SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-9268
GEOKINETICS INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 94-1690082
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5555 San Felipe, Suite 780 Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Small Business Issuer's telephone number, including area code (713) 850-7600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
On March 31, 1996, there were 4,953,288 shares of Registrant's common stock
($.20 par value) outstanding.
GEOKINETICS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements ............................... 3
Condensed Statements of Financial Position
March 31, 1996 and December 31, 1995 ..... 3
Condensed Statements of Operations
Three Months Ended
March 31, 1996 and 1995 ................... 5
Condensed Statements of Cash Flow
Three Months Ended
March 31, 1996 and 1995 .................. 6
Notes to Interim Financial Statements ............... 7
Item 2. Management's Discussion and
Analysis or Plan of Operation ............. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .................... 10
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
Unaudited (*)
--------------------- ---------------------
<S> <C> <C>
Current Assets:
Cash and short term investments $ 1,081,561 $ 16,905
Receivables 275,650 259,370
Prepaid expenses 34,015 12,775
Oil and gas properties held for resale 654,903 582,202
--------------------- ---------------------
Total Current Assets 2,046,129 871,252
Property and Equipment:
Proved oil and gas Properties (net of depletion) 836,604 876,747
(successful efforts method for oil and gas properties)
Equipment (net of depreciation) 3,673,912 21,093
Buildings (net of depreciation) 128,106 0
Land 23,450 0
--------------------- ---------------------
Total Property and Equipment 4,662,072 897,840
Other Assets:
Deferred tax benefit 800,000 800,000
Deferred charges 80,000 0
Restricted investments 101,339 101,339
--------------------- ---------------------
Total Other Assets 981,339 901,339
--------------------- ---------------------
Total Assets $ 7,689,540 $ 2,670,431
===================== =====================
</TABLE>
3
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
Unaudited (*)
--------------------- ---------------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 554,995 $ 542,510
Accrued liabilities 321,840 198,890
Notes payable 314,000 25,000
Due to officer 101,722 101,722
Advances for lease bank 600,500 600,500
Site restoration costs 26,607 36,185
--------------------- ---------------------
Total Current Liabilities 1,919,664 1,504,807
Long -Term Liabilities:
Long- term debt 5,431,246 420,246
--------------------- ---------------------
Total Liabilities 7,350,910 1,925,053
Stockholders' Equity:
Common stock (15,000,000 shares authorized;
4,953,288 shares issued and outstanding @ 3/31/96 990,657 973,991
and 4,869,955 shares issued and outstanding
@ 12/31/95)
Additional paid in capital 3,924,345 3,815,179
Accumulated deficit (4,576,372) (4,043,792)
--------------------- ---------------------
Total Stockholders' Equity 338,630 745,378
--------------------- ---------------------
Total Liabilities and Stockholders' Equity $ 7,689,540 $ 2,670,431
===================== =====================
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
</TABLE>
4
GEOKINETICS INC.
Condensed Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31
(unaudited)
---------------------------------------------
1996 1995
-------------------- --------------------
<S> <C> <C>
Revenues:
Oil and gas sales $108,349 $117,017
Operating fees 64,327 67,241
Gain on sale of assets 0 182,364
-------------------- --------------------
Total Revenues 172,676 366,622
Expenses:
General and administrative $569,151 $ 457,157
Lease operating expenses 117,099 73,572
Amortization expense 4,983 0
Depletion expense 16,075 25,394
Depreciation expense 673 1,343
-------------------- --------------------
Total Expenses 707,981 557,466
-------------------- --------------------
Loss from operations (535,305) (190,844)
Other Income:
Interest income 2,725 155
-------------------- --------------------
Total Other Income 2,725 155
Income (Loss) before provision
for income tax $(532,580) $(190,689)
Provision for income tax 0 0
-------------------- --------------------
Total income tax 0 0
-------------------- --------------------
Net Income (Loss) $(532,580) $(190,689)
==================== ====================
Earnings (Loss) per share $ (0.11) $ (0.04)
==================== ====================
Weighted average common shares
and equivalents outstanding 4,953,288 4,434,920
==================== ====================
</TABLE>
5
GEOKINETICS INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
(unaudited)
--------------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers 157,037 $160,076
Interest and dividends received 2,337 155
Cash paid to suppliers and employees (568,150) (381,782)
Interest paid (86,438) (21,489)
--------------- ---------------
Net cash provided (used) by operating activities (495,214) (243,040)
--------------- ---------------
Cash flows from investing activities:
Cash proceeds from sale of property 0 323,453
Cash payments for purchase of property and equipment (3,785,963) (174,943)
Cash payment for certificate of deposit 0 (100,000)
--------------- ---------------
Net cash provided (used) by investing activities (3,785,963) 48,510
--------------- ---------------
Cash flows from financing activities:
Advances from lease bank 0 183,000
Proceeds from issuance of common stock 125,833 0
Proceeds from long-term debt 5,220,000 0
--------------- ---------------
Net cash provided (used) by financing activities 5,345,833 183,000
--------------- ---------------
Net increase (decrease) in cash 1,064,656 (11,530)
Cash, beginning of period 16,905 108,204
--------------- ---------------
$
Cash, end of period $1,081,561 96,674
=============== ===============
</TABLE>
6
NOTES TO INTERIM FINANCIAL STATEMENTS
1. METHOD OF PRESENTATION.
The interim financial statements contained herein have been prepared in
accordance with the instructions to Form 10-QSB and include all adjustments
which are, in the opinion of management, necessary to provide a fair statement
of the financial position and results of operations for the interim period
reported. The financial statements are condensed and should be read in
conjunction with the financial statements and related notes included in the
Registrant's Form 10-KSB filed with the Securities and Exchange Commission for
the fiscal year ended December 31, 1995 , as well as the three-month transition
period ended December 31, 1995. A summary of accounting policies and other
significant information is included therein.
2. LIABILITY RELATING TO COMPANY LEASE BANK
The Company's wholly-owned subsidiary, Geokinetics Production Co., Inc.
("Production") has established a revolving credit facility (the "Lease Bank")
that receives cash deposits from private individuals and entities in order to
acquire oil and gas prospects. In exchange for such deposits, Production issues
promissory notes in principal amounts equal to the deposited cash amounts. These
notes bear a floating interest rate, currently at 12.5% per annum for the
quarter ended March 31, 1996, and are guaranteed by the Company. The Company's
liabilities indicated on the interim financial statements reflect the aggregate
principal amounts of the promissory notes payable to the private individuals and
entities that have made cash deposits with the Lease Bank.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(Three Months Ended March 31, 1996)
GENERAL
At March 31, 1996, the Company continues to incur various costs and
expenses related to its efforts to diversify the Company's business activities.
On March 6, 1996, the Company obtained a $5,000,000 loan from an unaffiliated
lender to finance the initial operations of Quantum Geophysical, Inc.
("Quantum"). Quantum was formed as a wholly-owned subsidiary to perform 3-D
seismic data acquisition services for the Company and the energy industry in the
United States. Seismic survey acquisition operations are not expected to
commence before July, 1996. In addition, the Company has continued its efforts
towards developing geoscience technology and software development capabilities.
On April 17, 1996, the Company entered into a Stock Purchase Agreement to
acquire 80% of the outstanding capital stock of Green Mountain Geophysics, Inc.,
a Boulder, Colorado-based manufacturer of specialized software for the petroleum
industry. The financial requirements of the oil and gas business as well as the
start-up costs incurred in diversifying the Company's business activities
continues to require the Company to utilize a substantial portion of its current
assets and incur additional indebtedness in order to acquire additional
operating assets.
LIQUIDITY AND CAPITAL RESOURCES
CLOSING OF $5,000,000 QUANTUM LOAN TRANSACTION
The Company's financial position at March 31, 1996, reflects the
proceeds received by the Company in connection with the $5,000,000 Quantum loan
transaction. Current assets at March 31, 1996, totalled $2,046,129 as compared
with $871,252 at December 31, 1995. Cash and short-term investments at March 31,
1996 totalled $1,081,561 as compared to $16,905 at December 31, 1995. In
addition, the Company's property and equipment at March 31, 1996, totalled
$4,662,072, up from $897,840 at December 31, 1995. A substantial portion of the
Quantum loan proceeds were used to purchase seismic equipment and other
operating assets of Quantum's seismic operations. As a result of the Quantum
loan, the Company's long-term debt increased by approximately $5,000,000 to
$5,431,246 at March 31, 1996.
OIL AND GAS OPERATIONS
The Company (through its subsidiaries, HOC Operating Co., Inc. and
Geokinetics Production Co., Inc.) continues to conduct its oil and gas
operations consisting of acquiring, exploring, exploiting and developing oil and
gas properties. However, the oil and gas industry is a highly capital-intensive
business, especially in the initial stages of development of any venture. The
Company, therefore, requires capital principally to fund the following expenses:
(i) purchases of leases and other interests in oil and gas properties; (ii)
capital expenditures under agreements for
8
geological, geophysical and seismic costs as well as drilling and completion
costs of wells; and (iii) general and administrative expenses. The capital
expenditures required by the Company to establish oil and gas production are
generally incurred prior to the commencement of production revenues. As a
result, the Company expects its oil and gas operations to operate with a working
capital deficiency during fiscal 1996.
RESULTS OF OPERATIONS
During the three months ended March 31, 1996, the Company incurred a
loss from operations of $532,580 compared to a loss of $190,689 during the
comparable period in 1995. This loss is primarily due to increased operating
expenses the Company incurred in connection with (i) the start-up of Quantum's
seismic operations, (ii) the development of the Company's geoscience and
software development capabilities, and (iii) increased expenses in oil and gas
operations. General and administrative expenses during the three-months ended
March 31, 1996, increased to $569,151 compared with $457,157 during the
comparable period in 1995. In addition, lease operating expenses from oil and
gas operations during the three-months ended March 31, 1996, totalled $117,099,
an approximate 59% increase of such expenses during the comparable period in
1995. This increase was primarily due to unscheduled well recompletions and
workovers. Finally, the Company did not realize any revenues during the first
quarter of 1996 from the sales of oil and gas prospects; corresponding revenues
from the sale of oil and gas prospects during the first quarter of 1995 were
$182,364.
DEFERRED TAX BENEFIT
The Company is reporting an $800,000 asset relating to deferred tax
benefits as a result of the closing of the Quantum loan and the expected
commencement of Quantum's operations. This asset consists primarily of
differences in reporting Quantum's pre-operating costs and the amortization of
the Company's net operating losses. The value of such deferred tax benefits
reflects the amount that the Company believes to be realizable at this time. As
Quantum's operations commence and additional revenues are generated, the company
will review its valuation of deferred tax benefits and make adjustments when
necessary.
GEOSCIENCE OPERATIONS AND PRIVATE PLACEMENT
On April 17, 1996, the Company entered into a definitive agreement with
respect to the acquisition of Green Mountain Geophysics, Inc. In order to
finance this acquisition, the Company intends to conduct a private placement of
approximately $4,000,000 - $5,000,000 in equity and debt securities (the "Green
Mountain Private Placement"). Closing of the Green Mountain acquisition is
expected to occur in June 1996, but is subject to a number of conditions,
including the completion of the Green Mountain Private Placement. Completion of
the Green Mountain Private Placement will have a substantial effect on the
Company's financial position during fiscal 1996 and beyond.
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No Exhibits Required
(b) Reports on Form 8-K
There were no Form 8-K Reports filed during the quarter ended
March 31, 1996.
10
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEOKINETICS INC.
(Registrant)
Date: March 14, 1996 By: /s/ JAY D. HABER
Jay D. Haber
PRESIDENT
By: /s/ PAUL MILES
Paul Miles
CONTROLLER
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FIRST QUARTER REPORT ON FORM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,081,561
<SECURITIES> 101,339
<RECEIVABLES> 275,650
<ALLOWANCES> 0
<INVENTORY> 654,903
<CURRENT-ASSETS> 2,046,129
<PP&E> 4,662,072
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,689,540
<CURRENT-LIABILITIES> 1,919,664
<BONDS> 0
0
0
<COMMON> 990,657
<OTHER-SE> (652,027)
<TOTAL-LIABILITY-AND-EQUITY> 7,689,540
<SALES> 0
<TOTAL-REVENUES> 175,401
<CGS> 0
<TOTAL-COSTS> 707,981
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (532,580)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (532,580)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.08)
</TABLE>
