SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2002.
( ) 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 small business issuer 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, ND 58801
(Address of principal executive offices)
Issuer's telephone number: (701) 572-2020
_________________________________________
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 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 _________.
_________________________________________
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 2002
Common Stock, par value $.01 per share 3,787,477 shares
_____________________________________________________________
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(March 31, 2002 and December 31, 2001)
Consolidated Statements of Operations 4
(Three months ended March 31, 2002 and 2001)
Consolidated Statements of Cash Flows 5
(Three months ended March 31, 2002 and 2001)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION 9
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2002 2001
ASSETS ------------ ------------
CURRENT ASSETS:
Cash and equivalents $ 139,049 $ 191,328
Trade receivables, net 643,857 626,359
Inventories 237,682 196,858
Income tax receivable 65,000 23,000
Prepaid expenses 41,858 25,155
------------ ------------
Total current assets 1,127,446 1,062,700
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 22,015,933 21,594,355
Properties not subject to amortization 238,947 239,067
Drilling rig and equipment 1,067,151 968,064
Leonardite plant and equipment 3,244,605 3,244,605
Other 760,431 759,742
------------ ------------
27,327,067 26,805,833
Less accumulated depreciation, depletion
amortization and impairment (19,897,091) (19,689,932)
------------ ------------
Net property, plant and equipment 7,429,976 7,115,901
------------ ------------
OTHER ASSETS 18,125 23,118
------------ ------------
TOTAL ASSETS $ 8,575,547 $ 8,201,719
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 819,077 $ 938,807
Accrued expenses 179,414 222,675
Current maturities of long-term debt 134,516 125,000
------------ ------------
Total current liabilities 1,133,007 1,286,482
LONG-TERM DEBT, less current maturities 1,703,978 1,035,228
DEFERRED INCOME TAXES 351,000 344,000
------------ ------------
Total liabilities 3,187,985 2,665,710
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares;
issued and outstanding, 3,787,477
and 3,794,227 shares, respectively 37,875 37,942
Additional paid-in capital 384,185 395,290
Retained earnings 4,965,502 5,102,777
------------ ------------
Total stockholders' equity 5,387,562 5,536,009
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,575,547 $ 8,201,719
============ ============
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
----------------------------
2002 2001
------------ ------------
OPERATING REVENUES:
Oil and gas sales $ 552,265 $ 882,505
Leonardite sales 91,550 279,210
Drilling revenue 95,484 --
------------ ------------
739,299 1,161,715
------------ ------------
OPERATING COSTS AND EXPENSES:
Oil and gas production 387,160 498,471
Cost of leonardite sold 126,238 251,736
Drilling costs 57,989 --
Depreciation and depletion 207,159 160,882
Selling, general and administrative 120,419 110,866
------------ ------------
898,965 1,021,955
------------ ------------
Operating income (loss) (159,666) 139,760
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (17,328) (14,056)
Interest income 219 3,655
Other income, net 4,500 5,326
------------ ------------
(12,609) (5,075)
------------ ------------
Income (loss) before income taxes (172,275) 134,685
Income tax (expense) benefit 35,000 (17,000)
------------ ------------
Net income (loss) $ (137,275) $ 117,685
============ ============
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ (.04) $ .03
============ ============
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (137,275) $ 117,685
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and depletion 207,159 160,882
Deferred income taxes 7,000 17,000
Other 4,993 559
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables (17,497) (130,502)
Inventories (40,824) 15,855
Income tax receivable (42,000) --
Prepaid expenses and other (16,704) 962
Increase (decrease) in:
Accounts payable 84,560 189,665
Accrued expenses (43,261) (16,322)
------------ ------------
Net cash provided by
operating activities 6,151 355,784
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property,
plant and equipment (725,524) (280,443)
------------ ------------
Net cash used in
investing activities (725,524) (280,443)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 710,000 --
Principal payments on long-term debt (31,734) (20,833)
Cost to purchase common stock (11,172) (100,187)
------------ ------------
Net cash provided by (used in)
financing activities 667,094 (121,020)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS (52,279) (45,679)
CASH AND EQUIVALENTS, beginning of period 191,328 315,191
------------ ------------
CASH AND EQUIVALENTS, end of period $ 139,049 $ 269,512
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 17,328 $ 14,056
Income taxes -- --
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In our opinion, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly our financial position as of March 31,
2002, and the results of operations and cash flows for the three month
periods ended March 31, 2002 and 2001.
The results of operations for the period ended March 31, 2002, 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 our Annual Report on Form 10-KSB for the Year Ended December 31,
2001.
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. We assess performance and allocate resources based upon our products
and services, which consist principally of: A) oil and gas exploration,
development and production; B) mining and processing of leonardite; and C)
oil and gas drilling. All operations are conducted within the United
States. Operations of the drilling segment commenced in January 2002.
Accordingly, there are no amounts in the prior year period for this
segment. Sales and other material transactions between the segments have
been eliminated. Certain corporate costs, assets and capital expenditures
that are considered to benefit the entire organization are not allocated to
our 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 our identifiable net assets as of March 31, 2002
and December 31, 2001
2002 2001
------------ ------------
Oil and gas $ 5,911,568 $ 5,539,560
Leonardite 903,237 976,107
Drilling 1,086,435 968,064
General corporate activities 674,307 717,988
------------ ------------
$ 8,575,547 $ 8,201,719
============ ============
Presented below is information concerning our operating segments for
the quarters ended March 31, 2002 and 2001:
2002 2001
Revenue: ------------ ------------
Oil and gas $ 552,265 $ 882,505
Leonardite 91,550 279,210
Drilling 95,484 --
------------ ------------
$ 739,299 $ 1,161,715
============ ============
Income (loss) before income taxes:
Oil and gas $ 16,645 $ 254,464
Leonardite (64,555) (5,011)
Drilling 10,413 --
General corporate activities (122,169) (109,693)
Other income and expenses (12,609) (5,075)
------------ ------------
$ (172,275) $ 134,685
============ ============
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
This discussion and analysis of financial condition and results of
operations, and other sections of this report contain forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil, gas and leonardite
industry, the economy and about us. Words such as "may," "will," "expect,"
"anticipate," "estimate" or "continue," or comparable words are intended to
identify forward-looking statements. These statements are not guarantees
of future performance and involve risks, uncertainties and assumptions that
are difficult to predict with regard to timing, extent, likelihood and
degree of occurrence. Therefore, our actual results and outcomes may
materially differ from what may be expressed or forecasted in our forward-
looking statements. Furthermore, we undertake no obligation to update,
amend or clarify forward-looking statements, whether as a result of new
information, future events or otherwise.
The following discussion should be read in conjunction with our
consolidated financial statements and related notes included elsewhere
herein. Important factors that could cause actual results to differ
materially from the forward-looking statements include, but are not limited
to, changes in production volumes; worldwide supply and demand which affect
commodity prices for oil; the timing and extent of our success in
discovering, acquiring, developing and producing oil, natural gas and
leonardite reserves; risks inherent in the drilling and operation of oil
and natural gas wells and the mining and processing of leonardite products;
future production and development costs; the effect of existing and future
laws, governmental regulations and the political and economic climate of
the United States; and conditions in the capital markets.
We caution the reader that a number of important factors discussed
herein, and in other reports filed with the Securities and Exchange
Commission, particularly our Annual Report on Form 10-KSB for the Year
Ended December 31, 2001, could affect our actual results and cause actual
results to differ materially from those discussed in forward-looking
statements.
Results of Operations - Three Months Ended March 31, 2002, compared to
Three Months Ended March 31, 2001
Information concerning our oil and gas operations for the three months
ended March 31, 2002, is set forth in the table below:
Oil and Gas Operations
Percent Increase
Three Months Ended (Decrease) from
March 31, 2002 2001 Period
------------------ ----------------
Oil and gas production
sold (BOE) 34,886 (8%)
Average price per BOE $ 15.83 (32%)
Oil and gas revenue $ 552,265 (37%)
Production costs $ 387,160 (22%)
Average production cost
per BOE $ 11.10 (16%)
Oil and gas production sold during the first quarter 2002 decreased by
2,900 barrels of oil equivalent (BOE) or 8% compared to the same quarter in
2001. This decrease primarily reflects the average decline of our wells as
little of the increased production we are striving for this year was in
place by the end of the first quarter 2002. So far this year, our level of
drilling has increased materially due to having an available rig. We
expect that activity to translate into production increases during the
remainder of 2002 as long as oil prices continue to justify further
drilling.
The average price for our oil and gas commodities sold during the first
quarter fell dramatically from $23.38 in the first quarter 2001 to $15.83
in the same period of 2002 for a quarter-to-quarter decline of 32%. First
quarter 2001 oil prices were the highest in that year while first quarter
2002 may be this year's lowest. Due principally to the change in our
average price per BOE, oil and gas revenue decreased $330,000 or 37%
compared to the same period in 2001. Revenue was also reduced by the 8%
lower volume of oil sold, as discussed above. Oil and gas production costs
declined $111,000 or 22%, mostly due to our efforts to reduce workover
activity during a quarter with low oil prices. Although we minimized
discretionary workover activity, we did not shut in any wells or take other
drastic measures to reduce production costs, as we believed the lower world
oil prices were likely to be short lived. Production costs on a per-
equivalent-barrel basis for the first quarter of 2002 were reduced $2.11 or
16% from $13.21 for the first quarter 2001 to $11.10 this quarter due to
the efforts to reduce costs without shutting down wells.
Information concerning our leonardite operations for the three months
ended March 31, 2002, is set forth in the table below:
Leonardite Operations
Percent Increase
Three Months Ended (Decrease) from
March 31, 2002 2001 Period
------------------ ----------------
Leonardite production
sold (tons) 977 (69%)
Average revenue per ton $ 93.71 4%
Leonardite revenue $ 91,550 (67%)
Cost of leonardite sold $ 126,238 (50%)
Average production cost
per ton $ 129.21 60%
Leonardite revenues decreased $188,000 or 67% due to a 69% decrease in
the number of tons sold offset by a 4% increase in average revenue per ton.
The lower sales reflect the sharp decline in drilling in the Gulf States
area during the first quarter of 2002 compared to the prior year's quarter.
Management believes that the fluctuation of oil prices contributed to the
reduction in drilling. The 4% increase in average revenue per ton was
within the normal range for the sales of our basic product. Cost of
leonardite sold decreased $125,000 or 50% due to the 69% decrease in
production sold. Average production costs per ton increased $48.27 or 60%
due to our fixed costs, the significant lower volume sold and maintaining
our inventory level so we are ready to ship once drilling in the Gulf picks
up again.
Drilling Operations
Our new subsidiary, Western Star Drilling Company ("WSDC"), commenced
operations January 2, 2002, and during the first quarter 2002, drilled one
well for us and one well for another operator. Drilling revenue from the
external project was $95,000, and associated costs of that project were
$58,000 yielding an operating income from drilling operations of $37,000
before depreciation. These results of operations can not be compared to
the same quarter of the previous year, as drilling operations did not exist
in the prior year's first quarter.
Consolidated Analysis
Total operating revenue decreased $422,000 or 36% due to decreased
leonardite sales and oil prices that was partially offset by our new
drilling revenues previously discussed. Total operating expenses decreased
$123,000 or 12% primarily because of the decreased leonardite and oil and
gas expenses discussed above. Operating income decreased to a loss of
$160,000 compared to an operating income of $140,000 for the same period in
2001. After provisions for non-operating expenses and income taxes, the
result of consolidated operations was a net loss of $137,000 or $.04 per
share for the first quarter of 2002 compared to a net income of $118,000 or
$.03 for the same period in 2001.
Liquidity and Capital Resources
At March 31, 2002, we had a working capital deficit of $6,000 compared to
a working capital deficit of $224,000 at December 31, 2001. Our current
ratio was 1.00 to 1 at March 31, 2002, compared to .83 to 1 at year-end
2001.
Net cash provided by operating activities was $6,000 for the quarter
ended March 31, 2002, compared to $356,000 for the same period in 2001.
Cash was utilized to make payments of $726,000 for additions to property,
plant and equipment, $32,000 for payment on long-term debt and $11,000 for
stock repurchases. During the first quarter of 2002, we borrowed $700,000
on our revolving line of credit to finance drilling in our South Starbuck
Madison Unit and the retrofitting of the drilling rig. We also borrowed
$10,000 to finance the purchase of a vehicle for WSDC.
We believe our future cash requirements can be met by cash flows from
operations and, if necessary, borrowings on our line-of-credit. Future
cash requirements might also be provided by possible forward sales of oil
reserves or additional debt or equity financing.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party, nor are any of our properties subject, to any pending
material legal proceedings. We know of no legal proceedings contemplated
or threatened against us.
Item 2. Changes in Securities and Use of Proceeds.
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) Exhibits.
None
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
GEORESOURCES, INC.
May 14, 2002
/S/ J. P. Vickers
------------------------------------
J. P. Vickers
Chief Executive Officer
Chief Financial Officer