Series C Preferred stock into 99,375shares of common stock.  At December 31,2004, 18,350 of Series C Preferred stock remained outstanding.  In January 2005, the Series C Preferredstockholders converted an additional 13,100 shares of Series C Preferred stockinto 32,750 shares of common stock.  InJune 2005, the company redeemed the 5,250 shares of Series C Preferred stock.

In 2000, the Companyissued 2,252,445 shares of 8.5% Senior Convertible Preferred Stock (“SeniorPreferred Stock”) to a debt holder in consideration for an outstandingdebenture plus accrued interest, and in accordance with the terms of theagreement, issued 103,490 additional shares of Senior Preferred Stock to theSenior Preferred stockholder as payment for 2000 dividends. At the election ofthe 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 theSenior 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, the Senior preferredstockholder completed a transaction, selling all its 3,024,264 shares of SeniorPreferred Stock to a small number of investors that included several members ofthe Company’s Board of Directors who purchased 1,772,200 of such shares. During2004, certain members of the investor group converted 206,700 shares of SeniorPreferred Stock into a like number of shares of the Company’s CommonStock.  During 2005, the Senior Preferredstockholders converted all 2,817,564 shares of Senior Preferred Stock into alike number of shares of common stock.

Dividends 

Holders of the Company’sSeries C Preferred Stock received, when, as and if declared by the Board ofDirectors of the Company, dividends at a rate of 8% per annum. The dividendswere payable semi-annually during January and July of each year. As of December31, 2004, following the conversion of 1,017,300 shares of the Series CPreferred Stock as noted above, cumulative dividends of $44,040 were inarrears.  In April 2005, the company paidthe cumulative dividends in arrears on the 5,250 shares of Series C Preferredstock outstanding at that date in the amount of $12,600.  In connection with the redemption of theSeries C Preferred stock the stockholders received the regular $.20 per sharedividend in the amount of $1,050.

Holders of the Company’sSenior Preferred Stock received, when, as and if declared by the Board ofDirectors of the Company, dividends at a rate of 8.5% per annum. The dividendswere payable semi-annually during June and December of each year. Dividendspayable in 2003 were paid in additional shares of Senior Preferred Stock, atthe election of the Senior Preferred Stockholder.  Cash dividends of $219,621 were paid to theSenior Preferred Stockholders during 2005. During 2005, the Senior Preferredstockholders converted all 2,817,564 shares of Senior Preferred Stock into alike number of shares of common stock.

33

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NOTE I — INCOME TAXES

The income taxprovision charged to continuing operations for the years ended December 31,2006, and 2005, was as follows:
| ** **                     | ** ** | **2006**  | ** ** | **2005** | ** ** |
|--------------------------------|------------|-----------|------------|----------|------------|
| Current:                       |       |      |       |     |       |
| U.S. federal                   |       | $         | 3,844,068  |     | $          | 612,488 |   |
| State and local                |       | 583,524   |       | 317,861  |       |
|                           |       | 4,427,592 |       | 930,349  |       |
| Deferred:                      |       |      |       |     |       |
| U.S. federal expense (benefit) |       | 1,079,794 |       | (146,716 | )          |
|                           |       | $         | 5,507,386  |     | $          | 783,633 |   |

 

The income taxprovision differs from the amount of income tax determined by applying the U.S.federal income tax rate to pretax income from continuing operations for theyears ended December 31, 2006, and 2005, due to the following:
| ** **                                                      | ** ** | **2006** | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|------------|------------|
| Computed  “expected” tax expense                      |       | $        | 4,766,584  |       | $          | 2,374,700 |   |
| Increase  (decrease) in income taxes resulting from:            |       |     |       |       |       |
| Nondeductible  expenses and other                               |       | 361,511  |       | 111,110    |       |
| State &  local taxes, net of federal benefit                |       | 379,291  |       | 317,861    |       |
| Realization of  additional net operating losses and tax credits |       | —   |       | (504,068   | )          |
| Change in  valuation allowance                                  |       | —   |       | (1,515,970 | )          |
|                                                            |       | $        | 5,507,386  |       | $          | 783,633 |   |

 

Net deferred taxliabilities consist of the following components as of December 31, 2006 and2005:
| ** **                      | ** ** | **2006**   | ** ** | **2005** | ** ** |
|---------------------------------|------------|------------|------------|----------|------------|
| Deferred tax  assets            |       |       |       |     |       |
| Loss carry forwards             |       | $          | 9,075      |     | $          | 18,150 |   |
| Property and equipment          |       | —     |       | 38,716   |       |
| Accrued expenses                |       | —     |       | 32,465   |       |
| Alternative minimum tax credits |       | —     |       | 57,385   |       |
| Deferred stock compensation     |       | 102,793    |       | —   |       |
|                            |       | 111,868    |       | 146,716  |       |
| Deferred tax liability          |       |       |       |     |       |
| Property and equipment          |       | (1,044,946 | )          | —   |       |
| Less valuation  allowance       |       | —     |       | —   |       |
|                            |       | $          | (933,078   | )        | 146,716    |   |
|                                 |            |            |            |          |            |  |  |

 

 

34

----

The componentsgiving rise to the net deferred tax items described above have been included inthe accompanying balance sheet as of December 31, 2006, and 2005, as follows:
| ** **                | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|
| Current assets            |       | $        | 9,075      |     | $          | 98,925 |   |
| Noncurrent  assets        |       | —   |       | 47,791   |       |
| Current  (liabilities)    |       | —   |       | —   |       |
| Noncurrent  (liabilities) |       | (942,153 | )          | —   |       |
|                      |       | $        | (933,078   | )        | $          | 146,716 |   |

 

The net change in thevaluation allowances for the deferred tax assets was a decrease of $1,515,970during 2005.  The decrease relates to theutilization of the operating loss carry forwards during 2005.  The remaining loss carry forwards that havebeen recognized will expire ratably in 2007.

NOTEJ — 401(k) PLAN

The Company has a 401(k)salary deferral plan which covers all employees who have reached the age of20.5 years and have been employed by the Company for at least one year. Thecovered employees may elect to have an amount deducted from their wages forinvestment in a retirement plan. The Company makes contributions to the planequal to 50% of each participant’s salary reduction contributions to the planup to 6% of the participant’s compensation. The Company’s matching contributionto the plan was approximately $54,000 and $37,000 for the years ended December31, 2006 and 2005, respectively.

NOTE K — CONCENTRATION OF CREDIT RISK

The Company sells itsgeophysical services primarily to large independent oil and gas companies operatingin the United States. The Company performs ongoing credit evaluations of itscustomer’s financial condition and, generally, requires no collateral from itscustomers.

No customer accounted formore than 10% of the Company’s sales for the year ended December 31, 2006.During 2005 our two largest customers accounted for approximately 22.2% ofrevenues. As of December 31, 2006, four additional customers accounted for 22%,13%, 12% and 11% of outstanding accounts receivable, respectively.

NOTE L — CONTINGENCIES

In conducting its activities, the Company from time totime is the subject of various claims arising from the ordinary course ofbusiness. In the opinion of management, the ultimate resolution of such claimsis not expected to have a material adverse effect upon the financial positionof the Company.

NOTE M — SUBSEQUENTEVENTS

In March 2007, theCompany entered into a purchase agreement with a manufacturer to purchase 4,000additional channels of ARAM ARIES seismic recording equipment to be deliveredin April 2007.  This additional equipmentwill be used to increase the capacity of the Company’s eight seismic crewscurrently operating in the field, bringing the available recording channels toa total of 36,000.

 

35

----

 

**ITEM8.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

      Not Applicable.

**Item8A.  CONTROLS AND PROCEDURES**

Under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Principal Financial and AccountingOfficer, the Company performed an evaluation of the effectiveness of the designand operation of the Company’s disclosure controls and procedures (as definedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as ofDecember 31, 2006.  Based upon thatevaluation, the Chief Executive Officer and Principal Financial and AccountingOfficer concluded that the Company’s disclosure controls and procedures areeffective in enabling the Company to record, process, summarize, and reportinformation required to be included in reports filed or submitted under theExchange Act within the required time period. There were no changes in the Company’s internal controls over financialreporting or in other factors during the quarter ended December 31,2006, thathave materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

The Companycontinues to take action to assure compliance with the internal **controls,** disclosure **controls,** and otherrequirements of the Sarbanes-Oxley Act of 2002. Our management, including our Chief Executive Officer and PrincipalFinancial and Accounting Officer, cannot guarantee that our internal **controls** and disclosure **controls** will prevent allpossible errors or all fraud.  A **control** system, no matterhow well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the **control**system are met. In addition, the design of a **control** system must reflect the fact that there areresource constraints, and the benefit of **controls**must be relative to their costs.  Becauseof the **inherent limitations**in all **control**systems, no system of **controls**can provide absolute assurance that all **control**issues and instances of fraud, if any, within the Company have beendetected.  These **inherent limitations** include the realities thatjudgments in decision-making can be faulty and that breakdowns can occurbecause of simple error or mistake. Further, **controls**can be circumvented by individual acts of some persons, by collusion of two ormore persons, or by management override of the **controls.******

The design of anysystem of **controls**also is based in part upon certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions.  Over time, a **control** may be inadequate because of changes inconditions, or the degree of compliance with the policies or procedures maydeteriorate.  Because of **inherent****limitations** in a cost-effective **control** system, misstatements due to error or fraud mayoccur and not be detected.

**Item 8B.  OTHER INFORMATION**

             None

# **PART III**

**ITEM 9.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.**

      Certain information required by Item 9 ofthe Form 10-KSB is hereby incorporated by reference from the Company’sdefinitive proxy statement, which will be filed pursuant to Regulation 14Awithin 120 days after the Company’s year end for the year covered by thisreport, under the caption “Nominees for Directors” in the proxy statement.

**ITEM 10.EXECUTIVE COMPENSATION.**

     The information required by Item 10 ofForm 10-KSB is hereby incorporated by reference from the Company’s definitiveproxy statement, which will be filed pursuant to Regulation 14A within 120 daysafter the Company’s year end for the year covered by this report, under thecaption “Executive Compensation” in the proxy statement.

**ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**.

 

     The information required by Item 11 ofForm 10-KSB is hereby incorporated by reference from the Company’s definitiveproxy statement, which will be filed pursuant to Regulation 14A within 120 daysafter the Company’s year end for the year covered by this report, under thecaption “Security Ownership of Certain Beneficial Owners and Management” in theproxy statement.

36

----

 

**ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**

     The information required by Item 12 ofForm 10-KSB is hereby incorporated by reference from the Company’s definitiveproxy statement, which will be filed pursuant to Regulation 14A within 120 daysafter the Company’s year end for the year covered by this report, under thecaption “Transactions with Management” in the proxy statement.

**ITEM13.  EXHIBITS**

Item 13     (a) The following is a list of exhibits to this Form 10-KSB:

 
| **EXHIBIT NO.** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 | ** ** | ** **                                                                                                                                                                                                                                                                                                     |
| 1.1             |       | Underwriting Agreement, dated October 5, 2005, among  TGC Industries, Inc. and Oppenheimer & Co., Inc., as representative of  the several underwriters named therein, filed as Exhibit 1.1 to the Company’s  Current Report on Form 8-K dated October 6, 2005, and incorporated herein by  reference. |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 3.1             |       | Restated Articles of Incorporation (with amendment)  as filed with the Secretary of State of Texas on June 20, 2003, filed as  Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB for the fiscal year  ended December 31, 2003, and incorporated herein by reference.                              |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 3.2             |       | Bylaws, as amended and restated December 1,  2004 filed as Exhibit 3.2 to the Company’s Registration Statement on  Form SB-2/A on September 20, 2005 (Registration No. 333-128018),  and incorporated herein by reference.                                                            |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 4.1             |       | Form of Specimen Stock Certificate filed as  Exhibit 4.1 to the Company’s Registration Statement on Form SB-2/A  on September 20, 2005 (Registration No. 333-128018), and incorporated  herein by reference.                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 4.2             |       | Statement of Resolution Establishing Series of  Preferred Stock of TGC Industries, Inc. filed as Exhibit 2 to the Company’s  Current Report on Form 8-K filed on August 11, 1993, and incorporated herein  by reference.                                                                                  |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 4.3             |       | Statement of Resolution Establishing Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. filed as  Exhibit B to the Company’s Current Report on Form 8-K dated July 15, 1996,  filed with the Securities and Exchange Commission and incorporated herein by  reference.         |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 4.4             |       | Statement of Resolution Regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. filed as  Exhibit 4.3 to the Company’s Annual Report on Form 10-KSB/A for the fiscal  year ended December 30, 1998, and incorporated herein by reference.                                 |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 4.5             |       | Statement of Resolution Regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. 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.                                       |
|            |       |                                                                                                                                                                                                                                                                                                           |
| 4.6             |       | Statement of Resolution regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. 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.                                       |

37

----

 
|        |   |                                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4.7    |   | Statement of Resolution regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. 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.                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.8    |   | Statement of Resolution regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. filed as  Exhibit 4.7 to the Company’s Annual Report on Form 10-KSB for the fiscal year  ended December 31, 2004, and incorporated herein by reference.                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.9    |   | 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 Securities and Exchange Commission on September  19, 1996, and incorporated herein by reference.             |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.10   |   | 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 Securities and Exchange Commission and incorporated herein by reference.                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.11   |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.12   |   | Statement of Resolution Establishing 8-1/2% Senior  Convertible Preferred Stock of TGC Industries, Inc. 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.                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.13   |   | Statement of Resolution regarding 8-1/2% Senior  Convertible Preferred Stock of TGC Industries, Inc. 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.                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.14   |   | Form of Warrant Agreement and Warrant Certificate  dated September 10, 2002, filed as Exhibit 4.14 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.15   |   | Form of Warrant Agreement and Warrant Certificate  dated June 12, 2003, filed as Exhibit 14.15 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.16   |   | Form of Warrant Agreement and Warrant Certificate  dated December 15, 2004, filed as Exhibit 4.16 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| +10.1  |   | Employment Contract by and among TGC Industries,  Inc. and Wayne A. Whitener, dated August 26, 2005, filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K dated  August 31, 2005, and incorporated herein by reference.                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.2   |   | Form of Indemnification Agreement, filed as Exhibit  10.2 to the Company’s Current Report on Form 8-K dated August 31,  2005, and incorporated herein by reference.                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.3   |   | Commercial Lease Agreement dated August 25,  2005, by and among TGC Industries, Inc. and JSS/Capital Avenue, L.P., filed  as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated  August 31, 2005, and incorporated herein by reference.                                                                                 |

38

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|        |   |                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4   |   | Promissory Note by and among TGC Industries, Inc.  and Sovereign Bank, N.A., dated September 16, 2005, filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.5   |   | Waiver, dated October 12, 2005 and effective  September 16, 2005, to the Promissory Note by and among TGC Industries, Inc.  and Sovereign Bank, N.A., dated September 16, 2005, filed as Exhibit 10.1 to  the Company’s Current Report on Form 8-K dated October 18, 2005, and  incorporated herein by reference.                |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.6   |   | Business Loan Agreement by and among TGC Industries,  Inc. and Sovereign Bank, N.A., dated September 16, 2005, filed as  Exhibit 10.2 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.7   |   | Promissory Note by and among TGC Industries, Inc.  and General Electric Capital Corporation, dated September 2, 2005, filed  as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.8   |   | Amendment, dated September 9, 2005, to the  Promissory Note by and among TGC Industries, Inc. and General Electric  Capital Corporation, dated September 2, 2005, filed as Exhibit 10.4  to the Company’s Current Report on Form 8-K dated September 20,  2005, and incorporated herein by reference.   |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.9   |   | Promissory Note by and among TGC Industries, Inc.  and General Electric Capital Corporation, dated September 12, 2005,  filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K  dated September 20, 2005, and incorporated herein by reference.                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.10  |   | Amendment, dated September 9, 2005, to the  Promissory Note by and among TGC Industries, Inc. and General Electric  Capital Corporation, dated September 12, 2005, filed as  Exhibit 10.6 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.  |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.11  |   | Amendment, dated September 12, 2005, to the  Promissory Note by and among TGC Industries, Inc. and General Electric  Capital Corporation, dated September 12, 2005, filed as Exhibit 10.7  to the Company’s Current Report on Form 8-K dated September 20,  2005, and incorporated herein by reference. |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.12  |   | Promissory Note by and among TGC Industries, Inc.  and General Electric Capital Corporation, dated September 19, 2005, Filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September  30, 2005, and incorporated herein by reference.                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.13  |   | Form of Warrant Purchase Agreement from  Directors filed as Exhibit 10.12 to the Company’s Registration Statement  on Form SB-2/A on September 20, 2005 (Registration No. 333-128018),  and incorporated herein by reference.                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| +10.14 |   | 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.                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| +10.15 |   | 2006 Stock Awards Plan, dated March 30, 2006,  filed as Exhibit A to the Company’s definitive proxy statement on Form DEFR  14A dated April 25, 2006, and incorporated herein by reference.                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| *31.1  |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  |

39

----

 
|        |   |                                                                                                                                                                    |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *31.2  |   | Certification of Principal Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                |
|   |   |                                                                                                                                                                    |
| *32.1  |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                    |
|   |   |                                                                                                                                                                    |
| *32.2  |   | Certification of Principal Financial and Accounting  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002. |

 

----

*Filed herewith.

+Management contract on compensatory plan,contract, or arrangement.

**ITEM14.  PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

      The information required by item 14 ofForm 10-KSB is hereby incorporated by reference from the Company’s definitiveproxy statement, which will be filed pursuant to Regulation 14A within 120 daysafter the Company’s year end for the year covered by this report, under thecaption “Principal Accountant Fees and Services” in the proxy statement.

 

40

----

 

**SIGNATURES**

     In accordance with Section 13 or 15(d) ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.
|                      |   | **TGC INDUSTRIES, INC.** |
|----------------------|--------|--------------------------|
| ** **           |   | ** **               |
| ** **           |   | ** **               |
| Date: March 28, 2007 |   | By:                      | /s/ Wayne A. Whitener |
|                 |   |                     |   | Wayne A. Whitener |
|                 |   |                     |   | President and Chief Executive Officer |
|                 |   |                     |   | (Principal Executive Officer) |

 

     In accordance with the Exchange Act, thisreport has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.
| Date: March 28, 2007 |   | By:    | /s/ Wayne A. Whitener     |
|----------------------|--------|--------|---------------------------|
|                 |   |   |                      | Wayne A. Whitener |
|                 |   |   |                      | President and Chief Executive Officer |
|                 |   |   |                      | (Principal Executive Officer) |
|                 |   |   |                      |   |
| Date: March 28, 2007 |   | By:    | /s/ Kenneth Uselton       |
|                 |   |   |                      | Kenneth Uselton, Secretary and |
|                 |   |   |                      | Treasurer (Principal Financial and |
|                 |   |   |                      | Accounting Officer) |
|                 |   |   |                      |   |
| Date: March 28, 2007 |   | By:    | /s/ William J. Barrett    |
|                 |   |   |                      | William J. Barrett |
|                 |   |   |                      | Director |
|                 |   |   |                      |   |
| Date: March 28, 2007 |   | By:    | /s/ Herbert M. Gardner    |
|                 |   |   |                      | Herbert M. Gardner |
|                 |   |   |                      | Director |
|                 |   |   |                      |   |
| Date: March 28, 2007 |   | By:    | /s/ Allen T. McInnes      |
|                 |   |   |                      | Allen T. McInnes |
|                 |   |   |                      | Director |
|                 |   |   |                      |   |
| Date: March 28, 2007 |   | By:    | /s/ Edward L. Flynn       |
|                 |   |   |                      | Edward L. Flynn |
|                 |   |   |                      | Director |
|                 |   |   |                      |   |
| Date: March 28, 2007 |   | By:    | /s/ William C. Hurtt, Jr. |
|                 |   |   |                      | William C. Hurtt, Jr. |
|                 |   |   |                      | Director |

 

41

----

**EXHIBITSINDEX**

** **
| EXHIBIT  NO. | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                |
|--------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.1          |       | Underwriting Agreement, dated October 5, 2005, among  TGC Industries, Inc. and Oppenheimer & Co., Inc., as representative of  the several underwriters named therein, filed as Exhibit 1.1 to the Company’s  Current Report on Form 8-K dated October 6, 2005, and incorporated herein by  reference. |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 3.1          |       | Restated Articles of Incorporation (with amendment)  as filed with the Secretary of State of Texas on June 20, 2003, filed as  Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB for the fiscal year  ended December 31, 2003, and incorporated herein by reference.                              |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 3.2          |       | Bylaws, as amended and restated December 1,  2004 filed as Exhibit 3.2 to the Company’s Registration Statement on  Form SB-2/A on September 20, 2005 (Registration No. 333-128018),  and incorporated herein by reference.                                                            |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.1          |       | Form of Specimen Stock Certificate filed as  Exhibit 4.1 to the Company’s Registration Statement on Form SB-2/A  on September 20, 2005 (Registration No. 333-128018), and incorporated  herein by reference.                                                                          |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.2          |       | Statement of Resolution Establishing Series of  Preferred Stock of TGC Industries, Inc. filed as Exhibit 2 to the Company’s  Current Report on Form 8-K filed on August 11, 1993, and incorporated herein  by reference.                                                                                  |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.3          |       | Statement of Resolution Establishing Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. filed as  Exhibit B to the Company’s Current Report on Form 8-K dated July 15, 1996,  filed with the Securities and Exchange Commission and incorporated herein by  reference.         |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.4          |       | Statement of Resolution Regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. filed as  Exhibit 4.3 to the Company’s Annual Report on Form 10-KSB/A for the fiscal  year ended December 30, 1998, and incorporated herein by reference.                                 |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.5          |       | Statement of Resolution Regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. 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.                                       |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.6          |       | Statement of Resolution regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. 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.                                       |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.7          |       | Statement of Resolution regarding Series C 8%  Convertible Exchangeable Preferred Stock of TGC Industries, Inc. 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.                                       |
|         |       |                                                                                                                                                                                                                                                                                                           |
| 4.8          |       | Statement of Resolution regarding Series C 8% Convertible  Exchangeable Preferred Stock of TGC Industries, Inc. filed as Exhibit 4.7 to  the Company’s Annual Report on Form 10-KSB for the fiscal year ended December  31, 2004, and incorporated herein by reference.                                   |
|         |       |                                                                                                                                                                                                                                                                                                           |

 

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| 4.9    |   | 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 Securities and Exchange Commission on September  19, 1996, and incorporated herein by reference.             |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.10   |   | 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 Securities and Exchange Commission and incorporated herein by reference.                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.11   |   | 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.12   |   | Statement of Resolution Establishing 8-1/2% Senior  Convertible Preferred Stock of TGC Industries, Inc. 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.                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.13   |   | Statement of Resolution regarding 8-1/2% Senior  Convertible Preferred Stock of TGC Industries, Inc. 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.                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.14   |   | Form of Warrant Agreement and Warrant Certificate  dated September 10, 2002, filed as Exhibit 4.14 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.15   |   | Form of Warrant Agreement and Warrant Certificate  dated June 12, 2003, filed as Exhibit 14.15 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 4.16   |   | Form of Warrant Agreement and Warrant Certificate  dated December 15, 2004, filed as Exhibit 4.16 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| +10.1  |   | Employment Contract by and among TGC Industries,  Inc. and Wayne A. Whitener, dated August 26, 2005, filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K dated  August 31, 2005, and incorporated herein by reference.                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.2   |   | Form of Indemnification Agreement, filed as Exhibit  10.2 to the Company’s Current Report on Form 8-K dated August 31,  2005, and incorporated herein by reference.                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.3   |   | Commercial Lease Agreement dated August 25,  2005, by and among TGC Industries, Inc. and JSS/Capital Avenue, L.P., filed  as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated  August 31, 2005, and incorporated herein by reference.                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.4   |   | Promissory Note by and among TGC Industries, Inc.  and Sovereign Bank, N.A., dated September 16, 2005, filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                    |
| 10.5   |   | Waiver, dated October 12, 2005 and effective  September 16, 2005, to the Promissory Note by and among TGC Industries, Inc.  and Sovereign Bank, N.A., dated September 16, 2005, filed as Exhibit 10.1 to  the Company’s Current Report on Form 8-K dated October 18, 2005, and  incorporated herein by reference.                                  |

 

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| 10.6   |   | Business Loan Agreement by and among TGC Industries,  Inc. and Sovereign Bank, N.A., dated September 16, 2005, filed as  Exhibit 10.2 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.                                                           |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.7   |   | Promissory Note by and among TGC Industries, Inc.  and General Electric Capital Corporation, dated September 2, 2005, filed  as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.8   |   | Amendment, dated September 9, 2005, to the  Promissory Note by and among TGC Industries, Inc. and General Electric  Capital Corporation, dated September 2, 2005, filed as Exhibit 10.4  to the Company’s Current Report on Form 8-K dated September 20,  2005, and incorporated herein by reference.   |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.9   |   | Promissory Note by and among TGC Industries, Inc.  and General Electric Capital Corporation, dated September 12, 2005,  filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K  dated September 20, 2005, and incorporated herein by reference.                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.10  |   | Amendment, dated September 9, 2005, to the  Promissory Note by and among TGC Industries, Inc. and General Electric  Capital Corporation, dated September 12, 2005, filed as  Exhibit 10.6 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference.  |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.11  |   | Amendment, dated September 12, 2005, to the  Promissory Note by and among TGC Industries, Inc. and General Electric  Capital Corporation, dated September 12, 2005, filed as  Exhibit 10.7 to the Company’s Current Report on Form 8-K dated  September 20, 2005, and incorporated herein by reference. |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.12  |   | Promissory Note by and among TGC Industries, Inc.  and General Electric Capital Corporation, dated September 19, 2005, Filed as  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September  30, 2005, and incorporated herein by reference.                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| 10.13  |   | Form of Warrant Purchase Agreement from  Directors filed as Exhibit 10.12 to the Company’s Registration Statement  on Form SB-2/A on September 20, 2005 (Registration No. 333-128018),  and incorporated herein by reference.                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| +10.14 |   | 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.                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| +10.15 |   | 2006 Stock Awards Plan, dated March 30, 2006,  filed as Exhibit A to the Company’s definitive proxy statement on Form DEFR  14A dated April 25, 2006, and incorporated herein by reference.                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| *31.1  |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| *31.2  |   | Certification of Principal Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| *32.1  |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                  |
| *32.2  |   | Certification of Principal Financial and Accounting  Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                               |

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*Filed herewith.

+Management contract on compensatory plan,contract, or arrangement.

 

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