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, 2000
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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
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GEOKINETICS INC.
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(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
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(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, 2000, there were 18,992,156 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
September 30, 2000 and December 31, 1999....... 3
Condensed Statements of Operations
Three Months and Nine Months Ended
September 30, 2000 and 1999.................... 5
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999.. 6
Notes to Interim Financial Statements.............. 7
Item 2. Management's Discussion and
Analysis or Plan of Operation.................. 10
PART II. OTHER INFORMATION
Item 5. Other Information.................................. 13
Item 6. Exhibits and Reports on Form 8-K................... 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
SEPTEMBER 30 DECEMBER 31
2000 1999
UNAUDITED AUDITED
--------------- ---------------
Current Assets:
Cash .................................... $ 662,772 $ 2,677,996
Receivables ............................. 3,858,412 3,272,110
Prepaid expenses ........................ 377,234 411,489
--------------- ---------------
Total Current Assets .................. 4,898,418 6,361,595
Property and Equipment:
Equipment, net of depreciation .......... 8,075,594 11,586,033
Buildings, net of depreciation .......... 257,100 268,444
Land .................................... 23,450 23,450
--------------- ---------------
Total Property and Equipment .......... 8,356,144 11,877,927
Other Assets:
Note receivable ......................... 250,000 --
Deferred charges ........................ 38,534 44,534
Restricted investments .................. 121,700 106,700
Other assets ............................ 48,319 78,097
Goodwill ................................ 22,873,368 25,781,443
--------------- ---------------
Total Other Assets .................... 23,331,921 26,010,774
--------------- ---------------
Total Assets ........................ $ 36,586,483 $ 44,250,296
=============== ===============
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
UNAUDITED AUDITED
--------------- ---------------
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt ................................................. $ 552,608 $ 713,280
Current portion of capital lease ..................................................... 275,761 --
Accounts payable ..................................................................... 2,619,259 1,182,144
Accrued liabilities .................................................................. 7,708,219 4,229,882
Notes payable ........................................................................ -- 398,109
Advances for lease bank .............................................................. 180,000 185,500
Other current liabilities ............................................................ 9,838 21,418
--------------- ---------------
Total Current Liabilities ........................................................ 11,345,685 6,730,333
Long-Term Liabilities:
Long-term debt, net of current maturities ............................................ 54,315,585 51,267,997
Capital lease, net of current maturities ............................................. 42,963 --
--------------- ---------------
Total Long-Term Liabilities ...................................................... 54,358,548 51,267,997
Other Liabilities:
Deferred gain ........................................................................ -- 359,974
--------------- ---------------
Total Liabilities ............................................................... 65,704,233 58,358,304
Stockholders' Equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 19,367,156 shares issued .............................................. 193,672 193,672
Additional paid in capital .......................................................... 33,019,248 33,019,248
Accumulated deficit ................................................................. (62,188,170) (47,320,928)
--------------- ---------------
(28,975,250) (14,108,008)
Less common stock in treasury at cost -
375,000 shares in 2000 ............................................................ (142,500) --
--------------- ---------------
Total Stockholders' Equity ....................................................... (29,117,750) (14,108,008)
--------------- ---------------
Total Liabilities and Stockholders' Equity ................................... $ 36,586,483 $ 44,250,296
=============== ===============
</TABLE>
4
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GEOKINETICS INC.
Condensed Statements of Operations
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(UNAUDITED) (UNAUDITED)
-------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Seismic revenue ................................ $ 3,525,102 $ 721,432 $ 5,301,681 $ 3,963,222
Data processing revenue ........................ 1,236,696 2,217,105 4,458,559 7,045,525
------------ ------------ ------------ ------------
Total Revenues ............................. 4,761,798 2,938,537 9,760,240 11,008,747
Expenses:
General and administrative ..................... 439,709 651,138 1,500,287 2,141,595
Seismic operating expense ...................... 4,142,124 1,064,675 7,506,902 5,442,787
Data processing expense ........................ 1,223,129 1,674,965 3,989,837 4,928,835
Amortization expense ........................... 1,002,268 938,160 3,006,805 2,804,832
Depreciation expense ........................... 1,000,209 1,658,250 3,000,627 4,975,019
------------ ------------ ------------ ------------
Total Expenses ............................. 7,807,439 5,987,188 19,004,458 20,293,068
------------ ------------ ------------ ------------
Loss from Operation: ............................... (3,045,641) (3,048,651) (9,244,218) (9,284,321)
Other Income (Expense):
Interest income ............................... 19,530 17,106 74,066 72,114
Other income .................................. 500 18,823 88,985 22,449
Interest expense .............................. (1,971,902) (2,328,693) (5,786,075) (5,539,776)
------------ ------------ ------------ ------------
Total Other Income (Expense) ............. (1,951,872) (2,292,764) (5,623,024) (5,445,213)
Loss before provision for income tax ............... (4,997,513) (5,341,415) (14,867,242) (14,729,534)
Provision for income tax ........................... -- -- -- --
Loss before discontinued operations ................ (4,997,513) (5,341,415) (14,867,242) (14,729,534)
Loss from Discontinued Operations:
Loss from oil & gas operations ................ -- -- -- (60,580)
Loss on disposition of oil & gas
operations ................................ -- (565,345) -- (565,345)
------------ ------------ ------------ ------------
Loss from Discontinued Operations .................. -- (565,345) -- (625,925)
------------ ------------ ------------ ------------
Net Loss ........................................... $ (4,997,513) $ (5,906,760) $(14,867,242) $(15,355,459)
============ ============ ============ ============
Loss per Common Share - Basic
Loss from continuing operations ................ $ (0.26) $ (0.28) $ (0.78) $ (0.76)
Loss from discontinued operations .............. -- (.03) -- (.03)
------------ ------------ ------------ ------------
Net Loss ........................................... $ (0.26) $ (0.31) $ (0.78) $ (0.79)
============ ============ ============ ============
Weighted average common shares and
equivalents outstanding .......................... 18,992,156 19,356,226 19,064,692 19,340,482
============ ============ ============ ============
</TABLE>
5
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
(UNAUDITED)
--------------- ---------------
2000 1999
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss ................................................................................. $ (14,867,242) $ (15,355,459)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities
Depreciation and amortization ....................................................... 6,007,432 7,780,667
Loss on disposal of discontinued segment ............................................ -- 565,345
Deferred gain, net of write-down .................................................... (116,544) --
Changes in operating assets and liabilities
Accounts receivable and work in progress ........................................ (1,044,264) 4,907,359
Prepaid expenses and other assets ............................................... (158,298) 108,564
Accounts payable ................................................................ 1,641,072 (3,205,591)
Accrued liabilities and deferred revenue ........................................ 7,596,284 4,944,602
--------------- ---------------
Net cash (used) in operating activities ..................................... (941,560) (254,513)
INVESTING ACTIVITIES
Receipt of deposits and other ....................................................... 52,742 21,504
Proceeds from sale of assets ........................................................ -- 75,700
Purchases of capital assets ......................................................... (146,584) (148,017)
--------------- ---------------
Net cash provided (used) in investing activities ............................ (93,842) (50,813)
FINANCING ACTIVITIES
Proceeds from long term debt ........................................................ 120,345 --
Proceeds from short term debt ....................................................... -- 765,493
Advances from noteholders ........................................................... -- 1,000,000
Proceeds from common stock .......................................................... -- 9,037
Principal paid on long term debt .................................................... (866,441) (833,717)
Principal paid on short term debt ................................................... (244,585) (1,120,043)
--------------- ---------------
Net cash (used) in financing activities ..................................... (990,681) (179,230)
Net (decrease) in cash ................................................................... (2,026,083) (484,556)
Cash deficit of subsidiary sold .......................................................... 10,859 --
Cash at beginning of period .............................................................. 2,677,996 2,705,581
--------------- ---------------
Cash at end of period .................................................................... $ 662,772 $ 2,221,025
=============== ===============
</TABLE>
6
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS
1. METHOD AND BASIS 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, 1999. A summary of accounting policies and
other significant information is included therein.
These financial statements are prepared assuming that the Company will
continue as a going concern. They do not include any adjustments relating to the
recoverability and classification of recorded assets or the amounts and
classification of liabilities that would be necessary in the event the Company
cannot continue in existence.
During 1999 the seismic service industry experienced an unprecedented
downturn which severely constrained the Company's working capital position.
During this period, management developed a financial and operational plan to
carry the Company's operations through the year 2000. One component of this plan
included a restructuring of the Company's long term debt, which was completed in
the fourth quarter of 1999. The restructuring provided the Company with
additional funding, in the amount of $5,895,000, and the option, during 2000, to
make interest payments due on its 13.5% Senior Secured Notes either in cash or
by issuing additional notes. The plan also included disposing of the Company's
oil and gas operations and one of its seismic acquisition subsidiaries.
As a result of the above outlined conditions and plan implementation, the
Company incurred a loss of approximately $30.4 million during 1999 and a loss of
approximately $14.9 million incurred in the first nine months of 2000. These
results have left the Company with a deficit equity position of approximately
$29 million at September 30, 2000.
The Company is currently in default on an operating lease with its
principal equipment supplier. The Company and such supplier are currently
conducting negotiations to resolve this situation. The Company believes that
this situation will be resolved to the satisfaction of both parties by November
30, 2000. However, it is possible that a satisfactory result will not be
attained. If this occurs, the Company will have difficulty in meeting its
ongoing financial obligations in a timely manner.
Management believes that this plan, along with the deferral of certain
accrued expenses and the satisfactory resolution of the above noted default,
will provide sufficient liquidity to continue operations through 2000. As noted
above, the Company has the option to avoid making cash interest payments on its
13.5% Senior Secured Notes during 2000. As presently structured, the Company
will be required to make a cash interest payment of approximately $3.9 million
on March 15, 2001. Under current conditions, continued operations by the Company
through the due date for this payment will be dependent upon a continued
forbearance by the holders of the Company's 13.5% Senior Secured Notes.
7
<PAGE>
2. LONG TERM DEBT
At September 30, 2000, the Company's long term debt was $54,868,193,
including $552,608 in current maturities. Long term debt is presented net of
unamortized Original Issue Discount, totaling $2,938,513. Long term debt
consists primarily of (i) 13 1/2% Senior Secured Notes, due 2005, in the amount
of $48,164,526, (ii) 13 1/2% Senior Secured Notes, due 2002, in the amount of
$6,239,616 and (iii) a note to a financial institution, bearing interest at
prime plus 1 1/2%, in the amount of $3,294,551.
3. SALE OF SUBSIDIARY
The Company sold its wholly-owned subsidiary, Reliable Exploration, Inc.
(Reliable), on February 23, 2000, effective January 1, 2000. The Company
continues its seismic acquisition operations through Quantum Geophysical, Inc.
An impairment reserve and loss of $2.14 million was recorded at December
31, 1999 to reflect Reliable's net assets and related goodwill at their net
realizable values.
The Company's condensed financial statements at September 30, 1999
included the following related to Reliable:
Total assets (net of intercompany activity) $ 248,591
Total liabilities (net of intercompany activity) $ 1,350,815
Seismic revenue $ 1,259,689
Net income (loss) $ (471,797)
Net loss per share $ (0.02)
8
<PAGE>
4. SEGMENT INFORMATION
The following table sets forth the Company's significant information from
reportable segments:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------
DATA
SEISMIC ACQUISITION PROCESSING TOTALS
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenues from external customers ........................... $ 3,525,102 $ 1,236,696 $ 4,761,798
Segment Profit (Loss) ...................................... (2,586,067) (2,292,382) (4,878,449)
Segment Assets, net of intercompany ........................ 11,906,797 34,331,564 46,238,361
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------
DATA
SEISMIC ACQUISITION PROCESSING TOTALS
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenues from external customers ........................... $ 721,432 $ 2,217,105 $ 2,938,537
Segment Profit (Loss) ...................................... (3,124,128) (1,906,302) (5,030,431)
Segment Assets, net of intercompany ........................ 24,750,821 30,790,157 55,540,978
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------
DATA
SEISMIC ACQUISITION PROCESSING TOTALS
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenues from external customers ........................... $ 5,301,681 $ 4,458,559 $ 9,760,240
Segment Profit (Loss) ...................................... (7,935,412) (6,416,648) (14,352,060)
Segment Assets, net of intercompany ........................ 11,906,797 34,331,563 46,238,360
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------
DATA
SEISMIC ACQUISITION PROCESSING TOTALS
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Revenues from external customers ........................... $ 3,963,222 $ 7,045,525 $ 11,008,747
Segment Profit (Loss) ...................................... (9,496,538) (4,238,452) (13,734,990)
Segment Assets, net of intercompany ........................ 24,750,821 30,790,156 55,540,977
</TABLE>
9
<PAGE>
The following table reconciles reportable segment losses to consolidated losses:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED SEPTEMBER 30
-------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
PROFIT OR LOSS
Total profit or loss for reportable segments ........................................... $ (4,878,449) $ (5,030,431)
Unallocated amounts:
Corporate expenses net of interest earnings ....................................... (111,891) (288,182)
Corporate interest expense ........................................................ (6,585) (5,000)
Amortization and depreciation ..................................................... (588) (17,802)
Loss on disposition of oil and gas segment ........................................ -- (565,345)
--------------- ---------------
Total Consolidated Loss ...................................................... $ (4,997,513) $ (5,906,760)
=============== ===============
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30
-------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
PROFIT OR LOSS
Total profit or loss for reportable segments ........................................... $ (14,352,060) $ (13,734,990)
Unallocated amounts:
Corporate expenses net of interest earnings ....................................... (493,163) (925,508)
Corporate interest expense ........................................................ (20,254) (5,489)
Amortization and depreciation ..................................................... (1,764) (63,547)
Loss from discontinued oil and gas segment ............................................. -- (60,580)
Loss on disposition of oil and gas segment ............................................. -- (565,345)
--------------- ---------------
Total Consolidated Loss ...................................................... $ (14,867,241) $ (15,355,459)
=============== ===============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At September 30, 2000, the Company's financial position reflects (i) the
seismic acquisition services being conducted by Quantum Geophysical, Inc., and
(ii) the seismic data processing, software and consultation services being
provided by Geophysical Development Corporation.
Weak market conditions in the seismic service sector continue to
negatively impact the Company's financial results. While energy prices have
rebounded significantly from their lows attained in early 1999, demand for the
Company's acquisition services was not positively affected until the third
quarter of 2000, when the Company mobilized a second crew during August. The
Company has the capacity to operate as many as three seismic acquisition crews.
Although demand has increased, the Company continues to experience serious
competition in the acquisition segment, resulting in gross margins being held at
or near historic lows. During the quarter, the Company's data processing segment
had a significant portion of its computing capability unutilized. The Company
10
<PAGE>
anticipates that fourth quarter results will continue to be negatively impacted
by the ongoing industry slump.
RESULTS OF OPERATIONS
Revenues for the nine months ended September 30, 2000 were $9,760,240 as
compared to $11,008,747 for the same period of fiscal 1999, a decrease of 11%.
For the three months ended September 30, 2000, revenues totaled $4,761,798 as
compared to $2,938,537 for the same period of fiscal 1999, an increase of 62%.
Revenues declined during the first half of 2000 due to a continuing weakness in
demand for all of the Company's services, however the increase in revenues for
the third quarter of 2000 was the result of a significant increase in demand for
the Company's seismic acquisition services. The acquisition segment's revenue
for the nine months ended September 30, 2000 was $5,301,681 compared to
$3,963,222 for the same period of 1999, an increase of 34%. For the three months
ended September 30, 2000 seismic acquisition revenue was $3,525,102 as compared
to $721,432 for the quarter ended September 30, 1999, an increase of $2,804,610.
Demand for the Company's seismic data processing services continued to weaken in
the third quarter. Revenues for the three months ended September, 2000 were
$1,236,696 as compared to $2,217,105 for the same period of fiscal 1999, a
decrease of 44%. For the nine months ended September 30, 2000, revenues were
$4,458,559 as compared to $7,045,525 for the same period of fiscal 1999, a
decrease of 37%.
Operating expenses for the nine month period ended September 30, 2000 were
$11,496,739 as compared to $10,371,622 for the same period of fiscal 1999, an
increase of 11%. For the three month period ended September 30, operating
expenses increased from $2,739,640 in 1999 to $5,365,253 in 2000, an increase of
$2,625,613. The increases in operating expenses for the quarter and nine months
ended September 30, 2000 are due primarily to increased third party and crew
costs associated with the increased levels of activity in the acquisition
segment. Additionally, during the fourth quarter of 1999, the Company completed
a restructuring of its debt obligations to its principal equipment supplier for
its seismic acquisition operations. As a result of this restructuring, current
payments are treated as operating expenses for financial reporting purposes.
Prior to the restructuring, the effects of such payments were reflected in
depreciation and interest expense in the Company's financial statements.
Operating expenses for the nine months ended September 30, 1999, on a pro forma
basis, would have been $12,319,978 had this restructuring occurred on January 1,
1999. On this basis, operating expenses for the nine months ended September 30,
2000 decreased 7% from the same period in 1999. This decrease in operating
expenses is a result of the Company's ongoing efforts to control internal costs
and limit third party expenditures as well as a continued weakness in overall
demand for the Company's services.
General and administrative expenses for the nine months ended September 30
decreased from $2,141,595 in 1999 to $1,500,287 in 2000, a decrease of 30%. For
the three months ended September 30, 2000, general and administrative expenses
totaled $439,709 as compared to $651,138 for the same period of fiscal 1999, a
decrease of 33%. The decrease in general and administrative expenses is a result
of the Company's continuing efforts to contain costs by limiting third party
expenditures. The Company had previously instituted staff reductions to reduce
its costs and continues to operate at reduced staffing levels.
11
<PAGE>
Depreciation and amortization expense for the nine months ended September
30, 2000 totaled $6,007,432 as compared to $7,779,851 for the same period of
fiscal 1999, a decrease of 23%. For the three months ended September 30, 2000,
depreciation and amortization expense decreased from $2,596,410 in 1999 to
$2,002,477 in 2000, a decrease of 23%. The decrease in depreciation and
amortization expense is a result of a restructuring of the Company's debt
obligations to the principal equipment supplier for its seismic acquisition
operations, the sale of Reliable effective January 1, 2000, and the
discontinuance of the Company's oil and gas operations which occurred in mid
1999.
Interest expense (net of interest income) for the nine months ended September
30, 2000 totaled $5,623,024 as compared to $5,445,213 for the period ended June
30, 1999, an increase of 3%. For the three months ended September 30, 2000
interest expense totaled $1,951,872, a decrease of 15% from the same period of
fiscal 1999. 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. Concurrently with this transaction, the
Company received additional funds totaling $5,895,000 and issued $5,895,000 of
its 13.5% Senior Secured Notes due 2002. These transactions are responsible for
the increase in interest expense for the nine months ended September 30, 2000.
On September 30, 1999, the Company recognized additional interest expense of
$785,000 as a result of an adjustment to the calculation of accrued interest on
its senior subordinated notes due 2005 in connection with their restructuring.
As a result, interest expense decreased for the three months ended September 30,
2000 as compared to the same period of a year ago.
The Company had a net loss of $14,867,242, or $(0.78) per share, for the nine
months ended September 30, 2000 as compared to a net loss of $15,355,459, or
$(0.79) per share, for the nine months ended September 30, 1999. For the three
months ended September 30, 2000 the Company had a net loss of $4,997,513, or
$(0.26) per share, as compared to a net loss of $5,906,760, or $(0.31) per
share, for the three months ended September 30, 1999. The loss for the three
months ended September 30, 1999 included a loss of $565,345, or $(0.03) per
share from the disposition of its discontinued oil and gas operations, and the
nine month period ended September 30, 1999 included a loss from the discontinued
operations and disposition of $625,925, or $(0.03) per share.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, the seismic service industry experienced an unprecedented
downturn which severely constrained the Company's working capital position.
These conditions continued in the first nine months of 2000. As a result of
these conditions, the Company incurred a loss of approximately $30.4 million
during 1999 and a loss of approximately $14.9 million in the first nine months
of 2000. These results have left the Company with an equity deficit of
approximately $29 million at September 30, 2000.
On October 1, 1999 the Company entered into a Securities Purchase
Agreement ("Purchase Agreement") with DLJ Partners, L.P. ("DLJ") and certain
additional investors (collectively, the "Purchasers"), pursuant to which the
Company completed a restructuring of its $40,000,000 12% Senior Subordinated
Notes due April 2005 ("Prior Notes") and received an additional $4,000,000 from
12
<PAGE>
the Purchasers, the holders of the Prior Notes, and $1,000,000 from other
sources. On November 30, 1999, the Company received an additional $895,000 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 issuing $5,895,000 of
its 13.5% Senior Secured Notes due 2002 (the "2002 Notes") for the additional
funding received on October 1, 1999 and November 30, 1999. This transaction
provided the Company with the option, during 2000, to make interest payments due
on the 13.5% Senior Secured Notes either in cash or by issuing additional notes.
On March 15, 2000, the Company elected to issue an additional $3,151,142 of
13.5% Senior Secured Notes, ($2,806,526 due 2005 and $344,616 due 2002) in
satisfaction of the interest payment which came due on that date.
At September 30, 2000, the Company had cash balances of $662,772. The
Company believes this cash, anticipated cash flow from its seismic acquisition
and seismic data processing operations, and the continued deferral of certain
accrued expenses will be sufficient to meet its working capital requirements for
the immediate future. As noted above, the Company has the option to avoid making
cash interest payments on its 13.5% Senior Secured Notes during 2000. As
presently structured, the Company will be required to make a cash interest
payment of approximately $3.9 million on March 15, 2001. Under current
conditions, continued operations by the Company through the due date for this
payment will be dependent upon a continued forbearance by the holders of the
Company's 13.5% Senior Secured Notes.
The Company is currently in default on an operating lease with its
principal equipment supplier. The Company and such supplier are currently
conducting negotiations to resolve this situation. The Company believes that
this situation will be resolved to the satisfaction of both parties by November
30, 2000. However, it is possible that a satisfactory result will not be
attained. If this occurs, the Company will have difficulty in meeting its
ongoing financial obligations in a timely manner.
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 its
equipment. 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
As of October 31, 2000, the Company had not experienced any materially important
business disruption or systems failures as a result of year 2000 issues, nor was
it aware of any year 2000 issues that impacted its suppliers or other third
parties to an extent significant to the Company. However, year 2000 compliance
has many elements and potential consequences, some of which may not be
foreseeable or may be realized in future periods. Consequently, there can be no
assurance that unforeseen circumstances may not arise, or that the Company will
not in the future identify equipment or systems which are not year 2000
compliant.
See next to last paragraph in the Liquidity and Capital Resources section
of Part I Item 2 dealing with a supplier default.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None
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 14, 2000 __________________________________________
Thomas J. Concannon
Vice President and Chief Financial Officer
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