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 June 30, 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 August 12, 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
(June 30, 2002 and December 31, 2001)
Consolidated Statements of Operations 4
(Three months ended June 30, 2002 and 2001
and six months ended June 30, 2002 and 2001)
Consolidated Statements of Cash Flows 5
(Three months ended June 30, 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 11
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 294,192 $ 191,328
Trade receivables, net 646,375 626,359
Inventories 236,087 196,858
Income tax receivable 68,000 23,000
Prepaid expenses 48,011 25,155
------------ ------------
Total current assets 1,292,665 1,062,700
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 22,225,381 21,594,355
Properties not subject to amortization 236,206 239,067
Drilling rig and equipment 1,071,266 968,064
Leonardite plant and equipment 3,244,605 3,244,605
Other 757,931 759,742
------------ ------------
27,535,389 26,805,833
Less accumulated depreciation, depletion
amortization and impairment (20,107,443) (19,689,932)
------------ ------------
Net property, plant and equipment 7,427,946 7,115,901
------------ ------------
OTHER ASSETS 16,250 23,118
------------ ------------
TOTAL ASSETS $ 8,736,861 $ 8,201,719
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 722,088 $ 938,807
Accrued expenses 183,461 222,675
Current maturities of long-term debt 133,530 125,000
------------ ------------
Total current liabilities 1,039,079 1,286,482
LONG-TERM DEBT, less current maturities 1,972,728 1,035,228
DEFERRED INCOME TAXES 339,000 344,000
------------ ------------
Total liabilities 3,350,807 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 4,963,994 5,102,777
------------ ------------
Total stockholders' equity 5,386,054 5,536,009
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,736,861 $ 8,201,719
============ ============
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
OPERATING REVENUES:
Oil and gas sales $ 686,275 $ 789,217 $ 1,238,540 $ 1,671,722
Leonardite sales 152,520 274,165 244,070 553,375
Drilling revenue 78,927 -- 174,411 --
----------- ----------- ----------- -----------
917,722 1,063,382 1,657,021 2,225,097
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Oil and gas production 375,367 401,434 762,527 899,905
Cost of leonardite sold 142,267 205,474 268,505 457,210
Drilling costs 66,092 -- 124,081 --
Depreciation and depletion 210,352 157,530 417,511 318,412
Selling, general
and administrative 132,064 130,347 252,483 241,213
----------- ----------- ----------- -----------
926,142 894,785 1,825,107 1,916,740
----------- ----------- ----------- -----------
Operating income (8,420) 168,597 (168,086) 308,357
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (23,626) (10,746) (40,954) (24,802)
Interest income 10,888 3,445 11,107 7,100
Other income, net 4,650 5,325 9,150 10,651
----------- ----------- ----------- -----------
(8,088) (1,976) (20,697) (7,051)
----------- ----------- ----------- -----------
Income (loss) before
income taxes (16,508) 166,621 (188,783) 301,306
Income tax (expense) benefit 15,000 (20,000) 50,000 (37,000)
----------- ----------- ----------- -----------
Net income (loss) $ (1,508) $ 146,621 $ (138,783) $ 264,306
=========== =========== =========== ===========
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ -- $ .04 $ (.04) $ .07
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (138,783) $ 264,306
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 417,511 318,412
Deferred income taxes (5,000) 37,000
Other 6,868 4,281
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables (20,015) 64,304
Inventories (39,229) 58,282
Income tax receivable (45,000) --
Prepaid expenses and other (22,857) (38,233)
Increase (decrease) in:
Accounts payable (185,689) 232,197
Income taxes payable -- (40,000)
Accrued expenses (39,214) (4,836)
------------ ------------
Net cash provided by (used in)
operating activities (71,408) 895,713
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property,
plant and equipment (760,586) (713,244)
------------ ------------
Net cash used in
investing activities (760,586) (713,244)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,010,000 50,000
Principal payments on long-term debt (63,970) (52,083)
Debt issue costs -- (15,000)
Cost to purchase common stock (11,172) (118,174)
------------ ------------
Net cash used in
financing activities 934,858 (135,257)
------------ ------------
NET INCREASE IN CASH AND EQUIVALENTS 102,864 47,212
CASH AND EQUIVALENTS, beginning of period 191,328 315,191
------------ ------------
CASH AND EQUIVALENTS, end of period $ 294,192 $ 362,403
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 40,954 $ 84,388
Income taxes 1,650 45,625
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 June 30, 2002, and the
results of operations and cash flows for the three months and six months
ended June 30, 2002 and 2001.
The results of operations for the period ended June 30, 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 June 30, 2002 and
December 31, 2001
2002 2001
------------ ------------
Oil and gas $ 5,934,945 $ 5,539,560
Leonardite 909,521 976,107
Drilling 1,109,850 968,064
General corporate activities 782,545 717,988
------------ ------------
$ 8,736,861 $ 8,201,719
============ ============
Presented below is information concerning our operating segments for the
three- and six-month periods ended June 30, 2002 and 2001:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Revenue:
Oil and gas $ 686,275 $ 789,217 $ 1,238,540 $ 1,671,722
Leonardite 152,520 274,165 244,070 553,375
Drilling 78,927 -- 174,411 --
----------- ----------- ----------- -----------
$ 917,722 $ 1,063,382 $ 1,657,021 $ 2,225,097
=========== =========== =========== ===========
Income (loss) before income taxes:
Oil and gas $ 160,144 $ 261,934 $ 176,789 $ 516,398
Leonardite (20,455) 32,226 (85,010) 27,215
Drilling (15,191) -- (4,778) --
General corporate
activities (132,918) (125,563) (255,087) (235,256)
Other income and
expenses (8,088) (1,976) (20,697) (7,051)
----------- ----------- ----------- -----------
$ (16,508) $ 166,621 $ (188,783) $ 301,306
=========== =========== =========== ===========
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 and Six Months Ended June 30, 2002,
compared to Three Months and Six Months Ended
June 30, 2001
Information concerning our oil and gas operations for the three months
and six months ended June 30, 2002, is set forth in the table below:
Oil and Gas Operations
% Increase % Increase
Three Months (Decrease) Six Months (Decrease)
Ended From 2001 Ended From 2001
June 30, 2002 Period June 30, 2002 Period
------------- ---------- ------------- ----------
Oil and gas production
sold (BOE) 33,858 (5%) 68,744 (6%)
Average price per BOE $ 20.27 (9%) $ 18.02 (21%)
Oil and gas revenue $ 686,275 (13%) $ 1,238,540 (26%)
Production costs $ 375,367 (6%) $ 762,527 (15%)
Average production cost
per BOE $ 11.09 (2%) $ 11.09 (10%)
Oil and gas production sold during the second quarter of 2002 decreased
by 1,700 barrels of oil equivalent (BOE) or 5% compared to the same quarter
in 2001 and decreased 4,600 BOE or 6% for the first half of 2002 compared
to that period in 2001. These declines are due to our reduced level of new
drilling in recent years and to the fact that drilling in first quarter
2002 did not fully replace the normal decline of our wells through the
second quarter. We also had plans to return our Hammond Gas Field, located
in southeast Montana, to production during 2002, but we put that project on
hold for the time being due to weak natural gas prices. Most of our oil
and gas operations during 2002 were targeted toward development drilling in
our South Starbuck Madison Unit, and preliminary efforts for the creation
of additional future unitizations for the purpose of possible secondary
recovery by waterflood. Work on these projects is expected to continue in
light of recent oil prices.
Oil and gas revenue decreased $103,000 or 13% for the three months ended
June 30, 2002, and decreased $433,000 or 26% for the six months ended June
30, 2002, compared to the same periods in 2001. These declines were mostly
due to lower oil prices. Second quarter prices per BOE were $1.92 or 9%
lower. First half 2002 prices were $4.78 or 21% lower compared to the same
periods in 2001. Although oil prices remained relatively stable through
the first half of 2002, they are still lower than the prices that existed
in that period of 2001. We believe that the Company is positioned to add to
its production and reserves of oil and/or gas in the next few years.
Second quarter 2002 oil and gas production costs were also lower than the
prior year, declining $26,000 or 6%. First half 2002 costs were lower by
$137,000 or 15%. Production costs decreased due to lower severance tax
expense on lower revenues and due to efforts to reduce discretionary
repairs and maintenance during periods of lower oil prices. These first
half 2002 cost reductions were made without shutting in wells or taking
other significant measures. Production costs on a per-equivalent-barrel basis
for the second quarter of 2002 decreased $0.20 or 2% and decreased $1.19 or
10% the first half of 2002 compared to the same period in 2001 for the
reasons previously discussed.
Information concerning our leonardite operations for the three months
and six months ended June 30, 2002, is set forth in the table below:
Leonardite Operations
% Increase % Increase
Three Months (Decrease) Six Months (Decrease)
Ended From 2001 Ended From 2001
June 30, 2002 Period June 30, 2002 Period
------------- ---------- ------------- ----------
Leonardite production
sold (tons) 1,648 (45%) 2,625 (57%)
Average revenue per ton $ 92.55 2% $ 92.98 3%
Leonardite revenue $ 152,520 (44%) $ 244,070 (56%)
Cost of leonardite sold $ 142,267 (31%) $ 268,505 (41%)
Average production cost
per ton $ 86.33 26% $ 102.29 37%
Leonardite production sold decreased 1,359 tons or 45% and 3,492 tons or
57%, respectively, for the three- and six-month periods ended June 30,
2002, compared to the equivalent periods in 2001. These lower sales
continue to reflect the sharp decline of drilling in the Gulf Coast States
compared to the same period in 2001. The costs associated with rig
operations on inland drilling compared to shelf operations caused the
offshore operators to back off on the gulf prospects that they had intended
to drill. In addition, gas storage has been at an all time high,
contributing to reluctance to drill offshore prospects.
Information from Baker Hughes indicates that in the offshore areas of
Louisiana and Texas, 61 fewer rigs, or 37% less rigs, were operating in
second quarter of 2002 compared to the same quarter in 2001, and 64 fewer
rigs, or 39% less rigs, were operating in the first six months of 2002
compared to the same period in 2001.
Despite the lower rig counts discussed above, we have started to see an
increase in our leonardite tonnages shipped. We believe that for sales to
increase significantly, the operators need to have confidence that there will
be some price stability in oil and gas. Another fact that is important to
note is that we have not lost any of our customers during times of decreased
drilling.
Leonardite revenue decreased $122,000 or 44%, and $309,000 or 56%,
respectively, for the three- and six-month periods ended June 30, 2002
compared to the prior periods due to the lower sales discussed above.
Revenue per ton for the three- and six-month periods ended June 30, 2002,
varied only slightly, and was within a normal range of average revenue per
ton for several products.
Cost of leonardite sold decreased $63,000 or 31%, and $189,000 or 41%, for
the three- and six-month periods, respectively, compared to the same
periods in 2001 due to the decline in sales. Average per ton production
costs for the three- and six-month periods ended June 30, 2002, increased
$18.00 or 26% and $27.55 or 37% compared to the same periods in 2001.
These increases relate to both our fixed costs, which do not decline with
reduced production sold, and the decrease in sales volume sold.
Drilling Operations
Our oil and gas drilling subsidiary, Western Star Drilling Company,
commenced operations January 2, 2002, and during the first half of 2002,
drilled two wells for us and two wells for other operators. Drilling
revenues from the external projects were $174,000, and associated
costs of those projects were $124,000 yielding an operating income from
drilling operations of $50,000 before depreciation. These results of
operations can not be compared to the previous year, because drilling
operations did not exist.
Consolidated Analysis
Total operating revenues decreased $146,000 or 14% and $568,000 or 26%
for the three- and six-month periods ended June 30, 2002, compared to the
same periods in 2001. These decreases were due to decreased leonardite
sales and lower oil production and prices, which were partially offset by
our new drilling revenues.
Operating expenses for oil and gas, leonardite, and drilling were
previously discussed. Depreciation, depletion and amortization the three
and six months ended June 30, 2002 increased compared to the prior year
periods because of depreciation of the drilling rig that commenced
operations in January 2002 and because of higher depletion of oil and gas
properties. Selling, general and administrative was approximately the same
for each period. Total operating expenses for the six months decreased
$92,000 or 5% and increased $31,000 or 4% for the three months ended June
30, 2002, respectively, compared to the same periods in 2001. These
changes were due to decreased oil and gas and leonardite expenses offset by
the expenses for the new drilling subsidiary.
Operating income decreased to a loss of $8,000 and $168,000,
respectively, for the three- and six-month periods ended June 30, 2002,
compared to income of $169,000 and $308,000 for the same periods in 2001.
After provisions for non-operating expenses and income taxes, the
consolidated net loss was $2,000 or $0.00 per share and $139,000 or $.04
per share for the three- and six-month periods ended June 30, 2002,
compared to a net income of $147,000 or $.04 per share and $264,000 or
$.07 per share for the same periods in 2001.
Liquidity and Capital Resources
At June 30, 2002, we had working capital of $254,000 compared to a
working capital deficit of $224,000 at December 31, 2001. Our current
ratio was 1.24 to 1 at June 30, 2002, compared to .83 to 1 at year-end
2001.
Net cash used by operating activities was $71,000 for the six months
ended June 30, 2002, compared to net cash provided by operating activities
of $896,000 for the same period in 2001. Cash was utilized in 2002 to
make payments of $761,000 for additions to property, plant and equipment,
$64,000 for payments on long-term debt and $11,000 for stock repurchases.
During the first half of 2002, we borrowed $1,000,000 to finance our
drilling program and the retrofitting of the drilling rig.
We believe our future cash requirements can be met by cash flows from
operations and, if necessary, borrowings on our existing $3,000,000 line-of-
credit. Our line-of credit is with Wells Fargo Bank and has available funds
of $1,225,000. 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 4. Submissions of Matters to a Vote of Securities Holders.
The Company's annual meeting of stockholders was held Tuesday, June 11,
2002. The sole item submitted to stockholders for vote was the election of
five nominees to serve on the Company's board of directors during 2002 and
until the Company's next annual meeting. Notice of the meeting and proxy
information was distributed to stockholders prior to the meeting in
accordance with federal securities laws. There were no solicitations in
opposition to the nominees.
The vote tabulation with respect to each nominee was as follows:
Shares Shares
Voted For Withheld
--------- --------
Duane Ashley 3,268,861 24,040
H. Dennis Hoffelt 3,268,861 24,040
Paul A. Krile 3,250,986 41,915
Cathy Kruse 3,268,486 24,415
Jeffrey P. Vickers 3,267,611 25,290
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification of the Chief Executive Officer
99.2 Certification of the Chief Financial Officer
(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.
August 14, 2002
/S/ J. P. Vickers
------------------------------------
J. P. Vickers
Chief Executive Officer
Chief Financial Officer