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, 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 June 30, 1997, 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, 1997 and December 31, 1996. . . . . 3
Condensed Statements of Operations
Three Months and Six Months Ended
June 30, 1997 and 1996 . . . . . . . . . . 5
Condensed Statements of Cash Flow
Three Months Ended
June 30, 1997 and 1996 . . . . . . . . . . . 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 . . . . . . . . 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1997 1996
Unaudited Unaudited
---------- ----------
<S> <C> <C>
Current Assets:
Cash .................................................. $ 1,906 $ 99,879
Cash-Restricted ....................................... 248,135 316,991
Receivables ........................................... 163,939 226,306
Prepaid expenses ...................................... 67,740 59,865
Oil and gas properties held for resale ................ 414,026 596,452
---------- ----------
Total Current Assets ................................ 895,746 1,299,493
Property and Equipment:
Proved oil and gas Properties (net of depletion) ..... 736,881 776,043
(successful efforts method for oil and gas properties)
Equipment (net of depreciation) ...................... 3,838,319 3,839,658
Buildings (net of depreciation) ...................... 128,106 128,106
Land ................................................. 23,450 23,450
---------- ----------
Total Property and Equipment ....................... 4,726,756 4,767,257
Other Assets:
Deferred tax benefit ................................. 800,000 800,000
Deferred charges ..................................... 72,475 76,317
Restricted investments ............................... 21,700 21,700
---------- ----------
Total Other Assets .................................. 894,175 898,017
---------- ----------
Total Assets ........................................ $6,516,677 $6,964,767
========== ==========
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30 December 31
1997 1996
Unaudited Unaudited
----------- -----------
Current Liabilities:
Accounts payable ........................... $ 728,865 $ 711,563
Accrued liabilities ........................ 328,584 387,319
Notes payable .............................. 1,361,585 1,384,698
Due to officer ............................. 106,722 106,722
Advances for lease bank .................... 406,000 406,000
Site restoration costs ..................... 6,418 6,418
----------- -----------
Total Current Liabilities .............. 2,938,174 3,002,720
Long -Term Liabilities:
Long- term debt ............................ 5,198,074 4,860,124
----------- -----------
Total Liabilities ..................... 8,136,248 7,862,844
Stockholders' Equity:
Common stock (15,000,000 shares
authorized;
4,953,288 shares issued and outstanding
@ 6/30/97 ................................. 990,657 990,657
and 4,953,288 shares issued and
outstanding
@ 12/31/96)
Additional paid in capital ................. 3,924,345 3,924,345
Accumulated deficit ........................ (6,534,573) (5,813,079)
----------- -----------
Total Stockholders' Equity ............. (1,619,571) (898,077)
----------- -----------
Total Liabilities and
Stockholders' Equity ............... $ 6,516,677 $ 6,964,767
=========== ===========
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
GEOKINETICS INC.
Condensed Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
(unaudited) (unaudited)
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales ........ $ 98,386 $ 148,236 $ 224,347 $ 256,585
Operating fees ........... 60,025 67,490 117,675 131,817
Gain (Loss) on sale of
assets ................... (73,441) 0 (73,441) 0
----------- ----------- ----------- -----------
Total Revenues ....... 84,970 215,726 268,581 388,402
Expenses:
General and administrative $ 280,956 $ 330,323 $ 478,914 $ 813,036
Lease operating expenses . 54,925 43,274 114,037 160,373
Amortization expense ..... 4,983 4,983 9,965 9,966
Depletion expense ........ 14,382 17,297 29,196 33,372
Depreciation expense ..... 670 673 1,339 1,346
----------- ----------- ----------- -----------
Total Expenses ....... 355,916 396,550 633,451 1,018,092
----------- ----------- ----------- -----------
Loss from operations ......... $ (270,946) $ (180,824) $ (364,870) $ (629,690)
Other Income:
Interest income ......... 0 5,924 170 8,649
Interest expense ........ (174,821) (163,075) (359,061) (249,513)
----------- ----------- ----------- -----------
Total Other Income
(Expense) .......... (174,821) (157,151) (358,891) (240,864)
Income (Loss) before provision
for income tax ............. $ (445,767) $ (337,975) $ (723,761) $ (870,555))
Provision for income tax ..... 0 0 0 0
----------- ----------- ----------- -----------
Total income tax ......... 0 0 0 0
----------- ----------- ----------- -----------
Net Income (Loss) ............ $ (445,767) $ (337,975) $ (723,761) $(870,555))
=========== =========== =========== ===========
Earnings (Loss) per share .... $ (0.09) $ (0.07) $ (0.15) $ (0.18)
=========== =========== =========== ===========
Weighted average common shares
and equivalents outstanding 4,953,288 4,953,288 4,953,288 4,953,288
=========== =========== =========== ===========
</TABLE>
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
June 30
(unaudited)
-----------------------
1997 1996
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ............. $ 230,837 $232199
Interest and dividends received .......... 0 6,312
Cash paid to suppliers and employees ..... (386,311) (328,771)
Interest paid ............................ (216,536) (160,297)
--------- -----------
Net cash provided (used) by operating
activities ........................... (372,010) (250,557)
--------- -----------
Cash flows from investing activities:
Cash payments for purchase of property and
equipment ................................ 0 (128,436)
Cash payment for certificate of deposit .. 0 (100,000)
Cash payment for escrow deposit-property
investment................................ 202 (100,000)
--------- -----------
Net cash provided (used) by investing
activities ........................... 202 (328,436)
--------- -----------
Cash flows from financing activities:
Proceeds from short-term debt ............ 500,000 100,000
Principal payments on long-term debt ..... (79,750) (75,504)
--------- -----------
Net cash provided (used) by financing
activities ........................... 420,250 24,496
--------- -----------
Net increase (decrease) in cash .............. 48,442 (554,497)
Cash, beginning of period .................... (46,536) 1,081,561
--------- -----------
Cash, end of period .......................... $ 1,906 $ 527,064
========= ===========
</TABLE>
6
<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 Company is working to complete its audit for the fiscal year ended
December 31, 1996. When completed, audited financial statements will be included
in an amendment to the Company's Form 10-KSB filed for the fiscal year ended
December 31, 1996. The Company expects to file an amendment to the Form 10-QSB
for the period ended March 31, 1997 and this Form 10-QSB to properly reflect
changes to the financial information provided herein by incorporating the
results of the Company's audit for the fiscal year ended December 31, 1996. 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 12.25% per annum for the
quarter ended June 30, 1997, 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 valued at $1,361,585 reflect, in
part, (i) the current (i.e., one year) maturities, totaling $331,825, 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 $330,848
representing indebtedness incurred by the Company incident to its geophysical
operations, (iii) certain promissory notes dated October 23, 1996 and October
31, 1996 totaling an aggregate of $697,025 from a group of private sources
including an outside director of the Company to provide short term working
capital for the Company's operations. (See "Extension of Promissory Notes" under
Liquidity and Capital Reserves in Item 2 below.)
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At June 30, 1997, 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 1997. On
March 5, 1997, the Company entered into a Letter of Intent to acquire 100% of
the issue and outstanding capital stock of Signature Geophysical Services, Inc.,
a Houston based provider of 3D geophysical surveys for the oil and gas industry.
LIQUIDITY AND CAPITAL RESOURCES
CLOSING OF $5,000,000 QUANTUM LOAN
The Company's financial position at June 30, 1997 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, 1997,
totaled $895,746 as compared with $1,299,493 at December 31, 1996. Cash and
short-term investments at June 30, 1997 totaled $1,906 as compared to $99,879 at
December 31, 1996. Restricted cash reflects the proceeds from the Quantum loan
that are restricted for use in the company's seismic operations and is,
therefore not available to meet the Company's working capital needs.
$500,000 BRIDGE FINANCING
On April 25, 1997, the Company obtained $500,000 in short-term financing
from private investment sources. The financing bears interest at 12% per annum.
In addition , the Company issued warrants to these private investment sources to
purchase an aggregate of 1,000,000 shares of its common stock at $.75 per share.
EXTENSION OF PROMISSORY NOTES
The Company defaulted on interest payable January 31, 1997 under certain
promissory notes with an aggregate value of $697,025. Two of such promissory
notes are held by an outside director of the company. In March 1997, the Company
signed an agreement with each noteholder whereby (i) all defaults have been
cured and waived, (ii) the Company will pay interest to each noteholder on a
monthly basis until maturity, and (iii) the maturity of each note has been
extended until the earlier of June 30, 1997 or such time as the Company has
completed a private placement of debt and/or equity of not less than $4,000,000.
Additionally, the Company extended until December 31, 1997 the expiration date
of certain Common Stock Purchase Warrants that were previously issued to each
noteholder in consideration of the loans evidenced by these promissory notes.
The Company defaulted on the payment of a promissory note in favor of
Input/Output, Inc. in the principal amount of $330,884 that was due on July 31,
1997. In April 1997, the Company signed an agreement with Input/Output, Inc.
whereby (i) all defaults have been cured and waived, (ii) the Company will pay
interest to Input/Output, Inc. on a monthly basis until maturity, and (iii) the
maturity of the note has been extended until October 31, 1997.
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 operating 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 requires additional capital to
fund the following expenses: (i) purchases of leases and other interests in oil
and gas properties; and ,(ii) capital expenditures under agreements for
geological, geophysical and seismic costs as well as drilling and completion
costs of wells. The Company expects its oil and gas operations to operate with a
working capital deficiency during fiscal 1997.
RESULTS OF OPERATIONS
During the three months ended June 30, 1997, the Company incurred a loss
from operations of $445,767 compared to a loss of $337,975 during the comparable
period in 1996. This loss is primarily due to operating expenses the Company
incurred in connection with (i) the development of the Company's geophysical
data acquisition business, and (ii) expenses in oil and gas operations. General
and administrative expenses during the three-months ended June 30, 1997,
decreased to $280,956 compared with $330,323 during the comparable period in
1996. In addition, lease operating expenses from oil and gas operations during
the three-months ended June 30, 1997, totaled $98,386, an approximate 33%
decrease of such expenses during the comparable period in 1996.
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.
PRIVATE PLACEMENT
On July 18, 1997, the Registrant entered into a Securities Purchase and Exchange
Agreement ( the "Purchase Agreement") with Blackhawk Investors, L.L.C. (the
"Blackhawk"), William R. Ziegler, an individual resident of the state of New
York ("Ziegler"), and Steven A. Webster, an individual resident of the state of
Texas ("Webster") (Blackhawk, Ziegler and Webster being sometimes referred to
collectively as the "Blackhawk Group"). Pursuant to the Purchase Agreement, the
Blackhawk Group acquired from Registrant (i) 5,500,000 newly-issued shares of
Registrant's Common Stock, par value $.20 per share ("Common Stock"), (ii)
187,500 newly-issued shares of Registrant's Series A Preferred Stock, par value
$10.00 per share (convertible into an aggregate of 2,500,000 shares of Common
Stock, and (iii) Shadow Warrants to purchase up to an additional 7,104,103
shares of Common Stock at a price of $.20 per share, in exchange for (x) an
aggregate of $5,500,000 in cash paid to the Registrant and (y) the exchange of
certain indebtedness in the principal amount of $500,000 owed by Registrant to
Ziegler and Webster. The shares of Common Stock acquired by the Blackhawk Group,
pursuant to the Purchase Agreement, represent 62.2% of the Registrant's
outstanding Common Stock. The Shadow Warrants issued to the Blackhawk Group are
only exercisable in the event that certain warrants previously issued by the
Registrant are exercised in the future.
On July 24, 1997, Registrant entered into a Letter Agreement re Additional
Investment (the "Letter Agreement") pursuant to which the Blackhawk Group
invested an additional $1,000,000 in cash in Registrant and the Registrant will
issue 100,000 shares of Registrant's Series B Preferred Stock, par value $10.00
per share (convertible into an aggregate of 1,333,333 shares of Common Stock).
The term of the Series B Preferred Stock are identical to the terms of the
Series A Preferred Stock except that the Series B Preferred Stock will
automatically be converted into shares of Common Stock on January 1, 1998. The
Letter Agreement also provides that the Registrant will issue to the Blackhawk
Group additional Shadow Warrants to purchase up to an aggregate of 1,172,051
shares of Common Stock.
All of the Shadow Warrants issued to the Blackhawk Group are exercisable only in
the event that certain warrants previously issued by the Registrant are
exercised in the future.
Upon conversion of the Series A Preferred Stock and Series B Preferred Stock,
the Registrant will have an aggregate of 14,686,621 shares of Common Stock
outstanding. In addition, the Registrant has outstanding (i) an aggregate of
7,049,973 warrants to purchase shares of Common Stock (at a weighted average
exercise price of $.80 per share), (ii) stock options held by executive officers
and employees to purchase an aggregate of 2,237,500 shares of Common Stock (at a
weighted average exercise price of $.81 per share), and (iii) Shadow Warrants to
purchase an aggregate of 8,204,356 shares of Common Stock at a price of $.20 per
share. In the event that all of the Registrant's outstanding Warrants, Stock
Options and Shadow Warrants were exercised, the Registrant would have an
aggregate of 32,178,450 shares of Common Stock outstanding.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<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: August 14, 1997 /S/ JAY D. HABER
Jay D. Haber
Chairman and Chief Executive Officer
/S/THOMAS J. CONCANNON
Thomas J. Concannon
Vice President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 250,041
<SECURITIES> 21,700
<RECEIVABLES> 163,939
<ALLOWANCES> 0
<INVENTORY> 414,026
<CURRENT-ASSETS> 895,746
<PP&E> 4,726,756
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,516,677
<CURRENT-LIABILITIES> 2,938,174
<BONDS> 0
0
0
<COMMON> 990,657
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,516,677
<SALES> 0
<TOTAL-REVENUES> 98,386
<CGS> 0
<TOTAL-COSTS> 530,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (445,767)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (445,767)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
