10-Q

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 June 30, 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	94-1690082
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

ONE RIVERWAY, SUITE 2100
HOUSTON, TX  77056
(713) 850-7600

(Registrant’s 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   ýNo   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   oNo   ý

At June 30, 2005, there were 18,992,113 shares of common stock, par value $0.01 per share, outstanding.

GEOKINETICS INC.

INDEX

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Balance Sheets at June 30, 2005 and December 31, 2004
		Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2005 and 2004
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits
	Signatures
Certification of CEO Pursuant to Rule 13a-14(a)/15d-14a
Certification of CFO Pursuant to Rule 13a-14(a)/15d-14a
Certification of CEO Pursuant to Section 1350
Certification of CFO Pursuant to Section 1350

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

GEOKINETICS INC.

Consolidated Balance Sheets

ASSETS

	June 30 2005			December 31 2004
	Unaudited
Current Assets:
Cash	$	3,627,041		$	2,399,927
Receivables, net of allowance for doubtful accounts of $76,770 in 2004	7,051,583			4,969,822
Work in Progress	1,467,262			1,214,722
Prepaid expenses	211,208			373,622
Total Current Assets	12,357,094			8,958,093
Property and Equipment:
Equipment	22,217,405			21,717,334
Buildings	293,475			289,864
Land	23,450			23,450
	22,534,330			22,030,648
Less accumulated depreciation	(20,170,512		)	(19,784,088		)
Total Property and Equipment	2,363,818			2,246,560
Other Assets:
Deferred charges	234,254			115,911
Restricted investments	196,907			210,407
Other assets	45,583			45,583
Total Other Assets	476,744			371,901
Total Assets	$	15,197,656		$	11,576,554

See accompanying notes to the financial statements.

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LIABILITIES AND STOCKHOLDERS’ DEFICIT

	June 30 2005			December 31 2004
	Unaudited
Current Liabilities:
Current maturities of long-term debt	$	528,342		$	685,052
Current portion of GeoLease liability	1,116,116			1,072,495
Current portion of capital leases	213,069			237,313
Accounts payable	6,049,894			2,307,907
Accrued liabilities	1,681,866			1,387,414
Due to officers and stockholders	552,373			552,373
Deferred revenue	3,359,612			2,427,269
Notes payable	72,682			283,190
Advances for lease bank	100,000			100,000
Total Current Liabilities	13,673,954			9,053,013
Long-term debt, net of current maturities	—			181,834
GeoLease liability, long-term	1,475,916			2,256,057
Other Liabilities:
Non-current portion of capital leases	25,108			66,193
Total Liabilities	15,174,978			11,557,097
Redeemable Preferred Stock
Redeemable preferred stock, Series A, $10.00 par value, 100,000 shares authorized, 8,333 shares issued and outstanding	2,484,690			2,397,843
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	35,683,184			35,770,031
Accumulated other comprehensive (loss) – foreign currency translation	(24,862		)	—
Accumulated (deficit)	(38,310,256		)	(38,338,339		)
Total Stockholders’ (Deficit)	(2,462,012		)	(2,378,386		)
Total Liabilities and Stockholders’ Deficit	$	15,197,656		$	11,576,554

See accompanying notes to the financial statements.

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GEOKINETICS INC.

Statements of Operations

	Three Months Ended June 30 (Unaudited)						Six Months Ended June 30 (Unaudited)
	2005			2004			2005			2004
Revenues:
Seismic acquisition revenue	$	12,395,543		$	8,746,450		$	24,321,748		$	19,997,657
Data processing revenue	1,032,438			682,578			2,267,069			1,348,334
Total Revenues	13,427,981			9,429,028			26,588,817			21,345,991
Expenses:
General and administrative	515,385			639,928			1,217,727			1,230,225
Seismic acquisition operating expense	10,899,892			8,368,389			21,477,088			18,450,773
Data processing expense	1,643,596			1,476,575			3,314,925			2,661,760
Depreciation and amortization expense	176,267			183,308			388,588			445,107
Total Expenses	13,235,140			10,668,200			26,398,328			22,787,865
Income (Loss) from Operations	192,841			(1,239,172		)	190,489			(1,441,874		)
Other Income (Expense):
Interest income	16,576			5,265			31,263			11,816
Other income	118			398			235			512
Interest expense	(91,356		)	(114,155		)	(193,904		)	(222,363		)
Total Other (Expense)	(74,662		)	(108,492		)	(162,406		)	(210,035		)
Income (Loss) before provision for income tax	118,179			(1,347,664		)	28,083			(1,651,909		)
Provision for income tax	—			—			—			—
Net Income (Loss)	$	118,179		$	(1,347,664	)	$	28,083		$	(1,651,909	)
Returns to preferred stockholders Dividends and accretion costs	(43,424		)	—			(86,847		)	—
Income (Loss) applicable to common stockholders	$	74,755		$	(1,347,664	)	$	(58,764	)	$	(1,651,909	)
Earnings (Loss) per common share
Basic	$	0.00		$	(0.07	)	$	(0.00	)	$	(0.09	)
Diluted	$	0.00		$	(0.07	)	$	(0.00	)	$	(0.09	)
Weighted average common shares and equivalents outstanding
Basic	18,992,113			18,992,113			18,992,113			18,992,113
Diluted	20,173,894			18,992,113			18,992,113			18,992,113

See accompanying notes to the financial statements.

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GEOKINETICS INC.

Consolidated Statements of Cash Flows

	Six Months Ended June 30 (unaudited)
	2005			2004
OPERATING ACTIVITIES
Net Income (Loss)	$	28,083		$	(1,651,909	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
Depreciation and amortization	388,588			445,107
Changes in operating assets and liabilities
Accounts receivable and work in progress	(2,334,301		)	(1,861,030		)
Prepaid expenses and other assets	57,573			735,811
Accounts payable	3,741,987			(1,670,553		)
Accrued liabilities and deferred revenue	1,225,683			1,849,614
Long-term lease liability	—			82,377
Net cash provided by (used in) operating activities	3,107,613			(2,070,583		)
INVESTING ACTIVITIES
Purchases of capital assets	(417,240		)	(291,815		)
Net cash (used in) investing activities	(417,240		)	(291,815		)
FINANCING ACTIVITIES
Proceeds from short term debt	9,813			51,215
Payments on capital leases	(161,994		)	(201,793		)
Principal paid on long term debt	(1,076,423		)	(867,410		)
Principal paid on short term debt	(220,320		)	(425,327		)
Net cash (used in) financing activities	(1,448,924		)	(1,443,315		)
Other comprehensive (loss)	(14,335		)	—
Net increase (decrease) in cash	1,227,114			(3,805,713		)
Cash at beginning of period	2,399,927			5,057,892
Cash at end of period	$	3,627,041		$	1,252,179

Supplemental disclosures related to cash flows:

Equipment totaling $96,440 and $323,871 was acquired in the first six months of 2005 and 2004, respectively, through the issuance of capital leases.

Interest of $193,904 and $222,363 was paid in the first six months of 2005 and 2004, respectively.

See accompanying notes to the financial statements.

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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 and Significant Accounting Policies

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 Company’s latest Annual Report on Form 10-KSB for the year ended December 31, 2004.  The results of operations for the six months ended June 30, 2005, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2005.

There were no changes to the Company’s Critical Accounting Policies, as described in its annual report on Form 10-K, during the six months ended June 30, 2005.

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.

	Three Months Ended June 30
	2005			2004
Income (Loss) applicable to common stockholders	$	74,755		$	(1,347,664	)
Less compensation cost determined under the fair value method	(60,738		)	(10,990		)
Pro forma Income (Loss) applicable to common stockholders	$	14,017		$	(1,358,654	)
Basic earnings per share:
As reported	$	0.00		$	(0.07	)
Pro forma	0.00			(0.07		)
Diluted earnings per share:
As reported	$	0.00		$	(0.07	)
Pro forma	0.00			(0.07		)

	Six Months Ended June 30
	2005			2004
(Loss) applicable to common stockholders	$	(58,764	)	$	(1,651,909	)
Less compensation cost determined under the fair value method	(110,826		)	(21,980		)
Pro forma (Loss) applicable to common stockholders	$	(169,590	)	$	(1,673,889	)
Basic and diluted earnings per share:
As reported	$	(0.00	)	$	(0.09	)
Pro forma	(0.01		)	(0.09		)

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 the Company for periods beginning after December 31, 2005.  The impact to the Company’s 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 Company’s common stock and the number of options awarded.

3.Long Term Debt

At June 30, 2005, the Company’s long-term debt was $528,342, all of which is current.  Long-term debt consists of a note to a financial institution, bearing interest at prime plus 1.5%.

At June 30, 2005, the Company had a long-term liability to GeoLease Partners, L.P., a Delaware limited partnership (“GeoLease”), in the amount of $2,592,032, including $1,116,116 in current maturities.  GeoLease is the holder of the Company’s seismic acquisition equipment lease.

At June 30, 2005, the Company had long-term capital leases in the amount of $238,177, including $213,069 in current maturities, with interest rates ranging from 8% to 12%.

4.Bonuses and Comparability

The results for the first six months of 2005 include discretionary bonuses of approximately $475,000.  Discretionary bonuses of approximately $204,000 were paid and expensed during the same period of 2004.

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5.Segment Information

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

	For the Quarter Ended June 30, 2005
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	12,395,543	$	1,032,438		$	13,427,981
Segment Profit (Loss)	1,268,560		(931,538		)	337,022
Segment Assets	8,907,513		2,589,942			11,497,455

	For the Quarter Ended June 30, 2004
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	8,746,450	$	682,578		$	9,429,028
Segment Profit (Loss)	62,312		(1,098,345		)	(1,036,033		)
Segment Assets	7,190,563		2,825,473			10,016,036

	For the Six Months Ended June 30, 2005
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	24,321,748	$	2,267,069		$	26,588,817
Segment Profit (Loss)	2,236,444		(1,693,785		)	542,659
Segment Assets	8,907,513		2,589,942			11,497,455

	For the Six Months Ended June 30, 2004
	Seismic Acquisition		Data Processing			Totals
Revenues from external customers	$	19,997,657	$	1,348,334		$	21,345,991
Segment Profit (Loss)	824,313		(1,910,993		)	(1,086,680		)
Segment Assets	7,190,563		2,825,473			10,016,036

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The following table reconciles reportable segment profit (loss) to consolidated profit (loss):

	For the Quarter Ended June 30
	2005			2004
PROFIT OR (LOSS)
Total profit (loss) for reportable segments	$	337,022		$	(1,036,033	)
Unallocated amounts:
Corporate expenses net of interest earnings	(215,379		)	(308,482		)
Corporate interest expense	(2,624		)	(2,111		)
Depreciation	(840		)	(1,038		)
Total Consolidated Profit (Loss)	$	118,179		$	(1,347,664	)

	For the Six Months Ended June 30
	2005			2004
PROFIT OR (LOSS)
Total profit (loss) for reportable segments	$	542,659		$	(1,086,680	)
Unallocated amounts:
Corporate expenses net of interest earnings	(507,619		)	(558,727		)
Corporate interest expense	(5,145		)	(4,500		)
Depreciation	(1,812		)	(2,002		)
Total Consolidated Profit (Loss)	$	28,083		$	(1,651,909	)

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6.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 stockholders equity (deficit) during the period except those resulting from investments by, or distributions to, stockholders.  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 June 30
	2005			2004
Net income (loss)	$	118,179		$	(1,347,664	)
Foreign currency translation adjustment	(22,954		)	—
Comprehensive income (loss)	$	95,225		$	(1,347,664	)

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	Six Months Ended June 30
	2005			2004
Net income (loss)	$	28,083		$	(1,651,909	)
Foreign currency translation adjustment	(24,862		)	—
Comprehensive income (loss)	$	3,221		$	(1,651,909	)

7.Earnings (Loss) per Common Share

The Company accounts for earnings per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (Statement 128).  Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share.  Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities.  Diluted earnings per share is similar to the previously reported fully diluted earnings per share.  All earnings per share amounts for all periods have been presented, and when appropriate, restated to conform to the Statement 128 requirements.  The company’s calculation of diluted shares for the three months ended June 30, 2005 excluded 105,189 shares associated with employee options and 8,333,000 shares related to convertible preferred stock.  The impact of such items are excluded from the calculation of earnings per common share on a diluted basis as their effect is anti-dilutive.

The following table sets forth the computation of basic and diluted earnings (loss) per common share:

	Three months Ended June 30					Six months Ended June 30
	2005		2004			2005			2004
Numerator:
Income (Loss) applicable to common stockholders	$	74,755	$	(1,347,664	)	$	(58,764	)	$	(1,651,909	)
Denominator
Denominator for basic earnings (loss) per common share	18,992,113		18,992,113			18,992,113			18,992,113
Effect of dilutive securities – employee stock options	1,181,781		—			—			—
Denominator for diluted earnings (loss) per common share	20,173,894		18,992,113			18,992,113			18,992,113
Earnings (Loss) per common share
Basic	$	0.00	$	(0.07	)	$	(0.00	)	$	(0.09	)
Diluted	$	0.00	$	(0.07	)	$	(0.00	)	(0.09		)

8.             Subsequent Events

On August 1, 2005, the Company announced it had entered into an agreement to purchase all of the stock of Trace Energy Services, Ltd. (“Trace”) of Calgary, Alberta, Canada for approximately CDN $35,000,000 in cash, subject to certain adjustments, and 1,000,000 shares of Geokinetics Common Stock.  Trace, which operates in the United States and Canada, performs 2-D, 3-D and 4-D seismic surveys using both conventional analog and digital seismic equipment for a wide range of customers exploring for oil and gas reserves.  Trace also has the technical capability to record shear wave data utilizing the I/O System Four Vectorseis recording system.  Closing of the transaction, which is subject to certain conditions contained in the purchase agreement, including receipt of satisfactory financing, is expected to occur during the fourth quarter of 2005.  Completion of the transaction will provide the Company with geographic diversification and revenue expansion opportunities and allow the Company to operate as many as nine seismic crews in the North American market.

Effective August 8, 2005, Quantum elected to exercise its option to purchase a 5040 channel RSR System II under the terms and conditions of a certain letter agreement by and between Quantum and an industry equipment supplier.  Prior to exercising this option, Quantum has been leasing the underlying equipment on a month to month basis since mid January of this year.  Quantum is now obligated to make payments totaling approximately $1,753,000 over the period of July, 2005 through May 2006 to satisfy the option.  Upon satisfactory completion of the above noted payments, Quantum will have satisfied the option obligations and title to the underlying equipment will pass to Quantum.

Item 2.Management’s 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.  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.  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.(“Quantum”) and Geophysical Development Corporation (“GDC”).

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The seismic service industry is dependent upon the spending levels established by oil and gas companies for exploration, development, exploitation and production of oil and natural gas.  These spending levels have traditionally depended upon the prices paid for oil and natural gas.  During the late 1990’s and early 2000’s, oil and natural gas exploration activities slowed as a result of a precipitous drop in oil and natural gas prices which occurred during 1998 and 1999.  However, the oil and natural gas industry has seen significant increases in activity resulting from continuing high commodity prices for oil and natural gas.  The Company’s seismic acquisition segment has benefited from these increased levels of activity as well as from its reputation as a provider of high quality seismic surveys.  The Company has seen its seismic acquisition revenues increase year over year for the past several years.  Results for the first six months of 2005 increased from the levels attained during the same period of 2004.  While demand for the Company’s services has significantly improved, the Company continues to experience significant competition in its marketplace which has prevented the Company from benefiting from increased pricing for its services.

During the second quarter of 2005, the Company continued to operate 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 into early 2006.  In order to field a third seismic acquisition crew, the Company has been leasing the necessary seismic acquisition equipment. Subsequent to the quarter-end, Quantum elected to exercise an option to purchase the equipment it had previously been leasing. The Company will continue to aggressively compete for additional seismic acquisition projects from both existing and prospective clients.

During the second quarter of 2005, revenues at the Company’s seismic data processing segment continued to increase, when compared to the same period of 2004, and the segment experienced a small improvement in operating results.  This is the fourth consecutive quarter that revenues have increased when compared to the respective prior year’s quarterly periods.  While the Company is encouraged by this situation, it can not as yet give its assurance that this trend will continue.  The Company’s seismic data processing segment continues to operate at a significant loss and has not as yet benefited from improved industry conditions.  The Company continues in its efforts to upgrade both its technological capabilities as well as the capabilities of its professional staff.

Subsequent to the end of the second quarter, the Company entered into an agreement to purchase all of the stock of Trace Energy Services Ltd. (“Trace”) of Calgary, Alberta, Canada for approximately CDN $35,000,000 in cash, subject to certain adjustments, and 1,000,000 shares of Geokinetics Common Stock. Trace, which operates in the United States and Canada, performs 2-D 3-D and 4-D seismic surveys using both conventional analog and digital seismic equipment for a wide range of customers exploring for oil and gas reserves. Trace also has the technical capability to record shear wave data utilizing the I/O System Four Vectorseis recording system. Closing of the transaction, which is subject to certain conditions contained in the purchase agreement, including receipt of satisfactory financing, is expected to occur during the fourth quarter of 2005. Upon completion of the transaction, the Company will have the ability to operate as many as nine seismic crews in the North American market and provides the Company with geographic diversification and revenue expansion opportunities.

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Results of Operations

Revenues for the first six months of 2005 totaled $26,588,817 as compared to $21,345,991 for the same period of 2004, an increase of 25%.  For the three months ended June 30, 2005, revenues totaled $13,427,981, as compared to $9,429,028 for the same period of fiscal year 2004, an increase of 42%.  This increase in revenue is primarily attributable to the Company’s seismic acquisition segment.  Seismic acquisition revenue totaled $24,321,748 as compared to $19,997,657 for the first six months of 2004, an increase of 22%.  Seismic data processing revenue totaled $2,267,069 at June 30, 2005 as compared to $1,348,334 for the same period of 2004, an increase of 68%.  While demand for the Company’s services improved during the second quarter of 2005, the Company continues to experience significant competition at both its operating segments which tends to prevent the Company from substantially increasing the prices it can charge for its services.

Operating expenses for the six months ended June 30, 2005 totaled $24,792,013 as compared to $21,112,533 for the same period of 2004, an increase of 17%.  For the quarter ended June 30, 2005, operating expenses totaled $12,543,488 as compared to $9,844,964 for the same quarter of 2004, an increase of 27%.  These increases are primarily the result of increased activity at both of the Company’s operating segments.  Seismic acquisition operating expenses for the first six months of 2005 increased 16% to $21,477,088 from $18,450,773 for the same period of 2004.  For the six months ended June 30, 2005, seismic data processing operating expenses totaled $3,314,925 as compared to $2,661,760 for the same period of 2004, an increase of 25%.  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 Company’s seismic data processing segment primarily due to increased levels of activity as well as costs associated with the upgrading of the segment’s professional staff.

General and administrative expense for the six months ended June 30, 2005 was $1,217,727 as compared to $1,230,225 for the same period of 2004, a decrease of 1%.  For the quarter ended June 30, 2005 general and administrative expense totaled $515,385, as compared to $639,928 for the same period of fiscal 2004, a decrease of 19%.  Decreases in general and administrative expense are primarily attributable to personnel expenditure stability and decreased legal expenditures.

Depreciation and amortization expense for the six months ended June 30, 2005 totaled $388,588 as compared to $445,107 for the same period of 2004, a decrease of 13%.  For the three months ended June 30, depreciation and amortization expense decreased from $183,308 in 2004 to $176,267 in 2005, a decrease of 4%. This decrease is primarily the result of a continuing decline in the basis of the Company’s depreciable assets.

Interest expense (net of interest income) for the first six months of 2005 decreased 23% to $162,641 as compared to $210,547 for the same period of 2004.  Interest expense for the quarter ended June 30, 2005 decreased to $74,780, as compared to $108,890 for the same period of 2004, a decrease of 31%.  This decrease was primarily due to the continuing reduction in the balances of the Company’s long-term debt and GeoLease liability.

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The Company had a net loss applicable to common stockholders of $58,764, or $(0.00) per share, for the six months ended June 30, 2005 as compared to a net loss applicable to common stockholders of $1,651,909, or $(0.09) per share, for the same period of 2004.  For the three months ended June 30, 2005, the Company had income applicable to common stockholders of $74,755, or $0.00 per share, as compared to a net loss applicable to common stockholders of $1,347,664, or $(0.07) per share for the same period of 2004.  The reduction in the Company’s net loss of approximately 96% is primarily due to an increase in operating profits at the Company’s seismic acquisition segment.

Liquidity and Capital Resources

The Company’s 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 Company’s 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 Company’s operating segment’s capital asset base.  As such, the Company’s 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 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 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 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 per month for the period beginning May 1, 2007 until April 30, 2008.  Under the terms of Amendment

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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 Company’s 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 Company’s 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 $3,107,613 for the first six months of 2005 as compared to cash used by operating activities of $2,070,583 for the first six months of 2004.  These amounts result from the Company’s operating results adjusted by changes in working capital and depreciation.  The increase in cash provided by operating activities in the first six months of 2005 was primarily the result of improvement in the Company’s net income and an increase in the Company’s accounts payable and accrued liabilities balances.

Net cash used in investing activities was $417,240 for the first six months of 2005 and $291,815 for the first six months of 2004.  These amounts represent capital expenditures made during the respective six month periods.  The increase in investing activities during the first six

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months of 2005 was a result of the outfitting of a third seismic acquisition crew and compute capacity increases at the Company’s seismic data processing segment.

Net cash used in financing activities was $1,448,924 for the six months ended June 30, 2005 and $1,443,315 for the six months ended June 30, 2004.  These totals represent payments made on the Company’s various debt obligations.

Quantum’s exercise of an option to purchase certain leased equipment subsequent to the end of the second quarter created an obligation to make payments totaling approximately $1,753,000 over the period of July, 2005 through May, 2006.

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 Company’s 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 six-month period ended June 30, 2005 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.

Critical Accounting Policies and Estimates

There were no changes to the Company’s Critical Accounting Policies, as described in its Annual Report on Form 10-K, during the six months ended June 30, 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 June 30, 2005 the Company’s 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 arm’s 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 Company’s seismic acquisition segment operates exclusively within the United States.  The Company’s 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 Company’s management, including the Company’s 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 June 30, 2005.  Based on that evaluation, the Company’s 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 six months ended June 30, 2005 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

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 Company’s 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

Exhibits filed with this report:

31.1Certification 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.

31.2Certification 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.

32.1Certification 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.

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32.2Certification 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.

SIGNATURES

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.

	GEOKINETICS INC.
Date:  August 15, 2005	/s/ David A. Johnson
	David A. Johnson
	President and Chief Executive Officer
Date:  August 15, 2005	/s/ Thomas J. Concannon
	Thomas J. Concannon
	Vice President and Chief Financial Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, David A. Johnson, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Geokinetics Inc.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - - 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the

audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 15, 2005	/s/ David A. Johnson
	David A. Johnson
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas J. Concannon, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Geokinetics Inc.

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 15, 2005	/s/ Thomas J. Concannon
	Thomas J. Concannon
	Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Geokinetics Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Johnson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 15, 2005	/s/ David A. Johnson
	David A. Johnson
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350
AS ADOPTED PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Geokinetics Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Concannon, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)           The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 15, 2005	/s/ Thomas J. Concannon
	Thomas J. Concannon
	Vice President and Chief Financial Officer