SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-QSB

(Mark One)

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

o        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 incorporation or organization)	(I.R.S. Employer Identification Number)
One Riverway, Suite 2100  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   ýNo  o

On September 30, 2004, there were 18,992,113 shares of Registrant’s common stock ($.01 par value) outstanding.

GEOKINETICS INC.

INDEX

PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements
		Balance Sheets September 30, 2004 and December 31, 2003
		Statements of Operations Three Months and Nine Months Ended September 30, 2004 and 2003
		Statements of Cash Flows Nine Months Ended September 30, 2004 and 2003
		Notes to Interim Financial Statements
	Item 2. Management’s Discussion and Analysis or Plan of Operation
	Item 3. Controls and Procedures
PART II.	OTHER INFORMATION
	Item 5.  Other Information
	Item 6.  Exhibits and Reports on Form 8-K

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

GEOKINETICS INC.
Balance Sheets

ASSETS

	September 30		December 31
	2004		2003
	Unaudited
Current Assets:
Cash	$	1,413,800	$	5,057,892
Receivables	4,322,207		5,456,331
Work in progress	1,048,073		819,398
Prepaid expenses	64,592		369,855
Total Current Assets	6,848,672		11,703,476
Property and Equipment:
Equipment, net of depreciation	2,114,762		2,055,905
Buildings, net of depreciation	208,760		213,619
Land	23,450		23,450
Total Property and Equipment	2,346,972		2,292,974
Other Assets:
Deferred charges	29,360		163,893
Restricted investments	223,378		198,378
Other assets	50,614		60,930
Total Other Assets	303,352		423,201
Total Assets	$	9,498,996	$	14,419,651

See accompanying notes to the financial statements.

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LIABILITIES AND STOCKHOLDERS’ EQUITY

	September 30			December 31
	2004			2003
	Unaudited
Current Liabilities:
Current maturities of long term debt	$	684,102		$	712,731
Current portion of GeoLease liability	1,051,328			841,939
Current portion of capital lease	250,943			232,399
Accounts payable	3,129,731			5,100,141
Accrued liabilities	1,756,064			2,124,288
Due to officers and stockholders	552,373			552,373
Deferred revenue	1,903,275			2,079,425
Notes payable	100			442,588
Advances for lease bank	100,000			100,000
Total Current Liabilities	9,427,916			12,185,884
Long term debt, net of current maturities	348,186			869,039
GeoLease liability, long-term	2,425,719			3,246,175
Other Liabilities:
Non-current portion of capital lease	94,394			41,118
Total Liabilities	12,296,215			16,342,216
Stockholders’ Equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 18,992,113 shares outstanding	189,922			189,922
Additional paid in capital	35,784,506			35,784,506
Retained deficit	(38,771,647		)	(37,896,993		)
Total Stockholders’ Equity	(2,797,219		)	(1,922,565		)
Total Liabilities and Stockholders’ Equity	$	9,498,996		$	14,419,651

See accompanying notes to the financial statements.

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GEOKINETICS INC.
Statements of Operations

	Three Months Ended September 30						Nine Months Ended September 30
	2004			2003			2004			2003
	(Unaudited)						(Unaudited)
Revenues:
Seismic acquisition revenue	$	10,934,704		$	8,382,700		$	30,932,361		$	19,416,567
Data processing revenue	1,160,985			978,666			2,509,319			2,694,590
Total Revenues	12,095,689			9,361,366			33,441,680			22,111,157
Expenses:
General and administrative	555,111			439,720			1,785,336			1,276,929
Seismic acquisition operating expense	8,943,297			7,005,643			27,394,070			15,676,345
Data processing expense	1,530,920			990,685			4,192,680			2,916,832
Depreciation and amortization expense	183,609			368,409			628,716			1,378,101
Total Expenses	11,212,937			8,804,457			34,000,802			21,248,207
Income (Loss) from Operations	882,752			556,909			(559,122		)	862,950
Other Income (Expense):
Interest income	5,315			4,293			17,131			11,037
Other income	107			126			619			3,463
Interest expense	(110,920		)	(106,840		)	(333,282		)	(3,734,335		)
Total Other Income (Expense)	(105,498		)	(102,421		)	(315,532		)	(3,719,835		)
Gain on financial restructuring	—			—			—			83,830,575
Income (Loss)  before provision for income tax	777,254			454,488			(874,654		)	80,973,690
Provision for income tax	—			(63,500		)	—			—
Net Income (Loss)	$	777,254		$	517,988		$	(874,654	)	$	80,973,690
Earnings (Loss) per common share-Basic	$	0.04		$	0.03		$	(0.05	)	$	4.26
Earnings (Loss) per common share-Diluted	0.04			0.03			(0.05		)	4.26
Weighted average common shares outstanding:
Basic	18,992,113			18,992,113			18,992,113			18,992,113
Diluted	19,199,111			18,992,113			18,992,113			18,992,113

See accompanying notes to the financial statements.

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GEOKINETICS INC.
Statements of Cash Flows

	Nine Months Ended September 30
	2004			2003
	(Unaudited)
OPERATING ACTIVITIES
Net Loss	$	(874,654	)	$	80,973,690
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	628,716			1,378,101
Gain on financial restructuring	—			(83,830,575		)
Changes in operating assets and liabilities
Accounts receivable and work in progress	905,449			(2,266,762		)
Prepaid expenses and other assets	425,112			115,922
Accounts payable	(1,970,410		)	2,111,537
Accrued liabilities and deferred revenue	(461,750		)	972,264
Short term obligations expected to be refinanced	—			3,479,687
Accrued lease liability	—			99,192
Net cash provided by (used in) operating activities	(1,347,537		)	3,033,056
INVESTING ACTIVITIES
Purchases of capital assets	(682,959		)	(856,786		)
Net cash (used in) investing activities	(682,959		)	(856,786		)
FINANCING ACTIVITIES
Proceeds from short term debt	51,215			326,482
Proceeds from long term debt	350,126			—
Proceeds of private placement, net of $519,148 cost	—			2,980,852
Payments on financial restructuring	—			(1,898,800		)
Principal paid on long term debt	(1,455,300		)	(756,882		)
Principal paid on short term debt	(559,637		)	(373,085		)
Net cash provided by (used in) financing activities	(1,613,596		)	278,567
Net increase (decrease) in cash	(3,644,092		)	2,454,837
Cash at beginning of period	5,057,892			2,416,626
Cash at end of period	1,413,800			$	4,871,463

Significant non-cash transactions:

Notes were issued during April of 2003 in payment of vendor accounts payable invoices in the amount of  $127,480.

Equipment totaling $350,126 and $133,839 was acquired in the first nine months of 2004 and 2003, respectively, through the issuance of capital leases.

Interest of $333,282 and $243,148 was paid in the first nine months of 2004 and 2003, respectively.

See accompanying notes to the financial statements.

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Notes to Interim Financial Statements

1.Method and Basis of Presentation

The unaudited 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.  All such adjustments are of a normal recurring nature.  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, 2003.  A summary of accounting policies and other significant information is included therein.

2.Liquidity

Due to difficult operating conditions (primarily unusually wet weather) experienced during the second quarter of 2004 at the Company’s seismic acquisition segment, additional expenditures associated with the outfitting of a third seismic acquisition crew during the same period and the ongoing difficulties experienced at the Company’s seismic data processing segment, the Company has experienced a substantial decline in its cash balances.  In order to maintain appropriate cash balances, meet ongoing obligations in a timely manner, and be in a position to take advantage of opportunities which may present themselves to the Company due to improving industry conditions, the Company has undertaken to complete a private placement of equity.  The Company expects this private placement to be completed in the fourth quarter of 2004.  The amount and terms of the private placement are being negotiated at the present time.  However, the transaction is subject to certain conditions precedent and as a result there can be no assurance that any such transaction will be completed.

The Company believes that its current cash balances, anticipated cash flow from its seismic acquisition and seismic data processing operations, completion of the May, 2003 and April, 2004 restructuring transactions and the completion of the anticipated private placement in the fourth quarter of 2004 will provide sufficient liquidity to continue operations beyond 2004, allow the Company to continue to aggressively upgrade both its technological capabilities and the capabilities of its professional staff at its seismic data processing segment and be in a position to take advantage of opportunities which may present themselves to the Company due to improving industry conditions.  Should the Company be unable to complete the anticipated private placement in the fourth quarter of 2004, the Company will be restricted in its efforts to upgrade its technological and professional staff capabilities at its seismic data processing segment, may not be in a position to take advantage of future opportunities presented by an improving industry and the Company’s cash balances may decline from their current levels.  While industry conditions appear to be improving, the Company continues to experience significant competition in its markets.  This competition continues to impair the prices the Company can charge for its services.

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3.Long Term Debt

At September 30, 2004, the Company’s long term debt was $1,032,288, including $684,102 in current maturities.  Long term debt consists of a note to a financial institution, bearing interest at prime plus 1.5%, with a balance of $1,032,288.

At September 30, 2004, the Company had a long term liability to GeoLease Partners, L.P., a Delaware limited partnership (“GeoLease”), in the amount of $3,477,047, including $1,051,328 in current maturities.  The classification of this liability is based on a restructuring of the Company’s seismic acquisition lease completed on April 14, 2004 as further explained in Note 5.  GeoLease is the holder of the Company’s seismic acquisition equipment lease.

At September 30, 2004, the Company had long term capital leases in the amount of $345,337, including $250,943 in current maturities, with interest rates ranging from 8% to 12%.

4.Segment Information

The following table sets forth the Company’s significant information from reportable segments:

	For the Quarter Ended September 30, 2004
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	10,934,704	$	1,160,985		$	12,095,689
Segment Profit (Loss)	1,683,011		(673,326		)	1,009,685
Segment Assets	4,472,862		3,378,159			7,851,021

	For the Quarter Ended September 30, 2003
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	8,382,700	$	978,666		$	9,361,366
Segment Profit (Loss)	1,040,134		(368,612		)	671,522
Segment Assets	4,873,056		2,545,503			7,418,559

	For the Nine Months Ended September 30, 2004
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	30,932,361	$	2,509,319		$	33,441,680
Segment Profit (Loss)	2,507,324		(2,584,318		)	(76,994		)
Segment Assets	4,472,862		3,378,159			7,851,021

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	For the Nine Months Ended September 30, 2003
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	19,416,567	$	2,694,590		$	22,111,157
Segment Profit (Loss) (1)	3,879,107		(3,514,313		)	364,794
Segment Assets	4,873,056		2,545,503			7,418,559

(1)Included a $2,882,637 gain from financial restructuring in the seismic acquisition segment.

The following table reconciles reportable segment losses to consolidated losses:

	For the Quarter Ended September30
	2004			2003
PROFIT OR LOSS
Total profit for reportable segments	$	1,009,685		$	671,522
Unallocated amounts:
Corporate expenses net of interest earnings	(229,273		)	(127,319		)
Corporate interest expense	(2,120		)	(2,174		)
Corporate income tax	—			(23,225		)
Depreciation	(1,038		)	(816		)
Total Consolidated Profit	$	777,254		$	517,988

	For the Nine Months Ended September 30
	2004			2003
PROFIT OR LOSS
Total profit or (loss) for reportable segments	$	(76,994	)	$	364,794
Unallocated amounts:
Corporate expenses net of interest earnings	(788,000		)	(329,283		)
Corporate interest expense	(6,620		)	(7,311		)
Corporate gain on financial restructuring	—			80,947,938
Depreciation	(3,040		)	(2,448		)
Total Consolidated Profit (Loss)	$	(874,654	)	$	80,973,690

5.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 Company’s stock-based compensation plans been determined based on the fair value approach of SFAS 123.

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	For the Three Months Ended September 30
	2004			2003
Net income (loss), as reported	$	777,254		$	517,988
Less compensation cost determined under the fair value method	(10,990		)	(14,504		)
Pro forma net income (loss)	$	766,264		$	503,484
Basic earnings per share:
As reported	$	0.04		$	0.03
Pro forma	0.04			0.03

	For the Nine Months Ended September 30
	2004			2003
Net income (loss), as reported	$	(874,654	)	$	80,973,690
Less compensation cost determined under the fair value method	(32,970		)	(43,512		)
Pro forma net income (loss)	$	(907,624	)	$	80,930,178
Basic earnings per share:
As reported	$	(0.05	)	$	4.26
Pro forma	(0.05		)	4.26

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.

6.Restructuring

In May, 2003, the Company restructured and reduced its obligation to GeoLease, the holder of the Company’s seismic acquisition equipment lease.  At that time, the Company’s accrued lease obligation to GeoLease was reduced to $3,700,000 from $6,672,530.  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 Company’s 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 comprehensive restructuring of the equipment lease pursuant to Amendment No. 2 of the equipment lease (“Amendment No. 2”).  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 Company’s monthly lease payments will be: reduced from $62,400 to $31,200 per month for the period beginning May 1, 2004 until October 31, 2004; reduced to

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$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 per month for the period beginning May 1, 2007 until April 30, 2008.  Under the terms of Amendment No. 2, the Company is 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.

The GeoLease liability as reflected on the Company’s Consolidated Balance Sheet at September 30, 2004 totaled $3,477,047.  In accordance with the terms of the restructuring outlined above, $1,051,328 has been classified as a current liability, and $2,425,719 has been classified as a long term liability.

Item 2.    Management’s Discussion and Analysis or Plan of Operation

General

At September 30, 2004, 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.

Demand for the services provided by the Company’s seismic acquisition segment continued to increase when compared to the first nine months of 2003.  This increase in demand for the Company’s seismic acquisition services is the result of increased levels of activity by the domestic exploration industry as well as Quantum’s reputation as a provider of high quality seismic surveys.  Quantum’s overall financial results were significantly hindered during the second quarter as a result of lost recording time due to unusually wet weather in its areas of operation and incremental costs associated with fielding a third seismic acquisition crew.  Quantum did not field a third seismic acquisition crew in the third quarter nor did it encounter any unusual operating conditions.    As a result, Quantum was able to post positive quarterly operating results.  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 nine months of 2004, the Company operated two seismic acquisition crews on a continuous basis and at times, primarily February through May, was able to operate a third seismic acquisition crew.  The Company rented on a short-term basis the seismic acquisition equipment necessary to field this third crew.  The Company believes that its current backlog for seismic acquisition projects is sufficient to keep two seismic acquisition crews in operation through the first half of 2005.  The Company will continue to evaluate opportunities which would allow it to field a third seismic acquisition crew.  The Company will continue to aggressively compete for additional seismic acquisition projects from both existing and prospective clients.

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During the first nine months of 2004, demand for the services provided by the Company’s data processing segment continued to decline when compared to the first nine months of 2003.  However, for the third quarter, revenues at the Company’s seismic data processing segment increased when compared to revenues achieved for the same period of 2003.  This is the first quarter that revenues have increased when compared to a prior period since the fourth quarter of 2001.  While the Company is encouraged by this development, it can not as yet give its assurance that this trend will continue.  The Company’s seismic data processing segment has not as yet fully benefited from improved industry conditions and continues to incur operating losses.  The Company is attempting to aggressively 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.  This expansion has not yet had a positive impact on the Company’s overall financial condition.

Results of Operations

Revenues for the nine months ended September 30, 2004 were $33,441,680, as compared to $22,111,157 for the same period of fiscal 2003, an increase of 51%.  For the three months ended September 30, 2004, revenues totaled $12,095,689, as compared to $9,361,366 for the same period of fiscal year 2003, an increase of 29%.  This increase in revenue is primarily attributable to the Company’s seismic acquisition activities.  Seismic acquisition revenues, for the first nine months of 2004, totaled $30,932,361 as compared to $19,416,567 for the same period of fiscal 2003, an increase of 59%.  During the same period, seismic data processing revenue declined 7% from $2,694,590 to $2,509,319. However, for the three months ended September 30, seismic data processing revenue increased from $978,666 in 2003 to $1,160,985 in 2004, an increase of 19%.  The Company had not seen quarterly revenues increase at its seismic data processing segment since the fourth quarter of 2001.  The Company continues to experience significant competition in both its operating segments.

Operating expenses for the nine months ended September 30, 2004 totaled $31,586,750 as compared to $18,593,177 for the same period of fiscal 2003, and increase of 70%.  For the three months ended September 30, 2004, operating expenses totaled $10,474,217, as compared to $7,996,328 for the same period of fiscal year 2003, an increase of 31%.  Operating expenses increased at both the Company’s seismic acquisition and seismic data processing segments.  Seismic acquisition operating expenses for the nine months ended September 30, 2004 increased 75%, from $15,676,345 to $27,394,070.  This increase is primarily attributable to increased levels of activity, difficult operating conditions encountered in the second quarter of 2004 as well as the costs associated with fielding a third seismic acquisition crew.  The Company’s seismic data processing operating expenses for the nine months ended September 30, 2004 were $4,192,680, as compared to $2,916,832 for the same period of fiscal 2003, an increase of 44%.  The increase in operating expenses at the Company’s seismic data processing segment is a result of the Company’s commitment to aggressively upgrade both its technical capabilities and its professional staff.

General and administrative expense for the nine months ended September 30, 2004, was $1,785,336, as compared to $1,276,929 for the same period of fiscal 2003, an increase of 40%.  For the quarter ended September 30, 2004 general and administrative expense totaled $555,111, as compared to $439,720 for the same period of fiscal 2003, an increase of 26%.  Increases in general

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and administrative expense are primarily attributable to executive personnel additions, increased legal expenditures associated primarily with the GeoLease restructuring and professional expenses associated with the identifying and hiring of key personnel.

Depreciation and amortization expense for the nine months ended September 30, 2004 totaled $628,716, as compared to $1,378,101 for the same period of 2003, a decrease of 54%.  For the three months ended September 30, depreciation and amortization expense decreased from $368,409 in 2003 to $183,609 in 2004, a decrease of 50%.  These decreases are primarily the result of a continuing decline in the basis of the Company’s depreciable assets.

Interest expense (net of interest income) for the nine months ended September 30, 2004 totaled $316,151, as compared to $3,723,298 for the same period of 2003, a decrease of 92%. Interest expense for the three months ended September 30, 2004 totaled $105,498 as compared to $102,421 for the same period of 2003, an increase of 3%.  The decrease in total interest expense was primarily due to the cancellation of the Company’s 2003 and 2005 Senior Secured Notes as part of the restructuring transactions completed in May, 2003, and the restructuring of the seismic acquisition segment’s equipment lease with GeoLease.  The small increase in quarterly interest expense is due primarily to the restructuring of the GeoLease lease which was completed in April of 2004.

The Company had a net loss of $874,654, or $(0.05) per share, for the nine months ended September 30, 2004, as compared to net income of $80,973,690, or $4.26 per share, for the same period of 2003.  Net income for the first nine months of 2003 included $83,830,575, or $4.41 per share, which represented the gain recognized on the Company’s financial restructuring completed on May 2, 2003.  For the three months ended September 30, 2004, the Company had a net income of $777,254, or $0.04 per share, as compared to net income of $517,988 for the same period of 2003, or $0.03 per share.

Liquidity and Capital Resources

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 with a group of private investors.

At the time of the May, 2003 restructuring, the Company’s 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 Company’s 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 comprehensive 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

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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 Company’s monthly lease payments will be: reduced from $62,400 to $31,200 per month for the period beginning May 1, 2004 until October 31, 2004; 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 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.

Due to the difficult operating conditions (primarily unusually wet weather) experienced during the second quarter of 2004 at the Company’s seismic acquisition segment, additional expenditures associated with the outfitting of a third seismic acquisition crew during this same period, and the ongoing difficulties experienced at the Company’s seismic data processing segment, the Company has experienced a substantial decline in its cash balances.  In order to maintain appropriate cash balances, meet ongoing obligations in a timely manner, and be in a position to take advantage of opportunities which may present themselves to the Company due to improving industry conditions, the Company has undertaken to complete a private placement of equity.  The Company expects this private placement to be completed in the fourth quarter of 2004.  The amount and terms of the private placement are being negotiated at the present time.  However, the transaction is subject to certain conditions precedent and as a result there can be no assurance that any such transaction will be completed.

The Company believes that its current cash balances, anticipated cash flow from its seismic acquisition and seismic data processing operations, completion of the May, 2003 and April, 2004 restructuring transactions and the completion of the anticipated private placement will provide sufficient liquidity to continue operations beyond 2004, allow the Company to continue to aggressively upgrade both its technological capabilities and the capabilities of its professional staff at its seismic data processing segment and be in a position to take advantage of opportunities which may present themselves to the Company due to improving industry conditions.  Should the Company be unable to complete the anticipated private placement in the fourth quarter of 2004, the Company will be restricted in its efforts to upgrade its technological and professional staff capabilities at its seismic data processing segment, may not be in a position to take advantage of future opportunities presented by an improving industry and the Company’s cash balance may decline from its current level.

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Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements for the three-month period ended September 30, 2004 that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Forward-Looking Statements

Certain matters discussed in this quarterly report, except for historical information contained herein, may constitute “forward-looking statements” that are subject to certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions. These statements encompass information that does not directly relate to any historical or current fact and often may be identified with words such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects” and other similar expressions. Management’s 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.

ITEM 3. Controls and Procedures

The Company’s President and Chief Executive Officer and the Company’s Vice President and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2004, the end of the period covered by this report.  Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls are effective to ensure that information the Company is required to disclose under applicable laws and regulations is recorded, processed, summarized and reported in a timely manner.  The Company made no significant changes in internal controls over financial reporting during the quarter ending September 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company periodically reviews the design and effectiveness of its disclosure controls, including compliance with various laws and regulations that apply to its operations. The Company makes modifications to improve the design and effectiveness of its disclosure controls, and may take other corrective action, if its reviews identify deficiencies or weaknesses in its controls.

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Part II. Other Information

Item 5. Other Information

None

Item 6.  Exhibits and Reports on Form 8-K

(a)Exhibits:

31Certifications pursuant to Rules 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended, filed herewith.

32Certifications pursuant to Rule 13(a)-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.

(b)Reports on Form 8-K:

None

SIGNATURE

In accordance with 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.

	GEOKINETICS INC.
	(Registrant)
Date:  November 15, 2004	/s/ David A. Johnson
	David A. Johnson
	President and Chief Executive Officer
	/s/ Thomas J. Concannon
	Thomas J. Concannon
	Vice President and Chief Financial Officer

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