Table of Contents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**x****     ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31,2010**

 

**o****        ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission File Number 001-34709**

 

**GLOBALGEOPHYSICAL SERVICES, INC.**

(Name of registrant as specified in its charter)

 

| **DELAWARE**                     | ** ** | **05-0574281**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**13927 South Gessner Road**

**Missouri City, TX 77489**

 

Telephone number:  (**713)972-9200**

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes o  No x

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). Yes x  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See definition of “accelerated filer”, “large acceleratedfiler”, and “smaller reporting company” in Rule 12b-2 of the ExchangeAct.  (check one):

 

| Large accelerated filer o |   | Accelerated filer o         |
|---------------------------|--------|-----------------------------|
|                      |   |                        |
| Non-accelerated filer x   |   | Smaller reporting company o |

 

Indicateby check mark whether the registrant is a shell company (as defined by Rule 12b-2of the Exchange Act). Yes o  No x

 

At May 19,2010, there were 35,877,570 shares of common stock, par value $0.01 per share,outstanding.

 

 

 

----

Table of Contents

 

**GLOBAL GEOPHYSICAL SERVICES, INC.**

**INDEX**

 
| PART I.  FINANCIAL  INFORMATION                                                             |   |
|------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                       |   |
| Item 1.  Financial Statements                                                                    |   |
|                                                                                                       |   |
| Consolidated Balance Sheets as of  March 31, 2010 and  December 31, 2009               | 1      |
|                                                                                                       |   |
| Consolidated Statements of Operations for the Three  Months Ended March 31, 2010 and 2009             | 3      |
|                                                                                                       |   |
| Consolidated Statements of Cash Flows for the Three  Months Ended March 31, 2010 and 2009             | 4      |
|                                                                                                       |   |
| Notes to Condensed Consolidated Financial Statements                                                       | 5      |
|                                                                                                       |   |
| Item 2.   Management’s Discussion and Analysis of Financial Condition and  Results of Operations | 17     |
|                                                                                                       |   |
| Item 3.   Quantitative and Qualitative Disclosure About Market Risk                                   | 23     |
|                                                                                                       |   |
| Item 4.   Controls and Procedures                                                                     | 24     |
|                                                                                                       |   |
| PART II.  OTHER  INFORMATION                                                                |   |
|                                                                                                       |   |
| Item  1.  Legal Proceedings                                                                           | 24     |
|                                                                                                       |   |
| Item 1A.  Risk  Factors                                                                               | 24     |
|                                                                                                       |   |
| Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds                                 | 24     |
|                                                                                                       |   |
| Item 3.   Defaults Upon Senior Securities                                                             | 25     |
|                                                                                                       |   |
| Item  4.  Submission of Matters to a Vote of  Security Holders                                        | 25     |
|                                                                                                       |   |
| Item  5.  Other Information                                                                           | 25     |
|                                                                                                       |   |
| Item 6.   Exhibits                                                                                    | 25     |

 

ii

----

Table ofContents

 

**GLOBAL GEOPHYSICAL SERVICES,INC. AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                 | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                 | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| ** **                                                                                                 | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
| ASSETS                                                                                                     |       |               |        |                  |       |
|                                                                                                       |       |               |        |                  |       |
| CURRENT ASSETS                                                                                             |       |               |        |                  |       |
| Cash and cash equivalents                                                                                  |       | $                  | 9,522,004   |                  | $          | 17,026,865 |   |
| Restricted cash  investments                                                                               |       | 5,677,771          |        | 5,346,066             |       |
| Accounts receivable,                                                                                       |       |               |        |                  |       |
| net of allowances for  doubtful accounts of $1,697,830 at   March 31, 2010 and December 31, 2009 |       | 62,428,040         |        | 73,568,184            |       |
| Income and other taxes  receivable                                                                         |       | 11,237,210         |        | 10,159,498            |       |
| Prepaid expenses and other  current assets                                                                 |       | 2,244,160          |        | 10,626,831            |       |
| TOTAL CURRENT ASSETS                                                                                       |       | 91,109,185         |        | 116,727,444           |       |
|                                                                                                       |       |               |        |                  |       |
| PROPERTY AND EQUIPMENT,  net                                                                               |       | 126,723,764        |        | 140,217,953           |       |
|                                                                                                       |       |               |        |                  |       |
| GOODWILL AND OTHER  INTANGIBLES                                                                            |       | 15,827,920         |        | 15,974,103            |       |
|                                                                                                       |       |               |        |                  |       |
| MULTI-CLIENT LIBRARY, net                                                                                  |       | 59,504,572         |        | 37,395,521            |       |
|                                                                                                       |       |               |        |                  |       |
| OTHER                                                                                                      |       | 2,909,163          |        | 2,136,714             |       |
|                                                                                                       |       |               |        |                  |       |
| DEBT ISSUANCE COSTS, net                                                                                   |       | 4,005,707          |        | 4,167,856             |       |
|                                                                                                       |       |               |        |                  |       |
| TOTAL ASSETS                                                                                               |       | $                  | 300,080,311 |                  | $          | 316,619,591 |   |

 

See accompanying notes toconsolidated financial statements.

 

1

----

Table of Contents

 

GLOBAL GEOPHYSICAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

 
| ** **                                                                                                                                                                                                                                                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                     | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| ** **                                                                                                                                                                                                                                                     | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                     |       |               |        |                  |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| CURRENT LIABILITIES                                                                                                                                                                                                                                            |       |               |        |                  |       |
| Accounts payable and  accrued expenses                                                                                                                                                                                                                         |       | $                  | 34,828,666  |                  | $          | 34,272,606 |   |
| Current portion of  long-term debt                                                                                                                                                                                                                             |       | 1,434,062          |        | 1,983,282             |       |
| Current portion of capital  lease obligations                                                                                                                                                                                                                  |       | 909,584            |        | 1,767,353             |       |
| Income and other taxes  payable                                                                                                                                                                                                                                |       | 445,457            |        | 875,255               |       |
| Deferred revenue                                                                                                                                                                                                                                               |       | 40,830,873         |        | 43,545,291            |       |
| Liability on derivative  instruments                                                                                                                                                                                                                           |       | —             |        | 331,163               |       |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                                                                                      |       | 78,448,642         |        | 82,774,950            |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| DEFERRED INCOME TAXES                                                                                                                                                                                                                                          |       | 740,630            |        | 3,826,131             |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| LONG-TERM DEBT, net of  current portion and unamortized discount                                                                                                                                                                                               |       | 165,836,631        |        | 165,794,658           |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| CAPITAL LEASE OBLIGATIONS,  net of current portion                                                                                                                                                                                                             |       | 169,131            |        | 295,665               |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| TOTAL LIABILITIES                                                                                                                                                                                                                                              |       | 245,195,034        |        | 252,691,404           |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                                                                                                                 |       |               |        |                  |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                      |       |               |        |                  |       |
| Series A Convertible  Preferred Stock, $.01 par value, authorized 50,000,000 shares, 28,358,394  issued and 20,616,107 and 20,617,751 outstanding at March 31, 2010 and  December 31, 2009, respectively, liquidation preference of $75,657,411 |       | 283,584            |        | 283,584               |       |
| Class A Common stock,  $.01 par value, authorized 30,000,000 shares, 4,000,000 issued and 3,709,100  outstanding at March 31, 2010 and December 31, 2009                                                                                        |       | 40,000             |        | 40,000                |       |
| Class B Common stock,  $.01 par value, authorized 120,000,000 shares, 5,838,257 and 5,736,107 issued  and 4,552,363 and 4,471,021 outstanding at March 31, 2010 and December 31,  2009, respectively                                            |       | 58,382             |        | 57,361                |       |
| Additional paid-in capital                                                                                                                                                                                                                                     |       | 158,555,829        |        | 160,362,017           |       |
| Accumulated deficit                                                                                                                                                                                                                                            |       | (9,667,380         | )           | (2,429,862            | )          |
|                                                                                                                                                                                                                                                           |       | 149,270,415        |        | 158,313,100           |       |
| Less: treasury stock, at  cost, 9,319,081 and 9,296,629 shares at March 31, 2010 and  December 31, 2009, respectively                                                                                                                                |       | 94,385,138         |        | 94,384,913            |       |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                |       | 54,885,277         |        | 63,928,187            |       |
|                                                                                                                                                                                                                                                           |       |               |        |                  |       |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                                                                                                                               |       | $                  | 300,080,311 |                  | $          | 316,619,591 |   |

 

See accompanying notes toconsolidated financial statements.

 

2

----

Table ofContents

 

**GLOBAL GEOPHYSICAL SERVICES, INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                     | ** ** | **Three Month Period Ended** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|
| ** **                                     | ** ** | **March 31,**           | ** ** |
| ** **                                     | ** ** | **2010**                     | ** ** | **2009** | ** ** |
| ** **                                     | ** ** | **(unaudited)**              | ** ** |
|                                           |       |                         |       |   |   |
| REVENUES                                       |       | $                            | 60,661,196 |   | $ | 66,835,551 |   |
|                                           |       |                         |       |   |   |
| OPERATING EXPENSES                             |       | 58,860,382                   |       | 54,256,539 |   |
|                                           |       |                         |       |   |   |
| GROSS PROFIT                                   |       | 1,800,814                    |       | 12,579,012 |   |
|                                           |       |                         |       |   |   |
| SELLING, GENERAL, AND ADMINISTRATIVE  EXPENSES |       | 8,249,284                    |       | 7,414,018 |   |
|                                           |       |                         |       |   |   |
| INCOME (LOSS) FROM  OPERATIONS                 |       | (6,448,470                   | )          | 5,164,994 |   |
|                                           |       |                         |       |   |   |
| OTHER INCOME (EXPENSE)                         |       |                         |       |   |   |
| Interest expense, net                          |       | (4,584,118                   | )          | (4,696,076 | ) |
| Unrealized gain on  derivative instruments     |       | 331,163                      |       | 564,999 |   |
| Foreign exchange loss                          |       | (216,234                     | )          | (632,562 | ) |
| Other income (expense)                         |       | 78,873                       |       | (7,374 | ) |
| TOTAL OTHER EXPENSE                            |       | (4,390,316                   | )          | (4,771,013 | ) |
|                                           |       |                         |       |   |   |
| INCOME (LOSS) BEFORE  INCOME TAXES             |       | (10,838,786                  | )          | 393,981 |   |
|                                           |       |                         |       |   |   |
| INCOME TAX EXPENSE  (BENEFIT)                  |       | (3,601,268                   | )          | 593,401 |   |
|                                           |       |                         |       |   |   |
| NET LOSS                                       |       | $                            | (7,237,518 | ) | $ | (199,420 | ) |
|                                           |       |                         |       |   |   |
| LOSS PER COMMON SHARE                          |       |                         |       |   |   |
| Basic                                          |       | $                            | (.88       | ) | $ | (.02 | ) |
| Diluted                                        |       | $                            | (.88       | ) | $ | (.02 | ) |
|                                           |       |                         |       |   |   |
| WEIGHTED AVERAGE SHARES  OUTSTANDING           |       |                         |       |   |   |
| Basic                                          |       | 8,243,748                    |       | 8,202,268 |   |
|                                           |       |                         |       |   |   |
| Diluted                                        |       | 8,243,748                    |       | 8,202,268 |   |

 

See accompanying notes toconsolidated financial statements.

 

3

----

Table of Contents

 

**GLOBAL GEOPHYSICAL SERVICES,INC. AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                                       | ** ** | **Three Month Period Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                       | ** ** | **March 31,**           | ** ** |
| ** **                                                                                       | ** ** | **2010**                     | ** ** | **2009** | ** ** |
| ** **                                                                                       | ** ** | **(unaudited)**              | ** ** |
| CASH FLOWS FROM OPERATING  ACTIVITIES                                                            |       |                         |       |   |   |
| Net loss                                                                                         |       | $                            | (7,237,518 | ) | $ | (199,420 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities:                 |       |                         |       |   |   |
| Depreciation and  amortization expense                                                           |       | 23,765,728                   |       | 18,320,555 |   |
| Capitalized depreciation  for multi-client library                                               |       | (5,471,817                   | )          | (459,088 | ) |
| Amortization of debt  issuance costs                                                             |       | 244,328                      |       | 220,817 |   |
| Stock-based compensation                                                                         |       | 693,801                      |       | 355,187 |   |
| Deferred tax expense  (benefit)                                                                  |       | (3,085,501                   | )          | 79,791 |   |
| Unrealized gain on  derivative instrument                                                        |       | (331,163                     | )          | (564,999 | ) |
| Gain on disposal of  property and equipment                                                      |       | (98,991                      | )          | — |   |
| Effects of changes in  operating assets and liabilities, net of acquired assets and liabilities: |       |                         |       |   |   |
| Accounts receivable                                                                              |       | 11,140,144                   |       | 6,557,192 |   |
| Prepaid expenses and other  current assets                                                       |       | 8,382,671                    |       | (9,336,296 | ) |
| Other assets                                                                                     |       | (772,449                     | )          | 61,412 |   |
| Accounts payable and  accrued expenses                                                           |       | (2,051,570                   | )          | (8,260,516 | ) |
| Deferred revenue                                                                                 |       | (2,714,419                   | )          | 98,796 |   |
| Income and other taxes  receivable                                                               |       | (1,077,712                   | )          | (1,873,738 | ) |
| Income and other taxes  payable                                                                  |       | (429,798                     | )          | (1,281,000 | ) |
| NET CASH PROVIDED BY  OPERATING ACTIVITIES                                                       |       | 20,955,734                   |       | 3,718,693 |   |
|                                                                                             |       |                         |       |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES                                                            |       |                         |       |   |   |
| Purchase of property and  equipment                                                              |       | (1,378,824                   | )          | (168,727 | ) |
| Investment in multi-client  library                                                              |       | (25,329,533                  | )          | (4,889,366 | ) |
| Change in restricted cash  investments                                                           |       | (331,705                     | )          | 1,502,265 |   |
| Proceeds from the sale of  property and equipment                                                |       | 152,398                      |       | — |   |
| NET CASH USED IN INVESTING  ACTIVITIES                                                           |       | (26,887,664                  | )          | (3,555,828 | ) |
|                                                                                             |       |                         |       |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES                                                            |       |                         |       |   |   |
| Principal payments on  long-term debt                                                            |       | —                       |       | (808,197 | ) |
| Net payments on revolving  credit facility                                                       |       | (589,426                     | )          | (21,000,000 | ) |
| Principal payments on  capital lease obligations                                                 |       | (984,303                     | )          | (1,466,079 | ) |
| Purchase of treasury stock                                                                       |       | (225                         | )          | (17 | ) |
| Issuances of stock                                                                               |       | 1,023                        |       | 100 |   |
| NET CASH USED IN FINANCING  ACTIVITIES                                                           |       | (1,572,931                   | )          | (23,274,193 | ) |
|                                                                                             |       |                         |       |   |   |
| NET DECREASE IN CASH AND  CASH EQUIVALENTS                                                       |       | (7,504,861                   | )          | (23,111,328 | ) |
|                                                                                             |       |                         |       |   |   |
| CASH AND CASH EQUIVALENTS,  beginning of period                                                  |       | 17,026,865                   |       | 30,444,316 |   |
|                                                                                             |       |                         |       |   |   |
| CASH AND CASH EQUIVALENTS,  end of period                                                        |       | $                            | 9,522,004  |   | $ | 7,332,988 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

----

Table of Contents

 

**GLOBAL GEOPHYSICAL SERVICES, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**NOTE 1 -BASIS OF PRESENTATION**

 

The consolidatedfinancial statements of Global Geophysical Services, Inc. and Subsidiaries(the “Company”) included herein are unaudited and have been prepared on thesame basis as the audited consolidated financial statements as of and for theyear ended December 31, 2009.  Inthe opinion of management, the accompanying unaudited financial informationincludes all adjustments, consisting of normal recurring adjustments necessaryfor a fair presentation of the interim financial information.  Operating results for the interim periods arenot necessarily indicative of the results of any subsequent periods.  Certain information in the footnotedisclosures normally included in annual financial statements has been condensedor omitted for the interim periods presented. These interim consolidated financial statements should be read inconjunction with the audited consolidated financial statements for the yearended December 31, 2009.

 

**NOTE 2 - SELECTED BALANCE SHEETACCOUNTS**

 

Restrictedcash:

 
| ** **                                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                                 | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
|                                                       |       |               |       |                  |       |
| Pledged for letters of credit                              |       | $                  | 5,127,200  |                  | $          | 4,462,500 |   |
|                                                       |       |               |       |                  |       |   |   |
| Bank guarantee to foreign government for export  equipment |       | 550,571            |       | 883,566               |       |
|                                                       |       |               |       |                  |       |
|                                                       |       | $                  | 5,677,771  |                  | $          | 5,346,066 |   |

 

Prepaid expenses andother current assets:

 
| ** **                                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                                | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
|                                      |       |               |       |                  |       |
| Mobilization costs, net                   |       | $                  | 1,791,401  |                  | $          | 9,410,108 |   |
|                                      |       |               |       |                  |       |
| Prepaid expenses and other current assets |       | 452,759            |       | 1,216,723             |       |
|                                      |       |               |       |                  |       |
|                                      |       | $                  | 2,244,160  |                  | $          | 10,626,831 |   |

 

5

----

Table of Contents

 

Accountsreceivable:

 
| ** **                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                      | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
|                            |       |               |       |                  |       |
| Accounts receivable, trade      |       | $                  | 51,790,845 |                  | $          | 57,731,675 |   |
|                            |       |               |       |                  |       |
| Unbilled                        |       | 12,335,025         |       | 17,534,339            |       |
|                            |       |               |       |                  |       |
| Allowance for doubtful accounts |       | (1,697,830         | )          | (1,697,830            | )          |
|                            |       |               |       |                  |       |
|                            |       | $                  | 62,428,040 |                  | $          | 73,568,184 |   |

 

Includedin accounts receivable at March 31, 2010 and December 31, 2009 arenet receivables aggregating approximately $8,900,000 from three customers.  Such receivables are in dispute; however,management and outside legal counsel believe the Company has performed servicesin accordance with the terms of the contract and, as such, are fullycollectible.  The Company is innegotiations/arbitration to recover such amounts.

 

**NOTE 3 -MULTI-CLIENT LIBRARY**

 

Multi-client libraryconsisted of the following:

 
| ** **                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|--------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                     | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| ** **                     | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
|                           |       |               |        |                  |       |
| Multi-client library, at cost  |       | $                  | 105,970,675 |                  | $          | 75,169,326 |   |
|                           |       |               |        |                  |       |
| Less: accumulated amortization |       | 46,466,103         |        | 37,773,805            |       |
|                           |       |               |        |                  |       |
| Multi-client library, net      |       | $                  | 59,504,572  |                  | $          | 37,395,521 |   |

 

6

----

Table of Contents

 

**NOTE 4 -PROPERTY AND EQUIPMENT**

 

Property and equipmentconsisted of the following:

 
| ** **                     | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|--------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                     | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| ** **                     | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
|                           |       |               |        |                  |       |
| Furniture and fixtures         |       | $                  | 138,976     |                  | $          | 138,976 |   |
| Boats                          |       | 6,424,288          |        | 6,424,288             |       |
| Machinery and equipment        |       | 271,645,611        |        | 270,210,793           |       |
| Computers and software         |       | 9,207,184          |        | 9,177,907             |       |
| Land                           |       | 2,035,153          |        | 2,035,153             |       |
| Buildings                      |       | 11,721,548         |        | 11,721,548            |       |
|                           |       | 301,172,760        |        | 299,708,665           |       |
| Less: accumulated depreciation |       | 175,345,941        |        | 160,759,486           |       |
|                           |       | 125,826,819        |        | 138,949,179           |       |
| Construction in process        |       | 896,945            |        | 1,268,774             |       |
|                           |       |               |        |                  |       |
| Net property and equipment     |       | $                  | 126,723,764 |                  | $          | 140,217,953 |   |

 

Depreciationexpense for the three month periods ended March 31, 2010 and 2009 was$14,927,246 and $14,179,107, respectively.

 

**NOTE 5 -GOODWILL AND OTHER INTANGIBLES**

 

Goodwill andother intangibles included the following:

 
| ** **                           | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **                           | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
|                                 |       |               |       |                  |       |
| Customer list                        |       | $                  | 3,934,000  |                  | $          | 3,934,000 |   |
| Trademark                            |       | 924,000            |       | 924,000               |       |
| Patents                              |       | 450,852            |       | 450,852               |       |
| Non-compete agreements               |       | 200,000            |       | 200,000               |       |
|                                 |       | 5,508,852          |       | 5,508,852             |       |
| Less: accumulated amortization       |       | 1,023,282          |       | 877,099               |       |
|                                 |       | 4,485,570          |       | 4,631,753             |       |
| Goodwill                             |       | 11,342,350         |       | 11,342,350            |       |
|                                 |       |               |       |                  |       |
| Total goodwill and other intangibles |       | $                  | 15,827,920 |                  | $          | 15,974,103 |   |

 

Intangibleassets subject to amortization are amortized over their estimated useful liveswhich are between two and fifteen years. Amortization expense for the three month periods ended March 31,2010 and 2009 was $146,183 and $438,550, respectively.

 

7

----

Table of Contents

 

**NOTE 6 - INCOME TAXES**

 

The Company provides for income taxes during interimperiods based on an estimate of the effective tax rate for the year.  Discrete items and changes in the estimate ofthe annual effective tax rate are recorded in the period in which they occur.

 

TheCompany assesses the likelihood that deferred tax assets will be recovered fromthe existing deferred tax liabilities or future taxable income in eachjurisdiction.  To the extent the Companybelieves that recovery is not likely, it establishes a valuation allowance.  The Company has recorded valuation allowancesin several non-US jurisdictions for its net deferred tax assets sincemanagement believes it is more likely than not that these assets will not berealized because the future taxable income necessary to utilize these lossescannot be established, projected, or the Company has ceased operations.

 

Theeffective income tax rate for the three months ended March 31, 2010 and2009 was 33.2% and 150.6%, respectively.

 

TheCompany’s effective income tax rate in 2010 and 2009 differs from the federalstatutory rate primarily due to state income taxes, non-deductible expenses,tax rate differential from US operations, and valuation allowances in non-USjurisdictions.

 

**NOTE 7 -LONG-TERM DEBT**

 

Credit Facility:  On January 16,2008, the Company entered into a $150 million secured First Lien CreditFacility that consists of a $120 million First Lien Term Loan and a $30 millionFirst Lien Revolving Credit Facility (the “First Lien Facility”).  On January 16, 2008, the Company alsoentered into a $50 million Secured Second Lien Term Loan (the “Second LienFacility”, and together with the First Lien Facility, the “Facilities”).  The Company may also request up to $5 millionin swingline loans and $30 million in letters of credit under the RevolvingCredit Facility.  All $170 million of theterm loans funded at closing.  TheRevolving Credit Facility was unfunded at closing.  Proceeds of the loans were used to refinancethe Company’s existing term loans and revolver borrowings, finance capitalequipment purchases, and for general corporate purposes.

 

On October 30, 2009, the Company secured Amendment No. 1 andwaiver for both the First and Second Lien Credit Facilities.  Borrowings under Amendment No. 1 andwaiver for the $120 million First Lien Term Loan bear interest at a rate ofLIBOR plus 5.25% or the prime rate plus 4.25%. The First Lien Term Loan was issued at a discount of 1%, so the Company’sgross loan proceeds received were 99% of the face amount of the loan.  Borrowings under Amendment No. 1 andwaiver now reflect for the $50 million Second Lien Term Loan bear interest at arate of LIBOR plus 9.00% or the prime rate plus 8.00%.  The Second Lien Term Loan was issued at adiscount of 3%, so the Company’s gross loan proceeds received were 97% of theface amount of the loan.  Borrowings underthe Revolving Credit Facility bear interest at a rate that declines from LIBORplus 5.25% or the prime rate plus 4.25% based upon the Company’s leverageratio, to a minimum level of LIBOR plus 4.00% or the prime rate plus3.00%.  In Amendment No. 1, LIBOR,with respect to any Eurodollar Borrowings for any interest period, will be thegreater of (a) 3.00% per annum, and (b) the rate per annum determinedby the Administrative Agent.

 

The Facilities arecollateralized by a first (in the case of the $120 million term loan andrevolving credit facility) or second (in the case of the $50 million term loan)priority security interest on substantially all of the Company’s assets,including accounts receivable and equipment, other than certain vehiclesfinanced through capital leases and the Company’s corporate headquarters. The Facilities include customary financial and negative covenants for creditfacilities of this type.  On October 30,2009, the Company secured Amendment No. 1 to modify the covenant requirements.  In the case of the First Lien Facility theseinclude covenants requiring the maintenance of a total debt to consolidatedEBITDA ratio of no more than 2.25x at September 30, 2009 through September 30,2010, declining to no more than 2.00x on December 31, 2010 and March 31,2011, to 1.70x on June 30, 2011, to 1.60x on September 30, 2011 and1.50x on December 31, 2011 and thereafter. The Company’s requirement to maintain a ratio of consolidated EBITDA toconsolidated interest expense of at least 4.00x from June 30, 2009 throughDecember 31, 2009, increasing to 5.00x on March 31, 2010 andthereafter remained unchanged.  The Facilities also include certain limitson other indebtedness, certain limitations on liens, investments and capitalexpenditures, and 

 

8

----

Table of Contents

 

other limitationscustomary for this type of facility.  The Company was in compliance withall debt covenants as of March 31, 2010.

 

The Facilities stipulatequarterly interest payments, minimum quarterly principal payments of $300,000,and annual mandatory prepayments of 75% (or 50% of the Company’s total leverageratio at the end of the year is less than 1.25 to 1.00) of excess cash flow, asdefined.  The First Lien Term Loan matures on January 16, 2015, andthe Second Lien Term Loan matures on July 16, 2015.  The RevolvingLine of Credit matures on the January 16, 2014.  There is noprepayment penalty on the First Lien Term Loan or Revolver; however prepaymentof the Second Lien Loan requires a prepayment penalty of 3%, 2% and 1% whenmade prior to the first, second or third anniversary of the closing date,respectively.  On September 30, 2009the Company made an additional principal payment against the First LienFacility of $4 million.

 

Notes Payable -Insurance:  During 2009,in exchange for insurance services provided, the Company issued two negotiablepromissory notes. The first was for $1,602,706 at an interest rate of 3.69% perannum that matured on March 8, 2010 and was paid in full. The second wasfor $453,220 at an interest rate of 3.69% per annum and is due June 29,2010.

 

Mortgage: The Company entered into a $5.4 million loan with Citibank, N.A. for thefinancing of the Company’s Missouri City corporate headquarters.  The loan funded on September 17, 2009,and matures on July 31, 2019. Borrowings under the construction loan bear interest at a fixed perannum rate of 5.453%.  All of the Company’sobligations under the construction loan are secured by a first lien mortgage onthe facility.

 

Line of Credit: In February 2007, the Company entered into a $5 million revolvingline of credit which is secured by $5 million cash.  The terms of the revolving line of credit ascurrently written only allow for letters of credit to be drawn on the availablecredit, however, the cash balance above the total outstanding letters of creditmay be withdrawn at any time lowering the available credit dollar-for-dollar.  As of March 31, 2010, the line of creditserves as collateral for several letters of credit totaling $5,127,200.

 

Long-term debt consistedof the following:

 
| ** **                                                      | ** ** | **March 31,** | ** **  | **December 31,** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|-------------|-----------------------|------------|
| ** **                                                      | ** ** | **2010**           | ** **  | **2009**              | ** ** |
| ** **                                                      | ** ** | **(unaudited)**    | ** **  | ** **            | ** ** |
|                                                            |       |               |        |                  |       |
| First lien term loan                                            |       | $                  | 113,900,000 |                  | $          | 113,900,000 |   |
| Second lien term loan                                           |       | 50,000,000         |        | 50,000,000            |       |
| Notes payable - insurance                                       |       | 76,467             |        | 627,816               |       |
| Mortgage                                                        |       | 5,324,360          |        | 5,362,437             |       |
|                                                            |       | 169,300,827        |        | 169,890,253           |       |
| Less: unamortized discount                                      |       | 2,030,134          |        | 2,112,313             |       |
|                                                            |       | 167,270,693        |        | 167,777,940           |       |
| Less: current portion                                           |       | 1,434,062          |        | 1,983,282             |       |
|                                                            |       |               |        |                  |       |
| Total notes payable and line of credit, net of  current portion |       | $                  | 165,836,631 |                  | $          | 165,794,658 |   |

 

Interest Rate Swap:  On March 7, 2007, the Company enteredinto a $70 million notional value interest rate collar to protect its interestsfrom unanticipated fluctuations in cash flows caused by volatility in theinterest rate on its floating-rate debt. The 2 year swap arrangement effectively caps the 3-month LIBOR rate at5.75% and sets the floor at 4.55%.

 

9

----

Table ofContents

 

OnFebruary 14, 2008, the Company increased the notional value of theinterest rate hedge, as required by its credit facilities, to $85 million (50%of the term loans).  This swap agreementreplaced the swap agreement then in effect. Going forward, the two year swapagreement, which terminated on March 31,2010, capped the three month LIBORrate on the notional amount at 5.00% and sets the floor at 1.81%.  The purpose of the swap was to protect theCompany from unanticipated fluctuations in cash flows caused by volatility inthe interest rate on its floating-rate debt. The Company does not enter into interest rate or other derivatives forspeculative purposes and has not designated these interest rate swaps as ahedging instrument under the accounting guidance for derivative instruments andhedging activities.

 

TheCompany adopted the guidance for disclosures about derivative instruments andhedging activities on January 1, 2009. Below is a table of the derivatives maintained by the Company that arenot designated as a hedge instrument under this guidance.

 

The fair values ofderivative instruments in the balance sheets:

 
| ** **              | ** ** | **Liability Derivatives** | ** ** |
|-------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **March 31, 2010**   | ** ** | **December 31, 2009** | ** ** |
| ** **              | ** ** | **Balance Sheet**         | ** ** | **Fair** | ** ** | **Balance Sheet** | ** ** | **Fair** | ** ** |
| ** **              | ** ** | **Location**                   | ** ** | **Value** | ** ** | **Location** | ** ** | **Value** | ** ** |
|                    |       |                           |       |   |   |   |   |   |   |
| Interest rate contracts |       | Current  Liabilities           |       | $ | — |   | Current  Liabilities |   | $ | 331,163 |   |
|                         |            |                                |            |  |  |  |  |  |  |  |  |

 

The effect of derivativeinstruments, which is located in other income (expense) in the statement ofoperations for the three month periods ended March 31, 2009 and 2010:

 
| ** **              | ** ** | **March 31,**   | ** ** |
|-------------------------|------------|----------------------|------------|
| ** **              | ** ** | **2010**             | ** ** | **2009** | ** ** |
| ** **              | ** ** | **Location of** | ** ** | **Amount of** | ** ** | **Location of** | ** ** | **Amount of** | ** ** |
| ** **              | ** ** | **Gain (Loss)** | ** ** | **Gain (Loss)** | ** ** | **Gain (Loss)** | ** ** | **Gain (Loss)** | ** ** |
| ** **              | ** ** | **Recognized**       | ** ** | **Recognized** | ** ** | **Recognized** | ** ** | **Recognized** | ** ** |
|                    |       |                 |       |   |   |   |   |   |   |
| Interest rate contracts |       | Other expense        |       | $ | 331,163 |   | Other expense |   | $ | 564,999 |   |
|                         |            |                      |            |  |  |  |  |  |  |  |  |

 

**NOTE 8 -DEBT ISSUANCE COSTS**

 

Accumulated amortization is $1,321,729 and $1,159,580at March 31, 2010 and December 31, 2009, respectively.

 

**NOTE 9 - STOCK-BASED COMPENSATION**

 

The Company follows theaccounting guidance for share-based payments which requires all stock-basedpayments, including stock options, to be recognized as an operating expenseover the vesting period, based on their grant date fair values.

 

In July 2006, theCompany’s board of directors and stockholders adopted the Global GeophysicalServices, Inc. 2006 Incentive Compensation Plan (the “2006 Incentive Plan”).  The 2006 Incentive Plan provides for avariety of  incentive awards, includingnonstatutory stock options, incentive stock options within the meaning of Section 422of the Internal Revenue Code, or (the “Code”), stock appreciation rights,restricted stock awards, restricted stock unit awards, performance-basedawards, and other stock-based awards.  Atotal of 9,203,058 shares of Class B common

 

10

----

Tableof Contents

 

stock are reserved forissuance under the 2006 Incentive Plan. As of March 31, 2010, a total of 4,458,400 options have beengranted and 1,627,950 have been forfeited.

 

Incentive Stock Options:  The Companyestimates the fair value of each stock option on the date of grant using theBlack-Scholes-Merton valuation model. The volatility is based on expected volatility over the expected life ofeighty-four months.  As the Company hasnot historically declared dividends, the dividend yield used in the calculationis zero.  Actual value realized, if any,is dependent on the future performance of the Company’s Class B commonstock and overall stock market conditions. There is no assurance the value realized by an optionee will be at ornear the value estimated by the Black-Scholes-Merton model.

 

Compensation expenseassociated with stock options of $356,444 and $159,409 for the three monthperiods ended March 31, 2010 and 2009, respectively, is included inselling, general and administrative expenses in the statement of operations.  At March 31, 2010 and 2009, the Companyhad 1,920,962 and 2,136,750 of nonvested stock option awards,respectively.  The total cost ofnonvested stock option awards which the Company had not yet recognized wasapproximately $4,374,000 at March 31, 2010.  Such amount is expected to be recognized overa period of 4 years from March 31, 2010.

 

Stock Warrants: At March 31, 2010, the Company has outstanding warrants whichentitle the holders to purchase an aggregate of 390,000 shares of Class Bcommon stock of the Company at an exercise price of $4.25 per share.

 

Restricted Stock:  To encourage retention and performance, theCompany granted certain employees and consultants restricted shares of Class Bcommon stock with a fair value per share determined in accordance withconventional valuation techniques, including but not limited to, arm’s lengthtransactions, net book value or multiples of comparable company earnings beforeinterest, taxes, depreciation and amortization, as applicable.

 
| ** **                                                    | ** ** | **Number of**    | ** ** | **Weighted**        | ** ** |
|---------------------------------------------------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                                                    | ** ** | **Nonvested**         | ** ** | **Average**         | ** ** |
| ** **                                                    | ** ** | **Restricted**        | ** ** | **Grant Date** | ** ** |
| ** **                                                    | ** ** | **Share Awards** | ** ** | **Fair Value** | ** ** |
| Nonvested Restricted  Shares Outstanding January 1, 2010 |       | 281,289               |       | $                   | 7.88       |   |
| Granted                                                       |       | 102,150               |       | 14.00               |       |
| Vested                                                        |       | (28,290               | )          | 4.87                |       |
| Forfeited                                                     |       | (17,874               | )          | 6.32                |       |
|                                                          |       |                  |       |                |       |
| Nonvested Restricted  Shares Outstanding March 31, 2010  |       | 337,275               |       | $                   | 10.07      |   |

 

Compensation expense associated with restricted stockof $337,357 and $195,778 for the three month periods ended March 31, 2010and 2009, respectively, is included in selling, general and administrativeexpenses in the statements of operations. The total cost of non-vested stock awards which the Company has not yetrecognized at March 31, 2010 was approximately $2,675,737.  This amount is expected to be recognized overthe next three years.

 

11

----

Table of Contents

 

**NOTE 10 - EARNINGS PER SHARE**

 

The Company adopted theguidance for share-based payments which are considered as participatingsecurities on January 1, 2009.  Uponadoption, all share-based payment awards that contained non-forfeitable rightsto dividends, whether paid or unpaid, were designated as participatingsecurities and included in the computation of earnings per share (“EPS”).

 

The following table setsforth the computation of basic and diluted earnings per share:

 
| ** **                                                                                | ** ** | **Three Month Period Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                | ** ** | **March 31,**                          | ** ** |
| ** **                                                                                | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
|                                                                                      |       |                                        |       |   |   |
| Net income (loss)                                                                         |       | $                                           | (7,237,518 | ) | $ | (199,420 | ) |
|                                                                                      |       |                                        |       |   |   |
| Basic:                                                                                    |       |                                        |       |   |   |
| Weighted average common  shares outstanding                                               |       | 8,243,748                                   |       | 8,202,268 |   |
|                                                                                      |       |                                        |       |   |   |
| Diluted:                                                                                  |       |                                        |       |   |   |
| Shares issuable from the  assumed conversion of Series “A” preferred stock |       | —                                      |       | — |   |
|                                                                                      |       |                                        |       |   |   |
| Total                                                                                     |       | 8,243,748                                   |       | 8,202,268 |   |
|                                                                                      |       |                                        |       |   |   |
| Basic income (loss) per  share                                                            |       | $                                           | (.88       | ) | $ | (.02 | ) |
|                                                                                      |       |                                        |       |   |   |
| Diluted income (loss) per  share                                                          |       | $                                           | (.88       | ) | $ | (.02 | ) |

 

The earnings per share amounts are the same for Series “A”preferred stock, Class A common stock, and Class B common stockbecause the holders of each class are legally entitled to equal per sharedividend distributions.

 

For the three month periods ended March 31, 2010and 2009, 2,809,450 and 2,679,300, respectively, out-of-the-money stock optionshave been excluded from diluted earnings per share because they are consideredanti-dilutive. For the three month periods ended March 31, 2010 and 2009,21,000 and 0, respectively, in-the-money stock options have been excluded fromdiluted earnings per share because they are considered anti-dilutive.

 

For the three month periods ended March 31, 2010and 2009, 390,000 and 0, respectively, stock warrants have been excluded fromdiluted earnings per share because they are considered anti-dilutive.

 

Shares issuable from the assumed conversion of Series “A”Preferred and shares of unvested restricted class B common stock ofapproximately 20,616,107 and 20,243,000 were excluded in the computation ofdiluted earnings per share for the three month periods ended March 31,2010 and 2009, respectively, as the effect would have been anti-dilutive due tothe net loss for the periods.

 

12

----

Table of Contents

 

**NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION**

 

The following is supplemental cash flow information:

 
| ** **        | ** ** | **Three Month Period Ended** | ** ** |
|-------------------|------------|---------------------------------------------|------------|
| ** **        | ** ** | **March 31,**                          | ** ** |
| ** **        | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
| ** **        | ** ** | ** **                                  | ** ** | **(unaudited)** | ** ** |
|              |       |                                        |       |   |   |
| Interest paid     |       | $                                           | 4,342,194  |   | $ | 4,271,054 |   |
|              |       |                                        |       |   |   |
| Income taxes paid |       | $                                           | 1,613,838  |   | $ | — |   |

 

The following is supplemental disclosure of non-cashinvesting and financing activities:

 
| ** **                                                                               | ** ** | **Three Month Period Ended** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                               | ** ** | **March 31,**                          | ** ** |
| ** **                                                                               | ** ** | **2010**                                    | ** ** | **2009** | ** ** |
| ** **                                                                               | ** ** | **(unaudited)**                             | ** ** |
| Property and equipment  additions financed through capital leases                        |       | $                                           | —     |   | $ | 74,088 |   |
|                                                                                     |       |                                        |       |   |   |
| Property and equipment  additions financed through accounts payable and accrued expenses |       | $                                           | 107,640    |   | $ | — |   |
|                                                                                     |       |                                        |       |   |   |
| Option payable recorded  against additional paid in capital                              |       | $                                           | 2,499,990  |   | $ | — |   |

 

**NOTE 12 — RECENTLY ISSUED ACCOUNTING STANDARDS**

 

In January 2010, theFinancial Accounting Standards Board (FASB) issued an update to the guidancefor fair value measurements and disclosures regarding “Improving disclosuresabout Fair Value Measurements.”  This update clarifies disclosuresregarding (i) the level of disaggregation of classes of assets andliabilities and (ii) disclosures about inputs and valuation techniques andused to measure fair value for either Level 2 or Level 3measurements.  This update does not have any impact on the Company’sresults of operations, financial condition or liquidity.

 

In February 2010,the FASB issued guidance for subsequent events, allowing SEC filers to removethe date through which subsequent events have been reviewed. The guidancebecame effective upon issuance, and the adoption of this guidance did not havea material impact on the Company’s consolidated financial statements.

 

13

----

Table ofContents

 

**NOTE 13 - SUBSEQUENT EVENT**

 

The Company evaluated all events and transactionsup to the date the consolidated financial statements were available to beissued.

 

Initial Public Offering: On April 21, 2010, the Companyentered into an underwriting agreement (the “Underwriting Agreement”) withCredit Suisse Securities (USA) LLC and Barclays Capital Inc., asrepresentatives of the several underwriters named therein (collectively, the “Underwriters”),providing for the offer and sale in a firm commitment offering of 7,500,000shares of the Company’s common stock, par value $0.01 (the “Common Stock”), ofwhich 500,00 shares were sold by selling stockholders, at a public offeringprice of $12.00 per share. Pursuant to the Underwriting Agreement, the Companyand the selling stockholders granted the Underwriters a 30-day option topurchase up to an additional 625,000 shares and 500,000 shares of Common Stock,respectively, to cover over-allotments.

 

The transactionscontemplated by the Underwriting Agreement were consummated on April 27,2010. The Company estimated its net proceeds from this offering will beapproximately $76.4 million after deducting underwriting discounts, fees andoffering expenses. As described in the Company’s final prospectus dated April 22,2010 (the “Prospectus”) contained in its Registration Statement on Form S-1(File No. 333-162540), the Company will use the net proceeds of theoffering to pay down indebtedness, for anticipated capital expenditures and forgeneral working capital purposes. The Company will not receive any of theproceeds from the sale of the Common Stock sold by the selling stockholders.

 

Upon completion of theinitial public offering, all existing shares of the Company’s outstanding Class Aand Class B common stock and the Company’s Series A convertiblepreferred stock were converted into one class of common stock (the “StockConversions”). Under the terms of the amended articles of incorporation theCompany is authorized to issue 105,000,000 shares of capital stock whichconsists of 100,000,000 shares of common stock, par value $0.01 per share, and5,000,000 shares of preferred stock, par value $0.01 per share.

 

Senior Unsecured Notes: On April 22, 2010, the Companyentered into a Purchase Agreement (the “Purchase Agreement”) with BarclaysCapital Inc., Credit Suisse Securities (USA) LLC and Banc of America SecuritiesLLC, as representatives of the initial purchasers (the “Initial Purchasers”),relating to the offer and sale by the Company of $200 million aggregateprincipal amount of its 10-1/2% senior notes due 2017 (the “Notes”).  TheCompany expects to receive net proceeds from the offering of approximately$189.0 million after deducting the Initial Purchasers’ discounts, offeringexpenses and original issue discount. The issuance of the Notes occurred on April 27,2010. The Notes were offered and sold to the Initial Purchasers and resold onlyto qualified institutional buyers in compliance with the exemption fromregistration provided by Rule 144A under the Securities Act of 1933, asamended (the “Securities Act”), and in offshore transactions in reliance on RegulationS under the Securities Act.

 

The Notes are a generalunsecured, senior obligation of the Company. The Notes are unconditionallyguaranteed as to principal, premium, if any, and interest by the Company’sdomestic subsidiaries (the “Guarantors”) on a senior unsecured basis.

 

The Company plans to usethe proceeds from the offering and sale of the Notes to repay currentoutstanding indebtedness, for anticipated capital expenditures and for generalworking capital purposes.

 

On April 27, 2010,in connection with the offering of the Notes, the Company entered into (i) anIndenture with The Bank of New York Mellon Trust Company, N.A., (the “Trustee”),and (ii) a Registration Rights Agreement with the Initial Purchasers. Thefollowing is a brief summary of the material terms and conditions of theIndenture and the Registration Rights Agreement.

 

The Company and theGuarantors entered into an Indenture with the Trustee, pursuant to which theCompany issued the Notes at a price equal to 97.009% of their face value.

 

*Interest* — The Notes will bear interest from April 27,2010 at a rate of 10-1/2% per annum. The Company will pay interest on the Notessemi-annually, in arrears, on May 1 and November 1 of each year,beginning November 1, 2010.

 

14

----

Table ofContents

 

*Principaland Maturity* —The Notes were issued with a $200 million aggregate principal amount and willmature on May 1, 2017.

 

*OptionalRedemption by the Company*— At any time prior to May 1, 2013, the Companymay redeem up to 35% of the aggregate principal amount of the Notes with thenet cash proceeds of certain equity offerings at a redemption price of 110.500%of the aggregate principal amount of the Notes redeemed if at least 65% of theaggregate principal amount of the Notes remains outstanding immediately aftersuch redemption and the redemption occurs within 90 days of the closing date ofsuch equity offering. On or after May 1, 2014, the Company may redeem theNotes at the following percentages of the original principal amount: (i) 105.250%from May 1, 2014 to April 30, 2015; (ii) 102.625% from May 1,2015 to April 30, 2016; and (iii) 100% from May 1, 2016 andthereafter.

 

*RepurchaseObligations by the Company*— If there is a change of control of the Company (asdefined in the Indenture), each holder of the Notes may require the Company topurchase their Notes at a price equal to 101% of the principal amount thereof,plus accrued and unpaid interest, if any, to the date of repurchase.

 

*Eventsof Default*— TheIndenture also contains events of default including, but not limited to, thefollowing: (i) nonpayment; (ii) defaults in certain otherindebtedness of the Company or the Guarantors; and (iii) the failure ofthe Company or the Guarantors to comply with their respective covenants in theevent of a mandatory redemption, optional redemption, option to repurchase, ora merger, consolidation or sale of assets. Upon an event of default, theholders of the Notes or the Trustee may declare the Notes due and immediatelypayable.

 

Termination of MaterialDefinitive Agreement:The Company was a party to a $150.0 million first lien credit agreement, dated January 16,2008 (“First Lien Credit Agreement”), with Credit Suisse, as administrativeagent and collateral agent, and a $50.0 million second lien term loanagreement, dated January 16, 2008 (“Second Lien Credit Agreement”), withCredit Suisse, as administrative agent and collateral agent. The First LienCredit Agreement consisted of a $120.0 million senior secured term loanfacility which would have matured on January 16, 2015, and a $30.0 millionsenior secured revolving credit facility (“Prior Revolving Credit Facility”),which would have matured on January 16, 2014. The Prior Revolving CreditFacility also provided the Company with a sub-facility for letters of credit ofup to $30.0 million less the amount of revolving loans then outstanding. TheSecond Lien Credit Agreement would have matured on July 16, 2015.

 

On February 13,2008, the Company entered into a loan agreement with Citibank, N.A. (“ConstructionLoan Agreement”) to provide financing for the construction of the Company’sheadquarters facility. On August 28, 2009 the Company amended this loanagreement in order to extend the maturity date to September 30, 2019 andto reduce the availability for borrowing to $5.4 million, the aggregateprincipal amount then outstanding.

 

In connection with theclosing of the Company’s initial public offering and the sale of $200 millionof the Company’s 10-1/2% senior notes due 2017 on April 27, 2010, theCompany repaid all outstanding borrowings under the First Lien CreditAgreement, the Second Lien Credit Agreement, and the Construction Loan Agreement.These repayments resulted in the termination of each of these borrowingarrangements. The prepayment of the Construction Loan Agreement resulted in theincurrence of $160,000 in prepayment penalties.

 

Bank of America RevolvingCredit Facility:On April 30, 2010, the Company entered into a new revolving creditfacility under the terms of a Credit Agreement (the “Revolving Credit Facility”)with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/CIssuer, and each lender from time to time party thereto. The Revolving CreditFacility provides for borrowings of up to $50.0 million. The loans underthe Revolving Credit Facility bear interest at a rate equal to LIBOR plus theApplicable Rate or the Base Rate plus the Applicable Rate. The Base Rate isdefined as the higher of (x) the prime rate and (y) the Federal Fundsrate plus 0.50%. The Applicable Rate is defined as a percentage determined inaccordance with a pricing grid based upon the Company’s leverage ratio, thatwill decline from LIBOR plus 4.00% or the prime rate plus 3.00% to a minimumrate equal to LIBOR plus 3.50% or the prime rate plus 2.50%. The Company isable to prepay borrowings under the Revolving Credit Facility at any timewithout penalty or premium, subject to reimbursement of the lenders’ breakageand redeployment costs in the case of prepayment of LIBOR borrowings. TheCompany also will pay a commitment fee of 0.75% per annum on the actual dailyunused portions of the Revolving Credit Facility.

 

15

----

Table ofContents

 

The Company’s RevolvingCredit Facility is secured by a first priority lien on substantially all of theCompany’s assets, the assets of the Company’s non-foreign subsidiaries, thestock of the Company’s non-foreign subsidiaries and 66% of the stock of certainof the Company’s foreign subsidiaries. In addition, the Company’s non-foreignsubsidiaries will guarantee the Company’s obligations under the RevolvingCredit Facility.

 

The terms of theRevolving Credit Facility will limit the Company’s ability and the ability ofcertain of the Company’s subsidiaries to, among other things: incur orguarantee additional indebtedness; grant additional liens on the Company’sassets; make certain investments or certain acquisitions of substantially allor a portion of another entity’s business or assets; merge with anotherentity or dispose of the Company’s assets; pay dividends; enter into transactionswith affiliates; engage in other lines of business and repurchase stock.

 

Additionally, theRevolving Credit Facility requires that the Company maintain certain ratios oftotal senior, secured debt to consolidated EBITDA (as defined therein), and ofconsolidated EBITDA to consolidated interest. The Revolving Credit Facilityincludes customary provisions with respect to events of default. Upon theoccurrence and continuation of an event of default under the Revolving CreditFacility, the lenders will be able to, among other things, terminate theirrevolving loan commitments, accelerate the repayment of the loans outstandingand declare the same to be immediately due and payable.

 

16

----

 

Table ofContents

 

**Item2.   Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

*Thefollowing discussion and analysis should be read in combination with ourInterim Financial Statements contained in this Form 10-Q and our FinancialStatements for the year ended December 31, 2009 included in ourRegistration Statement on Form S-1 (File No. 333-162540).*

 

**ForwardLooking Statements**

 

Statements other thanstatements of historical fact included in this Form 10-Q that relate toforecasts, estimates or other expectations regarding future events regardingtechnological advancements and our financial position, business strategy andplans and objectives of our management for future operations, may be deemed tobe forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of the Securities Exchange Act of1934. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,”“expect,” “intend,” “plan” and similar expressions, as they relate to us or ourmanagement, identify forward-looking statements. Forward-looking statementsinclude but are not limited to statements about business outlook for the year,backlog and bid activity, business strategy, and related financial performanceand statements with respect to future events. Such forward-looking statements are based on certain assumptions made bythe Company based on management’s experience and perception of historicaltrends, industry conditions, market position, future operations, profitability,liquidity, backlog, capital resources and other information currently availableto management and believed to be appropriate. Actual results could differmaterially from those contemplated by the forward-looking statements as aresult of certain factors, including but not limited to the volatility of oiland natural gas prices, disruptions in the global economy, dependence uponenergy industry spending, delays, reductions or cancellations of servicecontracts, high fixed costs of operations, weather interruptions, inability toobtain land access rights of way, industry competition, limited number ofcustomers, credit risk related to our customers, asset impairments, theavailability of capital resources, and operational disruptions. A discussion ofthese factors, including risks and uncertainties, is set forth under “RiskFactors” in our Registration Statement on Form S-1/A filed with theSecurities and Exchange Commission. These forward-looking statements reflectour current views with respect to future events and are subject to these andother risks, uncertainties and assumptions relating to our operations, resultsof operations, growth strategies and liquidity. Although the Company believesthat the expectations reflected in such statements are reasonable, the Companycan give no assurance that such expectations will be correct.  All subsequent written and oral forward-lookingstatements attributable to us or persons acting on our behalf are expresslyqualified by these cautionary statements and any other cautionary statementsthat may accompany such forward-looking statements. We assume no obligation toupdate any such forward-looking statements.

 

Backlog estimates arebased on a number of assumptions and estimates including assumptions related toforeign exchange rates, proportionate performance of contracts and ourvaluation of assets, such as seismic data, to be received by us as paymentunder certain agreements. The realization of our backlog estimates are furtheraffected by our performance under term rate contracts, as the early or latecompletion of a project under term rate contracts will generally result indecreased or increased, as the case may be, revenues derived from theseprojects. Contracts for services are occasionally modified by mutual consentand may be cancelable by the client under the circumstances. Consequently,backlog as of any particular date may not be indicative of actual operatingresults for any future period.

 

**Overview**

 

We provide an integratedsuite of seismic data solutions to the global oil and gas industry, includingour high resolution RG-3D Reservoir GradeTM (“RG3D”) seismic solutions. Ourseismic data solutions consist primarily of seismic data acquisition,processing and interpretation services. Through these services, we deliver datathat enable the creation of high resolution images of the earth’s subsurfaceand reveal complex structural and stratigraphic details. These images are usedprimarily by oil and gas companies to identify geologic structures favorable tothe accumulation of hydrocarbons, to reduce risk associated with oil and gasexploration, to optimize well completion techniques and to monitor changes inhydrocarbon reservoirs. We integrate seismic survey design, data acquisition,processing and interpretation to deliver enhanced services to our clients. Inaddition, we own and market a growing multi-client seismic data library andlicense this data to clients on a non-exclusive basis.

 

17

----

Table of Contents

 

We provide seismic dataacquisition for land, transition zone and shallow marine areas, includingchallenging environments such as marshes, forests, jungles, arctic climates,mountains and deserts worldwide. Our management team has significantoperational experience in most of the major U.S. shale plays, including theHaynesville, Barnett, Bakken, Fayetteville, Eagle Ford and Woodford, where webelieve our high resolution RG3D seismic solutions are particularlywell-suited. Our seismic solutions are used by many of the world’s largest andmost technically advanced oil and gas exploration and production companiesincluding national oil companies, major integrated oil companies, and largeindependent oil companies.

 

We currently own, oroperate under long-term leases, approximately 151,500 recording channels. Ourrecording channels and systems operate on a common technology platform whichprovides operational scalability and efficiency. This operational scalabilityand efficiency enables us to execute on large and technologically complexprojects.

 

The seismic data servicesindustry historically has been cyclical. Volatility in oil and gas prices canproduce significant changes in the demand for seismic services and the pricesseismic contractors can negotiate for their services. Oil and gas exploration,development, exploitation and production spending levels traditionally havebeen heavily influenced by expected future prices of oil and natural gas. Priorto mid-2008, the oil and gas industry saw significant increases in activityresulting from high commodity prices for oil and natural gas. We benefited fromthis increased spending. However, during the period from mid-2008 throughmid-2009, oil and natural gas prices declined significantly, which resulted insignificant curtailments in capital expenditures by independent oil and gascompanies, including spending for seismic data acquisition services. Followingthis precipitous decline in oil and natural gas prices, we recorded a net lossin 2008 of $8.0 million. Revenue in 2009 was down $64 million from 2008,however the Company recorded positive net income of $0.4 million.

 

We have observed a trendamong certain of our clients to direct an increasing portion of their seismicdata budgets toward the licensing of data on a non-exclusive basis frommulti-client seismic data libraries. Notably, within North America, the presentfocus on unconventional resource plays (e.g., the Haynesville, Marcellus andEagle Ford shales, among others) is prompting an examination by our clients ofwhether acquiring seismic data on a multi-client basis is a more cost effectiveallocation of resources than acquiring seismic data on a proprietary basis.Should such a trend continue, we expect the relative mix of our revenuesbetween our seismic data services and multi-client services could shift moretoward multi-client services within the North American market. We have not yetobserved a similar trend in overseas markets where we currently expect seismicdata services will continue to constitute the majority of the services weprovide.

 

We generate revenues byproviding seismic data services and multi-client services to our clients. Ourseismic data services segment generates revenues by conducting geophysicalsurveys for our clients on a contractual basis where our clients generallyacquire all rights to the seismic data obtained through such survey. We alsogenerate revenues by providing seismic data processing and interpretationservices. Our multi-client services segment generates revenues by sellinglicenses, on a non-exclusive basis, to data we own as a part of our seismicdata library.

 

18

----

Table ofContents

 

**Results of Operations**

 

***Three Months Ended March 31, 2010 Compared to ThreeMonths Ended March 31, 2009***

 

The following table sets forth our consolidatedrevenues for the period indicated:

 
| ** **                 | ** ** | **Three Month Period Ended** | ** ** |
|----------------------------|------------|------------------------------|------------|
| ** **                 | ** ** | **March 31,**           | ** ** |
| ** **                 | ** ** | **2010**                     | ** ** | **2009** | ** ** |
| **(Amounts  in millions)** | ** ** | **Amount**                   | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| Seismic  data services     |       | $                            | 44.8       |   | 74 | % | $ | 62.1 |   | 93 | % |
| Multi-client               |       | 15.9                         |       | 26 | % | 4.7 |   | 7 | % |
| Total                      |       | $                            | 60.7       |   | 100 | % | $ | 66.8 |   | 100 | % |

 

Revenues by Region

 
| ** **                          | ** ** | **Three Month Period Ended** | ** ** |
|-------------------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | **March 31,**           | ** ** |
| ** **                          | ** ** | **2010**                     | ** ** | **2009** | ** ** |
| ** **                          | ** ** | **Amount**                   | ** ** | **%** | ** ** | **Amount** | ** ** | **%** | ** ** |
| US                                  |       | $                            | 19.3       |   | 32 | % | $ | 21.5 |   | 32 | % |
| Latin  America                      |       | 18.3                         |       | 30 | % | 15.7 |   | 24 | % |
| Europe,  Africa, Middle East (EAME) |       | 0.2                          |       | 0 | % | 9.4 |   | 14 | % |
| Asia  Pacific                       |       | 22.9                         |       | 38 | % | 20.2 |   | 30 | % |
| Total                               |       | $                            | 60.7       |   | 100 | % | $ | 66.8 |   | 100 | % |

 

*Revenues.*We recordedrevenues of $60.7 million for the three months ended March 31, 2010compared to $66.8 million for the three months ended March 31, 2009, adecline of $6.1 million or 9%.  Themajority of this decrease is attributable to program delays caused by adverseweather conditions, crew scheduling and start-up cycles, and a reduction indemand for our seismic data caused by generally lower exploration andproduction spending by our clients.

 

Our seismic acquisitionrevenue totaled $44.8 million as compared to $62.1 million for the same periodof 2009, a decrease of $17.3 million or 28%.  This decrease inseismic acquisition revenue is primarily a result of a shift from proprietaryto multi-client demand in the North American markets.  International seismic acquisition revenuesfor the same period in 2010 declined $3.9 million or 9% compared to the sameperiod in 2009.  Revenue from our LatinAmerica and Asia pacific operations increased by  $2.6 million and $2.7 million respectively,while our Europe, Africa and Middle East operations revenues decreased by $9.2million primarily from crew reductions year over year.

 

Our Multi-client revenuesincreased to $15.9 million from $4.7 million, an increase of $11.2 million or238%. The $15.9 million in multi-client revenues includes $11.6 million ofpre-commitments and $4.3 million of late sales. The increase was mainly the resultof additional projects in Eagle Ford, Haynesville, and Bakken shales. The totalpre-commitments that had not been recognized as revenue as of March 31,2010 were $98.9 million compared to $11.5 million on March 31, 2009.

 

*Operatingexpenses.*Ouroperating expenses, excluding depreciation and amortization decreased by $1.1million to $35.5 million for the quarter ended March 31, 2010, a decreaseof 3%. Operating expenses represented 57.8% of revenue in the firstquarter of 2010 compared to 53.7% in the same period 2009. Mobilization costsare capitalized when incurred and later expensed as data acquisition progressesincreased our operating expenses. For the three months ended March 31,2010, we recognized previously capitalized expenses of $7.6 million as comparedto the first quarter of 2009 where we capitalized $9.5 million of expensesassociated with crew mobilization. This had the effect of increasing operatingcosts as a percentage of sales in the first quarter of 2010 as compared to thefirst quarter of 2009.

 

19

----

Table of Contents

 

*Selling,General and Administrative Expenses.*Our SG&A, excluding depreciation and amortization,increased by $1.1 million, or 16%, to $7.9 million for the quarter ended March 31,2010.  This increase is primarily relatedto compensation increases in our sales and marketing staff, which increased by$0.7 million compared against the same period 2009.  In addition, non-cash compensation expenseincreased to $0.7 million in the first quarter of 2010 up from $0.4 million inthe same period 2009.

 

*Depreciationand Amortization Expenses.*Depreciation and amortization expense combinedincreased by $5.4 million, or 30%, to $23.8 million for the three months ended March 31,2010.  Depreciation expense increased by$0.7 million, or 5%, to $14.9 million at March 31, 2010.  Multi-client amortization increased by $5.0million, or 113%, to $8.7 million as a result of the increase in multi-clientdata sales.  Amortization related tointangible assets decreased by $0.3 million, or 33%, to $0.1 million.

 

*InterestExpense, Net.*Interestexpense, net, decreased by $0.1 million, or 2%, to $4.6 million for the quarterended March 31, 2010.

 

*OtherIncome (Expense), Net.*Other income (expense), net, decreased by $0.3 million to $(0.1)million for the quarter ended March 31, 2010.  The carrying value of the interest rate hedgeheld as a requirement under our credit facility declined by $0.2 million, andour foreign exchange losses decreased by $0.4 million to a loss of $0.2 millionat March 31, 2010.

 

*IncomeTax Expense*. Ourincome tax expense at March 31, 2010 was a credit of $3.6 million comparedto a debit of $0.6 million at March 31, 2009.   The effective income tax rate for the threemonths ended March 31, 2010 and 2009 was 33.2% and 150.6%respectively.  The Company’s effectiveincome tax rate in 2009 and 2010 differs from the federal statutory rateprimarily due to state income taxes, non-deductible expenses, tax ratedifferential from US operations, and valuation allowances in non-USjurisdictions.

 

**Liquidity and Capital Resources**

 

Our primary sources ofliquidity are cash generated by the seismic data services and multi-clientservices we provide to our clients, debt and equity offerings, our revolvingcredit facility, and equipment financings such as capital leases. Our primaryuses of capital include the acquisition of seismic data recording equipment andseismic, vehicles and vessels, and other equipment needed to outfit new crewsand to enhance the capabilities of and maintain existing crews energy sources,and investments in our multi-client data for our library. We also use capitalto fund the working capital required to launch new crews and operate existingcrews.  Our cash position, consistentwith our revenues, depends to a large extent on the level of demand for ourservices. Historically, we have supplemented cash from operations withborrowings under our Revolving Credit Facility periodically from time to timeas the need arises.

 

As of March 31,2010, we had total liquidity of $39.5 million consisting of available cash andcash equivalents of $ 9.5 million, and borrowing capacity under our ExistingRevolving Credit Facility of $30 million. Refer to Capital Resources below fora description of subsequent changes to our liquidity.

 

*OperatingActivities*. Netcash provided by operating activities was $21.0 million for the three monthsended March 31, 2010 compared to $3.7 million for the three months ended March 31,2009, an increase of $17.3 million. The increase in cash flows from operationsis mainly attributable to improved working capital. The increase was largelydriven by changes in prepaid expenses and other current assets which wasprimarily the result of the amortization of capitalized crew mobilizationexpenses.

 

20

----

Table ofContents

 

*Investing Activities.*Net cash used in investing activities was$26.9 million for the three months ended March 31, 2010 compared to $3.6million for the three months ended March 31, 2009, an increase of $23.3million. The increase was primarily the result of increased investment in ourmulti-client library.  The followingtable sets forth our investment in our multi-client library for the periodindicated:

 
| ** **                                                         | ** ** | **Three Month Period Ended** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                         | ** ** | **March 31,**           | ** ** |
| **(Amounts  in millions)**                                         | ** ** | **2010**                     | ** ** | **2009** | ** ** |
| Cash  investment in multi-client library assets                    |       | 25.3                         |       | 4.9 |   |
| Capitalized  depreciation (1)                                      |       | 5.5                          |       | 0.4 |   |
|                                                               |       |                         |       |   |   |
| Total  capitalized investment at cost (cummulative, at period end) |       | $                            | 106.0      |   | $ | 33.5 |   |
| Less:  Accumulated amortization of multi-client library assets     |       | 46.5                         |       | 22.8 |   |
| Multi-client  net book value (at period end)                       |       | $                            | 59.5       |   | $ | 10.7 |   |

 

----

(1)          Represents capitalized cost of the equipment owned andleased by us and utilized in connection with multi-client seismic acquisition.

 

*FinancingActivities.* Netcash used in financing activities was $1.6 million in the three months ended March 31,2010 compared to $23.3 million in the 3 months ended March 31, 2009, adecrease of $21.7 million. The decrease is primarily the result of a $21.0million repayment of loans drawn under our revolver in the three months ended March 31,2009.

 

*CapitalResources.*As of March 31,2010, we were party to a $150.0 million first lien credit agreement and a $50.0million second lien term loan agreement both dated January 16, 2008, withCredit Suisse, as administrative agent and collateral agent (collectively, our “ExistingCredit Facilities”). Our first lien credit agreement consists of a $120.0million senior secured term loan facility (our “First Lien Term Loan Facility”),which matures on January 16, 2015, and a $30.0 million senior securedrevolving credit facility (“Existing Revolving Credit Facility”), which matureson January 16, 2014. Our second lien credit agreement (“Second Lien CreditAgreement”) matures on July 16, 2015.

 

As of March 31,2010, the Company was party to a $5.4 million loan agreement with Citibank,N.A. (our “Construction Loan Agreement”) to provide financing for theconstruction of our headquarters facility.

 

In connection with theclosing of our initial public offering and the sale of $200 million of our10-1/2% senior notes due 2017 on April 27, 2010 (described below), werepaid all outstanding borrowings under our First Lien Credit Agreement, ourSecond Lien Credit Agreement, and our Construction Loan Agreement. Theserepayments resulted in the termination of each of these borrowing arrangements.The prepayment of our Construction Loan Agreement resulted in the incurrence of$160,000 in prepayment penalties.

 

Giving effect to thesetransactions and our new revolving credit facility described below, ourpro-forma total liquidity as of March 31 was $147.0 million.

 
| ** **                           | ** ** | **March 31, 2010** | ** ** |
|--------------------------------------|------------|-------------------------|------------|
| **(Amounts  in millions)**           | ** ** | **As Reported**         | ** ** | **Pro forma** | ** ** |
| Cash                                 |       | $                       | 9.5        |   | $ | 9.5 |   |
| IPO  proceeds, net                   |       | 0.0                     |       | 76.4 |   |
| Senior  Notes Offering proceeds, net |       | 0.0                     |       | 189.0 |   |
| Payoff  debt and related fees        |       | 0.0                     |       | (177.9 | ) |
| Available  revolver                  |       | 30.0                    |       | 50.0 |   |
| Total  liquidity                     |       | $                       | 39.5       |   | $ | 147.0 |   |

 

21

----

Table ofContents

 

We have a variety ofcapital leases and notes payable outstanding that are customary in ourindustry. Our estimated total future minimum lease payments under capitalleases as of March 31, 2010 were approximately $1.1 million.

 

On April 22, 2010,we entered into a Purchase Agreement with Barclays Capital Inc., Credit SuisseSecurities (USA) LLC and Banc of America Securities LLC, as representatives ofthe initial purchasers (the “Initial Purchasers”), relating to the offer andsale by the Company of $200 million aggregate principal amount of its 10-1/2%senior notes due May 1, 2017 (the “Notes”).  We received net proceeds from the offering ofapproximately $189.0 million after deducting the Initial Purchasers’ discounts,offering expenses and original issue discount. The issuance of the Notesoccurred on April 27, 2010. The Notes were offered and sold to the InitialPurchasers and resold only to qualified institutional buyers in compliance withthe exemption from registration provided by Rule 144A under the SecuritiesAct of 1933, as amended (the “Securities Act”), and in offshore transactions inreliance on Regulation S under the Securities Act.

 

The Notes are a generalunsecured, senior obligation of the Company. The Notes are unconditionallyguaranteed as to principal, premium, if any, and interest by the Company’sdomestic subsidiaries (the “Guarantors”) on a senior unsecured basis.  We used the proceeds from the offering andsale of the Notes to repay current outstanding indebtedness, for anticipatedcapital expenditures and for general working capital purposes.

 

On April 27, 2010,we completed an initial public offering of the Company’s shares on the New YorkStock Exchange.  The net proceeds fromthis offering will be approximately $76.4 million after deducting underwritingdiscounts, fees and offering expenses. As described in our final prospectusdated April 22, 2010 (the “Prospectus”) contained in our RegistrationStatement on Form S-1 (File No. 333-162540), we will use the netproceeds of the offering to pay down indebtedness, for anticipated capitalexpenditures and for general working capital purposes. The Company will notreceive any of the proceeds from the sale of the Common Stock sold by theselling stockholders.

 

On April 30, 2010,we completed the closing of a new revolving credit facility under the terms ofa Credit Agreement (the “Revolving Credit Facility”) with Bank of America,N.A., as administrative agent for each lender party to the Revolving CreditFacility.  Our Revolving Credit Facilityprovides for borrowings of up to $50.0 million. The loans under our RevolvingCredit Facility bear interest at a rate equal to LIBOR plus the Applicable Rateor the Base Rate plus the Applicable Rate. The Base Rate is defined as thehigher of (x) the prime rate and (y) the Federal Funds rate plus0.50%. The Applicable Rate is defined as a percentage determined in accordancewith a pricing grid based upon our leverage ratio, that will decline from LIBORplus 4.00% or the prime rate plus 3.00% to a minimum rate equal to LIBOR plus3.50% or the prime rate plus 2.50%. We are able to prepay borrowings under ourRevolving Credit Facility at any time without penalty or premium, subject toreimbursement of the lenders’ breakage and redeployment costs in the case ofprepayment of LIBOR borrowings. We also will pay a commitment fee of 0.75% perannum on the actual daily unused portions of the Revolving Credit Facility.

 

Our Revolving CreditFacility is secured by a first priority lien on substantially all of ourassets, the assets of our non-foreign subsidiaries, the stock of ournon-foreign subsidiaries and 66% of the stock of certain of our foreignsubsidiaries. In addition, our non-foreign subsidiaries will guarantee ourobligations under the Revolving Credit Facility.

 

The terms of ourRevolving Credit Facility will limit our ability and the ability of certain ofour subsidiaries to, among other things:

 

·                  incur or guarantee additional indebtedness;

 

·                  grant additional liens on our assets;

 

·                  make certain investments or certain acquisitions ofsubstantially all or a portion of another entity’s business or assets;

 

·                  merge with another entity or dispose of our assets;

 

 

22

----

Table of Contents

 

·                  pay dividends;

 

·                  enter into transactions with our affiliates;

 

·                  engage in other lines of business; and

 

·                  repurchase stock.

 

Additionally, ourRevolving Credit Facility requires that we maintain certain ratios of totalsenior, secured debt to consolidated EBITDA (as defined therein), and ofconsolidated EBITDA to consolidated interest.

 

Our Revolving CreditFacility includes customary provisions with respect to events of default. Uponthe occurrence and continuation of an event of default under our RevolvingCredit Facility, the lenders will be able to, among other things, terminatetheir revolving loan commitments, accelerate the repayment of the loansoutstanding and declare the same to be immediately due and payable.

 

*CapitalExpenditures.*Capital expenditures for the three months ended March 31, 2010 were $26.7million consisting of purchases of property and equipment of $1.4 million andinvestments in our multi-client library of $25.3 million.

 

**Contractual Obligations**

 

The following tablesummarizes the payments due in specific periods related to our contractualobligations as of March 31, 2010:

 
| **(Amounts in millions)** | ** ** | **Total** | ** ** | **Within 1 Year** | ** ** | **1-3 Years** | ** ** | **3-5 Years** | ** ** | **After 5 Years** | ** ** |
|-------------------------------------|------------|-----------|------------|-----------------------------|------------|--------------------|------------|--------------------|------------|-----------------------------|------------|
|                                |       |      |       |                        |       |               |       |               |       |                        |       |
| Debt  obligations                   |       | $         | 169.3      |                        | $          | 1.4                |       | $                  | 2.8        |                        | $          | 110.7 |   | $ | 54.4 |   |
| Capital  lease obligations          |       | 1.1       |       | 0.9                         |       | 0.2                |       | —             |       | —                      |       |
| Operating  lease obligations (1)    |       | 11.8      |       | 10.0                        |       | 1.6                |       | 0.2                |       | —                      |       |
| Option  payable (2)                 |       | 2.5       |       | 1.3                         |       | 1.2                |       | —             |       | —                      |       |
|                                |       | $         | 184.7      |                        | $          | 13.6               |       | $                  | 5.8        |                        | $          | 110.9 |   | $ | 54.4 |   |

 

----

(1)          Includesminimum obligations for leased marine vessels.

(2)          Representsan option to purchase from a former employee 166,666 shares at $15 per share

 

**Off Balance Sheet Arrangements**

 

We do not currently have any off balance sheetarrangements.

 

**Backlog**

 

The Company’s Backlog asof March 31, was approximately $145 million compared to $248 million as ofMarch 31, 2009. Our estimated backlog as of March 31, 2009 included asingle $100.0 million contract for seismic data services, all of which wasrealized during 2009.

 

**Item3.  Quantitative and Qualitative Disclosures About Market Risk**

 

The primary sources ofmarket risk are the volatility of oil and gas prices and the concentration ofour clients in the oil and gas industry. The volatility of oil and gas pricesmay have a positive or negative effect on demand and pricing for our services.The concentration of substantially all of our clients in the oil and gasindustry may have a positive or negative effect on our exposure to credit risksince all of our clients are similarly affected by changes in industry andeconomic conditions. We regularly maintain deposits in our bank accounts inexcess of the $250,000 guaranteed by the Federal Deposit InsuranceCorporation.  We are subject to marketrisk exposure related to changes 

 

23

----

Table of Contents

 

in interest rates on ouroutstanding floating rate debt. Borrowings under our Existing Credit Facilitiesbear floating-rate interest, at our option, based on LIBOR or the prime rate.We do not enter into interest rate hedges or other derivatives for speculativepurposes.

 

Financial instruments,which potentially subject us to concentration of credit risk, consist primarilyof unsecured trade receivables. In the normal course of business, we providecredit terms to our clients. Accordingly, we perform ongoing credit evaluationsof our clients and maintain allowances for possible losses.

 

We conduct business inmany foreign countries. We are subject to foreign exchange risks because ourcontracts may, from time-to-time, be denominated in currencies other than theU.S. dollar while a significant portion of our operating expenses and incometaxes accrue in other currencies. Movements in the exchange rates between theU.S. dollar and other currencies may adversely affect our financial results.Historically, we have not attempted to hedge foreign exchange risk. For thethree months ended March 31, 2010, approximately 30% of our revenues wererecorded in foreign currencies, and we recorded net foreign exchange loss of$0.2 million, or 0.4% of revenues. We attempt to match our foreign currencyrevenues and expenses in order to balance our net position of receivables andpayables in foreign currency. Nevertheless, during the past three years,foreign-denominated revenues have exceeded foreign-denominated payables primarilyas a result of contract terms required by our national oil company clients. Ourmanagement believes that this will continue to be the case in the future.

 

**Item4. Controls and Procedures**

 

Disclosure controls andprocedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by an issuer in the reportsthat it files or submits under the Securities Exchange Act of 1934, as amended,is accumulated and communicated to the issuer’s management, including itsprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding requireddisclosure. Under the supervision and with the participation of our management,including our principal executive officer and principal financial officer, wehave performed an evaluation of the design, operation and effectiveness of theCompany disclosure controls and procedures (as defined in Rule 13a-15(e) ofthe Exchange Act) as of March 31, 2010. Based on that evaluation, the Company’s principal executive andprincipal financial officers have concluded that the Company’s disclosurecontrols and procedures were effective as of March 31, 2010.

 

There were no changes inthe Company’s internal control over financial reporting that occurred duringthe Company’s last fiscal quarter that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

**PART II.  OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

Neither the Company norany of its subsidiaries is a party to any pending legal proceedings other thancertain routine litigation that is incidental to the Company’s business andthat the Company believes is unlikely to materially impact theCompany.  Moreover, the Company is not aware of any such legalproceedings that are contemplated by governmental authorities with respect tothe Company, any of its subsidiaries, or any of their respective properties.

 

**Item1A.  Risk Factors**

 

There have been nomaterial changes in the risk factors included in our Registration Statement on Form S-1(File No. 333-162540).

 

**Item2.  Unregistered Sales of Equity Securities and Use of Proceeds**

 

None.

 

24

----

Table of Contents

 

**Item3.  Defaults Upon Senior Securities**

 

None.

 

**Item4.  (Removed and Reserved)**

 

**Item5.  Other Information**

 

None

 

**Item6.  Exhibits (items indicated by an (*) are filed herewith)**

 
| **Exhibit   No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                       |
|------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.1                    |       | Third Amended and  Restated Certificate of Incorporation (incorporated by reference to  Exhibit 3.1 to the Registrant’s Form 8-K filed April 27, 2010)                                                                                                                                                                                            |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 3.2                    |       | Amended and Restated  Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s  Form 8-K filed April 27, 2010)                                                                                                                                                                                                                        |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.1                    |       | Indenture dated as of  April 27, 2010, among the Company, The Bank of New York Mellon Trust  Company, N.A., as trustee, and the Guarantors   (incorporated by reference to Exhibit 4.1 to the Registrant’s  Form 8-K filed April 27, 2010)                                                                                              |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 4.4                    |       | Registration Rights  Agreement dated as of April 27, 2010, among the Company, the Guarantors  and Barclays Capital Inc., Credit Suisse Securities (USA) LLC and Banc of  America Securities LLC, as representatives of the initial purchasers  (incorporated by reference to Exhibit 4.2 to the Registrant’s  Form 8-K filed April 27, 2010) |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1                   |       | Note Purchase Agreement  dated as of April 22, 2010, among the Company, the Guarantors and Barclays  Capital Inc., Credit Suisse Securities (USA) LLC and Banc of America  Securities LLC, as representatives of the initial purchasers (incorporated by  reference to Exhibit 10.1 to the Registrant’s Form 8-K filed  April 27, 2010)      |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 10.2                   |       | Credit Agreement dated  as of April 30, 2010 by and among Global Geophysical Services, Inc.  and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C  Issuer, and each lender from time to time party thereto (incorporated by  reference to Exhibit 10.1 to the Registrant’s Form 8-K filed  May 3, 2010)        |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 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.                                                                                                                                                                                                       |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 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.                                                                                                                                                                                                       |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 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.                                                                                                                                   |
|                   |       |                                                                                                                                                                                                                                                                                                                                                                  |
| 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.                                                                                                                                   |

 

25

----

Table of Contents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

 
|                                | **GLOBAL  GEOPHYSICAL SERVICES, INC.**             |
|-------------------------------------|----------------------------------------------------|
|                                |                                               |
|                                |                                               |
| Date:  May 19,  2010 | /s/ Richard A. Degner                              |
|                                | Richard A. Degner                                  |
|                                | President and Chief  Executive Officer             |
|                                | (Authorized Officer)                               |
|                                |                                               |
|                                |                                               |
| Date:  May 19,  2010 | /s/ P. Mathew Verghese                             |
|                                | P. Mathew Verghese                                 |
|                                | Senior Vice President  and Chief Financial Officer |
|                                | (Principal Financial  and Accounting Officer)      |

 

26

----