SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
__X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the Quarter ended September 30, 1999.
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _____ to _____.
Commission File Number - 0-8041
GeoResources, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 84-0505444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1407 West Dakota Parkway, Suite 1-B, Williston, North Dakota 58801
(Address of Principal executive offices) (Zip Code)
(Registrant's telephone number including area code) (701) 572-2020
________________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes __X__ No _____.
________________________________________
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 30, 1999
Common Stock 4,012,352 shares
(par value $.01 per share)
GEORESOURCES, INC.
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
(September 30, 1999 and December 31, 1998)
Consolidated Statements of Operations 4
(Three months ended September 30, 1999 and 1998
and nine months ended September 30, 1999 and 1998)
Consolidated Statements of Cash Flows 5
(Nine months ended September 30, 1999 and 1998)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risks 11
PART II. OTHER INFORMATION 12
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
1999 1998
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 340,805 $ 40,673
Trade receivables, net 778,375 524,132
Inventories 298,084 403,529
Prepaid expenses 30,066 26,468
Investments 28,575 4,319
Total current assets 1,475,905 999,121
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, using the
full cost method of accounting:
Properties being amortized 19,323,182 19,139,363
Properties not subject to amortization 142,405 141,019
Leonardite plant and equipment 3,206,217 3,206,217
Other 706,934 704,357
23,378,738 23,190,956
Less accumulated depreciation, depletion,
amortization and impairment (18,090,230) (17,635,373)
Net property, plant and
equipment 5,288,508 5,555,583
OTHER ASSETS:
Mortgage loan receivable, related party 103,321 103,321
Other 45,005 46,699
Total other assets 148,326 150,020
TOTAL ASSETS $ 6,912,739 $ 6,704,724
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 593,064 $ 472,345
Current maturities of long-term debt 175,000 316,000
Accrued expenses 94,967 99,261
Total current liabilities 863,031 887,606
LONG-TERM DEBT, less current maturities 1,653,757 1,625,004
DEFERRED INCOME TAXES 165,000 140,000
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding, 4,012,352 and
4,071,652 shares, respectively 40,123 40,717
Additional paid-in capital 784,734 846,787
Retained earnings 3,406,094 3,164,610
Total stockholders' equity 4,230,951 4,052,114
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,912,739 $ 6,704,724
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
OPERATING REVENUES:
Oil and gas sales $ 796,768 $ 397,390 $1,730,371 $1,276,076
Leonardite sales 207,639 182,033 461,660 573,459
1,004,407 579,423 2,192,031 1,849,535
OPERATING COSTS AND EXPENSES:
Oil and gas production 315,960 249,063 793,329 693,402
Cost of leonardite sold 138,810 150,702 380,297 452,143
Depreciation and depletion 166,932 200,039 454,857 629,061
Selling, general
and administrative 54,771 100,019 204,830 332,776
676,473 699,823 1,833,313 2,107,382
Operating income (loss) 327,934 (120,400) 358,718 (257,847)
OTHER INCOME (EXPENSE):
Interest expense (41,829) (39,845) (124,233) (95,584)
Interest income 3,459 2,362 11,028 14,810
Other income, net 6,305 5,325 20,971 16,555
(32,065) (32,158) (92,234) (64,219)
Income (loss) before
income taxes 295,869 (152,558) 266,484 (322,066)
Income tax (expense) benefit (25,000) -- (25,000) 10,000
Net income (loss) $ 270,869 $ (152,558) $ 241,484 $ (312,066)
EARNINGS PER SHARE:
Net income (loss),
basic and diluted $ .07 $ (.04) $ .06 $ (.08)
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 241,484 $ (312,066)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 454,857 629,061
Deferred income taxes 25,000 (10,000)
Other 1,694 5,513
Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables (254,243) (45,061)
Inventories 105,445 (62,327)
Prepaid expenses and other (3,598) (7,860)
Investments (24,256) (7,790)
Increase (decrease) in:
Accounts payable 122,165 (241,303)
Accrued expenses (4,294) (16,570)
Net cash provided by (used in)
operating activities 664,254 (68,403)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (189,228) (1,109,744)
Net cash used in investing activities (189,228) (1,109,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 160,000 1,200,000
Principal payments on long-term debt (272,247) (343,647)
Issuance of stock -- 47,000
Debt issue costs -- (8,627)
Purchase of stock for retirement (62,647) (81,265)
Net cash provided by (used in)
financing activities (174,894) 813,461
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 300,132 (364,686)
CASH AND EQUIVALENTS, beginning of period 40,673 490,385
CASH AND EQUIVALENTS, end of period $ 340,805 $ 125,699
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 124,233 $ 95,584
Income taxes 1,395 11,521
See Notes to Consolidated Financial Statements.
GEORESOURCES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the management of GeoResources, Inc. (the
"Company"), the accompanying unaudited financial statements contain
all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the financial position of the Company as
of September 30, 1999, and the results of operations and cash flows
for the three months and nine months ended September 30, 1999, and
1998.
The results of operations for the periods ended September 30, 1999,
are not necessarily indicative of the results to be expected for the
full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Therefore, it is
suggested that these financial statements be read in connection with
the audited consolidated financial statements and the notes included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation
in the current-year financial statements.
3. The Company assesses performance and allocates resources based upon
its products and the nature of its production processes which consist
principally of oil and gas exploration and production and the mining and
processing of leonardite. There are no sales or other transactions between
these two operating segments, and all operations are conducted within the
United States. Certain corporate costs, assets and capital expenditures
that are considered to benefit the entire organization are not allocated to
the Company's operating segments. Interest income, interest expense and
income taxes are also not allocated to operating segments. There are no
significant accounting differences between internal segment reporting and
consolidated external reporting.
Presented below are the Company's identifiable net assets as of
September 30, 1999, and December 31, 1998:
1999 1998
Oil and gas $4,642,170 $4,702,417
Leonardite 1,325,427 1,347,521
General corporate activities 945,142 654,786
$6,912,739 $6,704,724
Presented below is information concerning the Company's operating
segments for the three- and nine-month periods ended September 30, 1999,
and 1998:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenue:
Oil and gas $ 796,768 $ 397,390 $1,730,371 $1,276,076
Leonardite 207,639 182,033 461,660 573,459
$1,004,407 $ 579,423 $2,192,031 $1,849,535
Income (loss) before income taxes:
Oil and gas $ 343,041 $ (21,987) $ 569,708 $ 43,239
Leonardite 36,225 (442) (11,212) 27,194
General corporate
activities (51,332) (97,971) (199,778) (328,280)
Other income and
expenses (32,065) (32,158) (92,234) (64,219)
$ 295,869 $ (152,558) $ 266,484 $ (322,066)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Information contained in the following discussion of results of
operations and financial condition of the Company contains forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, which can be identified by the use of words such as "may,"
"will," "expect," "anticipate," "estimate," or "continue," or variations
thereon or comparable terminology. In addition, all statements other than
statements of historical facts that address activities, events or
developments that the Company expects, believes or anticipates, will or may
occur in the future, and other such matters, are forward-looking
statements.
The following discussion should be read in conjunction with the
Company's consolidated financial statements and related notes included
elsewhere herein. The Company's future operating results may be affected
by various trends and factors which are beyond the Company's control.
These include, among other factors, the competitive environment in which
the Company operates, prices for oil, both domestically and
internationally, demand for leonardite in the drilling industry, dependence
upon key management personnel, the speculative nature of the oil and gas
business in general, availability of drilling equipment and other uncertain
business conditions that may affect the Company's business.
The Company cautions the reader that a number of important factors
discussed herein, and in other reports filed with the Securities and
Exchange Commission, particularly the Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1998, could affect the Company's actual
results and cause actual results to differ materially from those discussed
in forward-looking statements.
Results of Operations - Three Months and Nine Months Ended September 30,
1999, compared to Three Months and Nine Months Ended September 30, 1998.
Information concerning the Company's oil and gas operations for the
three months and nine months ended September 30, 1999, is set forth in the
table below:
Oil and Gas Operations
% Increase % Increase
Three Months (Decrease) Nine Months (Decrease)
Ended From 1998 Ended From 1998
Sept. 30, 1999 Period Sept. 30, 1999 Period
Oil and gas production
sold (BOE) 47,103 6% 135,646 2%
Average price per BOE $ 16.92 88% $ 12.76 33%
Oil and gas revenue $ 796,768 101% $1,730,371 36%
Production costs $ 315,960 27% $ 793,329 14%
Average production cost
per BOE $ 6.71 19% $ 5.85 12%
Oil and gas production sold, expressed in barrels of oil equivalent
(BOE), increased 2,858 BOE or 6% and 2,876 BOE or 2% for the three- and
nine-month periods ended September 30, 1999, compared to the same periods
in 1998. These increases were primarily due to the Company returning
marginal wells to production during 1999 that had been shut in because of
low prices during the same periods of 1998. The average oil price for the
third quarter 1999 climbed to $16.92 increasing $7.94 or 88% above the same
period in 1998. The nine-month period price also increased, however less
dramatically due to the inclusion of first quarter 1999 prices which were
as low as any of the weak price periods in 1998.
Oil and gas revenue increases for the three- and nine-month periods
ended September 30, 1999, followed closely the oil price and production
increases discussed above.
Oil and gas production costs increased $66,900 or 27% and $99,900 or
14% for the three- and nine-month periods, respectively, when compared to
the same periods in 1998. The increase in the three-month period was
primarily due to costs associated with producing more wells as previously
shut-in wells were returned to production and to substantially higher state
production taxes that are a fixed percentage of oil and gas revenue. The
increase in the nine-month period was also impacted by production costs
associated with oil inventory barrels, which costs were transferred from
inventories to oil and gas production costs upon the sale of those barrels
in second quarter 1999. Production costs expressed on a per equivalent
barrel basis were 19% higher for the three-month period and 12% higher for
the nine-month period when compared to the same periods in 1998. These
increases reflect the moderately higher per barrel production costs of
marginal wells that have all now been returned to production and they are
also impacted by higher production taxes which increase the per barrel
costs.
Information concerning the Company's leonardite operations for the
three months and nine months ended September 30, 1999, is set forth in the
table below:
Leonardite Operations
% Increase % Increase
Three Months (Decrease) Nine Months (Decrease)
Ended From 1998 Ended From 1998
Sept. 30, 1999 Period Sept. 30, 1999 Period
Leonardite production
sold (tons) 2,455 15% 5,427 (11%)
Average revenue per ton $ 84.58 (1%) $ 85.07 (9%)
Leonardite revenue $ 207,639 14% $ 461,660 (19%)
Cost of leonardite sold $ 138,810 (8%) $ 380,297 (16%)
Average production cost
per ton $ 56.54 (20%) $ 70.07 (5%)
Leonardite production sold increased 325 tons or 15% and decreased
679 tons or 11%, respectively, for the three- and nine-month periods ended
September 30, 1999, compared to the equivalent periods in 1998. Management
believes the higher volume in production levels for the third quarter is a
result of the increase and in domestic oil and gas prices directly
affecting drilling activity, which in turn increased demand for the
Company's leonardite products.
Leonardite revenue increased $26,000 or 14% and decreased $112,000
or 19%, respectively, for the three- and nine-month periods ended September
30, 1999, compared to the same periods in 1998. The increased revenue in
the three-month period was primarily due to the higher product sales
discussed above. Average revenue per ton for the three months ended
September 30, 1998, was essentially stable, but the nine-month period was
9% lower due to a larger percentage of basic product sales that occurred in
the first quarter of 1998. The Company's basic product has lower
processing costs and selling prices. The profit margin is lower on the
basic products to remain competitive.
Cost of leonardite sold was lower for the three- and nine-month
periods ended September 30, 1999, compared to the same periods in 1998.
Average per ton production costs decreased 20% and 5%, respectively, for
the three- and nine-month periods ended September 30, 1999, compared to the
same periods in 1998. The nine-month decrease is related to the overall
lower production volume and the lower three-month production costs are
related to some unusual mining equipment repair costs incurred in the third
quarter of 1998.
Consolidated Analysis
Total operating revenues increased $425,000 or 73% and $342,000 or
19%, respectively, for the three- and nine-month periods ended September
30, 1999, compared to the same periods in 1998. These increases were due
to the higher oil prices previously discussed. Total operating expenses
decreased $23,000 or 3% and $274,000 or 13% for the three- and nine-month
periods of 1999, respectively, compared to the same periods in 1998. These
decreases were primarily due to the lower oil and gas depletion resulting
from a non-cash write-down of the Company's full-cost pool at year-end 1998
and to reductions implemented by the Company in selling, general and
administrative expenses. The Company achieved an operating income of
$328,000 for the three months ended September 30, 1999, compared to an
operating loss of $120,000 for the same quarter in 1998 and an operating
income of $359,000 compared to an operating loss of $258,000 for the nine-
month periods ended 1999 and 1998, respectively.
Nonoperating expenses for the nine-month period ended September 30,
1999, increased $28,000 when compared with the prior year's period. This
increase was primarily due to higher interest expenses related to the
higher debt level that existed throughout the entire 1999 nine-month period
compared to 1998. After provisions for the non-operating expenses and
income taxes, the result of consolidated operations attained a net income
of $271,000 or $.07 per share for the third quarter of 1999 compared to a
net loss of $153,000 or $.04 per share for the second quarter 1998 and a
net income of $241,000 or $.06 per share for the nine months ended
September 30, 1999, compared to a net loss of $312,000 or $.08 per share
for the same period in 1998.
Liquidity and Capital Resources
At September 30, 1999, the Company had working capital of $613,000
compared to working capital of $112,000 at December 31, 1998. The
Company's current ratio was 1.71 to 1 at September 30, 1999, compared to
1.13 to 1 at year-end 1998.
Net cash provided by operating activities was $664,000 for the nine
months ended September 30, 1999, compared to net cash used in operating
activities of $68,000 for the same period in 1998. Through the 1999 nine-
month period, cash provided by operations and bank borrowings were utilized
to make payments of $189,000 for additions to property, plant and
equipment, $272,000 for payments on long-term debt and $63,000 for stock
repurchases.
Management believes the Company's cash requirements for the
foreseeable future can be met by cash flows from operations. The Company
also has cash available from its existing line of credit, if an unforeseen
need should arise. For the short term, while oil prices are relatively
high, the Company expects to use cash to further strengthen its balance
sheet by reducing payables and possible reductions in long- term debt ahead
of scheduled repayments. Future cash requirements might also be provided
by possible forward sales of oil reserves or additional debt or equity
financing.
Year 2000 Readiness
The Company expects to finish the review, resolution and testing of
all its internal computer systems prior to December 1, 1999, to complete
its Year 2000 compliance program. Essentially all of the Company's office
computer systems are desktop computers, including its accounting system.
The maker of the Company's accounting software has represented that it has
run a 2000 compliant version in house for over a year, and the Company
upgraded to that version in August 1999. All other office desktop systems
are either already Year 2000 compliant or will be upgraded before December
1, 1999. The Company does not expect that the cost of upgrading any of its
computer systems will have a material impact on the Company's financial
position, results of operations or cash flows. The Company's oil and gas
production operations equipment and its leonardite processing operations
equipment are both not dependent on any material amount of in-house
computerized controls or embedded chip devices and as such are not deemed
to be affected by Year 2000 compliance issues. Both of these operational
segments are, however, significantly dependent on the Year 2000 readiness
of their respective customers and on supplies provided by third parties,
particularly for energy in the form of electricity and natural gas. The
Company has contacted significant suppliers, purchasers and other key
business relations to ascertain their Year 2000 readiness to assess the
extent to which the Company's operations may be impacted should their
organization not become Year 2000 compliant. The Company cannot assure
that there will not be material adverse effects to the Company if customers
or utilities and other of the Company's suppliers have difficulties related
to Year 2000 readiness. The Company believes the availability of supplies
and services from third parties is the most significant risk related to the
Year 2000 issue.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risks
Because the Company qualifies as a small business issuer, disclosure
regarding this item is not required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 12, 1989, the Company filed an action in Burleigh County
District Court, North Dakota, against MDU Resources Group, Inc., a Delaware
corporation, and Williston Basin Interstate Pipeline Company, a Delaware
corporation. The Complaint related to, among other things, breaches of a
take or pay natural gas contract and attempts by the defendants to coerce
the Company into modifying the contract. The defendants answered the
Complaint on June 1, 1989. Afterwards, no further materials were filed
with the court, but the Company believed that the case remained pending.
The Company contacted the attorney who filed the action to assess the
status and request further prosecution of the case. After several months
of inaction regarding the case, the Company contacted the court in
September 1996 and was informed by the court that the case had been
dismissed in 1991. On January 15, 1997, the Company refiled its action
against MDU Resources Group, Inc. Management cannot predict the outcome of
this action, although the Company intends to pursue its available remedies.
Other than the foregoing legal proceeding, the Company is not a
party, nor is any of its property subject to, any pending material legal
proceedings. The Company knows of no legal proceedings contemplated or
threatened against it.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) For a list of exhibits of the Company, see Item 14(c) of its Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1998, which is
specifically incorporated herein by reference. A financial data schedule
(Exhibit 27) is attached hereto. All other required exhibits are
inapplicable or information required thereby is readily apparent in the
Form 10-Q.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GEORESOURCES, INC.
November 12, 1999
/S/ J. P. Vickers
J. P. Vickers
Chief Executive Officer
Chief Financial Officer