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, 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 (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, 1998, there were 19,326,816 shares of Registrant's common stock
($.01 par value) outstanding.
<PAGE>
GEOKINETICS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements . . . . . . . . . . . . . . . . . 4
Condensed Statements of Financial Position
June 30, 1998 and December 31, 1997 . . . . . . . . 4
Condensed Statements of Operations
Three Months and Six Months Ended
June 30, 1998 and 1997 . . . . . . . . . . . . . 6
Condensed Statements of Cash Flow
Three Months Ended
June 30, 1998 and 1997 . . . . . . . . . . . . . . 7
Notes to Interim Financial Statements . . . . . . . . . . 8
Pro forma Financial Statements Information. . . . . . . . 9
Item 2. Management's Discussion and
Analysis or Plan of Operation . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
June 30 December 31
1998 1997
Unaudited (*)
----------- -----------
Current Assets:
Cash ........................................ $ 6,554,457 $ 2,055,564
Cash-restricted ............................. 49,145 157,117
Receivables ................................. 9,789,245 4,218,234
Prepaid expenses ............................ 357,261 367,687
Accrued interest ............................ 395 11,221
----------- -----------
Total Current Assets ................... 16,750,503 6,809,823
Property and Equipment:
Proved oil and gas Properties (net of
depletions (successful efforts
method for oil and gas properties ........ 700,667 708,353
Equipment (net of depreciation) ............ 27,197,720 16,454,416
Buildings (net of depreciation) ............ 262,645 128,106
Land ....................................... 23,450 23,450
----------- -----------
Total Property and Equipment .......... 28,184,482 17,314,325
Other Assets:
Deferred tax benefit ....................... 2,236,077 2,292,430
Deferred charges ........................... 273,178 60,316
Restricted investments ..................... 106,700 71,700
Deposits ................................... 74,720 4,776
Other ...................................... 13,194 0
Goodwill ................................... 32,425,812 1,949,626
----------- -----------
Total Other Assets ..................... 35,129,681 4,378,848
----------- -----------
Total Assets ....................... $80,064,666 $28,502,996
=========== ===========
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
Unaudited (*)
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt .......... $ 4,201,775 $ 3,463,660
Accounts payable ............................... 5,628,302 2,282,037
Accrued liabilities ............................ 2,853,094 1,049,119
Customer deposit ............................... 30,000 0
Notes payable .................................. 1,543,965 896,686
Due to officer and shareholders ................ 208,433 164,206
Advances for lease bank ........................ 260,500 260,500
Site restoration costs ......................... 6,418 6,418
------------ ------------
Total Current Liabilities .................. 14,732,487 8,122,626
Long -Term Liabilities:
Long- term debt (Net of OID of
$ 8,902,755)................................... 42,391,573 12,129,420
Deferred income tax ............................ 222,045 0
------------ ------------
Total Liabilities ......................... 42,613,618 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 01/01/98 .. 0 1,000,000
Common stock, $.01 par value, 100,000,000 shares
authorized , 19,326,816 shares outstanding at
6/30/98, and 18,326,816 shares outstanding at
12/31/97 ...................................... 193,268 165,985
Additional paid in capital ..................... 29,112,401 14,017,394
Accumulated deficit ............................ (6,587,108) (6,932,429)
------------ ------------
Total Stockholders' Equity ................. 22,718,561 8,250,950
------------ ------------
Total Liabilities and
Stockholders' Equity .................. $ 80,064,666 $ 28,502,996
============ ============
</TABLE>
* 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)
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Seismic revenues ................. $ 5,895,795 $ 0 $ 11,587,134 $ 0
Data processing operations ....... 2,400,236 0 2,400,236 0
Oil and gas sales ................ 57,213 98,386 106,958 224,347
Operating fees ................... 57,654 60,025 115,078 117,675
Gain (loss) on sale of
asset ........................... 0 (73,441) 0 (73,441)
------------ ----------- ------------ -----------
Total Revenues ............... 8,410,898 84,970 14,209,406 268,581
Expenses:
General and administrative ...... $ 1,244,315 $ 280,956 $ 2,368,408 $ 478,914
Seismic operating expenses ....... 3,689,509 0 6,566,032 0
Data processing expense .......... 636,209 0 636,209 0
Lease operating expenses ......... 69,774 54,925 150,206 114,037
Amortization expense ............. 635,524 4,983 683,294 9,965
Depletion expense ................ 3,843 14,382 7,686 29,196
Depreciation expense ............. 973,417 670 1,819,516 1,339
------------ ----------- ------------ -----------
Total Expenses ............... 7,252,591 355,916 12,231,351 633,451
------------ ----------- ------------ -----------
Income (Loss) from operations ........ $ 1,158,307 $ (270,946) $ 1,978,055 $ (364,870)
Other Income:
Interest income ................. 76,515 0 93,517 170
Other income .................... 10 0 4,910 0
Interest expense ................ (1,271,365) (174,821) (1,731,162) (359,061)
------------ ----------- ------------ -----------
Total Other Income (Expense) (1,194,840) (174,821) (1,632,735) (358,891)
Income (Loss) before provision
for income tax ..................... $ (36,533) $ (445,767) $ 345,320 $ (723,761)
------------ ----------- ------------ -----------
Net Income (Loss) .................... $ (36,533) $ (445,767) $ 345,320 $ (723,761)
============ =========== ============ ===========
Earnings (Loss) per Common Share ..... $ (0.002) $ (0.09) $ 0.02 $ (0.15)
============ =========== ============ ===========
Earnings (loss) per
Share-assuming dilution ............. $ (0.001) $ (0.05) $ 0.01 $ (0.09)
============ =========== ============ ===========
Weighted average Common Shares
outstanding ........................ 19,008,135 4,953,288 18,615,352 4,953,288
============ =========== ============ ===========
Fully Diluted Common Shares .......... 42,938,788 8,162,534 42,546,005 8,162,534
============ =========== ============ ===========
</TABLE>
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
Three Months Ended
June 30
(unaudited)
--------------------------
1998 1997
------------ ---------
Cash flows from operating activities:
Cash received from customers ................ $ 6,687,407 $ 230,837
Interest and dividends received ............. 76,515 0
Cash paid to suppliers and employees ........ (2,659,463) (386,311)
Interest paid ............................... (467,637) (216,536)
------------ ---------
Net cash provided (used) by operating
activities ............................ 3,636,822 (372,010)
------------ ---------
Cash flows from investing activities:
Payments for purchase of property and
equipment .................................. (10,571,642) 0
Cash payment for escrow deposit-property
investment ................................. 0 202
Acquisition of Geophysical Development
Corporation ................................ (26,000,000) 0
Acquisition earnest money refunded ........... 1,000,000 0
------------ ---------
Net cash provided (used) by investing
activities ............................ (35,571,642) 202
------------ ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ... 40,000,000 0
Proceeds from short-term debt ............... 0 500,000
Principal payments on long-term debt ........ (937,760) (79,750)
Principal payments on short-term debt ....... (1,661,257) 0
Principal payments on loan to officers ...... (24,696) 0
------------ ---------
Net cash provided (used) by financing
activities ............................ 37,376,287 420,250
------------ ---------
Net increase (decrease) in cash ................. 5,441,467 48,442
Cash acquired in aquisition ..................... 50,805 0
Cash, beginning of period ....................... 1,111,330 201,599
------------ ---------
Cash, end of period ............................. $ 6,603,602 $ 250,041
============ =========
<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 June 30, 1998, the Company's long-term debt was $46,593,348, including
$4,201,775 which represents current maturities. Long-term debt is presented net
of unamortized original issue discount, totaling $8,902,755. Long-term debt
consists primarily of (i) 12% senior subordinated notes, in the amount of
$40,000,000, (ii) a note to a financial institution, bearing interest at prime
plus 1 1/2 %, in the amount of $4,226,334, (iii) a note to Input/Output Inc.,
bearing interest at 12%, in the amount of $6,945,409, (iv) a note to
Input/Output, Inc. bearing interest at 10%, in the amount of $2,557,117 and (v)
a note to a financial institution bearing interest at prime, in the amount of
$1,251,230.
<PAGE>
GEOKINETICS INC.
Pro Forma Financial Statement Information
ACQUISITIONS
On April 30, 1998, the Company completed the acquisition of Geophysical
Development Corporation (GDC) pursuant to the terms of a Stock Purchase
Agreement, whereby the Company acquired 100% of the outstanding capital stock of
GDC in exchange for $26,000,000 in cash and 1,000,000 newly-issued shares of the
Company's common stock. GDC is engaged in the business of providing seismic data
processing, software and consultation services to the oil and gas industry.
The acquisition has been accounted for as a purchase and the results of
operations of GDC have been included in the consolidated financial statements
from the date of acquisition, April 30, 1998. The following represents the
unaudited pro forma results of operations as if the acquisition had occurred at
the beginning of the second quarter, and therefore includes the results of
operations of GDC during the period April 1, 1998 through April 30, 1998. In
addition to combining the historical results of operations of the two companies,
the pro forma calculations include amortization of goodwill. Excess of cost over
the fair value of the assets acquired of $27,967,807 is being amortized on a
straight-line basis over 10 years.
GEOKINETICS INC.
QUARTER ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
GEOPHYSICAL
GEOKINETICS DEVELOPMENT
INC. CORPORATION ADJUSTMENTS COMBINED
-------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ........................ $ 8,410,898 $ 2,097,038 0 10,507,936
Seismic Operating Expenses ...... (3,689,509) 0 0 (3,689,509)
General and Administrative ...... (1,244,315) (253,283) 0 (1,497,598)
Amortization, Depreciation and
Depletion Expense ............... (1,612,784) (55,041) (235,657) (1,903,482)
Lease Operating Expenses ........ (69,774) 0 0 (69,774)
Other Income .................... 10 0 0 10
Data Processing Expenses ........ (636,209) (520,263) 0 (1,156,472)
Interest Income ................. 76,515 16,114 0 92,629
Interest Expense ................ (1,271,365) (9,795) (461,192) (1,742,352)
Income Tax (expense) Benefit .... 0 (433,422) 156,805 (276,617)
------------ ------------ -------- -----------
NET INCOME (LOSS) ............... (36,533) 841,348 (540,043) 264,771
============ ============ ======== ===========
Earnings (loss) per common share $ (0.002) $ 0.014
============ ===========
Earnings (loss) per share ....... $ (0.001) $ 0.006
Assuming dilution ============ ===========
Weighted average common
shares outstanding ........... 19,008,135 19,008,135
============ ===========
Fully Diluted common shares ..... 42,938,788 42,938,788
============ ===========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At June 30, 1998, the Company's financial position reflects (i) the
seismic acquisition services being conducted by Quantum Geophysical, Inc.,
Signature Geophysical Services, Inc. and Reliable Exploration, Inc., (ii) the
seismic data processing, software and consultation services being provided by
Geophysical Development Corporation, and (iii) the Company's ongoing oil and gas
operations. On April 30, 1998, the Company completed the acquisition of 100% of
the issued and outstanding capital stock of GDC, a Houston, Texas based provider
of seismic data processing, software and consultation services.
At June 30, 1998, the Company was 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
7,200 channels. All of the Company's crews are operating in the United States,
with one performing seismic acquisition services in the Gulf Coast region and
three performing such services in the Rocky Mountain region. A fifth seismic
acquisition crew, consisting of Input/Output RSR equipment with recording
capacity of 3,000 channels, will begin operations during the third quarter of
1998. It is anticipated that this crew will initially be deployed in the Rocky
Mountain region of the United States.
RESULTS OF OPERATIONS
Revenues for the three months ended June 30, 1998 were $8,410,898 as
compared to $84,970 for the three months ended June 30, 1997. This increase is
attributable to revenues generated by the Company's seismic acquisition
operations and revenues attributable to its recently acquired seismic data
processing operations. Neither of these lines of business were operational
during the three months ended June 30, 1997. Revenues generated by these
operations for the three months totaled $8,296,031.
Operating expenses for the three month period increased from $54,925 in
1997 to $4,395,492 in 1998. This increase is directly attributable to the
Company's seismic acquisition operations and newly acquired seismic data
processing operations. These operations generated operating expenses of
$3,689,509 and $636,209 respectively during the three months ended June 30,
1998. Operating expense as a percentage of revenues was 52% during the period
ended June 30, 1998.
General and administrative expenses for the three months ended June 30,
1998 totaled $1,244,315 as compared to $280,956 for the three months ended June
30, 1997. This increase is due primarily to increased activity in the Company's
seismic acquisition operations and expenses related to the Company's recently
acquired seismic data processing business.
<PAGE>
Depreciation and amortization expense for the three months ended June 30,
1998 was $1,612,784 as compared to $20,035 for the period ended June 30, 1997.
This increase is due to depreciation associated with the Company's seismic
acquisition equipment and amortization of goodwill generated by the Company's
recent acquisitions. In the same period ending in 1997, depreciation and
amortization expense only applied to the Company's oil and gas operations.
Interest expense (net of interest income) for the three months ended June
30, 1998 was $1,194,840 as compared to $174,821 for the period ended June 30,
1997. This increase is a result of additional equipment financing required for
the growth of the Company's seismic acquisition operations and the Company's
closing of a $40,000,000 12% senior subordinated debt financing, due 2005,
during the three month period ending June 30, 1998. The proceeds from this
financing were utilized by the Company to acquire GDC and purchase additional
seismic acquisition equipment which will allow the Company to field a fifth
seismic crew.
The Company had a net loss of $36,522, or ($0.002) per share, for the
three months ended June 30, 1998 as compared to a net loss of $445,767, or
($0.09) per share for the three month period ended June 30, 1997, resulting
primarily from increased revenues as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On April 30, 1998, the Company completed a private offering of $40,000,000 of
seven year 12% senior subordinated notes with an investment group led by DLJ
Investment Partners, L.P., an affiliate of Donaldson Lufkin and Jenrette
Securities Corporation. Additionally, the Company (i) granted warrants to the
note purchasers entitling them to purchase up to an aggregate of 7,618,594
shares of common stock at a price of $2.00 per share, (ii) caused certain of its
wholly owned subsidiaries to execute guarantees of the notes pursuant to an
indenture executed by the company and (iii) granted certain registration rights
in favor of the note holders. The notes call for semi-annual interest payments
with principal due at maturity.
At June 30, 1998, the Company had working capital of $2,018,016, which
includes the current portion of long-term debt of $4,201,775. At June 30, 1997
the Company had a working capital deficiency of $1,312,803.
The seismic acquisition industry is capital intensive and the Company will
need to raise additional capital to implement its business stategy. The cost of
sophisticated seismic acquisition equipment has increased significantly over the
last several year. The Company's ability to expand its business operations is
dependent upon the availability of internally generated cash flow and external
financing activities. 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 uncertainties regarding 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
<PAGE>
of any financing that it may need to acquire, upgrade and maintain seismic
equipment and continue it 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.
On June 30, 1998, the Company had cash balances of $6,603,602. The Company
feels this cash and the anticipated cash flow from its seismic acquisition and
data processing operations are sufficient to meet the working capital
requirements of its seismic acquisition and date processing operations for the
foreseeable future.
ITEM 5. OTHER INFORMATION
The Company conducts field operations in states under whose statutes
certain of the services provided by the Company may be subject to state sales
tax. The Company's financial statements currently reflect a liability of
$142,734 for such taxes arising from prior operations of a subsidiary. The
Company is currently evaluating whether the liability presently recorded
sufficiently reflects the ultimate liability resulting from these state sales
taxes and whether the former owners of the subsidiary are responsible for such
taxes.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On May 15, 1998, the Registrant filed a Current Report on
Form 8-K to report the acquisition of Geophysical Development
Corporation (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: August 14, 1998 /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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,603,602
<SECURITIES> 106,700
<RECEIVABLES> 9,789,245
<ALLOWANCES> 0
<INVENTORY> 700,667
<CURRENT-ASSETS> 16,750,503
<PP&E> 27,483,815
<DEPRECIATION> 0
<TOTAL-ASSETS> 80,064,666
<CURRENT-LIABILITIES> 14,732,487
<BONDS> 0
0
0
<COMMON> 193,268
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 80,064,666
<SALES> 0
<TOTAL-REVENUES> 14,209,406
<CGS> 0
<TOTAL-COSTS> 12,231,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 345,320
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345,320
<EPS-PRIMARY> .02
<EPS-DILUTED> .01
</TABLE>
