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, 1998
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
incorporation or organization) (I.R.S. Employer 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 March 31, 1998, there were 18,326,816 shares of Registrant's common stock
($.01 par value) outstanding.
<PAGE>
GEOKINETICS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements . . . . . . . . . . . . . . . . . .. .3
Condensed Statements of Financial Position
March 31, 1998 and December 31, 1997 . . . . .. .3
Condensed Statements of Operations
Three Months Ended
March 31, 1998 and 1997. . . . . . 5
Condensed Statements of Cash Flows
Three Months Ended
March 31, 1998 and 1997 . . . . . . . . . . . . 6
Notes to Interim Financial Statements . . . . . . . . . . 7
Item 2. Management's Discussion and
Analysis of Plan of Operation . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . .. 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
Unaudited (*)
----------- -----------
<S> <C> <C>
Current Assets:
Cash ................................................. $ 1,004,202 $ 2,055,564
Cash-restricted ...................................... 107,129 157,117
Earnest money deposits ................................ 1,000,000 0
Receivables ........................................... 4,523,231 4,218,234
Prepaid expenses ..................................... 270,084 367,687
Accrued interest ..................................... 395 11,221
----------- -----------
Total Current Assets ............................. 6,905,041 6,809,823
Property and Equipment:
Proved oil and gas Properties (net of depletion) ..... 704,510 708,353
(successful efforts method for oil and gas properties)
Equipment (net of depreciation) ...................... 16,079,095 16,454,416
Buildings (net of depreciation) ...................... 128,106 128,106
Land ................................................. 23,450 23,450
----------- -----------
Total Property and Equipment .................... 16,935,161 17,314,325
Other Assets:
Deferred tax benefit ................................. 2,292,430 2,292,430
Deferred charges ..................................... 58,535 60,316
Restricted investments ............................... 106,700 71,700
Deposits on software and equipment ................... 74,820 4,776
Patronage stock, Organization fees, Non-compete Fees . 25,731 0
Goodwill ............................................. 4,965,483 1,949,626
----------- -----------
Total Other Assets ............................... 7,523,699 4,378,848
----------- -----------
Total Assets ................................. $31,363,901 $28,502,996
=========== ===========
</TABLE>
*CONDENSED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
Unaudited (*)
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt ................................................... $ 3,394,984 $ 3,463,660
Accounts payable ....................................................................... 2,420,453 2,282,037
Accrued liabilities .................................................................... 1,251,398 1,049,119
Customer deposit ....................................................................... 35,000 0
Notes payable .......................................................................... 2,172,281 896,686
Due to officer ......................................................................... 180,213 164,206
Advances for lease bank ................................................................ 260,500 260,500
Site restoration costs ................................................................. 6,418 6,418
------------ ------------
Total Current Liabilities .......................................................... 9,721,247 8,122,626
Long-Term Liabilities:
Long-term debt, net of current maturities .............................................. 11,679,530 12,129,420
Deferred income tax .................................................................... 290,946 0
------------ ------------
Total Liabilities ................................................................. 21,691,723 20,252,046
Stockholders' Equity:
Preferred stock, Series B, $10 par value, 100,000 shares authorized, issued
and outstanding at 12/31/97, converted into 1,333,333 shares of common
stock
on 1/01/98 .......................................................................... 0 1,000,000
Common stock , $.01 par value, 100,000,000 shares
authorized, 18,326,816 shares outstanding at
3/31/98, and 16,598,483 shares outstanding at
12/31/97 ............................................................................ 183,268 165,985
Additional paid in capital ............................................................. 16,039,486 14,017,394
Accumulated deficit .................................................................... (6,550,576) (6,932,429)
------------ ------------
Total Stockholders' Equity ......................................................... 9,672,178 8,250,950
------------ ------------
Total Liabilities and Stockholders' Equity ..................................... $ 31,363,901 $ 28,502,996
============ ============
</TABLE>
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
<PAGE>
GEOKINETICS INC.
Condensed Statements of Operations
Three Months Ended
March 31
(unaudited)
----------------------------
1998 1997
------------ -----------
Revenues:
Seismic revenues .......................... 5,691,339 0
Oil and gas sales ......................... $ 49,745 $ 125,961
Operating fees ............................ 57,424 57,493
------------ -----------
Total Revenues ..... 5,798,508 183,454
Expenses:
General and administrative ................ $ 1,124,093 $ 197,958
Seismic operating expenses ................ 2,876,523 0
Lease operating expenses .................. 80,432 58,955
Amortization expense ...................... 47,769 4,983
Depletion expense ......................... 3,843 14,814
Depreciation expense ...................... 846,100 669
------------ -----------
Total Expenses ........................ 4,978,760 277,379
------------ -----------
Income (Loss) from operations ............. 819,748 (93,925)
Other Income (Expense):
Interest income .......................... 17,002 170
Other income ............................. 4,900 0
Interest expense ......................... (459,797) (188,685)
------------ -----------
Total Other Income .................... (437,895) (188,515)
Income (Loss) before provision
for income tax .............................. $ 381,853 $ (282,440)
Provision for income tax ...................... 0 87,000
------------ -----------
Total income tax .......................... 0 87,000
------------ -----------
Net Income (Loss) ............................ $ 381,853 $ (195,440)
============ ===========
Earnings (Loss) per share ..................... $ 0.02 $ (0.04)
============ ===========
Weighted average common shares
and equivalents outstanding ................. 18,326,816 4,953,288
============ ===========
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
(unaudited)
------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ....................... $ 6,854,232 $ 288,396
Interest and dividends received .................... 27,828 170
Cash paid to suppliers and employees ............... (4,366,208) (242,158)
Interest paid ...................................... (501,166) (179,800)
----------- ---------
Net cash used by operating activities .......... 2,014,686 (133,392)
----------- ---------
Cash flows from investing activities:
Net deposits paid out .............................. (4,700) 0
Payments for purchase of property and equipment .... (164,305) 0
Acquisition of Reliable Exploration, Incorporated .. (1,190,430) 0
Earnest Money for acquisition of GDC ............... (1,000,000) 0
----------- ---------
Net cash provided (used) by investing activities (2,359,435) 0
----------- ---------
Cash flows from financing activities:
Proceeds from short-term debt ...................... 1,500,000 0
Principal payments on long-term debt ............... (2,018,621) (81,677)
Principal payments on short-term debt .............. (224,404) 0
Principal payments on loans from officers .......... (13,577) 0
----------- ---------
Net cash (used) by financing activities ........ (756,602) (81,677)
----------- ---------
Net (decrease) in cash ................................ (1,101,351) (215,069)
Cash, beginning of period .............................. 2,212,681 413,935
----------- ---------
Cash, end of period .................................... $ 1,111,330 $ 198,866
=========== =========
</TABLE>
<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 and Exchange Commission for
the fiscal year ended December 31, 1997. A summary of accounting policies and
other significant information is included therein.
2. LONG TERM DEBT
At March 31, 1998, the Company's long-term debt was $15,074,514
including $3,394,984 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%, in the amount of $4,350,045, (ii) a note to Input/Output,
Inc., bearing interest at 12%, in the amount of $7,389,917, 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%, in the amount of $2,809,664 representing indebtedness
incurred by Quantum Geophysical, Inc. to acquire geophysical acquisition
equipment.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
(Three Months Ended March 31, 1998)
GENERAL
At March 31, 1998, the Company's financial position reflects (i) the
Company's ongoing oil and gas operations, and (ii) the seismic services being
conducted by Quantum Geophysical, Inc., Signature Geophysical Services, Inc. and
Reliable Exploration, Inc. On January 26, 1998, the Company completed the
acquisition of the issued and outstanding capital stock of Reliable Exploration,
Inc., a Billings, Montana-based provider of 3-D seismic acquisition services.
The Company is presently operating four seismic acquisition crews, consisting of
two Input/Output, Inc. System Two's and two Texas Instruments DFSV crews, with a
total seismic recording capacity of approximately 7,000 channels. All of the
Company's crews are operating in the United States, with two performing seismic
acquisition services in the Gulf Coast region and two performing such services
in the Rocky Mountain region. It is the Company's intention to field a fifth
seismic crew, with recording capacity of 3,000 channels, during the second
quarter of 1998. This will be accomplished by purchasing additional equipment
from Input/Output, Inc.
RESULTS OF OPERATIONS
The Company's revenues increased significantly from $183.5 thousand to
$5.8 million during the three months ended March 31, 1998. The increase was
attributable to seismic acquisition services which totaled $5.7 million during
the three months ended March 31, 1998, compared to $0 in 1997. Revenues
attributable to oil and gas sales were down marginally.
Operating expenses during the three month period increased from $60
thousand in 1997 to $3.0 million in 1998. The increase came about from seismic
acquisition operating expenses of $2.9 million in the current quarter, as
compared to $0 in the same quarter a year ago. Depreciation and amortization
increased from $20 thousand to $898 thousand due primarily to acquisitions of
operating companies and increases in capital expenditures over the last nine
months associated with the Company's seismic acquisition activities. General and
administrative expenses increased from $198 thousand in the first quarter of
1997 to $1.1 million in the first quarter of 1998 due to significant personnel
increases and costs associated with the repositioning of the Company as a
provider of seismic acquisition services to the oil and gas industry. Interest
expense increased from $187 thousand to $460 thousand. The increased interest
cost is a result primarily from additional equipment financing required for the
growth of the Company's seismic acquisition activities.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The seismic acquisition industry is capital intensive and the Company
will need to raise additional capital to implement its business strategy. The
cost of sophisticated seismic acquisition equipment has increased significantly
over the last several years. The Company's ability to expand its business
operations is dependent upon the availability of internally generated cash flow
and external financing alternatives. Such financing may consist of bank or
commercial debt, forward sales of production, equity or debt securities or any
combination thereof. There can be no assurance that the Company will be
successful in obtaining additional financing when required. Any substantial
alteration or increase in the Company's capitalization through the issuance of
debt or equity securities or otherwise may significantly decrease the financial
flexibility of the Company. Due to the uncertainties respecting the changing
market for seismic services, technological changes, and other matters associated
with the Company's operations, the Company is unable to estimate the amount of
any financing that it may need to acquire, upgrade and maintain seismic
equipment and continue its diversification as a full-scale geotechnology
enterprise. If the Company is unable to obtain such financing when needed, it
will be forced to curtail its business objectives, and to finance its business
activities with only such internally generated funds as may then be available.
At March 31, 1998, the Company had cash balances of $1.0 million. The
Company feels this cash and the anticipated cash flow from its seismic
acquisition operations are sufficient to meet the working capital requirements
of its seismic acquisition operations for the foreseeable future.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
On February 10, 1998, the Registrant filed a Current Report on
Form 8-K to report the acquisition of Reliable Exploration,
Incorporated (Item 2). No financial statements were included
in such Form 8-K.
<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: May 14, 1998 /s/ JAY D. HABER
Jay D. Haber
Chief Executive Officer
/s/THOMAS J. CONCANNON
Thomas J. Concannon
Vice President and CFO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,111,331
<SECURITIES> 1,000,000
<RECEIVABLES> 4,523,231
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,905,041
<PP&E> 16,935,161
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,363,901
<CURRENT-LIABILITIES> 9,721,247
<BONDS> 0
0
0
<COMMON> 183,268
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,363,901
<SALES> 0
<TOTAL-REVENUES> 5,798,508
<CGS> 0
<TOTAL-COSTS> 4,978,760
<OTHER-EXPENSES> 437,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 381,853
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 381,853
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0
</TABLE>
