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, 1996
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
incorporation or organization) Identification Number)
5555 SAN FELIPE, SUITE 780 HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Small Business Issuer's telephone number, including area code (713) 850-7600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
On September 30, 1996, there were 4,953,288 shares of Registrant's common stock
($.20 par value) outstanding.
GEOKINETICS INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements ................................ 3
Condensed Statements of Financial Position
September 30, 1996 and December 31, 1995 ...... 3
Condensed Statements of Operations
Three Months and Nine Months Ended
September 30, 1996 and 1995 .................. 5
Condensed Statements of Cash Flow
Three Months Ended
September 30, 1996 and 1995 .................. 6
Notes to Interim Financial Statements ............... 7
Item 2. Management's Discussion and
Analysis or Plan of Operation ................. 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .................... 10
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
September 30 December 31
1996 1995
Unaudited (*)
---------- ----------
Current Assets:
Cash .............................................. $ 58,308 $ 16,905
Cash - restricted ................................. 420,968 0
Receivables ....................................... 233,342 259,370
Prepaid expenses .................................. 68,201 12,775
Oil and gas properties held for resale ........... 607,170 582,202
---------- ----------
Total Current Assets ......................... 1,387,989 871,252
Property and Equipment:
Proved oil and gas Properties (net of depletion) .. 796,936 876,747
(successful efforts method for oil and gas
properties)
Equipment (net of depreciation) ................... 3,837,395 21,093
Buildings (net of depreciation) ................... 128,106 0
Land .............................................. 23,450 0
---------- ----------
Total Property and Equipment ................ 4,785,887 897,840
Other Assets:
Deferred tax benefit ............................. 800,000 800,000
Deferred charges ................................. 74,445 0
Escrow-property investment ....................... 100,000 0
Restricted investments ........................... 21,700 101,339
---------- ----------
Total Other Assets ........................... 996,145 901,339
---------- ----------
Total Assets ............................. $7,170,021 $2,670,431
========== ==========
3
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30 December 31
1996 1995
Unaudited (*)
----------- -----------
Current Liabilities:
Accounts payable ................................. $ 637,241 $ 542,510
Accrued liabilities .............................. 423,114 198,890
Notes payable .................................... 816,226 25,000
Due to officer ................................... 106,722 101,722
Advances for lease bank .......................... 598,000 600,500
Site restoration costs ........................... 6,418 36,185
----------- -----------
Total Current Liabilities .................... 2,587,721 1,504,807
Long -Term Liabilities:
Long- term debt .................................. 4,942,558 420,246
----------- -----------
Total Liabilities ........................... 7,530,319 1,925,053
Stockholders' Equity:
Common stock, $.20 par value, 15,000,000
shares authorized; 4,953,288 shares issued and
outstanding @ 9/30/96 and 4,869,955 shares
issued and outstanding @ 12/31/95)................ 990,657 973,991
Additional paid in capital ....................... 3,924,345 3,815,179
Accumulated deficit .............................. (5,275,300) (4,043,792)
----------- -----------
Total Stockholders' Equity ................... (360,298) 745,378
----------- -----------
Total Liabilities and Stockholders' Equity $ 7,170,021 $ 2,670,431
============ ============
* CONDENSED FROM AUDITED FINANCIAL STATEMENTS
4
GEOKINETICS INC.
Condensed Statement of Operations
Three Months Ended Nine Months Ended
September 30 September 30
(unaudited) (unaudited)
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------- ------------
Revenues:
Oil and gas sales ............. $ 156,903 $ 103,986 $ 413,488 $ 304,424
Operating fees ................ 59,893 66,122 191,710 207,434
Sale of oil and gas leases .... 4,011 0 4,011 0
Gain on sale of assets ........ 0 13,290 0 199,709
----------- ----------- ----------- -----------
Total Revenues ............ 220,807 183,398 609,209 711,567
Expenses:
General and administrative .... $ 262,590 $ 271,551 $ 1,075,626 $ 1,017,699
Lease operating expenses ...... 72,928 95,931 233,301 310,479
Cost of oil and gas leases sold 61,924 0 61,924 0
Amortization expense .......... 3,321 4,983 13,287 19,931
Depletion expense ............. 17,798 25,768 51,170 72,278
Depreciation expense .......... 671 673 2,017 3,358
----------- ----------- ----------- -----------
Total Expenses ............ 419,232 399,906 1,437,325 1,423,745
----------- ----------- ----------- -----------
Loss from operations .............. $ (198,425) $ (216,508) $ (828,116) $ (712,178)
Other Income (Expense)
Interest income .............. 1,716 5,453 10,365 1,553
Interest expense ............. 164,243 36,155 413,756 73,522
----------- ----------- ----------- -----------
Total Other Expense ..... (162,527) (30,702) (403,391) (71,969)
Loss before provision
for income tax .................. $ (360,952) $ (247,210) $(1,231,507) $ (784,147)
Provision for income tax .......... 0 0 0 0
----------- ----------- ----------- -----------
Total income tax .............. 0 0 0 0
----------- ----------- ----------- -----------
Net Loss .......................... $ (360,952) $ (247,210) $(1,231,507) $ (784,147)
=========== =========== =========== ===========
Loss per share .................... $ (0.07) $ (0.05) $ (0.25) $ (0.17)
=========== =========== =========== ===========
Weighted average common shares
and equivalents outstanding ..... 4,953,288 4,620,320 4,953,288 4,620,320
=========== =========== =========== ===========
5
GEOKINETICS INC.
Condensed Statements of Cash Flows
Three Months Ended
September 30
(unaudited)
-----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Cash received from customers ....................... $ 246,001 $ 154,139
Interest and dividends received .................... 1,969 1,398
Cash paid to suppliers and employees ............... (265,390) (398,954)
Interest paid ...................................... (161,467) (30,980)
--------- ---------
Net cash (used) by operating activities ....... (178,887) (274,397)
--------- ---------
Cash flows from investing activities:
Cash payments for purchase of property and equipment (40,122) (77,500)
Cash proceeds from redemption of certificate of
deposit ............................................ 79,639 0
Cash proceeds from sale of property ................ 0 17,344
Cash payment for escrow deposit equipment investment (320,968) 0
--------- ---------
Net cash (used) by investing activities ....... (281,451) (60,156)
--------- ---------
Cash flows from financing activities:
Advances for lease bank ............................ 2,500 321,333
Proceeds from short term debt ...................... 65,000 0
Principal payments on long-term debt ............... (75,918) 0
--------- ---------
Net cash (used) by financing activities ....... (8,418) 321,333
--------- ---------
Net (decrease) in cash ................................ (468,756) (13,220)
Cash, beginning of period .............................. 527,064 15,713
--------- ---------
Cash, end of period .................................... $ 58,308 $ 2,493
========= =========
6
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, 1995, as well as the three-month transition
period ended December 31, 1995. A summary of accounting policies and other
significant information is included therein.
2. LIABILITY RELATING TO COMPANY LEASE BANK
The Company's wholly-owned subsidiary, Geokinetics Production Co., Inc.
("Production") has established a revolving credit facility (the "Lease Bank")
that receives cash deposits from private individuals and entities in order to
acquire oil and gas prospects. In exchange for such deposits, Production issues
promissory notes in principal amounts equal to the deposited cash amounts. These
notes bear a floating interest rate, currently at 12.25% per annum for the
quarter ended September 30, 1996, and are guaranteed by the Company. The
Company's liabilities indicated on the interim financial statements reflect the
aggregate principal amounts of the promissory notes payable to the private
individuals and entities that have made cash deposits with the Lease Bank.
3. NOTES PAYABLE
The Company's notes payable currently valued at $816,226 reflect, in
part, (i) the current (i.e., one year) maturities, totaling $326,226, in
connection with the Quantum loan, (ii) that certain promissory note payable to
Input/Output, Inc., dated January 8, 1996, in the principal amount of $300,000
representing indebtedness incurred by the Company incident to its geophysical
operations, (iii) a certain $100,000 loan from an unaffiliated lender to finance
an escrow deposit made by the company incident to the proposed acquisition of
Green Mountain Geophysics, Inc. (iiii) a $65,000 loan from an outside director
of the Company.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(Nine Months Ended September 30, 1996)
GENERAL
At September 30, 1996, the Company continues to incur various costs and
expenses related to its efforts to diversify the Company's business activities.
On March 6, 1996, the Company obtained a $5,000,000 loan from an unaffiliated
lender to finance the initial operations of Quantum Geophysical, Inc.
("Quantum"). Quantum was formed as a wholly-owned subsidiary to perform 3-D
seismic data acquisition services for the energy industry in the United States.
Quantum has not yet commenced operations. The Company is currently negotiating
with a third party to provide management and marketing services to Quantum. If
negotiations with such third party are successful, the Company believes that
Quantum may commence operations by January, 1997. In addition, the Company has
continued its efforts towards developing geoscience technology and software
development capabilities. The Company is currently negotiating the acquisition
of 80% of the outstanding capital stock of Green Mountain Geophysics, Inc., a
Boulder, Colorado-based manufacturer of specialized software for the petroleum
industry. The financial requirements of the oil and gas business as well as the
start-up costs incurred in diversifying the Company's business activities
continues to require the Company to utilize a substantial portion of its current
assets and incur additional indebtedness in order to acquire additional
operating assets. As a result, the Company expects that it will be required to
raise substantial additional funds during the remainder of fiscal 1996 from the
sale of equity and/or debt securities in order to finance the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
CLOSING OF $5,000,000 QUANTUM LOAN
The Company's financial position at September 30, 1996 substantially
reflects the proceeds received by the Company in connection with the $5,000,000
Quantum loan and the Company's use of such proceeds. Current assets at September
30, 1996, totaled $1,387,989 as compared with $871,252 at December 31, 1995.
Cash at September 30, 1996 totaled $58,308 as compared to $16,905 at December
31, 1995. Restricted cash reflects the proceeds from the Quantum loan that is
restricted for use in the Company's seismic operations and is, therefore not
available to meet the Company's working capital needs. In addition, the
Company's property and equipment at September 30, 1996, totaled $4,785,887 up
from $897,840 at December 31, 1995.
OIL AND GAS OPERATIONS
The Company (through its subsidiaries, HOC Operating Co., Inc. and
Geokinetics Production Co., Inc.) continues to conduct its oil and gas
operations consisting of acquiring, exploring, exploiting and developing oil and
gas properties. However, the oil and gas industry is a highly capital-intensive
business, especially in the initial stages of development of any venture. The
Company, therefore, requires capital principally to fund the following expenses:
(i) purchases of
8
leases and other interests in oil and gas properties; (ii) capital expenditures
under agreements for geological, geophysical and seismic costs as well as
drilling and completion costs of wells; and (iii) general and administrative
expenses. The capital expenditures required by the Company to establish oil and
gas production are generally incurred prior to the commencement of production
revenues. As a result, the Company expects its oil and gas operations to operate
with a working capital deficiency during fiscal 1996. The Company is not
currently acquiring any additional oil and gas leases or drilling additional
wells.
RESULTS OF OPERATIONS
During the three months ended September 30, 1996, the Company incurred a
loss from operations of $360,952 compared to a loss of $247,210 during the
comparable period in 1995. This loss is primarily due to operating expenses the
Company incurred in connection with (i) the development of the Company's
geoscience and software development capabilities, and (ii) expenses in oil and
gas operations. General and administrative expenses during the three-months
ended September 30, 1996, decreased to $262,590 compared with $271,551 during
the comparable period in 1995. In addition, lease operating expenses from oil
and gas operations during the three-months ended September 30, 1996, totaled
$72,928 an approximate 24% decrease of such expenses during the comparable
period in 1995.
DEFERRED TAX BENEFIT
The Company is reporting an $800,000 asset relating to deferred tax
benefits as a result of the closing of the Quantum loan and the expected
commencement of Quantum's operations. This asset consists primarily of
differences in reporting Quantum's pre-operating costs and amortization and of
net operating losses. The value of such deferred tax benefits reflects the
amount that the Company believes to be realizable at this time. As Quantum's
operations commence and additional revenues are generated, the company will
review its valuation of deferred tax benefits and make adjustments when
necessary.
PLANNED PLACEMENT
The Company is continuing to negotiate the acquisition of 80% of the
capital stock of Green Mountain Geophysics, Inc. In order to finance this
acquisition, the Company plans to sell approximately $4,000,000 - $5,000,000 in
equity and debt securities (the "Green Mountain Placement"). There can be no
assurance that the Green Mountain acquisition or the Green Mountain Placement
will be completed. If the Green Mountain Placement is not completed, the Company
will be forced to seek other sources of financing to continue its operations.
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No Exhibits Required
(b) Reports on Form 8-K
There were no Form 8-K Reports filed during the quarter ended
September 30, 1996.
10
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, 1996 ___________________________
Jay D. Haber
PRESIDENT
---------------------------
Paul Miles
CONTROLLER
11