SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the Quarter ended March 31,
1999.
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _______ to _______.
Commission File Number - 0-8041
GeoResources, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 84-0505444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1407 West Dakota Parkway, Suite 1-B, Williston, North Dakota 58801
(Address of Principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (701) 572-2020
-----------------------------------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____.
-----------------------------------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1999
Common Stock 4,071,652 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(March 31, 1999 and December 31, 1998)
Consolidated Statements of Operations 4
(Three months ended March 31, 1999 and 1998)
Consolidated Statements of Cash Flows 5
(Three months ended March 31, 1999 and 1998)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risks 11
PART II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1999 1998
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 85,576 $ 40,673
Trade receivables, net 459,101 524,132
Inventories 374,922 403,529
Prepaid expenses 27,386 26,468
Investments 111,294 4,319
Total current assets 1,058,279 999,121
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 19,176,197 19,139,363
Properties not subject to amortization 145,570 141,019
Leonardite plant and equipment 3,206,217 3,206,217
Other 704,357 704,357
23,232,341 23,190,956
Less accumulated depreciation, depletion
amortization and impairment (17,780,740) (17,635,373)
Net property, plant and equipment 5,451,601 5,555,583
OTHER ASSETS:
Mortgage loans receivable, related party 103,321 103,321
Other 47,309 46,699
Total other assets 150,630 150,020
TOTAL ASSETS $ 6,660,510 $ 6,704,724
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 571,823 $ 472,345
Current maturities of long-term debt 268,000 316,000
Accrued expenses 90,364 99,261
Total current liabilities 930,187 887,606
LONG-TERM DEBT, less current maturities 1,681,255 1,625,004
DEFERRED INCOME TAXES 130,000 140,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares;
issued and outstanding, 4,071,652
and 4,071,652 shares, respectively 40,717 40,717
Additional paid-in capital 846,787 846,787
Retained earnings 3,031,564 3,164,610
Total stockholders' equity 3,919,068 4,052,114
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,660,510 $ 6,704,724
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1999 1998
OPERATING REVENUES:
Oil and gas sales $ 333,722 $ 430,923
Leonardite sales 95,133 182,189
428,855 613,112
OPERATING COSTS AND EXPENSES:
Oil and gas production 199,230 238,333
Cost of leonardite sold 125,396 164,824
Depreciation and depletion 145,367 176,095
Selling, general and administrative 72,247 111,864
542,240 691,116
Operating income (loss) (113,385) (78,004)
OTHER INCOME (EXPENSE):
Interest expense (40,534) (25,943)
Interest income 3,048 6,192
Other income, net 7,825 5,356
(29,661) (14,395)
Income (loss) before income taxes (143,046) (92,399)
Income tax (expense) benefit 10,000 10,000
Net income (loss) $ (133,046) $ (82,399)
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ (.03) $ (.02)
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (133,046) $ (82,399)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and depletion 145,367 176,095
Deferred income taxes (benefit) (10,000) (10,000)
Other (610) 560
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables 65,031 (42,229)
Inventories 28,607 (44,872)
Prepaid expenses and other (918) 3,626
Investments (106,975) 21,624
Increase (decrease) in:
Accounts payable 108,707 (61,621)
Accrued expenses (8,897) (12,437)
Net cash provided by (used in)
operating activities 87,266 (51,653)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (50,614) (381,163)
Net cash used in investing activities (50,614) (381,163)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 100,000 300,000
Principal payments on long-term debt (91,749) (114,549)
Debt issue costs -- (7,500)
Purchase of treasury stock -- (50,192)
Net cash provided by (used in)
financing activities 8,251 127,759
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 44,903 (305,057)
CASH AND EQUIVALENTS, beginning of period 40,673 490,385
CASH AND EQUIVALENTS, end of period $ 85,576 $ 185,328
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 40,534 $ 25,943
Income taxes 50 50
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the management of GeoResources, Inc. (the
"Company"), the accompanying unaudited financial statements contain
all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company as
of March 31, 1999, and the results of operations and cash flows for
the three month periods ended March 31, 1999 and 1998.
The results of operations for the three-month period ended March 31,
1999, are not necessarily indicative of the results to be expected
for the full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, it
is suggested that these financial statements be read in connection
with the audited consolidated financial statements and the notes
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
2. Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the
presentation in the current-year financial statements.
3. The Company assesses performance and allocates resources based upon
its products and the nature of its production processes, which consist
principally of oil and gas exploration and production and the mining and
processing of leonardite. There are no sales or other transactions
between these two operating segments and all operations are conducted
within the United States. Certain corporate costs, assets and capital
expenditures that are considered to benefit the entire organization are
not allocated to the Company's operating segments. Interest income,
interest expense and income taxes are also not allocated to operating
segments. There are no significant accounting differences between
internal segment reporting and consolidated external reporting.
Presented below are the Company's identifiable net assets as of
March 31, 1999 and December 31, 1998:
1999 1998
Oil and gas $ 4,750,360 $ 4,702,417
Leonardite 1,213,295 1,347,521
General corporate activities 696,855 654,786
$ 6,660,510 $ 6,704,724
Presented below is information concerning the Company's operating
segments for the quarters ended March 31, 1999 and 1998:
1999 1998
Revenue:
Oil and gas $ 333,722 $ 430,923
Leonardite 95,133 182,189
$ 428,855 $ 613,112
Income (loss) before income taxes:
Oil and gas $ 18,354 $ 46,447
Leonardite (59,355) (12,853)
General corporate activities (72,384) (111,598)
Other income and expenses (29,661) (14,395)
$ (143,046) $ (92,399)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Information contained in the following discussion of results of
operations and financial condition of the Company contains forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, which can be identified by the use of
words such as "may," "will," "expect," "anticipate," "estimate," or
"continue," or variations thereon or comparable terminology. In
addition, all statements other than statements of historical facts that
address activities, events or developments that the Company expects,
believes or anticipates, will or may occur in the future, and other such
matters, are forward-looking statements.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere herein. The Company's future operating results may be affected
by various trends and factors which are beyond the Company's control.
These include, among other factors, the competitive environment in which
the Company operates, prices for oil, both domestically and
internationally, demand for leonardite in the drilling industry,
dependence upon key management personnel, the speculative nature of the
oil and gas business in general, availability of drilling equipment and
other uncertain business conditions that may affect the Company's
business.
The Company cautions the reader that a number of important factors
discussed herein, and in other reports filed with the Securities and
Exchange Commission, particularly the Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1998, could affect the Company's actual
results and cause actual results to differ materially from those
discussed in forward-looking statements.
Results of Operations - Three Months Ended March 31, 1999, compared
to Three Months Ended March 31, 1998
Information concerning the Company's oil and gas operations for
the three months ended March 31, 1999, is set forth in the table below:
Oil and Gas Operations
Percent Increase
Three Months Ended (Decrease) from
March 31, 1999 1998 Period
Oil and gas production
sold (BOE) 38,858 (8%)
Average price per BOE $ 8.59 (16%)
Oil and gas revenue $ 333,722 (23%)
Production costs $ 199,230 (16%)
Average production cost $ 5.13 (10%)
per BOE
Oil and gas production sold declined by 3,193 barrels of oil
equivalent (BOE) or 8% compared to the quarter ended March 31, 1998.
This decrease in the volume of oil sold was primarily due to the Company
having substantially more marginal wells "shut in" (wells with
productions curtailed in an effort to reduce production costs) during the
first quarter 1999 compared to the first quarter 1998. In the first
quarter of 1999, the Company had approximately 35 marginal wells that
remained shut in to control production costs, compared to about five shut-
in wells during first quarter 1998. The first quarter 1999 shut-in wells
were essentially the same wells shut in at year-end 1998. Neither oil
prices, nor North Dakota winter weather conditions, supported returning
these wells to production during the first three months of 1999.
However, subsequent to March 31, 1999, both oil prices and weather
conditions have improved and the majority of these wells have been
returned to production, which will be evident in the results of the
second quarter of 1999.
Oil and gas revenue declined $97,000 or 23%. The revenue decrease
was due primarily to a 16% lower average oil price of $8.59 in the first
quarter 1999 compared to $10.25 in the first quarter 1998 combined with
the 8% lower volume of oil sold. Oil and gas production costs decreased
$39,000 or 16% due in part to the lower oil revenue which decreased
production taxes and due to the shut-in wells, discussed above which
reduced production costs. Production costs on a per-equivalent-barrel
basis declined 10% to $5.13 compared to $5.67 for the first quarter 1998
due to the efforts to reduce production costs.
Information concerning the Company's leonardite operations for the
three months ended March 31, 1999, is set forth in the table below:
Leonardite Operations
Percent Increase
Three Months Ended (Decrease) from
March 31, 1999 1998 Period
Leonardite production
sold (tons) 1,179 (30%)
Average revenue per ton $ 80.69 (25%)
Leonardite revenue $ 95,133 (48%)
Cost of leonardite sold $ 125,396 (24%)
Average production cost $ 106.36 9%
per ton
Leonardite revenues declined 48% due to a 30% decrease in the
number of tons sold and a 25% decrease in average revenue per ton. The
30% reduction in demand for the Company's leonardite products resulted
from historically low levels of oil and gas drilling that existed in the
first quarter of 1999. The 25% decrease in average revenue per ton was
due to essentially all of the Company's first quarter sales being basic
products, which have lower selling prices and processing costs. The 24%
decrease in cost of leonardite sold resulted from the 30% decrease in
production; however, it did not decline as much as revenue because of
fixed costs which are not reduced with production volumes. Average
production costs per ton increased $8.60 or 9% due to the fixed costs
described above.
Consolidated Analysis
Total operating revenue decreased $184,000 or 30% due to the
declines in the oil and gas and leonardite revenues, previously
discussed. Total operating expenses decreased $149,000 or 22% due to
approximately equally lower costs in every category. Oil and gas and
leonardite production costs were lower for the reasons previously
discussed. Depreciation and depletion were lower due to lower depletable
assets existing after year-end 1998, and selling general and
administrative expenses were lower due to the Company's efforts to reduce
all expenses. As a result of lower revenues, and to a moderately lesser
extent lower expenses, the Company incurred an operating loss of $113,000
compared to operating loss of $78,000 for the same period in 1998. After
provisions for non-operating expenses and income taxes, the Company
incurred a net loss for the first quarter 1999 of $133,000 or $.03 per
share compared to the first quarter 1998 net loss of $82,000 or $.02 per
share.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $128,000
compared to working capital of $112,000 at December 31, 1998. The
Company's current ratio was 1.14 to 1 at March 31, 1999, compared to 1.13
to 1 at year-end 1998.
Net cash provided by operating activities was $87,000 for the
quarter ended March 31, 1999, compared to cash used in operating
activities of $52,000 for the same period in 1998. The return to
positive operating cash flows in 1999 was primarily due to the Company's
efforts to reduce expenses in all categories. Cash was utilized to make
payments of $51,000 for additions to property, plant and equipment and to
increase cash above year-end levels. Cash provided and used in financing
activities was essentially equivalent.
Recent oil price increases have alleviated many of Management's
oil price related concerns and it expects substantially improved cash
flows as well as a return to net income for the second quarter of 1999.
However, a future decline to lower oil prices would adversely affect the
Company's ability to achieve net income. Management cannot predict the
prices of oil, but will attempt to keep costs as low as possible during
periods of low oil prices. Management believes the Company's future cash
requirements can be met by cash flows from operations and, if necessary,
borrowings on the Company's existing line-of-credit. Future cash
requirements might also be provided by possible forward sales of oil
reserves or additional debt or equity financing.
Year 2000 Readiness
The Company expects to complete the review, resolution and testing
of all its internal computer systems prior to December 1, 1999, so that
it is Year 2000 compliant. Essentially all of the Company's office
computer systems are desktop computers, including its accounting system.
The maker of the Company's accounting software has represented that it
has run a 2000 compliant version in house for over a year, and the
Company expects to upgrade to that version before August 31, 1999. All
other office desktop systems are either already Year 2000 compliant or
will be upgraded before December 1, 1999. The Company does not expect
that the cost of upgrading any of its computer systems will have a
material impact on the Company's financial position, results of
operations or cash flows in future periods. The Company's oil and gas
production operations equipment and its leonardite processing operations
equipment are both not dependent on any material amount of in house
computerized controls or embedded chip devices and as such are not deemed
to be affected by Year 2000 compliance issues. Both of these operational
segments are, however, significantly dependent on the Year 2000 readiness
of their respective customers and on supplies provided by third parties,
particularly for energy in the form of electricity and natural gas. The
Company is developing a plan under worst case scenario and expects to
complete the plan by late summer 1999. The Company has begun contacting
significant suppliers, purchasers and other key business relations to
ascertain their Year 2000 readiness to assess the extent to which the
Company's operations may be impacted should their organization not become
Year 2000 compliant. The Company cannot guarantee that there will not be
material adverse effects to the Company if customers or utilities and
other of the Company's suppliers have difficulties related to Year 2000
readiness. The Company believes the availability of supplies and
services from third parties to be the most significant risk related to
the Year 2000 issue.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risks
Because the Company qualifies as a small business issuer, disclosure
regarding this item is not required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 12, 1989, the Company filed an action in Burleigh County
District Court, North Dakota, against MDU Resources Group, Inc., a
Delaware corporation, and Williston Basin Interstate Pipeline Company, a
Delaware corporation. The Complaint related to, among other things,
breaches of a take or pay natural gas contract and attempts by the
defendants to coerce the Company into modifying the contract. The
defendants answered the Complaint on June 1, 1989. Afterwards, no
further materials were filed with the court, but the Company believed
that the case remained pending. The Company contacted the attorney who
filed the action to assess the status and request further prosecution of
the case. After several months of inaction regarding the case, the
Company contacted the court in September 1996 and was informed by the
court that the case had been dismissed in 1991. On January 15, 1997, the
Company refiled its action against MDU Resources Group, Inc. Management
cannot predict the outcome of this action, although the Company intends
to pursue its available remedies.
Other than the foregoing legal proceeding, the Company is not a
party, nor is any of its property subject to, any pending material legal
proceedings. The Company knows of no legal proceedings contemplated or
threatened against it.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For a list of exhibits of the Company, see Item 14(c) of its Annual
Report on Form 10K for the fiscal year ended December 31, 1998, which is
specifically incorporated herein by reference. A financial data schedule
(Exhibit 27 is attached hereto.) All other required exhibits are
inapplicable or information required thereby is readily apparent in the
Form 10-Q.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
March 31, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GEORESOURCES, INC.
May 17, 1999
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer
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