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, 2000
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 March 31, 2000, there were 19,367,156 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
March 31, 2000 and December 31, 1999................. 3
Condensed Statements of Operations
Three Months Ended
March 31, 2000 and 1999.............................. 5
Condensed Statements of Cash Flows
Three Months Ended
March 31, 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....................................... 12
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
MARCH 31 DECEMBER 31
2000 1999
UNAUDITED AUDITED
----------- -----------
Current Assets:
Cash ....................................... $ 1,936,352 $ 2,677,996
Receivables ................................. 2,425,409 3,272,110
Prepaid expenses ........................... 465,990 411,489
Current portion of note receivable ......... 51,251 --
----------- -----------
Total Current Assets ................... 4,879,002 6,361,595
Property and Equipment:
Equipment, net of depreciation ............. 10,404,707 11,586,033
Buildings, net of depreciation ............. 260,341 268,444
Land ....................................... 23,450 23,450
----------- -----------
Total Property and Equipment ........... 10,688,498 11,877,927
Other Assets:
Note receivable, net of current portion .... 198,749 --
Deferred charges ........................... 56,150 44,534
Restricted investments ..................... 71,700 106,700
Other assets ............................... 24,816 78,097
Goodwill ................................... 24,297,601 25,781,443
----------- -----------
Total Other Assets ..................... 24,649,016 26,010,774
----------- -----------
Total Assets ....................... $40,216,516 $44,250,296
=========== ===========
3
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31 DECEMBER 31
2000 1999
UNAUDITED AUDITED
------------ ------------
Current Liabilities:
Current maturities of long-term debt ....... $ 558,338 $ 713,280
Current portion of capital lease ........... 340,318 --
Accounts payable ........................... 880,269 1,182,144
Accrued liabilities ........................ 2,406,426 4,229,882
Notes payable .............................. 316,141 398,109
Advances for lease bank .................... 185,500 185,500
Other current liabilities .................. 9,838 21,418
------------ ------------
Total Current Liabilities .............. 4,696,830 6,730,333
Long-Term Liabilities:
Long-term debt, net of current maturities .. 54,048,280 51,267,997
Capital lease, net of current maturities ... 152,361 --
------------ ------------
Total Long-Term Liabilities ........... 54,200,641 51,267,997
Other Liabilities:
Deferred gain .............................. 327,250 359,974
------------ ------------
Total Liabilities ..................... 59,224,721 58,358,304
Stockholders' Equity:
Common stock, $.01 par value,
100,000,000 shares authorized,
19,367,156 shares outstanding at
March 31, 2000, 19,332,480 outstanding
at March 31, 1999 ...................... 193,672 193,672
Additional paid in capital ................ 33,019,248 33,019,248
Treasury stock ............................ (142,500) --
Accumulated deficit ....................... (52,078,625) (47,320,928)
------------ ------------
Total Stockholders' Equity ............. (19,008,205) (14,108,008)
------------ ------------
Total Liabilities and
Stockholders' Equity ............. $ 40,216,516 $ 44,250,296
============ ============
4
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GEOKINETICS INC.
Condensed Statements of Operations
THREE MONTHS ENDED
MARCH 31
(UNAUDITED)
----------------------------
2000 1999
------------ ------------
Revenues:
Seismic revenue ............................ $ 368,245 $ 1,973,041
Data processing revenue .................... 1,955,181 3,009,531
------------ ------------
Total Revenues ......................... 2,323,426 4,982,572
Expenses:
General and administrative ................. 554,845 785,235
Seismic operating expense .................. 1,215,071 2,582,685
Data processing expense .................... 1,478,614 1,617,176
Amortization expense ....................... 1,002,268 931,183
Depreciation expense ....................... 1,000,209 1,656,648
------------ ------------
Total Expenses ......................... 5,251,007 7,572,927
------------ ------------
Loss from operations ........................... (2,927,581) (2,590,355)
Other Income (Expense):
Interest income ........................... 28,882 29,646
Other income .............................. 4,665 2,768
Interest expense .......................... (1,863,662) (1,630,905)
------------ ------------
Total Other Income ..................... (1,830,115) (1,598,491)
Loss before provision for income tax ........... (4,757,696) (4,188,846)
Provision for income tax ....................... -- --
------------ ------------
Loss before discontinued operations ............ (4,757,696) (4,188,846)
Loss from Discontinued Operations:
Loss from oil and gas operations .......... -- (71,361)
------------ ------------
Net Loss ....................................... $ (4,757,696) $ (4,260,207)
============ ============
Earnings (Loss) per common share - Basic
Loss from continuing operations ........... $ (0.25) $ (0.216)
Loss from discontinued operations ......... -- (0.004)
------------ ------------
Net Loss ....................................... $ (0.25) $ (0.22)
============ ============
Weighted average common shares and equivalents
outstanding .................................. 19,367,156 19,332,480
============ ============
5
<PAGE>
GEOKINETICS INC.
Condensed Statements of Cash Flows
THREE MONTHS ENDED MARCH 31
(unaudited)
--------------------------
2000 1999
----------- -----------
OPERATING ACTIVITIES
Net Loss ......................................... $(4,757,695) $(4,260,207)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization ............... 2,002,477 2,592,374
Deferred gain recognized .................... (32,724) --
Changes in operating assets and
liabilities, net of subsidiary disposition
Accounts receivable and work in
progress .............................. 388,738 2,881,228
Prepaid expenses and other assets ....... (91,643) 168,456
Accounts payable ........................ (97,910) (2,172,655)
Accrued liabilities and deferred
revenue ............................... 2,228,184 1,212,578
----------- -----------
Net cash provided (used) in
operating activities .............. (360,573) 421,774
INVESTING ACTIVITIES
Purchases of capital assets ................. (8,837) (36,988)
Receipt of deposits and other ............... 52,742 --
----------- -----------
Net cash provided (used) in
investing activities .............. 43,905 (36,988)
FINANCING ACTIVITIES
Proceeds from short term debt ............... -- 699,341
Payments on software financing .............. (89,496) --
Principal paid on long term debt ............ (264,371) (259,895)
Principal paid on short term debt ........... (81,968) (361,645)
----------- -----------
Net cash provided (used) in financing
activities ........................ (435,835) 77,801
Net increase (decrease) in cash .................. (752,503) 462,587
Cash deficit of subsidiary sold .................. 10,859 --
Cash at beginning of period ...................... 2,677,996 2,705,581
----------- -----------
Cash at end of period ............................ $ 1,936,352 $ 3,168,168
=========== ===========
Significant non-cash transactions:
A subsidiary of the Company was sold during the first quarter of 2000 for
a note and previously issued shares of common stock.
Notes were issued during the first quarter of 2000 in payment of the
accrued interest of $3,151,142 due on Senior Secured Notes.
Software purchased in 1999 was refinanced in January 2000 with a capital
lease in the amount of $582,174.
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 as well as one of its seismic acquisitions 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 $4.8 million incurred in the first quarter of 2000. These results
have left the Company with a deficit equity position of approximately $19
million at March 31, 2000.
Management believes that this plan, along with the deferral of certain
accrued expenses, 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 March 31, 2000, the Company's long term debt was $54,606,618, including
$558,338 in current maturities. Long term debt is presented net of unamortized
Original Issue Discount, totaling $3,418,363. 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, (iii)
a note to a financial institution, bearing interest at prime plus 1 1/2%, in the
amount of $3,513,020 and (iv) a note to a financial institution, bearing
interest at prime in the amount of $107,819.
On March 15, 2000 interest due on the Company's Senior Secured Notes was
paid by issuing additional notes totaling $3,151,142. This amount is included in
the balances set out above.
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 condensed financial statements at March 31, 1999 included the
following related to Reliable:
Total assets (net of intercompany
activity) ............................................. $ 524,821
Total liabilities (net of
intercompany activity) ................................ $ 1,240,156
Seismic revenue ......................................... $ 523,913
Net income (loss) ....................................... $ (165,855)
Net loss per share ...................................... $ (0.01)
8
<PAGE>
4. SEGMENT INFORMATION
The following table sets forth the Company's significant information from
reportable segments.
FOR THE QUARTER ENDED MARCH 31, 2000
-------------------------------------------
SEISMIC DATA
ACQUISITION PROCESSING TOTALS
------------ ------------ ------------
Revenues from external customers $ 368,245 $ 1,955,181 $ 2,323,426
Segment Profit (Loss) ........... (1,949,459) 107,455 (1,842,004)
Segment Assets .................. 21,391,303 17,401,684 38,792,987
FOR THE QUARTER ENDED MARCH 31, 1999
-------------------------------------------
SEISMIC DATA
ACQUISITION PROCESSING TOTALS
------------ ------------ ------------
Revenues from external customers $ 1,973,041 $ 3,009,532 $ 4,982,573
Segment Profit (Loss) ........... (2,741,266) 1,040,180 (1,701,086)
Segment Assets .................. 35,467,273 11,370,044 46,837,317
The following table reconciles reportable segment losses to consolidated losses.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31
--------------------------
2000 1999
----------- -----------
PROFIT OR LOSS
<S> <C> <C>
Total profit or loss for reportable segments ........ $(1,842,004) (1,701,086)
Unallocated amounts:
Corporate expenses net of interest earnings ....... (208,628) (339,879)
Corporate interest expense ........................ (6,919) (22,524)
Interest expense on acquisitions indebtedness ..... (1,747,514) (1,200,000)
Depreciation and amortization of goodwill and other (952,630) (925,357)
Loss from discontinued oil and gas segment ........ (71,361)
----------- -----------
Total Consolidated Loss ......................... $(4,757,695) $(4,260,207)
=========== ===========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At March 31, 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.
The ongoing downturn in the seismic service sector continues to negatively
impact the Company's financial results. While commodity prices have rebounded
significantly from their lows attained in early 1999, demand for the Company's
services has not, as yet, been positively affected. During the quarter ended
March 31, 2000, the Company operated one seismic acquisition crew on a
non-continuous basis. The Company has the capacity to operate as many as three
seismic acquisition crews. During the quarter, the Company's data processing
segment had a significant portion of its computing capability unutilized. The
Company anticipates that demand for its seismic acquisition and seismic data
processing services will remain weak during the second quarter of 2000.
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 2000 were $2,323,486 as
compared to $4,982,572 for the same period of fiscal 1999, a decrease of 53%.
Revenues declined as a result of the continuing weakness in demand for the
Company's services. Due to the significant reduction in demand for the services
the Company provides, the Company has also been forced to significantly reduce
the prices it charges for such services.
Operating expenses for the three month period were $2,693,685 as compared
to $4,199,861 for the same period of fiscal 1999, a decrease of 36%. The
decrease in operating expenses is a result of the continued weakness in demand
for the Company's services.
General and administrative expenses for the three months ended March 31,
2000 totaled $554,845 as compared to $785,235 for the same period of fiscal
1999, a decrease of 29%. The decrease in general and administrative expenses is
a result of the Company's ongoing efforts to reduce costs by implementing staff
reductions and limiting third party expenditures.
Depreciation and Amortization expenses for the quarter ended March 31,
2000 totaled $2,002,477 as compared to $2,587,831 for the same period of fiscal
1999, a decrease of 23%. The decrease in depreciation and amortization expenses
is a result of a restructuring of its debt obligations to the principal
equipment supplier for the Company's seismic acquisition operations, the sale of
Reliable Exploration, Incorporated, 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 three months ended March
31, 2000 was $1,830,115 as compared to $1,598,491 for the same period of fiscal
1999, an increase of 14%. The
10
<PAGE>
increase in interest expense is a result of (i) the restructuring on October 1,
1999 of the Company's $40,000,000 12% Senior Subordinated debt financing of
April 1998, in which the Company exchanged this debt for 13.5% Senior Secured
debt in the amount of $45,358,000, inclusive of accrued unpaid interest of
$5,358,000 and (ii) the Company's closing of an aggregate of $5,895,000 in 13.5%
Senior Secured debt financing on October 1 and November 30, 1999.
The Company had a net loss of $4,757,696, or $(0.25) per share, for the
three months ended March 31, 2000 as compared to a net loss of $4,260,207, or
$(0.22) per share, for the three months ended March 31, 1999. This result
is due to the continuing weak demand for the Company's services as well as an
increase in interest expense. The loss at March 31, 1999 included a loss from
discontinued oil and gas operations of $71,361 or $(0.004) 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 quarter 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 $4.8 million in the first quarter of 2000.
These results have left the Company with an equity deficit of approximately $19
million at March 31, 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
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 day.
At March 31, 2000, the Company had cash balances of $1,936,352. 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 Noted 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
11
<PAGE>
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'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 and continue its diversification as a full-scale geotechnological
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
During 1998, a customer of a subsidiary of the Company defaulted on
payment of $2.8 million due the Company for seismic data acquisition services
performed by its subsidiary. The Company obtained a judgment against the
customer in the amount of the outstanding obligation plus interest and
attorney's fees. As a result of the customer's subsequent bankruptcy proceeding,
the Company determined that the obligation was not collectible and charged the
amount against earnings during the fourth quarter of 1998. On February 17, 2000,
the Company entered into a compromise and settlement of all claims it had
against the customer and any other involved party. As part of the settlement
agreement, the Company received an ownership interest in approximately 200 miles
of previously recorded seismic data located in the Atchafalaya Basin of
Louisiana. No value has been assigned to the data and income will be recognized
upon any subsequent sale.
As of April 30, 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.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
On March 8, 2000, the Company filed a Current Report on
Form 8-K under Item 5 concerning the sale of Reliable
Exploration, Incorporated. No financial statements were
included in such Form 8-K.
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 12, 2000 __________________________________________
Thomas J. Concannon
Vice President and Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,936,352
<SECURITIES> 0
<RECEIVABLES> 2,425,409
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,879,002
<PP&E> 10,688,498
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,216,516
<CURRENT-LIABILITIES> 4,696,830
<BONDS> 0
0
0
<COMMON> 193,672
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,216,516
<SALES> 2,323,426
<TOTAL-REVENUES> 2,323,426
<CGS> 0
<TOTAL-COSTS> 5,251,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,830,115
<INCOME-PRETAX> (4,757,696)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,757,696)
<EPS-BASIC> (0.25)
<EPS-DILUTED> 0
</TABLE>
