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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For
the transition period from to
COMMISSION FILE NUMBER 000-32325
GMX RESOURCES INC.
(Exact name of small business issuer as specified in its charter)
OKLAHOMA 73-1534474
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
ONE BENHAM PLACE, 9400 NORTH BROADWAY, SUITE 600, OKLAHOMA CITY, OKLAHOMA 73114
(Address of principal executive offices)
(405) 600-0711
(Issuer's Telephone Number)
NA
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 and 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 by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer, as defined in Rule 12b-2 of
the Exchange Act (Check one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the exchange Act). Yes [_] No [X]
As of May 8, 2006 there were 11,207,467 shares of GMX Resources Inc. Common
Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]
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GMX RESOURCES INC.
FORM 10-Q/A
FOR THE QUARTER ENDED MARCH 31, 2006
INTRODUCTORY STATEMENT
This Amendment No. 1 to Form 10-Q/A is filed solely for purposes of correcting
the following typographical or clerical errors:
The balance sheet in Item 1. Financial Statements is amended to change the
heading "Preferred Stock, par value $0.01 per share, 500,000 shares
authorized" to "Preferred Stock, par value $0.001 per share, 10,000,000
shares authorized, 25,000 shares designated as Series A Junior
Participating Preferred Stock, none issued and outstanding".
Pursuant to the rules of the Securities and Exchange Commission, the full text
of each Item as amended is included in this report, even though there are no
other amendments to such Items.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our consolidated financial statements are presented beginning on page 1 found at
the end of this report.
2
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GMX RESOURCES INC.
(Registrant)
Date: August 1, 2006 /s/ Ken L. Kenworthy, Sr.
-------------------------------------
Ken L. Kenworthy, Sr., Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
3
ITEM 1. FINANCIAL STATEMENTS
GMX Resources Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, March 31,
2005 2006
------------- -------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 2,392,497 $ 1,532,557
Accounts receivable--interest owners 74,971 52,859
Accounts receivable--oil and gas revenues 4,188,451 3,243,090
Inventories 247,364 602,494
Prepaid expenses 10,028 299,689
------------- -------------
Total current assets 6,913,311 5,730,689
------------- -------------
OIL AND GAS PROPERTIES, AT COST, BASED ON THE FULL COST
METHOD OF ACCOUNTING FOR OIL AND GAS PROPERTIES 68,920,264 85,723,918
Less accumulated depreciation, depletion, and
amortization (9,992,867) (11,303,120)
------------- -------------
58,927,397 74,420,798
------------- -------------
OTHER PROPERTY AND EQUIPMENT 17,044,734 22,603,511
Less accumulated depreciation (1,793,781) (2,243,062)
------------- -------------
15,250,953 20,360,449
------------- -------------
OTHER ASSETS 11,610 11,609
------------- -------------
TOTAL ASSETS $ 81,103,271 $ 100,523,545
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,809,387 $ 10,753,652
Accrued expenses 419,130 287,020
Accrued interest 25,430 --
Revenue distributions payable 317,232 317,647
Short term loan 5,100,000 --
Current portion of long-term debt 345,967 322,337
------------- -------------
Total current liabilities 14,017,146 11,680,656
------------- -------------
LONG-TERM DEBT, LESS CURRENT PORTION 1,410,035 5,678,017
OTHER LIABILITIES
Revenue suspended $ 1,026,661 1,485,852
Asset retirement obligation 2,212,233 2,229,880
Deferred income taxes 1,212,100 1,857,577
------------- -------------
4,450,994 5,573,309
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.001 per share, 10,000,000 shares
authorized 25,000 shares designated as Series A Junior Participating
Preferred Stock, none issued and outstanding
Common stock, par value $0.001 per share--authorized 50,000,000 shares;
issued and outstanding 9,975,310 shares in 2005 and 11,192,450
shares in 2006 9,975 11,192
Additional paid-in capital 50,965,235 65,196,158
Retained earnings 10,249,886 12,384,213
------------- -------------
Total shareholders' equity 61,225,096 77,591,563
------------- -------------
TOTAL LIABILITES AND SHAREHOLDERS' EQUITY $ 81,103,271 $ 100,523,545
============= =============
See accompanying notes to consolidated financial statements.
1
GMX Resources Inc. And Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
---------------------------
2005 2006
----------- -----------
REVENUE
Oil and gas sales $ 2,614,895 $ 6,689,411
Interest income 2,749 26,157
Other income 36 322
----------- -----------
Total revenue 2,617,680 6,715,890
----------- -----------
EXPENSES
Lease operations 448,516 703,357
Production and severance taxes 131,537 453,897
Depreciation, depletion, and amortization 736,801 1,532,242
Interest 59,744 42,373
General and administrative 636,558 1,204,217
----------- -----------
Total expenses 2,013,156 3,936,086
----------- -----------
Income before income taxes 604,524 2,779,804
INCOME TAX PROVISION
Current -- --
Deferred -- 645,477
----------- -----------
Total Income Tax Provision -- 645,477
----------- -----------
NET INCOME $ 604,524 $ 2,134,327
=========== ===========
EARNINGS PER SHARE - Basic $ 0.07 $ 0.20
=========== ===========
EARNINGS PER SHARE Diluted $ 0.07 $ 0.19
=========== ===========
WEIGHTED AVERAGE COMMON SHARE - Basic 8,120,307 10,812,264
=========== ===========
WEIGHTED AVERAGE COMMON SHARE - Diluted 8,223,621 11,013,520
=========== ===========
See accompanying notes to consolidated financial statements
2
GMX Resources Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
------------------------------
2005 2006
------------ ------------
CASH FLOWS DUE TO OPERATING ACTIVITIES
Net income $ 604,524 $ 2,134,327
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation, depletion, and amortization 736,801 1,532,242
Deferred income taxes -- 645,477
Non cash compensation expense -- 155,067
Amortization of loan fees 17,348 --
Decrease (increase) in:
Accounts receivable 120,385 967,473
Inventory and prepaid expenses (3,174) (644,791)
Increase (decrease) in:
Accounts payable 87,649 2,944,265
Accrued expenses and liabilities 101,656 (157,539)
Revenue distributions payable 24,609 459,606
------------ ------------
Net cash provided by operating activities 1,689,798 8,036,127
------------ ------------
CASH FLOWS DUE TO INVESTING ACTIVITIES
Additions to oil and gas properties (3,414,076) (16,558,715)
Purchase of property and equipment (193,674) (5,558,777)
------------ ------------
Net cash used in investing activities (3,607,750) (22,117,492)
------------ ------------
CASH FLOW DUE TO FINANCING ACTIVITIES
Advance on borrowings 2,046,693 9,298,955
Payments on debt (256,203) (10,154,603)
Proceeds from sale of stock 77,026 14,077,073
------------ ------------
Net cash provided by financing activities 1,867,516 13,221,425
------------ ------------
NET INCREASE (DECREASE) IN CASH (50,436) (859,940)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 862,546 2,392,497
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 812,110 1,532,557
============ ============
CASH PAID FOR INTEREST $ 42,395 67,803
============ ============
See accompanying notes to consolidated financial statements.
3
GMX RESOURCES INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2006
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been omitted. The
accompanying consolidated financial statements and notes thereto should be read
in conjunction with the consolidated financial statements and notes thereto
included in GMX Resources Inc.'s 2005 Annual Report on Form 10-KSB.
In the opinion of GMX's management, all adjustments (all of which are
normal and recurring) have been made which are necessary to fairly state the
consolidated financial position of GMX as of March 31, 2006, and the results of
its operations and its cash flows for the three month periods ended March 31,
2006 and 2005.
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2006, GMX adopted Statement of Financial Accounting
Standard No. 123(R), SHARE-BASED PAYMENT, ("SFAS No. 123(R)"), using the
modified prospective transition method. SFAS No. 123(R) requires
equity-classified share-based payments to employees, including grants of
employee stock options, to be valued at fair value on the date of grant and to
be expensed over the applicable vesting period. Under the modified prospective
transition method, share-based awards granted or modified on or after January 1,
2006, are recognized in compensation expense over the applicable vesting period.
Also, any previously granted awards that are not fully vested as of January 1,
2006 are recognized as compensation expense over the remaining vesting period.
No retroactive or cumulative effect adjustments were required upon GMX's
adoption of SFAS No. 123(R).
Prior to adopting SFAS No. 123(R), GMX accounted for its fixed-plan
employee stock options using the intrinsic-value based method prescribed by
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, ("APB No. 25") and related interpretations. This method required
compensation expense to be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price.
GMX's stock option plan ("Plan"), which is shareholder-approved, permits
the grant of stock options to the employees and directors of up to 550,000
shares of common stock. GMX believes that the Plan better align the interests of
its employees with those of its shareholders. Option awards are generally
granted with an exercise price equal to the market price of GMX's stock at the
date of the grant, vest over the period determined by the Board which is
generally four years and expire on the earlier of 10 years after the date of the
grant or termination of employment. The vesting is
4
accelerated if there is a change in control (as defined in the Plan). GMX issues
authorized but unissued stock on exercise of the options. As of March 31, 2006,
there were 158,999 shares available for new option grants. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
model. This model incorporates various assumptions with respect to historical
stock price volatility computed at the date of grant which has varied over time,
expected dividends which are zero, expected term of the options which is the
vesting period of 4 years from the date of grant, and the risk free rate of
return which is based on the five year U.S. treasury bond rate at the date of
the grant.
A summary of option activity under the Plan for the three months ended 2006
is as follows:
Weighted Average
Weighted Average Remaining Aggregate Intrinsic
Options Exercise Price Contractual Term Value(1)
------- -------------- ---------------- --------
Outstanding
January 1, 2006 322,750 $ 8.65
Granted -- --
Exercised 52,750 $ 1.98
Forfeited or Expired -- --
--------
Outstanding at
March 31, 2006 270,000 $ 9.95 2.4 $ 7,425,000
========
Exercisable at
March 31, 2006 105,625 $ 6.73 1.8 $ 3,244,800
========
(1) Intrinsic value represents the difference between the exercise price
and the market price as of the date specified.
The total intrinsic value of options exercised during the three months
ended March 31, 2006 was $1,824,000.
A summary of the status of GMX's nonvested options as of March 31, 2006 and
changes during the quarter then ended is presented below:
Weighted Average Grant
Non-Vested Options Options Date Fair Value
------------------ ------- ---------------
Non-Vested at January 1, 2006 179,984 $ 8.97
Granted -- --
Vested (15,609) $ 9.93
Forfeited -- --
--------
Non-Vested at March 31, 2006 164,375 $ 8.88
========
As of March 31, 2006 there was $1,459,917 of total unrecognized
compensation costs related to non-vested stock options granted under the Plan.
That cost is expected to be
5
recognized over a weighted average period of 2.4 years. The total fair value of
shares vested during the three months ended March 31, 2006 was $155,067.
As a result of adopting SFAS No. 123(R) on January 1, 2006, GMX's income
before income tax expense and net income for the three-month period ended March
31, 2006 were $155,067 and $102,344 lower, respectively, than if GMX had
continued to account for share-based compensation under APB No. 25. Also, basic
and diluted income per share were approximately $.01 per share lower as a result
of the adoption.
GMX received $104,250 in cash for option exercises in the first quarter of
2006. No current tax benefits were realized due to availability of a net
operating loss carryforward for tax purposes, but deferred tax liability was
reduced by $35,445.
Had GMX elected the fair value provisions of SFAS No. 123(R), GMX's 2005
first quarter net income and net income per share would have differed from the
amounts actually reported as shown in the following table:
Three Months
Ended March 31, 2005
--------------------
Net income as reported $ 604,524
Deduct: Stock-based compensation, net of tax (59,920)
----------
Pro forma 544,604
==========
Earnings (Loss) Per Share:
Basic - as reported .07
Basic - pro forma .07
Diluted - as reported .07
Diluted - pro forma .07
ASSET RETIREMENT OBLIGATIONS
Below is a reconciliation of the beginning and ending aggregate carrying
amount of the Company's asset retirement obligations.
Three Months
Ended March 31,
-------------------------
2005 2006
---------- ----------
Beginning of the period $1,764,631 $2,212,233
Liabilities incurred in the current period 23,032 --
Liabilities settled in the current period -- --
Accretion 10,259 17,646
---------- ----------
End of the period $1,797,922 $2,229,879
========== ==========
2. EARNINGS PER SHARE
As of March 31, 2005, GMX had outstanding 1,107,215 Class A Warrants and
122,425 additional warrants that were issued to the underwriters of the February
2001 offering, 18,865 additional warrants that were issued to underwriters of
the July 2001 offering and 102,000 stock options. The exercise price of a
portion of the warrants and stock options exceeded the average
6
price of the underlying securities during the first three months of 2005. Stock
options for employees are 94,000 shares at $3.00, 10,000 shares at $3.50, 5,000
shares at $4.03, 5,000 shares at $5,00, 31,000 shares at $6.10, 6,000 shares at
$6.95, and 10,000 shares at $8.00 which resulted in 239,615 shares of diluted
common stock for the 2005 first quarter.
As of March 31, 2006, GMX had outstanding 270,000 stock options, all of
which were dilutive. Outstanding stock options were 81,750 shares at $3.00,
5,000 shares at $3.50, 5,000 shares at $4.03, 3,750 shares at $5.00, 51,000
shares at $6.10, 1,500 shares at $6.95, 20,000 shares at $8.00, 25,000 shares at
$11.51, 65,000 shares at $20.01, 3,000 shares at $23.56, 3,000 shares at $23.72,
3,000 shares at $27.91, and 3,000 shares at $29.79, which resulted in 201,256
shares of diluted common stock for the 2006 first quarter.
3. COMMITMENTS AND CONTINGENCIES
None.
4. WARRANT EXERCISES
In the first quarter of 2006, GMX received $13,972,824 and issued 1,164,402
shares of common stock in connection with the exercise of its outstanding Class
A Warrants issued in its 2001 initial public offering, which expired on February
13, 2006. Of the original 1,250,000 warrants issued in 2001, 27,122 expired
unexercised.
5. CORRECTION OF AN ERROR
The balance sheet line item description for preferred stock has been
revised. The previous description, "Preferred Stock, par value $0.01 per share,
500,000 shares authorized" has been corrected to "Preferred Stock, par value
$0.001 per share, 10,000,000 shares authorized, 25,000 shares designated as
Series A Junior Participating Preferred Stock, none issued and outstanding."
This correction has no effect on total assets, liabilities, shareholders equity
or net income of the Company.
7
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of GMX
Resources Inc. (Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form SB-2, File No. 333-49328)
3.2 Amended Bylaws of GMX Resources Inc. (Incorporated by reference
to Exhibit 3.2 to Annual Report on Form 10-KSB for the year ended
December 31, 2004)
3.3 Certificate of Designation of Series A Junior Participating
Preferred Stock of GMX Resources Inc. dated May 17, 2005
(incorporated by reference to Exhibit 3.1 to Form 8-K filed May
18, 2005)
4.4 Rights Agreement dated May 17, 2005 by and between GMX Resources
Inc. and UMB Bank, N.A., as Rights Agent (Incorporated by
reference to Exhibit 4.1 to Form 8-K filed May 18, 2005)
10.1 Stock Option Plan, as amended (Incorporated by reference to
Exhibit 10.2 to the Registration Statement on Form SB-2, File No.
333-49328)
10.2 Form of Director Indemnification Agreement (Incorporated by
reference to Exhibit 10.5 to the Registration Statement on Form
SB-2, File No. 333-49328)
10.3 Participation Agreement dated December 29, 2003 by and among Penn
Virginia Oil & Gas Company, the Company and its wholly owned
subsidiaries (Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K dated December 29, 2003)
10.3(a) First Amendment dated February 27, 2004 to Participation
Agreement between GMX Resources Inc. and Penn Virginia Oil & Gas
Corporation (Incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K filed September 14, 2004)
10.3(b) Second Amendment dated May 9, 2004 to Participation Agreement
between GMX Resources Inc. and Penn Virginia Oil & Gas
Corporation (Incorporated by reference to Exhibit 10.2 to Current
Report on Form 8-K filed September 14, 2004)
10.3(c) Third Amendment dated April 6, 2004 to Participation Agreement
between GMX Resources Inc. and Penn Virginia Oil & Gas
Corporation (Incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K filed September 14, 2004)
10.3(d) Fourth Amendment dated August 11, 2004 to Participation Agreement
between GMX Resources Inc. and Penn Virginia Oil & Gas
Corporation (Incorporated by reference to Exhibit 10.4 to Current
Report on Form 8-K filed September 14, 2004)
10.3(e) Fifth Amendment dated effective dateMonth1Day1Year2005January 1,
2005 to Participation Agreement between GMX Resources Inc. and
Penn Virginia Oil & Gas L.P., successor to Penn Virginia Oil &
Gas Corporation (Incorporated by reference to Exhibit 10.6(e) to
Quarterly Report on Form 10-QSB for the quarter ended March 31,
2005, filed May 12, 2005)
10.3(f) Sixth Amendment dated effective January 1, 2006, to Participation
Agreement between GMX Resources Inc. and Penn Virginia Oil & Gas
L.P., successor to Penn Virginia Oil & Gas Corporation
(Incorporated by reference to Exhibit 10.1 to Form 8-K filed
January 20, 2006)
10.4 Loan Agreement dated July 29, 2005 between GMX Resources Inc. and
Hibernia National Bank. (Incorporated by reference to Exhibit
10.1 to Current Report on Form 8-K filed on August 4, 2005)
8
10.4(a) Interim Agreement dated November 3, 2005 between GMX Resources
Inc. and Hibernia National Bank (Incorporated by reference to
Exhibit 10.4(a) to Form 10-KSB filed March 31, 2006)
10.4(b) Second Amendment to Loan Agreement dated December 20, 2005,
between GMX Resources Inc. and Hibernia National Bank
(Incorporated by reference to Exhibit 10.4(b) to Amended Annual
Report on Form 10-KSB/A for the year ended December 31, 2005
filed August 1, 2006)
10.5 Asset Purchase Agreement dated December 8, 2005 between GMX
Resources Inc. and McLachlan Drilling Co. (Incorporated by
reference to Exhibit 10.1 to Form 8-K filed December 12, 2005)
10.6 Texas Deed of Trust, Mortgage, Assignment, Security Agreement,
Fixture Filing and Financing Statement dated as of November 3,
2005 from GMX Resources Inc. to Hibernia National Bank
(Incorporated by reference to Exhibit 10.16 to Form 10-QSB for
the quarter ended September 30, 2005)
14 Code of Business Conduct and Ethics (Incorporated by reference to
Exhibit 14 to Annual Report on Form 10-KSB for the year ended
December 31, 2003)
21 List of Subsidiaries (Incorporated by reference to Exhibit 21 to
Annual Report on Form 10-KSB for the year ended December 31,
2005)
31.1 Rule 13a-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a) Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
ss. 1350.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
ss. 1350.
9