UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-9268
GEOKINETICS INC.
(Name of registrant as specified in its charter)
DELAWARE |
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94-1690082 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
ONE RIVERWAY, SUITE 2100
HOUSTON, TX 77056
(713) 850-7600
(Registrants telephone number, including area code)
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 ý No o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Securities Exchange
Act of 1934).
Yes o No
ý
At March 31, 2005, there were 18,992,113 shares of common stock, par value $0.01 per share, outstanding.
GEOKINETICS INC.
INDEX
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Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 |
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Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosure About Market Risk |
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Certification of CEO Pursuant to Rule 13a-14(a)/15d-14a |
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Certification of CFO Pursuant to Rule 13a-14(a)/15d-14a |
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Certification of CEO Pursuant to Section 1350 |
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Certification of CFO Pursuant to Section 1350 |
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2
GEOKINETICS INC.
ASSETS
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March 31 |
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December 31 |
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2005 |
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2004 |
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Unaudited |
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Current Assets: |
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Cash |
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$ |
2,700,308 |
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$ |
2,399,927 |
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Receivables, net of allowance for doubtful accounts of $42,000 in 2005 and $76,770 in 2004 |
|
5,793,877 |
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4,969,822 |
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Work in Progress |
|
1,019,304 |
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1,214,722 |
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Prepaid expenses |
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300,775 |
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373,622 |
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||
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Total Current Assets |
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9,814,264 |
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8,958,093 |
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Property and Equipment: |
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Equipment |
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22,138,998 |
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21,717,334 |
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Buildings |
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293,475 |
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289,864 |
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Land |
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23,450 |
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23,450 |
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||
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22,455,923 |
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22,030,648 |
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Less accumulated depreciation |
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(19,997,808 |
) |
(19,784,088 |
) |
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Total Property and Equipment |
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2,458,115 |
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2,246,560 |
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Other Assets: |
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Deferred charges |
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240,436 |
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115,911 |
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Restricted investments |
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210,407 |
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210,407 |
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Other assets |
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45,583 |
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45,583 |
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||
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Total Other Assets |
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496,426 |
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371,901 |
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Total Assets |
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$ |
12,768,805 |
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$ |
11,576,554 |
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See accompanying notes to the financial statements.
3
LIABILITIES AND STOCKHOLDERS EQUITY
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March 31 |
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December 31 |
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2005 |
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2004 |
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Unaudited |
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Current Liabilities: |
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Current maturities of long-term debt |
|
$ |
698,420 |
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$ |
685,052 |
|
Current portion of GeoLease liability |
|
1,094,088 |
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1,072,495 |
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Current portion of capital leases |
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259,264 |
|
237,313 |
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Accounts payable |
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4,224,531 |
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2,307,907 |
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Accrued liabilities |
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1,612,857 |
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1,387,414 |
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Due to officers and stockholders |
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552,373 |
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552,373 |
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Deferred revenue |
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1,973,595 |
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2,427,269 |
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Notes payable |
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187,361 |
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283,190 |
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Advances for lease bank |
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100,000 |
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100,000 |
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Total Current Liabilities |
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10,702,489 |
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9,053,013 |
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Long-term debt, net of current maturities |
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181,834 |
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GeoLease liability, long-term |
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2,082,980 |
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2,256,057 |
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Other Liabilities: |
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Non-current portion of capital leases |
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55,882 |
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66,193 |
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Total Liabilities |
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12,841,351 |
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11,557,097 |
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Redeemable Preferred Stock |
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Redeemable preferred stock, Series A, $10.00 par value, 100,000 shares authorized, 8,333 shares issued and outstanding |
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2,441,267 |
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2,397,843 |
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Stockholders Equity: |
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Common stock, $.01 par value, 100,000,000 shares authorized, 18,992,113 shares outstanding |
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189,922 |
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189,922 |
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Additional paid in capital |
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35,726,608 |
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35,770,031 |
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Accumulated other comprehensive (loss) foreign currency translation |
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(1,908 |
) |
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Accumulated (deficit) |
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(38,428,435 |
) |
(38,338,339 |
) |
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Total Stockholders Equity (Deficit) |
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(2,513,813 |
) |
(2,378,386 |
) |
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Total Liabilities and Stockholders Equity |
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$ |
12,768,805 |
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$ |
11,576,554 |
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See accompanying notes to the financial statements.
4
GEOKINETICS INC.
Consolidated Statements of Operations
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Three Months Ended |
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March 31 |
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2005 |
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2004 |
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(unaudited) |
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Revenues: |
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Seismic acquisition revenue |
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$ |
11,926,205 |
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$ |
11,251,207 |
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Seismic data processing revenue |
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1,234,631 |
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665,756 |
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Total Revenues |
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13,160,836 |
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11,916,963 |
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Expenses: |
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General and administrative |
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702,342 |
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590,297 |
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Seismic operating expense |
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10,577,196 |
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10,082,384 |
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Data processing expense |
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1,671,329 |
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1,185,185 |
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Depreciation and amortization expense |
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212,321 |
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261,799 |
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Total Expenses |
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13,163,188 |
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12,119,665 |
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(Loss) from operations |
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(2,352 |
) |
(202,702 |
) |
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Other Income (Expense): |
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Interest income |
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14,687 |
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6,551 |
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Other income |
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117 |
|
114 |
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Interest expense |
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(102,548 |
) |
(108,208 |
) |
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Total Other Income (Expense) |
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(87,744 |
) |
(101,543 |
) |
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(Loss) before provision for income tax |
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(90,096 |
) |
(304,245 |
) |
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Provision for income tax |
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Net (Loss) |
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(90,096 |
) |
(304,245 |
) |
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Returns to preferred stockholders |
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Preferred stock dividend and accretion of costs |
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(43,423 |
) |
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Loss applicable to common stockholders |
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$ |
(133,519 |
) |
$ |
(304,245 |
) |
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Earnings (Loss) per common share |
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Basic |
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$ |
(0.01 |
) |
$ |
(0.02 |
) |
Diluted |
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$ |
(0.01 |
) |
$ |
(0.02 |
) |
Weighted average common shares and equivalents outstanding |
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18,992,113 |
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18,992,113 |
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See accompanying notes to the financial statements.
5
GEOKINETICS INC.
Consolidated Statements of Cash Flows
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Three Months Ended March 31 |
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2005 |
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2004 |
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(unaudited) |
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OPERATING ACTIVITIES |
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Net (Loss) |
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$ |
(90,096 |
) |
$ |
(304,245 |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
|
|
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Depreciation and amortization |
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212,321 |
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261,799 |
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Changes in operating assets and liabilities |
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Accounts receivable and work in progress |
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(628,637 |
) |
1,750,329 |
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Prepaid expenses and other assets |
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(51,677 |
) |
53,483 |
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Accounts payable |
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1,916,624 |
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(649,787 |
) |
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Accrued liabilities and deferred revenue |
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(229,339 |
) |
161,198 |
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Long-term lease liability |
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61,628 |
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Net cash provided by operating activities |
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1,129,196 |
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1,334,405 |
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INVESTING ACTIVITIES |
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Purchases of capital assets |
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(326,630 |
) |
(217,291 |
) |
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Net cash (used in) investing activities |
|
(326,630 |
) |
(217,291 |
) |
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FINANCING ACTIVITIES |
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Proceeds from issuance of debt |
|
9,814 |
|
51,215 |
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Payments on capital leases |
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(84,498 |
) |
(88,674 |
) |
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Principal paid on long term debt |
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(168,467 |
) |
(179,906 |
) |
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Principal paid on short term debt |
|
(105,641 |
) |
(246,733 |
) |
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Payments on Geolease obligation |
|
(151,485 |
) |
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Net cash (used in) financing activities |
|
(500,277 |
) |
(464,098 |
) |
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Other comprehensive (loss) |
|
(1,908 |
) |
|
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Net increase in cash |
|
300,381 |
|
653,016 |
|
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Cash at beginning of period |
|
2,399,927 |
|
5,057,892 |
|
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Cash at end of period |
|
$ |
2,700,308 |
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$ |
5,710,908 |
|
Supplemental disclosures related to cash flows:
Equipment totaling $96,140 and $216,830 was acquired in the first quarter of 2005 and 2004, respectively, through the issuance of capital leases.
Interest of $102,548 and $108,208 was paid in the first quarter of 2005 and 2004, respectively.
See accompanying notes to the financial statements.
6
GEOKINETICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Geokinetics Inc. (the Company), a Delaware corporation, was incorporated in 1980. The Company is a technologically advanced provider of seismic acquisition and high-end seismic data processing services to the oil and gas industry.
2. Basis of Presentation
The unaudited financial statements contained herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying financial statements include all adjustments which are, in the opinion of management, necessary to provide a fair presentation of the financial condition and results of operations for the periods presented. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes included in the Companys latest Annual Report on Form 10-KSB for the year ended December 31, 2004. The results of operations for the three months ended March 31, 2005, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2005.
3. Long Term Debt
At March 31, 2005, the Companys long term debt was $698,420, all of which is current. Long term debt consists of a note to a financial institution, bearing interest at prime plus 1.5%.
At March 31, 2005, the Company had a long term liability to GeoLease Partners, L.P., a Delaware limited partnership (GeoLease), in the amount of $3,177,068, including $1,094,088 in current maturities. GeoLease is the holder of the Companys seismic acquisition equipment lease.
At March 31, 2005, the Company had long term capital leases in the amount of $315,146, including $259,264 in current maturities, with interest rates ranging from 8% to 12%.
4. Bonuses and Comparability
The Company's results for the first quarter of 2005 include discretionary bonuses of approximately $475,000. No bonuses were included in the Company's results for the first quarter of 2004. Discretionary bonuses of approximately $204,000 were paid and expensed in the second quarter of 2004.
7
5. Segment Information
The following table sets forth the Companys significant information from reportable segments.
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For the Quarter Ended March 31, 2005 |
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Seismic |
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Data |
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Totals |
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Revenues from external customers |
|
$ |
11,926,205 |
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$ |
1,234,631 |
|
$ |
13,160,836 |
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Segment Profit (Loss) |
|
967,884 |
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(762,247 |
) |
205,637 |
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Segment Assets |
|
6,381,865 |
|
2,858,137 |
(1) |
9,240,002 |
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For the Quarter Ended March 31, 2004 |
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Seismic |
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Data |
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Totals |
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|||
Revenues from external customers |
|
$ |
11,251,207 |
|
$ |
665,756 |
|
$ |
11,916,963 |
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Segment Profit (Loss) |
|
762,001 |
|
(812,648 |
) |
(50,647 |
) |
|||
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Segment Assets |
|
5,568,213 |
|
6,473,526 |
(1) |
12,041,739 |
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|||
(1) Data processing segment assets at March 31, 2004 include net intercompany receivables of $4,514,893. Data processing segment assets at March 31, 2005 are reported net of intercompany receivables of $574,496.
The following table reconciles reportable segment losses to consolidated losses.
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For the Quarter Ended March 31 |
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2005 |
|
2004 |
|
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PROFIT OR (LOSS) |
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|
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Total profit or (loss) for reportable segments |
|
$ |
205,637 |
|
$ |
(50,647 |
) |
Unallocated amounts: |
|
|
|
|
|
||
Corporate expenses net of interest earnings |
|
(292,240 |
) |
(250,245 |
) |
||
Corporate interest expense |
|
(2,521 |
) |
(2,389 |
) |
||
Corporate Depreciation |
|
(972 |
) |
(964 |
) |
||
Total Consolidated (Loss) |
|
$ |
(90,096 |
) |
$ |
(304,245 |
) |
8
6. Stock Based Compensation
As permitted under generally accepted accounting principles, stock-based awards granted to employees are accounted for following APB 25. Accordingly, the Company has not recognized compensation expense for its stock-based awards to employees. Outlined below are pro forma results had compensation costs for the Companys stock-based compensation plans been determined based on the fair value approach of SFAS 123.
|
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Three Months Ended |
|
||||
|
|
March 31 |
|
||||
|
|
2005 |
|
2004 |
|
||
Net (loss), as reported |
|
$ |
(90,096 |
) |
$ |
(304,245 |
) |
Less compensation cost determined under the fair value method |
|
(50,088 |
) |
(10,990 |
) |
||
Pro forma net (loss) |
|
$ |
(140,184 |
) |
$ |
(315,235 |
) |
|
|
|
|
|
|
||
Basic and diluted earnings per share: |
|
|
|
|
|
||
As reported |
|
$ |
(0.01 |
) |
$ |
(0.02 |
) |
Pro forma |
|
$ |
(0.01 |
) |
$ |
(0.02 |
) |
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period and additional options may be granted in future years.
The Financial Accounting Standards Board (FASB) has announced it will require all public companies to expense the fair value of employee stock awards. The final requirements will be effective for periods beginning after December 31, 2005. The impact to the Companys financial statements will be in the form of additional compensation expense upon the award of any stock option. The amount of the compensation expense recognized will be dependent upon the value of the Companys common stock and the number of options awarded.
7. Comprehensive Income (Loss)
SFAS 130 Reporting Comprehensive Income establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income generally represents all changes in shareholders equity (deficit) during the period except those resulting from investments by, or distributions to, shareholders. The Company has comprehensive income (loss) related to changes in foreign currency to U.S. dollar exchange rates, which is recorded as follows:
|
|
Three Months Ended |
|
||||
|
|
March 31 |
|
||||
|
|
2005 |
|
2004 |
|
||
Net (loss) |
|
$ |
(90,096 |
) |
$ |
(304,245 |
) |
Foreign currency translation adjustment |
|
(1,908 |
) |
|
|
||
Comprehensive (loss) |
|
$ |
(92,004 |
) |
$ |
(304,245 |
) |
9
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Certain matters discussed in this quarterly report, except for historical information contained herein, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). When used in this report, words such as anticipates, believes, expects, estimates, intends, plans, projects and similar expressions, as they relate to the Company or management, identify forward-looking statements. Forward-looking statements include, among other things, business strategy and expectations concerning industry conditions, market position, future operations, profitability, liquidity and capital resources. Managements expectations and assumptions regarding Company operations and other future results are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Although we believe that the expectations reflected in such statements are reasonable, we can give no assurance that such expectations will be correct.
Overview
The Company provides seismic acquisition and high-end seismic data processing services to the oil and gas industry through its wholly-owned subsidiaries, Quantum Geophysical, Inc. and Geophysical Development Corporation.
The operating environment for the seismic service industry has been difficult since late 1998. However, certain positive events have occurred, such as continuing high commodity prices for oil and natural gas and what appears to be sustained demand for these products, which have led to increased exploration and development activities by oil and gas companies. The Companys seismic acquisition segment has benefited from these events, as well as its reputation as a provider of high quality seismic surveys, through increased demand for its services. The Company has seen seismic acquisition revenues increase year over year for the past several years. Revenues for the first quarter of 2005 increased from revenues attained during the first quarter of 2004. While overall demand continued to improve, the Company continued to experience significant competition in its marketplace which has not allowed the prices the Company can charge for its services to increase significantly.
During the first three months of 2005, the Company operated three seismic acquisition crews on a continuous basis. The Company believes that its current backlog for seismic acquisition projects is sufficient to keep three seismic acquisition crews in operation through the end of calendar year 2005. In order to field a third seismic acquisition crew, the Company is leasing the necessary seismic acquisition equipment from an industry supplier and has negotiated a buyout for this equipment if the Company meets certain usage requirements. The Company will continue to aggressively compete for additional seismic acquisition projects from both existing and prospective clients.
10
During the first quarter of 2005, revenues at the Companys seismic data processing segment increased significantly, when compared to the same period of 2004, and the segment experienced a small improvement in operating results. This is the third consecutive quarter that revenues have increased when compared to the respective prior years quarterly periods. While the Company is encouraged by these developments, it can not as yet give its assurance that this trend will continue. However, the seismic data processing segment continues to operate at a significant loss. The segment has not as yet fully benefited from improving industry conditions. The Company continues in its efforts to upgrade both its technological capabilities as well as the capabilities of its professional staff. As previously disclosed, the Company established a United Kingdom-based subsidiary which it believes will facilitate penetration of wider geographic markets and provide access to worldwide technology trends.
Results of Operations
Three months ended March 31, 2005 compared with three months ended March 31, 2004
Revenues for the three months ended March 31, 2005 were $13,160,836 as compared to $11,916,963 for the same period of 2004, an increase of 10%. Seismic acquisition revenue totaled $11,926,205 as compared to $11,251,207 for the first quarter of 2004, an increase of 6%. Seismic data processing revenue totaled $1,234,631 at March 31, 2005 as compared to $665,756 for the same period of 2004, an increase of 85%. While demand for the Companys services improved during the first quarter of 2005, the Company continues to experience significant competition at both its operating segments.
Operating expenses for the quarter ended March 31, 2005 totaled $12,248,525 as compared to $11,267,569 for the same period of 2004, an increase of 9%. This increase is primarily the result of increased activity at both of the Companys operating segments. Seismic acquisition operating expenses for the first quarter of 2005 increased 5% to $10,577,196 from $10,082,384 in the first quarter of 2004. For the three months ended March 31, 2005, seismic data processing operating expenses totaled $1,671,329 as compared to $1,185,185 for the same period of 2004, an increase of 41%. Increased operating expenses at the seismic acquisition segment resulted primarily from increased activity and the fielding of a third crew. Operating expenses increased at the Companys seismic data processing segment primarily due to increased levels of activity as well as costs associated with the upgrading of the segments professional staff.
General and administrative expense for the quarter ended March 31, 2005 was $702,342 as compared to $590,297 for the same period of 2004, an increase of 19%. This increase is primarily the result of discretionary bonuses awarded to key employees during the current quarter.
Depreciation and amortization expense for the three months ended March 31, 2005 totaled $212,321 as compared to $261,799 for the same period of 2004, a decrease of 19%. This decrease is primarily the result of a continuing decline in the basis of the Companys depreciable assets.
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Interest expense (net of interest income) for the first quarter of 2005 decreased 14% to $87,744 as compared to $101,543 for the same quarter of 2004. This decrease was primarily due to the continuing reduction in the balances of the Companys long-term debt and GeoLease liability.
The Company had a loss applicable to common stockholders of $133,519, or $(0.01) per share, for the three months ended March 31, 2005 as compared to a loss applicable to common stockholders of $304,245, or $(0.02) per share, for the same period of 2004. The reduction in the Companys loss of 56% for the first three months of 2005 is primarily due to the increase in the operating profit at the Companys seismic acquisition segment.
Liquidity and Capital Resources
The Companys primary sources of cash are cash flow generated by its seismic acquisition and seismic data processing segments, private equity transactions, equipment financing and trade credit. The Companys primary uses of cash are for operating expenses associated with its seismic acquisition and seismic data processing segments and expenditures associated with upgrading and expanding of the Companys operating segments capital asset base. As such, the Companys ability to maintain adequate cash balances is dependent upon levels of future demand for the services it provides to its customers. In the past, the Company has relied upon cash flows from operations and private placements of equity and debt to meet its working capital and capital expenditure requirements.
On May 2, 2003, the Company completed a comprehensive debt restructuring with its principal creditors. Pursuant to the restructuring the Company (i) effected a reverse stock split of its common stock at a ratio of 1-for-100, (ii) eliminated approximately $80,000,000 in long term debt obligations through cash settlements or debt conversions into common stock, (iii) reduced and restructured its obligations to GeoLease, and (iv) completed a $3,500,000 private placement from a group of private investors.
At the time of the May, 2003 restructuring, the Companys accrued lease obligation to GeoLease was reduced to $3,700,000 from $6,675,530. The outstanding balance of $3,700,000 was frozen as of May 2, 2003 but accrued interest at 6% per annum from May 1, 2002 until April 30, 2004 when such balance, plus accrued and unpaid interest, would be payable in full. In addition, the Companys monthly payments under the lease, for continuing use of the seismic acquisition equipment, were reduced from $260,000 to $62,400 (inclusive of any applicable taxes) beginning May 1, 2002 until April 30, 2004.
On April 14, 2004, the Company and GeoLease agreed to a restructuring of the equipment lease pursuant to the Amendment No. 2 of the equipment lease. Pursuant to the restructuring, the Company is allowed to pay GeoLease the outstanding accrued lease obligation as of April 30, 2004 (totaling $4,170,419) in 48 monthly installments beginning May 1, 2004 and ending with a final payment in April, 2008. The outstanding balance accrues interest at 8% per annum. The Companys monthly lease payments were reduced from $62,400 to $31,200 per month for the period beginning May 1, 2004 until October 31, 2004, further reduced to $21,200 per month for the period beginning November 1, 2004 until April 30, 2005, further reduced to $11,200 per month for the period beginning May 1, 2005 until April 30, 2007, and further reduced to $5,600
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per month for the period beginning May 1, 2007 until April 30, 2008. Under the terms of Amendment No. 2, the Company is also required to make mandatory annual prepayments of the outstanding accrued lease obligation should the Company have positive Free Cash Flow (as defined in Amendment No. 2) as calculated for each of the calendar years ending December 31, 2004 through December 31, 2007 until the balance is paid in full. At the year end of each period, the Company will calculate its consolidated Free Cash Flow and for the period ended December 31, 2004 pay 37.5% of its calculated Free Cash Flow as a prepayment to GeoLease and in each of the subsequent yearly periods pay 50% of its calculated Free Cash Flow to GeoLease. Any such prepayment will be applied to the last installments of the outstanding accrued lease obligation first. Amendment No. 2 also requires the Company to make prepayments of cash proceeds received pursuant to certain financing transactions and certain sales of assets outside the ordinary course of business. At December 31, 2004, the Company was not obligated to make a prepayment to GeoLease.
On November 30, 2004, the Company completed a $2,499,900 equity financing from private investment sources. The financing consisted of an issue of 8,333 shares of Series A Senior Convertible Preferred Stock (Convertible Preferred Stock) priced at $300 per share, which is convertible into common at $.30 cents per share. The Convertible Preferred Stock accrues dividends at the rate of 6% per annum, compounded annually which are payable in cash when, and if, declared. All unpaid dividends are cumulative and accrue, compounded annually, regardless of whether or not the Company has funds legally available for the payment of such dividends. The Convertible Preferred Stock is convertible, at the option of the holder thereof, at any time after the date of issuance. The Convertible Preferred Stock is automatically converted into common stock immediately upon the Companys sale of common stock in an underwritten public offering (a) at a price per share yielding the Company net proceeds of not less than $1.20, (b) resulting in net proceeds to the Company and selling stockholders, if any, of not less than $20,000,000 and (c) after which the Companys common stock is listed on the New York Stock Exchange, the American Stock Exchange or the National Association of Securities Dealers Automated Quotation System National Market (the NASDAQ) . If, at any time after October 31, 2009, the holders of not less than 51% of the Convertible Preferred Stock then outstanding deliver written notice to the Company of such holders desire to redeem, all outstanding Convertible Preferred Stock, if not previously converted, shall be redeemed. At any time after October 31, 2011, the Company is entitled to redeem all outstanding Convertible Preferred Stock, if not previously converted. After completion of this transaction, the Company had 27,325,113 shares of common stock outstanding, assuming conversion of the Convertible Preferred Stock.
Net cash provided by operating activities was $1,129,196 for the first three months of 2005 and $1,334,405 for the first three months of 2004. These amounts result from the Companys operating results adjusted by changes in working capital and depreciation. The decrease in cash provided by operating activities in the first quarter of 2005 was primarily the result of an increase in the Companys accounts receivable balances.
Net cash used in investing activities was $326,630 for the first three months of 2005 and $217,291 for the first three months of 2004. These amounts represent capital expenditures made during the respective quarters. The increase in investing activities during the first quarter of 2005 was a result of the outfitting of a third seismic acquisition crew.
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Net cash used in financing activities was $500,277 for the quarter ended March 31, 2005 and $464,098 for the quarter ended March 31, 2004. These totals represent payments made on the Companys various debt obligations. The small increase during the first quarter of 2005 represents payments made to GeoLease which offset declining payments to other debt holders of the Company.
The Company believes that its current cash balances and anticipated cash flow from its seismic acquisition and seismic data processing operations will provide sufficient liquidity to continue operations beyond 2005. While industry conditions appear to be improving, the Company continues to experience significant competition in its markets. Should the Companys current sources of liquidity not meet its operating requirements, the Company would be forced to seek outside sources of capital to meet its operating and capital requirements.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements for the three-month period ended March 31, 2005 that have or are reasonably likely to have a current or future effect on the Companys financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Critical Accounting Policies and Estimates
There were no changes to the Companys Critical Accounting Policies, as described in its Annual Report on Form 10-K, during the three months ended March 31, 2005.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In the normal course of operations, the Company is exposed to market risks arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential for change in the fair value of debt instruments resulting from an adverse movement in interest rates. As of March 31, 2005, the Companys financial instruments consist of cash, accounts receivable, accounts payable and notes payable, the GeoLease liability and redeemable preferred stock. The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable and accounts payable approximate fair market value due to the short maturity of those instruments. The carrying amount of debt reported in the consolidated balance sheets approximate fair value because, in general, the interest on the underlying instruments approximates market rates. The carrying amount of redeemable preferred stock approximates fair value as the securities were sold on November 30, 2004 in an arms length transaction for which a fairness opinion was issued by an independent third party. The Company is not a party to any hedge arrangements, commodity swap agreement or other derivative financial instruments. The Companys seismic acquisition segment operates exclusively within the United States. The Companys seismic data processing segment utilizes a foreign subsidiary, located in the United Kingdom, to conduct operations outside of the United States. This operation exposes the Company to market risks from changes in foreign exchange rates. However, to date, the level of activity has not been of a material nature.
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Item 4. Controls and Procedures
Under the supervision and with the participation, of the Companys management, including the Companys principal executive officer and principal financial officer, the Company has performed an evaluation of the design, operation and effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of March 31, 2005. Based on that evaluation, the Companys principal executive officer and principal financial officer concluded that such disclosure controls and procedures are effective in enabling the Company to record, process, summarize and report information required to be included in its reports filed or submitted under the Exchange Act within the required time period. There have not been any changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act) during the quarter ended March 31, 2005 that have materially affected or are reasonably likely to materially affect the Companys internal control over financial reporting.
Neither the Company nor any of its subsidiaries is a party to any pending legal proceedings other than certain routine litigation that is incidental to the Companys business and that the Company believes is unlikely to materially impact the Company. Moreover, the Company is not aware of any such legal proceedings that are contemplated by governmental authorities with respect to the Company, any of its subsidiaries, or any of their respective properties.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report:
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, filed herewith.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, filed herewith.
32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
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(b) Reports on Form 8-K:
On March 22, 2005 the Company filed a Form 8-K Report announcing the awarding of bonuses to six senior executives and key employees.
Pursuant to the requirements 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.
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GEOKINETICS INC. |
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Date: May 16, 2005 |
/s/ David A. Johnson |
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David A. Johnson |
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President and Chief Executive Officer |
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Date: May 16, 2005 |
/s/ Thomas J. Concannon |
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Thomas J. Concannon |
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Vice President and Chief Financial Officer |
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