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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K/A**

 

**Amendment No. 1**

 

**x****     ****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31, 2009**

 

**o****        ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES 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 telephone number, 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 if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act.  Yes o    Nox

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.  Yes o    Nox

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes  x    No  o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Website, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (Section 232.405 of this chapter) during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files).  Yes o    No o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K (229.405) is not contained herein, and will not becontained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  x

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o |   | Accelerated filer x         |
|--------------------------------|--------|----------------------------------|
| Non-accelerated filer o   |   | Smaller reporting company o |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).  Yes o    No x

 

The aggregate market value of the voting and non-voting common equityheld by non-affiliates computed by reference to the price at which the commonequity was last sold as of the last business day of the Registrant’s mostrecently completed second  fiscal quarterwas $64,577,846.

 

Number of shares of Common Stock outstanding as of February 26,2010:  18,285,288

 

**Documents incorporated by reference**

 

Listed below are documents, parts of which are incorporated herein byreference, and the part of this report into which the document is incorporated:

 

Proxy statement for the 2010 annual meeting of shareholders — Part III

 

 

 

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**Part I**

** **

**EXPLANATORY NOTE**

** **

The purpose of this Form 10-K/A is to amend Part II,Item 8 and Item 9A of the TGC Industries, Inc. Form 10-K (the “OriginalFiling”) for the fiscal year ended December 31, 2009, as filed with theSecurities and Exchange Commission on March 16, 2010, to include a signedcopy of the Report of Independent Registered Public Accounting Firm (the “Report”).  The Original Filing inadvertently included anunsigned copy of the Report.  Except forproviding a signed copy of the Report, this Form 10-K/A does not reflectany events that occurred after the filing of the Original Filing nor does itmodify, amend or update any disclosures contained in the Original Filing toreflect any subsequent events.

 

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** **

**PART II**

** **

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

** **

**Consolidated Financial Statements**

**December 31, 2009, 2008, and 2007**

 

**CONTENTS**

 
| Report of Independent  Registered Public Accounting Firm | 4      |
|----------------------------------------------------------|--------|
|                                                     |   |
| Consolidated  Financial Statements                       |   |
|                                                     |   |
| Consolidated Balance Sheets                              | 5      |
|                                                     |   |
| Consolidated Statements of  Earnings                     | 7      |
|                                                     |   |
| Consolidated  Statements of Shareholders’ Equity    | 8      |
|                                                     |   |
| Consolidated  Statements of Cash Flows                   | 9      |
|                                                     |   |
| Notes to  Consolidated Financial Statements              | 11     |

 

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**Report of Independent Registered Public AccountingFirm**

 

Board of Directors andShareholders

TGC Industries, Inc.and Subsidiary

 

We have audited theaccompanying consolidated balance sheets of TGC Industries, Inc. andSubsidiary (“the Company”) as of December 31,2009 and 2008, and the related consolidated statements of income,shareholders’ equity, and cash flows for each of the three years in the periodended December 31, 2009.  We also have audited the Company’s internalcontrol over financial reporting as of December 31,2009, based on criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). The Company’s management isresponsible for these consolidated financial statements, for maintainingeffective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Control over Financial Reporting.Our responsibility is to express an opinion on these consolidated financialstatements and an opinion on the Company’s internal control over financialreporting based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudits to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement and whether effective internalcontrol over financial reporting was maintained in all material respects. Ouraudits of the consolidated financial statements included examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statementpresentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk. Our audits also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audits provide areasonable basis for our opinions.

 

A Company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof consolidated financial statements for external purposes in accordance withgenerally 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 consolidated financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of theCompany are being made only in accordance with authorizations of management anddirectors of the Company; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use, or dispositionof the Company’s assets that could have a material effect on the consolidatedfinancial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of TGC Industries, Inc. andSubsidiary as of December 31, 2009and 2008, and the results of its operations and its cash flows for eachof the years in the three year period ended December 31, 2009 in conformity with accounting principlesgenerally accepted in the United States of America. Also in our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31,2009, based on criteria established in *InternalControl—Integrated Framework* issued by the COSO.

 

/s/ Lane Gorman Trubitt,L.L.P.

 

Dallas, Texas

March 16, 2010

 

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**TGCIndustries, Inc.**

**CONSOLIDATED BALANCE SHEETS**

**December 31,**

 
| ** **                                                                                               | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| ASSETS                                                                                                   |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| CURRENT  ASSETS                                                                                          |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Cash  and cash equivalents                                                                               |       | $           | 25,504,149 |        | $          | 24,114,351 |   |
| Trade  accounts receivable, net of allowance for doubtful accounts of $623,109 in 2009  and $-0- in 2008 |       | 9,455,224   |       | 5,853,908   |       |
| Cost  and estimated earnings in excess of billings on uncompleted contracts                              |       | 474,059     |       | 2,300,985   |       |
| Prepaid  expenses and other                                                                              |       | 648,872     |       | 718,301     |       |
| Prepaid  federal and state income tax                                                                    |       | 943,600     |       | 1,220,154   |       |
|                                                                                                     |       |        |       |        |       |
| Total  current assets                                                                                    |       | 37,025,904  |       | 34,207,699  |       |
|                                                                                                     |       |        |       |        |       |
| PROPERTY  AND EQUIPMENT - at cost                                                                        |       |        |       |        |       |
|                                                                                                     |       |        |       |        |       |
| Machinery  and equipment                                                                                 |       | 100,687,976 |       | 91,233,877  |       |
| Automobiles  and trucks                                                                                  |       | 8,914,434   |       | 8,792,645   |       |
| Furniture  and fixtures                                                                                  |       | 397,879     |       | 348,103     |       |
| Leasehold  improvements                                                                                  |       | 14,994      |       | 14,994      |       |
|                                                                                                     |       | 110,015,283 |       | 100,389,619 |       |
| Less  accumulated depreciation and amortization                                                          |       | (62,431,950 | )          | (49,757,056 | )          |
|                                                                                                     |       | 47,583,333  |       | 50,632,563  |       |
| OTHER  ASSETS                                                                                            |       |        |       |        |       |
| Goodwill                                                                                                 |       | 1,408,089   |       | 201,530     |       |
| Other  assets                                                                                            |       | 32,399      |       | 49,129      |       |
|                                                                                                     |       | 1,440,488   |       | 250,659     |       |
|                                                                                                     |       |        |       |        |       |
| Total  assets                                                                                            |       | $           | 86,049,725 |        | $          | 85,090,921 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**TGCIndustries, Inc.**

**CONSOLIDATEDBALANCE SHEETS — Continued**

**December 31,**

 
| ** **                                                                                             | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
|                                                                                                   |       |       |       |       |       |
| LIABILITIES  AND SHAREHOLDERS’ EQUITY                                                             |       |       |       |       |       |
|                                                                                                   |       |       |       |       |       |
| CURRENT  LIABILITIES                                                                                   |       |       |       |       |       |
|                                                                                                   |       |       |       |       |       |
| Trade  accounts payable                                                                                |       | $          | 4,126,474  |       | $          | 4,569,911 |   |
| Accrued  liabilities                                                                                   |       | 1,337,437  |       | 863,756    |       |
| Billings  in excess of costs and estimated earnings on uncompleted contracts                           |       | 7,077,941  |       | 5,776,444  |       |
| Current  maturities of notes payable                                                                   |       | 6,407,892  |       | 5,171,872  |       |
| Current  portion of capital lease obligations                                                          |       | 780,526    |       | 856,673    |       |
|                                                                                                   |       |       |       |       |       |
| Total  current liabilities                                                                             |       | 19,730,270 |       | 17,238,656 |       |
|                                                                                                   |       |       |       |       |       |
| NOTES  PAYABLE, less current maturities                                                                |       | 5,875,390  |       | 10,851,621 |       |
|                                                                                                   |       |       |       |       |       |
| CAPITAL  LEASE OBLIGATIONS, less current portion                                                       |       | 631,757    |       | 600,214    |       |
|                                                                                                   |       |       |       |       |       |
| DEFERRED  TAX LIABILITY                                                                                |       | 7,117,030  |       | 5,973,000  |       |
|                                                                                                   |       |       |       |       |       |
| COMMITMENTS  AND CONTINGENCIES                                                                         |       | —     |       | —     |       |
|                                                                                                   |       |       |       |       |       |
| SHAREHOLDERS’  EQUITY                                                                             |       |       |       |       |       |
|                                                                                                   |       |       |       |       |       |
| Preferred  stock, $1.00 par value; 4,000,000 shares authorized; issued - none                          |       | —     |       | —     |       |
|                                                                                                   |       |       |       |       |       |
| Common  stock, $.01 par value; 25,000,000 shares authorized; 18,323,091 and 17,435,319  in each period |       | 183,231    |       | 174,353    |       |
|                                                                                                   |       |       |       |       |       |
| Additional  paid-in capital                                                                            |       | 27,014,078 |       | 26,501,011 |       |
|                                                                                                   |       |       |       |       |       |
| Retained  earnings                                                                                     |       | 25,889,008 |       | 24,009,389 |       |
|                                                                                                   |       |       |       |       |       |
| Treasury  stock, at cost, 37,803 shares                                                                |       | (257,323   | )          | (257,323   | )          |
|                                                                                                   |       |       |       |       |       |
| Accumulated  other comprehensive (loss)                                                                |       | (133,716   | )          | —     |       |
|                                                                                                   |       |       |       |       |       |
|                                                                                                   |       | 52,695,278 |       | 50,427,430 |       |
|                                                                                                   |       |       |       |       |       |
| Total  liabilities and shareholders’ equity                                                       |       | $          | 86,049,725 |       | $          | 85,090,921 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**TGCIndustries, Inc.**

**CONSOLIDATED STATEMENTS OF EARNINGS**

**YearsEnded December 31,**

 
| ** **                                      | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
|                                            |       |       |       |       |       |       |       |
| Revenue                                         |       | $          | 90,431,899 |       | $          | 86,769,742 |       | $ | 90,395,872 |   |
|                                            |       |       |       |       |       |       |       |
| Cost  and expenses                              |       |       |       |       |       |       |       |
| Cost  of services                               |       | 65,379,612 |       | 55,935,068 |       | 60,445,783 |       |
| Selling,  general and administrative            |       | 5,522,939  |       | 4,468,883  |       | 3,864,810  |       |
| Depreciation  and amortization expense          |       | 14,621,237 |       | 13,911,124 |       | 12,743,065 |       |
|                                            |       | 85,523,788 |       | 74,315,075 |       | 77,053,658 |       |
|                                            |       |       |       |       |       |       |       |
| Income  from operations                         |       | 4,908,111  |       | 12,454,667 |       | 13,342,214 |       |
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense                               |       | 1,020,681  |       | 929,656    |       | 604,616    |       |
|                                            |       |       |       |       |       |       |       |
| Income  before income tax expense               |       | 3,887,430  |       | 11,525,011 |       | 12,737,598 |       |
|                                            |       |       |       |       |       |       |       |
| Income  tax expense:                            |       |       |       |       |       |       |       |
| Current                                         |       | 1,289,938  |       | 609,569    |       | 4,108,196  |       |
| Deferred                                        |       | 717,873    |       | 4,017,000  |       | 1,021,969  |       |
| Income  tax expense                             |       | 2,007,811  |       | 4,626,569  |       | 5,130,165  |       |
|                                            |       |       |       |       |       |       |       |
| NET  INCOME                                     |       | $          | 1,879,619  |       | $          | 6,898,442  |       | $ | 7,607,433 |   |
|                                            |       |       |       |       |       |       |       |
| Earnings  per common share:                     |       |       |       |       |       |       |       |
| Basic                                           |       | $          | 0.10       |       | $          | 0.38       |       | $ | 0.42 |   |
| Diluted                                         |       | $          | 0.10       |       | $          | 0.38       |       | $ | 0.42 |   |
|                                            |       |       |       |       |       |       |       |
| Weighted  average number of Shares outstanding: |       |       |       |       |       |       |       |
| Basic                                           |       | 18,280,318 |       | 18,260,110 |       | 18,236,718 |       |
| Diluted                                         |       | 18,344,041 |       | 18,337,184 |       | 18,325,421 |       |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

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**TGC Industries, Inc.**

**CONSOLIDATEDSTATEMENTS OF SHAREHOLDERS’ EQUITY**

 
| ** **                                                     | ** ** | ** **       | ** ** | ** **  | ** ** | ** **     | ** ** | ** **   | ** ** | ** **        | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|----------------------------------------------------------------|------------|------------------|------------|-------------|------------|----------------|------------|--------------|------------|-------------------|------------|-------------------|------------|------------|------------|
| ** **                                                     | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **        | ** ** | **Other**         | ** ** | ** ** | ** ** |
| ** **                                                     | ** ** | **Common stock** | ** ** | **Paid-in** | ** ** | **Retained**   | ** ** | **Treasury** | ** ** | **Comprehensive** | ** ** | ** **        | ** ** |
| ** **                                                     | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Stock**         | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Balances at January 1, 2007                               |       | 15,753,396       |       | $           | 157,535    |           | $          | 25,639,432   |       | $                 | 9,503,514  |              | $          | (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         |       | (180           | )          | —       |       | —            |       | —            |       | —     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Repurchase of stock warrants                                   |       | —           |       | —      |       | (262,571       | )          | —       |       | —            |       | —            |       | (262,571   | )          |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Cancellation of restricted stock                               |       | (4,221           | )          | (42         | )          | 42             |       | —       |       | —            |       | —            |       | —     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Amortization of unearned compensation restricted  stock awards |       | —           |       | —      |       | 380,261        |       | —       |       | —            |       | —            |       | 380,261    |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Amortization of compensation cost of unvested stock  options   |       | —           |       | —      |       | 49,854         |       | —       |       | —            |       | —            |       | 49,854     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Exercise of 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     |       | 25,901,968     |       | 17,110,947   |       | (257,323          | )          | —            |       | 42,921,542 |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| 5% common stock dividend                                       |       | 827,751          |       | 8,278       |       | (9,104         | )          | —       |       | —            |       | —            |       | (826       | )          |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Options issued to outside Directors                            |       | —           |       | —      |       | 150,000        |       | —       |       | —            |       | —            |       | 150,000    |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Issuance of restricted common stock                            |       | 10,000           |       | 100         |       | (100           | )          | —       |       | —            |       | —            |       | —     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Cancellation of restricted stock                               |       | (2,110           | )          | (21         | )          | 21             |       | —       |       | —            |       | —            |       | —     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Amortization of unearned compensation restricted  stock awards |       | —           |       | —      |       | 411,113        |       | —       |       | —            |       | —            |       | 411,113    |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Amortization of compensation cost of unvested stock  options   |       | —           |       | —      |       | 43,959         |       | —       |       | —            |       | —            |       | 43,959     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Exercise of stock options                                      |       | 4,631            |       | 46          |       | 3,154          |       | —       |       | —            |       | —            |       | 3,200      |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Net income                                                     |       | —           |       | —      |       | —         |       | 6,898,442    |       | —            |       | —            |       | 6,898,442  |       |
| Balances at December 31, 2008                             |       | 17,435,319       |       | 174,353     |       | 26,501,011     |       | 24,009,389   |       | (257,323          | )          | —            |       | 50,427,430 |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| 5% common stock dividend                                       |       | 870,379          |       | 8,704       |       | (9,089         | )          | —       |       | —            |       | —            |       | (385       | )          |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Options issued to outside Directors                            |       | —           |       | —      |       | 150,000        |       | —       |       | —            |       | —            |       | 150,000    |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Issuance of restricted common stock                            |       | 5,000            |       | 50          |       | (50            | )          | —       |       | —            |       | —            |       | —     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Cancellation of restricted stock                               |       | (1,499           | )          | (15         | )          | 15             |       | —       |       | —            |       | —            |       | —     |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Exercise of stock options                                      |       | 13,892           |       | 139         |       | 9,461          |       | —       |       | —            |       | —            |       | 9,600      |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Amortization of unearned compensation restricted stock  awards |       | —           |       | —      |       | 182,812        |       | —       |       | —            |       | —            |       | 182,812    |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Amortization of compensation cost of unvested stock  options   |       | —           |       | —      |       | 179,918        |       | —       |       | —            |       | —            |       | 179,918    |       |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Foreign currency translation adjustments                       |       | —           |       | —      |       | —         |       | —       |       | —            |       | (133,716          | )          | (133,716   | )          |
|                                                           |       |             |       |        |       |           |       |         |       |              |       |              |       |       |       |
| Net income                                                     |       | —           |       | —      |       | —         |       | 1,879,619    |       | —            |       | —            |       | 1,879,619  |       |
|                                                           |       | 18,323,091       |       | $           | 183,231    |           | $          | 27,014,078   |       | $                 | 25,889,008 |              | $          | (257,323   | )          | $ | (133,716 | ) | $ | 52,695,278 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

8

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Tableof Contents

 

**TGC Industries, Inc.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**Years Ended December 31,**

 
| ** **                                                                         | ** ** | **2009**    | ** ** | **2008**   | ** ** | **2007**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------|------------|------------|------------|-------------|------------|
| Cash flows from operating activities                                               |       |        |       |       |       |        |       |
| Net income                                                                         |       | $           | 1,879,619  |       | $          | 6,898,442   |       | $ | 7,607,433 |   |
| Adjustments to reconcile net income to net cash provided  by operating activities: |       |        |       |       |       |        |       |
| Depreciation and amortization                                                      |       | 14,621,237  |       | 13,911,124 |       | 12,743,065  |       |
| Gain on disposal of property and equipment                                         |       | (221,156    | )          | (170,831   | )          | (132,790    | )          |
| Non-cash compensation                                                              |       | 512,730     |       | 605,072    |       | 505,115     |       |
| Deferred income taxes                                                              |       | 717,873     |       | 4,017,000  |       | 1,021,969   |       |
| Changes in operating assets and liabilities                                        |       |        |       |       |       |        |       |
| Trade accounts receivable                                                          |       | (2,352,493  | )          | 6,299,590  |       | (4,704,896  | )          |
| Cost and estimated earnings in excess of billings on  uncompleted contracts        |       | 1,875,709   |       | (1,765,842 | )          | 454,308     |       |
| Prepaid expenses and other                                                         |       | 2,187,472   |       | 1,994,248  |       | 1,908,209   |       |
| Prepaid federal and state income tax                                               |       | 1,044,631   |       | (1,118,783 | )          | 83,287      |       |
| Other assets                                                                       |       | 16,730      |       | (24,487    | )          | (3,825      | )          |
| Trade accounts payable                                                             |       | (1,115,265  | )          | 1,638,647  |       | (2,020,721  | )          |
| Accrued liabilities                                                                |       | 230,476     |       | (860,322   | )          | 613,055     |       |
| Billings in excess of cost and estimated earnings on  uncompleted contracts        |       | 1,300,559   |       | 2,436,224  |       | (2,819,294  | )          |
| Income taxes payable                                                               |       | —      |       | —     |       | (415,501    | )          |
|                                                                               |       |        |       |       |       |        |       |
| Net cash provided by operating activities                                          |       | 20,698,122  |       | 33,860,082 |       | 14,839,414  |       |
|                                                                               |       |        |       |       |       |        |       |
| Cash flows from investing activities                                               |       |        |       |       |       |        |       |
| Capital expenditures                                                               |       | (1,349,972  | )          | (6,322,048 | )          | (13,008,088 | )          |
| Purchase of stock of Eagle Canada, Inc.                                       |       | (10,345,000 | )          | —     |       | —      |       |
| Net cash inflow on acquisition of subsidiary                                       |       | 370,822     |       | —     |       | —      |       |
| Proceeds from sale of property and equipment                                       |       | 381,986     |       | 243,512    |       | 346,385     |       |
|                                                                               |       |        |       |       |       |        |       |
| Net cash used in investing activities                                              |       | (10,942,164 | )          | (6,078,536 | )          | (12,661,703 | )          |
|                                                                               |       |        |       |       |       |        |       |
| Cash flows from financing activities                                               |       |        |       |       |       |        |       |
| Principal payments on notes payable                                                |       | (7,296,477  | )          | (6,793,635 | )          | (5,516,361  | )          |
| Principal payments on capital lease obligations                                    |       | (1,080,217  | )          | (1,379,759 | )          | (1,312,129  | )          |
| Proceeds from exercise of stock options                                            |       | 9,600       |       | 3,200      |       | 29,333      |       |
| Redemption of stock purchase warrants                                              |       | —      |       | —     |       | (262,571    | )          |
| Payment of dividends                                                               |       | (385        | )          | (827       | )          | (926        | )          |
|                                                                               |       |        |       |       |       |        |       |
| Net cash used in financing activities                                              |       | (8,367,479  | )          | (8,171,021 | )          | (7,062,654  | )          |
|                                                                               |       |        |       |       |       |        |       |
| Net increase (decrease) in cash and cash  equivalents                              |       | 1,388,479   |       | 19,610,525 |       | (4,884,943  | )          |
|                                                                               |       |        |       |       |       |        |       |
| Effect of exchange rates on cash                                                   |       | 1,319       |       | —     |       | —      |       |
|                                                                               |       |        |       |       |       |        |       |
| Cash and cash equivalents at beginning of year                                     |       | 24,114,351  |       | 4,503,826  |       | 9,388,769   |       |
|                                                                               |       |        |       |       |       |        |       |
| Cash and cash equivalents at end of year                                           |       | $           | 25,504,149 |       | $          | 24,114,351  |       | $ | 4,503,826 |   |

 

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**TGC Industries, Inc.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED**

**Years Ended December 31,**

 
| ** **                                                             | ** ** | **2009**   | ** **  | **2008** | ** ** | **2007**   | ** ** |
|------------------------------------------------------------------------|------------|------------|-------------|----------|------------|------------|------------|
| Supplemental cash flow information                                     |       |       |        |     |       |       |       |
| Interest paid                                                          |       | $          | 1,020,681   |     | $          | 893,536    |       | $ | 603,813 |   |
| Income taxes paid                                                      |       | $          | 1,722,914   |     | $          | 1,692,057  |       | $ | 4,448,135 |   |
|                                                                   |       |       |        |     |       |       |       |
| Noncash investing and financing activities                             |       |       |        |     |       |       |       |
| Capital lease obligations incurred                                     |       | $          | 609,734     |     | $          | 938,835    |       | $ | 1,110,057 |   |
| Financed equipment purchase                                            |       | $          | —      |     | $          | 14,425,099 |       | $ | 4,120,254 |   |
| Financed insurance premiums                                            |       | $          | 2,087,288   |     | $          | 1,999,935  |       | $ | 2,111,898 |   |
| Restricted stock awards to employees net of  cancellations             |       | $          | 24,350      |     | $          | 67,258     |       | $ | 159,243 |   |
|                                                                   |       |       |        |     |       |       |       |
| Cash used in the purchase of Eagle Canada consisted  of the following: |       |       |        |     |       |       |       |
|                                                                   |       |       |        |     |       |       |       |
| Cash and cash equivalents                                              |       | $          | (370,822    | )        | $          | —     |       | $ | — |   |
| Trade accounts receivable                                              |       | (1,245,336 | )           | —   |       | —     |       |
| Other current assets                                                   |       | (861,911   | )           | —   |       | —     |       |
| Deferred tax asset                                                     |       | (1,097,088 | )           | —   |       | —     |       |
| Fixed assets                                                           |       | (9,940,118 | )           | —   |       | —     |       |
| Goodwill                                                               |       | (1,226,992 | )           | —   |       | —     |       |
| Current liabilities                                                    |       | 918,390    |        | —   |       | —     |       |
| Notes payable                                                          |       | 1,496,494  |        | —   |       | —     |       |
| Capital lease obligations                                              |       | 433,517    |        | —   |       | —     |       |
| Long-term deferred tax liability                                       |       | 1,548,866  |        | —   |       | —     |       |
|                                                                   |       |       |        |     |       |       |       |
| Purchase of stock of Eagle Canada, Inc.                           |       | $          | (10,345,000 | )        | $          | —     |       | $ | — |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

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TGC Industries, Inc.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE A - NATURE OF OPERATIONS

 

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

 

Management hasevaluated subsequent events through March 16, 2010, which is the date ofthe consolidated financial statements were available to be issued.

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

TheConsolidated Financial Statements include the accounts of TGC Industries, Inc. andits wholly-owned subsidiary, Eagle Canada, Inc.  We have eliminated all significantintercompany accounts and transactions.

 

Business Combinations

 

Werecord acquisitions using the purchase method of accounting and, accordingly,have included the results of operations of acquired businesses in ourconsolidated results from the date of each acquisition.  We allocate the purchase price of ouracquisitions to the tangible assets, liabilities, and intangible assetsacquired based on their estimated fair values. The excess purchase price overthose fair values is recorded as goodwill. The fair value assigned to assetsacquired is based on valuations provided by independent consultants and usingmanagement’s estimates and assumptions.

 

ForeignCurrency

 

Thefunctional currency of the Company’s international subsidiary is the localcurrency.  Local currency assets andliabilities are translated at the rates of exchange on the balance sheet date,and local currency revenues and expenses are translated at average rates ofexchange during the period.  Theresulting translation adjustments are recorded directly into a separatecomponent of stockholders’ equity and represents the only component ofaccumulated other comprehensive income.

 

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 and Alberta, Canada.  The Texas bank accounts are insured by theFederal Deposit Insurance Corporation up to $250,000.  The Alberta bank accounts are insured by theCanadian Depository Insurance Corporation up to $100,000 Canadian dollars.

 

Trade Accounts Receivable

 

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.

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES — CONTINUED

 

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.  Thedepreciation expense on assets acquired under capital leases is included withdepreciation expense on owned assets. Expenditures for major renewals and betterments that extend the usefullives of property and equipment are capitalized.  Expenditures for maintenance and repairs arecharged to expense 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 necessary at December 31, 2009, 2008, and2007.

 

Income Taxes

 

The Companyutilizes the liability method of accounting for income taxes.  Under the liability method, deferred incometax assets and liabilities are provided based on the difference between thefinancial statement and tax bases of assets and liabilities measured by thecurrently enacted tax rates in effect for the years in which these differencesare expected to reverse.  Deferred taxexpense or benefit is the result of changes in deferred tax assets andliabilities.  An allowance againstdeferred tax assets is recorded in whole or in part when it is more likely thannot that such tax benefits will not be realized.

 

Effective January 1,2007, the Company adopted certain amendments of Topic No. 740 (“Topic 740”)which clarifies the accounting for income tax positions.  Topic 740prescribes a recognition threshold and measurement attribute for the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  Under Topic 740, the Company recognizes in itsfinancial statements the impact of a tax position if that position is “more likelythan not” to be sustained on audit based on the technical merits of theposition.  Topic 740 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods, anddisclosure.  Interest and penalties related to unrecognized tax benefitsare recorded as income tax expense.  See Note I for further information.

 

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.  Asupplemental agreement setting forth the terms of a specific project, which maybe cancelled by either party upon 30 days advance written notice, is enteredinto 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 projectswill vary from a few days to several months. The Company recognizes revenue when services are performed under bothtypes of agreements.  Services aredefined as the commencement of data acquisition.  Under turnkey agreements, the total number ofunits of seismic data to be gathered is set forth in the agreement and revenueis recognized as services are performed on a per unit of seismic data acquiredrate.  Under term agreements, revenue isrecognized as services are performed based on the time worked rate provided inthe term agreement.  Under both turnkeyand term agreements, cost of earned revenue is recognized by multiplying totalestimated agreement cost by the percentage-of-completion of the agreement.  The excess of that amount over the cost ofearned revenue reported in prior periods is recognized as cost of earnedrevenue for the period.  Agreements arenot segmented nor combined for purposes of calculating percentage of

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

 

completion.  The asset “Costs andestimated earnings in excess of billings on uncompleted contracts” representscost incurred on turnkey agreements in excess of billings on thoseagreements.  The liability “Billings inexcess of costs and estimated earnings on uncompleted contracts” representsbillings on turnkey agreements in excess of cost on those agreements.  Claims have been negligible in the yearsended December 31, 2009, 2008, and 2007.

 

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 is received, the portion of gravity datarequested by the customer is prepared in digital format for licensing andshipment to the customer.  This processis performed by an employee in the Company’s headquarters office and normallytakes no longer than a few days.  Thelicensing of gravity data is not a material part of the Company’s revenue.  Gravity data revenue during the years ended December 31,2009, 2008, and 2007 was approximately $20,300, $46,100, and $187,300,respectively.

 

Reclassifications

 

Certain reclassifications have been made to the 2008 financialstatements to conform to the 2009 presentation.

 

Stock-Based Compensation

 

The Company hastwo stock-based compensation plans, which are described more fully in NoteH.  The Company recognizes the fair valueof the stock-based compensation awards as wages in the Statements of Earningson a straight-line basis over the vesting period.  As a result, during the years ended December 31,2009, 2008, and 2007, the Company recognized compensation expense for unvestedstock options of $179,918 $43,959, and $49,854, respectively, and restrictedstock of $182,812 $411,113, and $380,261, respectively.

 

For the year ended December 31, 2009, the fairvalue of each option grant was estimated on the date of the grant using theBinomial Lattice option pricing model with the following assumptions used forthe outstanding grants: risk-free interest rate of 2.30%; expected dividendyields of 0.0%; expected lives of 5.0 years; and expected volatility of95.0%.  For the year ended December 31,2008, the fair value of each option grant was estimated on the date of the grantusing the Binomial Lattice option pricing model with the following assumptionsused for the outstanding grants: risk-free interest rate of 2.90%; expecteddividend yields of 0.0%; expected lives of 5.0 years; and expected volatilityof 61.0%.  In years ended December 31,2007 and prior, the fair value of each option grant was estimated on the dateof grant using the Black-Scholes option pricing model with the followingassumptions used for outstanding grants: risk-free interest rate of 4.20%;expected dividend yields of 0.0%; expected lives of 5.0 years; and expectedvolatility of 92.72% to 96.54%.

 

Financial Instruments

 

The Company’sfinancial instruments recorded on the consolidated balance sheet include cashand cash equivalents, accounts receivable, accounts payable, and debt. Thecarrying amounts of cash and cash equivalents, accounts receivable, andaccounts payable approximate fair value because of the short-term nature ofthese items. Fair value of long-term debt is based on rates available to theCompany for debt with similar terms and maturities.

 

Earnings Per Share

 

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

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

 

All share and pershare amounts for the years ended December 31, 2009, 2008, and 2007 havebeen adjusted to reflect 5% stock dividends paid May 12, 2009, April 28,2008, and April 27, 2007 to shareholders of record as of April 28,2009, April 14, 2008, and April 13, 2007, respectively.

 

Use of Estimates

 

The preparation of consolidated financial statements in accordance withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.

 

Change in Accounting Estimates

 

Management evaluates its estimates on a routine basis.  Effective July 1, 2007, the Companyrevised the estimated useful lives of certain seismic equipment and relatedcomponents.  The Company purchased thisnew equipment, not previously used, from November 2004 through June 2007.  Based on the information gained fromoperations, management believes that this equipment will benefit periodsranging from 5 to 7 years beginning at the time the assets were originallyplaced in service.  The originalestimated useful lives ranged 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 believethat this equipment will become obsolete at the end of the original estimateand has revised the estimated life of these assets.  The effect to depreciation expense, netincome, and earnings per share for the years ended December 31, 2009, and2008 are as follows:

 
| ** **                 | ** ** | **Year Ended  December 31, 2009** | ** ** | **Year Ended  December 31, 2008** | ** ** |
|----------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                 | ** ** | **As Reported**                             | ** ** | **Pro Forma**                               | ** ** | **As Reported** | ** ** | **Pro Forma** | ** ** |
|                       |       |                                             |       |                                             |       |   |   |   |   |
| Depreciation Expense       |       | $                                                | 14,621,237 |                                             | $          | 17,275,886 |   | $ | 13,911,124 |   | $ | 16,901,410 |   |
|                       |       |                                             |       |                                             |       |   |   |   |   |
| Net Income                 |       | $                                                | 1,879,619  |                                             | $          | 594,769 |   | $ | 6,898,442 |   | $ | 5,108,576 |   |
|                       |       |                                             |       |                                             |       |   |   |   |   |
| Earnings per common share: |       |                                             |       |                                             |       |   |   |   |   |
| Basic                      |       | $                                                | 0.10       |                                             | $          | 0.03 |   | $ | 0.38 |   | $ | 0.28 |   |
|                       |       |                                             |       |                                             |       |   |   |   |   |
| Diluted                    |       | $                                                | 0.10       |                                             | $          | 0.03 |   | $ | 0.38 |   | $ | 0.28 |   |

 

Recent Accounting Standards

 

In September of2006, the Financial Accounting Standards Board (FASB) issued AccountingStandards Codification (ASC) 820-10, “Fair Value Measurements and Disclosures.”ASC 820-10 defines fair value as the amount that would be exchanged to sell anasset or transfer a liability in an orderly transaction between marketparticipants. The standard further establishes a framework for measuring fairvalue in generally accepted accounting principles and expands certaindisclosures about fair value measurements. ASC 820-10 became effective for allfinancial assets and financial liabilities as of October 1, 2008, and uponadoption, ASC 820-10 did not have a material impact on our financialstatements. In February of 2008, the FASB issued ASC 820-10-15-1A, “FairValue Measurements and Disclosures — Transition and Open Effective DateInformation,” which delays the effective date of ASC 820-10 for allnon-financial assets and non-financial liabilities, except for items that arerecognized or disclosed at fair value in the financial statements on arecurring basis (at least annually). We do not expect the adoption of ASC820-10-15-1A to have a material impact on our financial statements.

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTEB - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

 

In February of2007, the FASB issued ASC 825-10, “Financial Instruments.” ASC 825-10 providescompanies with an option to report selected financial assets and liabilities atfair value. As of December 31, 2009, we have not elected the fair valueoption for any additional financial assets and liabilities beyond those alreadyprescribed by accounting principles generally accepted in the United States.

 

In December of 2007,the FASB issued a new accounting standard related to business combinationsunder ASC 805-10, “Business Combinations.” The new standard expands thedefinition of a business and a business combination; requires recognition ofassets acquired, liabilities assumed, and contingent consideration at theirfair value on the acquisition date with subsequent changes recognized inearnings; requires acquisition-related expenses and restructuring costs to berecognized separately from the business combination and expensed as incurred;and requires that changes in accounting for deferred tax asset valuationallowances and acquired income tax uncertainties after the measurement periodbe recognized as a component of provision for taxes. The new standard alsoestablishes disclosure requirements to enable the evaluation of the nature andfinancial effects of the business combination.

 

In April of2009, the FASB issued ASC 825-10-65-1, “Financial Instruments — Transitionand Open Effective Date Information.” ASC 825-10-65-1 requires fair valuedisclosures in both interim and annual financial statements in order to providemore timely information about the effects of current market conditions onfinancial instruments. ASC 825-10-65-1 became effective June 15, 2009. Theadoption of this standard did not have a material impact on our financialstatements.

 

In June of2009, the FASB issued ASC 105-10, “Generally Accepted Accounting Principles.”ASC 105-10 provides for the FASB Accounting Standards Codification (the “Codification”)to become the single official source of authoritative, nongovernmentalU.S. generally accepted accounting principles. The Codification did notchange GAAP but reorganizes the literature. ASC 105-10 became effective for usfor the year ended December 31, 2009. The adoption of this standard didnot have an impact on our financial statements.

 

NOTE C — COSTS, BILLINGS,AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

 

The components of uncompleted contracts are as follows at December 31,:

 
| ** **                                                      | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|-----------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Costs incurred on  uncompleted contracts and estimated earnings |       | $           | 4,831,326  |        | $          | 8,984,322 |   |
| Less billings to date                                           |       | (11,435,208 | )          | (12,459,781 | )          |
|                                                            |       | $           | (6,603,882 | )           | $          | (3,475,459 | ) |

 

The components ofuncompleted contracts are reflected in the consolidated balance sheets at December 31,2009 and 2008 as follows:

 
| ** **                                                                   | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Costs and estimated earnings in excess of billings  on uncompleted contracts |       | $          | 474,059    |       | $          | 2,300,985 |   |
| Billings in excess of costs and estimated earnings  on uncompleted contracts |       | (7,077,941 | )          | (5,776,444 | )          |
|                                                                         |       | $          | (6,603,882 | )          | $          | (3,475,459 | ) |

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

December 31, 2009,2008, and 2007

 

NOTE D - ACCRUED LIABILITIES

 

Accruedliabilities consist of the following at December 31,:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Compensation and payroll taxes |       | $        | 811,676    |     | $          | 476,718 |   |
| Accrued sales and use tax      |       | 101,542  |       | 3,035    |       |
| Insurance                      |       | 173,483  |       | 156,717  |       |
| Accrued interest               |       | 73,105   |       | 73,105   |       |
| Other                          |       | 177,631  |       | 154,181  |       |
|                           |       | $        | 1,337,437  |     | $          | 863,756 |   |

 

NOTE E - DEBT

 

Line of Credit

 

In September of2008, and again in September of 2009, the Company renewed its revolvingline of credit allowing the Company to borrow, repay, and re-borrow, from timeto time, up to $5,000,000.  Interest onthe outstanding amount under the line of credit loan agreement is payablemonthly at the greater of the prime rate of interest or five percent.  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, 2009and 2008, the Company had no borrowings outstanding under the line of creditloan agreement.

 

Notes Payable

 

Notes payableconsists of the following at December 31:

 
| ** **                                                                                                                                             | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                                                                                                   |       |      |       |      |       |
| Note Payable to a finance company,Interest at 6.38%, due in  fixed principalmonthly  installments of $85,839 plusinterest; collateralized by equipment |       | $         | 2,060,127  |      | $          | 3,090,191 |   |
|                                                                                                                                                   |       |      |       |      |       |
| Note Payable to a finance company,Interest at 5.75%, due in  fixed principalmonthly  installments of $61,997 plusinterest; collateralized by equipment |       | 1,673,912 |       | 2,417,873 |       |
|                                                                                                                                                   |       |      |       |      |       |
| Note Payable to a finance company,Interest at 6.00%, due in  fixed principalmonthly  installments of $56,050 plusinterest; collateralized by equipment |       | 1,849,651 |       | 2,522,252 |       |
|                                                                                                                                                        |            |           |            |           |            |  |  |

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTEE — DEBT — CONTINUED

 
| Note Payable to a finance company,Interest at 5.33%, due in  fixed principalmonthly  installments of $23,740 plusinterest; collateralized by equipment  |   | 783,429    |      | 1,068,312  |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|------------|--------|
|                                                                                                                                                    |   |       |      |       |   |
| Note Payable to a commercial bank,Interest at 6.00%, due in  fixed principalmonthly  installments of $88,889 plusinterest; collateralized by equipment  |   | 1,688,887  |      | 2,755,555  |   |
|                                                                                                                                                    |   |       |      |       |   |
| Note Payable to a commercial bank,Interest at 6.00%, due in  fixed principalmonthly  installments of $55,658 plusinterest; collateralized by equipment  |   | 1,113,172  |      | 1,781,068  |   |
|                                                                                                                                                    |   |       |      |       |   |
| Note Payable to a commercial bank,Interest at 6.35%, due in  monthlyinstallments  of $50,170 including interest;collateralized by equipment             |   | 1,682,254  |      | 2,161,061  |   |
|                                                                                                                                                    |   |       |      |       |   |
| Note payable to a finance companyinterest at 5.50% to 6.20%,  due in monthlyinstallments  of $228,464 to $227,181 includinginterest                     |   | 158,567    |      | 227,181    |   |
|                                                                                                                                                    |   |       |      |       |   |
| Note Payable to a commercial bank,Interest at 6.14%, due in  fixed principalmonthly  installments of $102,033 plusinterest; collateralized by equipment |   | 1,186,578  |      | —     |   |
|                                                                                                                                                    |   |       |      |       |   |
| Note Payable to a finance company,Interest at 6.25%, due in  fixed principalmonthly  installments of $8,921 plusinterest                                |   | 86,705     |      | —     |   |
|                                                                                                                                                    |   | 12,283,282 |      | 16,023,493 |   |
| Less Current Maturities                                                                                                                                 |   | (6,407,892 | )         | (5,171,872 | )      |
|                                                                                                                                                    |   | $          | 5,875,390 |       | $      | 10,851,621 |   |
|                                                                                                                                                         |        |            |           |            |        |  |  |

 

Aggregate annualmaturities of notes payable at December 31, 2009 are as follows:

 
| **Year Ending**       | ** ** | ** ** | ** ** |
|-----------------------|------------|------------|------------|
| **December 31,** | ** ** | ** ** | ** ** |
|                  |       |       |       |
| 2010                  |       | $          | 6,407,892  |   |
| 2011                  |       | 4,342,315  |       |
| 2012                  |       | 1,482,831  |       |
| 2013                  |       | 50,244     |       |
|                  |       | $          | 12,283,282 |   |

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE F — LEASES

 

Capital Lease Obligations

 

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, 2009.

 
| **Year Ending**                         | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|------------|------------|
| **December 31,**                   | ** ** | ** ** | ** ** |
|                                    |       |       |       |
| 2010                                    |       | $          | 872,772    |   |
| 2011                                    |       | 550,994    |       |
| 2012                                    |       | 119,412    |       |
| Total minimum lease payments required   |       | 1,543,178  |       |
| Less: Amount representing interest      |       | (130,895   | )          |
| Present value of minimum lease payments |       | 1,412,283  |       |
| Less current maturities                 |       | (780,526   | )          |
|                                    |       | $          | 631,757    |   |

 

The net book valueof the capital assets leased was approximately $1,928,000 and $2,265,000 as of December 31,2009 and 2008, respectively. Total accumulated depreciation on these assets wasapproximately $5,435,000 and $5,286,000 as of December 31, 2009, and 2008,respectively.  Interest rates on theseleases range from 8.41% to 12.82%.

 

Operating Lease Obligations

 

The Company leasessix offices and two warehouse facilities under operating leases that expire atvarious dates between January 2010 and July 2015 with three leases ona month to month basis.  One of theoffice facilities, used by the Company as its corporate headquarters, islocated in Plano, Texas.  One of theoffice facilities, used by Eagle Canada, is located in Calgary, Alberta. Thewarehouse facilities, used as warehouse and equipment repair facilities, arelocated in Denison, Texas, and Calgary, Alberta.  Two office facilities are used as salesoffices and are located in Houston, Texas, and Oklahoma City, Oklahoma.  The remaining office facilities are used as apermitting office,  located in Pratt,Kansas, and as a crew office, located in Yazoo, Mississippi.  Rent expense for these facilities for theyears ended December 31, 2009, 2008, and 2007 were approximately $450,000,$350,000, and $279,000,  respectively.

 

The following is aschedule by years of future minimum rental payments required under theoperating leases as of December 31, 2009:

 
| 2010                            |   | $       | 550,378   |   |
|---------------------------------|--------|---------|-----------|--------|
| 2011                            |   | 576,544 |      |
| 2012                            |   | 432,310 |      |
| 2013                            |   | 390,464 |      |
| 2014 and thereafter             |   | 269,726 |      |
| Total minimum payments required |   | $       | 2,219,422 |   |

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

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 carryingvalue and fair value of these instruments is as follows:

 
| ** **     | ** ** | **December 31,** | ** ** |
|----------------|------------|-----------------------|------------|
| ** **     | ** ** | **2009**              | ** ** | **2008** | ** ** |
|           |       |                  |       |   |   |
| Carrying value |       | $                     | 12,283,282 |   | $ | 16,023,493 |   |
| Fair value     |       | $                     | 12,277,811 |   | $ | 16,014,545 |   |

 

NOTE H — SHAREHOLDERS’ EQUITY

 

Earnings Per Share

 

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

 
| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2009**              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                               |       |                  |       |   |   |   |   |
| Numerator:                                         |       |                  |       |   |   |   |   |
| Net income                                         |       | $                     | 1,879,619  |   | $ | 6,898,442 |   | $ | 7,607,433 |   |
|                                               |       |                  |       |   |   |   |   |
| Denominator:                                       |       |                  |       |   |   |   |   |
| Basic - weighted average common shares outstanding |       | 18,280,318            |       | 18,260,110 |   | 18,236,718 |   |
| Effect of Dilutive  Securities:                    |       |                  |       |   |   |   |   |
| Warrants                                           |       | —                |       | — |   | 23,765 |   |
| Stock options                                      |       | 63,723                |       | 77,074 |   | 64,938 |   |
|                                               |       | 18,344,041            |       | 18,337,184 |   | 18,325,421 |   |
|                                               |       |                  |       |   |   |   |   |
| Basic net income per share                         |       | $                     | 0.10       |   | $ | 0.38 |   | $ | 0.42 |   |
| Diluted net income per  share                      |       | $                     | 0.10       |   | $ | 0.38 |   | $ | 0.42 |   |

 

Outstandingoptions that were not included in the diluted calculation because their effectwould be anti-dilutive total 282,265 and 52,330 for the years ended December 31,2009 and 2008, respectively.

 

All share and pershare amounts have been adjusted to reflect 5% stock dividends paid May 12,2009, April 28, 2008, and April 27, 2007 to shareholders of record asof April 28, 2009, April 14, 2008, and April 13, 2007.

 

Stock-Based CompensationPlans

 

The Companycurrently has in effect a 1999 stock option plan (the “1999 Plan”).  Options for up to 300,000 shares of theCompany’s common stock may be granted. Options under the 1999 Plan must begranted at prices not less than the lesser of the par value per share of thestock or the fair market value per share of the Company’s stock on the date ofthe grant.  The term cannot exceed fiveyears from 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 2009, no options weregranted or cancelled, and options covering 13,892 shares were exercised underthe 1999 Plan.  At December 31,2009, options covering 80,050 shares were outstanding under the 1999 Plan, allof which are exercisable.

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE H - SHAREHOLDERS’ EQUITY — CONTINUED

 

The Company currently has in effect a 2006 stock award plan (the “2006Plan”).  The 2006 Plan provides for thegranting of stock options, common stock, and restricted stock.  The Company can issue up to 1,000,000 sharesof the Company’s common stock pursuant to awards under the 2006 Plan. The 2006Plan will be administered by a committee of the Board of Directors (“theCommittee”).  Currently the Committee iscomprised of three directors.  Any stockoptions granted under the 2006 Plan will be exercisable as set forth in the optionagreements pursuant to which they are issued, but in no event will stockoptions be exercisable after the expiration of five (5) years from thedate of grant.  During 2009, 229,935options were granted and 20,000 options were cancelled or exercised under the2006 Plan.  During 2008, 466,560 optionswere granted and no options were cancelled or exercised under the 2006Plan.  Restricted stock consists ofshares that are transferred by the Company to a participant, but are subject tosubstantial risk of forfeiture and to restrictions on their sale or othertransfer by the participant.  In April of2006, the Committee granted 111,711 shares of restricted stock.  In August of 2007, the Committee granted19,845 shares of restricted stock.  In June of2008, the Committee granted 10,500 shares of restricted stock.  In June of 2009, the Committee granted5,000 shares of restricted stock.  Theshares of restricted stock were issued in the names of the grantees and haverestrictive legends prohibiting their sales prior to vesting.  One-third (1/3) of the granted restrictedshares vest each year on theannual anniversary of the grant.  Uponvesting, a new certificate will be issued for the vested portion without therestrictive legend.  During the yearsended December 31, 2009, 2008, and 2007, the Company recognizedcompensation expense associated with the restricted stock of $182,812,$411,113, and $380,261, respectively.  Asa result of employees who left the Company during the years ended December 31,2009, 2008, and 2007, the Company reversed approximately $4,000, $19,400, and$29,800, respectively, of deferred stock-based compensation and approximately$4,000, $19,300, and $29,700, respectively, of additional paid-in capital,which represented the unamortized balance of deferred stock-based compensationrelating to the employees who left the Company. The number of shares of restricted stock issued in April of 2006has been adjusted to reflect the 5% stock dividends paid in May of2009,  April of 2008 and April of2007.  The number of shares of restrictedstock issued in August of 2007, has been adjusted to reflect the 5% stockdividend paid in May of 2009 and April of 2008.  The number of shares of restricted stockissued in June of 2008 has been adjusted to reflect the 5% stock dividendpaid in May of 2009.

 

During the yearsended December 31, 2009, 2008, and 2007, the Company recognizedcompensation expense associated with unvested options under the 1999 and 2006Plans of $179,918, $43,959, and $49,854, respectively.

 

The followingtable summarizes activity under the Plans:

 
| ** **                        | ** ** | **Shares under  Option** | ** ** | **Weighted  Average  exercise price** | ** ** |
|-----------------------------------|------------|--------------------------|------------|---------------------------------------|------------|
|                              |       |                     |       |                                  |       |
| Balance at December 31, 2006 |       | 137,592                  |       | $                                     | 2.94       |   |
| Granted                           |       | 52,330                   |       | $                                     | 8.80       |   |
| Exercised                         |       | (39,015                  | )          | $                                     | .75        |   |
| Canceled                          |       | —                   |       | $                                     | —     |   |
| Balance at December 31, 2007 |       | 150,907                  |       | $                                     | 5.54       |   |
| Granted                           |       | 466,560                  |       | 3.23                                  |       |
| Exercised                         |       | (4,631                   | )          | $                                     | .69        |   |
| Canceled                          |       | —                   |       | —                                |       |
| Balance at December 31, 2008 |       | 612,836                  |       | $                                     | 3.81       |   |
| Granted                           |       | 229,935                  |       | $                                     | 4.21       |   |
| Exercised                         |       | (13,892                  | )          | $                                     | .69        |   |
| Canceled                          |       | (20,000                  | )          | 3.37                                  |       |
| Balance at December 31, 2009 |       | 808,879                  |       | $                                     | 3.99       |   |

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE H - SHAREHOLDERS’ EQUITY — CONTINUED

 

The followinginformation applies to options outstanding and exercisable at December 31,2009:

 
| ** **          | ** ** | ** **               | ** ** | ** **      | ** ** | **Weighted  average  remaining** | ** ** | **Weighted**            | ** ** |
|---------------------|------------|--------------------------|------------|-----------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **          | ** ** | **Range of**        | ** ** | **Number**      | ** ** | **contractual**                  | ** ** | **average**             | ** ** |
| ** **          | ** ** | **Exercise prices** | ** ** | **outstanding** | ** ** | **life (in years)**    | ** ** | **exercise price** | ** ** |
| Outstanding options |       | $3.21 – $8.80       |       | 808,879         |       | 3.72                             |       | $                       | 3.99       |   |
| Exercisable options |       | $3.21 – $8.80       |       | 405,914         |       | 3.14                             |       | $                       | 4.30       |   |

 

Stock Warrants

 

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 expired December 15,2007.  During January of 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 of2007.  The number of warrants issued in2004 have been adjusted to reflect the 5% stock dividends paid in April 2006and 2007, respectively.

 

NOTE I - INCOME TAXES

 

Theincome tax provision charged to continuing operations for the years ended December 31,2009, 2008, and 2007, was as follows:

 
| ** **        | ** ** | **2009**  | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|-------------------|------------|-----------|------------|-----------|------------|-----------|------------|
|              |       |      |       |      |       |      |       |
| Current:          |       |      |       |      |       |      |       |
| U.S.  federal     |       | $         | 774,429    |      | $          | 243,569   |       | $ | 3,565,519 |   |
| Foreign           |       | 142,358   |       | —    |       | —    |       |
| State  and local  |       | 373,151   |       | 366,000   |       | 542,677   |       |
|              |       | 1,289,938 |       | 609,569   |       | 4,108,196 |       |
|              |       |      |       |      |       |      |       |
| Deferred  expense |       | 717,873   |       | 4,017,000 |       | 1,021,969 |       |
|              |       | $         | 2,007,811  |      | $          | 4,626,569 |       | $ | 5,130,165 |   |

 

Theincome tax provision differs from the amount of income tax determined byapplying the applicable U.S. and Canadian federal income tax rates to pretaxincome from continuing operations for the year ended December 31, 2009,and applying the U.S. federal income tax rates to pretax income from continuingoperations for the years ended December 31, 2008, and 2007, due to thefollowing:

 
| ** **                                          | ** ** | **2009** | ** ** | **2008** | ** ** | **2007**  | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|
| Computed  “expected” tax expense          |       | $        | 1,321,726  |     | $          | 3,918,504 |       | $ | 4,325,859 |   |
| Increase  in income taxes resulting from:           |       |     |       |     |       |      |       |
| Nondeductible  expenses and other                   |       | 407,168  |       | 470,165  |       | 451,566   |       |
| State and  local taxes, net of federal benefit |       | 278,917  |       | 237,900  |       | 352,740   |       |
|                                                |       | $        | 2,007,811  |     | $          | 4,626,569 |       | $ | 5,130,165 |   |

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE I - INCOME TAXES —CONTINUED

 

Netdeferred tax liabilities consist of the following components as of December 31,2009 and 2008:

 
| ** **                            | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|
| Deferred  tax assets                  |       |       |       |       |       |
| Foreign  tax credits                  |       | $          | 144,626    |       | $          | — |   |
| Foreign  capital losses               |       | 399,907    |       | —     |       |
| Loss  carry forwards (expire in 2028) |       | —     |       | 83,252     |       |
| Deferred  stock compensation          |       | 11,491     |       | 173,511    |       |
| Total  gross deferred tax assets      |       | 556,024    |       | 256,763    |       |
| Less  valuation allowance             |       | (399,907   | )          | —     |       |
| Total  deferred tax assets            |       | 156,117    |       | —     |       |
|                                  |       |       |       |       |       |
| Deferred  tax liability               |       |       |       |       |       |
| Property  and equipment               |       | (7,273,147 | )          | (6,229,763 | )          |
| Total  deferred tax liabilities       |       | $          | (7,117,030 | )          | $          | (5,973,000 | ) |

 

Thecomponents giving rise to the net deferred tax items described above have beenincluded in the accompanying balance sheets as of December 31, 2009 and2008, as follows:

 
| ** **                | ** ** | **2009**  | ** ** | **2008**  | ** ** |
|---------------------------|------------|-----------|------------|-----------|------------|
|                      |       |      |       |      |       |
| Current  assets           |       | $         | —     |      | $          | — |   |
| Noncurrent  (liabilities) |       | 7,117,030 |       | 5,973,000 | )          |
|                      |       | $         | 7,117,030  |      | $          | 5,973,000 |   |

 

TheCompany adopted Topic 740 on January 1, 2007.  The implementation ofTopic 740 did not have a material impact on the Company’s consolidatedfinancial statements, results of operations, or cash flows.  At December 31,2009 and 2008, the Company had no unrecognized tax benefits, interest orpenalties within its provision for income taxes.

 

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 the 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 $16,000, $78,000, and $64,000 forthe years ended December 31, 2009, 2008, and 2007, respectively.

 

NOTE K - CONCENTRATION OF CREDIT RISK

 

The Company sellsits geophysical services primarily to large independent oil and gas companiesoperating in the U.S. and Canada.  TheCompany performs ongoing credit evaluations of its customer’s financialcondition and, generally, requires no collateral from its customers.

 

During 2009 ourlargest customer accounted for approximately 30.8% of revenues.  During 2008 our two largest customersaccounted for approximately 26.7% of revenues. During 2007 our largest customer accounted for approximately 12.1% ofrevenues.  As of December 31, 2009,three customers accounted for 19%, 19%, and 12% of outstanding accountsreceivable, respectively.  As of December 31,2008, two customers accounted for 26% and 13% of outstanding accountsreceivable, respectively.  During 2009our two largest vendors accounted for approximately 22% and 10% of ourpurchases.  No vendor represented over10% of purchases in 2008 or 2007.

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

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— QUARTERLY FINANCIAL DATA — (UNAUDITED)

 

Thefollowing is a summary of the unaudited quarterly financial information for thetwo years ended December 31, 2009 and 2008 (in thousands, except per shareamounts):

 
| ** **                         | ** ** | **Three Months Ended** | ** ** |
|------------------------------------|------------|------------------------|------------|
| **2009**                           | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|                               |       |                   |       |   |   |   |   |   |   |
| Revenues                           |       | $                      | 36,011     |   | $ | 22,591 |   | $ | 16,083 |   | $ | 15,747 |   |
| Income  (loss) from operations     |       | 8,793                  |       | 2,424 |   | (2,481 | ) | (3,828 | ) |
| Net  Income (loss)                 |       | 5,035                  |       | 1,242 |   | (1,734 | ) | (2,663 | ) |
| Net  income (loss) per share basic |       | .27                    |       | .07 |   | (.09 | ) | (.15 | ) |
| Net  income per share diluted      |       | .27                    |       | .07 |   | (.09 | ) | (.15 | ) |
|                                    |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------|------------|------------------------|------------|
| **2008**                      | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
|                          |       |                   |       |   |   |   |   |   |   |
| Revenues                      |       | $                      | 22,471     |   | $ | 18,620 |   | $ | 21,554 |   | $ | 24,125 |   |
| Income  from operations       |       | 3,384                  |       | 1,679 |   | 3,603 |   | 3,788 |   |
| Net  Income                   |       | 1,983                  |       | 868 |   | 1,863 |   | 2,185 |   |
| Net  income per share basic   |       | .11                    |       | .05 |   | .10 |   | .12 |   |
| Net  income per share diluted |       | .11                    |       | .05 |   | .10 |   | .12 |   |
|                               |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

NOTE N— ACQUISITION OF EAGLE CANADA SUPPLEMENTARY DATA — (UNAUDITED)

 

On October 19, 2009, we disclosed our entryinto a Material Definitive Agreement regarding the acquisition of the stock ofEagle Canada, Inc. (“Eagle Canada”), a Delaware corporation.  Eagle Canada was a wholly-owned subsidiary ofEagle Geophysical, Inc. and Eagle Geophysical Onshore, Inc. (the “*Debtors*”) which were debtors in a Chapter 11 bankruptcyproceeding in Houston, Texas.  Eagle Canada is in the business ofproviding seismic data and surveying services to the Canadian energy industryand has its principal place of business located in Calgary, Alberta,Canada.  By Order dated October 14, 2009, the Bankruptcy Courtapproved the sale of the Eagle Canada stock by the Debtors to TGC andauthorized the Debtors to enter into a Stock Purchase Agreement with TGC. In accordance with the terms of the Stock Purchase Agreement, the saletransaction closed on October 16, 2009, with TGC acquiring the EagleCanada stock for a total purchase price of approximately $10.3 million paidfrom existing cash.  The acquisitionprovides the Company with a new geographic region in which to operate.  The seismic recording equipment used by EagleCanada is interchangeable with that of TGC. The amounts of Eagle Canada’s revenue and earnings included in ourconsolidated statement of income for the year ended December 31, 2009, andthe unaudited revenue and earnings of the combined entity had the acquisitiondate been January 1, 2009, or January 1, 2008, are as follows:

 

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TGC Industries, Inc.

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

December 31, 2009,2008, and 2007

 

NOTE N- ACQUISITION OF EAGLE CANADA SUPPLEMENTARY DATA - (UNAUDITED) — CONTINUED

 
| ** **                                     | ** ** | **Revenue** | ** **  | **Earnings** | ** ** |
|------------------------------------------------|------------|-------------|-------------|--------------|------------|
|                                           |       |        |        |         |       |
| Actual from 10/15/09 to 12/31/09               |       | $           | 4,783,892   |         | $          | 381,366 |   |
|                                           |       |        |        |         |       |
| Supplemental pro forma from 1/1/09 to 12/31/09 |       | $           | 103,539,881 |         | $          | 1,584,565 |   |
|                                           |       |        |        |         |       |
| Supplemental pro forma from 1/1/08 to 12/31/08 |       | $           | 113,762,636 |         | $          | 8,270,624 |   |

 

NOTE O — COMMITMENTS AND CONTINGENCIES

 

Inconnection with our acquisition of Eagle Canada as discussed in Item 1 and NoteN to the consolidated financial statements, TGC is seeking damages againstEagle Geophysical, Inc. and Eagle Geophysical Onshore, Inc. (the “Debtors”)arising out of their failure to disclose material information in connectionwith the sale of Eagle Canada.  Duringthe due diligence process, and in the purchase agreement, the Debtors madecertain representations and warranties to TGC concerning Eagle Canada’s financialcondition and debt obligations including guarantee obligations.  Soon after the sale closing, TGC discoveredthat the Debtors did not disclose a material guarantee obligation purportedlyincurred by Eagle Canada as part of a secured loan Eagle Geophysical obtainedfrom SunTrust Equipment Finance and Leasing Corp. with an outstanding balanceof approximately $731,000.  TGC notifiedthe Debtors that their failure to disclose the existence of the guaranteeconstitutes a breach of the purchase agreement and demanded, and Debtorscomplied, that the Debtors escrow $800,000 in a segregated account pendingresolution of Eagle Canada’s liability, if any, under the guarantee and thedetermination and resolution of any other guarantee to which Eagle Canada is aparty.  The Company intends to vigorouslypursue this matter.

** **

**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 and procedures(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.  As discussed in Item 1 and in Note N to theconsolidated financial statements above, during October 2009 the companyacquired all of the stock of Eagle Canada. Because the acquisition occurred in 2009, management has elected toexclude Eagle Canada from management’s report on internal control overfinancial reporting.  Revenue of$4,783,892 and earnings of $381,366 attributable to Eagle Canada for the periodOctober 15, 2009 to December 31, 2009 are included in ourconsolidated statement of earnings for the year ended December 31,2009.  Other than the exclusion of EagleCanada, there were no changes in the Company’s internal controls over financialreporting during the year ended December 31, 2009, that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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**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, as amended.

 

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 andpresentation.

 

Management assessed the effectiveness of the Company’sinternal control over financial reporting as of December 31, 2009.  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, 2009, the Company’s internal control over financialreporting, excluding Eagle Canada as discussed above, is effective based onthose criteria.

 

Management’s assessment of the effectiveness ofinternal control over financial reporting as of December 31, 2009,excluding Eagle Canada as discussed above, has been audited by Lane GormanTrubitt, L.L.P., the independent registered public accounting firm which alsoaudited the Company’s financial statements. Lane Gorman Trubitt, L.L.P.’s attestation report on management’sassessment of the Company’s internal control over financial reporting,excluding Eagle Canada, appears in their Report of Independent RegisteredPublic Accounting Firm.

 

**PART IV**

 

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

 

(a)   Thefollowing documents are filed as a part of this report:

 

(1)          Financial Statements included in Item 8above are filed as part of this annual report.

 

(2)          Financial Statement Schedules included inItem 8 herein:

 

All schedules for which provision is made in the applicable accountingregulations of the Securities and Exchange Commission are not required underthe 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 theIndex to Exhibits accompanying this Annual Report on Form 10-K.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized.

 

 
| ** **              | **TGC  INDUSTRIES, INC.** |
|-------------------------|---------------------------|
|                    |                      |   |
| Date:  May 4, 2010 | By:                       | /s/ Wayne A.  Whitener |
|                    |                      |      Wayne  A. Whitener |
|                    |                      |      President  and Chief Executive Officer |
|                    |                      |      (Principal  Executive Officer) |
|                         |                           |  |  |

 

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**INDEX TO EXHIBITS**

 
| **EXHIBIT  NO.** | ** ** | **DESCRIPTION**                                                                                                                                                                                                                                                                                                                           |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Stock Purchase  Agreement, dated as of October 16, 2009, by and among TGC  Industries, Inc., Eagle Geophysical, Inc. and Eagle Geophysical  Onshore, Inc., filed as Exhibit 2.1 to the Company’s Current Report  on Form 8-K dated October 17, 2009, 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              |       | Amended and Restated  Bylaws (as amended March 25, 2009), filed as Exhibit 3.1 to the  Company’s Current Report on Form 8-K filed on March 31, 2009, and  incorporated herein by reference.                                                                                                                      |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| 4.1              |       | Form of  Specimen Stock Certificate filed as Exhibit 4.1 to the Company’s  Registration Statement on Form SB-2/A on September 20, 2005  (Registration No. 333-128018), and incorporated herein by reference.                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| +10.1            |       | Employment Contract (as  Amended and Restated effective September 11, 2008) between TGC  Industries, Inc. and Wayne A. Whitener, filed as Exhibit 10.1 to  the Company’s Current Report on Form 8-K filed on September 17,  2008, and incorporated herein by reference.                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| 10.2             |       | Form of TGC  Industries, Inc. Director and Officer Indemnification Agreement, filed  as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  on October 22, 2008, 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             |       | Amended and Restated Loan and Security Agreement by and between TGC  Industries, Inc. and Sovereign Bank, dated September 16, 2009, filed as Exhibit 10.1 to the  Company’s Current Report on Form 8-K filed on September 22, 2009,  and incorporated herein by reference.                                  |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| 10.5             |       | Amended and  Restated Promissory Note by and between TGC Industries, Inc. and  Sovereign Bank, dated September 16, 2009, filed as Exhibit 10.2 to  the Company’s Current Report on Form 8-K filed on September 22,  2009, and incorporated herein by reference.                                             |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| 10.6             |       | 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.                                                  |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| 10.7             |       | 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. |
|             |       |                                                                                                                                                                                                                                                                                                                                      |
| 10.8             |       | 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.                                                 |

 

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| 10.9              |   | 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.  |
|-------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                                                                                                                                                                                                        |
| 10.10             |   | 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. |
|              |   |                                                                                                                                                                                                                                                                                                                                        |
| 10.11             |   | 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.                                                |
|              |   |                                                                                                                                                                                                                                                                                                                                        |
| +10.12            |   | 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.                                                                      |
|              |   |                                                                                                                                                                                                                                                                                                                                        |
| +10.13            |   | 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.                                                                                                                       |
|              |   |                                                                                                                                                                                                                                                                                                                                        |
| *23.1   |   | Consent of Lane  Gorman Trubitt, L.L.P.                                                                                                                                                                                                                                                                                                     |
|              |   |                                                                                                                                                                                                                                                                                                                                        |
| *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  Chief 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  Chief Financial 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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