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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 MARCH 31, 1998
[ ] 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 of 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.
<TABLE>
<CAPTION>
Class Outstanding
----- -----------
<S> <C>
Common Stock, par value $0.01 per share 7,346,959 shares as of May 12, 1998
</TABLE>
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3DX TECHNOLOGIES INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Balance Sheets
March 31, 1998 (unaudited) and December 31, 1997............................................... 3
Statements of Operations for the
Three Months Ended March 31, 1998 and 1997 (unaudited)......................................... 4
Statements of Changes in Common Stockholders' Equity
for the Year Ended December 31, 1997 and for the Three Months
Ended March 31, 1998 (unaudited)............................................................... 5
Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 (unaudited)......................................... 6
Notes to Financial Statements (unaudited)...................................................... 7
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
</TABLE>
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3DX TECHNOLOGIES INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 154,839 $ 1,568,091
Accounts receivable ................................................. 885,378 1,181,083
Prepaid expenses .................................................... 117,968 110,681
------------ ------------
Total current assets .............................................. 1,158,185 2,859,855
------------ ------------
Property and equipment:
Oil and gas properties, full-cost method:
Evaluated ......................................................... 26,309,679 22,521,673
Unevaluated ....................................................... 9,622,236 10,098,698
Technical interpretation equipment .................................. 2,722,970 2,605,439
Other property and equipment ........................................ 273,780 273,780
------------ ------------
38,928,665 35,499,590
Less accumulated depletion, depreciation and amortization ........... (18,851,286) (17,127,846)
------------ ------------
20,077,379 18,371,744
Other assets ........................................................... 76,153 78,041
------------ ------------
$ 21,311,717 $ 21,309,640
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 4,038,491 $ 1,713,209
Accrued liabilities ................................................. 903,390 1,778,543
------------ ------------
Total current liabilities ......................................... 4,941,881 3,491,752
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued ..................................................... -- --
Common stock, $.01 par value, 20,000,000 shares authorized, 7,310,993
and 7,225,462 shares issued and outstanding, respectively.......... 73,110 72,255
Paid-in capital ..................................................... 38,195,511 38,085,357
Deferred compensation ............................................... (534,432) (512,132)
Accumulated deficit ................................................. (21,364,353) (19,827,592)
------------ ------------
Total stockholders' equity ........................................ 16,369,836 17,817,888
------------ ------------
$ 21,311,717 $ 21,309,640
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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3DX TECHNOLOGIES INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Oil and gas ............................................. $ 861,377 $ 672,270
Interest and other ...................................... 10,462 167,003
----------- -----------
Total revenues ........................................ 871,839 839,273
----------- -----------
Costs and expenses:
Lease operating ......................................... 106,849 41,065
Production taxes ........................................ 64,675 50,019
Impairment of oil and gas properties .................... 878,346 --
Depletion, depreciation, and amortization ............... 659,489 276,106
Interest expense and commitment fees .................... 8,166 --
General and administrative .............................. 691,075 512,541
----------- -----------
Total costs and expenses .............................. 2,408,600 879,731
----------- -----------
Net loss applicable to common stockholders ................. $(1,536,761) $ (40,458)
=========== ===========
Basic and diluted net loss per common share ................ $ (0.21) $ (0.01)
=========== ===========
Weighted average number of common shares outstanding ....... 7,272,106 7,112,010
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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3DX TECHNOLOGIES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited from January 1, 1998 through March 31, 1998)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .......... 6,841,177 $ 68,412 $ 34,189,700 $ (893,040) $ (8,791,448) $ 24,573,624
Shares issued for over-allotment ...... 375,000 3,750 3,796,396 -- -- 3,800,146
Shares issued for exercise of
stock options ...................... 9,285 93 3,155 -- 3,248
Deferred compensation related to
certain stock options .............. -- -- 96,106 (96,106) -- --
Compensation expense related to
certain stock options .............. -- -- -- 477,014 -- 477,014
Net loss .............................. -- -- -- -- (11,036,144) (11,036,144)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 .......... 7,225,462 72,255 38,085,357 (512,132) (19,827,592) 17,817,888
Shares issued for exercise of
stock options ...................... 35,531 355 12,216 -- -- 12,571
Deferred compensation related to
restricted stock award ............. 50,000 500 97,938 (98,438) -- --
Compensation expense related to
certain stock options .............. -- -- -- 76,138 -- 76,138
Net loss .............................. -- -- -- -- (1,536,761) (1,536,761)
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1998 ............. 7,310,993 $ 73,110 $ 38,195,511 $ (534,432) $(21,364,353) $ 16,369,836
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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3DX TECHNOLOGIES INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $ (1,536,761) $ (40,458)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depletion, depreciation and amortization ..................... 845,094 425,699
Impairment of oil and gas properties ......................... 878,346 --
Compensation expense related to certain stock options ........ 76,138 135,170
Decrease in accounts receivable .............................. 295,705 38,383
(Increase) decrease in prepaid expenses ...................... (7,287) 12,660
Increase (decrease) in accounts payable ...................... 54,169 (211,883)
Decrease in accrued liabilities .............................. (70,153) (149,183)
------------ ------------
Net cash provided by operating activities ......................... 535,251 210,388
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties ............................... (1,845,431) (4,761,835)
Purchases of technical and other equipment ........................ (117,531) (511,613)
Other ............................................................. 1,888 --
------------ ------------
Net cash used in investing activities ............................. (1,961,074) (5,273,448)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock proceeds, net of issuance costs ...................... 12,571 3,799,201
------------ ------------
Net cash provided by financing activities ......................... 12,571 3,799,201
------------ ------------
Net change in cash and cash equivalents .............................. (1,413,252) (1,263,859)
Cash and cash equivalents at beginning of the period ................. 1,568,091 17,521,745
------------ ------------
Cash and cash equivalents at end of the period ....................... $ 154,839 $ 16,257,886
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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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 March 31, 1998 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, 1998. Reference is made
to the Company's December 31, 1997 audited financial statements, including the
notes thereto. Certain reclassifications have been made to amounts reported in
previous periods to conform to the current presentation.
Statement of Financial Accounting Standards No 130, Reporting Comprehensive
Income ("SFAS 130"), was issued in June 1997, with the adoption required for
fiscal years beginning after December 31, 1997. SFAS 130 requires the
presentation of an additional income measure (termed "comprehensive income"),
which adjusts traditional net income for certain items that previously were only
reflected as direct charges to equity. For the quarters ended March 31, 1998 and
1997 there is not a difference between "traditional" net income and
comprehensive net income.
Statement of Financial Accounting Standards No 131, Disclosures About
Segments of an Enterprise and Related Information ("SFAS 131"), was issued in
June 1997, establishing standards for public business enterprises to report
information about operating segments and related information in interim and
annual financial statements. The Company has evaluated the applicability of SFAS
131 and has concluded that the Company does not meet the criteria which requires
segment reporting.
2. CREDIT AGREEMENT
On December 18, 1997, the Company executed a credit agreement with a
commercial bank. During April 1998, the bank redetermined the borrowing base and
established a current availability of $2 million under Tranche A of the credit
agreement. There were no borrowings under the credit agreement during the first
quarter of 1998. As of March 31, 1998, the Company was not in compliance with
certain covenants of the credit agreement pertaining to minimum working capital
and aging of accounts payable. The bank has agreed to waive these instances of
non-compliance through June 30, 1998. In the absence of an improvement in the
Company's working capital and accounts payable aging, future waivers from the
bank will be necessary.
3. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As reflected on the accompanying
balance sheet, the Company had a deficit in working capital of approximately
$3.8 million as of March 31, 1998. The Company had available borrowing capacity
under its credit agreement of $2.0 million on that date, all of which was
borrowed subsequent to March 31, 1998. The working capital deficit increased in
the first quarter because the Company made capital spending commitments with the
contractual understanding that it had $5 million of available borrowing capacity
under its credit agreement and the expectation that it would be successful in
obtaining additional sources of capital. Based on the bank's assessment of the
Company's proved reserves at December 31,
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1997 and related cash flow estimates, the bank subsequently reduced the
Company's available borrowing capacity to $2 million in April 1998, after many
of the capital spending commitments had been made. During the quarter ended
March 31, 1998, the Company was also concurrently seeking additional capital
through the sale of specified property interests and actively soliciting
additional equity investments to provide funding for its capital spending
commitments, neither of which has occurred to date.
The Company expects that its projected net cash flows from currently
producing properties will be sufficient to fund its cash general and
administrative costs for the remainder of 1998, including technical employee and
related costs which are capitalized under full-cost accounting, however, these
cash flows are not projected to be sufficient to fund the current deficit in
working capital. The Company's projections of cash flows from currently
producing properties could be adversely affected by declines in oil and gas
prices below current levels or anticipated seasonal lows and unanticipated
declines in oil and gas production from existing properties.
The Company's business requires substantial oil and gas capital
expenditures. The Company will require additional sources of financing to fund
drilling expenditures on properties currently owned by the Company and, to a
lesser extent, to fund leasehold costs and geological and geophysical costs on
its active exploration projects. The Company generally has the right, but not
the obligation, to participate for its percentage interest in drilling wells and
can decline to participate if it does not have sufficient capital resources at
the time such drilling operations are proposed. The Company can also potentially
transfer its right to participate in drilling wells in exchange for cash, a
reversionary interest, or some combination thereof. To recover its investment in
unevaluated properties, it is necessary for the Company to either participate in
drilling which finds commercial oil and gas production and produce such reserves
or receive sufficient value through the sale or transfer of its interests.
Management of the Company continues to be actively engaged in soliciting new
equity investors to provide funding for its capital program. Although the
Company has identified potential sources of capital, it does not currently have
any firm commitments from potential investors. The lack of firm commitments for
equity financing at this time, combined with the deficit in working capital,
raises uncertainty about the ability of the Company to continue as a going
concern. In the absence of additional funding, the Company may be required to
reduce its planned level of capital expenditures or pursue other financial
alternatives, which could include a sale or merger of the Company. The financial
statements do not include any adjustments which might result from the outcome of
this uncertainty.
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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 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 working interest partner, the Company shares all project costs in
proportion to its working interest percentage. In instances in which exploration
and development activities are unsuccessful, the Company incurs an economic loss
equal to its proportionate share of project costs prior to the time the project
is abandoned. Similarly, the Company incurs an economic loss if the Company's
proportionate share of revenue generated from production is insufficient to
cover the Company's share of project costs.
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 implement its
exploration and development program, which is dependent on the availability of
capital resources. There can be no assurance that the Company will be successful
in any of these respects, that the prices of oil and gas prevailing at the time
of production will be at a level allowing for profitable production, or that the
Company will be able to obtain additional funding to increase its currently
limited capital resources.
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the Company
during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- --------
<S> <C> <C>
PRODUCTION:
Gas (MMcf) .............................. 368.8 225.4
Oil and condensate (MBbls) .............. 6.6 2.0
Total equivalent (MMcfe) ................ 408.3 237.4
AVERAGE SALES PRICE:
Gas (per Mcf) ........................... $ 2.09 $ 2.77
Oil and condensate (per Bbl) ............ $ 13.78 $ 24.05
AVERAGE EXPENSES (PER MCFE):
Lease operating (1) ..................... $ 0.42 $ 0.38
Depletion of oil and gas properties ..... $ 1.62 $ 1.16
</TABLE>
- ------------
(1) Includes all direct expenses of operating the Company's properties, as well
as production and ad valorem taxes.
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THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Oil and Gas Revenues. Oil and gas revenues increased to $861,377 for the three
months ended March 31, 1998 (the "1998 quarter") from $672,270 for the three
months ended March 31, 1997 (the "1997 quarter"). This increase was primarily
attributable to higher oil and gas production levels. Production increased by
over 72% to 408.3 MMcfe for the 1998 quarter, from 237.4 MMcfe for the 1997
quarter. The increased production resulted principally from successful wells
drilled during the latter part of 1997 and during the 1998 quarter. The average
sales price for natural gas, which accounted for 90% of equivalent production
during the 1998 quarter, decreased by 25% to $2.09 per Mcf from $2.77 per Mcf
for the 1997 quarter. The average sales price for oil decreased to $13.78 per
barrel during the 1998 quarter versus $24.05 per barrel for the 1997 quarter.
Lease Operating Expense. Total lease operating expenses, including production
taxes, increased to $171,524 for the 1998 quarter from $91,084 for the 1997
quarter. This increase was primarily attributable to the additional costs of
operating new producing wells drilled during the latter part of 1997 and into
the 1998 quarter and is comparable to the increase in production during the
corresponding periods. Lease operating expenses per Mcfe of production increased
slightly to $0.42 per Mcfe for the 1998 quarter from $0.38 per Mcfe for the 1997
quarter.
Depletion, Depreciation and Amortization Expense. Depletion of oil and gas
properties for the 1998 quarter increased to $659,489 from $276,106 for the 1997
quarter. The increase in depletion of oil and gas properties resulted from both
the increase in oil and gas production during the 1998 period, as discussed
above, and an increase in the depletion rate for this period. Depletion of oil
and gas properties per Mcfe for the 1998 quarter increased to $1.62 per Mcfe, or
40%, from the rate of $1.16 per Mcfe in the corresponding period in 1997. 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.
Impairment of Oil and Gas Properties. Under the rules of the full-cost
accounting method as prescribed by the Securities and Exchange Commission, the
Company is required to compare the net costs of its evaluated properties to the
net present value of its proved reserves, using prices and costs in effect at
the end of each quarterly period. If such evaluated costs, net of accumulated
depreciation, depletion and amortization, exceed the present value of proved
reserves, an impairment charge is required to write down those excess costs.
During the 1998 quarter, an oil and gas impairment of $878,346 was recorded,
principally as a result of greater additions to evaluated costs than the net
present value of proved reserves added. No charge for impairment was recorded in
the 1997 quarter.
Interest Expense and Commitment Fees. Interest expense and commitment fees
increased to $8,166 for the 1998 quarter. No such expenses were incurred for the
1997 quarter. These expenses represent commitment fees and amortization of set
up costs associated with the credit agreement the Company executed with a
commercial bank in December 1997. There were no borrowings under the credit
agreement during the quarter ended March 31, 1998.
General and Administrative Expense. General and administrative expense, net of
costs capitalized to exploration and development projects, increased to $691,075
for the 1998 quarter from $512,541 for the 1997 quarter. This increase was
primarily attributable to (1) an increase in personnel costs associated with
hiring which occurred during 1997, offset by a decrease in the amount of
amortization of deferred compensation expense, (2) an increase in depreciation
expense associated with purchases of technical equipment, the majority of which
occurred in 1997, and (3) a decrease in overhead recovery received during the
first quarter of 1998 under the informal income-sharing arrangement between the
Company and a seismic processing company under which the Company receives a
percentage of the seismic processing
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company's gross billings in exchange for office space and the use of technical
equipment provided by the Company.
Interest and Other Income. Interest and other income decreased to $10,462 for
the 1998 quarter from $167,003 for the 1997 quarter. The Company had a
substantially higher balance of short term investments during the 1997 quarter
from the proceeds of the initial public offering.
Net Loss. As a result of the foregoing, the Company's net loss increased to
$1,536,761 for the 1998 quarter from $40,458 for the 1997 quarter. The most
significant factors which caused the increase in net loss was the increase in
depletion, depreciation and amortization and general and administrative expenses
as detailed above.
LIQUIDITY AND CAPITAL RESOURCES
See further discussion of these issues under note 3 to the financial
statements, "Going Concern."
To date, net cash provided by operating activities has been limited and 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 consummated an initial public offering of common stock which provided
approximately $23.6 million in proceeds, net of offering expenses. In January
1997, the Company's underwriters exercised their over-allotment option to
purchase 375,000 additional shares of common stock, resulting in additional net
proceeds to the Company of approximately $3.8 million. Approximately $7.5
million of the proceeds of the initial public offering was used to redeem all
the issued and outstanding shares of the Series B preferred stock and to pay
accrued dividends on the issued and outstanding Series C preferred stock. The
balance of the net proceeds were designated to fund the Company's exploration
and development capital expenditures and for general corporate purposes,
including expenses associated with hiring additional personnel.
The Company's business requires substantial oil and gas capital
expenditures. To achieve its near-term goals, the Company has been and will be
required to make oil and gas capital expenditures substantially in excess of its
net cash flow from operations in order to acquire, explore and develop oil and
gas properties. Cash outlays for capital expenditures for oil and gas
exploration and development activities during the quarters ended March 31, 1998
and 1997 were $1.8 million and $4.8 million, respectively. The level of capital
spending in 1998 will be dependent upon the Company's ability to obtain
additional sources of funding.
As of March 31, 1998, the Company had a deficit in working capital of
approximately $3.8 million. On December 18, 1997, the Company executed a credit
agreement with a commercial bank, the borrowing capacity of which was set at
$2.0 million in April 1998. There were no borrowings under the credit agreement
during the quarter ended March 31, 1998. Subsequent to March 31, 1998, the
Company borrowed $2.0 million under the credit agreement. Such amount is the
maximum amount currently available for borrowing under the credit facility. The
borrowing capacity is a function of the value of the Company's proved oil and
gas reserves, and is redetermined on a quarterly basis. The bank is currently
conducting a scheduled redetermination. Although the Company increased its
proved reserves as a result of successful drilling operations during the quarter
ended March 31, 1998, the bank has not concluded whether it will increase the
borrowing capacity at this time. The credit agreement is secured by
substantially all of the Company's oil and gas properties and contains
restrictions on dividends and additional liens and indebtedness and requires the
maintenance of a minimum current ratio and net worth, each as defined in the
credit agreement. As of March 31, 1998, the Company was not in compliance with
certain covenants of the credit agreement pertaining to minimum working capital
and aging of accounts payable. The bank has agreed to waive these instances of
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non-compliance through June 30, 1998. In the absence of an improvement in the
Company's working capital and accounts payable aging, future waivers from the
bank will be necessary.
As a result of the Company's periodic review of each of its oil and gas
exploration and development properties and its available capital, the Company
has occasionally sold partial interests in specific oil and gas projects to
other investors to reduce its total investment commitment to such projects. No
gain or loss has been recognized on these transactions. The Company is currently
reviewing its portfolio to identify properties to be marketed to industry
partners for cash consideration, reversionary working interests or some
combination thereof. Such interests may consist of both producing wells and
future drilling locations. There can be no assurance, however, that the Company
will be able to sell any such interests, or that the terms of such potential
sales would be acceptable to the Company.
The Company expects that its projected cash flows from currently producing
properties will be sufficient to fund its cash general and administrative costs
for the remainder of 1998, including technical employee and related costs which
are capitalized under full-cost accounting, however, these cash flows are not
projected to be sufficient to fund the current deficit in working capital. The
Company's projections of cash flows from currently producing properties could be
adversely affected by declines in oil and gas prices below current levels or
anticipated seasonal lows and unanticipated declines in oil and gas production
from existing properties.
The Company intends to seek additional financing to satisfy its capital
requirements. The Company is currently evaluating alternatives to obtain
additional equity financing, which include sales of common or preferred stock.
In the absence of additional financing, the Company anticipates that it will be
required to modify the implementation and timing of its oil and gas exploration
and development capital spending for 1998, which modification could have a
material adverse effect on the Company. No assurance can be given that the
Company will be able to obtain additional financing on terms which would be
acceptable to the Company, if at all. The Company's inability to obtain
additional financing would have a material adverse effect on the Company.
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 cost that the
Company is required to bear for operations, as well as an increase (decrease) in
revenues. Historically, general price inflation has had a minimal effect on the
Company.
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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 implement its exploration and development program, which is dependent
on the availability of capital resources. 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, or that the Company will be able to obtain additional
funding to increase its currently limited capital resources.
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 March 31, 1998, the Company had
expended all of the proceeds from the Offering. 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 $19.9 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 March 31, 1998.
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: May 20, 1998 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
</TABLE>
<PAGE> 1
EXHIBIT 11.1
CALCULATION OF NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net loss attributable to common shareholders .......... $(1,536,761) $ (40,458)
=========== ===========
Weighted average shares outstanding ................... 7,272,106 7,112,010
=========== ===========
Basic and diluted net loss per common share ........... $ (0.21) $ (0.01)
=========== ===========
</TABLE>
CALCULATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
ACTUAL WEIGHTED
ISSUE DATE SHARES AVERAGE
----------- ----------- -----------
<S> <C> <C> <C>
Common shares, December 31, 1996 ............ 6,841,177 6,841,177
Issuance of over-allotment shares ........... 1/25/97 375,000 270,833
----------- -----------
Common shares, March 31, 1997 ............... 7,216,177 7,112,010
=========== ===========
Common shares, December 31, 1997 ............ 7,225,462 7,225,462
Exercise of stock option .................... 01/09/98 31,655 28,841
Exercise of stock option .................... 01/13/98 3,876 3,359
Restricted stock award ...................... 03/06/98 50,000 14,444
----------- -----------
Common shares, March 31, 1998 ............... 7,310,993 7,272,106
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 154,839
<SECURITIES> 0
<RECEIVABLES> 885,378
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,158,185
<PP&E> 38,928,665
<DEPRECIATION> 18,851,286
<TOTAL-ASSETS> 21,311,717
<CURRENT-LIABILITIES> 4,941,881
<BONDS> 0
0
0
<COMMON> 73,110
<OTHER-SE> 16,296,726
<TOTAL-LIABILITY-AND-EQUITY> 21,311,717
<SALES> 861,377
<TOTAL-REVENUES> 871,839
<CGS> 171,524
<TOTAL-COSTS> 2,408,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,536,761)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,536,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,536,761)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
