SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 18, 1997
GEOKINETICS INC.
(Exact name of Registrant as specified in charter)
DELAWARE 0-9268 94-1690082
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
5555 SAN FELIPE, SUITE 780, HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (713) 850-7600
<PAGE>
GEOKINETICS INC.
FORM 8-K/A
INDEX
Page
----
Item 7. Financial Statements, Pro Forma Financial Statements
(a) Financial Statements of Business Acquired............. 1
(b) Pro Forma Financial Information...................... 13
<PAGE>
INDEPENDENT AUDITORS' REPORT
September 30, 1997
To the Board of Directors and Stockholders
Signature Geophysical Services, Inc.
We have audited the accompanying balance sheet of Signature
Geophysical Services, Inc. as of December 31, 1996 and the related statements of
income and retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Signature
Geophysical Services, Inc. as of December 31, 1996 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Tsakopulos Brown Schott & Anchors
Page 1
<PAGE>
BALANCE SHEET
SIGNATURE GEOPHYSICAL SERVICES, INC.
DECEMBER 31, 1996
ASSETS
CURRENT ASSETS
Cash ....................................................... $ 26,581
Accounts receivable - trade ................................ 140,500
Accounts receivable - other ................................ 62,908
Prepaid expenses ........................................... 17,753
----------
Total Current Assets .................................... 247,742
PROPERTY AND EQUIPMENT ........................................ 6,687,870
OTHER ASSETS
Due from officers .......................................... 27,036
Deposits ................................................... 1,646
Organizational costs, net of $1,068 accumulated amortization 2,702
----------
Total Other Assets ................................... 31,384
----------
TOTAL ASSETS ................................... $6,966,996
==========
The Accompanying Notes Are an Integral Part of These Financial Statements
Page 2
<PAGE>
BALANCE SHEET
SIGNATURE GEOPHYSICAL SERVICES, INC.
DECEMBER 31, 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt .................. $ 48,973
Current maturities of capitalized lease obligations ... 1,284,370
Accounts payable - trade .............................. 1,045,995
Note payable .......................................... 116,928
Notes payable - officer ............................... 83,126
Accrued liabilities ................................... 51,997
Deferred income tax ................................... 52,570
Other ................................................. 22,866
-----------
Total Current Liabilities .......................... 2,706,825
LONG-TERM DEBT, less current maturities .................. 75,151
CAPITALIZED LEASE OBLIGATIONS, less current maturities ... 4,197,902
-----------
TOTAL LIABILITIES ............................... 6,979,878
STOCKHOLDERS' DEFICIT
Common stock, $1 par value, 2,000 shares authorized and
outstanding ........................................ 2,000
Additional paid-in capital ............................ 45,538
Retained earnings ..................................... 113,056
-----------
160,594
Less treasury stock, at cost .......................... 173,476
-----------
TOTAL STOCKHOLDERS' DEFICIT ........................ (12,882)
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT ........................... $ 6,966,996
===========
The Accompanying Notes Are an Integral Part of These Financial Statements
Page 3
<PAGE>
STATEMENT OF INCOME
AND RETAINED EARNINGS
SIGNATURE GEOPHYSICAL SERVICES, INC.
DECEMBER 31, 1996
REVENUE ..................................................... $ 5,826,118
EXPENSES
Field expenses ........................................... 2,672,685
General and administrative expenses ...................... 726,921
Depreciation expense ..................................... 772,726
-----------
Total Expenses ........................................ 4,172,332
-----------
Income from Operations ................................... 1,653,786
OTHER INCOME (EXPENSE)
Other income ............................................. 13,902
Interest expense ......................................... (578,049)
-----------
Total Other Expense ................................... (564,147)
-----------
Net Income Before Income Tax Expense ............... 1,089,639
INCOME TAX EXPENSE
Deferred income tax ...................................... (83,630)
-----------
Income from Continuing Operations ........................ 1,006,009
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of $31,060 deferred
tax benefit ........................................... (60,294)
-----------
NET INCOME .................................................. 945,715
RETAINED DEFICIT, beginning of year ......................... (832,659)
-----------
RETAINED EARNINGS, end of year .............................. $ 113,056
===========
The Accompanying Notes Are an Integral Part of These Financial Statements
Page 4
<PAGE>
STATEMENT OF CASH FLOWS
SIGNATURE GEOPHYSICAL SERVICES, INC.
DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Inflows
Cash received from customers .................. $ 7,094,140
Outflows
Cash paid to suppliers and employees .......... 3,405,599
Interest paid ................................. 578,049
-----------
3,983,648
-----------
Net Cash Provided by Operating Activities 3,110,492
CASH FLOWS FROM INVESTING ACTIVITIES
Inflows
Net payments received on employee advances .... 2,100
Refund of deposit ............................. 952
-----------
3,052
Outflows
Cash payments for the purchase of property .... 75,275
Net advances to/from officers ................. 55,035
-----------
130,310
-----------
Net Cash Used by Investing Activities ...... (127,258)
CASH FLOWS FROM FINANCING ACTIVITIES
Outflows
Principal payments made on capital leases ..... 1,516,910
Principal payments on short-term notes ........ 950,000
Principal payments on due to related party .... 507,153
Principal payments on long-term debt .......... 15,219
-----------
Net Cash Used by Financing Activities ...... (2,989,282)
-----------
NET DECREASE IN CASH ................................ (6,048)
CASH, beginning of year ............................. 32,629
-----------
CASH, end of year ................................... $ 26,581
===========
The Accompanying Notes Are an Integral Part of These Financial Statements
Page 5
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF ORGANIZATION
Signature Geophysical Services, Inc. (the Company) 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.
BASIS OF ACCOUNTING
The financial statements of the Company have been prepared on the
accrual basis of accounting and, accordingly, reflect all significant
receivables, payables and other liabilities.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities and
the reported revenues and expenses. Actual results could vary from the
estimates that were used.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and
amortization are provided using the straight-line method over the
estimated useful lives of the respective assets. Repairs and
maintenance, which are not considered betterments and do not extend the
useful life of property, are charged to expense as incurred. When
property and equipment are retired or otherwise disposed of, the asset
and accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in income.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. There were no cash equivalents at
December 31, 1996.
Page 6
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAX
The Company follows Statement of Financial Accounting Standards No. 109
entitled "Accounting for Income Taxes" which requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are computed using the liability method based on the
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Deferred income tax is provided in the accompanying financial statements
as a result of differences related to reporting of depreciation for
income tax purposes and financial statement purposes.
NOTE 2. PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1996 follows:
Useful Lives
-----------
Equipment ................................ $ 976,902 3 - 7 years
Vehicles ................................. 53,681 5 years
Furniture and fixtures ................... 13,447 7 years
Capitalized leased assets
Equipment ............................. 6,780,553 3 - 7 years
Vehicles .............................. 283,942 5 years
-----------
8,108,525
Less accumulated depreciation
(includes $1,079,419
accumulated depreciation on
capitalized leased assets) 1,420,655
-----------
$ 6,687,870
===========
Page 7
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 3. NOTE PAYABLE
The Company refinanced an equipment lease/purchase agreement after
defaulting on the original payment terms. The note is due in three
monthly installments of $38,977 including principal and interest at 12%
and matures on April 1, 1997. This note is secured by the equipment
acquired under the lease/purchase agreement. The note payable balance at
December 31, 1996 was $116,928.
NOTE 4. LONG-TERM DEBT
The following notes are unsecured promissory notes to various vendors
financing previous accounts payable balances.
18% note dated July 26, 1996 payable in monthly ........... $ 91,244
installments of $3,611 including principal and
interest, due July 26, 1999
18% note dated July 29, 1996, due in monthly
principal installments of
$1,644 plus accrued interest, due
August 10, 1998 ........................................ 32,880
--------
124,124
Current maturities ..................................... 48,973
--------
$ 75,151
========
A summary of long-term debt principal maturities follows:
FOR THE YEARS ENDING DECEMBER 31, Amount
-------------------------------- --------
1997 $ 48,973
1998 48,118
1999 27,033
--------
$124,124
========
Page 8
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 5. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into lease agreements for equipment and
vehicles. The agreements are classified as capital leases. The following
is a schedule of future lease payments under the capital leases by year
together with the present value of the remaining net minimum lease
payments.
FOR THE YEARS ENDING DECEMBER 31, Amount
-----------
1997 $ 1,637,406
1998 2,798,047
1999 1,451,982
2000 291,807
-----------
Total minimum lease payments 6,179,242
Less amount representing interest 696,970
-----------
Present value of minimum lease payments 5,482,272
Less current maturities 1,284,370
-----------
$ 4,197,902
===========
Lease payments totaling $1,990,732 were paid during the year ended
December 31, 1996.
NOTE 6. TREASURY STOCK
The Company's initial four stockholders, each owning 25% of the
outstanding stock, entered into an agreement effective June10, 1996
whereby the Company purchased 1,500 shares of common stock held by three
of the stockholders. The agreement resulted in the Company having one
stockholder owning 100% of the outstanding stock. The shares acquired by
the Company were held by the Company as treasury stock at December 31,
1996.
Consideration given for the stock included assignment of the Company's
Ohio operations, assignment of selected receivables and cash payments to
satisfy amounts owed by the Company to the stockholders and removal of
all corporate and personal guarantees of the shareholders whose stock
was redeemed. In addition, the agreement stipulated that the Company pay
certain vendor and debt obligations in order to secure releases of
corporate and personal guarantees.
Page 9
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 7. MAJOR CUSTOMERS
Revenues from major customers which exceeded ten percent of total
revenues for the year ended December 31, 1996 are as follows:
Customer A $ 1,765,453
Customer B 1,350,615
Customer C 1,000,000
NOTE 8. CONTINGENCIES
The Company was involved in litigation at December 31, 1996 with a
customer regarding amounts due a subcontractor. The customer's claims
were settled on May 6, 1997 pursuant to an agreement entered into by the
Company and customer whereby the customer receives $472,000. At December
31, 1996, $468,303 of this claim is included in the accounts payable
balance.
NOTE 9. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of unsecured trade
receivables. In the normal course of business, the Company provides
credit terms to its customers. Accordingly, the Company performs ongoing
credit evaluations of its customers and maintains allowances for
possible losses which, when realized, have been within the range of
management's expectations.
The Company's customer base consists primarily of oil and gas companies.
Although the Company is directly affected by the well-being of the oil
and gas industry, management does not believe significant credit risk
exists at December 31, 1996.
Page 10
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 10. DISCONTINUED OPERATIONS
As part of the redemption of the Company's common stock (Note 6), the
Company assigned its interest in its Ohio processing plant to one of its
former stockholders. Assets having a book value of $102,924 were
transferred to the stockholder as partial consideration for the stock.
No gain or loss resulted from the disposal of this business segment.
The Ohio processing plant was in the business of analyzing geophysical
data gathered by the Company through its continuing operations. The Ohio
processing plant recorded revenues of $81,935 in 1996 for the period
held by the Company.
NOTE 11. CASH FLOWS
A reconciliation of net income to net cash provided by operating
activities for the year ended December 31, 1996 is as follows:
Net Income ............................................. $ 945,715
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation ........................................ 795,642
Deferred income taxes ............................... 52,570
Loss on disposal of property ........................ 14,249
(Increase) decrease in current assets
Accounts receivable - trade ............... 1,260,479
Accounts receivable - other ............... (20,608)
Prepaid expenses .......................... 4,402
Increase (decrease) in current liabilities
Accounts payable - trade .................. 128,916
Accrued liabilities ....................... (70,873)
-----------
$ 3,110,492
===========
Page 11
<PAGE>
NOTES TO THE
FINANCIAL STATEMENTS
NOTE 11. CASH FLOWS (CONTINUED)
Noncash investing and financing activities for the year ended December
31, 1996 are as follows:
Purchase of property and equipment ...................... $ 5,186,026
Amount financed with capital leases ..................... (5,110,751)
-----------
Cash Paid ............................................ $ 75,275
===========
Due to related parties .................................. $ 561,415
Transfer of accounts receivable ......................... (332,604)
Transfer of accounts payable ............................ 278,342
-----------
Cash Paid ........................................... $ 507,153
===========
Purchase of treasury stock .............................. $ 173,476
Transfer of property and equipment,
net of accumulated depreciation ...................... (102,721)
Principle payments due to related parties ............... (70,755)
-----------
Cash Paid ........................................... $ --
===========
NOTE 12. SUBSEQUENT EVENTS
On June 25, 1997, the Company's sole stockholder, Gallant Energy, Inc.
entered into an agreement to sell to Geokinetics Inc. all of its Company
stock.
On July 18, 1997, Geokinetics Inc. acquired all of the capital stock of
the Company from Gallant Energy, Inc. pursuant to the terms of a Stock
Purchase Agreement (the Purchase Agreement). Pursuant to the Purchase
Agreement, Geokinetics Inc. acquired 500 shares of the outstanding
common stock of the Company in exchange for 400,000 shares of
Geokinetics Inc.'s common stock.
Page 12
<PAGE>
GEOKINETICS INC.
PRO FORMA FINANCIAL STATEMENT INFORMATION
ACQUISITIONS
On July 18, 1997, Registrant completed the acquisition of Signature Geophysical
Services, Inc. ("SGS") pursuant to the terms of a Stock Purchase Agreement,
whereby the Company acquired all 500 shares of the outstanding common stock of
SGS in exchange for 400,000 shares of the Registrant's Common Stock, $.20 par
value per share. 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 will be accounted for as a purchase and the results of
operations of SGS will be included in the consolidated financial statements from
the date of acquisition. The following represents the unaudited pro forma
results of operations as if the acquisition had occurred at the beginning of
each period presented. In addition to combining the historical results of
operations of the two companies, the pro forma calculations include amortization
of goodwill and exclude the operations of the discontinued business segment of
SGS. 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.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996 FOR THE QUARTER ENDED JUNE 30, 1997
----------------------------------------------------- -----------------------------------------------
Signature Signature
Geophysical Geophysical
Geokinetics Services Pro Forma Geokinetics Services, Pro Forma
Inc. Inc. Adjustments Combined Inc. Inc. Adjustments Combined
----------- ----------- -------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........... $ 750,926 $ 5,826,118 $ 0 $ 6,577,044 $ 84,107 $ 5,687,755 $ 0 $ 5,771,862
General and
Administrative .. (1,297,474) (726,921) 0 (2,024,395) (280,091) (313,471) 0 (593,562)
Lease operating
expenses ........ (312,528) 0 0 (312,528) (54,925) 0 0 (54,925)
Amortization,
depreciation and
depletion expense (91,608) (772,726) (49,358) (913,692) (20,035) (353,459) (12,340) (385,834)
Pre-op seismic ..... (1,046,491) 0 0 (1,046,491) 0 0 0 0
Seismic operations . 0 (2,672,685) 0 (2,672,685) 0 (4,418,276) 0 (4,418,276)
Interest income .... 10,545 13,902 0 24,447 0 0 0 0
Interest expense ... (606,187) (578,049) 0 (1,184,236) (179,964) (172,385) 0 (352,349)
Income tax (expense)
benefit ......... 820,000 (83,630) 0 736,370 138,000 (117,000) 0 21,000
----------- ----------- -------- ----------- --------- ----------- -------- -----------
NET INCOME (LOSS) .. $(1,772,817) $ 1,006,009 $(49,358) $ (816,166) $(312,908) $ 313,164 $(12,340) $ (12,084)
=========== =========== ======== =========== ========= =========== ======== ===========
Income (Loss)
per Share $ (0.36) $ (0.15) $ (0.06) $ (0.00)
=========== =========== ========= ===========
Weighted Average Common
Shares and
Equivalents
Outstanding 4,949,635 400,000 5,349,635 4,953,288 400,000 5,353,288
=========== ======== =========== ========= ======== ===========
</TABLE>
Page 13
<PAGE>
The following represents the unaudited pro forma condensed balance sheet as of
June 30, 1997:
<TABLE>
<CAPTION>
Signature
Geokinetics Geophysical Pro Forma
ASSETS Inc. Services, Inc. Adjustments Combined
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash ................................................... $ 247,106 $ (18,404) $ 0 $ 228,702
Receivables ............................................ 155,282 1,417,325 0 1,572,607
Other current assets ................................... 436,618 121,088 0 557,706
----------- ------------ ---------- ------------
Total Current Assets ................. 839,006 1,520,009 0 2,359,015
PROPERTY AND EQUIPMENT .................................... 3,696,647 10,202,664 0 13,899,311
OTHER ASSETS
Deferred tax asset ..................................... 1,845,000 297,430 0 2,142,430
Other assets ........................................... 274,532 0 0 274,532
Goodwill ............................................... 144,501 0 1,974,301 2,118,802
----------- ------------ ---------- ------------
Total Other Assets ..................................... 2,264,033 297,430 1,974,301 4,535,764
TOTAL ASSETS ........................................ $ 6,799,686 $ 12,020,103 $1,974,301 $ 20,794,090
=========== ============ ========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable ....................................... $ 747,581 $ 2,042,315 $ 0 $ 2,789,896
Other current liabilities .............................. 861,550 740,309 0 1,601,859
Notes payable .......................................... 1,402,437 4,200,537 0 5,602,974
----------- ------------ ---------- ------------
Total Current Liabilities ........................ 3,011,568 6,983,161 0 9,994,729
LONG-TERM DEBT ............................................ 5,198,074 5,986,443 0 11,184,517
TOTAL LIABILITIES ................................ 8,209,642 12,969,604 0 21,179,246
STOCKHOLDERS' DEFICIT
Common stock ........................................... 990,657 2,000 78,000 1,070,657
Additional paid in capital ............................. 3,924,345 45,538 899,262 4,869,145
Treasury stock ......................................... 0 (173,476) 173,476 0
Accumulated deficit .................................... (6,324,958) (823,563) 823,563 (6,324,958)
----------- ------------ ---------- ------------
TOTAL STOCKHOLDERS'
DEFICIT .......................................... (1,409,956) (949,501) 1,974,301 (385,156)
----------- ------------ ---------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS'
DEFICIT .......................................... $ 6,799,686 $ 12,020,103 $1,974,301 $ 20,794,090
=========== ============ ========== ============
</TABLE>
The unaudited pro forma results are not necessarily indicative of the results
that would have been attained had the acquisition occurred at the beginning of
the periods depicted or of results which may occur in the future.
Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned herein to duly authorized.
Dated: November 21, 1997
GEOKINETICS INC.
By: /s/ JAY D. HABER
Jay D. Haber, Chief Executive Officer
