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, 1999
--------------------------------------------------
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)
8401 WESTHEIMER, SUITE 150 HOUSTON, TEXAS 77063
- --------------------------------------- -------------------------------------
(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, 1999, there were 19,367,156 shares of Registrant's common stock
($.01 par value) outstanding.
<PAGE>
GEOKINETICS INC.
INDEX
PART I FINANCIAL PAGE NO. INFORMATION PAGE NO.
--------
Item 1. Financial Statements ........................ 3
Condensed Statements of Financial Position
September 30, 1999 and December 31, 1998 3
Condensed Statements of Operations
Three Months and Nine Months Ended
September 30, 1999 and 1998 ............. 5
Condensed Statements of Cash Flows
Three Months Ended
September 30, 1999 and 1998 ............ 6
Notes to Interim Financial Statements ......... 7
Item 2. Management's Discussion and
Analysis or Plan of Operation ........... 8
PART II OTHER INFORMATION
Item 5. Other Information .......................... 10
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>
SEPTEMBER 30 DECEMBER 31
1999 1998
UNAUDITED UNAUDITED
----------- -----------
<S> <C> <C>
Current Assets:
Cash ................................................. $ 2,221,025 $ 2,705,581
Receivables .......................................... 2,478,066 7,385,425
Prepaid expenses ..................................... 176,436 490,098
----------- -----------
Total Current Assets ............................. 4,875,527 10,581,104
Property and Equipment:
Proved oil and gas Properties (net of depletion) ..... 0 695,439
(successful efforts method for oil and gas properties)
Equipment (net of depreciation) ...................... 21,345,440 26,376,730
Buildings (net of depreciation) ...................... 271,489 279,893
Land ................................................. 23,450 23,450
----------- -----------
Total Property and Equipment .................... 21,640,379 27,375,512
Other Assets:
Deferred charges ..................................... 658,036 417,938
Restricted investments ............................... 106,700 106,700
Other assets ......................................... 64,632 99,632
Goodwill ............................................. 28,827,534 30,957,183
----------- -----------
Total Other Assets ............................... 29,656,902 31,581,453
----------- -----------
Total Assets ................................. $56,172,808 $69,538,069
=========== ===========
</TABLE>
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
UNAUDITED UNAUDITED
------------ ------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt ............. $ 4,175,848 $ 5,210,380
Accounts payable ................................. 1,617,211 4,822,802
Accrued liabilities .............................. 9,186,007 4,352,380
Notes payable .................................... 1,813,490 2,151,405
Advances for lease bank .......................... 185,500 260,500
Other current liabilities ........................ 1,040,979 51,848
------------ ------------
Total Current Liabilities .................... 18,019,035 16,849,315
Long-Term Liabilities:
Long-term debt, net of current maturities ........ 40,842,599 40,062,071
Deferred income tax .............................. 222,045 222,045
------------ ------------
Total Liabilities ........................... 59,083,679 57,133,431
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 19367,156 outstanding 193,671 193,325
Additional paid in capital ....................... 29,121,035 29,112,344
Accumulated deficit .............................. (32,225,577) (16,901,031)
------------ ------------
Total Stockholders' Equity ................... (2,910,871) 12,404,638
------------ ------------
Total Liabilities and Stockholders' Equity $ 56,172,808 $ 69,538,069
------------ ------------
</TABLE>
4
<PAGE>
GEOKINETICS INC.
Condensed Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Seismic revenues ..................... $ 721,432 $ 5,910,429 $ 3,963,222 $ 17,502,463
Data processing operations ........... 2,217,105 3,637,733 7,045,525 6,037,970
------------ ------------ ------------ ------------
Total Revenues ................... 2,938,537 9,548,162 11,008,747 23,540,433
Expenses:
General and administrative ........... $ 651,138 $ 1,281,319 $ 2,141,392 $ 3,513,307
Seismic operating expenses ........... 1,064,675 4,921,581 5,442,787 11,487,582
Data processing expense .............. 1,674,965 1,190,786 4,928,835 1,826,995
Amortization expense ................. 938,160 920,796 2,804,832 1,604,091
Depreciation expense ................. 1,658,250 1,321,410 4,975,835 3,140,927
------------ ------------ ------------ ------------
Total Expenses ................... 5,987,188 9,635,892 20,293,681 21,572,902
------------ ------------ ------------ ------------
Income (Loss) from Operations ............ $ (3,048,651) $ (87,730) $ (9,284,934) $ 1,967,531
Other Income:
Interest income ..................... 17,106 75,511 73,367 169,028
Other income ........................ 18,823 800 22,449 810
Interest expense .................... (2,328,693) (1,616,428) (5,566,600) (3,347,590)
------------ ------------ ------------ ------------
Total Other Income (Expense) ... (2,292,764) (1,540,117) (5,470,784) (3,177,752)
(Loss) from Continuing Operations
before income taxes ................. $ (5,341,415) $ (1,627,847) (14,755,718) $ (1,210,221)
Income taxes ............................. 0 2,236,077 0 2,236,077
------------ ------------ ------------ ------------
(Loss) from Continuing Operations ........ (5,341,415) (3,863,924) (14,755,718) (3,446,298)
Discontinued Operations:
Income (Loss) from operations of
discontinued segment ............ 0 (71,453) (34,396) (143,728)
Loss on disposal of discontinued
segment ......................... (565,345) 0 (565,345) 0
------------ ------------ ------------ ------------
(Loss) from Discontinued Operations ...... (565,345) (71,453) (599,741) (143,728)
------------ ------------ ------------ ------------
Net Income (Loss) ........................ $ (5,906,760) $ (3,935,377) (15,355,459) $ (3,590,026)
============ ============ ============ ============
Earnings (Loss) per Common Share
(Loss) from continuing operations .... $ (0.28) $ (0.20) $ (0.76) $ (0.18)
(Loss) from discontinued operations .. (0.03) 0 (0.03) (0.01)
------------ ------------ ------------ ------------
Net (Loss) ............................... $ (0.31) (0.20) $ (0.79) (0.19)
------------ ------------ ------------ ------------
Weighted average Common Shares Outstanding 19,356,226 19,328,047 19,340,482 18,855,528
============ ============ ============ ============
</TABLE>
5
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30
(UNAUDITED)
----------- -----------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ....................... $ 3,327,324 $ 6,453,658
Interest and dividends received .................... 17,106 75,905
Cash paid to suppliers and employees ............... (3,010,362) (5,613,091)
Interest paid ...................................... (108,303) (407,730)
----------- -----------
Net cash provided (used) by operating activities 225,765 508,742
----------- -----------
Cash flows from investing activities:
Payments for purchase of property and equipment ... (30,312) (1,957,984)
Proceeds from sale of assets ....................... 75,700 0
----------- -----------
Net cash provided (used) by investing activities 45,388 (1,957,984)
----------- -----------
Cash flows from financing activities:
Advances from noteholders .......................... 1,000,000 0
Proceeds from issuance of common stock ............. 9,037 0
Principal payments on long-term debt ............... (313,593) (1,002,551)
Principal payments on short-term debt .............. (365,889) (1,141,099)
Principal payments on loans from officers .......... 0 (20,041)
----------- -----------
Net cash provided (used) by financing activities 329,555 (2,163,691)
----------- -----------
Net increase (decrease) in cash ....................... 600,708 (3,612,933)
Cash, beginning of period .............................. 1,620,317 6,603,602
----------- -----------
Cash, end of period .................................... $ 2,221,025 $ 2,990,669
=========== ===========
</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, 1998. 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, 1998. A summary of accounting policies and other significant
information is included therein.
2. LONG TERM DEBT
At September 30, 1999, the Company's long-term debt was $45,018,447
including $4,175,848 which represents current maturities. Long-term debt is
presented net of unamortized Original Issue Discount, totaling $7,934,091. 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 $3,772,630, (iii) a note to an equipment
supplier, bearing interest at 12%, in the amount of $6,174,430, (iv) a note to
an equipment supplier, bearing interest at 10%, in the amount of $2,127,425 and
(v) a note to a financial institution bearing interest at prime, in the amount
of $429,083.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At September 30, 1999, 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. and (ii) the
seismic data processing, software and consultation services being provided by
Geophysical Development Corporation.
On October 1, 1999 the Company completed a restructuring of its
$40,000,000 12% Senior Subordinated Notes Due April 2005 (the "Prior Notes") and
received an additional $4,000,000 from the holders of the Prior Notes and
$1,000,000 from other investors. The restructuring involved the Company
exchanging the Prior Notes for its 13.5% Senior Secured Notes Due 2005 in the
aggregate principal amount of $45,358,000 (the 2005 Notes) and the Company
issued $5,000,000 of its 13.5% Senior Secured Notes Due 2002 (the 2002 Notes)
for the additional funding received on October 1, 1999. The Company granted
security interests covering substantially all of its assets as security for the
2005 Notes and 2002 Notes and caused certain of its wholly-owned subsidiaries to
execute guaranties of the 2005 Notes and the 2002 Notes. Concurrently, the
Company also completed a restructuring of its debt obligations to its principal
equipment supplier for the Company's seismic acquisition operations.
The Company's financial results continue to be negatively impacted by the
ongoing downturn in the oil service industry. This downturn resulted from the
deterioration of the price of oil which occurred in mid 1998 and continued into
early 1999. While there has been a continuing increase in the price of oil, in
relation to where it was in early 1999, the demand for the services provided by
the Company has not as yet been positively affected. The Company continues to
take steps to reduce its operating expenses in response to weakened demand for
its services. During the quarter ended September 30, 1999, the Company operated
two seismic acquisition crews, although neither crew operated on a continuous
basis. The Company anticipates that demand for its seismic acquisition and
seismic data processing services will remain weak during the fourth quarter of
1999.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 1999 were $11,008,747 as
compared to $23,540,433 for the same period of fiscal 1998, a decrease of 53%.
For the three months ended September 30, 1999 revenues totaled $2,938,537 as
compared to 9,548,162 for the same period of fiscal 1998, a decrease of 69%.
Revenues declined not only due to a weakened demand for the Company's services
but also due to a significant reduction in the pricing that the Company is able
to charge its customers for the services it is currently providing.
8
<PAGE>
Operating expenses for the nine months ended September 30, 1999 were
$10,371,622 as compared to $13,314,577 for the same period of fiscal 1998, a
decrease of 22%. For the three month period ended September 30, 1999 operating
expenses decreased from $6,112,367 in 1998 to $2,739,640 in 1999, a decrease of
55%. The decrease in operating expenses is a result of the Company's ongoing
efforts to reduce its costs by implementing staff reductions and limiting third
party expenditures as well as a continued weakening in demand for the Company's
services.
General and Administrative expenses for the nine month period ended
September 30, decreased from $3,513,307 in 1998 to $2,141,392 in 1999, a
decrease of 39%. For the three months ended September 30, 1999, General and
Administrative expenses totaled $651,138 as compared to $1,281,319 for the same
period of fiscal 1998, a decrease of 49%. During the fourth quarter of 1998, the
Company reclassified certain costs previously recorded as General and
Administrative expenses, to better reflect seismic industry standards. If this
reclassification had occurred at the beginning of fiscal 1998, General and
Administrative expenses would have been $2,080,317 for the nine month period
ended September 1998.
Depreciation and Amortization expense for the nine months ended September
30, 1999 totaled $7,780,667, an increase of $3,035,649 from the same period of
fiscal 1998. This increase is a result of purchases of seismic acquisition
equipment during 1998 and the purchase of GDC in April of 1998, which created
significant additional amortization of goodwill.
Interest expense (net of interest income) for the nine months ended
September 30, 1999 totaled $5,470,784 as compared to $3,177,752 for the period
ending September 30, 1998, an increase of 72%. For the three month period ending
September 30, 1999 interest expense totaled $2,292,764, an increase of 49% from
the same period of fiscal 1998. On October 1, 1999, the Company completed a
restructuring of its $40,000,000 12% Senior Subordinated Notes due 2005 by
exchanging those notes for its 13.5% Senior Secured Notes due 2005. This
restructuring resulted in the Company recognizing an additional $758,000 one
time charge to interest expense during the third quarter of 1999. This
transaction is responsible for the 49% increase in interest expense during the
third quarter of 1999.
During the third quarter of 1999, the Company disposed of its oil and gas
properties. This transaction resulted in a one time charge of $565,345.
The Company had a net loss of $15,355,459, or ($0.79) per share, for the
nine months ended September 30, 1999 as compared to net loss of $3,590,026, or
($0.19) per share, for the nine months ended September 30, 1998. For the three
months ended September 30, 1999 the Company had a net loss of $5,906,760, or
($0.31) per share, as compared to a net loss of $3,935,377, or ($0.20) per
share, for the three months ended September 30, 1998. The Company's overall
results continue to be negatively effected by the continuing downturn in the oil
service sector which has caused a significant reduction in the demand for the
Company's services.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In December of 1998, the Company temporarily suspended principal payments
on approximately $9.9 million of indebtedness owed to its principal equipment
supplier. The Company completed a restructuring of this debt on October 1, 1999.
At September 30, 1999, the Company had cash balances of $2,221,025. The
Company believes this cash, the additional cash received in its October 1, 1999
debt restructuring and anticipated cash flow from its seismic acquisition and
data processing operations will be sufficient to meet the working capital
requirements of its seismic acquisition and data processing operations for the
immediate future.
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, 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 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.
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 1, 1999, the Company completed a restructuring of its
$40,000,000 12% Senior Subordinated Notes Due April 2005. The notes were held by
an Investment Group led by DLJ Investment Partners, L.P. ("Investment Group").
The Company exchanged its 12% Senior Subordinated Notes Due April 2005 for its
13.5% Senior Secured Notes Due 2005 in an aggregate principal amount of
$45,358,000, representing both principal and past due interest (the 2005 Notes).
In addition, the Company received $4,000,000 from the Investment Group and an
additional $1,000,000 from other investors for a total infusion of $5,000,000.
In exchange for these additional funds, the Company issued $5,000,000 of its
13.5% Senior Secured Notes Due 2002 (the 2002 Notes). The Company granted
security interests covering substantially all of the Company's assets as
security for the 2005 Notes and the 2002 Notes and caused certain of its
wholly-owned subsidiaries to execute guaranties of the 2005 Notes and the 2002
Notes. Concurrently, the Company also completed a restructuring of its debt
obligations to its principal equipment supplier for the Company's seismic
acquisition operations.
10
<PAGE>
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 has determined that its subsidiary collected sales taxes from customers
and failed, in certain instances, to remit such taxes to the appropriate taxing
authorities. The Company is in the process of making the necessary tax filings
and intends to pursue the former owners of the subsidiary for the entire
liability which the subsidiary is obligated to pay.
On July 28, 1999 the Company sold all of the outstanding stock of HOC
Operating Co., Inc., a wholly-owed subsidiary of the Company, to Halex Oil
Corporation pursuant to the terms of a Stock Purchase agreement. This
transaction completes the discontinuance of the Company's oil and gas
operations.
The Company is evaluating the impact of the year 2000 on its computer
systems in both operating and financial applications and has developed an action
plan which includes a task force to evaluate the Company's major vendors' year
2000 compliance. The Company is in the process of installing a new, previously
planned general ledger system that will be year 2000 compliant. The Company
believes the impact of the year 2000 and related costs of compliance will not
have any material impact on its operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
On August 12, 1999, the Registrant filed a Current Report on
Form 8-K under Item 2 thereof concerning the sale of HOC Operating Co., Inc. No
financial statements were included in such Form 8-K.
11
<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 15, 1999
---------------------------
Thomas J. Concannon
Vice President and CFO
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,221,025
<SECURITIES> 0
<RECEIVABLES> 2,478,066
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,875,527
<PP&E> 21,640,379
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,172,808
<CURRENT-LIABILITIES> 18,019,035
<BONDS> 0
0
0
<COMMON> 193,671
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 56,172,808
<SALES> 0
<TOTAL-REVENUES> 2,938,537
<CGS> 0
<TOTAL-COSTS> 5,987,188
<OTHER-EXPENSES> 2,292,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,906,760
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,906,760)
<EPS-BASIC> (.31)
<EPS-DILUTED> 0
</TABLE>
