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 SEPTEMBER 30, 1997
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
incorporation or organization) 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 September 30, 1997, there were 10,860,788 shares of Registrant's common stock
($.20 par value) outstanding.
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GEOKINETICS INC.
INDEX
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Financial Position
September 30, 1997 and December 31, 1996
Condensed Statements of Operations
Three Months and Nine Months Ended
September 30, 1997 and 1996
Condensed Statements of Cash Flows
Three Months Ended
September 30, 1997 and 1996
Notes to Interim Financial Statements
Pro Forma Financial Statement Information
Item 2. Management's Discussion and
Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
September 30 December 31
1997 1996
Unaudited (*)
--------------- --------------
Current Assets:
Cash ........................................ $ 1,739,395 $ 97,905
Cash-Restricted .............................. 268,762 316,030
Receivables .................................. 2,067,992 199,150
Prepaid expenses ............................ 91,946 13,347
Oil and gas properties held for resale ..... 417,072 597,822
----------- ----------
Total Current Assets .................... 4,585,167 1,224,254
Property and Equipment:
Proved oil and gas Properties (net of
depletion) ...................................... 593,234 637,028
(successful efforts method for oil and
gas properties)
Equipment (net of depreciation) ............. 16,842,221 2,938,598
Buildings (net of depreciation) ............. 128,106 128,106
Land ........................................ 23,450 23,450
----------- ----------
Total Property and Equipment ........... 17,587,011 3,727,182
Other Assets:
Deferred tax benefit ........................ 2,292,430 1,620,000
Deferred charges ............................ 71,130 76,317
Restricted investments ...................... 21,700 21,700
Deposits on software and equipment .......... 4,146 180,357
Goodwill .................................... 2,103,538 154,466
----------- ----------
Total Other Assets ...................... 4,492,944 2,052,840
----------- ----------
Total Assets ........................ $26,665,122 $7,004,276
=========== ==========
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30 December 31
1997 1996
Unaudited (*)
--------------- --------------
Current Liabilities:
Current maturities on long-term debt ........ $ 3,645,823 $ 331,825
Accounts payable - trade .................... 1,492,220 721,535
Accrued liabilities ......................... 780,584 434,526
Notes payable ............................... 725,713 1,028,733
Customer deposit ............................ 0 10,000
Due to officers ............................. 92,042 152,223
Due to shareholders ......................... 34,457 0
Advances for lease bank ..................... 260,500 360,500
Site restoration costs payable .............. 6,418 6,418
------------ -----------
Total Current Liabilities ............... 7,037,757 3,045,760
Long -Term Liabilities:
Long- term debt ............................. 13,447,826 4,860,123
------------ -----------
Total Liabilities ...................... 20,485,583 7,905,883
Stockholders' Equity:
Preferred Stock (287,500 shares issued) ..... 2,875,000 0
Common stock (15,000,000 shares authorized;
10,860,788 shares issued and outstanding
@ 9/30/97 and 4,953,288 shares issued
and outstanding @ 12/31/96)............... 2,178,227 990,657
Additional paid in capital .................. 7,867,735 3,924,345
Accumulated deficit ......................... (6,741,423) (5,816,609)
------------ -----------
Total Stockholders' Equity .............. 6,179,539 (901,607)
------------ -----------
Total Liabilities and
Stockholders' Equity ............................ $ 26,665,122 $ 7,004,276
============ ===========
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
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GEOKINETICS INC.
Condensed Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(unaudited) (unaudited)
----------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ----------- ------------
Revenues:
<S> <C> <C> <C> <C>
Oil and gas sales ........ $ 117,872 $ 156,903 $ 342,219 $ 413,488
Operating fees ........... 57,444 59,893 174,099 191,710
Gain (Loss) on sale of
assets ................. 0 (57,913) (73,441) (57,913)
Seismic .................. 3,015,635 0 3,015,635 0
------------ ----------- ------------ -----------
Total Revenues ....... 3,190,951 158,883 3,458,512 547,285
Expenses:
General and administrative $ 975,539 $ 262,590 $ 1,453,590 $ 1,075,626
Lease operating expenses . 61,701 72,928 175,581 233,301
Seismic operating expenses 1,989,565 0 1,989,565 0
Depletion, depreciation and
amortization............. 369,943 21,790 410,444 66,474
------------ ----------- ------------ -----------
Total Expenses ....... 3,396,748 357,308 4,029,180 1,375,401
------------ ----------- ------------ -----------
Loss from operations ......... $ (205,797) $ (198,425) $ (570,668) $ (828,116)
Other Income:
Interest income ......... 31,871 1,716 32,041 10,365
Interest expense ........ (392,538) (164,243) (761,187) (413,756)
------------ ----------- ------------ -----------
Total Other Income (Expense).. (360,667) (162,527) (729,146) (403,391)
Income (Loss) before provision
for income tax ............. $ (566,464) $ (360,952) $ (1,299,814) $(1,231.507)
Provision for income tax ..... (150,000) 0 (375,000) 0
------------ ----------- ------------ -----------
Total income tax ......... (150,000) 0 (375,000) 0
------------ ----------- ------------ -----------
Net Income (Loss) ............ $ (416,464) $ (360,952) $ (924,814) $(1,231,507)
============ =========== ============ ===========
Earnings (Loss) per share .... $ (0.04) $ (0.07) $ (0.09) $ (0.25)
============ =========== ============ ===========
Weighted average common shares
and equivalents outstanding 10,860,788 4,953,288 10,860,788 4,953,288
============ =========== ============ ===========
</TABLE>
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
Three Months Ended
September 30
(unaudited)
--------------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Cash received from customers $2,385,352 $246,001
Interest and dividends received 31,871 1,969
Cash paid to suppliers and employees (3,810,558) (265,390)
Interest paid (411,756) (161,467)
---------- ----------
Net cash provided (used) by operating
activities (1,805,091) (178,887)
---------- ----------
Cash flows from investing activities:
Cash payments for purchase of property and
equipment (4,042,378) (40,122)
Cash proceeds for redemption of certificate
of deposit 0 79,639
Cash payment for escrow deposit-property
investment 0 (320,968)
---------- ----------
Net cash provided (used) by investing
activities (4,042,378) (281,451)
---------- ----------
Cash flows from financing activities:
Lease bank payments (655,593) 2,500
Proceeds from issuance of stock, net 6,481,160 0
Proceeds from long-term debt 3,292,427 65,000
Principal payments on long-term debt (520,487) (75,918)
Principal payments on short-term debt (939,453) 0
Payments on amounts due officers (31,130) 0
---------- ----------
Net cash provided (used) by financing
activities 7,628,584 (8,418)
---------- ----------
Net increase (decrease) in cash 1,779,455 (468,756)
Cash, beginning of period 268,805 527,064
Cash deficit from acquired subsidiary (18,404) 0
---------- ----------
Cash, end of period $2,029,856 $58,308
========== ==========
<PAGE>
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 Exchange Commission for the
fiscal year ended December 31, 1996. A summary of accounting policies and other
significant information is included therein.
2. LONG TERM DEBT
At September 30, 1997, the Company's long-term debt was valued at
$17,093,649 including $3,645,823 which represents current maturities. Long-term
debt consists primarily of (i) a note to a financial institution, bearing
interest at prime plus 1 1/2%, totaling $4,523,698, (ii) a note to Input/Output,
Inc., bearing interest at 12%, totaling $8,874,778, representing indebtedness
incurred by Signature Geophysical Services, Inc. to acquire geophysical
acquisition equipment and (iii) a note to Input/Output, Inc., bearing interest
at 10%, totaling $3,292,426, representing indebtedness incurred by Quantum
Geophysical, Inc. to acquire geophysical acquisition equipment.
<PAGE>
GEOKINETICS INC.
Pro Forma Financial Statement Information
ACQUISITIONS
On July 18, 1997, the Company completed the acquisition of Signature
Geophysical Services, Inc. (SGS) pursuant to the terms of a Stock Purchase
Agreement, whereby the Company acquired 500 shares of the outstanding common
stock of SGS in exchange for 400,000 shares of the Company's common stock. SGS
is engaged in the business of conducting 2-D and 3-D seismic surveys of oil and
gas properties, focusing on the Permian Basin and the U.S. Gulf Coast, with
special emphasis on coastal swamp work.
The acquisition has been accounted for as a purchase and the results of
operations of SGS are included in the consolidated financial statements from the
date of acquisition, July 18, 1997, for the third quarter of 1997. The following
represents the unaudited pro forma results of operations as if the acquisition
had occurred at the beginning of the third quarter, and therefore includes the
results of operations for SGS during the period July 1, 1997, through July 18,
1997. In addition to combining the historical results of operations of the two
companies, the pro forma calculations include amortization of goodwill. The
excess of cost over the fair value of net assets acquired of $1,974,301 is being
amortized on a straight-line basis over 40 years.
GEOKINETICS INC.
QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Signature
Geokinetics Geophysical
Inc. SERVICES, INC. ADJUSTMENTS COMBINED
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 3,190,951 $ 912,800 0 4,103,751
General and
Administrative (975,539) (96,304) 0 (1,071,843)
Lease Operating
Expenses (61,701) 0 0 (61,701)
Amortization,
Depreciation and
Depletion Expense (369,943) (82,776) (2,056) (454,775)
Seismic Operations (1,989,565) (731,050) 0 (2,720,615)
Interest Income 31,871 0 0 31,871
Interest Expense (392,538) (56,520) 0 (449,058)
Income tax (expense)
benefit 150,000 14,700 0 164,700
--------- -------- ------- ---------
NET INCOME (LOSS) $(416,464) $(39,150) $(2,056) $(457,670)
========= ======== ======= =========
Income (loss) per share $ (0.04) $ (0.04)
Weighted average common
shares and equivalents
outstanding 10,860,788 10,860,788
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
At September 30, 1997, the Company's financial position reflects (i) the
Company's ongoing oil and gas operations, (ii) the continuous start-up costs
relating to the seismic operations to be conducted by Quantum Geophysical, Inc.,
and (iii) the seismic survey operations being conducted by Signature Geophysical
Services, Inc. The Company expects seismic survey operations in Quantum
Geophysical, Inc. to commence on or about October 1, 1997. On July 18, 1997, the
Company completed the acquisition of 100% of the issued and outstanding capital
stock of Signature Geophysical Services, Inc., a Houston based provider of 3-D
geophysical surveys for the oil and gas industry. The financial requirements of
the oil and gas business as well as the start-up and acquisition 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. As a
result, on July 18, 1997, the company completed a private placement of both its
common and preferred stock. The Company received $5,500,000 in cash and the
exchange of other indebtedness in the principal amount of $500,000. On July 24,
1997, the company completed an additional private placement of its preferred
stock with the same investment group. The Company received proceeds of
$1,000,000 in cash from this transaction.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company filed a
Form 8-K dated July 18, 1997 relating to:
1. A change in control of the Registrant, whereby the Blackhawk
Group acquired (i) 5,500,000 newly issued shares of
Registrant's Common Stock, (ii) 187,500 newly issued shares of
Registrant's Series A Preferred Stock, (iii) Shadow Warrants
to purchase up to an additional 7,104,103 shares of Common
Stock, and (iv) 100,000 shares of Registrant's Series B
Preferred Stock.
2. On July 18, 1997, the Registrant acquired all of the
outstanding stock of Signature Geophysical Services, Inc.
3. On July 18, 1997 certain changes in the directors and officers
of Registrant took place.
<PAGE>
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: November 14, 1997 ___________________________
Jay D. Haber
Chairman and Chief Executive Officer
---------------------------
Thomas J. Concannon
Vice President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,008,157
<SECURITIES> 0
<RECEIVABLES> 2,067,992
<ALLOWANCES> 0
<INVENTORY> 417,072
<CURRENT-ASSETS> 4,585,167
<PP&E> 17,587,011
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,665,122
<CURRENT-LIABILITIES> 7,037,757
<BONDS> 0
0
2,875,000
<COMMON> 2,178,227
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,665,122
<SALES> 0
<TOTAL-REVENUES> 3,190,951
<CGS> 0
<TOTAL-COSTS> 3,396,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (566,464)
<INCOME-TAX> 150,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (416,464)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
