**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

| **x** |   | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|--------|------------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2007**

 

| **o** | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|----------------------------------------------------------------------------------------------------------|

 

**For the transition period from                to                  .**

 

**Commission File Number 01-14908**

 

**TGC INDUSTRIES, INC.**

(Exact name of registrant as specified in its charter)

 

| **Texas**                                                       | ** ** | **74-2095844**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) | ** ** | (I.R.S. Employer  Identification No.) |
| ** **                                                      | ** ** | ** **                            |
| **101 East Park Blvd., Suite 955, Plano,  Texas**          | ** ** | **75074**                             |
| (Address of principal executive offices)                        | ** ** | (Zip Code)                            |

 

Registrant’s telephonenumber, including area code:  (**972) 881-1099**

 

Securities registered pursuant to Section 12(b) of the Act:

 

| **Common Stock, par value $.01 per share** | ** ** | **The NASDAQ Stock Market LLC**        |
|--------------------------------------------|------------|----------------------------------------|
| (Title of Class)                           |       | (Name of exchange on which registered) |

 

Securities registered pursuant to Section 12(g) of the Act:None

 

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act.

Yes o                 Nox

 

Indicate by check mark ifthe registrant is not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

Yes o                 Nox

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed by Section 13or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.      Yes  x                 No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405of this chapter) is not contained herein, and will not be contained, to thebest of Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.   x

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See definitions of “accelerated filer,” “largeaccelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.

 

Large accelerated filer o  Accelerated filer x  Non-accelerated filer oSmaller reporting company o

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o                 No  x

 

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold asof the last business day of the Registrant’s most recently completedsecond  fiscal quarter was $130,577,902.

 

Number of shares ofCommon Stock outstanding as of March 3, 2008:  16,557,244

 

**Documentsincorporated by reference**

 

Listed below aredocuments, parts of which are incorporated herein by reference, and the part ofthis report into which the document is incorporated:

 

Proxy statementfor the 2008 annual meeting of shareholders – Part III

 

 

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**Part I**

** **

**ITEM 1. BUSINESS.**

** **

**General**

** **

TGC Industries, Inc. (“TGC” or the “Company”) isa Texas corporation primarily engaged in the geophysical service business ofconducting 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).

 

**History**

** **

In April of 1980, Supreme Industries, Inc. (“Supreme”),formerly ESI Industries, Inc., formed a wholly-owned subsidiary, TidelandsGeophysical Co., Inc. (“Tidelands”), that acquired certain equipment,instruments, and related supplies from a Houston-based corporation that wasengaged in the business of conducting seismic, gravity, and magnetic surveysunder contracts for oil and natural gas companies.  On June 30, 1986, the Boards ofDirectors of Supreme and Tidelands approved a spin-off of substantially all ofthe shares of Tidelands owned by Supreme which were distributed as a stockdividend to Supreme’s security holders. In July of 1986, our name was changed from “Tidelands GeophysicalCo., Inc.” to “TGC Industries, Inc.”

 

We are a leading provider of seismic data acquisitionservices throughout the continental United States. As of December 31,2007, we operated eight seismic crews. These seismic crews supply seismic data to companies engaged in thedomestic exploration and development of oil and natural gas on land and inland-to-water transition areas. Our customers rely on seismic data to identifyareas where subsurface conditions are favorable for the accumulation ofexisting hydrocarbons, to optimize the development and production ofhydrocarbon reservoirs, to better delineate existing oil and natural gasfields, and to augment reservoir management techniques.

 

We acquire geophysical data using the latest in 3-Dsurvey techniques. We introduce acoustic energy into the ground by usingvibration equipment or dynamite detonation, depending on the surface terrainand subsurface requirements. The reflected energy, or echoes, is receivedthrough geophones, converted into a digital signal at a multi-channel recordingunit, and then transmitted to a central recording vehicle. Subsurfacerequirements dictate the number of channels necessary to perform our services.With our state-of-the-art seismic equipment, including computer technology andmultiple channels, we acquire, on a cost effective basis, immense volumes ofseismic data that when processed and interpreted produce more precise images ofthe earth’s subsurface. Our customers then use our seismic data to generate 3-Dgeologic models that help reduce finding costs and improve recovery rates fromexisting wells.

 

**The Industry**

** **

Technological advances in seismic equipment andcomputing allow the seismic industry to acquire and process, on acost-effective basis, immense volumes of seismic data which produce precise imagesof the earth’s subsurface. The latest accepted method of seismic dataacquisition, processing, and the subsequent interpretation of the processeddata is the 3-D seismic method. Geophysicists use computer workstations tointerpret 3-D data volumes, identify subsurface anomalies, and generate ageologic model of subsurface features.

 

3-D seismic data are used in the exploration anddevelopment for new reserves and enable oil and natural gas companies to betterdelineate existing fields and to augment their reservoir management techniques.Benefits of incorporating high resolution 3-D seismic surveys into explorationand development programs include reducing drilling risk, decreasing oil andnatural gas finding costs, and increasing the efficiencies of reservoirlocation, delineation, and management. In order to meet the requirementsnecessary to fully realize the benefits of 3-D seismic data, there is anincreasing demand for improved data quality with greater subsurface resolution.

 

Currently, the seismic data acquisition industry ismade up of a number of companies divided into two groups. The first group ismade up of five publicly-traded companies with long operating histories whofield numerous crews 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 61****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 types of operation.

 

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We provide our seismic data acquisition servicesprimarily to domestic onshore oil and natural gas exploration and developmentcompanies for use in the onshore drilling and production of oil and natural gasin the continental U.S. The main factors influencing demand for seismic dataacquisition services in our industry are the levels of drilling activity by oiland natural gas companies and the sizes of such companies’ exploration anddevelopment budgets, which, in turn, depend largely on current and anticipatedfuture crude oil and natural gas prices and depletion rates.

 

**Equipment and Crews**

** **

In the fourth quarter of 2004, we acquired, and placedinto service, our first new ARAM ARIES recording system.  In July of 2005, we deployed our fourthseismic data acquisition crew along with our second new ARAM ARIES recordingsystem.  In November of 2005, wedeployed our fifth seismic data acquisition crew along with our third new ARAMARIES recording system.  In December of2005, we completed a loan transaction with a commercial lender for the purposeof providing funds for the purchase of our fourth new ARAM ARIES recordingsystem.  In January of 2006, wedeployed a sixth crew to operate this fourth new ARAM ARIES recordingsystem.  In May of 2006, we deployedour seventh seismic data acquisition crew along with our fifth new ARAM ARIESrecording system.  In October of2006, we deployed our eighth seismic data acquisition crew along with our sixthnew ARAM ARIES recording system.  In December of2007, we completed a loan transaction with a commercial lender for the purposeof providing funds for the purchase of our seventh new ARAM ARIES recordingsystem.

 

Seven of our crews utilize the new state-of-the-artARAM ARIES recording systems.  Thesesystems employ cable telemetry technology enhanced by multiple baseline andredundant cable connections that provide seismic data acquisition services withincreased reliability.  The other crewutilizes the Opseis Eagle data gathering system. This system employsradio-frequency (“RF”) telemetry technology providing seismic data-gatheringservices to land-to-water transition areas, rivers, lakes, inaccessibleterrain, deserts, and man-made barriers such as highways and cities.

 

We currently own equipment for eight land-basedseismic data acquisition crews and 51 vibration vehicles equipped with Peltonelectronics. Each crew consists of approximately 35 to 45 technicians withassociated vehicles, geophones, a seismic recording system, energy sources,cables, and a variety of other equipment. Each crew has one central recordingvehicle which captures seismic data. This data is recorded on a CD ROM or datatape which is delivered to a data processing center selected by the customer.

 

**Capital Expenditures**

** **

We believe that it is essential to take advantage ofadvances in seismic technology and to commit capital to purchase and update ourequipment cost effectively. Purchasing and updating seismic equipment andtechnology involves a continuing commitment to capital spending. For fiscalyear 2007, capital expenditures were approximately $18,238,000 compared withapproximately $24,667,000 for 2006.  Thecapital expenditures in 2006 were primarily for equipment to field threeadditional seismic acquisition crews added in 2006 to meet the increased demandfor our customers.

 

**Customers andConsultants**

** **

Our customers are major and independent oil andnatural gas exploration and development companies. The services we provide toour customers vary according to the size and needs of each customer. Ourservices are marketed by supervisory and executive personnel who contactcustomers to determine their needs and respond to customer inquiries regardingthe availability of crews. Contacts are based principally upon professionalrelationships developed over a number of years. There are many consultants inthe oil and natural gas industry who process and interpret seismic data for oiland natural gas companies. These consultants can have an influence indetermining which company their customers use to acquire seismic data.

 

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In order to avoid potential conflicts of interest withour customers, we do not participate in oil and natural gas ventures. Theresults of a seismic survey conducted for a customer belong to that customer.All of our customers’ information is maintained in strictest confidence.

 

**Contracts**

** **

Our contracts are obtained either through competitivebidding or as a result of customer negotiations. Our services are conductedunder general service agreements for seismic data acquisition services whichdefine certain obligations for us and for our customers. A supplementalagreement setting forth the terms of a specific project, which may be cancelledby either party upon 60 days’ advance written notice, is entered into for everyproject. We currently 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 andnatural gas industry is a highly competitive business. There are approximately61 seismic crews currently operating in the continental United States.Contracts for such services generally are awarded on the basis of pricequotations, crew experience, and the availability of crews to perform in atimely manner, although factors other than price, such as crew safetyperformance history and technological and operational expertise, are often determinative.Our competitors include companies with financial resources that aresignificantly 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, 2007, we employed a total of619 full-time (non-union) employees, of which 16 consisted of management,sales, and administrative personnel with the remainder being crew and crewsupport personnel. We also hire contract labor for our crews on an as-neededbasis. We believe our relationship with our employees to be satisfactory.

 

**Data Bank**

** **

We own a data bank which contains gravity data, and toa lesser extent magnetic data, from many of the major oil and natural gasproducing areas located within the United States. We do not have a seismic databank. Our data bank information has been amassed through participatory surveysas well as speculative 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.

 

**Operating Risks andInsurance**

** **

Our business is subject to the hazards inherent inconducting seismic data acquisition activities in hostile environments withdangerous machinery, and in some instances explosives. These activities cancause personal injury or loss 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 orreal property damage claims in the normal operation of our business. Suchclaims may not be covered by the indemnification provisions in our generalservice agreements to the extent that the damage is due to our negligence orintentional misconduct.

 

We do not carry insurance against certain risks thatwe could experience such as business interruption resulting from equipmentmaintenance or weather delays. We obtain insurance against certain property andpersonal 

 

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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, andautomobile 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 1A.  RISK FACTORS**

** **

Any investment in our common stock involves a highdegree of risk. You should carefully consider the risks and uncertaintiesdescribed below and the other information included in this Form 10-Kbefore purchasing our common stock. Although the risks described below are therisks that we believe are material, they are not the only risks relating to ourbusiness and our common stock. Additional risks and uncertainties, includingthose that are not yet identified or that we currently believe are immaterial,may also adversely affect our business, financial condition, or results ofoperations. If any of the events described below occur, our business andfinancial results could be materially and adversely affected. The market priceof our common stock could decline due to any of these risks, perhapssignificantly, and you could lose all or part of your investment.

 

**Company Risks**

** **

**Wehave a history of losses, and we may incur losses again.**

** **

Although we reported net income of approximately$7,607,000 and $8,111,000 for the years ended December 31, 2007 and 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 five 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 requirements on preferred stock) ofapproximately $555,000. Our ability to be profitable in the future will depend onmany factors beyond our control, but primarily on the level of demand forland-based seismic data acquisition services by oil and natural gas explorationand development companies. Even if we do achieve profitability, we may not beable to sustain or increase profitability on a quarterly or annual basis.

 

**Ourrevenues and operating results can be expected to fluctuate from period toperiod.**

** **

Our revenues, operating results, and profitability mayfluctuate from period to period. These fluctuations are attributable to thelevel of new business in a particular period, the timing of the initiation,progress, or cancellation of significant projects, higher revenues and expenseson our dynamite contracts, and costs we incur to train new crews we may add inthe future to meet increased customer demand. Fluctuations in our operatingresults may also be affected by other factors that are outside of our controlsuch as permit delays, weather delays, and crew productivity. Oil and naturalgas prices are at record highs and have resulted in increasing demand for ourservices. There can be no assurance that such high prices will continue. Thedemand for our services will be adversely affected by a significant reductionin oil and natural gas prices. Since our business has high fixed costs, thenegative effect of one or more of these factors could trigger wide variationsin our operating revenues, EBITDA margin, and profitability from quarter toquarter, which factors render quarter-to-quarter comparisons unreliable as anindicator of performance.  Due to thefactors discussed above, you should not expect sequential growth in ourquarterly revenues and profitability.

 

**Weare implementing a growth strategy which, if successful, will place significantdemands on us and subject us to numerous risks.**

** **

Growing businesses often have difficulty managingtheir growth. If our growth strategy is successful, significant demands will beplaced on our management, accounting, financial, information, and other systemsand on our business. We will have to expand our management and continue recruitingand employing experienced

 

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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.  Doing so could causesubstantial additional expenses that could harm our financial results. Wecannot assure you that our management will be able to manage our growtheffectively or successfully. Our failure to meet these challenges couldmaterially impair our business.

 

**Weare dependent upon significant customers.**

** **

During 2007 our two largest customers accounted forapproximately 22.0 % of revenues.  During2006 no customer accounted for 10% of our revenues.  During 2005 our two largest customersaccounted for approximately 22.2% of revenues. In the past we have derived a significant amount of our revenues from asmall number of oil and natural gas exploration and development companies.  While our revenues are derived from aconcentrated customer base, our significant customers may vary between years.If we lose one or more major customers in the future, or if one or morecustomers encounter financial difficulties, our business, financial condition,and results of operations could be materially and adversely affected.

 

**Wereceive revenues from customers who engage consultants for processing andinterpreting the seismic data we provide.**

** **

We receive revenues from customers who have engagedconsultants to process and interpret the seismic data provided by us.Consultants can have an influence in determining which company its customersuse to acquire seismic data. A consultant could recommend that its customers considerusing other seismic companies.

 

**Weface intense competition in our business from companies with greater financialresources.**

** **

The seismic data acquisition services industry is ahighly competitive business in the continental U.S. Our competitors includecompanies with financial resources that are significantly greater than our ownas well as companies of comparable and smaller size.

 

**Technologicalchange in our business creates risks of technological obsolescence andrequirements for future capital expenditures. If we are unable to keep up withthese technological advances, we may not be able to compete effectively.**

** **

Seismic data acquisition technologies historicallyhave steadily improved and progressed, and we expect this progression tocontinue. Our strategy is to upgrade our seismic data acquisition equipment ona regular basis to maintain our competitive position. However, since we are ina capital intensive industry and have limitations on our ability to obtain thefinancing necessary to enable us to purchase state-of-the-art equipment, someof our competitors may be able to purchase newer equipment when we may not beable to do so.

 

**Weare dependent on our management team and key employees, and the loss of any ofthem could harm our business.**

** **

We have limited management depth with the result thatthe loss, whether by death, departure, or illness, of Wayne A. Whitener, ourPresident and Chief Executive Officer, or other senior executives, could have amaterial adverse effect on the ability of management to continue operations atthe same level of efficiency. We have key man insurance on the life of ourPresident and Chief Executive Officer so that, in the event of his untimelydeath, we would receive insurance proceeds of $1,000,000 under this policy.

 

**Certainmembers of our management team are not subject to employment or non-competitionagreements and may leave our employment at any time.**

** **

None of the members of our management team, other thanour President and Chief Executive Officer, are subject to employment agreementsor non-competition agreements; therefore, any of these members of ourmanagement team could leave upon little or no notice which could have amaterial adverse effect on our

 

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management’s ability to continue operations at thesame 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.

 

**Weextend credit to our customers without requiring collateral, and a default by acustomer could have a material adverse effect on our operating revenues.**

** **

We perform ongoing credit evaluations of our customers’financial conditions and, generally, require no collateral from our customers.A default in payment from one of these large customers could have a materialadverse effect on our operating revenues for the period involved.

 

**Certainof our core assets are pledged as collateral for short term notes that requirelarge monthly payments.**

** **

Certain assets that are critical to our operations,including three of our ARAM ARIES recording systems, are pledged as collateralto our equipment lenders and could be subject to foreclosure in the event thatwe default on our indebtedness having 36 to 48 month terms. We currently havedebt obligations covering the purchase of three of our seven ARAM ARIESrecording systems that require monthly payments between approximately $94,000and $114,000 for the second ARAM ARIES recording system, between approximately$106,000 and $130,000 for the fourth ARAM ARIES recording system, and betweenapproximately $86,000 and $108,000 for the seventh ARAM ARIES recording system.These debt obligations mature in June 2008, December 2008, and December 2011,respectively.  Any decline in ouroperations could inhibit our ability to make these substantial monthly payments.In light of the short terms of these notes, a failure to make the monthlypayments on these notes could cause our lenders to promptly foreclose on theassets securing these notes. The foreclosure of certain of our core assetssecuring these notes could severely limit our ability to continue operations.

 

**Wemay be subject to liability claims that are not covered by our insurance.**

** **

Our business is subject to the general risks inherentin land-based seismic data acquisition activities. Our activities are oftenconducted in remote areas under dangerous conditions, including the detonation of dynamite. These operations are subjectto risks of injury to personnel and equipment. Our crews are mobile, andequipment and personnel are subject to vehicular accidents. These risks couldcause us to experience equipment losses, injuries to our personnel, andinterruptions in our business.

 

In addition, we could be subject to personal injury orreal property damage claims in the normal operation of our business. Such claimsmay not be covered under the indemnification provisions contained in ourgeneral service agreements to the extent that the damage is due to ournegligence or intentional misconduct.

 

We do not carry insurance against certain risks thatwe could cause losses, including business interruption resulting from equipmentmaintenance or weather delays. We obtain insurance against certain property andpersonal casualty risks and other risks when such insurance is available andwhen our management considers it advisable to do so. Our current insurancecoverage consists of employers liability with limits of $1,000,000 per accidentand $2,000,000 in the aggregate, commercial general liability of $1,000,000 peraccident and $2,000,000 in the aggregate, pollution liability of $1,000,000 peraccident and $2,000,000 in the aggregate, and automobile liability with a$1,000,000 combined single limit, and a $10,000,000 umbrella policy.

 

Our general service agreements require us to havespecific amounts of insurance. There can be no assurance, however, that anyinsurance obtained by us will be adequate to cover all losses or liabilities orthat this insurance will continue to be available or available on terms whichare acceptable to us. Liabilities for which we are not insured, or which exceedthe policy limits of our applicable insurance, could have a materially adverseeffect on us.

 

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**Weare subject to the requirements of Section 404 of the Sarbanes-Oxley Act.If we are unable to maintain compliance with Section 404 or if the costsrelated to maintaining compliance are significant, our profitability, stockprice, and results of operations and financial condition could be materiallyadversely affected.**

** **

If we are unable to maintain adequate internalcontrols, in accordance with Section 404, as such standards are amended,supplemented, or modified from time to time we may not be able to ensure thatwe have effective internal controls over financial reporting in accordance withSection 404 on an ongoing basis. Failure to achieve and maintain effective internal controls could have amaterial adverse effect on our stock price. In addition, a material weakness in the effectiveness of our internalcontrol over financial reporting could result in an increased chance of fraudand the loss of customers, reduce our ability to obtain financing, and/orrequire additional expenditures to comply with these requirements, each ofwhich could negatively impact our business, profitability, and financialcondition.

 

**IndustryRisks**

** **

**Wederive all of our revenues from companies in the oil and natural gasexploration and development industry, a historically cyclical industry, withlevels of activity that are significantly affected by the levels and volatilityof oil and natural gas prices.**

** **

Any prolonged reduction in the overall level ofexploration and development activities, whether resulting from changes in oiland natural gas prices or otherwise, could adversely impact us in many ways bynegatively affecting:

 

·                  our revenues,cash flows, and profitability;

 

·                  our ability tomaintain or increase our borrowing capacity;

 

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

 

·                  our ability toattract and retain skilled personnel whom we would need in the event of anupturn in the demand for our services.

 

Worldwide political, economic, and military eventshave contributed to oil and natural gas price volatility and are likely tocontinue 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:

 

·                  the cost ofexploring for, producing, and delivering oil and natural gas;

 

·                  the discoveryrate of new oil and natural gas reserves;

 

·                  the rate ofdecline of existing and new oil and natural gas reserves;

 

·                  availablepipeline and other oil and natural gas transportation capacity;

 

·                  the ability ofoil and natural gas companies to raise capital;

 

·                  actions by 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;

 

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·                  domestic andforeign tax policy;

 

·                  weatherconditions in the U.S. and elsewhere;

 

·                  the pace adoptedby foreign governments for the exploration, development, and production oftheir national reserves;

 

·                  the price offoreign imports of oil and natural gas; and

 

·                  the overallsupply and demand for oil and natural gas.

 

**Thehigh fixed costs of our operations could result in operating losses.**

** **

Companies within our industry are typically subject tohigh fixed costs which consist primarily of depreciation (a non-cash item) andmaintenance expenses associated with seismic data acquisition and equipment andcrew costs. In addition, ongoing maintenance capital expenditures, as well asnew equipment investment, can be significant. As a result, any extended periodsof significant downtime or low productivity caused by reduced demand, weatherinterruptions, equipment failures, permit delays, or other causes couldadversely affect the results of our operations.

 

**Ouroperations are subject to delays related to obtaining land access rights of wayfrom third parties which could affect our results of operations.**

** **

Our seismic data acquisition operations could beadversely affected by our inability to obtain timely right of way usage fromboth public and private land and/or mineral owners. Delays associated withobtaining such rights of way could negatively affect our results of operations.

 

**Ourindustry has recently experienced shortages in the availability of equipment.Any difficulty we experience replacing or adding equipment could adverselyaffect our business.**

** **

We may not be able to acquire equipment to replace ourexisting equipment or add additional equipment. The high demand for theservices that we provide has decreased the supply of geophysical equipment, therebyresulting in extended delivery dates on orders of new equipment. Any delay inobtaining equipment could delay the implementation of additional crews andrestrict the productivity of our existing crews.  A delay in obtaining equipment essential toour operations could have a material adverse effect on our operations.

 

**Ourbusiness is subject to government regulation which may adversely affect ourfuture operations.**

** **

Our operations are subject to a variety of federal,state, and local laws and regulations, including laws and regulations relatingto the protection of the environment and archeological sites. We are requiredto expend financial and managerial resources to comply with such laws andrelated permit requirements in our operations, and we anticipate that we willcontinue to be required to do so in the future. Although such expenditureshistorically have not been material to us, the fact that such laws orregulations change frequently makes it impossible for us to predict the cost orimpact of such laws and regulations on our future operations. The adoption oflaws and regulations that have the effect of reducing or curtailing explorationand development activities by energy companies could also adversely affect ouroperations by reducing the demand for our services.

 

**Risks Related To OurCommon Stock**

** **

**Ourcommon stock has experienced, and may continue to experience, price volatilityand low trading volume.**

** **

Our stock price is subject to significant volatility.Overall market conditions including a decline in oil and natural gas prices, inaddition to other risks and uncertainties described in this “Risk Factors”section and elsewhere in this Form 10-K, could cause the market price ofour common stock to fall. The high and low sales prices of our common stock forthe twelve months ended December 31, 2007, were $12.55 and $7.55,respectively.

 

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Our common stock is listed on the NASDAQ Stock MarketLLC under the symbol “TGE.” However, daily trading volumes for our common stockare, and may continue to be, relatively small compared to many other publiclytraded securities. For example, since November 6, 2007, when we begantrading on the NASDAQ Stock Market LLC, our daily trading volume has been aslow as 2,800 shares.  In addition, ourcommon stock traded on the American Stock Exchange under the symbol “TGE” from April 18,2005 until November 5, 2007.  Duringthis period of time our daily trading volume was as low as 1,600 shares.  It may be difficult for you to sell yourshares in the public market at any given time at prevailing prices, and theprice of our common stock may, therefore, be volatile.

 

**Ourofficers and directors own a large percentage of our common stock, and they mayexercise control over our business and affairs.**

** **

Our officers and directors as a group beneficially ownapproximately 27.9% of our common stock. As a result, they will continue to beable to exercise 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 orthe direction of our business. The continued concentrated ownership of ourcommon stock will make it difficult for another company to acquire us and foryou to receive any related takeover premium for your shares (unless the controllinggroup approves the acquisition).

 

**Certainprovisions of our Restated Articles of Incorporation may make it difficult fora third party to acquire us or may adversely impact your rights as a commonshareholder.**

** **

Our Restated Articles of Incorporation containprovisions that require the approval of holders of 80% of our issued andoutstanding shares before we can enter into a merger or other businesscombination or sell all or substantially all of our assets. Additionally, if weincrease the size of our board from the current six to nine directors, we couldbe required to stagger our directors’ terms, and our directors could not beremoved without approval of holders of 80% of our issued and outstandingshares. These provisions could discourage or impede a tender offer, proxycontest, or other similar transaction involving control of us.

 

In addition, our board of directors has the right toissue preferred stock upon such terms and conditions as it deems to be in thebest interest of the Company. The terms of such preferred stock may adverselyimpact the dividend and liquidation rights of the common shareholders withoutthe approval of the common shareholders.

 

**Wedo not intend to pay cash dividends on our common stock in the foreseeablefuture, and therefore only appreciation of the price of our common stock willprovide a return to our shareholders.**

** **

While there are currently no restrictions prohibitingus from paying dividends to our shareholders, we have not paid any cashdividends on our common stock in the past, and we do not anticipate paying anydividends in the foreseeable future. Payment of any cash dividends in thefuture, however, is in the discretion of our board of directors and will dependon 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 retained to fund our future operations.

 

**ITEM 1B. UNRESOLVEDSTAFF COMMENTS**

** **

None

 

**ITEM 2. DESCRIPTION OFPROPERTY.**

** **

In April of 2004, we executed an addendum to ourlease of a facility in Plano, Texas, that includes approximately 10,500 squarefeet of office and warehouse space and an outdoor storage area of approximately

 

10

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20,000 square feet. The monthly rent is $6,878.  Thisfacility is used to repair geophysical equipment and housed our corporateoffices until September of 2006.  InSeptember of 2005, we leased an additional facility, in Plano, Texas, withapproximately 10,000 square feet of office and warehouse space and anadditional 10,000 square feet of outdoor storage to accommodate our recentgrowth.  This facility is used primarilyto repair geophysical equipment.  Themonthly rent is $3,542.  In January of2006, we leased a 600 square foot facility in Houston, Texas, to be used as asales office.  The monthly rent is$553.    In July of 2006, we enteredinto a 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 $10,298.  In October of 2006, we leased an 800square foot facility in Oklahoma City, Oklahoma, to be used as a salesoffice.  The monthly rent is $665.  In September of 2007, we leased a 1,130square foot facility in Denver, Colorado, to be used as a sales office.  The monthly rent is $2,213. The Company isnot responsible for insuring these facilities. The conditions of these facilities are good, and we believe that theseproperties are suitable and adequate for our foreseeable needs.

 

**ITEM 3. LEGALPROCEEDINGS.**

** **

The Company is a defendant in various 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 OFMATTERS TO A VOTE OF SECURITY HOLDERS.**

** **

No matters were submitted by the Company, during thefourth quarter of the fiscal year ended December 31, 2007, to a vote ofour security holders through the solicitation of proxies or otherwise.

 

**PART II**

** **

**ITEM 5. MARKET FORCOMMON STOCK AND RELATED STOCKHOLDER MATTERS.**

** **

**Market Prices**

** **

From May 25, 2002, through April 15, 2005,our common stock was traded over-the-counter on the National Association ofSecurities Dealers, Inc. Over-The-Counter Bulletin Board System (using thetrading symbol “TGCI”).  Because of ourimproved financial condition which has led to a substantial increase in ourstock price and the market value of our publicly-held shares, we qualified for,and began trading on, the American Stock Exchange (“AMEX”) on April 18,2005, under our current trading symbol “TGE.” On October 26, 2007, we announced that our board of directorsapproved the decision to switch the listing of our common stock from theAmerican Stock Exchange to the NASDAQ Global Select Market (“NASDAQ.”)  As a result, on November 6, 2007, ourstock began trading on the NASDAQ under the symbol “TGE.”

 

In the following table, the prices shown through November 5,2007, represent the high and low sales prices reported for our common stock onthe AMEX.  Beginning on November 6,2007, the following table shows the high and low sales prices reported for ourcommon stock on the NASDAQ.  On April 27,2007 and April 25, 2006, the Company paid 5% stock dividends tostockholders of record at the close of business on April 13, 2007 and April 11,2006, respectively.  All prior share andper share amounts have been restated to reflect the stock dividend.

 
| ** **   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|--------------|------------|------------|------------|------------|------------|
| ** **   | ** ** | **High**   | ** ** | **Low**    | ** ** | **High** | ** ** | **Low** | ** ** |
| ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| 1st  quarter |       | $          | 9.35       |       | $          | 7.55 |   | $ | 11.15 |   | $ | 6.78 |   |
| 2nd  quarter |       | 12.55      |       | 8.50       |       | 15.45 |   | 9.15 |   |
| 3rd  quarter |       | 11.49      |       | 8.55       |       | 12.25 |   | 7.13 |   |
| 4th  quarter |       | 11.86      |       | 8.23       |       | 9.84 |   | 7.25 |   |
|              |            |            |            |            |            |  |  |  |  |  |  |  |  |

 

The number of shareholders of record of TGE’s commonstock as of February 29, 2008, was 155. Due to the number of shares held in nominee or street name, we believethat there are a significantly greater number of beneficial owners of ourcommon stock.  As of such date, CEDE &CO. held 13,410,915 shares in street name. On February 29, 2008, our common stock was quoted at a closingsales price of $7.96.

 

11

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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.

 

**PerformanceGraph**

** **

*The followinggraph is not “soliciting material,” is not deemed filed with the Securities andExchange Commission, and is not to be incorporated by reference into any of theCompany’s filings under the Securities Act of 1933, as amended, or theSecurities Exchange Act of 1934, as amended, respectively.*

* *

The following graph sets forth the five-yearcumulative total stockholder return, which assumes reinvestment of dividends,of a $100 investment beginning in the Company’s common stock, a peer group madeup of companies in the Philadelphia Oil Service Sector Index, and the S&P500 Stock Index.  The Philadelphia OilService Sector Index consists of far larger companies that provide a variety ofservices as compared to the land-based geophysical services provided by theCompany.

 

 

12

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**ITEM 6. SELECTEDFINANCIAL DATA.**

** **

The following selected financial data should be readin conjunction with Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations,” and the Company’s financial statementsand notes thereto included it Item 8, “Financial Statements and SupplementaryData.”  No cash dividends were declaredin any of the five years shown below:

 
| ** **                                                      | ** ** | **Year Ended December, 31,**                           | ** ** |
|-----------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **2007**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                      | ** ** | **(In thousands, except per share amounts)** | ** ** |
| Statement of  Income Data:                                      |       |                                                                  |       |   |   |   |   |   |   |   |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Revenues                                                        |       | $                                                                     | 90,396     |   | $ | 67,760 |   | $ | 30,852 |   | $ | 20,084 |   | $ | 8,468 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net income                                                      |       | 7,607                                                                 |       | 8,111 |   | 6,201 |   | 2,868 |   | 555 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Income allocable  to common stockholders                        |       | $                                                                     | 7,607      |   | $ | 8,111 |   | $ | 5,996 |   | $ | 2,568 |   | $ | 252 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net Income per  common share - basic                            |       | $                                                                     | 0.46       |   | $ | 0.49 |   | $ | 0.67 |   | $ | 0.40 |   | $ | 0.04 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Net Income per  common share - diluted                          |       | $                                                                     | 0.46       |   | $ | 0.49 |   | $ | 0.43 |   | $ | 0.22 |   | $ | 0.04 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Weighted average  number of common Shares outstanding - basic   |       | 16,541                                                                |       | 16,448 |   | 8,958 |   | 6,342 |   | 6,115 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Weighted average  number of common Shares outstanding - diluted |       | 16,622                                                                |       | 16,567 |   | 14,368 |   | 13,058 |   | 6,923 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Total assets                                                    |       | $                                                                     | 61,162     |   | $ | 56,400 |   | $ | 41,246 |   | $ | 9,324 |   | $ | 2,759 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Long-term debt,  less current maturities                        |       | 3,769                                                                 |       | 3,064 |   | 6,199 |   | 1,770 |   | 183 |   |
|                                                            |       |                                                                  |       |   |   |   |   |   |   |   |   |
| Stockholders’  equity                                      |       | $                                                                     | 42,922     |   | $ | 35,043 |   | $ | 26,605 |   | $ | 4,570 |   | $ | 1,943 |   |

 

In October of 2005, the Company completed apublic offering of approximately 5,786,000 (not adjusted for the 5% stockdividends paid in 2007 and 2006) shares of common stock. The weighted averagenumber of equivalent common shares outstanding in 2005 reflect these additionalshares for a portion of the year.

 

**ITEM 7. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.**

** **

*The followingdiscussion and analysis should be read in conjunction with our financialstatements and related notes thereto included elsewhere in this Form 10-K.Portions of this document that are not statements of historical or current factare forward-looking statements that involve risk and uncertainties, such asstatements of our plans, objectives, expectations, and intentions. Thecautionary statements made in this Form 10-K should be read as applying toall related forward-looking statements wherever they appear in this Form 10-K.Our actual results could differ materially from those anticipated in theforward-looking statements. Factors that could cause our actual results todiffer materially from those anticipated include those discussed in “Business,”“Forward-Looking Statements,” and “Risk Factors.”*

 

13

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**Executive Overview**

** **

TheCompany is a leading provider of seismic data acquisition services throughoutthe continental United States. We currently operate eight seismic crews. Theseseismic crews supply seismic data to companies engaged in the domesticexploration and development of oil and natural gas on land and in land-to-watertransition areas. Our customers rely on seismic data to identify areas wheresubsurface conditions are favorable for the accumulation of existinghydrocarbons, to optimize the development and production of hydrocarbonreservoirs, to better delineate existing oil and natural gas fields, and toaugment reservoir management techniques.

 

Weacquire geophysical data using the latest in 3-D survey techniques. Weintroduce 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.

 

Currently,the seismic data acquisition industry is made up of a number of companiesdivided into two groups. The first group is made up of five publicly-tradedcompanies with long operating histories which field numerous crews and work ina number of different regions and terrain. This group includes us, DawsonGeophysical Company, Geo Kinetics, Inc., CGG-Veritas, and Petroleum GeoServices. These companies field approximately 50% of the estimated 61 seismiccrews currently operating in the continental U.S. The second group is made upof smaller companies who generally run one or two seismic crews and oftenspecialize in specific regions or types of operation.

 

Weprovide our seismic data acquisition services primarily to domestic onshore oiland natural gas exploration and development companies for use in the onshoredrilling and production of oil and natural gas in the continental U.S. The mainfactors influencing demand for seismic data acquisition services in ourindustry are the level of drilling activity by oil and natural gas companiesand the sizes of such companies’ exploration and development budgets, which, inturn, depend largely on current and anticipated future crude oil and naturalgas prices and depletion rates.

 

Ourcustomers are major and independent oil and natural gas exploration anddevelopment companies. The services we provide to our customers vary accordingto 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.

 

Theacquisition of seismic data for the oil and natural gas industry is a highlycompetitive business. There are approximately 61 seismic crews currentlyoperating in the continental United States. Contracts for such servicesgenerally are awarded on the basis of price quotations, crew experience, andthe availability of crews to perform in a timely manner, although factors otherthan price, such as crew safety performance history, and technological andoperational expertise, are often determinative. Our competitors includecompanies with financial resources that are significantly greater than our ownas well as companies of comparable and smaller size. Our primary competitorsare Dawson Geophysical Company, Geo Kinetics, Inc., Petroleum GeoServices, and to a lesser extent, CGG-Veritas. In addition to the previouslynamed companies, we also compete for projects from time to time with smallerseismic companies which operate in local markets with only one or two crews. Webelieve that our long-term industry expertise, the customer relationshipsdeveloped over our history, and our financial stability give us an advantageover most of our competitors in the industry.

 

14

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**Results of Operations**

** **

***Year Ended December 31, 2007, Comparedto Year Ended December 31, 2006***

 

*Revenues*. Our revenues were$90,395,872 for the year ended December 31, 2007 compared to $67,760,306for the same period of 2006, an increase of 33.4%. This increase in revenueswas attributable to several factors, including operating eight seismic dataacquisition crews for twelve months in 2007 compared with six crews the firstfour months, seven crews for the next five months and eight crews for the lastthree months of the same period of 2006, as well as the fact that approximately34% of revenues in the year ended December 31, 2007 were derived fromlower margin shot-hole contracts compared with approximately 25% for the sameperiod of 2006. These shot-hole contracts typically generate higher revenuesbut lower gross margins than vibroseis contracts due to higher third partycosts that are included in revenues and have little or no margin associatedwith them.

 

*Cost of services*. Ourcost of services was $60,445,783 for the year ended December 31, 2007compared to $40,831,650 for the same period of 2006, an increase of 48%. Thisincrease was attributable to several factors: (1) the increase in revenuesin the year ended December 31, 2007 compared to the same period of 2006; (2) theadverse weather conditions in January and February 2007 in Coloradoand Kansas; (3) the severe flooding conditions in the Mid-continent andSouthwestern areas of the United States during the second quarter of 2007; (4) severeweather conditions in the month of July 2007 that negatively impacted ourrevenue by approximately 18% and our pretax income by approximately 62%; and (5) thehigher third party costs associated with the additional shot-hole contracts in2007 compared to 2006. As a percentage of revenues, cost of services was 66.9%for the year ended December 31, 2007 compared to 60.3% for the same periodof 2006.

 

*Selling, general, and administrative expenses.*SG&Aexpenses were $3,864,810 for the year ended December 31, 2007 compared to$2,988,892 for the same period of 2006, an increase of 29.3%. This increase wasprimarily attributable to additional expenses associated with additionalselling and administrative personnel, additional compensation expense fordeferred stock-based compensation, increased insurance costs, and additionalexpenses associated with the operation of eight crews during the entire year of2007 compared to six crews the first four months, seven crews the next fivemonths, and eight crews for the last three months of the same period of 2006. SG&Aexpense as a percentage of revenues was 4.3% for the year ended December 31,2007 compared to 4.4% for the same period of 2006.

 

*Depreciation and amortizationexpense*. Depreciation and amortization expense was$12,743,065 for the year ended December 31, 2007 compared to $9,540,171for the same period of 2006, an increase of 33.6%. This increase was primarilyattributable to depreciation and amortization expense associated with capitalexpenditures of approximately $18,200,000 since January 1, 2007. Thisincrease was partially offset by a decrease in depreciation expense in thethird and fourth quarters of 2007 as a result of an increase in the estimateduseful life of certain seismic equipment. See Change In Accounting Estimate NoteB of Notes to Financial Statements in Item 8. Depreciation and amortizationexpense as a percentage of revenues was 14.1% for the fiscal years of 2007 and2006.

 

*Income from operations*.Income from operations was $13,342,214 for the year ended December 31,2007 compared to $14,399,593 for the same period of 2006, a decrease of 7.3%. Thisdecrease was primarily attributable to the increase in cost of services,SG&A, and depreciation and amortization expense, partially offset by anincrease in revenues. EBITDA increased $2,145,515 to $26,085,279 for the yearended December 31, 2007 from $23,939,764 for the same period of 2006, anincrease of 9%. This increase was primarily attributable to the increase indepreciation referred to immediately above. For a definition of EBITDA, areconciliation of EBITDA to net income, and discussion of EBITDA, see thesection entitled “Non GAAP Financial Measure” which follows.

 

*Interest expense*. Interestexpense was $604,616 for the year ended December 31, 2007 compared to $780,782for the same period of 2006. This decrease was primarily attributable to thereduction of debt.

 

*Income tax expense*.Income tax expense was $5,130,165 for the year ended December 31, 2007compared to $5,507,386 for the same period of 2006. The effective tax rate forthe year ended December 31, 2007 was 40.3% compared to 40.4% for the sameperiod of 2006. As of December 31, 2004, the Company had net operatingloss carryforwards of approximately $4,980,000 available to offset futuretaxable income. These net operating loss carryforwards were fully utilizedduring 2005. As a result, the Company began incurring federal (and variousstate income) taxes in 2006 at regular statutory rates.

 

15

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

 

*Revenues*. Our revenues were$67,760,306 for the year ended December 31, 2006, compared to $30,851,963for the same period of 2005, an increase of 119.6%. This increase in revenueswas attributable to several factors including increasing the number of seismicdata acquisition crews operating in 2006 compared with the number of crewsoperating 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, we deployed our fourth seismic dataacquisition crew along with our second new ARAM ARIES recording system. In November of2005, we deployed our fifth seismic data acquisition crew along with our thirdARAM ARIES recording system. In January of 2006, we deployed our sixthseismic data acquisition crew along with our fourth ARAM ARIES recordingsystem. In May of 2006, we deployed our seventh seismic data acquisitioncrew along with our fifth ARAM ARIES recording system, and in October of2006, we deployed our eighth seismic data acquisition along with our sixth ARAMARIES recording system.

 

*Cost of services*. Cost ofservices includes the wages and expenses directly related to our field crewsand support operations, as well as third party costs associated with certaincontracts provided by non-employee contractors, but excludes depreciation andamortization and interest expense. Our cost of services was $40,831,650 for theyear ended December 31, 2006, compared to $18,152,118 for the same periodof 2005, an increase of 124.9%. This increase was principally attributable toour increase in revenues.

 

*Selling, general, and administrative*.SG&A expenses include the wages and salaries of administrative and salespersonnel, as well as other general overhead costs not directly related tofield operations. SG&A expenses were $2,988,892 for the year ended December 31,2006, compared to $2,149,350 for the same period of 2005, an increase of 39.1%.This increase was primarily attributable to additional expenses associated withadditional personnel in 2006 compared to 2005 and increased selling expensesassociated with the higher revenues and level of activity.

 

*Depreciation and amortization**expense*. Depreciationand amortization expense was $9,540,171 for the year ended December 31,2006, compared to $3,201,236 for the same period of 2005, an increase of198.0%. This increase was attributable to capital expenditures of $20,525,672in 2005 and to that portion of the $24,667,156 in capital expenditures during2006 that were placed into service during that year.

 

*Income from operations*. Incomefrom operations was $14,399,593 for the year ended December 31, 2006,compared to $7,349,259 for the same period of 2005, 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 yearended December 31, 2006, from $10,550,495 in the same period of 2005, anincrease of 126.9%. This increase was primarily attributable to the increase inincome, revenues, and depreciation referred to immediately above. For adefinition of EBITDA, a reconciliation of EBITDA to net income, and adiscussion of EBITDA, see the section entitled “Non-GAAP Financial Measure”which follows.

 

*Interest expense*. Interestexpense was $780,782 for the year ended December 31, 2006, compared to$364,848 for the same period of 2005. This increase was primarily attributableto the debt incurred for the purchase of our fourth ARAM ARIES seismicrecording system and the debt associated with vehicles leased under capitalleases for the additional seismic data acquisition crews that were fielded in2006.

 

*Income tax expense*. Income taxexpense was $5,507,386 for the year ended December 31, 2006, compared to$783,633 for the same period of 2005. As of December 31, 2004, we had netoperating loss carryforwards of approximately $4,980,000 available to offsetfuture taxable income. These net operating loss carryforwards were fullyutilized during 2005. As a result, the Company began incurring federal (andvarious state income) taxes in 2006 at regular statutory rates.

 

16

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**Non-GAAP FinancialMeasure**

** **

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

 

·                  the financialperformance of our assets without regard to financing methods, capitalstructures, taxes, or historical cost basis;

 

·                  our liquidityand operating performance over time and in relation to other companies that ownsimilar assets and that we believe calculate EBITDA in a manner similar tous; and

 

·                  the ability ofour assets to generate cash sufficient for us to pay potential interestexpenses.

 

Wealso understand 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 performanceor our liquidity, you should not consider this data in isolation or as asubstitute for our net income, cash flow from operating activities, or othercash flow data calculated in accordance with GAAP. EBITDA excludes some, butnot all, items that affect net income and operating income, and these measuresmay vary among other companies. Therefore, EBITDA as presented below may not becomparable to similarly titled measures of other companies. Further, theresults presented by EBITDA cannot be achieved without incurring the costs thatthe measure excludes: interest, taxes, depreciation, and amortization.

 

The following table reconciles our EBITDA to our netincome:

 
| ** **                             | ** ** | **Year Ended**   | ** ** |
|----------------------------------------|------------|-----------------------|------------|
| ** **                             | ** ** | **December 31,** | ** ** |
| ** **                             | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                   |       |                  |       |   |   |   |   |
| Net income                             |       | $                     | 7,607,433  |   | $ | 8,111,425 |   | $ | 6,200,778 |   |
|                                   |       |                  |       |   |   |   |   |
| Depreciation and  amortization expense |       | 12,743,065            |       | 9,540,171 |   | 3,201,236 |   |
|                                   |       |                  |       |   |   |   |   |
| Interest expense                       |       | 604,616               |       | 780,782 |   | 364,848 |   |
|                                   |       |                  |       |   |   |   |   |
| Income tax  expense                    |       | 5,130,165             |       | 5,507,386 |   | 783,633 |   |
|                                   |       |                  |       |   |   |   |   |
| EBITDA                                 |       | $                     | 26,085,279 |   | $ | 23,939,764 |   | $ | 10,550,495 |   |

 

**Liquidity and CapitalResources**

** **

***Liquidity***

 

*Cash flows from operating activities.*

* *

Net cash provided by operating activities was$14,839,414 for the year ended December 31, 2007, compared to $28,684,807for the same period of 2006. The $13,845,393 decrease was principallyattributable to the timing of receipt and payment of invoices, the timing ofbillings and revenue recognition, and the mix of contracts. Changes insignificant components of net cash provided by operations were a $503,992change in net income, a $3,202,894 change in depreciation and amortizationexpense, a $1,953,753 change in trade accounts receivable, a $2,004,510 changein costs and estimated earnings in excess of billings on uncompleted contracts,a $5,008,040 change in trade accounts payable, and a $7,558,124 change inbillings in excess of costs and estimated earnings on uncompleted contracts.

 

17

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Working capital increased $4,310,917 to $5,489,297 asof December 31, 2007, from the December 31, 2006, working capital of$1,178,380. This increase was due primarily to an increase in trade accountsreceivable of $4,942,511, a decrease in trade accounts payable of $2,020,721,and a decrease in billings in excess of costs and estimated earnings onuncompleted contracts of $2,819,294 (partially offset by a decrease in cash andcash equivalents of $4,884,943).

 

*Cash flows used in investingactivities.*

* *

Net cash used in investing activities was $12,661,703for the year ended December 31, 2007, and $22,889,549 for the year ended December 31,2006. The $10,227,846 decrease was mainly due to a decrease in cash relatedcapital expenditures during 2007 of $10,011,150.

 

*Cash flows provided by (used in)financing activities.*

* *

Net cash used in financing activities was $7,062,654for the year ended December 31, 2007, and $5,905,898 for the year ended December 31,2006. The change was due primarily to an increase in principal payments on notes payable of $558,984 and anincrease in principal payments on capital lease obligations of $343,737(partially offset by the redemption of stock purchase warrants of $262,571).

 

*Capital expenditures.*

* *

During the year ended December 31,2007, capital expenditures of $18,238,399 were used to acquire additionalseismic equipment and vehicles. This additional seismic equipment primarilyincluded a new ARAM ARIES recording system to convert one of our Opseis crewsto an ARAM recording crew, additional recording channels for our ARAM ARIESrecording crews, and six new vibration vehicles for our recording crews. Theadditional vehicles were primarily replacement units for vehicles that hadreached the end of their service life. In January 2008, the Companyentered into a loan agreement with a bank to provide financing, ofapproximately $2,600,000, for the purchase of 8 new vibration vehicles. Theloan, which matures in February 2013, provides for payments of interestonly beginning March 1, 2008 in arrears on the outstanding principal at afixed interest rate of 6.35%. Beginning June 1, 2008, the loan providesfor monthly payments of principal and interest which will be sufficient toamortize the principal balance over the remaining term of the loan at a fixedinterest rate of 6.35%. All 8 vibration vehicles are scheduled to be deliveredin the first quarter of 2008. In February 2008, the Company exercised itspurchase option for the 3,000 channels of ARAM ARIES seismic recordingequipment it had been renting. In March 2008, the Company entered into aloan agreement with a commercial lender to provide approximately $3,000,000 infinancing. The loan is for a period of 48 months at a fixed interest rate of5.75% and provides for monthly payments of approximately $62,000 plus interest.Approximately $1,900,000 of the loan proceeds were used to purchase the rentedequipment. The balance, of approximately $1,100,000, was used to replace anexisting loan the Company had with the lender. Although we do not budget forour capital expenditures, we may purchase additional equipment during 2008 asthe demand for our services increases.

 

***Capital Resources***

 

Historically, we have relied on cash generated fromoperations and short-term borrowings from commercial banks and equipmentlenders and loans from directors to fund our working capital requirements andcapital expenditures.

 

In April of 2005, we entered into a revolvingcredit agreement with a commercial bank. On September 16, 2005, we amendedour revolving line of credit under which we could borrow, repay, and re-borrow,from time to time until September 16, 2006, up to $3,500,000. Effective September 16,2006, we renewed our revolving credit agreement and increased the borrowinglimit from $3,500,000 to $5,000,000. Effective September 16, 2007, werenewed our revolving credit agreement in the amount of $5,000,000. Therevolving credit agreement will expire on September 16, 2008. Ourobligations under this agreement are secured by a security interest in ouraccounts receivable. Interest on the outstanding amount under the line ofcredit loan agreement is payable monthly at the prime rate of interest. Thecredit loan agreement provides for non-financial and financial covenantsincluding a minimum debt service coverage ratio in excess of 2.0 to 1.0 and aratio of debt to worth not in excess of 1.25 to 1.0. As of December 31,2007, we had no borrowings****outstandingunder the line of credit loan agreement.

 

18

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In June of 2005, we completed a $3,366,253 loantransaction with a commercial lender for the purpose of providing funds for thepurchase of our second new ARAM ARIES recording system. This loan is repayableover a period of 36 months at a fixed per annum interest rate of 7.25%. Thisloan is collateralized by the new recording system equipment and the recordingvehicles and two semi-trailers that transport the newly purchased equipmentbetween jobs. During the third quarter of 2005, we obtained financing from acommercial lender for $858,705 of the purchase price of three new buggy mountedvibration vehicles for a period of 36 months at a fixed per annum simpleinterest rate of 7.25%. These loans are collateralized by the three new buggymounted vibration vehicles. In December of 2005, we completed a $3,791,338loan transaction with a commercial lender for the purpose of providing fundsfor the purchase of our fourth new ARAM ARIES recording system. This loan isrepayable over a period of 36 months at a fixed per annum interest rate of7.78%. This loan is collateralized by the new recording system equipment. In December of2007, we completed a $4,120,254 loan transaction with a commercial lender forthe purpose of providing funds for the purchase of our seventh new ARAM ARIESrecording system. This loan is repayable over a period of 48 months at a fixedper annum interest rate of 6.38%. This loan is collateralized by the newrecording system equipment and the recording vehicles and two semi-trailersthat transport the newly purchased equipment between jobs.

 

The board of directors, at its regular meeting held onJune 7, 2005, approved the redemption by the Company of the Series CPreferred Stock. The redemption privilege was contained in the resolutionestablishing such preferred stock. The redemption price was $5.00 per shareplus a premium of 40% per share (i.e., $2.00 per share). In addition, eachshare was entitled to receive the regular $.20 dividend that had accrued duringthe first half of the year. Thus, the redemption price was $7.20 per share. On June 30,2005, the Company redeemed all 5,250 shares of its Series C PreferredStock for $36,750 plus accrued dividends of $1,050.

 

Our board of directors approved a resolution providingfor the redemption of all of our outstanding 81⁄2% Senior Convertible PreferredStock upon the consummation of our public offering in October of 2005.Under the terms of the resolution creating such 81⁄2% Senior ConvertiblePreferred Stock, each share was redeemable at $1.75 per share, and each holderof our 81⁄2% Senior Convertible Preferred Stock had an option to convert eachshare of our 81⁄2% Senior Convertible Preferred Stock into one share of ourcommon stock. All of the holders of our 81⁄2% Senior Convertible Preferred Stockelected to convert their shares of 81⁄2% Senior Convertible Preferred Stock intoshares of our common stock. As a result, in October of 2005 all of theoutstanding shares of our 81⁄2% Senior Convertible Preferred Stock were convertedinto shares of our common stock.

 

In April of 2004, we executed an addendum to ourlease of a facility in Plano, Texas, that includes approximately 10,500 squarefeet of office and warehouse space and an outdoor storage area of approximately20,000 square feet. This facility is used to repair geophysical equipment andhoused our corporate offices until September of 2006. In September of2005, we leased an additional facility, in Plano, Texas, with approximately10,000 square feet of office and warehouse space and an additional 10,000square feet of outdoor storage to accommodate our recent growth. This facilityis used primarily to repair geophysical equipment. In January of 2006, weleased a 600 square foot facility in Houston, Texas, to be used as a salesoffice. In July of 2006, we entered into a lease for 7,269 square feet ofoffice space located in Plano, Texas. In September of 2006, we relocatedour corporate offices to this facility. In October of 2006, we leased an800 square foot facility in Oklahoma City, Oklahoma, to be used as a salesoffice. In September of 2007, we leased a 1,130 square foot facility inDenver, Colorado, to be used as a sales office.

 

**Contractual Obligations**

** **

The following table summarizes payments due inspecific periods related to our contractual obligations as of December 31,2007:

 
| ** **                   | ** ** | **Payments Due by Period ****(1)** | ** ** |
|------------------------------|------------|--------------------------------------------------------|------------|
| ** **                   | ** ** | ** **                                             | ** ** | **Within** | ** ** | ** ** | ** ** | ** ** | ** ** | **After** | ** ** |
| ** **                   | ** ** | **Total**                                              | ** ** | **1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **5 Years** | ** ** |
| ** **                   | ** ** | **(In thousands)**                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Contractual Obligations      | ** ** | ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating lease  obligations |       | $                                                      | 723        |   | $ | 274 |   | $ | 304 |   | $ | 145 |   | $ | — |   |
| Debt obligations             |       | $                                                      | 6,392      |   | $ | 3,302 |   | $ | 2,060 |   | $ | 1,030 |   | $ | — |   |
| Capital lease  obligations   |       | $                                                      | 1,898      |   | $ | 1,219 |   | $ | 679 |   | $ | — |   | $ | — |   |
| Total                        |       | $                                                      | 9,013      |   | $ | 4,795 |   | $ | 3,043 |   | $ | 1,175 |   | $ | — |   |

 

----

(1)          See “Capital Resources”above for a discussion of the contractual obligations we have incurred since December 31,2007.

 

19

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We believe that our capital resources, including ourshort-term investments, funds available under our line of credit loanagreement, and cash flow from operations, are adequate to meet our currentoperational needs. We believe that we will be able to finance our 2008 capitalexpenditures through cash flow from operations, borrowings from commerciallenders, and the funds available under our line of credit loan agreement. However,our ability to satisfy working capital requirements, meet debt repaymentobligations, and fund future capital requirements will depend principally uponour future operating performance which is subject to the risks inherent in ourbusiness.

 

**Off-Balance SheetArrangements**

** **

As of December 31, 2007, we had no off-balancesheet arrangements.

 

**Critical Accounting****Policies**

** **

The preparation of our financial statements inconformity with GAAP requires us to make certain assumptions and estimates thataffect the reported amounts of assets and liabilities at the date of ourfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Because of the use of assumptions and estimates inherentin the reporting process, actual results could differ from those estimates.

 

*Revenue Recognition*

* *

SeismicSurveys

 

The Company provides seismic data acquisition surveyservices to its customers under general service agreements which define certainobligations for the Company and for its customers. A supplemental agreementsetting forth the terms of a specific project, which may be cancelled by eitherparty upon 60 days advance written notice, is entered into for every project. Thesesupplemental agreements are either “turnkey” agreements providing for a fixedfee to be paid for each unit of seismic data acquired or “term” agreementsproviding for a fixed hourly, daily, or monthly fee during the term of theproject. The duration of these projects will vary from a few days to severalmonths. The Company recognizes revenue when services are performed under bothtypes of agreements. Services are defined as the commencement of dataacquisition. Under turnkey agreements, the total number of units of seismicdata to be gathered is set forth in the agreement, and revenue is recognized asservices are performed on a per unit of seismic data acquired rate. Under termagreements, revenue is recognized as services are performed based on the timeworked rate provided in the term agreement. Under both turnkey and termagreements, cost of earned revenue is recognized by multiplying total estimatedagreement cost by the percentage-of-completion of the agreement. The excess ofthat amount over the cost of earned revenue reported in prior periods isrecognized as cost of earned revenue for the period. Agreements are notsegmented nor combined for purposes of calculating percentage of completion. Theasset “Costs and estimated earnings in excess of billings on uncompletedcontracts” represents cost incurred on turnkey agreements in excess of billingson those agreements. The liability “Billings in excess of costs and estimatedearnings on uncompleted contracts” represents billings on turnkey agreements inexcess of cost on those agreements. Claims have been negligible in the yearsended December 31, 2007, 2006, and 2005.

 

GravityData

 

The Company owns a data bank which contains gravitydata, and to a lesser extent magnetic data, from many of the major oil andnatural gas producing areas located within the U.S. When an order for gravitydata is received, the portion of gravity data requested by the customer isprepared in digital format for licensing and shipment to the customer. Thisprocess is performed by an employee in the Company’s headquarters office and normallytakes a few days at the most. The licensing of gravity data is not a materialpart of the Company’s revenue. Gravity data revenue during the years ended December 31,2007, 2006, and 2005 was approximately $187,300, $500, and $230,400,respectively.

 

20

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* *

*Allowance for Doubtful Accounts*

* *

We prepare our allowance for doubtful accountsreceivable based on our past experience of historical write-offs, our currentcustomer base, and our review of past due accounts. The inherent volatility ofthe energy industry’s business cycle can cause swift and unpredictable changesin the financial stability of our customers.

* *

*Impairment of Long-lived Assets*

* *

We review long-lived assets for impairment whentriggering events occur suggesting deterioration in the assets’ recoverabilityor fair value. Recognition of an impairment charge is required if futureexpected net cash flows are insufficient to recover the carrying value of theasset. Our forecast of future cash flows used to perform impairment analysisincludes estimates of future revenues and profitability based on our historicalresults and analysis of future oil and natural gas prices which are fundamentalto assessing demand for our services. If we are unable to achieve these cashflows, our estimates will be revised which could result in an impairment chargefor the period of revision.

 

*Depreciable Lives of Property, Plant,and Equipment*

* *

Our property, plant, and equipment are capitalized athistorical cost and depreciated over the useful life of the asset. Our estimateof this useful life is based on circumstances that exist in the seismicindustry and information available at the time of the purchase of the asset.The technology of the equipment used to gather data in the seismic industry hashistorically evolved such that obsolescence does not occur quickly. Ascircumstances change and new information becomes available, these estimatescould change. We amortize these capitalized items using the straight-linemethod. Capital assets are depreciated over their useful lives ranging from oneto seven years, depending on the classification of the asset.

 

*Tax Accounting*

* *

We account for our income taxes in accordance withStatement of Financial Accounting Standards (SFAS) No. 109, “Accountingfor Income Taxes,” which requires the recognition of amounts of taxes payableor refundable 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 judgmentregarding assumptions and the use of estimates, including determining ourannual effective tax rate and the valuation of deferred tax assets, which cancreate variance between actual results and estimates. This process involvesmaking forecasts of current and future years’ taxable income, and unforeseenevents may significantly affect these estimates. Those factors, among others,could have a material impact on our provision or benefit for income taxes.

 

*Stock Based Compensation*

* *

Prior to January 1, 2006, the Company accountedfor its stock options under the recognition and measurement principles of APBOpinion No. 25, and related interpretations.  Accordingly, no stock-based employeecompensation cost was reflected in our financial statements prior to January 1,2006 since all options to purchase common stock of the Company had an exerciseprice equal to, or greater than, the market value of the underlying commonstock on the date of grant.

 

Effective January 1, 2006, the Companyimplemented Statement of Financial Accounting Standards (SFAS) No. 123R, “ShareBased Payment (SFAS 123R),” for stock-based compensation awards granted afterthat date 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, and liquidity.  The adoption of SFAS 123R resulted in therecognition of compensation expense, relative to stock-based awards, in wagesin the Statements of Income of approximately $430,000, or approximately $.03per share, for the year ended December 31, 2007 and  $306,000, or approximately

 

21

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$0.02 per share, for the year ended December 31,2006.  In accordance with the modifiedprospective application method permitted by SFAS 123R, prior period amountshave not been restated to reflect the recognition of stock-based compensationcosts.

 

In April of 2006, 101,325 shares of restrictedstock were issued to employees of the Company under the Company’s 2006 StockAward Plan (“2006 Stock Award Plan”).  InAugust 2007, 18,000 shares of restricted stock were issued to employees ofthe Company under the 2006 Stock Award Plan. As of December 31, 2007, there was approximately $621,000 ofunrecognized compensation expense related to our two-share based compensationplans.

 

**Recently IssuedAccounting Pronouncements**

** **

In July of 2006, FIN 48, “Accounting forUncertainty in Income Taxes – an interpretation of FASB Statement No. 109,”was issued.  FIN 48 prescribes arecognition threshold and measurement attribute for tax positions.  The Company adopted FIN 48 at the beginningof fiscal year 2007 which did not have a material impact on the financialstatements.

 

In September of 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”), which defines fair value, establishesguidelines for measuring fair value, and expands disclosures regarding fairvalue measurements. SFAS 157 does not require any new fair value measurementsbut rather eliminates inconsistencies in guidance found in various prioraccounting pronouncements. SFAS 157 is effective for fiscal years beginningafter November 15, 2007. The Company is currently evaluating the impact ofSFAS 157, but does not expect the adoption of SFAS 157 to have a materialeffect on its financial position, results of operations, or cash flows.

 

In September of 2006, SFAS No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans – anamendment of SFAS No. 87, 88, 106, and 132(R),” was issued, SFAS No. 158requires the funded status of pension and postretirement 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 did not have an effect on the Company’s results.

 

In February of 2007, the FASB issued SFAS No. 159(“SFAS 159), “The Fair Value Option for Financial Assets and FinancialLiabilities.”  SFAS 159 providescompanies with an option to report selected financial assets and liabilities atfair value.  SFAS 159 is effective forfiscal years beginning after November 15, 2007.  The Company is evaluating the impact of SFAS159 on its financial statements.

 

In December of 2007, the FASB issued Statement ofFinancial Accounting Standards No. 141R, “Business Combinations,” (SFAS141R) effective for fiscal years beginning after December 15, 2008.  Under SFAS 141R an acquiring entity in abusiness combination is required to recognize all assets acquired andliabilities assumed in the transaction. The revised standard also establishes the acquisition-date fair value asthe measurement objective for all assets acquired and liabilities assumed.  The rule requires an acquirer todisclose all of the information users may need to evaluate and understand thenature and financial effect of the business combination.  The Company is currently evaluating SFAS 141Rand does not expect these new rules to have a material impact on theCompany’s overall results of operations, financial position, or cash flows.

 

In December of 2007, the FASB issued Statement ofFinancial Accounting Standards No. 160, “Non-controlling Interest inConsolidated Financial Statements – an amendment of ARB No. 51,” (SFAS160) effective for fiscal years beginning after December 15, 2008.  SFAS 160 requires all entities to reportnon-controlling (minority) interest in subsidiaries as equity in theconsolidated financial statements.  Itsintention is to eliminate the diversity in practice regarding the accountingfor transactions between an entity and non-controlling interest. The Company iscurrently evaluating SFAS 160 and does not expect these new rules to havea material impact on the Company’s overall results of operations, financialposition or cash flows.

 

**Effect of Inflation**

** **

We do not believe that inflation has had a materialeffect on our business, results of operations, or financial condition duringthe past three years.

 

22

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**Information RegardingFor**w**ard-LookingStatements**

** **

This Form 10-K 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 uponenergy industry spending for seismic data acquisition services;

 

·                  theunpredictable nature of forecasting weather;

 

·                  the potentialfor contract delay or cancellation;

 

·                  the potentialfor fluctuations in oil and natural gas prices; and

 

·                  the availabilityof capital resources.

 

We use the words “may,” “will,” “can,” “could,” “should,”“expect,” “anticipate,” “estimate,” “believe,” “target,” “continue,” “intend,” “plan,”“budget,” and other similar words to identify forward-looking statements. Youshould read statements that contain these words carefully because they discussfuture expectations, contain projections of results of operations or of ourfinancial condition, and/or state other “forward-looking” information. We donot undertake any obligation to update or revise publicly any forward-lookingstatements, except as required by law. These statements also involve risks anduncertainties that could cause our actual results or financial condition tomaterially differ from our expectations in this Form 10-K.

 

We believe that it is important to communicate ourexpectations of future performance to our investors. However, events may occurin the future that we are unable to accurately predict or over which we have nocontrol. When considering our forward-looking statements, you should keep inmind the risk factors and other cautionary statements in this Form 10-Kand other factors noted throughout this Form 10-K. There are many risks,uncertainties, and events that may cause our actual results to differmaterially from those contained in any forward-looking statement. Please readthe section entitled “Risk Factors” for a discussion of certain risks of ourbusiness and an investment in our common stock.

 

**ITEM 7A. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

We have not entered into any hedging agreements orswap agreements. Our principal market risk is the risk related to theconcentration of our customers in the oil and natural gas industry. Since allof our customers are involved in the oil and natural gas industry, there may bea positive or a negative effect on our exposure to credit risk in that ourcustomers may be similarly affected by changes in economic and industryconditions. For the year ended December 31, 2007, our top two customersaccounted for approximately 12.1% and 9.9% of our revenues.  For the year ended December 31, 2006, nocustomer accounted for 10% or more of our revenues.  For the year ended December 31, 2005,our top two customers accounted for approximately 11.6% and 10.6% of ourrevenues.

 

For further information see “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” and “Item1A. Risk Factors.”

 

23

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**ITEM 8. FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

** **

**Financial Statements**

**December 31, 2007, 2006, and 2005**

# ** **

# **CONTENTS**

#  

| Report of Independent  Registered Public Accounting Firm | 25     |
|----------------------------------------------------------|--------|
|                                                     |   |
| Financial Statements                                     |   |
|                                                     |   |
| Balance Sheets                                           | 26     |
|                                                     |   |
| Statements of Income                                     | 28     |
|                                                     |   |
| Statements of  Stockholders’ Equity                 | 29     |
|                                                     |   |
| Statements of Cash  Flows                                | 30     |
|                                                     |   |
| Notes to Financial  Statements                           | 31     |

 

24

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**Report of Independent Registered Public AccountingFirm**

 

Board of Directors and

Shareholders ofTGC Industries, Inc.

 

We have audited the accompanying balance sheets of TGCIndustries, Inc. as of December 31, 2007 and 2006, and the relatedstatements of income, stockholders’ equity, and cash flows for each of thethree years in the period ended December 31, 2007.  These financial statements are theresponsibility of the company’s management. We also have audited TGC Industries, Inc.’s internal control overfinancial reporting as of December 31, 2007, based on criteria establishedin *Internal Control— Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).  TGC Industries, Inc.’smanagement is responsible for these financial statements, for maintainingeffective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting.  Our responsibility is to express an opinionon these financial statements and an opinion on the company’s internal controlover financial reporting 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 and whether effective internal control over financial reportingwas maintained in all material respects. Our audits of the financial statements included examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation.  Our audit of internalcontrol over financial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk.  Our audits also included performing suchother procedures as we considered necessary in the circumstances.  We believe that our audits provide areasonable basis for our opinions.

 

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles.  A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors ofthe company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In our opinion,the financial statements referred to above present fairly, in all materialrespects, the financial position of TGC Industries, Inc. as of December 31,2007 and 2006, and the results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2007, in conformity withaccounting principles generally accepted in the United States of America.  Also in our opinion, TGC Industries, Inc.maintained, in all material respects, effective internal control over financialreporting as of December 31, 2007, based on criteria established in *Internal Control—Integrated Framework* issued by the COSO.

 

 
| /s/ Lane Gorman  Trubitt, L.L.P. |
|----------------------------------|
| Dallas, Texas                    |
| March 12,  2008             |

 

25

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TGC Industries, Inc.

BALANCE SHEETS

December 31,

 
| ** **                                                                   | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ASSETS                                                                       |       |        |       |        |       |
|                                                                         |       |        |       |        |       |
| CURRENT ASSETS                                                               |       |        |       |        |       |
| Cash and cash  equivalents                                                   |       | $           | 4,503,826  |        | $          | 9,388,769 |   |
| Trade accounts  receivable                                                   |       | 12,391,113  |       | 7,448,602   |       |
| Costs and  estimated earnings in excess of billings on uncompleted contracts |       | 297,528     |       | 989,451     |       |
| Prepaid expenses  and other                                                  |       | 712,614     |       | 508,925     |       |
| Prepaid federal  income tax                                                  |       | 100,418     |       | 183,705     |       |
| Current deferred  tax asset                                                  |       | —      |       | 9,075       |       |
| Total current  assets                                                        |       | 18,005,499  |       | 18,528,527  |       |
|                                                                         |       |        |       |        |       |
| PROPERTY AND  EQUIPMENT - at cost                                            |       |        |       |        |       |
| Machinery and  equipment                                                     |       | 71,441,785  |       | 55,234,222  |       |
| Automobiles and  trucks                                                      |       | 7,770,646   |       | 6,609,057   |       |
| Furniture and  fixtures                                                      |       | 348,103     |       | 342,447     |       |
| Leasehold  improvements                                                      |       | 14,994      |       | 14,994      |       |
|                                                                         |       | 79,575,528  |       | 62,200,720  |       |
| Less accumulated  depreciation And amortization                              |       | (36,645,143 | )          | (24,552,074 | )          |
|                                                                         |       | 42,930,385  |       | 37,648,646  |       |
|                                                                         |       |        |       |        |       |
| Goodwill                                                                     |       | 201,530     |       | 201,530     |       |
| Other Assets                                                                 |       | 24,642      |       | 20,817      |       |
|                                                                         |       | 226,172     |       | 222,347     |       |
|                                                                         |       |        |       |        |       |
|                                                                         |       | $           | 61,162,056 |        | $          | 56,399,520 |   |

 

The accompanyingnotes are an integral part of these statements.

 

26

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TGC Industries, Inc.

BALANCE SHEETS – Continued

December 31,

 
| ** **                                                                                                                                      | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                                                                            |       |       |       |       |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                       |       |       |       |       |       |
|                                                                                                                                            |       |       |       |       |       |
| CURRENT  LIABILITIES                                                                                                                            |       |       |       |       |       |
| Trade accounts  payable                                                                                                                         |       | $          | 2,931,264  |       | $          | 4,951,985 |   |
| Accrued  liabilities                                                                                                                            |       | 1,724,078  |       | 1,111,023  |       |
| Billings in  excess of costs and estimated earnings on uncompleted contracts                                                                    |       | 3,340,220  |       | 6,159,514  |       |
| State income  taxes payable                                                                                                                     |       | —     |       | 415,501    |       |
| Current  maturities of notes payable                                                                                                            |       | 3,301,903  |       | 3,629,395  |       |
| Current portion  of capital lease obligations                                                                                                   |       | 1,218,737  |       | 1,082,729  |       |
|                                                                                                                                            |       |       |       |       |       |
| Total current  liabilities                                                                                                                      |       | 12,516,202 |       | 17,350,147 |       |
|                                                                                                                                            |       |       |       |       |       |
| NOTES PAYABLE,  less current maturities                                                                                                         |       | 3,090,191  |       | 2,046,908  |       |
|                                                                                                                                            |       |       |       |       |       |
| CAPITAL LEASE  OBLIGATIONS, less current portion                                                                                                |       | 679,074    |       | 1,017,154  |       |
|                                                                                                                                            |       |       |       |       |       |
| LONG-TERM  DEFERRED TAX LIABILITY                                                                                                               |       | 1,955,047  |       | 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 31,2007 and 2006, respectively                    |       | —     |       | —     |       |
|                                                                                                                                            |       |       |       |       |       |
| 8% Series C  convertible exchangeable preferred stock; -0- shares issued and outstanding  at December 31, 2007 and 2006, respectively |       | —     |       | —     |       |
|                                                                                                                                            |       |       |       |       |       |
| Common stock,  $.01 par value; 25,000,000 shares authorized; 16,595,047 And 15,753,396  issued at December 31, 2007 and 2006, respectively |       | 165,950    |       | 157,535    |       |
| Additional  paid-in capital                                                                                                                     |       | 26,503,158 |       | 26,461,640 |       |
| Unearned  restricted stock compensation                                                                                                         |       | (601,190   | )          | (822,208   | )          |
| Retained  earnings                                                                                                                              |       | 17,110,947 |       | 9,503,514  |       |
| Treasury stock,  at cost, 37,803 shares                                                                                                         |       | (257,323   | )          | (257,323   | )          |
|                                                                                                                                            |       | 42,921,542 |       | 35,043,158 |       |
|                                                                                                                                            |       |       |       |       |       |
|                                                                                                                                            |       | $          | 61,162,056 |       | $          | 56,399,520 |   |

 

The accompanying notes are an integral part of these statements.

 

27

----

 

TGC Industries, Inc.

STATEMENTS OF INCOME

Years Ended December 31,

 
| ** **                                     | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                           |       |       |       |       |       |       |       |
| Revenue                                        |       | $          | 90,395,872 |       | $          | 67,760,306 |       | $ | 30,851,963 |   |
|                                           |       |       |       |       |       |       |       |
| Cost and  expenses                             |       |       |       |       |       |       |       |
| Cost of services                               |       | 60,445,783 |       | 40,831,650 |       | 18,152,118 |       |
| Selling, general  and administrative           |       | 3,864,810  |       | 2,988,892  |       | 2,149,350  |       |
| Depreciation  expense                          |       | 12,743,065 |       | 9,540,171  |       | 3,201,236  |       |
|                                           |       | 77,053,658 |       | 53,360,713 |       | 23,502,704 |       |
|                                           |       |       |       |       |       |       |       |
| Income from  operations                        |       | 13,342,214 |       | 14,399,593 |       | 7,349,259  |       |
|                                           |       |       |       |       |       |       |       |
| Interest expense                               |       | 604,616    |       | 780,782    |       | 364,848    |       |
|                                           |       |       |       |       |       |       |       |
| Income before  income taxes                    |       | 12,737,598 |       | 13,618,811 |       | 6,984,411  |       |
|                                           |       |       |       |       |       |       |       |
| Income tax  expense                            |       | 5,130,165  |       | 5,507,386  |       | 783,633    |       |
|                                           |       |       |       |       |       |       |       |
| NET INCOME                                     |       | 7,607,433  |       | 8,111,425  |       | 6,200,778  |       |
|                                           |       |       |       |       |       |       |       |
| Less dividend  requirements on preferred stock |       | —     |       | —     |       | (204,989   | )          |
|                                           |       |       |       |       |       |       |       |
| Income allocable  to common stockholders       |       | $          | 7,607,433  |       | $          | 8,111,425  |       | $ | 5,995,789 |   |
|                                           |       |       |       |       |       |       |       |
| Earnings per  common share                     |       |       |       |       |       |       |       |
| Basic                                          |       | $          | 0.46       |       | $          | 0.49       |       | $ | 0.67 |   |
| Diluted                                        |       | $          | 0.46       |       | $          | 0.49       |       | $ | 0.43 |   |
|                                           |       |       |       |       |       |       |       |
| Weighted average  number of shares outstanding |       |       |       |       |       |       |       |
| Basic                                          |       | 16,541,241 |       | 16,447,866 |       | 8,958,058  |       |
| Diluted                                        |       | 16,621,697 |       | 16,566,858 |       | 14,368,192 |       |

 

The accompanyingnotes are an integral part of these statements.

 

28

----

 

TGC Industries, Inc.

STATEMENTS OF STOCKHOLDERS’ EQUITY

 
| ** **                                                     | ** ** | ** **               | ** ** | ** **            | ** ** | ** **  | ** ** | ** **   | ** ** | **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 preferred 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  |       |
| 5% common stock  dividend                                      |       | —                   |       | —                |       | 787,387     |       | 7,873        |       | (8,799         | )          | —        |       | —       |       | —     |       | (926        | )          |
| Options issued  to outside Directors                           |       | —                   |       | —                |       | —      |       | —       |       | 75,000         |       | —        |       | —       |       | —     |       | 75,000      |       |
| Issuance of  restricted common stock                           |       | —                   |       | —                |       | 18,000      |       | 180          |       | 188,820        |       | —        |       | (189,000     | )          | —     |       | —      |       |
| Repurchase of  stock warrants                                  |       | —                   |       | —                |       | —      |       | —       |       | (262,571       | )          | —        |       | —       |       | —     |       | (262,571    | )          |
| Cancellation of  restricted stock                              |       | —                   |       | —                |       | (4,221      | )          | (42          | )          | (29,715        | )          | —        |       | 29,757       |       | —     |       | —      |       |
| Amortization of  unearned compensation restricted stock awards |       | —                   |       | —                |       | —      |       | —       |       | —         |       | —        |       | 380,261      |       | —     |       | 380,261     |       |
| Amortization of  compensation cost of unvested stock options   |       | —                   |       | —                |       | —      |       | —       |       | 49,854         |       | —        |       | —       |       | —     |       | 49,854      |       |
| Exercise stock  options                                        |       | —                   |       | —                |       | 39,015      |       | 390          |       | 28,943         |       | —        |       | —       |       | —     |       | 29,333      |       |
| Shares issued                                                  |       | —                   |       | —                |       | 1,470       |       | 14           |       | (14            | )          |          |       |         |       |       |       |        |       |
| Net income                                                     |       | —                   |       | —                |       | —      |       | —       |       | —         |       | 7,607,433     |       | —       |       | —     |       | 7,607,433   |       |
| Balances at  December 31, 2007                            |       | —                   |       | $                     | —     |        | 16,595,047 |         | $          | 165,950        |       | $             | 26,503,158 |         | $          | 17,110,947 |       | $           | (601,190   | ) | $ | (257,323 | ) | $ | 42,921,542 |   |

 

Theaccompanying notes are an integral part of these statements.

 

29

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TGC Industries, Inc.

STATEMENTS OF CASH FLOWS

Years Ended December 31,

 
| ** **                                                                        | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
|                                                                              |       |        |       |        |       |        |       |
| Cash  flows from operating activities                                             |       |        |       |        |       |        |       |
| Net  income                                                                       |       | $           | 7,607,433  |        | $          | 8,111,425   |       | $ | 6,200,778 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities |       |        |       |        |       |        |       |
| Depreciation  and amortization                                                    |       | 12,743,065  |       | 9,540,171   |       | 3,201,236   |       |
| Gain  on disposal of property and equipment                                       |       | (132,790    | )          | (56,240     | )          | (122,716    | )          |
| Non-cash  compensation                                                            |       | 505,115     |       | 306,434     |       | —      |       |
| Deferred  income taxes                                                            |       | 1,021,969   |       | 1,079,794   |       | (146,716    | )          |
| Changes  in operating assets and liabilities                                      |       |        |       |        |       |        |       |
| Trade  accounts receivable                                                        |       | (4,942,511  | )          | (2,988,758  | )          | (2,804,760  | )          |
| Costs  and estimated earnings in excess Of billings on uncompleted contracts      |       | 691,923     |       | 2,696,433   |       | (3,454,360  | )          |
| Prepaid  expenses and other                                                       |       | 1,908,209   |       | 1,447,215   |       | 741,904     |       |
| Prepaid  federal income tax                                                       |       | 83,287      |       | 134,538     |       | (318,243    | )          |
| Other  assets                                                                     |       | (3,825      | )          | (12,605     | )          | (4,817      | )          |
| Trade  accounts payable                                                           |       | (2,020,721  | )          | 2,987,319   |       | 1,222,884   |       |
| Accrued  liabilities                                                              |       | 613,055     |       | 514,482     |       | 246,315     |       |
| Billings  in excess of costs and estimated earnings on uncompleted contracts      |       | (2,819,294  |  )    | 4,738,830   |       | 762,728     |       |
| Income  taxes payable                                                             |       | (415,501    | )          | 185,769     |       | 215,381     |       |
|                                                                              |       |        |       |        |       |        |       |
| Net  cash provided by operating activities                                        |       | 14,839,414  |       | 28,684,807  |       | 5,739,614   |       |
|                                                                              |       |        |       |        |       |        |       |
| Cash  flows from investing activities                                             |       |        |       |        |       |        |       |
| Capital  expenditures                                                             |       | (13,008,088 | )          | (21,219,238 | )          | (11,491,786 | )          |
| Purchase  of the assets of Highland Industries                                    |       | —      |       | (1,800,000  | )          | —      |       |
| Proceeds  from sale of property and equipment                                     |       | 346,385     |       | 129,689     |       | 133,678     |       |
|                                                                              |       |        |       |        |       |        |       |
| Net  cash used in investing activities                                            |       | (12,661,703 | )          | (22,889,549 | )          | (11,358,108 | )          |
|                                                                              |       |        |       |        |       |        |       |
| Cash  flows from financing activities                                             |       |        |       |        |       |        |       |
| Principal  payments on notes payable                                              |       | (5,516,361  | )          | (4,957,377  | )          | (2,357,974  | )          |
| Principal  payments on capital lease obligations                                  |       | (1,312,129  | )          | (968,392    | )          | (619,192    | )          |
| Proceeds  from issuance of debt                                                   |       | —      |       | —      |       | 430,581     |       |
| Proceeds  from exercise of stock options                                          |       | 29,333      |       | 20,801      |       | 103,064     |       |
| Net  proceeds from issuance of common stock                                       |       | —      |       | —      |       | 40,002,839  |       |
| Redemption  of stock purchase warrants                                            |       | (262,571    | )          | —      |       | (24,001,298 | )          |
| Redemption  of 8% Series C preferred stock                                   |       | —      |       | —      |       | (36,750     | )          |
| Payment  of dividends                                                             |       | (926        | )          | (930        | )          | (233,271    | )          |
|                                                                              |       |        |       |        |       |        |       |
| Net  cash provided by (used in) financing activities                              |       | (7,062,654  | )          | (5,905,898  | )          | 13,287,999  |       |
|                                                                              |       |        |       |        |       |        |       |
| Net  increase (decrease) in cash and cash equivalents                             |       | (4,884,943  | )          | (110,640    | )          | 7,669,505   |       |
|                                                                              |       |        |       |        |       |        |       |
| Cash  and cash equivalents at beginning of year                                   |       | 9,388,769   |       | 9,499,409   |       | 1,829,904   |       |
|                                                                              |       |        |       |        |       |        |       |
| Cash  and cash equivalents at end of year                                         |       | $           | 4,503,826  |        | $          | 9,388,769   |       | $ | 9,499,409 |   |
|                                                                              |       |        |       |        |       |        |       |
| Supplemental  cash flow information                                               |       |        |       |        |       |        |       |
| Interest  paid                                                                    |       | $           | 603,813    |        | $          | 790,171     |       | $ | 333,478 |   |
| Income  taxes paid                                                                |       | $           | 4,448,135  |        | $          | 4,107,285   |       | $ | 1,033,211 |   |
|                                                                              |       |        |       |        |       |        |       |
| Noncash  investing and financing activities                                       |       |        |       |        |       |        |       |
| Capital  lease obligations incurred                                               |       | $           | 1,110,057  |        | $          | 1,647,918   |       | $ | 1,448,171 |   |
| Financed  equipment purchases                                                     |       | $           | 4,120,254  |        | $          | —      |       | $ | 7,585,715 |   |
| Financed  insurance premiums                                                      |       | $           | 2,111,898  |        | $          | 1,625,149   |       | $ | 952,175 |   |
| Restricted  stock awards to employees net of cancellations                        |       | $           | 159,243    |        | $          | 1,071,150   |       | $ | — |   |

 

The accompanyingnotes are an integral part of these statements

 

30

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TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS

December 31, 2007, 2006, and 2005

 

NOTE A - NATURE OF OPERATIONS

 

TGC Industries, Inc.(TGC or the Company) is engaged in the domestic geophysical services businessand primarily conducts seismic surveys and sells gravity data to companiesengaged in exploration in the oil and gas industry.

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

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 theFederal Deposit Insurance Corporation 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 andequipment are stated at cost. Depreciation and amortization are provided usingthe straight-line method over the estimated useful lives of the individualassets ranging from 1 to 7 years. The depreciation expense on assets acquiredunder capital leases is included with depreciation expense on owned assets. Expendituresfor major renewals and betterments that extend the useful lives of property andequipment are capitalized. Expenditures for maintenance and repairs are chargedto 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. No impairment charge was necessaryat December 31, 2007, 2006 and 2005.

 

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.

 

31

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES - CONTINUED

 

Revenue Recognition

 

Seismic Surveys

 

The Company provides seismic data acquisition survey services to itscustomers under general service agreements which define certain obligations forthe Company and for its customers. A supplemental agreement setting forth theterms of a specific project, which may be cancelled by either party upon 60days advance written notice, is entered into for every project. Thesesupplemental agreements are either “turnkey” agreements providing for a fixedfee to be paid for each unit of seismic data acquired or “term” agreementsproviding for a fixed hourly, daily, or monthly fee during the term of theproject. The duration of these projects will vary from a few days to severalmonths. The Company recognizes revenue when services are performed under bothtypes of agreements. Services are defined as the commencement of dataacquisition. Under turnkey agreements, the total number of units of seismicdata to be gathered is set forth in the agreement and revenue is recognized asservices are performed on a per unit of seismic data acquired rate. Under termagreements, revenue is recognized as services are performed based on the timeworked rate provided in the term agreement. Under both turnkey and termagreements, cost of earned revenue is recognized by multiplying total estimatedagreement cost by the percentage-of-completion of the agreement. The excess ofthat amount over the cost of earned revenue reported in prior periods isrecognized as cost of earned revenue for the period. Agreements are notsegmented nor combined for purposes of calculating percentage of completion. Theasset, “Costs and estimated earnings in excess of billings on uncompletedcontracts” represents cost incurred on turnkey agreements in excess of billingson those agreements. The liability, “Billings in excess of costs and estimatedearnings on uncompleted contracts” represents billings on turnkey agreements inexcess of cost on those agreements. Claims have been negligible in the yearsended December 31, 2007, 2006, and 2005.

 

Gravity Data

 

The Company owns a data bank which contains gravity data, and to alesser extent magnetic data, from many of the major oil and natural gasproducing areas located within the U.S. When an order for gravity data isreceived, the portion of gravity data requested by the customer is prepared indigital format for licensing and shipment to the customer. This process isperformed by an employee in the Company’s headquarters office and normally takesa few days at the most. The licensing of gravity data is not a material part ofthe Company’s revenue. Gravity data revenue during the years ended December 31,2007, 2006 and 2005 was approximately $187,300, $500 and $23,400, respectively.

 

Stock-Based Compensation

 

Prior to March 2006,the Company had one stock-based compensation plan. The Company now has twostock-based compensation plans, which are described more fully in Note H. Priorto January 1, 2006, the Company accounted for stock options under therecognition and measurement principles of Accounting Principles Board (“APB”)Opinion No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations. Accordingly, no stock-based employee compensation cost wasreflected in net income prior to January 1, 2006, as all options grantedunder the older plan had an exercise price equal to the market value of theunderlying common stock on the date of grant. Effective January 1, 2006the Company implemented Statement of Accounting Standards (SFAS) No. 123R “ShareBased Payment (SFAS 123R)” for stock-based compensation awards granted afterthat date and for unvested awards outstanding at that date using the modifiedprospective application method. The Company recognizes the fair value of the stock-basedcompensation awards as wages in the Statements of Income on a straight-linebasis over the vesting period. As a result, during the years ended December 31,2007 and 2006, the Company recognized compensation expense for unvested stockoptions of $49,854 and $57,492, respectively, and restricted stock of $380,261and $248,942, respectively.

 

32

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Stock-Based Compensation - Continued

 

The followingtable illustrates the effect on net income and income per share allocable tocommon stockholders if the Company had applied the fair value recognitionprovisions of Financial Accounting Standards Board (“FASB”) Statement No. 123(“SFAS 123”), “Accounting for Stock-Based Compensation”, to stock-basedemployee compensation:

 
| ** **                                                                                                  | ** ** | **Year Ended 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income  allocable to common stockholders, as reported                                                   |       | $                            | 7,607,433  |   | $ | 8,111,425 |   | $ | 5,995,789 |   |
|                                                                                                        |       |                         |       |   |   |   |   |
| Deduct: Total  stock-based employee compensation expense determined all awards, net of  related tax effects |       | —                       |       | — |   | (37,357 | ) |
|                                                                                                        |       |                         |       |   |   |   |   |
| Pro forma net  income allocable to common stockholders                                                      |       | $                            | 7,607,433  |   | $ | 8,111,425 |   | $ | 5,958,432 |   |
|                                                                                                        |       |                         |       |   |   |   |   |
| Income per  common share                                                                                    |       |                         |       |   |   |   |   |
| Basic - as  reported                                                                                        |       | $                            | 0.46       |   | $ | 0.49 |   | $ | 0.67 |   |
| Diluted - as  reported                                                                                      |       | $                            | 0.46       |   | $ | 0.49 |   | $ | 0.43 |   |
| Basic - pro  forma                                                                                          |       | $                            | 0.46       |   | $ | 0.49 |   | $ | 0.67 |   |
| Basic - pro  forma                                                                                          |       | $                            | 0.46       |   | $ | 0.49 |   | $ | 0.41 |   |

 

The fair value of each option grant is estimated onthe date of grant using the Black-Scholes option pricing model with thefollowing assumptions used for outstanding grants: risk-free interest rate of4.20%; expected dividend yields of 0.0%; expected lives of 5.0 years; andexpected 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 debt withsimilar terms and maturities.

 

Earnings Per Share

 

Basic earnings percommon share is based upon the weighted average number of shares of commonstock outstanding. Diluted earnings per share is based upon the weightedaverage number of common shares outstanding and, when dilutive, common sharesissuable for stock options, warrants and convertible securities.

 

All share and pershare amounts for the years ended December 31, 2007, 2006 and 2005 havebeen adjusted to reflect 5% stock dividends paid April 27, 2007 and April 25,2006 to shareholders of record as of April 13, 2007 and April 11,2006, respectively.

 

33

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES - CONTINUED

 

Use of Estimates

 

The preparation offinancial statements in accordance with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

Change inAccounting Estimate

 

Management evaluates its estimates on a routine basis. Effective July 1,2007, the Company revised the estimated useful lives of certain seismicequipment and related components. The Company purchased this new equipment, notpreviously used, from November 2004 through June 2007. Based on theinformation gained from operations, management believes that this equipmentwill benefit periods ranging from 5 to 7 years, beginning at the point theassets were originally placed in service. The original estimated useful livesranged from 3 to 5 years.

 

The net book value of this equipment at June 30, 2007, was notmodified and is amortized over the revised estimated useful lives of theequipment. The Company does not believe that this equipment will becomeobsolete at the end of the original estimate and has revised the estimated lifeof these assets. The effect to depreciation expense, net income and earningsper share for the year ended December 31, 2007 is:

 
| ** **                  | ** ** | **Year Ended**             | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **December 31, 2007** | ** ** |
| ** **                  | ** ** | **As Reported**            | ** ** | **Pro Forma** | ** ** |
|                        |       |                            |       |   |   |
| Depreciation  Expense       |       | $                               | 12,743,065 |   | $ | 14,238,208 |   |
|                        |       |                            |       |   |   |
| Net Income                  |       | $                               | 7,607,433  |   | $ | 6,714,474 |   |
|                        |       |                            |       |   |   |
| Earnings per  common share: |       |                            |       |   |   |
| Basic                       |       | $                               | .46        |   | $ | .41 |   |
|                        |       |                            |       |   |   |
| Diluted                     |       | $                               | .46        |   | $ | .40 |   |

 

Recent Accounting Standards

 

In July of2006, FIN 48, “Accounting for Uncertainty in Income Taxes – an interpretationof FASB Statement No. 109,” was issued. FIN 48 prescribes a recognitionthreshold and measurement attribute for tax positions. The Company adopted FIN48 at the beginning of fiscal year 2007 which did not have a material impact tothe financial statements.

 

In September of2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”),which defines fair value, establishes guidelines for measuring fair value andexpands 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. The Companyis currently evaluating the impact of SFAS 157, but does not expect theadoption of SFAS 157 to have a material effect on its financial position,results of operations or cash flows.

 

34

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED

 

Recent Accounting Standards- Continued

 

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 did not have an effect onthe Company’s results.

 

In February of2007, the FASB issued SFAS No. 159 (“SFAS 159), “The Fair Value Option forFinancial Assets and Financial Liabilities.” SFAS 159 provides companies with anoption to report selected financial assets and liabilities at fair value. SFAS159 is effective for fiscal years beginning after November 15, 2007. TheCompany is evaluating the impact of SFAS 159 on its financial statements.

 

In December of2007, the FASB issued Statement of Financial Accounting Standards No. 141R,“Business Combinations,” (SFAS 141R) effective for fiscal years beginning afterDecember 15, 2008. Under SFAS 141R an acquiring entity in a businesscombination is required to recognize all assets acquired and liabilitiesassumed in the transaction. The revised standard also establishes theacquisition-date fair value as the measurement objective for all assetsacquired and liabilities assumed. The rule requires an acquirer todisclose all of the information users may need to evaluate and understand thenature and financial effect of the business combination. The Company iscurrently evaluating SFAS 141R and does not expect these new rules to havea material impact on the Company’s overall results of operations, financialposition or cash flows.

 

In December of2007, the FASB issued Statement of Financial Accounting Standards No. 160,“Non-controlling Interest in Consolidated Financial Statements – an amendmentof ARB No. 51,” (SFAS 160) effective for fiscal years beginning after December 15,2008. SFAS 160 requires all entities to report non-controlling (minority)interest in subsidiaries as equity in the consolidated financial statements. Itsintention is to eliminate the diversity in practice regarding the accountingfor transactions between an entity and non-controlling interest. The Company iscurrently evaluating SFAS 160 and does not expect these new rules to havea material impact on the Company’s overall results of operations, financial positionor cash flows.

 

NOTE C - COSTS AND ESTIMATED EARNINGS ONUNCOMPLETED CONTRACTS

 

The components ofuncompleted contracts are as follows at December 31,:

 
| ** **                                                      | ** ** | **2007**   | ** ** | **2006**    | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|-------------|------------|
| Costs incurred  on uncompleted contracts and estimated earnings |       | $          | 2,379,703  |        | $          | 7,044,699 |   |
| Less billings to  date                                          |       | (5,422,395 | )          | (12,214,762 | )          |
|                                                            |       | $          | (3,042,692 | )           | $          | (5,170,063 | ) |

 

The components of uncompleted contracts are reflected in the balancesheets at December 31, 2007 and 2006 as follows:

 
| ** **                                                                   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Costs and  estimated earnings in excess of billings on uncompleted contracts |       | $          | 297,528    |       | $          | 989,451 |   |
| Billings in  excess of costs and estimated earnings on uncompleted contracts |       | (3,340,220 | )          | (6,159,514 | )          |
|                                                                         |       | $          | (3,042,692 | )          | $          | (5,170,063 | ) |

 

35

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE D - ACCRUED LIABILITIES

 

Accruedliabilities consist of the following at December 31,:

 
| ** **                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Compensation and  payroll taxes |       | $        | 1,095,614  |     | $          | 849,758 |   |
| Accrued sales  and use tax      |       | 357,673  |       | 8,980    |       |
| Insurance                       |       | 94,996   |       | 116,100  |       |
| Accrued interest                |       | 36,985   |       | 36,182   |       |
| Other                           |       | 138,810  |       | 100,003  |       |
|                            |       | $        | 1,724,078  |     | $          | 1,111,023 |   |

 

NOTE E - DEBT

 

Line of Credit

 

In April 2005, the Company entered into a revolving line of creditarrangement with a bank, providing for borrowings of up to $500,000. On September 16,2005, the Company amended the revolving line of credit allowing the Company toborrow, repay and re-borrow, from time to time up to $3,500,000. The amendedrevolving line of credit matured in September 2006. In September 2006,the Company amended the revolving line of credit allowing the Company toborrow, repay and re-borrow, from time to time up to $5,000,000. The revolvingline of credit is secured by a security interest in the Company’s accountsreceivable and matured in September 2007. In September 2007, theCompany renewed its revolving line of credit allowing the Company to borrow,repay and re-borrow, from time to time up to $5,000,000. Interest on theoutstanding amount under the line of credit loan agreement is payable monthlyat the prime rate of interest. The credit loan agreement provides fornon-financial and financial covenants, including a debt to worth ratio not inexcess of 1.25 to 1.0 and a minimum debt service coverage ratio in excess of2.0 to 1.0. At December 31, 2007, the Company had no borrowingsoutstanding under the line of credit loan agreement.

 

36

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE E – DEBT – CONTINUED

 

Notes Payable

 

Notes payableconsist of the following at December 31:

 
| ** **                                                                                                                                                 | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Note payable to  a finance company, Interest at 6.85%, due in fixed principal monthly  installments of $66,296 plus interest; collateralized by equipment  |       | $          | -0-        |       | $          | 729,254 |   |
|                                                                                                                                                       |       |       |       |       |       |
| Note payable to  a finance company, Interest at 7.25%, due in fixed principal monthly  installments of $93,507 plus interest; collateralized by equipment  |       | 561,042    |       | 1,683,127  |       |
|                                                                                                                                                       |       |       |       |       |       |
| Note payable to  a finance company, Interest at 7.25%, due in fixed principal monthly  installments of $7,951 plus interest; collateralized by equipment   |       | 71,559     |       | 166,970    |       |
|                                                                                                                                                       |       |       |       |       |       |
| Note payable to  a finance company, Interest at 7.25%, due in fixed principal monthly  installments of $7,951 plus interest; collateralized by equipment   |       | 71,559     |       | 166,970    |       |
|                                                                                                                                                       |       |       |       |       |       |
| Note payable to  a finance company, Interest at 7.25%, due in fixed principal monthly  installments of $7,972 plus interest; collateralized by equipment   |       | 78,969     |       | 174,630    |       |
|                                                                                                                                                       |       |       |       |       |       |
| Note payable to  a finance company, Interest at 7.78%, due in fixed principal monthly  installments of $105,315 plus interest; collateralized by equipment |       | 1,263,779  |       | 2,527,559  |       |
|                                                                                                                                                       |       |       |       |       |       |
| Note payable to  a finance company, interest at 6.38%, due in fixed principal monthly  installments of $85,839 plus interest; collateralized by equipment  |       | 4,120,254  |       | -0-        |       |
|                                                                                                                                                       |       |       |       |       |       |
| Notes payable to  a finance company, interest at 7.85% to 8.35%, due in monthly installments of  $29,905 to $226,515 including interest                    |       | 224,932    |       | 227,793    |       |
|                                                                                                                                                       |       | $          | 6,392,094  |       | $          | 5,676,303 |   |
| Less current  maturities                                                                                                                                   |       | (3,301,903 | )          | (3,629,395 | )          |
|                                                                                                                                                       |       | $          | 3,090,191  |       | $          | 2,046,908 |   |

 

37

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE E – DEBT - CONTINUED

 

Notes Payable - Continued

 

Aggregate annualmaturities of notes payable at December 31, 2007 are as follows:

 
| **Year Ending**     | ** ** | ** ** | ** ** |
|--------------------------|------------|------------|------------|
| **December 31,**    | ** ** | ** ** | ** ** |
|                     |       |       |       |
| 2008                     |       | $          | 3,301,903  |   |
| 2009                     |       | 1,030,063  |       |
| 2010                     |       | 1,030,064  |       |
| 2011                     |       | 1,030,064  |       |
|                     |       | 6,392,094  |       |
| Less current  maturities |       | (3,301,903 | )          |
|                     |       | $          | 3,090,191  |   |

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, 2007.

 
| **Year Ending**                     | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|
| **December 31,**                    | ** ** | ** ** | ** ** |
|                                     |       |       |       |
| 2008                                     |       | $          | 1,359,865  |   |
| 2009                                     |       | 569,762    |       |
| 2010                                     |       | 163,305    |       |
|                                     |       |       |       |
| Total minimum  lease payments required   |       | 2,092,932  |       |
| Less: Amount  representing interest      |       | (195,121   | )          |
| Present value of  minimum lease payments |       | 1,897,811  |       |
| Less current  maturities                 |       | (1,218,737 | )          |
|                                     |       | $          | 679,074    |   |

 

The net book valueof the capital assets leased was approximately $2,793,000 and $3,144,000 as of December 31,2007 and 2006, respectively. Total accumulated depreciation on these assets wasapproximately $3,979,000 and $2,259,000 as of December 31, 2007 and 2006,respectively. Interest rates on these leases range from 9.29% to 12.82%.

 

Operating Leases

 

The Company leasesfour office and two warehouse facilities under operating leases that expire atvarious dates between October 2008 and January 2012 with one lease ona month to month basis. One of the office facilities, used by the Company asits corporate headquarters, and the two warehouse facilities, used as equipmentrepair facilities, are located in Plano, Texas. The other three officefacilities are used as sales offices and are located in Houston, Texas,Oklahoma City, Oklahoma and Denver, Colorado. Rent expense for these facilitiesfor the years ended December 31, 2007, 2006 and 2005 were approximately$279,000, $149,000 and $86,000, respectively.

 

38

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE F – LEASES – CONTINUED

 

Operating Leases - Continued

 

The following is aschedule by years of future minimum rental payments required under theoperating leases as of December 31, 2007:

 
| **Year Ending**             | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|
| **December 31:**            | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** ** | ** ** |
| 2008                             |       | $          | 274,603    |   |
| 2009                             |       | 172,418    |       |
| 2010                             |       | 131,092    |       |
| 2011                             |       | 134,174    |       |
| 2012 and  thereafter             |       | 11,206     |       |
|                             |       |       |       |
| Total minimum  payments required |       | $          | 723,493    |   |

 

NOTE G – FAIR VALUE OF DEBT OBLIGATIONS

 

The fair value of debt obligations is estimated using discounted cashflows based on the Company’s incremental borrowing rate for similar types ofborrowings. A comparison of the carrying value and fair value of theseinstruments is as follows:

 
| ** **     | ** ** | **December 31,** | ** ** |
|----------------|------------|-----------------------|------------|
| ** **     | ** ** | **2007**              | ** ** | **2006** | ** ** |
|           |       |                  |       |   |   |
| Carrying value |       | $                     | 6,392,094  |   | $ | 5,676,303 |   |
| Fair value     |       | $                     | 6,392,094  |   | $ | 5,676,303 |   |

 

NOTE H – 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,** | ** ** |
|------------------------------------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **2007**              | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                           |       |                  |       |   |   |   |   |
| Numerator:                                     |       |                  |       |   |   |   |   |
| Net income                                     |       | $                     | 7,607,433  |   | $ | 8,111,425 |   | $ | 6,200,778 |   |
| Less dividend  requirements on preferred stock |       | —                |       | — |   | (204,989 | ) |
| Income allocable  to common stockholders       |       | $                     | 7,607,433  |   | $ | 8,111,425 |   | $ | 5,995,789 |   |

 

39

----

 

TGC Industries, Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 2007, 2006, and 2005

 

NOTE H – STOCKHOLDERS’ EQUITY – CONTINUED

 

Earnings Per Share -Continued

 
| Denominator:                                        |   |       |   |       |   |       |   |
|-----------------------------------------------------|--------|------------|--------|------------|--------|------------|--------|
| Basic - weighted  average common shares outstanding |   | 16,541,241 |   | 16,447,866 |   | 8,958,058  |   |
| Effect of  dilutive securities:                     |   |       |   |       |   |       |   |
| Warrants                                            |   | 21,555     |   | 25,813     |   | 2,937,449  |   |
| Stock options                                       |   | 58,901     |   | 93,179     |   | 168,215    |   |
| Convertible  preferred stock                        |   | —     |   | —     |   | 2,304,470  |   |
|                                                |   | 16,621,697 |   | 16,566,858 |   | 14,368,192 |   |
|                                                |   |       |   |       |   |       |   |   |   |   |
| Basic net income  per share                         |   | $          | .46    |       | $      | .49        |   | $ | .67 |   |
| Diluted net  income per share                       |   | $          | .46    |       | $      | .49        |   | $ | .43 |   |

 

The effect ofpreferred stock dividend requirements on the amount of income available tocommon stockholders was $.02 for the year ended December 31, 2005.

 

Outstandingoptions that were not included in the diluted calculation because their effectwould be anti-dilutive total 47,465 and 6,153, respectively for the years endedDecember 31, 2007 and 2005.

 

All share and pershare amounts have been adjusted to reflect 5% stock dividends paid April 27,2007 and April 25, 2006 to shareholders of record as of April 13,2007 and April 11, 2006.

 

Stock-Based CompensationPlans

 

The Companycurrently has in effect a 1999 stock option plan (the “1999 Plan”). Options forup to 300,000 shares of the Company’s common stock may be granted. Optionsunder the 1999 Plan must be granted at prices not less than the lesser of thepar value per share of the stock or the fair market value per share of theCompany’s stock on the date of the grant. The term cannot exceed five yearsfrom the date of the grant and are exercisable as follows: (i) one-thirdof the shares after the 12 month period following the date of the grant, (ii) two-thirdsof the shares after the 24 month period following the date of the grant, and (iii) allof the shares of stock after the 36 month period following the date of thegrant. During 2007, no options were granted or cancelled and options covering39,015 shares were exercised. At December 31, 2007, options covering 137,717shares were outstanding, of which 91,934 were exercisable.

 

During the yearsended December 31, 2007 and 2006, the Company recognized compensationexpense associated with unvested options of $49,854 and $57,492, respectively.

 

The Companycurrently has in effect a 2006 stock award plan (the “2006 Plan”). The 2006Plan provides for the granting of stock options, common stock, and restrictedstock. The Company can issue up to 1,000,000 shares of the Company’s commonstock pursuant to awards under the 2006 Plan. The 2006 Plan will beadministered by a committee of the Board of Directors (“the Committee”). Currentlythe Committee is comprised of three directors. Any stock options granted underthe 2006 Plan will be exercisable as set forth in the option agreementspursuant to which they are issued, but in no event will stock options beexercisable after the expiration of ten (10) years from the date of grant.During 2007, options covering 47,465 shares were granted and no options werecancelled or exercised. Restricted stock consists of shares that aretransferred by the Company to a participant, but are subject to substantialrisk of forfeiture and to restrictions on their sale or other transfer by theparticipant. In April 2006, the Committee granted 101,325 shares ofrestricted stock. In August 2007, the Committee granted 18,000 shares ofrestricted stock. The shares of restricted stock were issued in the names ofthe grantees and have restrictive legends

 

40

----

 

TGC Industries,Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 20072006, and 2005

 

NOTE H – STOCKHOLDERS’EQUITY – CONTINUED

 

Stock-Based CompensationPlans - Continued

 

prohibiting theirsales prior to vesting.  One-third (1/3)of the granted restricted shares vest each year on the annual anniversary ofthe grant.   Upon vesting, a newcertificate will be issued for the vested portion without the restrictive legend.  During 2007, 33,440 shares of restrictedstock issued in April 2006, vested. During the years ended December 31, 2007 and 2006, the Companyrecognized compensation expense associated with the restricted stock of$380,561 and $248,942, respectively.  Asa result of employees who left the Company during the year ended December 31,2007, the Company reversed approximately $29,800 and $29,700, respectively, ofdeferred stock-based compensation and additional paid-in capital, whichrepresented the unamortized balance of deferred stock-based compensationrelating to employees who left the Company. The number of shares of restricted stock, granted in April 2006,has been adjusted to reflect the 5% stock dividend paid in April 2007.

 

The followingtable summarizes activity under the Plans:

 
| ** **                         | ** ** | ** **            | ** ** | **Weighted**            | ** ** |
|------------------------------------|------------|-----------------------|------------|-------------------------|------------|
| ** **                         | ** ** | **Shares under** | ** ** | **average**             | ** ** |
| ** **                         | ** ** | **Option**            | ** ** | **exercise price** | ** ** |
|                               |       |                  |       |                    |       |
| Balance at  December 31, 2004 |       | 242,179               |       | $                       | .90        |   |
| Granted                            |       | 72,611                |       | $                       | 5.00       |   |
| Exercised                          |       | (149,331              | )          | $                       | .97        |   |
| Canceled                           |       | (10,000               | )          | $                       | 1.00       |   |
| Balance at  December 31, 2005 |       | 155,459               |       | $                       | 2.74       |   |
| Granted                            |       | —                |       | —                  |       |
| Exercised                          |       | (26,192               | )          | $                       | .79        |   |
| Canceled                           |       | —                |       | —                  |       |
| Balance at  December 31, 2006 |       | 129,267               |       | $                       | 3.13       |   |
| Granted                            |       | 47,465                |       | $                       | 9.70       |   |
| Exercised                          |       | (39,015               | )          | $                       | .75        |   |
| Canceled                           |       | —                |       | —                  |       |
| Balance at  December 31, 2007 |       | 137,717               |       | $                       | 6.07       |   |

 

The followinginformation applies to options outstanding and exercisable at December 31,2007:

 
| ** **               | ** ** | ** **      | ** ** | **Weighted**                  | ** ** | ** **              | ** ** |
|--------------------------|------------|-----------------|------------|-------------------------------|------------|-------------------------|------------|
| ** **               | ** ** | ** **      | ** ** | **average**                   | ** ** | ** **              | ** ** |
| ** **               | ** ** | ** **      | ** ** | **remaining**                 | ** ** | **Weighted**            | ** ** |
| **Range of**        | ** ** | **Number**      | ** ** | **contractual**               | ** ** | **average**             | ** ** |
| **Exercise prices** | ** ** | **outstanding** | ** ** | **life (in years)** | ** ** | **exercise price** | ** ** |
| $.73 – $9.70        |       | 137,717         |       | 3.07                          |       | $                       | 6.07       |   |
|                          |            |                 |            |                               |            |                         |            |  |

 

Stock Warrants

 

In connection withthe issuance 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 withthe issuance 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, thesewarrants were redeemed.

 

41

----

 

TGC Industries,Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 20072006, and 2005

 

NOTE H – STOCKHOLDERS’ EQUITY – CONTINUED

 

Stock Warrants -Continued

 

In connection withthe commitment to provide the Company with a line of credit up to $300,000during 2003, certain Directors received warrants covering 750,000 shares with avalue of $22,500. These warrants have a strike price of $.20 and expire on June 12,2013.  In October 2005, thesewarrants were redeemed.

 

The agreementscovering the warrants issued in 2002 and 2003 contain provisions that in theevent dividends 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, theCompany issued 28,665 warrants to a public relations firm as part of its feefor services provided the Company.  Thewarrants have a strike price of $.91 per share and were due to expire December 15,2007.  During January 2005, thepublic relations firm sold the 28,655 warrants to a group of investors thatincluded certain Directors of the Company. These warrants were redeemed by the Company in November 2007.  The number of warrants issued in 2004, havebeen adjusted to reflect the 5% stock dividends paid in April 2006 and2007, respectively.

 

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

 

Preferred Stock

 

During 1996, theCompany issued 1,150,350 shares of Series C 8% convertible exchangeablepreferred stock (“Series C Preferred Stock”) at $5.00 per share in aprivate placement offering with gross proceeds of approximately $5,800,000. TheSeries C Preferred Stock is, at the option of the Company, exchangeableinto 8% subordinated convertible debentures. Prior to November 30, 2001,the Series C Preferred Stock and debentures were convertible into sharesof the Company’s common stock at the conversion price of (i) $2.00 pershare if exercised by December 31, 2001, (ii) $3.75 per share ifexercised from January 1, 2002 through December 31, 2002, and (iii) $6.00per share thereafter. At a November 30, 2001 meeting, the Company’s Boardof Directors approved amendments to the conversion terms of the Series CPreferred Stock. The amendments were as follows: the conversion price wasreduced from $2.00 per share to $1.61 per share and the date of the conversionprice 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,the Series C Preferred stockholders converted 977,550 shares of Series CPreferred Stock into 3,035,839 shares of common stock. As a result, 58,100shares of Series C Preferred Stock remained outstanding at December 31,2003.  At a September 24, 2004meeting, the Company’s Board of Directors approved amendments to the conversionterms of the Series C Preferred Stock. The amendments were as follows: the conversion price was reduced from $6.00 per share to $2.00 per sharefor a period beginning on September 24, 2004 and ending on January 31,2005.  As a result, the Series CPreferred stockholders converted 39,750 shares of Series C Preferred stockinto 99,375 shares of common stock.  At December 31,2004, 18,350 of Series C Preferred stock remained outstanding.  In January 2005, the Series CPreferred stockholders converted an additional 13,100 shares of Series CPreferred stock into 32,750 shares of common stock.  In June 2005, the Company redeemed the5,250 shares of Series C Preferred stock.

 

In 2000, theCompany issued 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

 

42

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TGC Industries,Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 20072006, and 2005

 

NOTE H – STOCKHOLDERS’ EQUITY – CONTINUED

 

Preferred Stock - Continued

 

Preferredstockholder as payment for the June 1, 2001, December 1, 2001, June 1,2002, December 1, 2002, June 1, 2003 and December 1, 2003dividends, respectively, resulting in 3,024,264 shares outstanding at December 31,2003.  In February 2004, the Seniorpreferred stockholder completed a transaction, selling all its 3,024,264 sharesof Senior Preferred Stock to a small number of investors that included severalmembers of the Company’s Board of Directors who purchased 1,772,200 of suchshares. During 2004, certain members of the investor group converted 206,700shares of Senior Preferred Stock into a like number of shares of the Company’sCommon Stock.  During 2005, the SeniorPreferred stockholders converted all 2,817,564 shares of Senior Preferred Stockinto a like number of shares of common stock.

 

Dividends

 

Holders of theCompany’s Series C Preferred Stock received, when, as and if declared bythe Board of Directors of the Company, dividends at a rate of 8% per annum. Thedividends were payable semi-annually during January and July of eachyear. As of December 31, 2004, following the conversion of 1,017,300shares of the Series C Preferred Stock as noted above, cumulativedividends of $44,040 were in arrears.  InApril 2005, the Company paid the cumulative dividends in arrears on the5,250 shares of Series C Preferred stock outstanding at that date in theamount of $12,600.  In connection withthe redemption of the Series C Preferred stock the stockholders receivedthe regular $.20 per share dividend in the amount of $1,050.

 

Holders of theCompany’s Senior Preferred Stock received, when, as and if declared by theBoard of Directors of the Company, dividends at a rate of 8.5% per annum. Thedividends were payable semi-annually during June and December of eachyear. Dividends payable in 2003 were paid in additional shares of SeniorPreferred Stock, at the 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.

 

NOTE I - INCOME TAXES

 

The income taxprovision charged to continuing operations for the years ended December 31,2007, 2006, and 2005, was as follows:

 
| ** **                      | ** ** | **2007**  | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|---------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                            |       |      |       |      |       |      |       |
| Current:                        |       |      |       |      |       |      |       |
| U.S. federal                    |       | $         | 3,565,519  |      | $          | 3,844,068 |       | $ | 612,488 |   |
| State and local                 |       | 542,677   |       | 583,524   |       | 317,861   |       |
|                            |       | 4,108,196 |       | 4,427,592 |       | 930,349   |       |
|                            |       |      |       |      |       |      |       |
| Deferred:                       |       |      |       |      |       |      |       |
| U.S. federal  expense (benefit) |       | 1,021,969 |       | 1,079,794 |       | (146,716  | )          |
|                            |       | $         | 5,130,165  |      | $          | 5,507,386 |       | $ | 783,633 |   |

 

43

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TGC Industries,Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 20072006, and 2005

 

NOTE I - INCOME TAXES - CONTINUED

 

The income tax provisiondiffers from the amount of income tax determined by applying the U.S. federalincome tax rate to pretax income from continuing operations for the years endedDecember 31, 2007, 2006, and 2005, due to the following:

 
| ** **                                                      | ** ** | **2007** | ** ** | **2006** | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|------------|------------|
| Computed  “expected” tax expense                      |       | $        | 4,325,859  |     | $          | 4,766,584  |       | $ | 2,374,700 |   |
| Increase  (decrease) in income taxes resulting from:            |       |     |       |     |       |       |       |
| Nondeductible  expenses and other                               |       | 451,566  |       | 361,511  |       | 111,110    |       |
| State &  local taxes, net of federal benefit           |       | 352,740  |       | 379,291  |       | 317,861    |       |
| Realization of  additional net operating losses and tax credits |       | —   |       | —   |       | (504,068   | )          |
| Change in  valuation allowance                                  |       | —   |       | —   |       | (1,515,970 | )          |
|                                                            |       | $        | 5,130,165  |     | $          | 5,507,386  |       | $ | 783,633 |   |

 

Net deferred taxliabilities consist of the following components as of December 31, 2007and 2006:

 
| ** **                   | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------|------------|------------|------------|------------|------------|
| Deferred tax  assets         |       |       |       |       |       |
| Loss carry  forwards         |       | $          | —     |       | $          | 9,075 |   |
| Deferred stock  compensation |       | 104,775    |       | 102,793    |       |
|                         |       |       |       |       |       |
|                         |       | 104,775    |       | 111,868    |       |
| Deferred tax  liability      |       |       |       |       |       |
| Property and  equipment      |       | (2,059,822 | )          | (1,044,946 | )          |
|                         |       | $          | (1,955,047 | )          | $          | (933,078 | ) |

 

The net change inthe valuation allowances for the deferred tax assets was a decrease of$1,515,970 during 2005.  The decreaserelates to the utilization of the operating loss carry forwards during2005.  The remaining loss carry forwardsthat have been recognized expired in 2007.

 

The componentsgiving rise to the net deferred tax items described above have been included inthe accompanying balance sheets as of December 31, 2007 and 2006, asfollows:

 
| ** **                | ** ** | **2007**   | ** ** | **2006** | ** ** |
|---------------------------|------------|------------|------------|----------|------------|
|                      |       |       |       |     |       |
| Current assets            |       | $          | —     |     | $          | 9,075 |   |
| Noncurrent  (liabilities) |       | (1,955,047 | )          | (942,153 | )          |
|                      |       | $          | (1,955,047 | )        | $          | (933,078 | ) |

 

NOTE J - 401(k) PLAN

 

The Company has a401(k) salary deferral plan which covers all employees who have reachedthe age of 20.5 years and have been employed by the Company for at least oneyear. The covered employees may elect to have an amount deducted from theirwages for investment in a retirement plan. The Company makes contributions tothe plan equal to 50% of each participant’s salary reduction contributions tothe plan up to 6% of the participant’s compensation. The Company’s matchingcontribution to the plan was approximately $64,000, $54,000 and $37,000 for theyears ended December 31, 2007, 2006, and 2005, respectively.

 

44

----

 

TGC Industries,Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 20072006, and 2005

 

NOTE K - CONCENTRATION OF CREDIT RISK

 

The Company sellsits geophysical services primarily to large independent oil and gas companiesoperating in the United States. The Company performs ongoing credit evaluationsof its customer’s financial condition and, generally, requires no collateralfrom its customers.

 

During 2007 ourtwo largest customers accounted for approximately 22.0% of revenues.  During 2006 no customer accounted for morethan 10% of revenues. During 2005 our two largest customers accounted forapproximately 22.2% of revenues.  As of December 31,2007, three customers accounted for 31%, 27% and 16% of outstanding accountsreceivable, respectively.  As of December 31,2006, four customers accounted for 22%, 13%, 12% and 11% of outstandingaccounts receivable, respectively.

 

NOTE L - CONTINGENCIES

 

In conducting itsactivities, the Company from time to time is the subject of various claimsarising from the ordinary course of business. In the opinion of management, theultimate resolution of such claims is not expected to have a material adverseeffect upon the financial position of the Company.

 

NOTE M – SUBSEQUENTEVENTS

 

In January 2008, theCompany entered into a loan agreement with a bank to provide financing, ofapproximately $2,600,000, for the purchase of 8 new vibration vehicles.  The loan, which matures in February 2013,provides for payments of interest only beginning March 1, 2008 in arrearson the outstanding principal at a fixed interest rate of 6.35%.  Beginning June 1, 2008, the loanprovides for monthly payments of principal and interest which will besufficient to amortize the principal balance over the remaining term of theloan at a fixed interest rate of 6.35%. All 8 vibration vehicles are scheduled to be delivered in the firstquarter of 2008.

 

In February 2008,the Company exercised its purchase option for the 3,000 channels of ARAM ARIESseismic recording equipment it had been renting.  In March 2008, the Company entered intoa loan agreement with a commercial lender to provide approximately $3,000,000in financing. The loan is for a period of 48 months at a fixed interest rate of5.75% and provides for monthly payments of approximately $62,000 plusinterest.  Approximately $1,900,000 ofthe loan proceeds were used to purchase the rented equipment. The balance, ofapproximately $1,100,000, was used to replace an existing loan the Company hadwith the lender.

 

NOTE N– QUARTERLY FINANCIAL DATA – (UNAUDITED)

 

Thefollowing is a summary of the unaudited quarterly financial information for thetwo years ended December 31, 2007 and 2006 (in thousands, except per shareamounts):

 
| ** **                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| **2007**                      | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|                          |       |                             |       |   |   |   |   |   |   |
| Revenues                      |       | $                                | 18,608     |   | $ | 21,718 |   | $ | 24,208 |   | $ | 25,862 |   |
| Income from  operations       |       | 3,662                            |       | 2,457 |   | 3,266 |   | 3,958 |   |
| Net Income                    |       | 2,079                            |       | 1,336 |   | 1,826 |   | 2,366 |   |
| Net income per  share basic   |       | .13                              |       | .08 |   | .11 |   | .14 |   |
| Net income per  share diluted |       | .13                              |       | .08 |   | .11 |   | .14 |   |
|                               |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

45

----

 

TGC Industries,Inc.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

December 31, 20072006, and 2005

 

NOTE N– QUARTERLY FINANCIAL DATA – (UNAUDITED) - CONTINUED

 
| ** **                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| **2006**                      | ** ** | **March 31**                | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|                          |       |                             |       |   |   |   |   |   |   |
| Revenues                      |       | $                                | 14,794     |   | $ | 14,895 |   | $ | 17,952 |   | $ | 20,120 |   |
| Income from  operations       |       | 4,667                            |       | 3,622 |   | 2,461 |   | 3,649 |   |
| Net Income                    |       | 2,772                            |       | 2,057 |   | 1,347 |   | 1,936 |   |
| Net income per  share basic   |       | .17                              |       | .13 |   | .08 |   | .12 |   |
| Net income per  share diluted |       | .17                              |       | .12 |   | .08 |   | .12 |   |
|                               |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

 

**ITEM9.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

Not Applicable.

 

**ITEM 9A.   CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

** **

The Company maintains controls and procedures toensure that it is able to collect the information it is required to disclose inthe reports it files with the Securities and Exchange Commission, and toprocess, summarize, and disclose this information within the time periodsspecified in the rules of the SEC. Based on an evaluation of the Company’s disclosure controls andprocedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended) as of the end of the periodcovered by this report conducted by the Company’s management, with theparticipation of the Chief Executive and Chief Financial Officers, the ChiefExecutive and Chief Financial Officers believe that these controls andprocedures are effective to ensure that the Company is able to record, process,summarize, and report information required to be included in reports filed orsubmitted under the Exchange Act within the required time period.  There were no changes in the Company’sinternal controls over financial reporting or in other factors during thequarter ended December 31, 2007, that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**Management’s Report on Internal Control overFinancial Reporting**

** **

Management of the Companyis responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rule 13a-15(f) under the SecuritiesExchange Act of 1934.

 

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements.  Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.  All internal control systems, no matter howwell designed, have inherent limitations. Therefore, even those systems determined to be effective can provideonly reasonable assurance with respect to financial statement preparation and presentation.

 

Management assessed the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2007.  In making this assessment, management usedthe criteria set forth by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in Internal Control – Integrated Framework.  Based on our assessment, we believe that, asof December 31, 2007, the Company’s internal control over financialreporting is effective based on those criteria.

 

46

----

 

Management’s assessment of the effectiveness ofinternal control over financial reporting as of December 31, 2007, hasbeen audited by Lane Gorman Trubitt, L.L.P., the independent registered publicaccounting firm which also audited the Company’s financial statements.  Lane Gorman Trubitt, L.L.P.’s attestationreport on management’s assessment of the Company’s internal control overfinancial reporting appears in their Report of Independent Registered PublicAccounting Firm.

 

**ITEM9B.  OTHER INFORMATION**

 

EffectiveNovember 30, 2007, the Company amended its bylaws to provide for shareswithout certificates in order to comply with Nasdaq Rule 4350(l) requiringthe Company’s common stock to be eligible for participation in the DirectRegistration System (“DRS”).  DRS allowsa shareholder’s stock ownership to be recorded and maintained by the Company’stransfer agent without the issuance of a physical certificate.  The amended bylaws continue to permitshareholders to obtain a physical certificate upon request.

 

**PART III**

** **

**ITEM 10. DIRECTORS,EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE**

** **

Certain information required by Item 10 of the Form 10-Kis hereby incorporated by reference from the Company’s definitive proxystatement, which will be filed pursuant to Regulation 14A within 120 days afterthe Company’s year end for the year covered by this report.

 

**ITEM 11. EXECUTIVECOMPENSATION.**

** **

The information required by Item 11 of Form 10-Kis hereby incorporated by reference from the Company’s definitive proxystatement, which will be filed pursuant to Regulation 14A within 120 days afterthe Company’s year end for the year covered by this report.

 

**ITEM 12. SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.**

** **

The information required by Item 12 of Form 10-Kis hereby incorporated by reference from the Company’s definitive proxystatement, which will be filed pursuant to Regulation 14A within 120 days afterthe Company’s year end for the year covered by this report.

 

**ITEM 13. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

** **

The information requiredby Item 13 of Form 10-K is hereby incorporated by reference from theCompany’s definitive proxy statement, which will be filed pursuant toRegulation 14A within 120 days after the Company’s year end for the yearcovered by this report.

 

**ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES**

** **

The information required by Item 14 of Form 10-Kis hereby incorporated by reference from the Company’s definitive proxystatement, which will be filed pursuant to Regulation 14A within 120 days afterthe Company’s year end for the year covered by this report.

 

47

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**PART IV**

** **

**ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**

** **
|   | (a)    | The following documents  are filed as a part of this report: |                                                                                                                                                                                                                                  |   |
|--------|--------|--------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                         |                                                                                                                                                                                                                                  |   |   |
|   |   | (1)                                                          | Financial  Statements included in Item 8 above are filed as part of this annual report.                                                                                                                                               |
|   |   |                                                         |                                                                                                                                                                                                                                  |   |   |
|   |   | (2)                                                          | Financial  Statement Schedules included in Item 8 herein:                                                                                                                                                                             |
|   |   |                                                         |                                                                                                                                                                                                                                  |   |   |
|   |   |                                                         | All schedules  for which provision is made in the applicable accounting regulations of the  Securities and Exchange Commission are not required under the related  instructions or are inapplicable and therefore, have been omitted. |
|   |   |                                                         |                                                                                                                                                                                                                                  |   |   |
|   |   | (3)                                                          | Exhibits:    The information required by this Item  15(a)(3) is set forth in the Index to Exhibits accompanying this                                                                                              |
|   |   | Annual Report on  Form 10-K.                            |

 

48

----

 

**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 14, 2008 |                      | By: |    /s/ Wayne A. Whitener |
|                       |                      |   | Wayne A. Whitener |
|                       |                      |   | President and Chief Executive Officer |
|                       |                      |   | (Principal Executive Officer) |

 

In accordance withthe Exchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 

 

| Date:  March 14, 2008 |   | By:    |    /s/ Wayne A. Whitener           |
|----------------------------|--------|--------|----------------------------------------------|
|                       |   |   | Wayne A. Whitener                            |
|                       |   |   | President and Chief Executive Officer        |
|                       |   |   | (Principal Executive Officer)                |
|                       |   |   |                                         |
| Date:  March 14, 2008 |   | By:    |    /s/ Kenneth Uselton             |
|                       |   |   | Kenneth Uselton                              |
|                       |   |   | Secretary and Treasurer                      |
|                       |   |   | (Principal Financial and Accounting Officer) |
|                       |   |   |                                         |
| Date:  March 14, 2008 |   | By:    |    /s/ William J. Barrett          |
|                       |   |   | William J. Barrett                           |
|                       |   |   | Director                                     |
|                       |   |   |                                         |
| Date:  March 14, 2008 |   | By:    |    /s/ Herbert M. Gardner          |
|                       |   |   | Herbert M. Gardner                           |
|                       |   |   | Director                                     |
|                       |   |   |                                         |
| Date:  March 14, 2008 |   | By:    |    /s/ Allen T. McInnes            |
|                       |   |   | Allen T. McInnes                             |
|                       |   |   | Director                                     |
|                       |   |   |                                         |
| Date:  March 14, 2008 |   | By:    |    /s/ Edward L. Flynn             |
|                       |   |   | Edward L. Flynn                              |
|                       |   |   | Director                                     |
|                       |   |   |                                         |
| Date:  March 14, 2008 |   | By:    |    /s/ Stephanie P. Hurtt          |
|                       |   |   | Stephanie P. Hurtt                           |
|                       |   |   | Director                                     |

 

49

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**INDEX TO EXHIBITS**

 
| **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.                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                                                               |
| *3.3             |       | Amendment to  Bylaws (as amended November 30, 2007).                                                                                                                                                                                                                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                                                               |
| 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.                                                 |

 

50

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| 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.                                                                                                              |

 

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| 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. |
|   |   |                                                                                                                                                                                                                                                                                                                                                       |
| 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.                                                                                               |

 

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| +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.

+ Managementcontract on compensatory plan, contract, or arrangement.

 

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