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 JUNE 30, 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
incorporation or organization) Identification Number)
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 June 30, 1996, there were 4,953,288 shares of Registrant's common stock ($.20
par value) outstanding.
<PAGE>
GEOKINETICS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Financial Position
June 30, 1996 and December 31, 1995 . . . . . . 3
Condensed Statements of Operations
Three Months and Six Months Ended
June 30, 1996 and 1995. . . 5
Condensed Statements of Cash Flow
Three Months Ended
June 30, 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
<TABLE>
<CAPTION>
ASSETS
June 30 December 31
1996 1995
Unaudited (*)
------------------ -----------------
<S> <C> <C>
Current Assets:
Cash and short term investments $ 527,064 $ 16,905
Certificate of Deposit-Restricted 100,000 0
Receivables 258,789 259,370
Prepaid expenses 76,620 12,775
Oil and gas properties held for resale 658,903 582,202
------------------ -----------------
Total Current Assets 1,621,376 871,252
Property and Equipment:
Proved oil and gas Properties (net of depletion) 813,652 876,747
(successful efforts method for oil and gas
properties)
Equipment (net of depreciation) 3,802,348 21,093
Buildings (net of depreciation) 128,106 0
Land 23,450 0
------------------ -----------------
Total Property and Equipment 4,767,556 897,840
Other Assets:
Deferred tax benefit 800,000 800,000
Deferred charges 77,221 0
Escrow-property investment 100,000 0
Restricted investments 101,339 101,339
------------------ -----------------
Total Other Assets 1,078,560 901,339
------------------ -----------------
Total Assets $ 7,467,492 $ 2,670,431
================== =================
</TABLE>
3
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30 December 31
1996 1995
Unaudited (*)
------------------ -----------------
<S> <C> <C>
Current Liabilities:
Accounts payable $ 688,546 $ 542,510
Accrued liabilities 299,909 198,890
Notes payable 714,000 25,000
Due to officer 101,722 101,722
Advances for lease bank 600,500 600,500
Site restoration costs 6,418 36,185
------------------ -----------------
Total Current Liabilities 2,411,095 1,504,807
Long -Term Liabilities:
Long- term debt 5,055,742 420,246
------------------ -----------------
Total Liabilities 7,466,837 1,925,053
Stockholders' Equity:
Common stock (15,000,000 shares authorized;
4,953,288 shares issued and outstanding @
6/30/96 990,657 973,991
and 4,869,955 shares issued and outstanding
@ 12/31/95)
Additional paid in capital 3,924,345 3,815,179
Accumulated deficit (4,914,347) (4,043,792)
------------------ -----------------
Total Stockholders' Equity 655 745,378
------------------ -----------------
Total Liabilities and Stockholders' Equity $ 7,467,492 $ 2,670,431
================== =================
</TABLE>
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
4
GEOKINETICS INC.
Condensed Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(unaudited) (unaudited)
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 148,236 $ 83,421 $ 256,585 $ 200,438
Operating fees 67,490 74,072 131,817 141,312
Gain on sale of assets 0 0 0 178,619
------------ ------------ ------------ -------------
Total Revenues 215,726 157,493 388,402 520,369
Expenses:
General and administrative $ 493,398 $ 325,357 $ 1,062,549 $ 782,515
Lease operating expenses 43,274 140,976 160,373 214,548
Amortization expense 4,983 14,948 9,996 14,948
Depletion expense 17,297 21,116 33,372 46,510
Depreciation expense 673 673 1,346 2,685
------------ ------------ ------------ -------------
Total Expenses 559,625 503,740 1,267,606 1,061,206
------------ ------------ ------------ -------------
Loss from operations $ (343,899) $ (346,247) $ (879,204) $ (540,837)
Other Income:
Interest income 5,924 0 8,649 3,900
------------ ------------ ------------ -------------
Total Other Income 5,924 0 8,649 3,900
Income (Loss) before provision
for income tax $ (337,975) $(346,247) $ (870,555) $ (536,937)
Provision for income tax 0 0 0 0
------------ ------------ ------------ -------------
Total income tax 0 0 0 0
------------ ------------ ------------ -------------
Net Income (Loss) $ (337,975) $ (346,247) $ (870,555) $ (536,937)
============ ============ ============ =============
Earnings (Loss) per share $ (0.07) $ (0.08) $ (0.18) $ (0.12)
============ ============ ============ =============
Weighted average common shares
and equivalents outstanding 4,953,288 4,434,920 4,953,288 4,434,920
============ ============ ============ =============
</TABLE>
5
GEOKINETICS INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
June 30
(unaudited)
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 389,236 $ 114,436
Interest and dividends received 8,649 0
Cash paid to suppliers and employees (896,921) (219,141)
Interest paid (246,735) (20,423)
------------ ------------
Net cash provided (used) by operating activities (745,771) (125,128)
------------ ------------
Cash flows from investing activities:
Cash payments for purchase of property and equipment (3,914,399) 0
Cash payment for certificate of deposit (100,000) 0
Cash payment for escrow deposit-property investment (100,000) 0
------------ ------------
Net cash provided (used) by investing activities (4,114,399) 0
------------ ------------
Cash flows from financing activities:
Advances from lease bank 0 19,167
Proceeds from issuance of common stock 125,833 0
Proceeds from long-term debt 4,920,000 0
Proceeds from short term debt 400,000 25,000
Principal payments on long-term debt (75,504) 0
------------ ------------
Net cash provided (used) by financing activities 5,370,329 44,167
------------ ------------
Net increase (decrease) in cash 510,159 (80,961)
Cash, beginning of period 16,905 96,674
------------ ------------
Cash, end of period $ 527, 064 $ 15,713
============ ============
</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 June 30, 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.
3. NOTES PAYABLE
The Company's notes payable currently of $714,000 reflect, in part, (i)
the current (i.e., one year) maturities, totaling $289,000, in connection with
the Quantum loan, (ii) that certain promissory note payable to Input/Output,
Inc., dated January 8, 1996, in the principal amount of $300,000 representing
indebtedness incurred by the Company incident to its geophysical operations, and
(iii) a certain $100,000 loan from an unaffiliated lender to finance an escrow
deposit made by the Company incident to the proposed acquisition of Green
Mountain Geophysics, Inc.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(Six Months Ended June 30, 1996)
GENERAL
At June 30, 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 energy industry in the United States.
Seismic survey operations are not expected to commence before September 1996. In
addition, the Company has continued its efforts towards developing geoscience
technology and software development capabilities. The Company is currently
negotiating the acquisition of 80% 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 continue to require the Company to utilize a
substantial portion of its current assets and incur additional indebtedness in
order to acquire additional operating assets. As a result, the Company expects
that it will be required to raise substantial additional funds during the
remainder of fiscal 1996 from the sale of equity and/or debt securities in order
to finance the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
CLOSING OF $5,000,000 QUANTUM LOAN
The Company's financial position at June 30, 1996 substantially reflects
the proceeds received by the Company in connection with the $5,000,000 Quantum
loan and the Company's use of such proceeds. Current assets at June 30, 1996,
totaled $1,621,376 as compared with $871,252 at December 31, 1995. Cash and
short-term investments at June 30, 1996 totaled $527,064 as compared to $16,905
at December 31, 1995. Of this amount, $513,108, reflects the proceeds from the
Quantum loan that is restricted for use in Quantum's seismic operations and is,
therefore, not available to meet the Company's working capital needs.. In
addition, the Company's property and equipment at June 30, 1996, totaled
$4,767,556, up from $897,840 at December 31, 1995. As a result of the Quantum
loan, the Company's long-term debt increased by approximately $5,000,000 to
$5,055,742 at June 30, 1996.
8
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 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 June 30, 1996, the Company incurred a loss
from operations of $343,899 compared to a loss of $346,247 during the comparable
period in 1995. This loss is primarily due to operating expenses the Company
incurred in connection with (i) the development of the Company's geoscience and
software development capabilities, and (ii) expenses in oil and gas operations.
General and administrative expenses during the three-months ended June 30, 1996,
increased to $493,398 compared with $325,357 during the comparable period in
1995. In addition, lease operating expenses from oil and gas operations during
the three-months ended June 30, 1996, totaled $43,274, an approximate 70%
decrease of such expenses during the comparable period in 1995.
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
The Company is continuing to negotiate the acquisition of 80% of the
capital stock 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 August 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
June 30, 1996.
10
SIGNATURE
ursuant 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: August 14, 1996 ___________________________
Jay D. Haber
PRESIDENT
---------------------------
Paul Miles
CONTROLLER
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 527,064
<SECURITIES> 201,339
<RECEIVABLES> 258,789
<ALLOWANCES> 0
<INVENTORY> 658,903
<CURRENT-ASSETS> 1,621,376
<PP&E> 4,767,556
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,467,492
<CURRENT-LIABILITIES> 2,411,095
<BONDS> 0
0
0
<COMMON> 990,657
<OTHER-SE> (990,002)
<TOTAL-LIABILITY-AND-EQUITY> 7,467,492
<SALES> 0
<TOTAL-REVENUES> 221,650
<CGS> 0
<TOTAL-COSTS> 559,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (337,975)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (337,975)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.05)
</TABLE>
