<PAGE> 1
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-21841
3DX TECHNOLOGIES INC.
(Exact name registrant as specified in Charter)
DELAWARE 76-0386601
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
12012 WICKCHESTER, SUITE 250
HOUSTON, TEXAS 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 579-3398
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
Common Stock, par value $0.01 per share 7,220,862 shares as of
November 5, 1997
================================================================================
<PAGE> 2
3DX TECHNOLOGIES INC.
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets
December 31, 1996 and September 30, 1997 (unaudited) . . . . . . 3
Statements of Operations for the
Three Months Ended September 30, 1996 and 1997 (unaudited) . . . 4
Statements of Operations for the
Nine Months Ended September 30, 1996 and 1997 (unaudited) . . . . 5
Statements of Changes in Common Stockholders' Equity (Deficit)
for the Year Ended December 31, 1996 and for the Nine Months
Ended September 30, 1997 (unaudited) . . . . . . . . . . . . . . 6
Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1997 (unaudited) . . . . 7
Notes to Financial Statements (unaudited) . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-2-
<PAGE> 3
3DX TECHNOLOGIES INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $17,521,745 $ 5,606,094
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 554,210 675,749
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 165,095 64,511
----------- ------------
Total current assets. . . . . . . . . . . . . . . . . . . . 18,241,050 6,346,354
----------- ------------
Property and equipment:
Oil and gas properties (full-cost method-including
$4,403,165 and $12,976,266, respectively,
not subject to depletion, depreciation and
amortization) . . . . . . . . . . . . . . . . . . . . . . . 11,567,562 26,578,295
Technical interpretation equipment . . . . . . . . . . . . . . 1,505,534 2,605,439
Office furniture, equipment and leasehold improvements . . . . 205,531 271,511
----------- ------------
13,278,627 29,455,245
Less accumulated depletion, depreciation and amortization . . (4,702,296) (6,630,914)
----------- ------------
8,576,331 22,824,331
Other assets:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,886 7,886
Organization costs, net of accumulated amortization. . . . . . 1,922 472
----------- ------------
$26,827,189 $ 29,179,043
=========== ============
LIABILITIES AND
COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 1,960,984 $ 1,014,283
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 292,581 480,712
----------- ------------
Total current liabilities . . . . . . . . . . . . . . . 2,253,565 1,494,995
----------- ------------
Common stockholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized,
6,841,177 and 7,218,177 shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . . . . . . . . . 68,412 72,182
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 34,189,700 38,081,761
Deferred compensation related to certain stock options. . . . (893,040) (587,290)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (8,791,448) (9,882,605)
----------- ------------
Total common stockholders' equity . . . . . . . . . . . 24,573,624 27,684,048
----------- ------------
$26,827,189 $ 29,179,043
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
3DX TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1997
---- ----
Revenues:
<S> <C> <C>
Oil and gas . . . . . . . . . . . . . . . . . . . . $ 216,531 $ 718,356
Rental income . . . . . . . . . . . . . . . . . . . 27,621 88,286
Interest and other . . . . . . . . . . . . . . . . 57,255 122,349
------------ -----------
Total revenues . . . . . . . . . . . . . . . . . 301,407 928,991
------------ -----------
Costs and expenses:
Lease operating . . . . . . . . . . . . . . . . . . 13,852 72,042
Production and ad valorem taxes . . . . . . . . . . 10,577 30,242
Impairment of oil and gas properties . . . . . . . 182,054 --
Depletion, depreciation, and amortization . . . . . 36,342 598,946
General and administrative . . . . . . . . . . . . 504,172 817,986
----------- -----------
Total costs and expenses . . . . . . . . . . . . 746,997 1,519,216
----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . (445,590) (590,225)
Dividends on preferred stock. . . . . . . . . . . . . . . . (165,195) --
Accretion on preferred stock. . . . . . . . . . . . . . . . (13,711) --
----------- -----------
Net loss applicable to common stockholders . . . . . . . . $ (624,496) $ (590,225)
=========== ==========
Primary and fully diluted net loss per common share . . . $ (.20) $ (.08)
============ ==========
Weighted average number of common shares outstanding . . . 3,151,949 7,218,177
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
3DX TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1997
---- ----
Revenues:
<S> <C> <C>
Oil and gas . . . . . . . . . . . . . . . . . . . . $ 408,459 $ 2,040,332
Rental income . . . . . . . . . . . . . . . . . . . 120,098 205,483
Interest and other . . . . . . . . . . . . . . . . 217,678 530,492
------------- -------------
Total revenues . . . . . . . . . . . . . . . . . 746,235 2,776,307
------------- -------------
Costs and expenses:
Lease operating . . . . . . . . . . . . . . . . . . 28,463 175,682
Production and ad valorem taxes . . . . . . . . . . 22,764 121,256
Impairment of oil and gas properties . . . . . . . 1,476,690 --
Depletion, depreciation, and amortization . . . . . 126,342 1,401,643
General and administrative . . . . . . . . . . . . 1,363,546 2,168,883
------------- -------------
Total costs and expenses . . . . . . . . . . . . 3,017,805 3,867,464
------------- -------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . (2,271,570) (1,091,157)
Dividends on preferred stock. . . . . . . . . . . . . . . . (505,167) --
Accretion on preferred stock. . . . . . . . . . . . . . . . (41,133) --
------------- -------------
Net loss applicable to common stockholders . . . . . . . . $(2,817,870) $(1,091,157)
=========== ===========
Primary and fully diluted net loss per common share . . . $ (.89) $ (.15)
=========== ===========
Weighted average number of common shares outstanding . . . 3,150,410 7,183,913
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
3DX TECHNOLOGIES INC.
STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited from January 1, 1997 through September 30, 1997)
<TABLE>
<CAPTION>
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------
STOCK
COMMON STOCK PAID-IN DEFERRED
SHARES AMOUNT CAPITAL COMPENSATION
---------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 ..................... 2,987,908 $ 29,879 $ 1,730,459 (837,864)
Principal collections ............................ -- -- -- --
Shares issued for exercise of
stock options .................................. 3,124 31 573 --
Accrual of dividends ............................. -- -- -- --
Accretion on preferred stock ..................... -- -- -- --
Deferred compensation related
to certain stock options ....................... -- -- 922,806 (922,806)
Compensation expense related
to certain stock options ....................... -- -- -- 867,630
Shares issued for Initial Public
Offering (net of offering
costs) ......................................... 2,400,000 24,000 23,539,064 --
Conversion of Series C
preferred to common stock ...................... 1,450,145 14,502 7,996,798 --
Redemption premium paid on
Series B preferred stock ....................... -- -- -- --
Net loss ......................................... -- -- -- --
----------- -----------
Balance at December 31, 1995 ..................... 6,841,177 68,412 34,189,700 (893,040)
Shares issued to cover over-
allotments from Initial Public
Offering (net of offering
costs) ......................................... 375,000 3,750 3,795,451 --
Deferred compensation related
to certain stock options ....................... -- -- 96,108 (96,108)
Compensation expense related
to certain stock options ....................... -- -- -- 401,858
Shares issued for exercise of
stock options .................................. 2,000 20 502 --
Net loss ......................................... -- -- -- --
----------- ----------- ----------- -----------
Balance at September 30, ......................... 7,218,177 $ 72,182 $38,081,761 $ (587,290)
=========== =========== =========== ===========
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------
STOCK
ACCUMULATED SUBSCRIPTIONS
DEFICIT RECEIVABLE TOTAL
----------- ------------- -----
Balance at December 31, 1995 ... $(5,115,037) $(47,756) $ (4,240,319)
Principal collections .......... -- 47,756 47,756
Shares issued for exercise of
stock options ................ -- -- 604
Accrual of dividends ........... (520,393) -- (520,393)
Accretion on preferred stock ... (54,844) -- (54,844)
Deferred compensation related
to certain stock options ..... -- -- --
Compensation expense related
to certain stock options ..... -- -- 867,630
Shares issued for Initial Public
Offering (net of offering
costs) ....................... -- -- 23,563,064
Conversion of Series C
preferred to common stock .... -- -- 8,011,300
Redemption premium paid on
Series B preferred stock ..... (365,810) -- (365,810)
Net loss ....................... (2,735,364) -- (2,735,364)
----------- -------- ------------
Balance at December 31, 1995 .. (8,791,448) -- 24,573,624
Shares issued to cover over-
allotments from Initial Public
Offering (net of offering
costs) ....................... -- -- 3,799,201
Deferred compensation related
to certain stock options ..... -- -- --
Compensation expense related
to certain stock options ..... -- -- 401,858
Shares issued for exercise of
stock options ................ -- -- 522
Net loss ....................... (1,091,157) -- (1,091,157)
----------- -------- ------------
Balance at September 30, ....... $(9,882,605) $ -- $ 27,684,048
=========== ======== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
3DX TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,271,570) $ (1,091,157)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depletion, depreciation and amortization . . . . . . . 463,573 1,930,068
Compensation expense related to certain stock
options . . . . . . . . . . . . . . . . . . . . . . . 523,736 401,858
Impairment of oil and gas properties . . . . . . . . . 1,476,690 --
(Increase) decrease in accounts receivable . . . . . . (173,844) (121,539)
(Increase) decrease in prepaid expenses . . . . . . . 4,452 100,584
Increase (decrease) in accounts payable . . . . . . . 556,816 (400,045)
Increase (decrease) in accrued liabilities . . . . . . 35,717 188,131
------------ ------------
Net cash provided by operating activities . . . . . . . . . . 615,570 1,007,900
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, exploration and development of oil and gas
properties. . . . . . . . . . . . . . . . . . . . . . . (3,744,712) (15,557,389)
Purchase of technical and office equipment and leasehold
improvements . . . . . . . . . . . . . . . . . . . . . (443,941) (1,165,885)
Proceeds from securities held to maturity . . . . . . . . . . 1,595,167 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,198 --
------------ ------------
Net cash provided by (used in) investing activities . . . . . (2,589,288) (16,723,274)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock proceeds, net of issuance costs . . . . . . . . . 604 3,799,723
Series C preferred stock proceeds, net of issuance costs . . . 31,308 --
------------ ------------
Net cash provided by financing activities . . . . . . . . . . 31,912 3,799,723
------------ ------------
Net change in cash and cash equivalents . . . . . . . . . . . . . . (1,941,806) (11,915,651)
------------ ------------
Cash and cash equivalents at beginning of the period . . . . . . . . 5,704,014 17,521,745
------------ ------------
Cash and cash equivalents at end of the period . . . . . . . . . . . $ 3,762,208 $ 5,606,094
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
3DX TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
the Company in accordance with generally accepted accounting principles, and
are unaudited. In the opinion of management, all necessary adjustments have
been made for a fair presentation of the financial position of 3DX Technologies
Inc. (the "Company") at September 30, 1997 and the results of operations for
the interim periods presented. All such adjustments made have been of a normal
and recurring nature. Results of operations for this period are not
necessarily indicative of results to be expected for the year ending December
31, 1997. Reference is made to the Company's December 31, 1996 audited
financial statements, including the notes thereto.
Certain reclassifications have been made to amounts reported in previous
periods to conform to the current presentation. Stock compensation expense
in the accompanying financial statements reflects the actual price received in
the Company's initial public offering in all periods presented.
2. RECENT EVENTS
On December 26, 1996, the Company completed an initial public offering
(the "Offering") of 2,400,000 shares of Common Stock. In January 1997, the
Company issued and sold 375,000 additional shares of Common Stock in connection
with an option granted to the underwriters of the Offering to purchase
additional shares of Common Stock to cover over-allotments. The Company
received additional net proceeds of approximately $3.8 million upon issuance of
these shares. From the date of the Offering through September 30, 1997, the
aggregate net proceeds of the Offering, which approximated $27.4 million, have
been used (1) to redeem all the issued and outstanding shares of the Company's
Redeemable Preferred Stock, Series B, par value $.01 per share, (2) for capital
and exploration expenditures, (3) to pay dividends accrued prior to conversion
to Common Stock on the Company's Senior Redeemable Convertible Preferred Stock,
Series C, par value $.01 per share and (4) for general corporate purposes,
including expenses associated with hiring additional personnel. The Company
plans to use the remaining proceeds to fund future capital and exploration
programs and for general corporate purposes.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company is a knowledge-based oil and gas exploration company whose
core competence and strategic focus is the utilization of 3-D imaging and other
advanced technologies in the search for commercial quantities of hydrocarbons.
The Company enters into arrangements that enable it to combine its expertise
and exploration capabilities with the operating skills of other oil and gas
companies. The Company participates in carefully selected exploration projects
as a non-operating working interest owner, sharing both risks and rewards with
its partners. The Company commenced operations in January 1993 to take
advantage of perceived opportunities emerging from changes in the domestic oil
and gas industry, including the divestiture of domestic oil and gas properties,
advances in technology and the outsourcing of specialized technical
capabilities. By reducing drilling risk through 3-D imaging and analysis, the
Company seeks to improve the expected return on investment in its oil and gas
projects. As a result of the development of the Company's business and the
utilization of a portion of the net proceeds of the Offering during the three
months and the nine months ended September 30, 1997, the period to period
comparisons of the Company's results of operations are not necessarily
meaningful and should not be relied upon as an indication of future
performance.
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the
Company during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C>
PRODUCTION:
Gas (MMcf) . . . . . . . . . . . . . . . . . . . 72.3 291.7
Oil and condensate (MBbls). . . . . . . . . . . . 2.1 4.2
Total equivalent (MMcfe) . . . . . . . . . . . . 84.9 316.9
AVERAGE SALES PRICE:
Gas (per Mcf) . . . . . . . . . . . . . . . . . . $ 2.41 $ 2.20
Oil and condensate (per Bbl) . . . . . . . . . . $19.85 $18.13
AVERAGE EXPENSES (PER MCFE):
Lease operating (1) . . . . . . . . . . . . . . . $ 0.29 $ 0.32
Depletion of oil and gas properties (2) . . . . . $ 0.43 $ 1.89
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1997
---- ----
<S> <C> <C>
PRODUCTION:
Gas (MMcf) . . . . . . . . . . . . . . . . . . . 123.2 821.0
Oil and condensate (MBbls) . . . . . . . . . . . 6.4 9.1
Total equivalent (MMcfe) . . . . . . . . . . . . 161.6 875.6
AVERAGE SALES PRICE:
Gas (per Mcf) . . . . . . . . . . . . . . . . . . $ 2.30 $ 2.27
Oil and condensate (per Bbl) . . . . . . . . . . $19.53 $19.42
AVERAGE EXPENSES (PER MCFE):
Lease operating (1) . . . . . . . . . . . . . . . $ 0.32 $ 0.34
Depletion of oil and gas properties (2) . . . . . $ 0.78 $ 1.60
</TABLE>
- -------------
(1) Includes all direct expenses of operating the Company's properties, as
well as severance and ad valorem taxes.
(2) Excludes depreciation and amortization of technical interpretation
equipment, office furniture and equipment and office leasehold
improvements, impairments of oil and gas properties and amortization
-9-
<PAGE> 10
of organization costs. Depletion of oil and gas properties for the nine
months ended September 30, 1996 reflects the year-to-date impact of
reserve additions in the third quarter. Accordingly, depletion expense
for the third quarter was reduced by approximately $30,000, or $0.35 per
Mcfe.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Oil and Gas Revenues. Oil and gas revenues increased to $718,356 for the three
months ended September 30, 1997 (the "1997 quarter") from $216,531 for the
three months ended September 30, 1996 (the "1996 quarter"). This increase was
attributable to higher production levels, partially offset by lower average
prices for sales of oil and gas. Production increased to 316.9 Mmcfe in the
1997 quarter, from 84.9 Mmcfe in the 1996 quarter. The increased production
resulted from successful wells drilled during the last three months of 1996 and
the first nine months of 1997. The average sales price for oil decreased 9% to
$18.13 during the 1997 quarter from $19.85 for the 1996 quarter. The average
sales price for natural gas decreased by 9% to $2.20 per Mcf for the 1997
quarter from $2.41 per Mcf for the 1996 quarter.
Lease Operating Expense. Lease operating expense (including production and ad
valorem taxes) increased to $102,284 for the 1997 quarter from $24,429 for the
1996 quarter. This increase was primarily attributable to the additional costs
of operating the new producing wells drilled during the last three months of
1996 and the first nine months of 1997. Lease operating expense per Mcfe
increased slightly from $0.29 per Mcfe for the 1996 quarter to $0.32 per Mcfe
for the 1997 quarter.
Depletion, Depreciation and Amortization Expense. Depletion of oil and gas
properties for the 1997 quarter increased to $598,946 from $36,342 for the 1996
quarter. The increase in depletion of oil and gas properties, which is
computed using the units of production method, resulted primarily from the
increase in oil and gas production during the 1997 quarter. Depletion of oil
and gas properties per Mcfe for the 1997 quarter also increased significantly
to $1.89 over the rate of $0.43 per Mcfe in the corresponding quarter in 1996.
Depletion of oil and gas properties for the nine months ended September 30,
1996 reflects the year-to-date impact of reserve additions in the third quarter
of 1996. Accordingly, depletion expense for the third quarter of 1996 was
reduced by approximately $30,000. This causes the depletion rate for this
period to be approximately $0.35 per Mcfe lower than the year-to-date rate.
The depletion rate for the nine months ended September 30, 1996 was $0.78 per
Mcfe. The increase in the 1997 depletion rate resulted from greater additions
to evaluated oil and gas property costs than the additions to oil and gas
reserves relative to the existing depletion rate per Mcfe. This was
principally the result of the costs of three unsuccessful wells drilled on an
Alabama prospect in 1997 plus the cost of an unsuccessful well drilled on the
Rich Ranch prospect in the third quarter of 1997.
Impairment of Oil and Gas Properties. No oil and gas impairment charges were
recorded in the 1997 quarter. Oil and gas impairment charges recorded during
the 1996 quarter totaled $182,054, primarily as a result of the evaluation of
prospects which had poor drilling results during the 1996 quarter. The
addition of the total investment in these prospects to evaluated costs without
a commensurate addition to proved reserves resulted in impairment charges under
the Company's full cost accounting policy for oil and gas activities.
General and Administrative Expense. General and administrative expense, net of
costs capitalized to exploration and development properties, increased to
$817,986 for the 1997 quarter from $504,172 for the 1996 quarter. This
increase was primarily attributable to expenses associated with hiring
additional personnel as part of the planned increase in the Company's
activities.
Rental Income. Rental income increased to $88,286 for the 1997 quarter from
$27,621 for the 1996 quarter. The Company derives rental income pursuant to an
agreement to exchange use of certain of the Company's technical and office
equipment by an independent seismic processing company for a percentage of the
gross fee billings of such seismic processing company. The rental income
recognized by the Company can vary significantly from quarter to quarter.
-10-
<PAGE> 11
Interest and Other Income. Interest and other income increased to $122,349
for the 1997 quarter from $57,255 for the 1996 quarter, primarily as a result
of higher interest income on increased cash and cash equivalent balances as a
result of the proceeds of the Offering.
Net Loss. The Company's net loss increased to $590,225 for the 1997 quarter
from $445,590 for the 1996 quarter, primarily as a result higher depletion of
oil and gas properties and general administrative costs, offset partially by
the substantial increase in revenues.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Oil and Gas Revenues. Oil and gas revenues increased to $2,040,332 for the
nine months ended September 30, 1997 (the "1997 period") from $408,459 for the
nine months ended September 30,1996 (the "1996 period"). This increase was
attributable to higher oil and gas production levels. Production increased by
over 400% to approximately 875.6 Mmcfe for the 1997 period, from 161.6 Mmcfe
for the 1996 period. The increased production resulted from successful wells
drilled during the last three months of 1996 and the first nine months of 1997.
The average sales price for oil was essentially unchanged at $19.42 during the
1997 period versus $19.53 for the 1996 period. The average sales price for
natural gas decreased by 1% to $2.27 per Mcf for the 1997 period from $2.30 per
Mcf for the 1996 period.
Lease Operating Expense. Lease operating expense (including production and ad
valorem taxes) increased to $296,938 for the 1997 period from $51,227 for the
1996 period. This increase was primarily attributable to the additional costs
of operating new producing wells drilled during the last three months of 1996
and the first nine months of 1997. Lease operating expense per Mcfe increased
slightly from $0.32 per Mcfe for the 1996 period to $0.34 per Mcfe for the 1997
period.
Depletion, Depreciation and Amortization Expense. Depletion of oil and gas
properties for the 1997 period increased to $1,401,643 from $126,342 for the
1996 period. The increase in depletion of oil and gas properties resulted from
the increase in oil and gas production during the 1997 period. Depletion of
oil and gas properties per Mcfe for the 1997 period also increased
substantially to $1.60 per Mcfe over the rate of $0.78 per Mcfe in the
corresponding period in 1996. The increase in the rate resulted from greater
additions to evaluated oil and gas property costs than the additions to oil and
gas reserves relative to the existing depletion rate per Mcfe. This was
principally the result of the costs of three unsuccessful wells drilled on an
Alabama prospect in 1997 plus the cost of an unsuccessful well drilled on the
Rich Ranch prospect in the third quarter of 1997.
Impairment of Oil and Gas Properties. No oil and gas impairment charges were
recorded in the 1997 period. Oil and gas impairment charges recorded during the
1996 period totaled $1,476,690, primarily as a result of the evaluation of
prospects which had poor drilling results during the period. The addition of
the total investment in these prospects to evaluated costs without a
commensurate addition to proved reserves resulted in impairment charges under
the Company's full cost accounting policy for oil and gas operations.
General and Administrative Expense. General and administrative expense, net of
costs capitalized to exploration and development projects, increased to
$2,168,883 for the 1997 period from $1,363,546 for the 1996 period. This
increase was primarily attributable to expenses associated with hiring
additional personnel as part of the planned increase in the Company's
activities.
Rental Income. Rental income increased to $205,483 for the 1997 period from
$120,098 for the 1996 period, reflecting the higher level of project activity
in the 1997 period. The Company derives rental income pursuant to an agreement
to exchange use of certain of the Company's technical and office equipment by
an independent seismic processing company for a percentage of the gross fee
billings of such seismic processing company. The rental income recognized by
the Company can vary significantly from period to period.
Interest and Other Income. Interest and other income increased to $530,492
for the 1997 period from $217,678 for the 1996 period, primarily as a result of
higher interest income on increased cash and cash equivalent balances as a
result of the proceeds of the Offering.
-11-
<PAGE> 12
Net Loss. The Company's net loss decreased to $1,091,157 for the 1997 period
from $2,271,570 for the 1996 period, primarily as a result of the charge for
the impairment of oil and gas properties in the 1996 period with no
corresponding charge in the 1997 period, and from the substantial increase in
revenues, offset by increases in depletion of oil and gas properties and
general and administrative expenses as detailed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital in the amount of $4.9
million. To date, the Company has funded its oil and gas exploration
activities principally through cash provided by the sale of equity securities.
On December 26, 1996, the Company completed an initial public offering (the
"Offering") for the sale of 2,400,000 shares of Common Stock. The net proceeds
of the Offering, after associated expenses, approximated $27.4 million,
including proceeds from the sale of 375,000 shares issued to cover the
underwriter's over-allotment. Of such proceeds, approximately $7.5 million was
used to redeem all the shares of the Series B Preferred Stock and to pay
dividends accrued on the Series C Preferred Stock. Through September 30, 1997,
the Company has used the net proceeds of the Offering plus net cash flow from
operations to make capital expenditures in the amounts of $15.6 million
related to its oil and gas exploration and development activities and $1.2
million for the acquisition of technical equipment used in its oil and gas
activities. The Company plans to use the remaining proceeds of the Offering to
fund future capital expenditures and for general corporate purposes.
Net cash used in investing activities for the nine months ended September 30,
1997 was $16.7 million. Of this total, $15.6 million was used for the
acquisition, exploration and development of oil and gas properties. During the
nine months ended September 30, 1996, net cash used in investing activities
amounted to $2.6 million, primarily as a result of the acquisition,
exploration and development of oil and gas properties in the amount of $3.7
million, offset in part by the proceeds from securities held to maturity of
$1.6 million.
The development of the Company's business has in the past required substantial
oil and gas capital expenditures. To achieve its goals, the Company
anticipates making oil and gas capital expenditures in excess of historical
levels to acquire, explore and develop oil and gas properties. Capital
expenditures for oil and gas exploration and production activities during the
nine month periods ended September 30, 1997 and 1996 were $15.6 million and
$3.7 million, respectively. Capital expenditures for the Company's oil and gas
exploration and production activities during the year ended December 31, 1997
were originally budgeted at $14.9 million. However, the Company has continued
to identify new opportunities for oil and gas capital investment. As a result,
total spending for 1997 is currently expected to be in excess of $20 million.
The Company expects that its available cash and expected cash flows from
operating activities will be sufficient to meet its financial obligations and
fund its planned exploration and drilling activities through December 31, 1997.
The Company's projections are dependent on the following assumptions: (i) there
are no significant declines in oil and gas prices below current levels or
anticipated seasonal lows, (ii) there are no significant declines in oil and
gas production from existing properties other than declines in production
currently anticipated based on engineering estimates of the decline curves
associated with such properties and (iii) the Company is able to discover and
produce commercial quantities of oil and gas and within the time frame the
Company has predicted. To enable it to continue to take advantage of oil and
gas exploration and development opportunities, the Company intends to seek
additional financing to satisfy its capital requirements subsequent to December
31, 1997. The Company anticipates satisfying its future capital requirements
from a combination of expected cash flow generated from operations, borrowings
from financial institutions (which may be secured by the Company's oil and gas
reserves) and from future public or private offerings of equity and/or debt
securities. In the absence of additional financing, the Company could be
required to modify the implementation and timing of its oil and gas exploration
and development program subsequent to December 31, 1997 since capital
expenditures relating thereto would be limited to cash flow from operating
activities. No assurance can be given that the Company will be able to obtain
additional financing on terms which would be acceptable to the Company.
-12-
<PAGE> 13
Subsequent to September 30, 1997, the Company entered into negotiations with a
commercial bank to obtain a credit facility, which will be secured by
substantially all of the Company's oil and gas properties. The credit facility
is expected to have an initial borrowing availability of $5 million.
The Company has never utilized commodity swaps for its oil and gas production
and it does not anticipate doing so in the foreseeable future. In addition,
the Company has never entered into any hedging transactions and has no current
intention to do so in the future. Additionally, although the Company presently
has no current commitment or intention to sell all or any portion of its
working interests, such sales could be used as a source of liquidity by the
Company in the future.
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by changing oil
and gas prices. If the price of oil and gas increases (decreases), there could
be a corresponding increase (decrease) in the operating costs that the Company
is required to bear for operations, as well as an increase (decrease) in
revenues. During 1997, the oil and gas exploration industry has collectively
experienced a significant increase in demand for contract drilling and other
services associated with drilling oil and gas wells. This increased demand has
created an environment of rising costs to obtain these services. There have
also been occasional shortages of equipment which have caused delays in
obtaining these services on a timely basis. The Company has incurred higher
costs for equivalent services in its 1997 capital spending compared to prior
years.
OTHER
In connection with stock options granted within one year prior to the initial
filing of the registration statement relating to the Offering, the Company
recorded deferred compensation expense based on the difference between the
option exercise price and the fair value of the common stock at the date of
grant (using the $11.00 per share Offering price as an estimate of the fair
value). As of September 30, 1997, the Company had unamortized deferred
compensation of $587,290 which will be charged to expense during the next four
years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable to the Registrant.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Actual results, events and circumstances could
differ materially from those set forth in such statements due to various
factors. Such factors include the possibility that the drilling of wells in
projects in which the Company has a working interest may be delayed or
abandoned, actual rates of production may not reach anticipated levels and
opportunities for the Company to acquire future working interests in additional
projects on terms considered reasonable to the Company may be limited or
unavailable, changing economic, regulatory and competitive conditions, other
technological developments and other risks and uncertainties, including those
set forth herein. The Company's future financial results will depend primarily
on: (i) the Company's ability to continue to source and screen potential
projects; (ii) the Company's ability to discover commercial quantities of
hydrocarbons; (iii) the market price for oil and gas; and (iv) the Company's
ability to fully implement its exploration and development program. There can
be no assurance that the Company will be successful in any of these respects or
that the prices of oil and gas prevailing at the time of production will be at
a level allowing for profitable production.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings
None
ITEM 2 Changes in Securities and Use of Proceeds
The Company has reported the use of proceeds from its Offering which
became effective on December 19, 1996, SEC file number 333-14473, on Form SR
and Amendment No. 1 to such Form SR, each previously filed with the Securities
and Exchange Commission. The net proceeds of the Offering were $27.4 million.
For the period from the date of the Offering through September 30, 1997, the
Company had expended $21.8 million of the proceeds from the Offering and had
$5.6 million in cash and cash equivalents remaining. The use of proceeds
included $6.7 million for redemption of preferred stock and $.8 million for
payment of preferred stock dividends (including $5.0 million and $.6 million,
respectively, in payments to directors, officers, persons owning 10 percent or
more of any class of securities or affiliates of the Company.) The remaining
$14.3 million of the expended proceeds from the Offering have been used to fund
capital expenditures for acquisition, exploration and development of oil and
gas properties. None of such capital expenditures were paid to directors,
officers, persons owning 10 percent or more of any class of securities or
affiliates of the Company. The use of proceeds described herein is consistent
with the anticipated use of proceeds described in the prospectus distributed in
connection with the Offering.
ITEM 3 Defaults Upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
None
ITEM 5 Other Information
None
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1997.
-14-
<PAGE> 15
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.
3DX TECHNOLOGIES INC.
(Registrant)
Date: November 14, 1997 By: /s/ C. EUGENE ENNIS
----------------- ------------------------------------
President and Chief
Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ RANDALL D. KEYS
----------------- ------------------------------------
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-15-
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
11.1 Computation of Earnings per Share.
27 Financial Data Schedule (for SEC use only)
</TABLE>
-16-
<PAGE> 1
EXHIBIT 11.1
------------
CALCULATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (445,590) $ (590,225)
Dividends on mandatorily redeemable Series C
senior preferred stock, $.01 par value. . . . . . . . . . ($165,195) --
Accretion on preferred stock . . . . . . . . . . . . . . . (13,711) --
---------- ----------
Net loss attributable to common shareholders . . . . . . . $ (624,496) $ (590,225)
========== ==========
Weighted average shares outstanding . . . . . . . . . . . . 3,151,949 7,218,177
========== ==========
Primary and fully diluted net loss per common share . . . . $ (.20) $(.08)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,271,570) (1,091,157)
Dividends on mandatorily redeemable Series C
senior preferred stock, $.01 par value. . . . . . . . . . (505,167) --
Accretion on preferred stock . . . . . . . . . . . . . . . (41,133) --
------------ ------------
Net loss attributable to common shareholders . . . . . . . $ (2,817,870) $ (1,091,157)
============ ============
Weighted average shares outstanding . . . . . . . . . . . . 3,150,410 7,183,913
============ ============
Primary and fully diluted net loss per common share . . . . $ (.89) $ (.15)
============ ============
</TABLE>
CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
THREE MONTH YEAR-TO-DATE
PERIOD PERIOD
WEIGHTED WEIGHTED
ISSUE DATE ACTUAL SHARES AVERAGE AVERAGE
---------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Common shares, December 31, 1995 . . . . . . . 2,987,908 2,987,908 2,987,908
Options issued within twelve months of IPO 1/1/96 160,917 160,917 160,917
Exercise of stock option . . . . . . . . . . . 5/15/96 3,124 3,124 1,585
--------- --------- ---------
Common shares, September 30, 1996 . . . . . . . 3,151,949 3,151,949 3,150,410
========= ========= =========
Common shares, December 31, 1996 . . . . . . . 6,841,177 6,841,177 6,841,177
Issuance of over-allotment shares . . . . . . . 1/25/97 375,000 375,000 342,033
Exercise of stock option . . . . . . . . . . . 6/27/97 2,000 2,000 703
--------- --------- ---------
Common shares, September 30, 1997 . . . . . . . 7,218,177 7,218,177 7,183,913
========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,606,094
<SECURITIES> 0
<RECEIVABLES> 675,749
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,346,354
<PP&E> 29,455,245
<DEPRECIATION> 6,630,914
<TOTAL-ASSETS> 29,179,043
<CURRENT-LIABILITIES> 1,494,995
<BONDS> 0
0
0
<COMMON> 72,182
<OTHER-SE> 27,611,866
<TOTAL-LIABILITY-AND-EQUITY> 29,179,043
<SALES> 2,040,332
<TOTAL-REVENUES> 2,776,307
<CGS> 296,938
<TOTAL-COSTS> 3,867,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,091,157)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,091,157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,091,157)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
