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, 1997
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 Number)
incorporation or organization)
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 March 31, 1997, 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
March 31, 1997 and December 31, 1996. . . . 3
Condensed Statements of Operations
Three Months Ended
March 31, 1997 and 1996. . . . . . . . . . . 5
Condensed Statements of Cash Flow
Three Months Ended
March 31, 1997 and 1996 . . . . . . . . . . 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 . . . . . . . . 11
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOKINETICS INC.
Condensed Statements of Financial Position
ASSETS
March 31 December 31
1997 1996
Unaudited Unaudited
----------- ----------
Current Assets:
Cash ................................... $ (46,536) $ 99,879
Cash-Restricted ........................ 248,337 316,991
Receivables ............................... 173,864 226,306
Prepaid expenses ....................... 56,652 59,865
Oil and gas properties held for resale 612,467 596,452
----------- ----------
Total Current Assets ............... 1,044,784 1,299,493
Property and Equipment:
Proved oil and gas Properties (net of
depletion) ........................... 756,246 776,043
(successful efforts method for oil
and gas properties)
Equipment (net of depreciation) ........ 3,838,989 3,839,658
Buildings (net of depreciation) ........ 128,106 128,106
Land ................................... 23,450 23,450
----------- ----------
Total Property and Equipment ...... 4,746,791 4,767,257
Other Assets:
Deferred tax benefit ................... 800,000 800,000
Deferred charges ....................... 75,028 76,317
Restricted investments ................. 21,700 21,700
----------- ----------
Total Other Assets ................. 896,728 898,016
----------- ----------
Total Assets ................... $ 6,688,303 $6,964,767
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31 December 31
1997 1996
Unaudited Unaudited
----------- -----------
Current Liabilities:
Accounts payable .......................... $ 775,842 $ 711,563
Accrued liabilities ....................... 406,248 387,319
Notes payable ............................. 1,384,698 1,384,698
Due to officer ............................ 106,722 106,722
Advances for lease bank ................... 406,000 406,000
Site restoration costs .................... 6,418 6,418
----------- -----------
Total Current Liabilities ............. 3,085,928 3,002,720
Long -Term Liabilities:
Long- term debt ........................... 4,778,447 4,860,124
----------- -----------
Total Liabilities ..................... 7,864,375 7,862,844
Stockholders' Equity:
Common stock (15,000,000 shares authorized;
4,953,288 shares issued and outstanding
@ 3/31/97 and 4,953,288 shares issued
and outstanding @ 12/31/96) ............. 990,657 990,657
Additional paid in capital .................. 3,924,345 3,924,345
Accumulated deficit ......................... (6,091,074) (5,813,079)
----------- -----------
Total Stockholders' Equity .............. (1,176,072) (898,077)
----------- -----------
Total Liabilities and
Stockholders' Equity .............. $ 6,688,303 $ 6,964,767
=========== ===========
GEOKINETICS INC.
Condensed Statements of Operations
Three Months Ended
March 31
(unaudited)
----------------------------
1997 1996
----------- -----------
Revenues:
Oil and gas sales ........................ $ 125,961 $ 108,349
Operating fees ........................... 57,650 64,327
----------- -----------
Total Revenues ....................... 183,611 172,676
Expenses:
General and administrative .. $ 197,958 $ 482,712
Lease operating expenses .... 59,112 117,099
Amortization expense ........ 4,983 4,983
Depletion expense ........... 14,814 16,075
Depreciation expense ........ 669 673
----------- -----------
Total Expenses .......... 277,536 621,542
----------- -----------
Loss from operations ........ (93,925) (448,866)
Other Income (Expense):
Interest income ............ 170 2,725
Interest expense ........... (184,240) (86,439)
----------- -----------
Total Other Income ...... (184,070) (83,714)
Income (Loss) before provision
for income tax ................ $ (277,995) $ (532,580)
Provision for income tax ........ 0 0
----------- -----------
Total income tax ............ 0 0
----------- -----------
Net Income (Loss) .......... $ (277,995) $ (532,580)
=========== ===========
Earnings (Loss) per share ....... $ (0.06) $ (0.11)
=========== ===========
Weighted average common shares
and equivalents outstanding ... 4,953,288 4,953,288
=========== ===========
GEOKINETICS INC.
Condensed Statements of Cash Flows
Three Months Ended
March 31
(unaudited)
--------------------------
1997 1996
--------- -----------
Cash flows from operating activities:
Cash received from customers ............... $ 236,052 $ 157,037
Interest and dividends received ............ 170 2,337
Cash paid to suppliers and employees ....... (193,768) (568,150)
Interest paid .............................. (176,251) (86,438)
--------- -----------
Net cash used by operating activities .. (133,797) (495,214)
--------- -----------
Cash flows from investing activities
Cash payments for purchase of property
and equipment ............................ 0 (3,785,963)
Cash proceeds from restricted cash ......... 68,654 0
--------- -----------
Net cash provided (used) by
investing activities ................. 68,654 (3,785,963)
--------- -----------
Cash flows from financing activities:
Principal payments on long-term debt ....... (81,273) 0
Proceeds from issuance of common stock ..... 0 125,833
Proceeds from long-term debt ............... 0 5,220,000
--------- -----------
Net cash provided (used) by
financing activities ................. (81,273) 5,345,833
--------- -----------
Net increase (decrease) in cash ................ (146,415) 1,064,656
Cash, beginning of period ...................... 99,879 16,905
--------- -----------
Cash, end of period ............................ $ (46,536) $ 1,081,561
========= ===========
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 currently working to complete its audit for the fiscal
year ended December 31, 1996, which financial statements will be provided by
amendment to the Company's Form 10-KSB filed for the fiscal year ended December
31, 1996. It is contemplated that it may be necessary for the Company to file an
amendment to this Form 10-QSB to properly reflect changes to the financial
information provided herein by incorporating the results of the Company's audit
for the fiscal year ended December 31, 1996. A summary of accounting policies
and other significant information will be 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 March 31, 1997, 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 $1,384,698 reflect, in part, (i)
the current (i.e., within one year) maturities, totaling $331,825 of the Quantum
loan, (ii) a promissory note payable to Input/Output, Inc., dated January 8,
1996 (as amended), in the principal amount of $330,848 representing indebtedness
incurred by the Company incident to its geophysical operations, and (iii)
certain promissory notes dated October 23, 1996 and October 31, 1996 totaling an
aggregate of $697,025 from a group of private sources including an outside
director of the Company to provide short term working capital for the Company's
operations. (See "Extension of Promissory Notes" under Liquidity and Capital
Reserves in Item 2 below.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
At March 31, 1997, the Company continues to incur various costs and
expenses related to its efforts to develop and diversify its seismic contracting
operations through a series of planned acquisitions. 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 3D seismic data acquisition services for
the energy industry in the United States. Quantum has not yet commenced
operations. On March 5, 1997, the Company entered into a Letter of Intent to
acquire 100% of the issued and outstanding capital stock of Signature
Geophysical Services, Inc., a Houston-based provider of 3D geophysical surveys
for the oil and gas industry. The Company is currently negotiating a definitive
agreement concerning this acquisition which is expected to close in the second
quarter of fiscal 1997. 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
1997 from the sale of equity and/or debt securities in order to finance the
Company's operations and proposed acquisitions strategy.
LIQUIDITY AND CAPITAL RESOURCES
CLOSING OF $5,000,000 QUANTUM LOAN
The Company's financial position at March 31, 1997 substantially reflects
the proceeds received by the Company from the $5,000,000 Quantum loan and the
Company's use of such proceeds. Current assets at March 31, 1997, totaled
$1,044,784 as compared with $1,299,493 at December 31, 1996. Cash at March 31,
1997 totaled negative $46,536 as compared to $99,879 at December 31, 1996.
Restricted cash reflects the proceeds from the Quantum loan that are restricted
for use in the Company's seismic operations and is, therefore not available to
meet the Company's working capital needs.
$500,000 BRIDGE FINANCING
On April 25, 1997, the Company obtained $500,000 in short-term financing
from private investment sources. The financing bears interest at 12% per annum.
In addition, the Company issued warrants to these private investment sources to
purchase an aggregate of 1,000,000 shares of its common stock at $.75 per share.
The Company is currently negotiating with these private investment sources to
obtain additional long-term financing. The Company believes that the acquisition
of substantial long-term financing is critical to the Company's future
operations.
EXTENSION OF PROMISSORY NOTES
The Company defaulted on interest payable January 31, 1997 under certain
promissory notes with an aggregate value of $697,025. Two of such promissory
notes are held by an outside director of the Company. On March, 1997, the
Company signed an agreement with each noteholder whereby (i) all defaults have
been cured and waived, (ii) the Company will pay interest to each noteholder on
a monthly basis until maturity, and (iii) the maturity date of each note has
been extended until the earlier of June 30, 1997 or such time as the Company has
completed a private placement of debt and/or equity of not less than $4,000,000.
Additionally, the Company extended until December 31, 1997 the expiration date
of certain Common Stock Purchase Warrants that were previously issued to each
noteholder in consideration of the loans evidenced by these promissory notes.
The Company defaulted on the payment of a promissory note in favor of
Input/Output, Inc. in the principal amount of $330,848 that was due on July 31,
1996. In April, 1997, the Company signed an agreement with Input/Ouput, Inc.
whereby (i) all defaults have been cured and waived, (ii) the Company will pay
interest to Input/Ouput, Inc. on a monthly basis until maturity, and (iii) the
maturity date of the note has been extended until October 1, 1997.
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 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 Company expects its oil and gas operations to
operate with a working capital deficiency during fiscal 1997.
RESULTS OF OPERATIONS
During the three months ended March 31, 1997, the Company incurred a loss
from operations of $277,995 compared to a loss of $532,580 during the comparable
period in 1996. This loss is primarily due to operating expenses the Company
incurred in connection with (i) the development of the Company's geophysical
data acquisition business, and (ii) expenses in oil and gas operations. General
and administrative expenses during the three-months ended March 31, 1997,
decreased to $197,957 compared with $482,712 during the comparable period in
1996. In addition, lease operating expenses from oil and gas operations during
the three months ended March 31, 1997, totaled $57,650 an approximate 11%
decrease of such expenses during the comparable period in 1996.
DEFERRED TAX BENEFIT
The Company has reported 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 as a result of Quantum's
planned operations. As Quantum's operations commence and 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 a definitive agreement to acquire
100% of the capital stock of Signature Geophysical Services, Inc., a privately
owned geophysical contractor based in Houston, Texas. In order to finance the
Company's ongoing operations, including the acquisition of Signature Geophysical
Services, Inc. and certain other possible acquisitions, the Company plans to
issue and sell a minimum of $5,000,000 in equity and/or debt securities
("Placement"). There can be no assurance that the Signature Geophysical
Services, Inc. acquisition or the Placement will be completed. If the Placement
is not completed, the Company will be forced to seek other sources of financing
to continue its operations.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
10(a) Securities Purchase Agreement dated as of April 25, 1997 among
the Company and each of William R. Ziegler and Steven A.
Webster. Reference is made to Exhibit II to the Schedule 13D
filed with the Securities & Exchange Commission by William R.
Ziegler on May 5, 1997.
10(b) Form of 12% Senior Secured Promissory Note dated as of April
25, 1997 in the principal amount of $250,000 executed by the
Company to each of William R. Ziegler and Steven A. Webster.
Reference is made to Exhibit III to the Schedule 13D filed
with the Securities & Exchange Commission by William R.
Ziegler on May 5, 1997.
10(c) Form of Warrant to Purchase Common Stock dated as of April 25,
1997 issued by the Company to each of William R. Ziegler and
Steven A. Webster. Reference is made to Exhibit IV to the
Schedule 13D filed with the Securities & Exchange Commission
by William R. Ziegler on May 5, 1997.
10(d) Registration Rights Agreement dated as of April 25, 1997
executed by the Company and each of William R. Ziegler and
Steven A. Webster. Reference is made to Exhibit V to the
Schedule 13D filed with the Securities & Exchange Commission
by William R. Ziegler on May 5, 1997.
10(e) Consulting Agreement dated as of April 25, 1997 executed by
the Company and William R. Ziegler. Reference is made to
Exhibit VI to the Schedule 13D filed with the Securities &
Exchange Commission by William R. Ziegler on May 5, 1997.
10(f) Letter Agreement dated as of March 25, 1997 executed by the
Company and certain of the Company's lenders including William
H. Murphy(copy attached).
10(g) Common Stock Purchase Warrant dated as of March 31,
1997 issued by the Company to William H. Murphy (copy
attached).
(b) Reports on form 8-K
There were no form 8-K reports filed during the quarter ended March 31,
1997.
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 15, 1997 Jay D. Haber
PRESIDENT
Paul Miles
CONTROLLER