GRANT GEOPHYSICAL INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 333-89863*

GRANT GEOPHYSICAL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 76-0548468
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

16850 PARK ROW, HOUSTON, TEXAS 77084
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 398-9503

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None

Indicate by check mark whether the registrant: (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [ ] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [ ]

As of March 28, 2002, 14,547,055 shares of the Registrant's Common Stock,
$.001 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

* The Commission file number refers to a Form S-1 registration statement filed
by the Registrant under the Securities Act of 1933, which became effective
January 12, 2000.

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GRANT GEOPHYSICAL, INC.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

2

PART I

ITEM 1. BUSINESS.

OVERVIEW

Grant Geophysical, Inc., a Delaware corporation (together with its
subsidiaries, "Grant," or the "Company"), is a leading provider of seismic data
acquisition services in land and transition zone environments in the United
States, Latin America and Canada. Grant also markets seismic data acquisition
services in the Middle East and the Far East. The Company has participated in
the seismic data acquisition services business in the United States and Latin
America since the 1940s, the Far East since the 1960s and Canada since the
1970s. The Company's seismic data acquisition services typically are provided on
an exclusive contract basis to domestic and international oil and gas
exploration and production companies and seismic data marketing companies. Grant
also provides seismic data processing services through offices located in
Houston, Texas and Quito, Ecuador.

The Company utilizes sophisticated equipment to perform specialized 3D and
2D seismic surveys. All of the Company's seismic data acquisition crews are
capable of performing surveys in land environments and two are equipped to
perform surveys in transition zone environments. Transition zone environments
are swamps, marshes and shallow water areas that require specialized equipment
and must be surveyed with minimal disruption to the natural environment.

The market for seismic land acquisition, both domestically and in the
international areas where the Company was active, remained significantly
depressed throughout 2001. Additionally, demand for land and transition zone
seismic data acquisition services are primarily determined by oil and gas
industry capital expenditures, budgets and spending patterns. These spending
patterns are affected by individual oil and gas company budgets as well as
industry-wide conditions. Overcapacity in the seismic service industry continues
to suppress pricing and activity levels and has materially adversely affected
the Company's results of operations. The Company's world-wide seismic crew count
ranged from seven to twelve during 2001. As of March 28, 2002, the Company had
eight active crews. As a result of the low levels of crew activity, the Company
continued to sustain significant operating losses in 2001. Management has
implemented a business plan in 2002 with the specific objectives of improving
profitability and generating positive operating cash flow through intensified
sales and marketing, tighter cost controls and reduced overhead expenses. (See
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources and Note 1 of Notes to
Consolidated Financial Statements).

As of March 28, 2002, the Company was operating one crew in the United
States and operating or mobilizing five crews in Latin America and two crews in
Canada. For the year ended December 31, 2001, the Company's total revenues were
$93.5 million, with approximately 37.3% from the United States, 47.2% from Latin
America, 2.1% from the Far East and 13.4% from Canada. International operations,
excluding Canada, accounted for approximately 49.3% of consolidated revenues and
63.1% of data acquisition revenues for the year ended December 31, 2001.

Grant's principal executive office is located at 16850 Park Row, Houston,
Texas 77084 and its telephone number is 281-398-9503.

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LAND AND TRANSITION ZONE SEISMIC DATA ACQUISITION

A land or transition zone seismic data acquisition crew typically consists
of a surveying crew that marks out the lines to be recorded and marks the sites
for energy source or geophone placement and equipment location, an explosives or
mechanical vibrating or compressed air unit crew, and a recording crew that lays
out the geophones and field recording boxes, directs shooting operations and
records the seismic energy reflected from subsurface structures. A land seismic
data acquisition crew utilizing an explosives unit is supported by several drill
crews, generally furnished by third parties under short-term contracts. Drill
crews operate in advance of the seismic data acquisition crew and bore shallow
holes for small explosive charges that, when detonated, produce the necessary
seismic impulse. In locations where conditions dictate or where the use of
explosives is precluded due to regulatory, topographical or ecological factors,
a mechanical vibrating unit or compressed air unit is substituted for explosives
as the seismic energy source. The Company also employs specialized crew
mobilization equipment to improve productivity in certain applications,
including helicopters for rugged terrain or in agricultural areas, small
watercraft for transition zone applications, and man-portable equipment in
jungle and other environments where vehicular access is limited. Depending on
the size of the seismic survey, the location and other logistical factors, a
seismic data acquisition crew operated by the Company may involve from as few as
30 to as many as 1,500 employees.

One of the challenges inherent in land seismic data acquisition is operating
in difficult logistical environments without disrupting the sensitive ecosystems
in which surveys are frequently located. The Company currently operates
approximately 10,000 channels of remote digital seismic equipment, which can be
deployed without the use of conventional seismic cables, thereby allowing access
to such environments. Remote digital seismic equipment, which uses radio signals
to transmit data, is typically used in transition zone and other logistically
challenging environments such as highly populated regions with numerous
topographic obstructions and areas where conventional cable-based recording
systems are impractical. The Company has over 20 years of experience operating
in transition zone environments in the Gulf Coast region of the United States,
Latin America, the Far East and Africa.

Once recorded by the seismic data acquisition crew, seismic data is computer
processed to enhance the recorded signal by reducing noise and distortion and
improving resolution to produce a representation of the survey site's subsurface
structures. The Company presently has two data processing centers at which it
performs seismic data processing services. These centers are located in Houston,
Texas and Quito, Ecuador.

The Company markets its seismic data acquisition and processing services
from its Houston and Calgary corporate offices and its regional and
international administrative centers by personnel whose duties include
technical, supervisory or executive responsibilities. The Company primarily
acquires seismic data on a turnkey basis for oil and gas companies which
provides a fixed fee for each project. The Company has also in the past acquired
seismic data on a term basis, which provides for a periodic fee during the term
of the project, and a cost-plus basis, which provides that the costs of a
project, plus a percentage fee, are borne by the customer.

In addition the Company, in the United States and Canada, has in the past
acquired and owns multi-client seismic data surveys, and remaining surveys are
marketed on a non-exclusive basis to oil and gas companies.

The Company conducts a substantial portion of its business in currencies
other than the U.S. or Canadian dollars, particularly various Latin American
currencies, and its operations are subject to fluctuations in foreign currency
exchange rates. Accordingly, the Company's results from performing international
contracts could be significantly affected by fluctuations in exchange rates,
particularly in Brazil and Colombia. The Company's international contracts
requiring payment in currency other than U.S. or Canadian dollars typically are
indexed to inflationary tables and partially used to fund local expenses. The
Company attempts to structure the majority of its international contracts to be
partially billed and paid in U.S. dollars.

4

MARKET AREAS

During the last three years, the Company conducted seismic operations in the
United States, Canada, Latin America and the Far East. The following table sets
forth the Company's revenues by geographic area, for the years ended December
31, 1999, 2000 and 2001:

(1) Includes the $15 million sale of a substantial portion of the Company's
multi-client data library, with ongoing rights thereto, in the southern United
States.

As part of the Company's 2002 business plan, the Company is taking measures
to resize its United States operations to reduced current demand levels,
including reducing crew support personnel, consolidating administrative offices
and support facilities and reducing overhead. Additionally, the Company expects
its revenues from United States multi-client data library sales to be
significantly reduced from levels experienced in 2000 and 2001. Therefore, the
Company expects United States revenues to be decreased in 2002 and expects that
revenues from international operations, excluding Canada, will be increased as a
percentage of the Company's consolidated revenues.

BACKLOG

As of December 31, 2001, the Company estimated that its total contractual
backlog for services was approximately $54.9 million, all of which is expected
to be completed in 2002. As of March 31, 2002, the Company estimated that its
total backlog was approximately $35.4 million. The decrease in backlog is
primarily the result of 2002 activity. Most of the Company's contracts are
terminable by the customer upon relatively short notice and, in some cases,
without penalty. The Company's backlog as of any particular date is not
indicative of the likely operating results for any succeeding period, and there
can be no assurance that any amount of backlog will ultimately be realized as
revenue.

CAPITAL EXPENDITURES AND TECHNOLOGY

The Company's ability to compete and maintain a significant market position
in the land and transition zone seismic data acquisition business is partially
driven by its ability to provide technology comparable to that of its primary
competitors. Accordingly, the Company continually maintains and periodically
upgrades its seismic data acquisition equipment to maintain its competitive
position. Due to the depressed state of the seismic industry and the Company's
operating results and lack of funding, the Company made only $3.5 million and
$5.0 million in capital expenditures in 2000 and 2001, respectively. The level
of future capital expenditures will depend on the availability of funding and
market requirements as dictated by industry activity levels.

Over the past several years, the Company has focused its efforts on
developing operating procedures and acquiring equipment that will enhance the
efficiency of its seismic data acquisition crews and reduce the time required to
complete projects. The Company's strategy relies on the use of third-party
equipment suppliers to provide equipment, although certain equipment may be
customized to the Company's specifications to enhance operating efficiency.
Certain of the equipment, processes and techniques used by the Company are
subject to the patent rights of others, and the Company holds non-exclusive
licenses with respect to a number of such patents. While the Company regards as
beneficial its access to third-party technology through licensing, the Company
believes that substantially all presently licensed technology could be replaced
without significant disruption to its business.

LICENSING OF MULTI-CLIENT DATA

The Company has in the past acquired and processed seismic data for its own
account by conducting surveys either partially or wholly funded by multiple
customers. In this mode of operation, ownership of the data is retained by the
Company and the data is licensed on a non-exclusive basis.

5

Due to the depressed demand for seismic services, an inability to secure
adequate initial customer underwriting and a lack of sufficient liquidity, the
Company, in the first quarter of 2000, curtailed its strategy of building a
multi-client data library in the southern United States.

On March 23, 2001, the Company completed the sale of a substantial portion
of its multi-client data library in the southern United States for $15,000,000
cash, retaining all of its Canadian multi-client data library as well as several
data surveys in the southern United States. Although the Company may selectively
continue to build a data library if adequate liquidity exists, it is unlikely
that the Company will undertake any multi-client seismic projects without
significant underwriting levels.

CUSTOMERS AND PROJECTS

The Company's customers consist of domestic and international oil and gas
companies and seismic data marketing companies. As is the case for many service
companies in the oil and gas industry, a relatively small number of customers or
a limited number of significant projects may account for a large percentage of
the Company's net revenues in any given year. Moreover, such customers and
projects may, and often do, vary from year to year. During 2001, the Company's
five largest customers accounted for approximately $49.3 million, or 52.7% of
revenues, and two of these customers accounted for $15.7 million (16.9%) and
$14.8 million (15.8%), respectively, of revenues. During 2000, the Company's
five largest customers accounted for approximately $30.8 million, or 46.6% of
revenues, and two of these customers accounted for $10.1 million (15.3%) and
$9.7 million (14.7%), respectively, of revenues.

COMPETITION

The acquisition and processing of seismic data for the oil and gas industry
is highly competitive worldwide. In the current market environment, competition
is based primarily on price, but is also affected by crew availability, prior
performance, technology, safety, quality, dependability and the contractor's
expertise in the particular area where the survey is to be conducted. The
Company's principal competitors in North America are PGS - Petroleum Geo
Services ASA; Veritas DGC, Inc.; and Western Geco, a joint venture between
Schlumberger Limited and Baker Hughes, Inc. The Company competes against these
three companies for most of its seismic data acquisition and processing
contracts in North America. The Company believes that its principal competitors
have financial, operating and other resources in excess of its own. Also in
North America, the Company competes with approximately 20 smaller companies that
target narrow market segments. In Latin America and the Far East, the Company
competes with Western Geco, CGG - Compagnie General de Geophysique, PGS -
Petroleum Geo Services ASA and a few smaller local competitors.

EMPLOYEES

As of March 1, 2002, the Company employed approximately 330 full-time and
approximately 2,400 temporary contract personnel worldwide. None of the
Company's employees is subject to collective bargaining agreements. The Company
considers its relations with its employees to be good.

ENVIRONMENTAL MATTERS/GOVERNMENTAL REGULATION

The Company's domestic operations are subject to a variety of federal, state
and local laws and regulations relating to the protection of human health and
the environment, the violation of which may result in civil or criminal
penalties. The Company invests financial and managerial resources to comply with
such laws and regulations, and management believes that it is in compliance in
all material respects with applicable environmental laws and regulations.
Although such environmental expenditures by the Company historically have not
been significant, there can be no assurance that these laws and regulations will
not change in the future or that the Company will not incur significant costs in
the future performance of its operations. The Company is not involved in any
legal proceedings concerning environmental matters and is not aware of any
claims or potential liability concerning environmental matters that could have a
material adverse impact on the Company's financial position, cash flows or
results of operations.

The Company's operations outside of the United States are subject to similar
environmental regulations. Management believes that the Company is in material
compliance with the existing environmental requirements of these foreign
governmental bodies. The Company has not incurred any significant environmental
costs in connection with the performance of its foreign operations; however, any
regulatory changes that impose

6

additional environmental restrictions or requirements on the Company or its
customers could adversely affect the Company through increased operating costs
and decreased demand for the Company's services.

CAUTIONARY STATEMENTS

Certain statements made in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements". Forward-looking statements
may include, without limitation, the following:

o statements regarding the Company's business strategy, plans and
objectives;

o statements expressing the beliefs and expectations of management of the
Company regarding future demand for the Company's seismic services and
other events and conditions that may influence demand for the Company's
services and its performance in the future; and

o statements concerning the Company's business strategy and expectations,
industry conditions, market position, backlog, future operations,
margins, profitability, liquidity and capital resources.

Forward-looking statements can generally be identified by such terminology
as "may," "will," "expect," "believe," "anticipate," "project," "estimate" or
similar expressions. Such statements are based on certain assumptions and
analyses made by the Company's management in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors that it believes to be appropriate. The Company
cautions that such statements are only current expectations and not guarantees
of future performance and that actual results, developments and business
decisions may differ from those envisioned by the forward-looking statements.

All phases of the Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are beyond the control
of the Company. Any one of such influences, or a combination, could materially
affect the accuracy of the forward-looking statements and the projections on
which the statements are based. Some important factors that could cause actual
results to differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements include the following:

Debt and Liquidity Limitations.

The Company currently has substantial indebtedness. The level of the
Company's indebtedness and the Company's current level of cash flow generated
from its operations (i) will make it difficult for the Company to meet its debt
service requirements without refinancing its current debt or reaching an
accommodation with the holders of that debt; (ii) makes it extremely difficult
for the Company to obtain necessary any additional debt or equity financing for
any purpose; (iii) requires that a substantial portion of the Company's
available cash be dedicated to debt service and, accordingly, is not available
for use in its business; (iv) limits the Company's flexibility in planning for,
or reacting to, changes in its business; (v) results in the Company being more
highly leveraged than most of its competitors, which places it at a competitive
disadvantage in pursuing contract opportunities; and (vi) makes it more
vulnerable to current business conditions in the seismic services industry.

The Company is currently in default of certain non-financial covenants in
its credit facility (the "Foothill/Elliott Credit Facility"), with Foothill
Capital Corporation ("Foothill") and Elliott Associates, L.P. ("Elliott").
Accordingly, the Company has classified $17.8 million of otherwise long-term
debt as current in the Company's financial statements for the fiscal year ended
December 31, 2001. While Foothill has not taken any steps to accelerate the
maturity of amounts outstanding under the Foothill/Elliott Credit Facility, it
could do so at any time. Also, Foothill could refuse to advance additional
amounts to the Company under the revolving credit portion of the
Foothill/Elliott Credit Facility. If Foothill were to accelerate amounts due
under the Foothill/Elliott Credit Facility, the trustee under the indenture for
the Company's 9 3/4% Senior Notes due 2008 could take the steps necessary to
cause that debt to become immediately due and payable. Accordingly, the Company
has classified $43.5 million of otherwise long-term debt as current in the
Company's financial statements for the fiscal year ended December 31, 2001. If
the maturity of any of the Company's debt was accelerated, it would be unlikely
that the Company would be able to continue its operations without seeking
protection from its creditors under the federal bankruptcy code.

The Company's ability to meet it debt service and other obligations depends
on its future performance, which in turn is subject to general economic
conditions, activity levels in the oil and gas exploration sector, and other
factors beyond the Company's control. The Company has incurred significant net
losses for the past three years and, given the continuing low activity level
in the United States and Canada for land data seismic acquisition services, the
Company expects to continue to incur net losses through 2002. While management
believes there has been a recent improvement in market conditions for seismic
services, especially in Latin America, access to necessary working capital to
finance operations will remain limited through 2002 and may not be available at
all to allow the Company to continue its operations in the ordinary course of
business if the Company cannot refinance its debt, reach an accommodation with
its lenders or obtain additional financing or credit support.

There are currently no additional committed sources of financing available
to the Company and no availability under its existing facilities. The Company
has in the past relied on its majority stockholder, Elliott, to provide credit
support and interim funding. Elliott has indicated to the Company that it will
not commit to provide additional financial and credit support to the Company
during 2002. Even if the Company's operating results substantially improve and
cost control initiatives are successful during 2002, the Company will require
additional financing to sustain its operations and meet its debt service
requirements as those amounts become due. There can be no assurance that amounts
that become due in 2002 can be paid or refinanced or that any additional
financing can be obtained to meet the Company's needs.

Dependence on the Oil and Gas Industry; Industry Volatility.

The Company's business depends in large part on the conditions of the oil
and gas industry and, specifically, on the capital expenditures of the Company's
customers. Demand for land and transition zone seismic acquisition services
remains severely depressed over levels experienced in the past. The Company is
unable to predict with any certainty when and the extent to which the market for
seismic services is likely to improve and, until such time, will continue to
experience operating losses.

Intense Price Competition in a Depressed Market.

Competition among seismic contractors is intense. Competitive factors have
in recent years included price, crew experience, equipment availability,
technological expertise and reputation for quality and dependability. Certain of
the Company's competitors operate more data acquisition crews than the Company
does and have substantially greater financial and other resources. These larger
and better capitalized companies enjoy an advantage over the Company in the
current competitive environment for contract awards where competition is
characterized principally by intense price competition.

7

Risks of High Levels of Fixed Costs.

The Company's business has high fixed costs, and downtime or low
productivity due to reduced demand, weather interruptions, equipment failures or
other causes could result in significant operating losses.

Technology Risks.

Seismic data acquisition and processing is a capital-intensive and
technological business. The development of seismic data acquisition and
processing equipment has been characterized by rapid technological advancements
in recent years, and the Company expects this trend to continue. Manufacturers
of seismic equipment may develop new systems that have competitive advantages
over systems now in use that could render the Company's current equipment
obsolete or require the Company to make significant capital expenditures to
maintain its competitive position. Under such circumstances, there can be no
assurance that the Company would have the necessary funds or be able to obtain
the necessary financing required.

Dependence upon Significant Customers.

The Company derives a significant amount of its revenue from a small number
of major and independent oil and gas companies. The inability of the Company to
continue to perform services for a number of its large existing customers, if
not offset by contracts with new or other existing customers, could have a
material adverse effect on the Company's business and operations.

Intense Competition.

The Company competes in a highly competitive segment of the oil field
services industry. The Company's services are sold in a highly competitive
market and its revenues and earnings may be affected by the following factors:

o changes in competitive prices;

o fluctuations in the level of activity and major markets;

o general economic conditions; and

o governmental regulation.

The Company competes with the oil and gas industry's largest seismic service
providers. Management of the Company believes that the principal competitive
factors in the market areas served by the Company are product and service
quality and availability, technical proficiency and price.

Risks of International Operations.

The Company's international operations, which are expected to continue to
contribute materially to revenues, are subject to risks inherent in doing
business in foreign countries. These risks include, but are not limited to:

o operating risks;

o sourcing and retaining qualified personnel;

o commodity prices for oil and natural gas;

o political changes;

o expropriation;

o currency restrictions and changes in currency exchange rates;

8

o taxes; and

o boycotts and other civil disturbances.

Dependence on Key Personnel.

The Company depends on the continued services of key management and
operating personnel. If the Company were to lose a significant number of these
personnel, this could adversely affect its operations.

ITEM 2. PROPERTIES.

The Company owns a 30,000 square foot building and storage yard in Houston,
Texas, which serves as its corporate headquarters, and leases a 26,000 square
foot building and storage yard in Brookshire, Texas, which serves as a warehouse
and crew and equipment support facility. The Company also owns a staging and
repair facility located on a two-acre tract in New Iberia, Louisiana. In
Calgary, Alberta (Canada), the Company owns an 18,000 square foot office
building and storage yard that serves as the Company's Canadian headquarters. In
addition, the Company leases office, warehouse and storage space in areas
throughout the world as may be required from time to time to market and support
the Company's operations.

ITEM 3. LEGAL PROCEEDINGS.

On August 18, 2000, two residents of Starr County, Texas, filed a purported
class action against the Company and Millennium Seismic, Inc. "Etica Valdez and
Marta G. Garza on behalf of themselves and all others similarly situated v.
Grant Geophysical, Inc. and Millennium Seismic, Inc." No. DC-00-214 on the
docket of the 229th Judicial District, Starr County, Texas. The lawsuit was
recently amended, among other things, to substitute two new plaintiffs and add
defendants. The case name has been changed accordingly: "Juan O. Villareal and
Maria E. Villarreal v. Grant Geophysical, Inc., Grant Geophysical Corp.,
Millennium Seismic, Inc. and Seitel, Inc."

The plaintiffs allege that the Company and Millennium Seismic, Inc. obtained
geophysical information about plaintiffs' mineral estates without permission
while conducting 3-D surveys in Texas. They further allege that the Company
licensed that information to third parties and eventually sold it to Seitel in
2001. The plaintiffs seek unspecified damages and attorneys' fees from the
Company.

The litigation is in early stages of discovery and no dates have yet been
set for a class certification hearing or trial on the merits. The Company has
denied liability, believes the claims are without merit, and intends to defend
vigorously.

The Company is involved in or threatened with other various legal
proceedings from time to time arising in the ordinary course of business.
Management of the Company does not believe that any liabilities resulting from
any such current proceedings will have a material adverse effect on the
Company's financial position, cash flows, or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

9

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

As of March 28, 2002, there were 14,547,055 shares of the Company's common
stock, $.001 par value per share (the "Common Stock"), outstanding. See Item 12
for the number of shares of Common Stock owned by the Company's executive
officers, directors and each person known to the Company to own beneficially
more than 5% of the outstanding shares of Common Stock. The Common Stock is not
listed on any stock exchange or qualified for trading in any other market. The
Company does not anticipate paying cash dividends with respect to the common
stock in the future. In addition, the payment of cash dividends is currently
prohibited by the indenture governing the Company's 9 3/4% Senior Notes Due 2008
and credit agreements governing the Company's other indebtedness for borrowed
money. The Company is currently issuing paid-in-kind preferred stock to satisfy
its dividend requirements on its 8% convertible preferred stock.

ITEM 6. SELECTED FINANCIAL DATA.

The statement of operations and cash flow data of GGI Liquidating
Corporation ("GGI") or "predecessor" presented below for the nine-month period
ended September 30, 1997, is derived from the consolidated financial statements
of GGI. The statement of operations data for the three-month period ended
December 31, 1997 and each of the years in the four-year period ended December
31, 2001 and the balance sheet data of the Company at December 31, 1997, 1998,
1999, 2000 and 2001 are derived from the consolidated financial statements of
the Company. The selected historical financial data set forth below should be
read in conjunction with the consolidated financial statements and the notes
thereto included in Item 8 of this Form 10-K. See also "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

10

(1) See Note 9 of Notes to Consolidated Financial Statements regarding the
January 2000 exchange of $56.3 million of Senior Notes plus accrued
interest therein for 389,772 shares of Convertible Preferred Stock.

(2) Includes $15 Million sale of substantial portion of the Company's
multi-client data library, with ongoing rights thereto, in the southern
United States (see Note 6).

(3) Charge for asset impairment related to the Company's goodwill, fixed assets,
and multi-client data library (see Note 4).

(4) See Note 9 of Notes to Consolidated Financial Statements regarding the
classification of the Foothill/Elliott credit facility and the 9 3/4%
Senior Notes.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

The Company was formed in September 1997. On September 30, 1997, the Company
acquired substantially all of the assets and assumed certain liabilities of GGI
as part of GGI's reorganization plan, confirmed in September 1997.

The Company's business activities involve the performance of land and
transition zone seismic data acquisition services in selected markets worldwide,
including the United States, Canada, Latin America and the Far East. The Company
primarily acquires seismic data on a turnkey basis for oil and gas companies,
which provides a fixed fee for each project. The Company has also in the past
acquired seismic data on a term basis, which provides for a periodic fee during
the term of the project, and a cost-plus basis, which provides that the costs of
a project, plus a percentage fee, are borne by the customer.

In addition, in the United States and Canada, the Company has in the past
acquired multi-client seismic data surveys, and remaining surveys are marketed
on a non-exclusive basis to oil and gas companies.

The Company's results are influenced by oil and gas industry capital
expenditures, budgets and spending patterns. These spending patterns are
affected by individual oil and gas company budgets as well as industry-wide
conditions. Overcapacity in the seismic service industry continues to suppress
pricing and activity levels and has materially adversely affected the Company's
results of operations.

The Company has relied on financial and credit support provided by Elliott
for the past two years to supplement its cash flow and obtain third party
financing. Elliott has indicated to the Company that it will not commit to
provide additional financial and credit support to the Company during 2002. The
Company has also experienced significant operating losses for the past three
years, has operated with a working capital deficiency and there is uncertainty
surrounding the sufficiency and timing of the Company's future cash flows.
Although Foothill has not taken the steps to accelerate the maturity of amounts
outstanding under the Foothill/Elliott Credit Facility, the Company is in
default of certain of its non-financial obligations under the Foothill/Elliott
Credit Facility. All of these factors have caused the Company's independent
accountants to issue their audit report for the fiscal year ended December 31,
2001 with a "going concern" qualification. The Company cannot make any
assurance that its cash flow or ability to obtain financing will allow it to
continue its business in the ordinary course during 2002.

The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and the other financial
information contained in the Company's periodic reports previously filed with
the commission and incorporated herein by reference.

The historical results of operations of the Company for the years ended
December 31, 1999, 2000 and 2001 are presented below.

RESULTS OF OPERATIONS

11

CRITICAL ACCOUNTING POLICIES

The Company's discussion and analysis of its financial condition and
results of operations are based on its consolidated financial statements. The
preparation of these financial statements requires the Company's management to
make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. Actual results may differ from these estimates under
different assumptions or conditions.

The Company considers certain accounting policies to be critical policies
due to the significant judgements, estimation processes and uncertainties
involved for each in the preparation of its consolidated financial statements.
The Company believes the following represents its critical accounting policies.

Revenue Recognition

Revenue from non-cancelable exclusive and non-exclusive seismic surveys is
recognized in accordance with the percentage of completion method of accounting
based upon costs incurred as a percentage of total estimated costs. Revenue from
cancelable exclusive seismic surveys is recognized in accordance with
contractual milestones then chargeable to the customer in accordance with
contract terms. Anticipated losses on survey contracts are recognized when such
losses are determinable. The impact of applying SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition," was not material to the results of operations.

Revenue from the licensing of multi-client data surveys is recognized upon
issuance of license when the Company obtains a non-cancelable commitment from
the customer.

Revenue from the Company's data processing services is recognized as the
services are performed.

Asset Impairment

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of", long-lived assets and certain identifiable intangibles are
written down to their current fair value whenever events or changes in
circumstances indicate that the carrying amounts of these assets are not
recoverable. These events or changes in circumstances may include but are not
limited to a significant change to the extent in which an asset is used, a
significant decrease in the market value of the asset, or a projection or
forecast that demonstrates continuing losses associated with an asset. If an
impairment is determined, the asset is written down to its current fair value
and a loss is recognized. In 2001, based on the Company's significant recurring
losses, resizing of it's United States operations, and changes in projections of
future multi-client data sales, the Company recorded charges for asset
impairment on its goodwill, fixed assets and multi-client data library (see
Note 4).

Mobilization Cost

Transportation and other direct expenses incurred prior to commencement of
geophysical operations in an area, that would not have been incurred otherwise,
are deferred and amortized over either the lesser of the term of the related
contract or backlog of contracts in that area, or one year. If the Company were
to have a contract cancelled, any deferred amounts would have to be immediately
recognized net of any recoveries from the customer.

Goodwill

Goodwill, representing the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited. Accumulated amortization was approximately $4.7 million and
$6.2 million as of December 31, 2000 and 2001, respectively. The Company
assesses the recoverability of this intangible asset by determining whether the
goodwill balance is expected to be recovered through undiscounted future
operating cash flows of the acquired operation over the remaining estimated life
of the goodwill. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflective of Grant's average cost of capital. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved. Based on the fourth quarter 2001 assessment, the
remaining net book value of the goodwill created in the purchase of GGI's
assets, previously being amortized over 30 years, the goodwill created in the
acquisition of Solid State's minority interest, previously being amortized over
20 years and the goodwill created in the purchase of the remaining interest in
ISI, previously being amortized over 30 years, was fully impaired in 2001 (see
Note 4).

Foreign Exchange Gains and Losses

The United States ("U.S.") dollar is the Company's primary functional
currency in all foreign locations with the exception of its Canadian
subsidiaries. Accordingly, those foreign entities (other than Canada) translate
property and equipment (and related depreciation) and inventories into U.S.
dollars at the exchange rate in effect at the time of their acquisition while
other assets and liabilities are translated at year-end rates. Operating results
(other than depreciation) are translated at the average rates of exchange
prevailing during the year. Re-measurement gains and losses are included in the
determination of net income and are reflected in other income (expense). The
Canadian subsidiaries use the Canadian dollar as their functional currency and
translate all monetary assets and liabilities at year-end exchange rates and
operating results at average exchange rates prevailing during the year.
Adjustments resulting from the translation of Canadian assets and liabilities
are recorded in the accumulated other comprehensive loss account in
stockholders' equity.

12

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2000

Revenues. Revenues for 2001 were $93.5 million, compared with $66.2 million
for 2000. The increase is primarily due to increased Latin America data
acquisition revenues combined with the sale, on March 23, 2001, of a substantial
portion of the Company's multi-client data library, and ongoing rights thereto,
in the southern United States for $15.0 million cash.

Revenues from United States data acquisition operations decreased $0.4
million, or 2.6%, from $15.4 million in 2000 to $15.0 million in 2001. This
slight decline in data acquisition revenues is due to continued low levels of
demand for seismic services in the southern United States. Backlog for United
States data acquisition projects at December 31, 2001 was $0.3 million. The
Company has taken measures to resize its United States operations to reduced
current demand levels including reducing crew support personnel, consolidating
administrative offices and support facilities and reducing overhead. The Company
expects that revenues from United States data acquisition operations in 2002
will be decreased over levels experienced in 2000 and 2001. As of March 28,
2002, the Company has backlog for United States data acquisition projects of
$1.2 million.

Revenues from seismic data processing operations were $0.6 million for 2001
compared to $0.5 million for 2000. In January 2001, the Company opened a data
center in Quito, Ecuador to service customer requirements in South America. In
December 2001, the Company closed down its data center in Dallas, Texas and
consolidated it with the Company's Houston, Texas data center.

Revenues from Canadian data acquisition operations decreased $1.9 million,
or 14.3%, from $13.3 million in 2000 to $11.4 million in 2001. During 2000, a
range of one to five land seismic crews were operating in Canada compared to a
range of one to four in 2001.

The Company began its multi-client data acquisition activities in the
United States and Canada during 1998. Multi-client crew operations began in the
second quarter of 1998 and continued through 1999 and into 2000. During that
time, 17 projects were completed in Texas, California, Wyoming and Canada
covering a total of 1,648 square miles. Due to depressed demand for the
Company's proprietary data in 2000, an inability to secure adequate initial
customer underwriting and a lack of sufficient liquidity, the Company in the
first quarter of 2000 curtailed its strategy of building a multi-client data
library in the southern United States. Revenues associated with the underwritten
portion of multi-client data programs are recognized as a component of the data
acquisition revenues discussed above. Revenue from sales of the data library for
2001 were $20.4 million, compared to $12.6 million for 2000. On March 23, 2001,
the Company completed the sale for $15.0 million cash ($15.0 million of related
amortization) of a substantial portion of its multi-client data library in the
southern United States, retaining all of its Canadian multi-client data library
as well as several data surveys in the southern United States. The Company may
selectively continue adding to its remaining data library if adequate liquidity
exists; however, management will be very selective in its decision to
participate in projects that are not substantially underwritten by customers.

Revenues in Latin America increased $23.9 million, or 118.3%, from $20.2
million in 2000 to $44.1 million in 2001. During 2000, a range of two to five
crews operated in Latin America. During 2001, a range of two to six crews
operated in Latin America. The scope and size of 2001 projects were larger than
that of 2000 projects. As of March 28, 2002, there were five land acquisition
seismic crews operating or mobilizing in this region.

Revenues from the Far East decreased $2.2 million, or 52.4%, from $4.2
million in 2000 to $2.0 million in 2001. During 2000, the Company operated one
crew in Indonesia for approximately six months. During 2001, the Company
operated one crew in New Zealand for approximately three months.

13

Expenses. Direct operating expenses for 2001 increased $14.4 million, or
27.3%, to $67.1 million (71.8% of revenues) from $52.7 million (79.6% of
revenues) in 2000. The absolute increase in operating expenses is a result of
increased activity levels in Latin America. The large decrease in operating
expenses as a percentage of revenues from 2000 to 2001 is primarily due to the
increased amount of multi-client data sale revenues, primarily due to the sale
for $15.0 million cash ($15.0 million of related amortization) of a substantial
portion of its multi-client data library in 2001 with the associated cost
included in depreciation and amortization.

Selling, general and administrative expenses decreased $0.7 million, or
7.0%, to $9.3 million (9.9% of revenues) in 2001 from $10.0 million (15.1% of
revenues) in 2000. The absolute reduction is the result of the Company's effort
beginning during the second quarter of 2000, and continued throughout 2001, to
reduce support and overhead personnel in all of its operating regions and at the
corporate office level.

Depreciation and amortization increased $8.8 million, or 32.7%, to $35.7
million in 2001 from $26.9 million for 2000. Capital expenditures were $5.0
million and $3.5 million for 2001 and 2000, respectively. The increase is due to
the amortization associated with the sale of a substantial portion of the
Company's multi-client data library, and ongoing rights thereto, in the southern
United States for $15.0 million cash.

In March 2000, the Company completed the purchase of contractual rights held
by a broker having multiple-year marketing rights for certain of the Company's
multi-client data surveys. For financial reporting purposes, the Company
recorded a non-recurring charge to operations of $3.8 million consisting of the
monetary consideration paid of $3.0 million and the net estimated fair value of
property interests exchanged of $0.8 million.

The Company recorded charges for asset impairment of $38.5 million and $3.3
million for 2001 and 2000, respectively. The 2001 charge was related to: 1.) an
impairment recognized on the Company's goodwill of $31.3 million due to revised
estimates of future operating cash flows due to depressed exploration activity
resulting in decreased demand for the Company's data acquisition and data
processing services in the United States and Canada and 2.) a charge of $7.2
million to impair certain of the Company's fixed assets due primarily to
technological obsolescence and reductions in demand for services in the United
States as well as a charge to reduce the carrying value of the Company's
multi-client data library to net realizable value based on revised future
licensing prospects for such data in view of the ongoing reduced demand for
multi-client data in general and the Company's recent sales experience for such
data. Triggering events requiring the assessments include significant recurring
losses and the Company's decision to resize its United States operations to
reduced current demand levels. The 2000 charge was made to reduce the carrying
value of the Company's multi-client data library to net realizable value, based
on revised future licensing prospects for such data in view of the ongoing
reduced demand for multi-client data in general and the Company's recent sales
experience for such data. The impairment provision during the quarter ended
December 31, 2000 included approximately $2.5 million of book loss that would
have resulted from the March 2001 data sale for $15.0 million discussed above.
On a quarterly basis, management estimates the residual value of each survey,
and additional amortization is provided if the remaining revenues reasonably
expected to be obtained from any survey are less than the carrying value of such
survey.

Other Income (Expenses). Interest expense, net, decreased $1.0 million from
$7.6 million in 2000 to $6.6 million in 2001. The decrease is primarily due to
Elliott Associates, L.P. ("Elliott") and Elliott International, L.P. (formerly
known as Westgate International, L.P.) ("Elliott International") exchanging
$56,320,000 of 9 3/4% Senior Notes for Convertible Preferred Stock on January
19, 2000. Additionally contributing to the decrease were decreased interest
rates in 2001, reducing interest expense on the Company's variable rate debt.

Tax Provision. The income tax provision consisted of income taxes in foreign
countries for 2000 and 2001. No benefit for United States federal or Canadian
income tax loss carry-forwards was recorded in either period, given the
uncertainty of realization of such tax benefits.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1999

Revenues. Revenues for 2000 were $66.2 million, compared with $66.0 million
for 1999. The decrease in the price of oil and gas that occurred between the
fourth quarter of 1998 and the first quarter of 1999 significantly reduced
demand for the Company's services in 1999. Although commodity prices have since
recovered, demand for land and transition zone seismic acquisition services
remained severely depressed in 2000 over levels experienced in 1997 and 1998.
The Company is unable to predict with any certainty when and the extent to which
the market for seismic services is likely to recover.

Revenues from United States data acquisition operations decreased $12.9
million, or 45.6%, from $28.3 million in 1999 to $15.4 million in 2000. This
decrease was attributable to the Company operating two to four contract seismic
data acquisition crews from time to time in the United States during 1999,
compared with one to three crews in 2000. This sharp decline in data acquisition

14

revenues is due to reduced demand for seismic services discussed above. Backlog
for United States data acquisition projects at December 31, 2000 was $0.3
million.

Revenues from seismic data processing operations were $0.5 million for 2000
compared to $1.5 million for 1999. The Company operated seismic data processing
centers during 1999 in Midland, Dallas and Houston, Texas. These centers
processed both third-party and Company-owned multi-client data. In January 2000,
the Company completed the consolidation of its Midland center with operations in
the Houston seismic data processing center. The significant decline in revenues
from 1999 to 2000 is primarily due to reduced data acquisition activities in the
United States. In January 2001, the Company opened a data center in Quito,
Ecuador to service customer requirements in South America.

Revenues from Canadian data acquisition operations increased $3.1 million,
or 30.4%, from $10.2 million in 1999 to $13.3 million in 2000. This increase was
due to increased seismic acquisition activity in Canada beginning during the
fourth quarter of 1999 and continuing through the third quarter of 2000. During
2000 and 1999, a range of one to five land seismic crews were operating in
Canada.

The Company began its multi-client data acquisition activities in the United
States and Canada during 1998. Multi-client crew operations began in the second
quarter of 1998 and continued through 1999 and into 2000. During that time, 17
projects were completed in Texas, California, Wyoming and Canada covering a
total of 1,648 square miles. There were 1,027 square miles completed in 1999.
The cost of these projects was $41.3 million with approximately $18.4 million,
or 44.5%, underwritten by third parties. There were 122 square miles completed
in 2000. The cost of 2000 projects was $ 3.8 million with $2.9 million, or 76%,
underwritten by a third party. Due to depressed demand for the Company's
proprietary data in 2000, an inability to secure adequate initial customer
underwriting and a lack of sufficient liquidity, the Company in the first
quarter of 2000 curtailed its strategy of building a multi-client data library
in the southern United States. Revenues associated with the underwritten portion
of multi-client data programs are recognized as a component of the data
acquisition revenues discussed above. Revenue from sales of the data library for
2000 were $12.6 million, compared to only $3.5 million for 1999. On March 23,
2001, the Company completed the sale for $15 million cash of a substantial
portion of its multi-client data library in the southern United States,
retaining all of its Canadian multi-client data library as well as several data
surveys in the southern United States. The Company may selectively add to its
remaining data library; however, management will be very selective in its
decision to participate in projects only partially funded by customers.

Revenues in Latin America increased $5.1 million, or 34.0%, from $15.1
million in 1999 to $20.2 million in 2000. During 1999 and 2000, a range of two
to five crews operated in Mexico, Ecuador, Brazil and Colombia; however the
scope and size of 2000 projects were larger than that of 1999. In March 2001,
there were four land acquisition seismic crews operating or mobilizing in this
region.

Revenues from the Far East decreased $3.3 million, or 44.0%, from $7.5
million in 1999 to $4.2 million in 2000. During 1999, the Company operated a
range of one to two crews, primarily in Indonesia, while only one crew operated
in Indonesia through the first half of 2000. In March 2001, there was one
transition zone acquisition seismic crew operating in this region.

Expenses. Direct operating expenses for 2000 decreased $1.8 million, or
3.3%, to $52.7 million (79.6% of revenues) from $54.5 million (82.5% of
revenues) in 1999. The absolute decrease in operating expenses is a result of
reduced operations in the southern United States and a cost reduction program
initiated during the second quarter of 2000. The large decrease in operating
expenses as a percentage of revenues from 1999 to 2000 is primarily due to the
increased amount of multi-client data sale revenues in 2000 with the associated
cost included in depreciation and amortization.

Selling, general and administrative expenses decreased $3.5 million, or
25.9%, to $10.0 million (15.1% of revenues) in 2000 from $13.5 million (20.5% of
revenues) in 1999. The absolute reduction is the result of the Company's effort
beginning during the second quarter of 2000 to reduce support and overhead
personnel in all of its operating regions and at the corporate office level.

Depreciation and amortization increased $0.8 million, or 3.0%, to $26.9
million in 2000 from $26.1 million for 1999. Capital expenditures were $3.5
million and $9.5 million for 2000 and 1999, respectively.

In March 2000, the Company completed the purchase of contractual rights held
by a broker having multiple-year marketing rights for certain of the Company's
multi-client data surveys. For financial reporting purposes, the Company
recorded a non-recurring charge to operations of $3.8 million consisting of the
monetary consideration paid of $3.0 million and the net estimated fair value of
property interests exchanged of $0.8 million.

15

The Company recorded charges for asset impairment of $3.3 million and $5.0
million for 2000 and 1999, respectively. The 2000 and 1999 charges were made to
reduce the carrying value of the Company's multi-client data library to net
realizable value, based on revised future licensing prospects for such data in
view of the ongoing reduced demand for multi-client date in general and the
Company's recent sales experience for such data. The impairment provision during
the quarter ended December 31, 2000 included approximately $2.5 million of book
loss that would have resulted from the March 2001 data sale for $15 million
discussed above. On a quarterly basis, management estimates the residual value
of each survey, and additional amortization is provided if the remaining
revenues reasonably expected to be obtained from any survey are less than the
carrying value of such survey.

Other Income (Expenses). Interest expense, net, decreased $4.4 million from
$12.0 million in 1999 to $7.6 million in 2000. The decrease is primarily due to
Elliott Associates, L.P. ("Elliott") and Elliott International, L.P. (formerly
known as Westgate International, L.P.) ("Elliott International") exchanging
$56,320,000 of 9 3/4% Senior Notes for Convertible Preferred Stock on January
19, 2000.

Tax Provision. The income tax provision consisted of income taxes in foreign
countries for 1999 and 2000. No benefit for United States federal or Canadian
income tax loss carry-forwards was recorded in either period, given the
uncertainty of realization of such tax benefits.

LIQUIDITY AND CAPITAL RESOURCES

The liquidity of the Company should be considered in light of the cyclical
nature of demand for land and transition zone seismic services. These
fluctuations have rapidly impacted the Company's liquidity as supply and demand
factors directly affect pricing.

The Company's ability to meet its debt service and other obligations depends
on its future performance, which in turn is subject to general economic
conditions, activity levels in the oil and gas exploration sector, and other
factors beyond the Company's control. While management believes there has been a
recent improvement in market conditions for seismic services, especially in
Latin America, funds to finance operations are expected to remain limited
through 2002 and may not permit the Company to continue its operations in the
ordinary course. As previously discussed, the Company has in the past relied on
its majority stockholder, Elliott, to provide credit support and interim
funding. Through April 15, 2002, $11.7 million of working capital has been
provided to the Company by Elliott in the form of a factoring arrangement for
certain foreign receivables, which represents the maximum amount allowed under
the agreement (see Note 9).

The Company is currently in default of certain non-financial covenants in
its credit facility (the "Foothill/Elliott Credit Facility"), with Foothill
Capital Corporation ("Foothill") and Elliott. Accordingly, the Company has
classified $17.8 million of otherwise long-term debt as current in the Company's
financial statements for the fiscal year ended December 31, 2001. While
Foothill has not taken any steps to accelerate the maturity of amounts
outstanding under the Foothill/Elliott Credit Facility, it could do so at any
time. Also, Foothill could refuse to advance additional amounts to the Company
under the revolving credit portion of the Foothill/Elliott Credit Facility. If
Foothill were to accelerate amounts due under the Foothill/Elliott Credit
Facility, the trustee under the indenture for the Company's 9 3/4% Senior Notes
due 2008 could take the steps necessary to cause that debt to become
immediately due and payable. Accordingly, the Company has classified $43.5
million of otherwise long-term debt as current in the Company's financial
statements for the fiscal year ended December 31, 2001. If any of the Company's
debt was accelerated, it would be unlikely that the Company would be able to
continue its operations without seeking protection from its creditors under the
federal bankruptcy code.

There are currently no additional committed sources of financing available
to the Company and no availability under existing facilities. Even if business
conditions substantially improve and cost control initiatives are successful
during 2002, the Company will require substantial cash flow to continue
operations on a satisfactory basis, fund capital expenditures and meet its
principal and interest requirements with respect to the 9 3/4% Senior Notes,
Foothill/Elliott Credit Facility and other indebtedness as those amounts become
due.

Management is currently negotiating with Elliott and Foothill to obtain
waivers to loan covenants and to provide additional financing to fund its
operations through 2002. However, there can be no assurance that additional
financing commitments or waivers to loan covenants can be obtained or that the
terms of financing arrangements will be acceptable and the amounts will be
sufficient to meet the company's needs. Additionally, the Company has taken
measures to reduce costs through consolidation of certain locations, resizing
its United States operations to reduced current demand levels, and reductions in
overhead personnel. Should such measures be unsuccessful, and should the Company
not receive waivers from Foothill or get additional support from Elliott, there
would be substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of those uncertainties.

The Company's ongoing capital requirements arise primarily from its need to
service debt, fund cash requirements primarily to support its international
projects and to acquire, maintain or improve equipment. During 2001, $2.0
million was provided by operating activities, a significant decrease from last
year when the Company generated $9.5 million from operating activities. This
decrease in funds generated from operating activities was principally due to a
$5.8 million increase in accounts payable and a $5.2 million increase in
accounts receivable, primarily related to Latin American operations. During
2001, $0.7 million was provided by financing activities. This compares to 2000
when $5.5 million was used in financing activities, which was due to a $5.0
million net reduction of debt. During 2001, $3.3 million was used in investing
activities, primarily due to $5.0 million of capital expenditures, $1.9 million
of which is financed and will be paid in 2002 and beyond. This compares to $3.0
million used in investing activities in 2000, which was due principally to $4.2
million used to fund capital expenditures and multi-client data acquisitions,
offset in part by $1.1 million of asset sales.

The Company has incurred significant operating losses during each of the
past three years and has operated with working capital deficits during this
period. As a result, the Company's capital requirements during 2001 were funded
primarily through $4.9 million in funds provided by Elliott pursuant to a
depository agreement and a factoring arrangement, the $15.0 million cash sale
of a substantial portion of the Company's multi-client data library in the
southern United States, and close management of the Company's accounts
receivable and payables.

16

The Company will need to attain profitable operating levels in order to
provide sufficient cash flow to service its debt, maintain its operations and
fund capital expenditures. While the Company reduced its 2001 operating loss
before giving effect to non-cash charges, the overcapacity in the seismic
service industry and the Company's increasing reliance on international
operations, will require that the Company continue to closely manage its
available cash resources. Because of the high costs associated with equipping
and operating crews outside of North America and the time generally required to
process billings and receive payments, the Company expects to require
significant amounts of liquidity to support its international projects.

In 2001, Elliott advanced approximately $4.9 million to the Company through
a depository agreement and a factoring arrangement, as discussed below, and as
of December 31, 2001, $4.0 million remained outstanding. Already in 2002,
Elliott has advanced an additional $7.7 million to the Company under the
factoring arrangement representing the maximum advance allowed under this
arrangement. The depository agreement was initially entered into by Elliott
and the Company in November 2000, when Elliott made cash deposits aggregating
$1.0 million with the Company to be applied toward the purchase of an undivided
mineral interest and related seismic data in a prospect developed by the
Company during 2000. In January 2001, this depository agreement was amended to
increase the amount to $1.9 million, which has been retired in its entirety as
discussed below. In August 2001, Elliott and the Company entered into a
factoring arrangement for certain foreign receivables, when Elliott advanced
$4.0 million to the Company, which remained outstanding at December 31, 2001.
At March 28, 2002, the amount outstanding under this arrangement was $11.7
million and all amounts become due and payable on September 30, 2002. The
Company does not expect to be able to retire these amounts from its operating
cash flows. In order to avoid a default under this agreement, the Company will
either need to reach an accommodation with Elliott about the payment of these
amounts or obtain additional financing to refinance the amount payable to
Elliott.

In March 2001, the Company sold a substantial portion of its multi-client
data library in the southern United States to a third party seismic data broker
for $15.0 million. The sales proceeds from the March 2001 sale were used to
retire $9.4 million cash advanced by Elliott in 2000 and 2001, including $1.9
million advanced under the depository agreement, plus accrued preferred return
thereon with the balance used to reduce outstanding borrowings under the Credit
Facility. Subsequent to the sale, the Company wrote down the remaining portion
of its multi-client data library to $0.6 million. As a result, the Company does
not expect that any additional potential sales of its multi-client data library
will result in significant amounts of proceeds that can fund operating
activities.

Capital expenditures for 2001 were approximately $5.0 million and were used
primarily to upgrade and expand the Company's seismic data acquisition and
recording equipment. The Company's 2002 business plan contemplates up to $8.3
million of capital expenditures primarily to upgrade and replace seismic data
acquisition and recording equipment. Actual capital expenditures will, however,
be limited to an amount that can be funded from available cash and any
equipment financing provided by manufacturers.

In 2001, the Company also spent approximately $0.4 million on multi-client
data acquisition projects. Initial customer commitments for those projects were
59% of the project costs in 2001. The Company no longer expects to participate
in multi-client data projects where customers do not underwrite substantially
all of the project. Any multi-client acquisition projects will only be
undertaken to the extent the Company has adequate liquidity to service its debt
and fund its other customer projects.

As of December 31, 2001, the Company's had approximately $72.0 million of
indebtedness consisting of $43.5 million principal amount of the Senior Notes,
$20.8 million outstanding borrowings under its credit facility (the "Credit
Facility") with Foothill Capital Corporation and Elliott, $4.0 million payable
under the Elliott factoring arrangement and $3.7 million of loans and
capitalized leases primarily incurred to fund capital expenditures. The
following table summarizes the Company's payment obligations with respect to
these long-term liabilities as well as the Company's operating leases over the
next five years (dollars in thousands):

--------------
(1) See Note 9 of Notes to Consolidated Financial Statements regarding the
classification of the Foothill/Elliott credit facility and the 9 3/4%
Senior Notes.

17

The Company has approximately $134.0 million of debt and preferred stock
outstanding at December 31, 2001. Currently, the Company's highly leveraged
capital structure negatively impacts and will continue to negatively impact its
profitability and operating cash flow. If the Company is not able to
significantly improve its operations or obtain additional financing, either from
Elliott or other sources, a financial restructuring will be required to allow
the Company to be a viable entity on a long-term basis.

EFFECT OF INFLATION

Current economic conditions indicate that the costs of exploration and
production for oil and gas are increasing. The oil and gas industry historically
has experienced periods of rapid cost increases within short periods of time as
demand for drilling rigs, drilling pipe and other materials and supplies
increases. Increases in exploration and production costs over increases in
commodity prices of oil and natural gas could lead to a decrease in such
activities by oil and gas exploration and production companies, which would have
an adverse effect on the demand for the Company's services.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative financial
instrument be recorded in the balance sheet as either an asset or a liability
measured at its fair value, with changes in fair value recognized currently in
earnings. On July 7, 1999, the FASB delayed the effective date of SFAS No. 133
for one year. The delay, published as SFAS No. 137, applies to quarterly and
annual financial statements. SFAS No. 133, as revised by SFAS No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company adopted SFAS 133 on January 1, 2001. Adoption of this
statement did not result in a material impact on the Company's financial
position, results of operations or cash flows.

On December 3, 1999, the United States Securities and Exchange Commission
("SEC") released Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition,
to provide guidance on the recognition, presentation and disclosure of revenue
in financial statements. The Company adopted the provisions of SAB No. 101 on
January 1, 2000. Adoption of this statement did not result in a material impact
or change to the Company's revenue recognition policies.

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Standards ("SFAS") No. 141, "Business Combinations," that
requires all business combinations initiated after June 30, 2001 to be accounted
for as purchases. The Company adopted SFAS No. 141 as required on July 1, 2001.
The adoption did not have a material impact on the Company's financial position
or results of operations.

In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets," requiring that all intangible assets without a contractual
life no longer be amortized but reviewed annually, or as warranted by triggering
events, for impairment in accordance with specific determination and measurement
provisions. The Company has adopted SFAS No. 142 when required to do so on
January 1, 2002; however, goodwill and intangible assets acquired subsequent to
June 30, 2001, were subject immediately to the provisions of this standard. The
Company's amortization expense related to goodwill for the year ending December
31, 2001 was $1.5 million. Due to impairments recorded in 2001, the Company has
no remaining goodwill at December 31, 2001.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" was issued. SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of" and Accounting Principles Board Opinion ("APB") No. 30,
"Reporting the Results of Operations - Reporting the Effects of the Disposal of
a Segment Business and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." SFAS No. 144 establishes a single accounting model for assets
to be disposed of by sale whether previously held and used or newly acquired.
SFAS No. 144 retains the provisions of APB No. 30 for presentation of
discontinued operations in the income statement, but broadens the presentation
to include a component of an entity. SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001,

18

and the interim periods within. The Company has adopted SFAS No. 144 on January
1, 2002 and does not believe that the adoption of SFAS No. 144 will have a
material impact on it's financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

The Company's debt consists of both fixed-interest and variable-interest
rate debt; consequently, the Company's earnings and cash flows, as well as the
fair values of its fixed-rate debt instruments, are subject to interest-rate
risk.

The Company has performed sensitivity analyses to assess the impact of this
risk based on a hypothetical ten-percent increase in market interest rates.
Market rate volatility is dependent on many factors that are impossible to
forecast, and actual interest rate increases could be more severe than the
hypothetical ten-percent increase.

The Company estimates that if prevailing market interest rates had been ten
percent higher throughout 2000 and 2001, and all other factors affecting the
Company's debt remained the same, the operating losses before taxes would have
been increased by $0.5 million in 2000 and in 2001. With respect to the fair
value of the Company's fixed-interest rate debt, if prevailing market interest
rates had been ten percent higher at year-end 2001, and all other factors
affecting the Company's debt remained the same, the fair value of the Company's
fixed-rate debt, as determined on a present-value basis, would have been lower
by approximately $2.7 million at December 31, 2001. Given the composition of
the Company's debt structure, the Company does not hedge its interest rate risk.

CURRENCY RISK

The Company conducts a substantial portion of its business in currencies
other than the U.S. or Canadian dollars, particularly various Latin American
currencies, and its international operations are subject to fluctuations in
foreign currency exchange rates. Accordingly, the Company's international
contracts could be significantly affected by fluctuations in exchange rates.
International contracts requiring payment in currency other than U.S. or
Canadian dollars typically are indexed to inflationary tables and generally are
used for local expenses. The Company attempts to structure the majority of its
international contracts to be billed and paid at a favorable U.S. dollar
conversion rate.

The Company's operating results were negatively impacted by foreign exchange
loss of approximately $1,600,000 and positively impacted by foreign exchange
gains of approximately $48,000 and $351,000 for the years ended December 31,
2001, 2000 and 1999, respectively.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted in a separate section of this report
following the signature page.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

19

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The name, age and current principal position of each director and executive
officer of the Company at April 26, 2002 are as follows:

Executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly elected and qualified. There are no
family relationships between or among any directors or executive officers of the
Company. See "Certain Relationships and Related Transactions" for a description
of certain other relationships between or among directors and executive officers
of the Company.

James Devine has served as a director of the Company and Chairman of the
Board since December 2000. Mr. Devine has been a commercial consultant to the
oil and gas industry since 1996. He served as Corporate Vice President and
General Counsel of Colflexip Stena Offshore Group, S.A. from 1994 to 1996. Mr.
Devine has served as Chairman of the Board of Directors of Horizon Offshore,
Inc., an offshore marine construction company, since October 1999.

Richard F. Miles has served as President, Chief Executive Officer (CEO) and
director of the Company since February 2001. Mr. Miles served as Executive Vice
President of Sercel Inc. from December 15, 1999 until January of 2001 after
GeoScience/Syntron was merged with CGG/Sercel. Prior to the merger, Mr. Miles
was Chairman, President and CEO of Syntron, Inc., which he joined in January
1990. Syntron was a provider of geophysical acquisition equipment, and a
subsidiary of GeoScience, of which Mr. Miles was also President and CEO from its
formation in 1996 until the merger in December 1999. GeoScience, with its other
subsidiaries, Cogniseis and Symtronix, provided data loading, formatting
services and data processing and interpretation software for the oil exploration
industry. Prior to 1990, Mr. Miles was involved in seismic data acquisition and
processing in various management positions with continually increasing positions
of responsibility.

Russell P. Dueck has served as Chief Financial Officer of the Company since
February 2002. For the past 6 years, Mr. Dueck has been employed by the
Company's subsidiary, Solid State Geophysical, in various management positions,
most recently as Vice President - Finance. Prior to joining Solid State, Mr.
Dueck was employed in the upstream, downstream and marketing areas of the oil &
gas industry in Calgary. Mr. Dueck is a Certified Management Accountant in
Canada.

Narciso M. Chiquillo has served as Vice President - Latin America since
August 1999. For the previous 10 years, Mr. Chiquillo was employed with the
Company with varying levels of increasing management responsibility for Latin
American operations.

William H. Freeman has served as Treasurer since February 2000. For the
previous 6 years, Mr. Freeman was employed by the Company in various financial
management positions of increasing responsibility. He was an Area Controller for
Halliburton Geophysical prior to joining Grant. Mr. Freeman is a Certified
Public Accountant.

Jonathan D. Pollock has served as a director of the Company since September
30, 1997 and as Chairman of its Board of Directors from September 1997 until
April 1998. Mr. Pollock has served for more than five years as a Portfolio
Manager with Elliott Management Corporation. Mr. Pollock is also a director of
Prime Natural Resources, Inc., a director of Horizon Offshore, Inc., and
Chairman of the Board of Odyssea Marine, Inc.

20

ITEM 11. EXECUTIVE COMPENSATION.

The following table summarizes information concerning the compensation of
the Company's Chief Executive Officer and all other executive officers for 2001
(the "Named Executive Officers"). No bonuses or restricted stock awards were
awarded for 2001.

SUMMARY COMPENSATION TABLE

- ----------

(1) Mr. Miles' employment as President and Chief Executive Officer began in
February 2001.

(2) Mr. Easley's employment as Executive Vice President - Finance and
Administration began in February 2000 and terminated in February 2002.

The following table sets forth additional information with respect to stock
options granted in 2001 under the Company's Incentive Plan to the Named
Executive Officers. No stock appreciation rights were granted in 2001.

OPTION GRANTS IN 2001

The following table sets forth information with respect to the unexercised
options to purchase shares of common stock which were granted in 2001 or a prior
year under the Company's 1997 Equity and Performance Incentive Plan to the Named
Executive Officers and held by them at December 31, 2001. None of the Named
Executive Officers exercised any stock options during 2001.

AGGREGATED OPTION EXERCISES IN 2001
AND 2001 YEAR-END OPTION VALUES

21

- ----------

(1) There is no trading market for the Common Stock.

(2) Options have lapsed pursuant to terms of Plan due to termination.

EMPLOYMENT AGREEMENTS

Effective February 7, 2000, the Company entered into an employment agreement
with Thomas L. Easley, pursuant to which Mr. Easley agreed to serve as Executive
Vice President -- Finance & Administration of the Company. Mr. Easley's
employment agreement had an initial term through February 7, 2002, and provided
for an annual base salary of $225,000. Mr. Easley also agreed not to compete
against the Company throughout the term of his employment and for two years
thereafter, and not to disclose any confidential information during and after
the term of his employment. Mr. Easley's employment terminated in February 2002
and the Company has satisfied its obligation under the employment agreement by
making payments to Mr. Easley through the initial term of the agreement.

Effective February 5, 2001, the Company retained Richard F. Miles to serve
as President and Chief Executive Officer of the Company for an annual base
salary of $250,000. The Company entered into an agreement effective August 1,
2001 with Mr. Miles. The agreement has an initial term through July 31, 2004
provided, however, that on August 1 of each year, commencing August 1, 2003, the
agreement is automatically renewed for successive one-year periods unless either
party provides the other with written notice of non-renewal prior to June 30 of
that year. Mr. Miles also agreed not to compete against the Company throughout
the term of his employment and for one year thereafter, and not to disclose any
confidential information during and after the term of his employment.

1997 EQUITY AND PERFORMANCE INCENTIVE PLAN

The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Incentive Plan currently provides for issuance of 2,750,000
shares. The Incentive Plan provides for the grant to officers (including
officers who are also directors), employees, consultants and non-employee
directors of Grant and its subsidiaries. These individuals may be granted awards
of "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, non-statutory stock options, stock appreciation rights and
restricted shares and deferred shares of Grant common stock.

The Board of Directors, or a committee of the Board of Directors consisting
of at least two non-employee directors, is required to administer the Incentive
Plan. The Board of Directors currently administers the Incentive Plan and
decides to whom awards may be granted, the type of award to be granted and
determine, as applicable, the number of shares to be subject to each award, the
exercise price and the vesting. In making such determinations, the Board of
Directors will take into account the employee's present and potential
contributions to the Company's success and other relevant factors. As of
December 31, 2001, the Board of Directors had granted outstanding awards
covering 2,342,400 shares. In addition, as of March 28, 2002, a total of 57,000
restricted shares (36,000 in 1998, 18,000 in 1999, and 3,000 in 2000) were
granted to non-employee directors, with 54,000 of such shares being
unrestricted, subject to the satisfaction of conditions set forth under the
Incentive Plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at March 28, 2002 by (i) each person
known to the Company to own beneficially more than 5% of the outstanding shares
of the Common Stock, (ii) each current director and executive officer and (iii)
all current executive officers and directors as a group, including persons
deemed to share voting and investment power.

22

- ----------

* Less than 1%.

(1) Paul E. Singer and Elliott Capital Advisors L.P., which is controlled by Mr.
Singer, are the general partners of Elliott. The business address of Elliott
is 712 Fifth Avenue, 36th Floor, New York, New York 10019.

(2) Hambledon, Inc., which is controlled by Mr. Singer, is the sole general
partner of Elliott International. Elliott Capital Advisors, Inc., which is
controlled by Mr. Singer, is the investment manager for Elliott
International. Hambledon, Inc. and Elliott Capital Advisors expressly
disclaim beneficial ownership of any shares of Common Stock. The business
address of Elliott International is c/o Midland Bank Trust Corporation
(Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands,
British West Indies.

(3) Includes 13,242,834 shares that could be obtained through conversion of its
397,285 shares of 8% convertible preferred stock.

(4) Includes 7,431,067 shares that could be obtained through conversion of its
222,932 shares of 8% convertible preferred stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On March 22, 2001, the Company completed modification of the Loan and
Security Agreement with Foothill and Elliott whereby the credit facility was
modified and extended through May 11, 2005. On June 28, 2001, the Company
completed further modifications to the Foothill/Elliott Credit Facility whereby
the credit facility was decreased from $29.0 million to $28.0 million by means
of decreasing the original commitment under the term loan. The original term
loan of $11.5 million, which had been reduced through periodic payments to $6.1
million, was increased to an outstanding balance of $10.5 million. Additional
modifications were made to the agreement to revise the payback period on the
Foothill term loan. Under the amended agreement, the final principal payment on
the term loan will be made in January 2005. At December 31, 2001, $7.5 million
and $9.3 million were outstanding under the Elliott term loan and the Foothill
term loan, respectively, and $4.1 million was outstanding under the Foothill
revolving credit line. Based on the Company's borrowing base at December 31,
2001, these amounts represent the maximum amount then allowable at such date
under the respective facilities.

In August 2000, the Company entered into an agreement with Elliott to
assign, from time to time, a net revenue interest in certain geological and
geophysical data included in the U.S. multi-client data library for an amount up
to $7.5 million. Proceeds from net revenue interest sales, together with a
computed preferred return of 1% per month are payable from future sales of
multi-client data. In November 2000, the Company entered into a depository
agreement with Elliott whereby Elliott made cash deposits aggregating $1,000,000
with an amendment in January 2001 to increase the amount to $1,850,000 with the
Company to be applied toward the purchase of an undivided mineral interest and
related seismic data in a prospect developed by the Company during 2000. These
obligations were fully paid on March 23, 2001 from a portion of the proceeds
from the sale of a substantial portion of the Company's multi-client data
library in the southern United States.

On August 3, 2001, the Company completed an agreement with Elliott
International, L.P. for the sale, with recourse retained, of certain of its
foreign accounts receivable. The agreement allows the Company to sell, at its
election, both billed and unbilled receivables arising out of data acquisition
and processing services rendered by Grant's branch operations in Ecuador and
Colombia. The maximum amount available for Elliott International L.P. to
purchase was $4.0 million and the agreement extended through February 2002, with
all repayments to Elliott required by that time. As of December 31, 2001, the
company's obligation under the agreement was $4.0 million. The agreement was
amended on January 7, 2002 to increase the maximum amount available under the
agreement to $5.25 million and to extend the agreement through September 30,
2002 with all payments required by that time.

23

Additional amendments were completed February 5, 2002, March 5, 2002 and March
21, 2002 to increase the maximum amount available under the agreement to $7.5
million, $10.9 million, and $11.7 million, respectively. Additionally, the
March 21, 2002 amendment expanded the scope of the agreement to include
receivables for all of the Company's South American locations (see Note 21). As
of March 28, 2002, $11.7 million was outstanding under the agreement.

During 2001, the Company performed data acquisition and processing services
for an affiliated oil and gas exploration and production company, Prime Natural
Resources, Inc. Revenues for these services were approximately $1.5 million for
2001 and related accounts receivables outstanding at December 31, 2001 was $0.2
million. In 2001, the Company sold a license in one of its multi-client data
library surveys to Prime Natural Resources, Inc. for $0.2 million. Management of
the Company believes such operations were conducted under terms and conditions
at least as favorable to the Company as could have been obtained from
third-party customers.

During 2001, payment in kind stock dividends aggregating 30,254 shares and
16,977 shares of Convertible Preferred Stock were issued to Elliott and Elliott
International, respectively.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following financial statements are filed as part of this report:

1. Financial Statements

2. Financial Statement Schedules

Other schedules have not been included because they are not applicable,
immaterial or the information has been included in the financial statements or
notes thereto.

3. Exhibits

See Index to Exhibits on page 50. The Company will furnish to any eligible
stockholder, upon written request, a copy of any exhibit listed, upon payment of
a reasonable fee equal to our expenses in furnishing such exhibit.

(b) Reports on Form 8-K:

None

24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 3rd day of
May 2002.

GRANT GEOPHYSICAL, INC.

By: /s/ RICHARD F. MILES
--------------------------------------------
Richard F. Miles
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 3rd day of May 2002.

25

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Grant Geophysical, Inc.:

We have audited the accompanying consolidated balance sheets of Grant
Geophysical, Inc. and subsidiaries (a Delaware corporation) as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Grant Geophysical, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has experienced recurring
losses for the past several years and these losses are continuing into 2002.
Additionally, the Company has a stockholders' deficit, negative working capital
and is currently in default of certain non-financial covenants with respect to
its Foothill/Elliott Credit Facility. There are no additional commitments to
provide financing in place at this time. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.

Arthur Andersen LLP

Houston, Texas
May 3, 2002

26

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Grant Geophysical, Inc.

In our opinion, the accompanying consolidated statements of operations, of
stockholders' equity (deficit) and of cash flows for the year ended December 31,
1999 present fairly, in all material respects, the results of operations and
cash flows of Grant Geophysical, Inc. and its subsidiaries for the year ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 29, 2000

27

GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See accompanying notes to consolidated financial statements.

28

GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes to consolidated financial statements

29

GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

See accompanying notes to consolidated financial statements

30

GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

SEE NOTE 19 FOR SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements

31

GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) INDUSTRY CONDITIONS/LIQUIDITY/GOING CONCERN

The liquidity of the Company should be considered in light of the cyclical
nature of demand for land and transition zone seismic services. These
fluctuations have rapidly impacted the Company's liquidity as supply and demand
factors directly affect pricing.

The Company's ability to meet its debt service and other obligations depends
on its future performance, which in turn is subject to general economic
conditions, activity levels in the oil and gas exploration sector, and other
factors beyond the Company's control. While management believes there has been a
recent improvement in market conditions for seismic services, especially in
Latin America, funds to finance operations are expected to remain limited
through 2002 and may not permit the Company to continue its operations in the
ordinary course of business. As previously discussed, the Company has in the
past relied on its majority stockholder, Elliott, to provide credit support and
interim funding. Through April 15, 2002, $11.7 million of working capital has
been provided to the Company by Elliott in the form of a factoring arrangement
for certain foreign receivables, which represents the maximum amount allowed
under the agreement (see Note 9).

The Company is currently in default of certain non-financial covenants in
its credit facility (the "Foothill/Elliott Credit Facility"), with Foothill
Capital Corporation ("Foothill") and Elliott. Accordingly, the Company has
classified $17.8 million of otherwise long-term debt as current in the Company's
financial statements for the fiscal year ended December 31, 2001. While Foothill
has not taken any steps to accelerate the maturity of amounts outstanding under
the Foothill/Elliott Credit Facility, it could do so at any time. Also, Foothill
could refuse to advance additional amounts to the Company under the revolving
credit portion of the Foothill/Elliott Credit Facility. If Foothill were to
accelerate amounts due under the Foothill/Elliott Credit facility, the trustee
under the indenture for the Company's 9 3/4% Senior Notes due 2008 could take
the steps necessary to cause that debt to become immediately due and payable.
Accordingly, the Company has classified $43.5 million of otherwise long-term
debt as current in the Company's financial statements for the fiscal year ended
December 31, 2001. If any of the Company's debt was accelerated, it would be
unlikely that the Company would be able to continue its operations without
seeking protection from its creditors under the federal bankruptcy code.

There are currently no additional committed sources of financing available
to the Company and no availability under existing facilities. Even if business
conditions substantially improve and cost control initiatives are successful
during 2002, the Company will require substantial cash flow to continue
operations on a satisfactory basis, fund capital expenditures and meet its
principal and interest requirements with respect to the 9 3/4% Senior Notes,
Foothill/Elliott Credit Facility and other indebtedness as those amounts become
due.

The Company has incurred significant operating losses during each of the
past three years and has operated with working capital deficits during this
period. As a result, the Company's capital requirements during 2001 were funded
primarily through $4.9 million in funds provided by Elliott pursuant to a
depository agreement and a factoring arrangement, the $15.0 million cash sale
of a substantial portion of the Company's multi-client data library in the
southern United States, and close management of the Company's accounts
receivable and payables.

The Company will need to attain profitable operating levels in order to
provide sufficient cash flow to service its debt, maintain its operations and
fund capital expenditures. While the Company reduced its 2001 operating loss
before giving effect to non-cash charges, the overcapacity in the seismic
service industry and the Company's increasing reliance on international
operations, will require that the Company continue to closely manage its
available cash resources. Because of the high costs associated with equipping
and operating crews outside of North America and the time generally required to
process billings and receive payments, the Company expects to require
significant amounts of liquidity to support its international projects.

The Company has approximately $134.0 million of debt and preferred stock
outstanding at December 31, 2001. Currently, the Company's highly leveraged
capital structure negatively impacts and will continue to negatively impact its
profitability and operating cash flow. If the Company is not able to
significantly improve its operations or obtain additional financing, either from
Elliott or other sources, a financial restructuring will be required to allow
the Company to be a viable entity on a long-term basis.

Management is currently negotiating with Elliott and Foothill to obtain
waivers to loan covenants and to provide additional financing to fund its
operations through 2002. However, there can be no assurance that additional
financing commitments or waivers to loan covenants can be obtained or that the
terms of financing arrangements will be acceptable and the amounts will be
sufficient to meet the company's needs. Additionally, the Company has taken
measures to reduce costs through consolidation of certain locations, resizing
its United States operations to reduced current demand levels, and reductions in
overhead personnel. Should such measures be unsuccessful, and should the Company
not receive waivers from Foothill or get additional support from Elliott, there
would be substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of those uncertainties.

(2) BASIS OF PRESENTATION

Grant Geophysical, Inc., a Delaware corporation (together with its
subsidiaries, "Grant," or the "Company"), is a provider of seismic data
acquisition services in land and transition zone environments in selected
markets, including the United States, Canada, Latin America, the Middle East and
the Far East. Through its predecessors, including GGI Liquidating Corporation
("GGI"), and its acquired subsidiary, Solid State Geophysical, Inc. ("Solid
State"), together with their respective subsidiaries, the Company has
participated in the seismic data acquisition services business in the United
States, Canada, Latin America, the Far East, the Middle East, and Africa.

On December 6, 1996 (the "Petition Date"), GGI filed for protection under
the United States Bankruptcy Code and began its reorganization under the
supervision of the Bankruptcy Court. The reorganization was precipitated by
several factors, including overly rapid and under-financed expansion in the
United States and Latin American markets, costs related to the development of a
proprietary data recording system and poor operational results in the United
States and certain international markets. These factors impaired GGI's ability
to service its indebtedness, finance its existing capital expenditure
requirements and meet its working capital needs. In addition, GGI was unable to
raise additional equity, causing a disproportionate reliance on debt financing
and equipment leasing. In connection with the reorganization, GGI replaced its
senior management, disposed of unprofitable operations and developed the plan of
reorganization (the "Plan"), which was consummated on September 30, 1997 (the
"Effective Date") with the purchase by Grant of substantially all of the assets
and the assumption of certain liabilities of GGI. GGI is currently in
liquidation and will distribute all of its assets pursuant to the Plan. Upon the
completion of its asset distribution, GGI will dissolve and cease to exist.

On the Effective Date, in connection with the Plan, Grant, which was
formerly known as Grant Acquisition Corporation, acquired substantially all of
the assets and assumed certain liabilities of GGI, which was formerly known as
Grant Geophysical, Inc., Elliott and Elliott International owned 84.6% of the
issued and outstanding common stock of Grant at December 31, 2000 and 2001.
Elliott International owned all of the preferred stock that was outstanding in
1998. This preferred stock was redeemed on June 5, 1998 and all authorized
shares have been canceled. Elliott owned all of the outstanding shares of the 8%
Exchangeable Preferred Stock at December 31, 1999. The general partners of
Elliott are Paul E. Singer and Elliott Capital Advisors, L.P. The general
partner of Elliott International is Hambledon, Inc., a corporation controlled by
Mr. Singer. Elliott and Elliott International are each managed by Elliott
Management Corporation (formerly Stonington Management Corporation), a
corporation controlled by Mr. Singer. For financial statement purposes, the
purchase of GGI's assets by Grant was accounted for as a purchase acquisition.
The purchase price was allocated between the fair value of the GGI assets
purchased and liabilities assumed, and Grant recorded goodwill of approximately
$21.3 million. The effects of the acquisition are reflected in Grant's assets
and liabilities as of the effective date.

The acquisition of Solid State by Grant during the fourth quarter of 1997
occurred in two parts: the initial acquisition of a majority interest accounted
for as a purchase and the acquisition of the minority interest. As of September
30, 1997 the Principal Stockholders owned a controlling interest in both Solid
State (approximately 64%) and Grant (100%). As such, at that date, the Principal
Stockholders were deemed to have transferred their ownership in Solid State to
Grant. The acquisition of the majority interest in Solid State was accounted for
as an exchange of ownership interests between entities under common control, and
the assets and liabilities of Solid State were transferred to Grant's Financial
Statements at historical cost in a manner similar to a pooling-of-interests. The
acquisition of the unaffiliated minority interest began in November 1997 when
Grant initiated a tender offer (the "Tender Offer") for all the outstanding
common shares of Solid State not held by Grant. In connection with the Tender
Offer, the Principal Stockholders transferred their ownership of Solid State to
Grant and agreed to loan Grant $15.8 million to pay for the shares tendered in
the Tender Offer. The Tender Offer expired on December 19, 1997 and the
acquisition was completed on December 23, 1997, after which Solid State became a
wholly owned subsidiary of Grant. The acquisition of the unaffiliated minority
interest in Solid State was accounted for as a purchase, resulting in
approximately $15.3 million in goodwill.

As a result of the aforementioned transactions, Grant's consolidated balance
sheets as of December 31, 2000 and December 31, 2001 and statements of
operations and cash flows for years ended December 31, 1999, 2000 and 2001 are
presented using the basis of accounting discussed above.

32

Grant purchased, effective July 1, 1998, all of the outstanding partnership
interests in Interactive Seismic Imaging ("ISI"), a seismic data processing
company, for $3.6 million in cash. Grant had been a 10% owner of ISI since its
formation in 1994, and subsequent to the July 1 acquisition, Grant integrated
the ISI operation into its domestic operational entity.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and all of their respective majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.

Revenues

Revenue from non-cancelable exclusive and non-exclusive seismic surveys is
recognized in accordance with the percentage of completion method of accounting
based upon costs incurred as a percentage of total estimated costs. Revenue from
cancelable exclusive seismic surveys is recognized in accordance with
contractual milestones then chargeable to the customer in accordance with
contract terms. Anticipated losses on survey contracts are recognized when such
losses are determinable. The impact of applying SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition," was not material to the results of operations.

Revenue from the licensing of multi-client data surveys is recognized upon
issuance of license when the Company obtains a non-cancelable commitment from
the customer.

Revenue from the Company's data processing services is recognized as the
services are performed.

Cash and Cash Equivalents

For purposes of the consolidated statement of cash flows, all highly liquid
investments with an original maturity of three months or less are considered to
be cash equivalents. Such investments totaled $46,000 and $0 at December 31,
2000 and 2001, respectively.

Restricted Cash

At December 31, 2000 and 2001, restricted cash included certificates of
deposit totaling $17,000, which were pledged as collateral for letters of
credit.

Allowance for Doubtful Accounts

A reconciliation of the allowance for doubtful accounts is provided below
(in thousands).

33

Inventories

Inventories, which consist primarily of miscellaneous supplies, are stated
at the lower of cost or market. Cost is determined using the specific
identification method.

Prepaids

Prepaid expenses are recognized over the period in which benefits are
obtained from the expenditure.

Work in Process

Expenses related to the work in progress of seismic crews are deferred and
recognized over the performance of the contract.

Mobilization Cost

Transportation and other direct expenses incurred prior to commencement of
geophysical operations in an area, that would not have been incurred otherwise,
are deferred and amortized over either the lesser of the term of the related
contract or backlog of contracts in that area, or one year.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are stated at the present value of future minimum lease payments
at the inception of the lease.

Depreciation is provided principally by the straight-line method over the
estimated useful lives of the various classes of assets as follows:

Plant and equipment held under capital leases are amortized by the
straight-line method over the shorter of the lease term or estimated useful life
of the asset. Expenditures for maintenance and repairs are charged to
operations. Betterments and major renewals are capitalized. Amortization of
assets recorded under capital leases is included with depreciation and
amortization expense.

Multi-Client Data Library

The costs incurred in acquiring and processing multi-client seismic data
owned by the Company are capitalized. During the twelve-month period beginning
at the completion of the acquisition and processing of each multi-client survey,
costs are amortized based on revenues from such survey (inclusive of
underwriting fees) as a percentage of total estimated revenues to be realized
from such survey. Thereafter, amortization of remaining capitalized costs is
provided at the greater of the percentage of realized revenues to total
estimated revenues or straight line over four years. Amortization expense
associated with the Company's multi-client data library was $5.8 million and
$18.4 million for the years ended December 31, 2000 and 2001, respectively. As
of December 31, 2000 and 2001, accumulated amortization related to the Company's
multi-client data library was $10.6 million and $29.0 million, respectively.

On a quarterly basis, management estimates the residual value of each
survey, and additional amortization is provided if the remaining revenues
reasonably expected to be obtained from any survey or group of surveys are less
than the carrying value of such survey or group of surveys (see Note 4).

Asset Impairment

In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", long-lived assets and certain identifiable intangibles are
written down to their current fair value whenever events or changes in
circumstances indicate that the carrying amounts of these assets are not
recoverable through future undiscounted cash flows. These events or changes in
circumstances may include but are not limited to a significant change in the
extent to which an asset is used, a significant decrease in the market value of
the asset, or a projection or forecast that demonstrates continuing losses
associated with an asset. If an impairment is determined, the asset is written
down to its current fair value and a loss is recognized (see Note 4).

34

Goodwill

Goodwill, representing the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited. Accumulated amortization was approximately $4.7 million and
$6.2 million as of December 31, 2000 and 2001, respectively. The Company
assesses the recoverability of this intangible asset by determining whether the
goodwill balance is expected to be recovered through undiscounted future
operating cash flows of the acquired operation over the remaining estimated life
of the goodwill. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflective of Grant's estimated average cost of capital. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved. Based on the fourth quarter 2001 assessment, the
remaining net book value of the goodwill created in the purchase of GGI's
assets, previously being amortized over 30 years, the goodwill created in the
acquisition of Solid State's minority interest, previously being amortized over
20 years and the goodwill created in the purchase of the remaining interest in
ISI, previously being amortized over 30 years, was fully impaired during 2001
(see Note 4).

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

The more significant areas requiring the use of management estimates relate
to estimated future net cash flows related to long-lived assets, valuation
allowances for deferred tax assets and expected future sales associated with the
Company's multi-client data library. Actual results could differ materially from
these estimates making it reasonably possible that a change in these estimates
could occur in the near term.

Foreign Exchange Gains and Losses

The United States ("U.S.") dollar is the Company's primary functional
currency in all foreign locations with the exception of its Canadian
subsidiaries. Accordingly, those foreign entities (other than Canada) translate
property and equipment (and related depreciation) and inventories into U.S.
dollars at the exchange rate in effect at the time of their acquisition while
other assets and liabilities are translated at year-end rates. Operating results
(other than depreciation) are translated at the average rates of exchange
prevailing during the year. Re-measurement gains and losses are included in the
determination of net income and are reflected in other income (expense). The
Canadian subsidiaries use the Canadian dollar as their functional currency and
translate all monetary assets and liabilities at year-end exchange rates and
operating results at average exchange rates prevailing during the year.
Adjustments resulting from the translation of Canadian assets and liabilities
are recorded in the accumulated other comprehensive loss account in
stockholders' equity (deficit).

Income Taxes

Under the asset and liability method required by SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company considers the undistributed
earnings of its foreign subsidiaries to be permanently reinvested. The Company
has not provided deferred U.S. income tax on those earnings to the extent such
earnings are either remitted or deemed remitted as dividends or if the Company
should sell its stock in these foreign subsidiaries.

Income (Loss) Per Common Share

In accordance with SFAS No. 128, "Earnings per Share," basic income (loss)
per common share is computed based upon the weighted average number of common
shares outstanding during each period without any dilutive effects considered.
Diluted income (loss) per common share reflects dilution for all potentially
dilutive securities, including warrants and convertible securities. The income
(loss) is adjusted for cumulative preferred stock dividends in calculating net
income (loss) attributable to common shareholders.

35

Stock-Based Compensation

As allowed by SFAS No. 123, "Accounting of Stock Based Compensation" the
Company has elected to continue to follow the accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," whereby compensation expense is recognized only in situations where
stock compensation plans award intrinsic value to recipients at the date of
grant, rather than following the fair value method of SFAS No. 123. Pro forma
disclosure of the estimated effects on net income (loss) and income (loss) per
common share had the fair value method prescribed by SFAS No. 123 been followed
is included in Note 12.

Segment Information

The Company follows the provisions of SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The management approach
required by SFAS No. 131 designates the internal organization used by management
for making operating decisions and assessing performance as the basis for
determining the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
(see Note 5).

Reclassifications

Certain amounts previously reported have been reclassified to conform to
current year financial statement presentation.

36

(4) CHARGE FOR ASSET IMPAIRMENT

In the third and fourth quarters of 1999, the Company wrote down certain
multi-client data surveys in the amounts of $4.7 million and $0.3 million,
respectively.

In the fourth quarter of 2000, the Company wrote down certain multi-client
data surveys in the amount of $3.3 million to reflect estimated recoverable
value. This impairment position included approximately $2.2 million of book loss
that resulted from the March 2001 data sale for $15.0 million cash (see Note 5).

In the third and fourth quarters of 2001, the Company wrote down certain
multi-client data surveys in the amounts of $97,000 and $746,000, respectively.
Additionally, the Company wrote down the remaining net book value of the
goodwill created in the purchase of GGI's assets, in the acquisition of Solid
State's minority interest and in the purchase of the remaining interest in ISI
in the amounts of $18.0 million, $11.3 million and $2.0 million respectively, in
December 2001. Finally, the Company wrote-down certain of its fixed assets in
the amount of $6.4 million.

The multi-client data survey impairments in 1999, 2000 and 2001 were due to
revised estimates of future licensing prospects for such data due to reduced
interest in the area by oil and gas companies and depressed exploration
activities in the oil and gas exploration and production industry sector. The
impairment of goodwill in 2001 resulted from revised estimates of projected
discounted future operating cash flows due to depressed exploration activity
resulting in decreased demand for the Company's data acquisition and data
processing services in the United States and Canada. The impairment of fixed
assets in 2001 was due to technological obsolescence of certain of the Company's
assets.

(5) SEGMENT INFORMATION

Grant has determined that its reportable segments are those based on the
Company's method of internal reporting, which disaggregates its one
product/service line (geophysical services) into four geographic regions: the
United States, Canada, Latin America and the Far East.

The accounting policies of the segments are the same as those described in
Note 3 - Summary of Significant Accounting Policies for Segment Information.
Grant evaluates the performance of its segments and allocates resources to them
based on operating income (loss). There are no intersegment revenues.

The tables below present information about the Company's reported segments
for the periods indicated (dollars in thousands):

37

Revenues and identifiable assets by country are as follows as of and for the
periods indicated (dollars in thousands):

During 1999, the Company did not derive more than 10% of its revenue from
any single customer. For the year 2000, revenues from two oil companies were
approximately $10.1 million (15%) and $9.7 million (15%). During 2001, revenues
from two oil companies were approximately $15.7 million (17%) and $14.8 million
(16%).

(6) MULTI-CLIENT DATA SALE

On March 23, 2001, the Company completed the sale of a substantial portion
of its multi-client data library, and ongoing rights thereto, in the southern
United States for $15,000,000 cash to a third party seismic data broker,
retaining all of its Canadian multi-client data library as well as several data
surveys in the southern United States. The sales proceeds were utilized to
retire cash advanced in 2000 and 2001 by Elliott amounting to $9,350,000 plus
accrued preferred return thereon with the remaining balance used to reduce
borrowings outstanding under the Company's revolving credit facility. The sales
proceeds of $15,000,000 were recorded as revenues with a corresponding charge to
amortization in the same amount for the year ended December 31, 2001. In view of
this sale, as well as other multi-client data library sales completed subsequent
to December 31, 2000, $16,678,000 of cost basis in the multi-client data library
was classified in current assets at December 31, 2000 in the accompanying
consolidated balance sheet. Revenues from aggregate sales of multi-client data
were $20,432,000 and amortization of related costs were $18,386,000 for the year
ended December 31, 2001.

(7) PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment follows:

38

Depreciation expense on property, plant and equipment for the years ended
December 31, 1999, 2000 and 2001 was $21.3 million, $19.6 million and $15.9
million, respectively. Additionally, effective January 1, 2002, the Company has
extended the useful lives of certain of its assets to properly match the
depreciation expense with the future revenues expected to be obtained from the
assets. (See Note 21). The 2002 impact on depreciation expense resulting from
the asset life extensions will be a reduction of approximately $750,000.

(8) INCOME TAXES

The amounts of income (loss) before income taxes attributable to domestic
and foreign operations follow (dollars in thousands):

The components of income tax expense follow (dollars in thousands):

The total income tax expense (benefit) is different from the amount computed
by applying the U.S. Federal income tax rate to income before income taxes. The
reasons for these differences were as follows (dollars in thousands):

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (dollars in thousands):

39

A valuation allowance is established when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
valuation allowance is then adjusted when the realization of deferred tax assets
becomes more likely than not. Adjustments are also made to recognize the
expiration of net operating loss carryforwards, with equal and offsetting
adjustments to the related deferred tax asset. The increase in the valuation
allowance during 2000 and 2001 of approximately $10,019,000 and $9,677,000,
respectively, resulted primarily from current period net operating losses.

As of December 31, 2001, Grant has U.S. ($79,060,287) and non-U.S.
($13,706,950) net operating loss carryforwards of approximately $92,767,237.
Such tax loss carryforwards expire in varying amounts during the periods from
2002 through 2015, except for $1,876,513 of the non-U.S. loss which has an
indefinite carryforward period.

Internal Revenue Service regulations restrict the utilization of U.S. net
operating loss carryforwards and other tax benefits for any company in which an
"ownership change" (as defined in Section 382 of the Internal Revenue Code) has
occurred. Grant has concluded that two "ownership changes" have occurred. The
first occurred in connection with the GGI reorganization on September 30, 1997.
The utilization of GGI's U.S. net operating loss carryforwards existing at this
date is limited to approximately $704,000 per year. The second "ownership
change" occurred on December 30, 1997 as a result of the reorganization of Solid
State. The utilization of Solid State's U.S. net operating losses at this date
is limited to approximately $125,000 per year.

(9) DEBT AND OTHER FINANCINGS

A summary of notes payable, long-term debt, and capital lease obligations
was as follows (dollars in thousands):

On October 1, 1997, Grant and Elliott entered into a credit facility (the
"Credit Facility") providing for a revolving loan facility under which Grant
could borrow up to an aggregate principal amount of $5 million. On December 18,
1997, the credit facility was amended to provide for a term loan of $15.8
million in addition to the revolving loan. The proceeds of the term loan were
used by Grant to purchase all of the stock of Solid State not already owned by
Grant (see Note 2). This original credit facility was due to expire on March 31,
1999, at which time all obligations of Grant under the credit facility were due
and payable. In connection with the redemption of the cumulative pay-in-kind
preferred stock, par value $.001 per share ("Preferred Stock") (see Note 14),
held by Elliott International (formerly Westgate International L.P.
("Westgate")), Elliott agreed to amend the Credit Facility on June 5, 1998 to
increase the maximum borrowing capacity from $5 million to $15 million and to
extend the term of the facility from March 31, 1999 to March 31, 2000. In April
1999, the Credit Facility was further extended to $20 million. The loans under
the Credit Facility were collateralized by all of Grant's assets and a pledge by
Grant of certain notes and all the outstanding shares of capital stock of its
subsidiaries. Each subsidiary of Grant executed a guaranty in favor of Elliott,
each of which guaranteed payment of all Grant's obligations owed to Elliott
under the Credit Facility. Each subsidiary pledged its assets in favor of
Elliott to secure its obligations under its respective guaranty. The Credit
Facility contained restrictions which, among other things, prohibited Grant's
right to pay dividends and limited its right to borrow money, purchase fixed
assets or engage in certain types of transactions without the consent of the
lender. The $15.8 million term loan was paid in full on February 18, 1998 with
the proceeds of the Senior Notes (See below). At December 31, 1998, the Company
was in technical violation of a covenant in the Credit Facility which limited
the capital expenditures for any one year to a maximum of $14 million. The
Company obtained

40

from Elliott a consent and waiver to the default, effective December 31, 1998.
In addition, the Credit Facility limits the Company from taking, without the
consent of the lender, certain actions, including creating indebtedness in
excess of specified amounts and declaring and paying dividends.

On May 11, 1999, the Company entered into a Loan and Security Agreement (the
"Foothill/Elliott Credit Facility") with Foothill Capital Corporation and
Elliott (collectively the "Lenders"), pursuant to which the Company could borrow
up to $6.0 million through a revolving facility and up to $19.0 million through
two term loans. Proceeds were used to repay all of the Company's outstanding
indebtedness to Elliott ($14.8 million) and to provide additional liquidity and
working capital to support the Company's operations. The Foothill/Elliott Credit
Facility imposes certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, incur liens,
pay dividends or make other distributions in cash or certain property,
consummate certain asset sales, enter into certain transactions with affiliates,
merge or consolidate with any other persons or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of the
Company or its subsidiaries, make investments (as defined in the
Foothill/Elliott Credit Facility) and maintain a minimum EBITDA (earnings before
interest, tax, depreciation and amortization) level. The interest rate on the
loans is 1.5% over prime with a minimum interest rate of 7%.

On February 14, 2000, the Company completed significant modifications to the
Loan and Security Agreement with Foothill and Elliott whereby the credit
facility was increased from $25 million to $29 million by means of increasing
commitments under the revolving credit facility from $6 million to $10 million,
subject to borrowing base limitations. The term loan, which had been reduced
through periodic payments to $10.1 million, was increased to the original
outstanding balance of $11.5 million.

On March 22, 2001, the Company completed modifications of the Loan and
Security Agreement with Foothill/Elliott whereby the credit facility was
modified and extended through May 11, 2005.

On June 28, 2001, the Company completed further modifications to the
Foothill/Elliott Credit Facility whereby the credit facility was decreased from
$29.0 million to $28.0 million by means of decreasing the original commitment
under the term loan. The original term loan of $11.5 million, which had been
reduced through periodic payments to $6.1 million, was increased to an
outstanding balance of $10.5 million. Additional modifications were made to the
agreement to revise the repayment period on the Foothill term loan. Under the
amended agreement, the final principal payment on the term loan will be made
January 2005. At December 31, 2001, $7.5 million and $9.3 million were
outstanding under the Elliott term loan and the Foothill term loan, respectively
and $4.1 million was outstanding under the Foothill revolving credit line. Based
on the company's borrowing base at December 31, 2001, these amounts represent
the maximum amount then allowable at such date under the facility. The
Foothill/Elliott credit facility contains certain affirmative covenants
regarding the timely submission of financial information to Foothill. The
Company is not currently in compliance with this covenant, therefore, an event
of default exists on the facility. Accordingly, the Company has classified $17.8
million of otherwise long-term debt as current in the Company's Financial
Statements. Additionally, the agreement contains certain requirements regarding
financial condition and reporting that could be interpreted to result in an
event of default under the agreement. As of April 15, 2002, the Company had not
been notified of any default on the Facility.

The Company's equipment notes payable and capital lease obligations
represent installment loans or capital lease obligations primarily related to
the acquisition of seismic recording equipment.

On February 18, 1998, Grant completed an offering of $100 million face value
9 3/4% Senior Notes due and payable in a lump sum on February 15, 2008. The
Senior Notes bear interest from February 18, at a rate per annum set forth above
payable semi-annually on February 15 and August 15 of each year, commencing
August 15, 1998. The net proceeds to Grant from the sale of the Senior Notes was
approximately $95.2 million after deducting the Initial Purchaser's discount and
certain other estimated fees and expenses. Grant used the proceeds to repay
approximately $74.5 million of the outstanding balance of debt ($73.0 million)
and interest ($1.5 million) existing at December 31, 1997. Total debt issue
costs of $4.3 million were incurred in connection with the offering and are
being amortized over the term of the notes. The unamortized portion of the debt
issue costs, included in the Company's other assets, is $1.3 million at
December 31, 2001.

The Senior Notes were issued under an indenture (the "Indenture") entered
into among the Company, as issuer, the Subsidiary Guarantors, and LaSalle Bank
National Association, as trustee, dated as of February 18, 1998. The Indenture
imposes certain limitations on the ability of the Company and its Restricted
Subsidiaries (as defined in the Indenture) to, among other things, incur
additional indebtedness (including capital leases), incur liens, pay dividends
or make certain other restricted payments, consummate certain asset sales, enter
into certain transactions with affiliates, issue preferred stock, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the assets of the Company or
any of its Restricted Subsidiaries. Additionally, the indenture provides for an
event of default, if a default resulting in the acceleration of indebtedness of
the Company greater than $5.0 million occurs. As of April 15, 2002, the Company
is not being held in default by any of its lenders but due to the event of
default on the Foothill/Elliott credit facility mentioned above, the Company
has classified $43.5 million of otherwise long-term debt as current in the
Company's financial statements for the fiscal year ended December 2001.

In order to improve its liquidity and supplement its operating activities,
pursuant to a registration statement originally filed on October 28, 1999 and
declared effective on January 12, 2000, the Company offered to exchange (the
"Exchange Offer") $100,000,000 aggregate principal amount of its outstanding
Senior Notes for shares of its Convertible Preferred Stock with an aggregate
liquidation value equal to 65% of the aggregate principal amount of the Senior
Notes tendered, plus 100% of the accrued and unpaid interest thereon through the
date of the exchange. On January 19, 2000, a total of $56,320,000 of the Senior
Notes, together with $2,364,000

41

of accrued and unpaid interest, were exchanged for 389,722 shares of Convertible
Preferred Stock. The Senior Notes exchanged represent all of the Senior Notes
previously held by Elliott and Elliott International. No other Senior Notes were
tendered and the Exchange Offer expired on February 7, 2000. The consummation of
the Exchange Offer has increased the Company's liquidity by reducing its
principal payment obligations with respect to the Senior Notes and reducing the
negative cash flow impact of its interest payment obligations on the Senior
Notes. The Company intends to pay dividends on the Convertible Preferred Stock
in additional shares of Convertible Preferred Stock until further notice. In
connection with the Exchange Offer, the Company solicited and obtained requisite
consents from the holders of its Senior Notes in order to amend definitions and
to modify certain restrictive covenants in the indenture governing the Senior
Notes. As evidenced by market transactions, the estimated fair value of the
Senior Notes was $30.6 million at December 31, 2001.

In August 2000, the Company entered into an agreement with Elliott to
assign, from time to time, a net revenue interest in certain geological and
geophysical data included in the U.S. multi-client data library for an amount up
to $7.5 million. Proceeds from net revenue interest sales, together with a
computed preferred return of 1% per month are payable from future sales of
multi-client data. In November 2000, the Company entered into a depository
agreement with Elliott whereby Elliott made cash deposits aggregating $1,000,000
with the Company to be applied toward the purchase of an undivided mineral
interest and related seismic data in a prospect developed by the Company during
2000. In January of 2001, this agreement was amended to increase the amount to
$1,850,000. For financial reporting purposes, at December 31, 2000 cumulative
proceeds to the Company of $8,500,000, together with applicable preferred
return, have been classified in current liabilities as advanced data sales
liability in the accompanying consolidated balance sheet. Elliott was repaid in
full for these fundings on March 23, 2001 from a portion of the proceeds from
the sale of a substantial portion of the Company's southern U.S. multi-client
data library (see Note 6).

On August 3, 2001, the Company completed an agreement with Elliott for the
sale, with recourse retained, of certain of its foreign accounts receivable. The
agreement allows the Company to sell, at its election, both billed and unbilled
receivables arising out of data acquisition and processing services rendered by
Grant's branch operations in Ecuador and Colombia. The maximum amount available
for Elliott to purchase is $4.0 million and the agreement extends through
February 2002, with all repayments to Elliott required by that time. As of
December 31, 2001, the Company's obligation under the agreement was $4.0
million. On January 7, 2002, the agreement for purchase and assignment of
foreign accounts receivable with Elliott was modified to extend the term of the
agreement to September 30, 2002 and to increase the maximum amount allowable to
be purchased by Elliott from the Company to $5,250,000. On February 5, 2002,
March 5, 2002 and March 21, 2002 additional modifications were made to the
Elliott agreement to increase the maximum amount allowable to be purchased by
Elliott from the Company to $7,500,000, $10,900,000 and $11,700,000,
respectively. Additionally, the March 21, 2002 amendment expanded the scope of
the agreement to include receivables for all of the Company's South American
locations. As of March 28, 2002, $11,700,000 was outstanding under the
agreement.

There are no additional formal commitments to provide financing in place at
this time. Should business conditions not improve or cost control initiatives
not be successful during 2002, the Company would require additional sources of
financing to sustain operational activities. There can be no assurance that
Elliott will continue to provide credit support and working capital funding, or
that alternative financing will be available on commercially acceptable terms or
that such financing will be available at all.

As of December 31, 2001, the maturities of the Company's notes payable,
long-term debt and capital lease obligations (in thousands) are as
follows:

- ----------
(1) See above for discussion on classification of the Foothill/Elliott
credit facility and the 9 3/4% Senior Notes.

42

(10) LEASES

The Company had under capital and operating leases office and warehouse
space and equipment with remaining terms ranging from approximately one to five
years. The future minimum lease payments under Grant's various capital and
non-cancelable operating leases are as follows (dollars in thousands):

Accumulated amortization for capitalized leases was $5.0 million and $1.1
million at December 31, 2000 and 2001, respectively. Rental expense was $2.2
million, $2.4 million and $1.6 million for 1999, 2000 and 2001, respectively.

(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

Methodology and assumptions used to assess fair value of classes of
financial instruments follows:

Cash and short-term financial instruments

The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short-term maturities of such instruments.

Long-term debt

The carrying values of the Company's long-term debt instruments approximate
their fair values. Grant's long-term debt has been estimated based on current
quoted market prices for the same or similar issues, or on the current rates
offered to Grant for debt of the same remaining maturities.

(12) STOCK-BASED COMPENSATION

The 1997 Equity and Performance Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors and approved by Grant's stockholders in
December 1997. The Incentive Plan was amended in September 1998 to increase the
number of shares reserved for issuance under the Incentive Plan from 1,450,000
shares of Grant common stock to 1,900,000 shares of Grant common stock and
subsequently, in February 1999, to 2,000,000 shares of Grant common stock. The
Incentive Plan provides for the grant to officers (including officers who are
also directors), employees, and non-employee directors of Grant and its
subsidiaries, of "incentive stock options" (within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code")), nonstatutory stock options,
stock appreciation rights and restricted shares. The Incentive Plan is not a
deferred compensation plan under Section 401(a) of the Code and is not subject
to the provisions of the Employee Retirement Income Security Act of 1974.

The Incentive Plan was amended in June 2001 to increase the number of shares
reserved for issuance under the Incentive Plan from 2,000,000 shares of Grant
common stock to 2,750,000 shares of Grant common stock. Additionally, effective
June 30, 2001, the Board of Directors approved the repricing of certain original
options outstanding with exercise prices between $3.00 and $6.84 per share to
$2.00 per share. No compensation cost resulted from the repricing because, as of
the repricing date, the exercise price of the repriced options was not estimated
to be less than the fair value of the underlying shares. The Company has adopted
the variable method of accounting for the related options effective June 30,
2001. No compensation cost has been recognized for the year ended December 31,
2001 related to these options, as the exercise price of the

43

repriced options is not estimated to have exceeded the fair value of the
underlying shares during the period beginning June 30, 2001 and ending December
31, 2001.

The Incentive Plan is required to be administered by the Board of Directors
or by a committee of the Board of Directors consisting of at least two
non-employee directors. The Board of Directors or its designated committee will
select the employees and non-employee directors to whom awards may be granted
and the type of award to be granted and determine, as applicable, the number of
shares to be subject to each award, the exercise price and the vesting. In
making such determinations, the Board of Directors or its designated committee
will take into account the employee's present and potential contributions to the
success of the Company and other relevant factors. As of December 31, 2001,
awards covering 2,342,400 shares have been made by the Board of Directors.
During 2001, there were 1,080,100 option cancellations due to terminations. All
such options were granted at a price equal to or in excess of the then estimated
fair market value of the Company's stock at the date of grant. Such options have
an average exercise price of $2.42 per share (range of $2.00 to $6.84 per
share), subject to adjustment in certain circumstances. The 2001 awards consist
of 1,288,800 non-statutory stock options that will vest annually in equal
one-third increments beginning on June 30, 2002. Such options have an exercise
price of $2.00 per share. In addition, 57,000 total restricted shares (36,000 in
1998, 18,000 in 1999 and 3,000 in 2000) were granted to each non-employee
director subject to the satisfaction of certain conditions set forth under the
Incentive Plan. The Company recognized approximately $69,000 in compensation
expense in 2000 and $0 in 2001, respectively, in relation to such restricted
shares, based on its estimate of fair market value pursuant to SFAS No. 123. As
of March 28, 2002, 54,000 of such shares were unrestricted.

Stock Options

A summary of the status of stock options granted is presented below.

The following table summarizes information with respect to stock options
outstanding at December 31, 2001

As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation", the
Company applies Accounting Principles Board Opinion 25 in accounting for its
share-based compensation plans. Accordingly, no compensation cost has been
recognized under these plans, with the exception noted above, because, as of the
measurement date, which in this case is the grant date, the exercise price of
granted options is equal to or in excess of the fair value of the underlying
shares. Had compensation cost for the Company's share-based compensation plans
been determined based on the fair values of the options granted after January 1,
1998, consistent with the provisions of SFAS No. 123, the Company's net loss and
loss per share would have increased as follows:

44

The estimated weighted average fair value of options granted during 2000 and
2001 was $0 and $0, respectively, determined in conformity with the
Black-Scholes option pricing model in all material respects.

(13) EMPLOYEE BENEFIT PLANS

Employee Retirement Savings Plan

GGI had established a defined contribution plan covering substantially all
U.S. and certain foreign employees whereby participants could elect to
contribute between 1% and 15% of their annual salary. Participants could not
make contributions in excess of $10,500 per year (as adjusted annually by the
cost of living adjustment factor). On the Effective Date, GGI assumed and
assigned the plan to Grant. Under the plan, the employer may contribute, on a
discretionary basis, one-half of the participant's contribution percentage up to
6% (limited to 3% of any employee's annual salary). The plan was amended in June
1997 to eliminate the employer's option to contribute common stock so that
discretionary contributions may be made only in the form of cash. Cash
contributions to the plan by Grant for years ended December 31, 1999, 2000 and
2001 totaled $94,000, $51,000, and $43,000, respectively.

Other Post Retirement Benefits

GGI sponsored a defined contribution post-retirement plan which, pursuant to
the Plan, was assumed by GGI and assigned to Grant. The post-retirement plan is
contributory and is structured to provide medical coverage for eligible retirees
and their dependents (as defined in the post-retirement plan). Generally,
employees who have completed 10 years of continuous service with the Company,
are between 55 and 65 years of age, and are ineligible for Medicare are eligible
for plan participation. On December 19, 2001, the post-retirement plan was
amended to eliminate this medical coverage benefit from the post-retirement plan
effective February 1, 2002. Liabilities for post-retirement health care benefits
are not material to the Company's results of operations or financial position.

(14) STOCKHOLDERS' EQUITY

Preferred Stock

On June 5, 1998, the Company redeemed all of the outstanding 10,000 shares
of Cumulative Preferred Stock with a par value $0.00 per share and a liquidation
preference of $1,000 per share that were held by Elliott International,
representing the liquidation amount of all such outstanding shares of Cumulative
Preferred Stock, together with all accumulated, accrued and unpaid dividends
payable in kind at an annual rate of 10.5% of approximately $702,000, for a
total of $10.7 million cash. Upon redemption, the Cumulative Preferred Stock was
canceled, retired and eliminated from the shares that the Company is authorized
to issue.

Grant has authorized 150,000 shares of 8% exchangeable pay-in-kind preferred
stock (the "Exchangeable Preferred Stock"), par value $0.001 per share, with a
liquidation preference of $100 per share, of which 0 and 0 shares were
outstanding as of December 31, 2000 and 2001, respectively. Dividends accrued at
an annual rate of 8%, of the liquidation value and paid quarterly on April 1,
July 1, October 1 and January 1. Unpaid dividends associated with the
Exchangeable Preferred Stock at December 31, 1999 were approximately $225,000.
The shares were issued between August 16 and December 29, 1999, and dividends
accrued from the issuance date. See Note 9 -- Debt for discussion of the
issuance of shares of the Company's 8% Convertible Preferred Stock for
outstanding shares of the Company's Exchangeable Preferred Stock and a portion
of the Company's outstanding Senior Notes.

On October 25, 1999, holders of greater than a majority of the outstanding
common stock voting power of the Company acted, by written consent, to further
amend the Amended and Restated Certificate of Incorporation to decrease the
number of authorized aggregate shares of capital stock of the Company from
60,000,000 to 55,000,000 shares, thus, decreasing the number of authorized
shares of the Company's preferred stock from 10,000,000 to 5,000,000 shares.

45

Common Stock

At December 31, 2001, Grant had authorized 50,000,000 shares of common
stock, par value $.001 per share, of which 14,547,055 were issued and
outstanding at December 31, 2000 and 2001. On September 30, 1999, the Company
entered into an Asset Purchase Agreement, effective October 30, 1999 for the
purchase of certain seismic acquisition equipment. The purchase price for the
assets included the issuance of 100,000 shares of common stock, valued at $3.00
per share, which management considers fair market value at such time. The
changes in common stock for the years ended December 31, 1999, 2000 and 2001 are
as follows (dollars in thousands):

(15) COMMITMENTS AND CONTINGENCIES

On December 11, 1997, certain holders of interests under the Plan, acting
through an "ad hoc" committee, (the "Plaintiffs") commenced a lawsuit in the
Bankruptcy Court against Grant, GGI, Elliott, Elliott International and Solid
State. The lawsuit alleged that (i) GGI and Elliott breached their obligations
under the Plan by seeking to complete the Solid State acquisition prior to
commencing an offering of the Company's common stock, par value $.001 per share
("Common Stock"), to certain holders of claims and other interests under the
Plan (the "Subscription Offering"), (ii) the Solid State acquisition and certain
related transactions were unfair to the Plaintiffs because they diluted the
value of the Common Stock to be issued to them under the Subscription Offering
and impaired the Company's equity value and (iii) the Solid State acquisition
and certain related transactions could and should have been, but were not,
adequately disclosed in the disclosure statement filed with the Bankruptcy Court
regarding the Plan. The Plaintiffs requested (i) compensatory and punitive
damages in an unstated amount and (ii) revocation of the Plan. In addition, the
Plaintiffs sought to enjoin completion of the Solid State acquisition and
certain related transactions pending a trial on the merits. This request for
injunctive relief was denied by the Bankruptcy Court on December 16, 1997, and
was denied on appeal by the United States District Court for the District of
Delaware on December 19, 1997. During the discovery process for the lawsuit, the
parties began to discuss a settlement. These discussions led to a settlement of
the lawsuit on June 19, 1998 (the "Settlement"). Under the terms of the
Settlement, in exchange for a full and complete release of all of the
Plaintiffs' claims against Elliott, Elliott International, the Company and their
respective officers, directors, partners, employees, agents, subsidiaries,
affiliates, successors and assigns relating to or arising out of the bankruptcy
proceedings of GGI and a dismissal of the lawsuit, Elliott paid the Plaintiffs
$150,000 for reimbursement of legal expenses and permitted the Plaintiffs to
purchase Grant Common Stock in the Subscription Offering at a discounted
subscription purchase price of $4.75 per share. The Company recorded $635,000 in
litigation expense associated with the Settlement, representing the cash paid by
Elliott and the $0.25 discount permitted the Plaintiffs to purchase Grant Common
Stock in the Subscription Offering. In addition, Elliott agreed to indemnify
Grant against any liability that they may incur in connection with the lawsuit.
Nevertheless, other eligible subscribers in the Subscription Offering who did
not execute a release in connection with the Subscription Offering could
commence other lawsuits related to the Plan, which may not be subject to
indemnification by Elliott, and which could have an adverse effect on Grant's
business, reputation, financial position, results of operations or cash flows.

The Company is a party to a lawsuit filed in August 2000, which alleges,
among other things, that the defendants wrongfully acquired geophysical data
from plaintiff's mineral estates after January 1, 1998. The Plaintiffs seek
unspecified damages and injunctive relief. The matter is in the early stages of
discovery and no dates have been set for a class certification hearing or trial
on the merits. The Company believes that the allegations of the lawsuit are
without merit and intends to vigorously defend the lawsuit.

46

Management does not believe this lawsuit will have a material adverse impact on
the Company's financial position, results of operations or cash flows.

Additionally, Grant is involved in various claims and legal actions arising
in the ordinary course of business. GGI is involved in various claims and legal
actions arising in the bankruptcy and related to the Plan. Management of GGI and
management of Grant are of the opinion that none of the claims and actions will
have a material adverse impact on GGI's or Grant's financial position, results
of operations or cash flows.

(16) RELATED PARTY TRANSACTIONS

A former senior vice president of Grant loaned approximately CAD $500,000
for a two-year term at 10% interest to an entity in which the Company held, at
the time, an 18% common equity interest. Additionally, Grant owned $268,000 of
redeemable, cumulative preferred shares in the same entity. Currently, the
Company holds a 10.9% common equity interest and no preferred shares. During
1998, Grant recorded a $271,000 write-down to reduce the carrying value of its
investment in this entity to zero due to the entity's uncertain financial
condition. The Company has in the past used this entity periodically to perform
survey services. The senior vice president resigned in May 1998.

The Company's former Chairman of the Board ("Chairman") was an officer of an
affiliate of the Principal Stockholders of Grant. On April 28, 1998, Elliott
granted to the Chairman options to purchase 100,000 shares of the Company's
Common Stock from Elliott. Additionally, the Chairman has entered into a
consulting agreement, dated April 28, 1998, with Grant (the "Consulting
Agreement") which provides for an annual consulting fee of $100,000 for as long
as he remained Chairman. Under the Consulting Agreement, the Chairman was also
granted options by the Company to purchase 50,000 shares of Common Stock under
the Incentive Plan at exercise prices equal to or in excess of the fair market
value of the Company's stock on date of grant. These options vested annually in
equal one-third increments beginning on December 31, 1998, and have an average
exercise price of $6.07 per share. The Chairman resigned from the Board of
Directors in December 2000 and at such time was granted stock options for
100,000 shares extending for one year to purchase shares at $2 per share as
compensation for future services.

See Note 20 for a discussion of the subscription offering and Notes 9, 14
and 21 for discussion of financing with Elliott.

During 2000 and 2001, the Company performed data acquisition and processing
services for an affiliated oil and gas exploration and production company.
Further, this affiliated company participated in 2000 as an underwriter in one
of the Company's multi-client data library programs. Revenues for these services
were approximately $10,092,000 and $1,480,000 for 2000 and 2001, respectively,
and related accounts receivable outstanding at December 31, 2001 was $200,000.
Management of the Company believes such operations were conducted under terms
and conditions comparable to third-party customers.

(17) LOSS PER SHARE

Loss per common share-basic and diluted is computed as follows (in
thousands, except per share amounts):

Dividend requirements on Grant's pay-in-kind preferred stock were $0.3
million, $4.3 million and $4.8 million for the years ended December 31, 1999,
2000, and 2001, respectively.

(18) COMPREHENSIVE INCOME (LOSS)

Effective January 1, 1998, Grant adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components, including foreign currency translation
adjustments and unrealized gains (losses) on marketable securities classified as
available-for-sale. Grant's total comprehensive gain (loss) is as follows for
the periods presented. No tax benefit (after consideration of the valuation
allowance required under SFAS No. 109) has been allocated to "Other
comprehensive loss -- foreign currency translation adjustments" for any of the
reported periods.

47

(19) SUPPLEMENTAL SCHEDULES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

As discussed in Note 8, on January 19, 2000 a total of $56,320,000 of the
Company's then outstanding Senior Notes, together with $2,364,000 of accrued
and unpaid interest, were exchanged for 389,722 shares of the Company's 8%
Convertible Preferred Stock. The difference between the carrying value of the
Senior Notes exchanged and the Convertible Preferred Stock has been reflected
as an increase in additional paid-in capital due to the related party nature of
the exchange.

Non-cash investing and financing activities consisted of the following (in
thousands):

(20) SUBSCRIPTION OFFERING

Pursuant to the Plan of Reorganization discussed in Note 1, the Company was
required to conduct a subscription offering (the "Subscription Offering") of
4,750,000 shares of Grant Common Stock to certain holders of claims and other
interests under the Plan for an aggregate purchase price of $23,750,000. The
Plan provided that (i) Eligible Class 5 Claim Holders; (ii) Eligible Class 7
Interest Holders; and (iii) Eligible Class 8 Interest Holders, each as defined
in the Plan (Collectively, the "Eligible Subscribers") could participate in the
Subscription Offering. Because Elliott and certain of its affiliates, as
interest holders under the Plan, were entitled to purchase 1,356,231 shares of
Grant Common Stock in an offering by the Company, the Principal Stockholders
offered the balance of such shares of Grant Common Stock to the Eligible
Subscribers pursuant to the Subscription Offering. The Company registered the
shares of Grant Common Stock with the Commission pursuant to the Subscription
Offering. The registration statement became effective on July 7, 1998, and
rights to subscribe for shares of Common Stock pursuant to the Subscription
Offering expired if not exercised on August 24, 1998. As a result of the
Subscription Offering, a total of 2,080,722 of shares were subscribed. The total
purchase price for these shares received by the Principal Shareholders was
approximately $9,918,000.

(21) SUBSEQUENT EVENTS

Effective January 1, 2002, the Company has extended the useful lives of
certain of its assets to properly match the depreciation expense with the future
revenues expected to be obtained from the assets. The assets are primarily
recording systems used to acquire seismic data in the Company's international
locations. The 2002 impact on depreciation resulting from the asset life
extensions will be a reduction of approximately $750,000.

On January 7, 2002, the agreement for purchase and assignment of foreign
accounts receivable with Elliott was modified to extend the term of the
agreement to September 30, 2002 and to increase the maximum amount allowable to
be purchased by Elliott from the Company to $5,250,000.

On February 5, 2002, March 5, 2002 and March 21, 2002, additional
modifications were made to the Elliott agreement to increase the maximum amount
allowable to be purchased by Elliott from the Company to $7,500,000, $10,900,000
and $11,700,000, respectively. Additionally, the March 21, 2002 amendment
expanded the scope of the agreement to include receivables for all of the
Company's South American locations. As of March 28, 2002, $11,700,000 is
outstanding under the agreement.

48

GRANT GEOPHYSICAL, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

- ----------

(1) Includes a $3,299 charge for asset impairment on the multi-client data
library (see Note 4 to consolidated financial statements).

(2) Includes a $97 charge for asset impairment on the multi-client data library
(see Note 4 to consolidated financial statements).

(3) Includes a $745 charge for asset impairment on the multi-client data
library, a $31,390 charge for impairment of goodwill and a $6,372 charge for
a net impairment on certain of the Company's fixed assets. (see Note 4 to
consolidated financial statements).

49

INDEX TO EXHIBITS

50

10.1 -- Registration Rights Agreement between the Registrant and Elliott
Associates, L.P. dated September 19, 1997 (incorporated by
reference to Exhibit 4.2 of the Registrant's Registration
Statement on Form S-1, File No. 333-43219, originally filed with
the Commission on December 24, 1997).

10.2 -- Amendment No. 1 to Registration Rights Agreement between the
Registrant and Elliott Associates, L.P., dated October 1, 1997
(incorporated by reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-1, File No. 333-43219,
originally filed with the Commission on December 24, 1997).

10.3 -- Amendment No. 2 to Registration Rights Agreement between the
Registrant and Elliott Associates, L.P., dated December 17, 1997
(incorporated by reference to Exhibit 4.4 of the Registrant's
Registration Statement on Form S-1, File No. 333-43219,
originally filed with the Commission on December 24, 1997).

10.4 -- Amendment No. 3 to Registration Rights Agreement between the
Registrant and Elliott Associates, L.P., dated October 25, 1999.
(incorporated by reference to Exhibit 10.6 of the Registrant's
Registration Statement on Form S-1, File No. 333-89863,
originally filed with the Commission on October 28, 1999).

10.5 -- Grant Geophysical, Inc. 1997 Equity and Performance Incentive
Plan, as amended. (incorporated by reference to Exhibit 10.6 of
the Registrant's Registration Statement on Form S-1, File No.
333-89863, originally filed with the Commission on October 28,
1999).

10.6 -- Employment Agreement between the Registrant and Richard H. Ward,
dated February 3, 1999 (incorporated by reference to Exhibit
10.17 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, filed with the Commission
on April 8, 1999).

10.7 -- Loan and Security Agreement dated as of May 11, 1999 by and
among the Registrant, Elliott Associates, L.P. and Foothill
Capital Corporation (incorporated by reference to Exhibit 4.1 of
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, filed with the Commission on August 13, 1999).

51

10.8 -- Amendment No. 1 to Loan and Security Agreement, dated as of
August 12, 1999, by and among the Registrant, Elliott
Associates, L.P. and Foothill Capital Corporation (incorporated
by reference to Exhibit 10.11 of the Registrant's Registration
Statement on Form S-1, File No. 333-89863, originally filed with
the Commission on October 28, 1999).

10.9 -- Amendment No. 2 to Loan and Security Agreement, dated as of
September 23, 1999, by and among the Registrant, Elliott
Associates, L.P., and Foothill Capital Corporation.
(incorporated by reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-1, File No. 333-89863,
originally filed with the Commission on October 28, 1999).

10.10 -- Amendment No. 3 to Loan and Security Agreement, dated as February 14,
2000, by and among the Registrant, Elliott Associates, L.P. and
Foothill Capital Corporation. (incorporated by reference to Exhibit
10.13 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2001, originally filed with the Commission on
April 16, 2001).

10.11 -- Employment Agreement between the Registrant and Stephen H. Wood,
dated February 24, 1999 (incorporated by reference to Exhibit
10.18 of the Registrant's Annual Report on Form 10-K for fiscal
year ended December 31, 1998, filed with the Commission on April
8, 1999).

10.12 -- Form of Indemnity Agreement between the Registrant and its
directors (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed with the
Commission on August 19, 1999).

10.13 -- Employment Agreement between the Registrant and Thomas L. Easley,
dated January 27, 2000. (incorporated by reference to Exhibit 10.16
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, originally filed with the Commission on April 16,
2001).

10.14 -- Amended and Restated Receipt, Assignment and Conveyance of Net
Revenue Interest as of August 30, 2000 by and between Grant
Geophysical Corp. and Elliott Associates, L.P. (incorporated by
reference to Exhibit 10.01 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000, originally
filed with the Commission on August 22, 2000.

10.15 -- Depository Agreement for Purchase Option as of December 1, 2000
by and between Grant Geophysical Corp. and Elliott Associates,
L.P. (incorporated by reference to Exhibit 10.18 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2001,
originally filed with the Commission on April 16, 2001.

10.16 -- Amendment to Depository Agreement for Purchase Option as of
January 25, 2001 by and between Grant Geophysical Corp. and
Elliott Associates, L.P. (incorporated by reference to Exhibit 10.19
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, originally filed with the Commission on April 16, 2001).

10.17 -- Second Amendment to Depository Agreement for Purchase Option as
of February 20, 2001 by and between Grant Geophysical Corp. and
Elliott Associates, L.P. (incorporated by reference to Exhibit 10.20
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, originally filed with the Commission on April 16, 2001).

52

10.18 -- Third Amendment to Depository Agreement for Purchase Option as
of February 22, 2001 by and between Grant Geophysical Corp. and
Elliott Associates, L.P. (incorporated by reference to Exhibit 10.21
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, originally filed with the Commission on April 16, 2001).

10.19 -- Amendment No. 4 to Loan and Security Agreement and Consent
effective February 2001 by and among Grant Geophysical Inc.,
Foothill Capital Corporation and Elliott Associates, L.P. Third
Amendment to Depository Agreement for Purchase Option as of
February 22, 2001 by and between Grant Geophysical Corp. and
Elliott Associates, L.P. (incorporated by reference to Exhibit 10.22
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, originally filed with the Commission on April 16, 2001).

10.20 -- Amendment Number Five to Loan and Security Agreement and Consent
effective as of March 21, 2001 by and among Grant Geophysical
Inc., Foothill Capital Corporation and Elliott Associates, L.P. (incorporated
(by reference to Exhibit 10.23 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 2001, originally filed
with the Commission on April 16, 2001).

10.21 -- Amendment Number Six to Loan and Security Agreement and Consent
effective as of June 28, 2001 by and among Grant Geophysical, Inc.,
Foothill Capital Corporation and Elliott Associates, L.P. (incorporated
by reference to Exhibit 10.1 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001, originally
filed with the Commission on November 14, 2001).

10.22 -- Agreement for Purchase and Assignment of Foreign Accounts Receivable
By and between Grant Geophysical (Int'l), Inc. and Elliott Associates, L.P.
(incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001, originally
filed with the Commission on November 14, 2001).

10.23 -- Guaranty Agreement by Grant Geophysical Corp. in favor of Elliott Associates, L.P.
(incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001, originally
filed with the Commission on November 14, 2001).

10.24* -- Amendment Number One to Agreement for Purchase and Assignment of
Foreign Accounts Receivable by and between Grant Geophysical (Int'l), Inc.
and Elliott Associates, L.P.

10.25* -- Amendment Number Two to Agreement for Purchase and Assignment of
Foreign Accounts Receivable by and between Grant Geophysical (Int'l), Inc.
and Elliott Associates, L.P.

10.26* -- Amendment Number Three to Agreement for Purchase and Assignment of
Foreign Accounts Receivable by and between Grant Geophysical (Int'l), Inc.
and Elliott Associates, L.P.

10.27* -- Amendment Number Four to Agreement for Purchase and Assignment of
Foreign Accounts Receivable by and between Grant Geophysical (Int'l), Inc.
and its designated affiliates, and Elliott Associates, L.P.

10.28* -- Employment Agreement between the Registrant and Richard F. Miles, dated
August 1, 2001.

53

21.1 -- Subsidiaries of the Registrant. (incorporated by reference to
the Registrant's Registration Statement on Form S-1, originally
filed with the Commission on October 28, 1999).

99.1* -- Letter to SEC regarding Arthur Andersen LLP.

- ----------

* filed herein.

54