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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Quarterly Period Ended September 30, 2006
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The Transition Period From _________________ to _________________
COMMISSION FILE NUMBER 000-32325
GMX RESOURCES INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1534474
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
ONE BENHAM PLACE, 9400 NORTH BROADWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73114
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrants' telephone number, including area code): (405) 600-0711
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 by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" 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). Check one: Yes [_] No [X]
The number of shares outstanding of the registrant's common stock as of November
6, 2006 was 11,241,467.
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GMX RESOURCES INC.
Form 10-Q
For the Quarter Ended September 30, 2006
TABLE OF CONTENTS
PAGE
Explanatory Note 1
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Item 6. Exhibits 11
Signature Page 12
Exhibit Index 13
EXPLANATORY NOTE
This Amendment No. 1 to Form 10-Q is being filed to correct an error in Note 1
to the financial statements included in Item 1 relating to pro forma net income
for the three and nine month periods ending September 30, 2005 had the Company
applied the requirements of FASB 123R for accounting for stock based
compensation in those periods. The effects of this correction are to reduce the
amount of stock based compensation expense and increase the amount of pro forma
net income for those periods. There are no changes to any financial statement or
note amounts for the three and nine month periods ending September 30, 2006. The
following sets forth the amounts as previously reported and the amounts as
corrected:
Previously Reported As Restated
------------------------------- -------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2005 2005 2005 2005
------------ ------------ ------------ ------------
Net income as reported $ 2,050,332 $ 3,569,720 $ 2,050,332 $ 3,569,720
Deduct: Stock-based
compensation, net of tax 1,027,341 1,525,947 117,547 204,087
------------ ------------ ------------ ------------
Pro forma $ 1,022,991 $ 2,043,773 $ 1,932,785 $ 3,365,633
============ ============ ============ ============
Earnings Per Share:
Basic - as reported .21 .41 .21 .41
Basic - pro forma .18 .24 .20 .39
Diluted - as reported .21 .41 .21 .41
Diluted - pro forma .11 .24 .19 .37
1
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GMX RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND SEPTEMBER 30, 2006 (UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
2005 2006
------------- -------------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 2,392,497 $ 2,344,001
Accounts receivable--interest owners 74,971 41,046
Accounts receivable--oil and gas revenues 4,188,451 3,883,501
Derivative Instruments -- 1,393,026
Inventories 247,364 637,845
Prepaid expenses 10,028 50,760
------------- -------------
Total current assets 6,913,311 8,350,179
------------- -------------
OIL AND GAS PROPERTIES, AT COST, BASED ON THE FULL COST METHOD OF ACCOUNTING
FOR OIL AND GAS PROPERTIES 68,920,264 133,053,955
Less accumulated depreciation, depletion, and amortization (9,992,867) (14,372,591)
------------- -------------
58,927,397 118,681,364
------------- -------------
OTHER PROPERTY AND EQUIPMENT 17,044,734 34,876,316
Less accumulated depreciation (1,793,781) (3,182,385)
------------- -------------
15,250,953 31,693,931
------------- -------------
OTHER ASSETS 11,610 54,279
------------- -------------
TOTAL ASSETS $ 81,103,271 $ 158,779,753
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,809,387 $ 8,408,260
Accrued expenses 419,130 599,441
Accrued interest 25,430 11,979
Revenue distributions payable 317,232 460,810
Short term loan 5,100,000 --
Current portion of long-term debt 345,967 275,077
------------- -------------
Total current liabilities 14,017,146 9,755,567
------------- -------------
LONG-TERM DEBT, LESS CURRENT PORTION 1,410,035 11,591,339
OTHER LIABILITIES
Revenue suspended 1,026,661 1,022,443
Asset retirement obligation 2,212,233 2,670,049
Deferred income taxes 1,212,100 3,724,729
------------- -------------
4,450,994 7,417,221
SHAREHOLDERS' EQUITY
Preferred stock, par value $.001 per share - 10,000,000 shares authorized,
Series A Junior Participating Preferred Stock, 25,000 shares authorized,
none issue and outstanding
9.25% Series B Cumulative Preferred Stock. 3,000,000 shares authorized
2,000,000 shares issued and outstanding (aggregate liquidation
preference: $ 50,000,000) -- 2,000
Common stock, par value $.001 per share--authorized 50,000,000 shares;
issued and outstanding 9,975,310 shares in 2005 and 11,214,967 shares 9,975 11,215
in 2006
Additional paid-in capital 50,965,235 112,887,763
Retained earnings 10,249,886 16,195,251
Other comprehensive income -- 919,397
------------- -------------
Total shareholders' equity 61,225,096 130,015,626
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 81,103,271 $ 158,779,753
============= =============
See accompanying notes to consolidated financial statements.
2
GMX RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2005 2006 2005 2006
------------ ------------ ------------ ------------
REVENUE
Oil and gas sales $ 4,279,210 $ 8,477,510 $ 10,344,453 $ 21,634,552
Interest income 91,747 56,551 99,039 108,593
Other income 4,700 9 5,220 331
------------ ------------ ------------ ------------
Total revenue 4,375,657 8,534,070 10,448,712 21,743,476
------------ ------------ ------------ ------------
EXPENSES
Lease operations 471,294 1,251,703 1,562,936 2,905,631
Production and severance taxes 285,104 (315,120) 642,473 647,362
Depreciation, depletion, and amortization 907,346 2,109,587 2,528,218 5,223,031
Interest 24,212 343,287 173,529 547,955
General and administrative 637,369 1,239,808 1,971,836 3,792,771
------------ ------------ ------------ ------------
Total expenses 2,325,325 4,629,265 6,878,992 13,116,750
------------ ------------ ------------ ------------
Income before income taxes 2,050,332 3,904,805 3,569,720 8,626,726
INCOME TAX PROVISION
Current -- -- -- --
Deferred -- 1,043,900 -- 2,039,000
------------ ------------ ------------ ------------
Total Income Tax Provision -- 1,043,900 -- 2,039,000
Net Income 2,050,332 2,860,905 3,569,720 6,587,726
------------ ------------ ------------ ------------
Preferred Stock Dividends -- 642,360 -- 642,360
------------ ------------ ------------ ------------
Net Income applicable to common stock $ 2,050,332 $ 2,218,545 $ 3,569,720 $ 5,945,366
============ ============ ============ ============
EARNINGS PER SHARE - Basic $ 0.20 $ 0.20 $ 0.40 $ 0.54
============ ============ ============ ============
EARNINGS PER SHARE -Diluted $ 0.20 $ 0.19 $ 0.40 $ 0.53
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES - Basic 9,773,378 11,214,950 8,664,689 11,080,554
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES - Diluted 10,430,991 11,380,283 8,976,767 11,259,105
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
3
GMX RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2006
2005 2006
------------ ------------
CASH FLOWS DUE TO OPERATING ACTIVITIES
Net income $ 3,569,720 $ 6,587,726
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion, and amortization 2,528,218 5,223,031
Deferred income taxes -- 2,039,000
Non cash stock compensation expense -- 447,022
Amortization of loan fees 43,712 16,920
Decrease (increase) in:
Accounts receivable (1,074,286) 338,875
Inventory and prepaid expenses (497,335) (490,802)
Increase (decrease) in:
Accounts payable 2,156,798 598,872
Accrued expenses and liabilities 190,883 166,860
Revenue distributions payable 108,619 139,360
------------ ------------
Net cash provided by operating activities 7,026,329 15,066,864
------------ ------------
CASH FLOWS DUE TO INVESTING ACTIVITIES
Additions to oil and gas properties (12,454,420) (63,130,578)
Purchase of property and equipment (4,173,984) (17,831,581)
------------ ------------
Net cash used in investing activities (16,628,404) (80,962,159)
------------ ------------
CASH FLOWS DUE TO FINANCING ACTIVITIES
Advances on borrowings 5,549,621 48,784,705
Payments on debt (7,510,942) (43,774,292)
Proceeds from sale of common stock 21,455,454 14,207,474
Proceeds from sale of Series B preferred stock -- 47,271,272
Dividends paid on Series B preferred stock -- (642,360)
------------ ------------
Net cash provided by financing activities 19,494,133 65,846,799
------------ ------------
NET INCREASE (DECREASE) IN CASH 9,892,058 (48,496)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 862,546 2,392,497
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,754,604 $ 2,344,001
============ ============
CASH PAID FOR INTEREST $ 129,817 $ 544,486
============ ============
See accompanying notes to consolidated financial statements
4
GMX RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2005 2006 2005 2006
------------ ------------ ------------ ------------
Net Income $ 2,050,332 $ 2,860,905 $ 3,569,720 $ 6,587,726
Other comprehensive income, before income tax:
Change in fair value of derivative instrument -- 1,721,026 -- 1,721,026
Adjustment for derivative gains reclassified
into oil and gas sales -- (328,000) -- (328,000)
------------ ------------ ------------ ------------
Other comprehensive income, before income tax -- 1,393,026 -- 1,393,026
Income tax provision related to items of other
comprehensive income -- (473,629) -- (473,629)
------------ ------------ ------------ ------------
Other comprehensive income, net of income tax: -- 919,397 -- 919,397
------------ ------------ ------------ ------------
Comprehensive income $ 2,050,332 $ 3,780,302 $ 3,569,720 $ 7,507,123
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
5
GMX RESOURCES INC.
CONDENSED NOTES TO INTERIM FINANCIAL STATEMENTS
Nine months ended September 30, 2005 and September 30, 2006
(unaudited)
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 September 30, 2006, and the results
of its operations for the three and nine month periods ended September 30, 2005
and 2006, and its cash flows for the nine month periods then ended.
STOCK BASED COMPENSATION
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.
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.
6
For the three and nine months ended 2006, GMX recorded the following
stock-based compensation:
Three Months Ended Nine Months Ended
September 30, 2006 September 30, 2006
------------------------ ------------------------
$139,288 $447,022
The following table provides information related to stock option
activity during the nine months ended September 30, 2006:
WEIGHTED
NUMBER WEIGHTED AVERAGE
OF AVERAGE REMAINING
SHARES EXERCISE CONTRACT AGGREGATE
UNDERLYING PRICE TERM INTRINSIC
OPTIONS PER SHARE IN YEARS VALUE (A)
------------ ------------ ------------ ------------
Outstanding at January 1, 2006 322,750 $ 8.65
Granted 28,000 31.77
Exercised (75,250) 3.12
Forfeited (3,000) 27.91
Outstanding at September 30, 2006 272,500 $ 19.92 8.9 $ 3,125,668
Exercisable at September 30, 2006 71,500 $ 13.95 8.4 $ 1,247,266
_________________
(a) The intrinsic value of a stock option is the amount by which the current
market value of the underlying stock exceeds the exercise price of the
option.
The aggregate intrinsic value of stock options exercised during the
nine months ended September 30, 2006 was approximately $2,127,448.
As of September 30, 2006 there was $1,982,963 of total unrecognized
compensation costs related to non-vested stock options granted under the
Company's stock option plan. That cost is expected to be recognized over a
weighted average period of 3.1 years.
GMX received $0 and $234,650 in cash for option exercises in the third
quarter of 2006 and the first nine months of 2006, respectively. 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 $0 and $79,781,
respectively.
Had GMX elected the fair value provisions of SFAS No. 123(R) in 2005,
GMX's net income and net income per share would have differed from the amounts
actually reported as shown in the following table:
Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
------------ ------------
Net income as reported $ 2,050,332 $ 3,569,720
Deduct: Stock-based compensation,
net of tax 117,547 204,087
------------ ------------
Pro forma $ 1,932,785 $ 3,365,633
============ ============
Earnings Per Share:
Basic - as reported .21 .41
Basic - pro forma .20 .39
Diluted - as reported .21 .41
Diluted - pro forma .19 .37
7
ASSET RETIREMENT OBLIGATIONS
Below is a reconciliation of the beginning and ending aggregate
carrying amount of the Company's asset retirement obligations.
Nine Months
Ended September 30,
----------------------------
2005 2006
------------ ------------
Beginning of the period $ 1,797,922 $ 2,212,233
Liabilities incurred in the current period 84,942 396,582
Liabilities settled in the current period (307,520) --
Accretion 30,775 61,234
------------ ------------
End of the period $ 1,606,119 $ 2,670,049
============ ============
2. EARNINGS PER SHARE
For the three and nine months ended September 30, 2006, diluted
earnings per share reflect the potential dilution of 165,333 common shares and
178,551 common shares, respectively, compared to the potential dilution of
657,613 common shares and 312,078 common shares for the three and nine months
ended September 30, 2005, respectively. As of September 30, 2005, GMX had
outstanding 1,105,314 Class A warrants and 91,620 additional warrants that were
issued to underwriters of a February 2001 offering, 941 additional warrants that
were issued to underwriters of the July 2001 offering, 311,250 options issued to
employees and 27,000 stock options issued to a consultant. The exercise price of
a portion of the stock options granted to employees exceeded the average price
of the underlying securities during the first nine months of 2005. Also, stock
options for employees for 10,000 shares at $8.00, 65,000 shares at $20.01, 3,000
shares at $23.56, 3,000 shares at $29.86, 25,000 shares at $31.98, 3,000 shares
at $23.72, 48,500 shares at $6.10, 3,000 shares at $29.79, 1,500 shares at
$6.95, 3,750 shares at $5.00, 5,000 shares at $3.50, 76,750 shares at $3.00, and
25,000 shares at $11.51, resulted in 178,551 shares of dilutive common stock
equivalent for the nine months ended September 30, 2006.
3. COMMITMENTS AND CONTINGENCIES
None
4. WARRANT EXERCISE
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. CREDIT FACILITY
On June 7, 2006, GMX, Capital One, National Association, as agent
("Capital One") and Union Bank of California, N.A. ("Union Bank") entered into
an Amended and Restated Loan Agreement (the "Loan Agreement") that increases
GMX's Borrowing Base to $35 million. The Loan Agreement also provides for the
addition of additional lenders from time to time and
8
increases the amount of the maximum availability, subject to the Borrowing Base
limitation, to $100 million. The new $35 million Borrowing Base is subject to
mandatory quarterly reductions of $1.5 million beginning on June 30, 2006. The
Loan Agreement, as subsequently amended on August 7, 2006, also permits GMX to
issue up to $50 million in preferred stock or subordinated debt. At September
30, 2006, GMX had $10 million borrowed under the Loan Agreement. GMX used a
portion of the proceeds of a preferred stock offering to pay down this
indebtedness.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) recently issued the
following standards which were reviewed by GMX to determine the potential impact
on its financial statements upon adoption.
In December 2004, the FASB issued SFAS 123(R), Share-Based Payment, a
revision of SFAS 123, Accounting for Stock-Based Compensation. This statement
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services by requiring a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award. We
adopted this statement effective January 1, 2006. The effect of SFAS 123(R) is
more fully described in Note 1.
In July 2006, the FASB issued FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement
No. 109. FIN 48 provides guidance for recognizing and measuring uncertain tax
positions, as defined in SFAS 109, Accounting for Income Taxes. FIN 48
prescribes a threshold condition that a tax position must meet for any of the
benefit of the uncertain tax position to be recognized in the financial
statements. Guidance is also provided regarding de-recognition, classification
and disclosure of these uncertain tax positions. FIN 48 is effective for fiscal
years beginning after December 15, 2006. GMX does not expect that FIN 48 will
have a material impact on its financial position, results of operations or cash
flows.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 establishes a framework for fair value
measurements in the financial statements by providing a single definition of
fair value, provides guidance on the methods used to estimate fair value and
increases disclosures about estimates of fair value. SFAS 157 is effective for
fiscal years beginning after November 15, 2007. We do not expect that SFAS 157
will have a material impact on our consolidated financial position, results from
operations or cash flows.
7. PREFERRED STOCK OFFERING
On August 8, 2006, we sold 1,800,000 shares of our 9.25% Series B
Cumulative Preferred Stock at $25.00 per share. Additionally, the underwriters
exercised their option to purchase up to an additional 200,000 shares of Series
B Cumulative Preferred Stock, resulting in a total offering size of $50 million.
The closing of the sale of the 2,000,000 shares occurred on August 11, 2006. We
expect to use the net proceeds of $47.3 million from the sale to fund drilling
and development of our East Texas properties and for other general corporate
purposes.
9
Pending such uses, we used a portion of the net proceeds to reduce indebtedness
under our revolving bank credit facility, which will permit additional
borrowings in the future under the terms of our bank credit facility.
The initial annual dividend on each share of Series B Cumulative
Preferred Stock is $2.3125 (an aggregate of $4,625,000) and is payable quarterly
when, as and if declared by us, in cash (subject to specified exceptions), in
arrears to holders of record as of the dividend payment record date, on or about
the last calendar day of each March, June, September and December commencing
September 30, 2006. The dividend for the first quarter will be based on the
actual number of days the Series B Cumulative Preferred Stock is outstanding for
the current quarter, or $0.3212 per share. On September 29, 2006, the Company
funded its first quarterly dividend of $642,360.
The Series B Cumulative Preferred Stock will not be convertible into
our common stock and can be redeemed at our option after September 30, 2011 at
$25.00 per share. The Series B Cumulative Preferred Stock will be required to be
redeemed prior to September 30, 2011 at specified redemption prices and
thereafter at $25.00 per share in the event of a change of ownership or control
of the Company if the acquirer is not a public company meeting certain financial
criteria.
8. HEDGING ACTIVITY
Effective August 1, 2006, we entered into a one-year hedging
transaction with Union Bank of California for 100,000 MMBtus per month,
representing approximately 30% of our average monthly production for the nine
months ended September 30, 2006. This transaction is in the form of a
fixed-price swap agreement, pursuant to which we receive (if the index price is
lower than the fixed price) or pay (if the index price is higher than the fixed
price) the difference between $8.005 per MMBtu and the index price, which is the
Inside FERC - Houston Ship channel price. We entered into this hedge to
partially reduce our exposure to natural gas price risk for the period of the
hedge.
As a result of the Company's hedging activities, the Company recognized
$328,000 of additional oil and gas sales for the nine months ended September 30,
2006. There were no oil and gas hedging activities in 2005. In addition, the
fair value of the hedge is $1,393,026 at September 30, 2006.
By using derivative instruments to hedge exposures to changes in
commodity prices, GMX exposes itself to credit risk and market risk. Credit risk
is the failure of the counterparty to perform under the terms of the derivative
contract. To mitigate this risk, the hedging instruments are usually placed with
counterparties that GMX believes are minimal credit risks.
Market risk is the adverse effect on the value of a derivative
instrument that results from a change in interest rates or commodity prices. The
market risk associated with commodity price is managed by establishing and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.
GMX periodically enters into financial hedging activities with respect
to a portion of its projected oil and natural gas production through various
financial transactions to manage its
10
exposure to oil and gas price volatility. These transactions include financial
price swaps whereby GMX will receive a fixed price for its production and pay a
variable market price to the contract counterparty. These financial hedging
activities are intended to support oil and natural gas prices at targeted levels
and to manage GMX's exposure to oil and gas price fluctuations. The oil and gas
reference prices upon which these price hedging instruments are based reflect
various market indices that have a high degree of historical correlation with
actual prices received by GMX.
GMX does not hold or issue derivative instruments for trading purposes.
GMX's commodity price financial swaps were designated as cash flow hedges.
Changes in the fair value of these derivatives were reported in "other
comprehensive income" net of deferred income tax. These amounts were
reclassified to oil and gas sales when the forecasted transaction took place.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
See Exhibit Index.
11
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.
Date: January 31, 2007 GMX RESOURCES INC.
(Registrant)
/s/ Ken L. Kenworthy, Sr.
---------------------------------
Ken L. Kenworthy, Sr.,
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
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)
3.4 Certificate of Designation of 9.25% Series B Cumulative Preferred
Stock (incorporated by reference to Exhibit 4.1 to Form 8-A filed
on August 5, 2006)
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)
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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 January 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 Amended and Restated Loan Agreement dated June 7, 2006 between
GMX Resources Inc., Capital One, National Association, and Union
Bank of California, N.A.. (Incorporated by reference to Exhibit
10.1 to Current Report on Form 8-K filed on June 9, 2006)
10.4(a) Amended and Restated Texas Deed of Trust, Mortgage, Assignment,
Security Agreement, Fixture Filing and Financing Statement dated
as of June 7, 2006 from GMX Resources Inc. to Capital One,
National Association, as Agent (Incorporated by reference to
Exhibit 10.2 to Current report on Form 8-K filed June 9, 2006)
10.4(b) Security Agreement (Stock) dated June 7, 2006 between GMX
Resources Inc. and Capital One, National Association
(Incorporated by reference to Exhibit 10.3 to Current report on
Form 8-K filed June 9, 2006)
10.4(c) Security Agreement (Promissory Note) dated June 7, 2006 between
GMX Resources Inc. and Capital One, National Association
(Incorporated by reference to Exhibit 10.4 to Current report on
Form 8-K filed June 9, 2006)
10.4(d) Security Agreement dated June 7, 2006 between Endeavor Pipeline,
Inc. and Capital One, National Association (Incorporated by
reference to Exhibit 10.5 to Current report on Form 8-K filed
June 9, 2006)
10.4(e) First Amendment to Loan Agreement dated August 4, 2006, between
GMX Resources Inc., Capital One, National Association and Union
Bank of California, N.A. (Incorporated by reference to Exhibit
10.1 to Current Report on Form 8-K filed August 7, 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)
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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.
15