-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LY4hEMbFdR17BIvdKUA8pctc3IuM+qaYWUEozxtLd3GRFpq2sP8SpScKnCpDhoMq O7/Jjw5tG9EiKZdrDmr5ig== 0000899243-97-000768.txt : 19970512 0000899243-97-000768.hdr.sgml : 19970512 ACCESSION NUMBER: 0000899243-97-000768 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 3DX TECHNOLOGIES INC CENTRAL INDEX KEY: 0000915518 STANDARD INDUSTRIAL CLASSIFICATION: 1311 IRS NUMBER: 760386601 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21841 FILM NUMBER: 97592470 BUSINESS ADDRESS: STREET 1: 12012 WICKCHESTER STREET 2: SUITE 250 CITY: HOUSTON STATE: TX ZIP: 77084 BUSINESS PHONE: 7135793398 MAIL ADDRESS: STREET 1: 12012 WICKCHESTER STREET 2: SUITE 250 CITY: HOUSTON STATE: TX ZIP: 77079 10-K/A 1 FORM 10-K/A U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (AMENDMENT NO. 1) For Annual and Transition Reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NO. 0-21841 3DX TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0386601 (State of Incorporation) (IRS Employer Identification Number) 12012 WICKCHESTER, SUITE 250, HOUSTON, TEXAS 77079 (Address of principal executive office) ( Zip Code) Registrant's telephone number, including area code: (281) 579-3398 Securities registered pursuant to Section 12(b) of the Exchange Act: (None) Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $0.01 par value (TITLE OF CLASS) 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 if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock held by non-affiliates of the registrant (treating all executive officers and directors of the registrant and their respective affiliates, for this purpose, as if they may be affiliates of the registrant) was approximately $36,000,000 on April 29, 1997 based upon the closing sale price of the Common Stock on such date of $8 3/4 per share on the NASDAQ National Market as reported by The Wall Street Journal. As of April 29, 1997, the registrant had 7,216,177 shares of common stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE None PART III The information required by Part III (Items 10, 11, 12 and 13) of the undersigned Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "Annual Report"), filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), was to be incorporated by reference to the definitive Proxy Statement for the 1997 Annual Meeting of Stockholders of the Company, which Proxy Statement was to be filed pursuant to Regulation 14A under the Exchange Act within 120 days following the end of the Company's fiscal year as permitted under General Instruction G of Form 10-K ("Instruction G"). However, the definitive Proxy Statement will not have been filed within such period. Accordingly, pursuant to Instruction G, the Company hereby amends Items 10, 11, 12 and 13 of the Annual Report as follows: ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS Listed below are the directors of the Company, their ages, a brief description of their business backgrounds and the year that they first became a director of the Company.
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE - - ---- --- -------------------- -------------- Jon W. Bayless (1)......... 57 Chairman of the Board of the 1993 Company and general partner of Sevin Rosen Funds C. Eugene Ennis............ 53 President and Chief Executive 1992 Officer of the Company Robert H. Chaney (1)....... 37 Chairman and Chief Executive 1993 Officer of R. Chaney & Co., Inc. Charles E. Edwards (2)..... 71 Petroleum technology 1995 consultant and geophysicist Douglas C. Williamson (2).. 46 Managing Director, (Dallas) 1995 Venture Capital Group, NationsBanc Capital Corporation
- - ----------- (1) Member of the Company's Compensation Committee. (2) Member of the Company's Audit Committee. Jon W. Bayless. Mr. Bayless has been Chairman of the Board of the Company since October 1996 and a Director since November 1993. Since 1983, Mr. Bayless has been a general partner of Sevin Rosen Funds, a venture capital investment firm. Mr. Bayless is also the controlling stockholder and sole director of Jon W. Bayless, Inc., the general partner of Atlantic Partners L.P., which is the general partner of Citi Growth Fund L.P., a venture capital investment firm, and serves as a director of a number of privately held companies. Mr. Bayless currently serves as Chairman of the Board of Directors of Ciena Corporation. Mr. Bayless is also Chairman of the Board of Directors of Shared Resource Exchange, Inc. Shared Resource Exchange, Inc. filed for reorganization under Chapter 11 of the Federal Bankruptcy Code in August 1996. A plan of reorganization under Chapter 11 has been approved. C. Eugene Ennis. Mr. Ennis, who co-founded the Company with Peter M. Duncan and Douglas C. Nester, has served as the Company's President and Chief Executive Officer and as a Director since the Company's inception in December 1992. From September 1984 to December 1992, Mr. Ennis was President and Chief Executive Officer of Landmark Graphics, a provider of interdisciplinary interpretation tools for the petroleum industry. Mr. Ennis holds a Bachelor of Science in electrical engineering from the University of Houston and began his career in 1969 as a design engineer in the Geophysical Products Division of Texas Instruments where he was employed until 1984. Robert H. Chaney. Mr. Chaney has served as a Director of the Company since November 1993. Mr. Chaney is Chairman and Chief Executive Officer of R. Chaney & Co., Inc., an investment firm specializing in equity investments in emerging energy technology companies. Mr. Chaney was a co-founder of Paramount Petroleum Company, an independent oil and gas company, and served as its President and Chief Executive Officer from 1986 to July 1993. Mr. Chaney also currently serves as a director of North American Technologies Corp. Charles E. Edwards. Mr. Edwards has served as a Director of the Company since August 1995. Since August 1985 to present, Mr. Edwards has acted as a consultant in petroleum technologies. Prior to August 1985, Mr. Edwards was employed by Chevron Corp. for a period in excess of 37 years and most recently served as Chief Geophysicist with responsibility for global exploration activities. Mr. Edwards has also served as a director for Digicon Inc. and Landmark Graphics. Douglas C. Williamson. Mr. Williamson has served as a Director to the Company since July 1995. Mr. Williamson is a Managing Director in the Venture Capital Group in the Dallas, Texas office of NationsBanc Capital Corporation. EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES The following table provides information regarding the executive officers and/or significant employees of the Company. The officers of the Company serve at the discretion of the Board of Directors of the Company.
NAME AGE POSITION - - ---- --- -------- C. Eugene Ennis........ 53 President, Chief Executive Officer and Director Peter M. Duncan........ 44 Vice President of Technology; Treasurer Douglas C. Nester...... 39 Vice President of Exploration; Secretary Joseph Schuchardt III.. 45 Vice President of Business Development Robert J. Bacon, Jr.... 42 Vice President of Joint Ventures Randall D. Keys........ 37 Vice President of Finance Herbert R. Rohloff..... 40 Senior Reservoir Engineer Douglas W. Beckman..... 40 Project Leader Gene Colgan............ 36 Project Leader Eric B. Gardner........ 33 Project Leader Jeffrey K. Owens....... 37 Project Leader
- - ----------- C. Eugene Ennis. Mr. Ennis, who co-founded the Company with Peter M. Duncan and Douglas C. Nester, has served as the Company's President and Chief Executive Officer and as a Director since the Company's inception in December 1992. From September 1984 to December 1992, Mr. Ennis was President and Chief Executive Officer of Landmark Graphics, a provider of interdisciplinary interpretation tools for the petroleum industry. Mr. Ennis holds a Bachelor of Science in electrical engineering from the University of Houston and began his career in 1969 as a design engineer in the Geophysical Products Division of Texas Instruments where he was employed until 1983. Peter M. Duncan. Dr. Duncan, a co-founder of the Company, has served as the Company's Vice President of Technology and Treasurer since the Company's inception. Prior to joining the Company, Dr. Duncan was employed by Landmark Concurrent Solutions Inc., an affiliate of Landmark Graphics, that merged with ExploiTech, as Vice President from July 1991 until December 1992. Dr. Duncan was a founder in 1987 of ExploiTech, a company specializing in integrated multi- disciplinary reservoir description studies for exploration and exploitation that merged with Landmark Graphics in 1989. From 1986 to 1987, Dr. Duncan served as Vice President of Marine Operations and Chief Geophysicist of North America for Digicon Inc., a major geophysical contractor. From 1984 to 1986, Dr. Duncan was employed as Chief Geophysicist of Pulsonic Geophysical of Calgary Inc., a former subsidiary of Digicon Inc. From 1978 to 1984, Dr. Duncan held various positions with Shell Canada Resources Inc. ("Shell"), including Party Chief for Shell's offshore seismic programs. Dr. Duncan holds a Ph.D in geophysics from the University of Toronto. Douglas C. Nester. Mr. Nester, a co-founder of the Company, has served as the Company's Vice President of Exploration and Secretary since the Company's inception. Prior to joining the Company, Mr. Nester was employed by Landmark Concurrent Solutions Inc., an affiliate of Landmark Graphics that merged with ExploiTech, as Director of Technology from June 1988 to December 1992. From 1981 to 1988, Mr. Nester was employed in various geophysical positions by Pennzoil Corp., and held the position of Geophysical Specialist at the time of his departure. Mr. Nester began his career as an engineering geologist for Bechtel Corporation. Mr. Nester holds a Bachelor of Science in Geology from Indiana University of Pennsylvania and a Masters in Business Administration in Finance from the University of St. Thomas. Joseph Schuchardt III. Mr. Schuchardt has served as the Company's Vice President of Business Development since November 1993. Prior to his employment with the Company, Mr. Schuchardt served as Vice President of Land for Great Western Resources Inc. from April 1992 to November 1993. Mr. Schuchardt also served as Vice President of Land for Paramount Petroleum Company from 1991 to 1992. Mr. Schuchardt was employed as Land Manager of Horizon Exploration Company from 1980 to 1991 and has held positions with Texas Oil & Gas Corporation, Coastal States Oil and Gas Corporation and Texaco Inc. Mr. Schuchardt holds a B.B.A. in Management from the University of Texas. Robert J. Bacon, Jr. Mr. Bacon has been Vice President of Joint Ventures since September 1995. Prior to joining the Company, Mr. Bacon was Manager of Business Development for Scientific Software-Intercomp, Inc., a software company, from May 1994 to June 1995 and served as Vice President of Sales and Marketing for JetFax Inc, a manufacturer of facsimile machines and facsimile peripherals, from September 1990 to May 1994. From 1988 to 1990, Mr. Bacon was employed by ExploiTech as the Director of Marketing for consulting services. From 1985 to 1987, Mr. Bacon held positions in key account management at Landmark Graphics. Mr. Bacon is a founder and currently serves on the Board of Directors of Innovative Transducers Inc., a privately held designer and manufacturer of solid towed hydrophonic arrays for the military and geophysical marine markets. Mr. Bacon holds a Bachelor of Science in Advertising from the University of Texas. Randall D. Keys. Mr. Keys has served as the Company's Vice President of Finance and Chief Financial Officer since April 1, 1997. Prior to joining the Company, Mr. Keys was Treasurer for Norcen Explorer, Inc. in Houston, Texas from February 1994 to February 1997. Norcen Explorer, Inc. is the U.S. subsidiary of Norcen Energy Resources Limited, an international exploration and production company located in Calgary, Alberta. From November 1987 through January 1994, Mr. Keys served in various financial management roles with Santa Fe Energy Resources, Inc. and one of its predecessor companies, Adobe Resources Corporation. Mr. Keys is a Certified Public Accountant and graduated with a B.B.A. in Accounting from the University of Texas. He began his career with the public accounting firm of KPMG Peat Marwick LLP. Herbert R. Rohloff. Mr. Rohloff has served as a Senior Reservoir Engineer since joining the Company in January 1995. He is a registered professional engineer in the State of Texas. Prior to joining the Company, Mr. Rohloff was employed by Amoco Production Company from 1979 to 1993 in various engineering, economic and supervisory positions beginning in 1979 and served most recently as Project Manager-Production New Ventures. Mr. Rohloff holds a Bachelor of Science in Chemical Engineering from Texas A&M University. Douglas W. Beckman. Mr. Beckman has served as a Senior Explorationist and Project Leader since joining the Company in September 1994. Mr. Beckman has over 15 years of experience in the oil and gas industry. Prior to joining the Company, Mr. Beckman was employed by Exxon Corp. from May 1982 to August 1994, and served most recently as a seismic applications specialist. Mr. Beckman holds a Bachelor of Arts in Geology from Wittenberg University. R. Gene Colgan. Mr. Colgan joined the Company as a Senior Explorationist and Project Leader in March 1997. He spent the previous seven years as an exploration and development geologist with Vastar Resources (formerly Arco Oil and Gas) working principally in the Gulf of Mexico. He holds a Master of Science in Geology from Southern Methodist University and a Bachelor of Science in Geology from Midwestern State Eric B. Gardner. Mr. Gardner has served as Senior Explorationist and Project Leader since joining the Company in September 1994. Mr. Gardner has over 12 years of industry experience and has worked in many geoscience areas, including production, exploration, seismic technology, and research. Mr. Gardner began his career with Amoco Production Company in 1985 as a technical geophysicist and served most recently as a staff geophysicist. Mr. Gardner holds a Bachelor of Science in Engineering Physics from Colorado School of Mines. Jeffrey K. Owens. Mr. Owens has served as a Senior Explorationist and Project Leader since joining the Company in August 1994. Prior to joining the Company, Mr. Owens was employed by Amoco Production Company where he began his career in 1984 as a production and reservoir engineer and served most recently as a staff geophysicist. Mr. Owens holds a Bachelor of Science in Petroleum Engineering from Mississippi State University. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership to the Securities and Exchange Commission (the "Commission") and the Nasdaq National Market. Officers, directors and greater than 10% stockholders are required by Commission regulations to furnish the Company with copies of all Section 16(a) reports they file. Based solely on its review of copies of such reports received by it and written representation from certain reporting persons that no Forms 5 were required for those persons, the Company believes that, during the period from the effective date of the Registration Statement relating to the initial public offering of the Company's Common Stock to December 31, 1996 all filing requirements applicable to its officers, directors and greater than 10% stockholders were complied with, except for Nationsbanc Capital Corporation, which was late in filing one report on Form 4. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth information concerning compensation for services in all capacities awarded to, earned by or paid to, the Company's Chief Executive Officer and each of the Company's four other most highly compensated executive officers (the "Named Executive Officers") with respect to the last two fiscal years. The table also identifies the principal capacity in which each of the Named Executive Officers served the Company at the end of 1996.
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS ----------------------- ---------------------------------- RESTRICTED SECURITIES ALL OTHER STOCK UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS ($) OPTIONS (#) ($) - - --------------------------- ---- ---------- --------- ----------------- -------------- ------------ C. Eugene Ennis 1996 150,000 - - - - President and Chief 1995 150,000 - - - - Executive Officer Peter M. Duncan 1996 103,920 - - - - Vice President of 1995 103,920 12,000 - - - Technology; Treasurer Douglas C. Nester 1996 95,000 - - - - Vice President of 1995 95,000 - - - - Exploration Joseph Schuchardt III 1996 95,000 11,875 - - - Vice President of 1995 95,000 - - - - Business Development Robert J. Bacon, Jr. 1996 95,000 11,875 - - - Vice President of 1995 95,000 - - 144,760 - Joint Ventures
CASH BONUS PLAN In 1996 the Company adopted the 1996 Incentive Compensation Plan (the "Bonus Plan") which provides for the payment of annual cash bonuses, in an amount up to 40% of the participant's base salary, if certain pre-established Company-based performance criteria are satisfied. All full-time employees of the Company are eligible to participate in the Bonus Plan, with the exception of the Chief Executive Officer. Bonuses are awarded if the Company achieves at least 80% of its targeted performance criteria. The bonuses are then prorated accordingly. The bonus of the Chief Executive Officer is separately determined at the discretion of the Board of Directors. The 1996 bonuses for Mr. Schuchardt and Mr. Bacon were paid pursuant to the Bonus Plan upon satisfaction of performance targets. STOCK OPTION GRANTS During the year ended December 31, 1996, no stock options were granted to the Named Executive Officers. OPTION EXERCISES AND YEAR-END OPTION VALUES The following table sets forth information regarding the exercise of stock options during fiscal 1996 and the number and year-end value of unexercised options held at December 31, 1996, by each of the Named Executive Officers. No stock options or stock appreciation rights were exercised by the Named Executive Officers during fiscal 1996. AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND FISCAL 1996 YEAR-END OPTION VALUES
NUMBER OF SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED ACQUIRED ON VALUE UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT EXERCISED (#) REALIZED DECEMBER 31, 1996 DECEMBER 31, 1996 NAME DURING 1996 ON EXERCISE ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1) - - ---- ------------- --------------- ------------------------------ ------------------------------------ C. Eugene Ennis............ - - 15,947 4,197 $ 172,335 $ 45,351 Peter M. Duncan............ - - 15,947 4,197 $ 172,335 $ 45,351 Douglas C. Nester.......... - - 15,947 4,197 $ 172,335 $ 45,351 Joseph Schuchardt III...... - - 128,252 38,129 $1,385,965 $ 412,044 Robert J. Bacon, Jr........ - - 36,190 108,570 $ 377,090 $1,131,270
- - ----------- (1) Options are "in-the-money" if the fair market value of the underlying securities exceeds the exercise price of the options. The amounts set forth represent the difference between the options' exercise price and the December 31, 1996 closing price for the Common Stock, multiplied by the applicable number of options. STOCK OPTION PLAN In January 1994, the Company adopted the Stock Option Plan under which "non-qualified" stock options ("NQSOs") to acquire shares of Common Stock may be granted to directors of and consultants to the Company and "incentive" stock options ("ISOs") to acquire shares of Common Stock may be granted to employees and directors who are also employees of the Company. The Stock Option Plan provides for the issuance of up to a maximum of 1,504,937 shares of Common Stock and is administered by the Compensation Committee. Under the Stock Option Plan, the option price of any ISO may not be less than the fair market value of a share of Common Stock on the date on which the option is granted. The option price of an NQSO may be less than the fair market value on the date the NQSO is granted if the Compensation Committee so determines, but may not in any event be less than 85% of such fair market value. An ISO may not be granted to a "ten percent stockholder" (as such term is defined in Section 422A of the Code) unless the exercise price is at least 110% of the fair market value of the Common Stock at the time of grant and the option must be exercised within five years. Each option granted pursuant to the Stock Option Plan will be evidenced by a written agreement executed by the Company and the grantee, which will contain the terms, provisions and conditions of the grant. Stock options may not be assigned or transferred during the lifetime of the holder except as may be required by law or pursuant to a qualified domestic relations order. The maximum term of each stock option is ten years from the date of grant. In order for the options to qualify as ISOs, the aggregate fair market value, determined on the date of grant, of the shares with respect to which the ISOs are exercisable for the first time by the grantee during any calendar year may not exceed $100,000. Payment by option holders upon exercise of an option may be made (i) in cash, (ii) by tender to the Company of shares of the Company's stock owned by the optionee having a fair market value, as determined by the Compensation Committee (but without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company), not less than the exercise price, (iii) by delivery of a promissory note made by the optionee in a form approved by the Company, (iv) by the assignment of the proceeds of a sale of some or all of the shares being acquired upon the exercise of the option, (v) by the withholding of shares being acquired upon exercise of the option bearing a fair market value, as determined by the Compensation Committee (but without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company), not less than the exercise price, or (vi) by any combination thereof. The Compensation Committee may at any time or from time to time grant options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price and/or which otherwise restrict the use of one or more forms of consideration. In addition, the Compensation Committee, in its sole discretion, may authorize the surrender by an optionee of all or part of an unexercised stock option and authorize a payment in consideration thereof of an amount equal to the difference between the aggregate fair market value of the Common Stock subject to such stock option and the aggregate option price of such Common Stock. In the Compensation Committee's discretion, such payment may be made in cash, shares of Common Stock with a fair market value on the date of surrender equal to the payment amount or some combination thereof. The Stock Option Plan provides that outstanding options vest in their entirety and become exercisable in the event of certain mergers, consolidations or sales of all or substantially all of the assets of the Company, unless the successor corporation assumes such options. As of December 31, 1996, options to purchase 794,479 shares of Common Stock were outstanding under the Stock Option Plan at exercise prices ranging from $0.19 to $11.20 per share. During 1997, the Company expects to file with the Commission a Registration Statement on Form S-8 covering the shares of Common Stock issued pursuant to the Stock Option Plan and the shares of Common Stock underlying options granted under the Stock Option Plan. COMPENSATION OF DIRECTORS Subsequent to the Company's initial public offering in December 1996, independent directors will receive a fee in the amount of $750 for every meeting of the Board of Directors which such director attends in person or by telephone and a fee of $500 for each meeting of a committee of the Board of Directors held separately which such director attends in person or by telephone. No meetings of the Board of Directors or any committee thereof were held in December 1996 subsequent to the Company's initial public offering. As a result, no fees were paid in 1996. All directors who are not employees of the Company are reimbursed for out-of-pocket expenses. Under the Stock Option Plan, the Company may, from time to time, and in the discretion of the Board of Directors, grant stock options to directors. In January 1996, the Company granted each of the four directors who are not employees of the Company - Mr. Bayless, Mr. Chaney, Mr. Edwards and Mr. Williamson - a stock option grant of 5,170 shares each at an exercise price of $.58 per share. These shares vest 50% in the first year and 25% in each of the second and third years. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the last fiscal year of the Company, Mr. Bayless and Mr. Chaney served on the Compensation Committee of the Board of Directors of the Company. No member of the Compensation Committee has ever served as an officer of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of April 29, 1997, there were 7,216,177 shares of the Company's common stock, par value $0.01 per share ("Common Stock"), outstanding and entitled to vote. The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock, as of March 31, 1997, by (i) each person known to the Company to own beneficially 5% or more of the Company's outstanding shares of Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers, and (iv) all executive officers and directors of the Company as a group. All information with respect to beneficial ownership has been furnished to the Company by the respective stockholders of the Company.
BENEFICIAL OWNERSHIP ------------------------------- NAME AND ADDRESS (1) NUMBER OF SHARES (2) PERCENT - - -------------------- ---------------- ------- C. Eugene Ennis......................... 503,670 7.0% Peter M. Duncan......................... 373,495 5.2% Douglas C. Nester....................... 373,495 5.2% Joseph Schuchardt III................... 172,282 2.3% Robert J. Bacon, Jr..................... 50,408 * Jon W. Bayless.......................... 773,158 (3) 10.7% Robert H. Chaney........................ 386,279 (4) 5.4% Charles E. Edwards...................... 20,787 (5) * Douglas C. Williamson................... 724,488 (6) 10.0% All directors and executive officers as 3,378,062 45.3% a group (9 persons).................. Citi Growth Fund L.P.................... 727,477 10.1% c/o CitiGrowth Funds, Sycamore Partners 989 Lenox Drive Lawrenceville, New Jersey 08648 NationsBanc Capital Corporation......... 721,903 10.0% 901 Main Street Dallas, Texas 75202 R. Chaney & Co., Inc.................... 383,694 (4) 5.3% 909 Fannin, Suite 1275 Houston, Texas 77010 Metropolitan Life Insurance Company..... 370,714 (7) 5.1% c/o State Street Research One Financial Center Boston, Massachusetts 02111
___________ * Represents beneficial ownership of less than 1% of the outstanding shares of common stock. (1) Unless otherwise indicated, the address of each stockholder identified in the table is at the principal executive offices of the Company at 12012 Wickchester, Houston, Texas 77079. (2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission ("Commission"). In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days of March 31, 1997 are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Shares of Common Stock issuable upon exercise of stock options granted pursuant to the 1994 Stock Option Plan, as amended (the "Stock Option Plan"), which are currently exercisable or exercisable within 60 days of March 31, 1997 include 18,046 shares for Mr. Ennis, 18,046 shares for Mr. Duncan, 18,046 shares for Mr. Nester, 145,583 shares for Mr. Schuchardt, 36,190 shares for Mr. Bacon, 2,585 shares for Mr. Bayless, 2,585 shares for Mr. Chaney, 2,585 shares for Mr. Edwards, 2,585 shares for Mr. Williamson, and 246,251 shares for all directors and executive officers as a group. Except as indicated in the footnotes to this table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name. (3) Includes 727,477 shares beneficially owned by Citi Growth Fund L.P. Mr. Bayless is the controlling stockholder and sole director of Jon W. Bayless Inc., the general partner of Atlantic Partners L.P., the general partner of Citi Growth Fund L.P. beneficially owned by Citi Growth Fund L.P. (4) Includes 338,240 shares held by R. Chaney and Partners-1993 L.P. and 45,454 shares held by R. Chaney & Partners II L.P. R. Chaney & Co., Inc., a corporation of which Mr. Chaney is the Chief Executive Officer and sole stockholder, is the general partner of R. Chaney & Partners-1993 L.P. and R. Chaney & Partners II L.P. (5) Includes 1,200 shares of Common Stock owned by Mr. Edwards' spouse. (6) Includes 721,903 shares of Common Stock held by NationsBanc Capital Corporation. Mr. Williamson is a Managing Director in the Venture Capital Group of NationsBanc Capital Corporation. (7) State Street Research & Management Company, a wholly-owned subsidiary of Metropolitan Life Insurance Company, has the power to vote and dispose of these shares which are held by it on behalf of Metropolitan Life Insurance Company. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AGREEMENTS WITH LANDMARK GRAPHICS In connection with its initial capitalization, the Company entered into a Technical Services Agreement with Landmark Graphics Corporation ("Landmark Graphics") pursuant to which Landmark Graphics agreed to grant to the Company ongoing licenses to use Landmark Graphics software as it is first made available to Landmark Graphics customers. Prior to the initial public offering, Landmark Graphics owned in excess of 5% of the Company's common stock. In addition, the agreement provides for a strategic alliance between Landmark Graphics and the Company, which enables the Company to request, and requires Landmark Graphics to deliver, enhancements and modifications to existing Landmark Graphics software and, in certain instances, to develop new software for use in the Company's oil and gas exploration efforts. In exchange for such rights, the Company has agreed to serve as an alpha test site for software developed by Landmark Graphics. Neither this agreement nor any of the licenses granted by Landmark Graphics to the Company contain any provisions with respect to expiration or termination. In addition, the Company and Landmark Graphics are also parties to an informal agreement pursuant to which the Company's employees participate in Landmark Graphics' medical insurance plan, life insurance plans and 401(k) plan. In connection with the informal agreements pursuant to which the Company purchases medical and life insurance for its employees and their dependents as a part of the Landmark Graphics benefit plan and those agreements which enable the Company's employees to participate in the Landmark Graphics' 401(k) Plan, the Company reimburses Landmark Graphics for all direct costs associated with such benefits and programs and pays Landmark Graphics a quarterly administrative and billing fee in an aggregate amount less than $1,500 annually. The Company believes these informal arrangements result in an administrative convenience for the Company, and may allow the Company's employees and their dependents to obtain better insurance coverage than would be available from other plans that the Company could obtain independently. Such arrangements do not result in any material financial benefit to the Company since the Company reimburses Landmark Graphics for all of costs which Landmark Graphics incurs in connection with such arrangements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The Company hereby amends, to the extent set forth below, the financial statements included within its Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (A)(1) FINANCIAL STATEMENTS: INDEX TO FINANCIAL STATEMENTS PAGE ---- Report Of Independent Public Accountants F-1 Balance Sheets as of December 31, 1995 and 1996.............. F-2 Statements of Operations for the three years ended December 31, 1996........................................... F-3 Statements of Changes in Common Stockholders' Equity (Deficit) for the three years ended December 31, 1996................. F-4 Statements of Cash Flows for the three years ended December 31, 1996........................................... F-5 Notes to Financial Statements................................ F-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of 3DX Technologies Inc.: We have audited the accompanying balance sheets of 3DX Technologies Inc. (a Delaware corporation) as of December 31, 1995 and 1996, and the related statements of operations, changes in common stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 3DX Technologies Inc. as of December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Houston, Texas March 14, 1997 ARTHUR ANDERSEN LLP F-1 3DX TECHNOLOGIES INC. BALANCE SHEETS ASSETS December 31, ------------------------- 1995 1996 ---- ---- Current assets: Cash and cash equivalents............ $ 5,704,014 $17,521,745 Securities held to maturity.......... 1,595,167 - Accounts receivable.................. 113,704 554,210 Prepaid expenses..................... 85,786 165,095 ----------- ----------- Total current assets............. 7,498,671 18,241,050 ----------- ----------- Property and equipment: Oil and gas properties (full-cost method-including $1,375,145 and $4,403,165, respectively, not subject to depletion, depreciation and amortization)................... 4,023,869 11,567,562 Technical interpretation equipment... 1,083,925 1,505,534 Office furniture, equipment and leasehold improvements.............. 170,877 205,531 ----------- ----------- 5,278,671 13,278,627 Less accumulated depletion, depreciation and amortization....... (2,343,578) (4,702,296) ----------- ----------- 2,935,093 8,576,331 Other assets: Deposits............................. 12,886 7,886 Organization costs, net of accumulated amortization............ 3,854 1,922 ----------- ----------- $10,450,504 $26,827,189 =========== =========== LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable..................... $ 194,742 $ 1,960,984 Accrued liabilities.................. 39,166 292,581 ----------- ----------- Total current liabilities........ 233,908 2,253,565 ----------- ----------- Dividends payable on Series C preferred stock.................................. 275,256 - ----------- ----------- Commitments (Note 10) Mandatorily redeemable Series B preferred stock, $.01 par value, $100 per share redemption price, 200,000 shares authorized, 66,871 and 0 shares issued and outstanding, respectively... 6,277,826 - ----------- ----------- Mandatorily redeemable Series C senior preferred stock, $.01 par value, $3 per share redemption price, 3,300,000 shares authorized, 2,662,241 and 0 shares issued and outstanding, respectively........................... 7,903,833 - ----------- ----------- Common stockholders' equity (deficit): Common stock, $.01 par value, 20,000,000 shares authorized, 2,987,908 and 6,841,177 shares issued and outstanding, respectively 29,879 68,412 Paid-in capital...................... 1,730,459 34,189,700 Deferred compensation related to certain stock options............... (837,864) (893,040) Notes receivable from stock sales.... (47,756) - Accumulated deficit.................. (5,115,037) (8,791,448) ----------- ----------- Total common stockholders' equity (deficit)................ (4,240,319) 24,573,624 ----------- ----------- $10,450,504 $26,827,189 =========== =========== The accompanying notes are an integral part of these financial statements. F-2 3DX TECHNOLOGIES INC. STATEMENTS OF OPERATIONS Years Ended December 31, ---------------------------------------- 1994 1995 1996 ---- ---- ---- Revenues: Oil and gas............................ $ 303,836 $ 274,511 $ 851,827 Rental income.......................... 100,962 58,195 229,556 Interest and other..................... 52,817 236,186 247,960 ---------- ----------- ----------- Total revenues........................ 457,615 568,892 1,329,343 ---------- ----------- ----------- Costs and expenses: Lease operating........................ 14,225 60,877 49,016 Production and ad valorem taxes........ 19,812 17,656 58,660 Impairment of oil and gas properties... - 1,627,321 1,476,690 Depletion, depreciation, and amortization.......................... 210,347 446,350 883,962 General and administrative............. 598,244 905,063 1,596,379 ---------- ----------- ----------- Total costs and expenses.............. 842,628 3,057,267 4,064,707 ---------- ----------- ----------- Net loss................................ (385,013) (2,488,375) (2,735,364) Dividends on preferred stock............ (421,696) (1,058,956) (520,393) Redemption premium on Series B Preferred Stock........................ - - (365,810) Accretion on preferred stock............ (30,367) (48,408) (54,844) ---------- ----------- ----------- Net loss applicable to common stockholders........................... $ (837,076) $(3,595,739) $(3,676,411) ========== =========== =========== Primary and fully diluted net loss per common share........................... $ (0.33) $ (1.14) $ (1.16) ========== =========== =========== Weighted average number of common shares outstanding..................... 2,534,175 3,148,826 3,162,934 ========== =========== =========== The accompanying notes are an integral part of these financial statements. F-3 3DX TECHNOLOGIES INC. STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Common Stockholders' Equity (Deficit) ------------------------------------------------------------------------------------------------------- Common Stock Stock ---------------------- Paid-In Deferred Accumulated Subscriptions Shares Amount Capital Compensation Deficit Receivable Total ------- ------ -------- ------------ ------------ -------------- ----- Balance at December 31, 1993...................... 2,232,530 $ 22,325 $ 664,999 $ - $ (682,222) $ (41,527) $ (36,425) Principal collections...... - - - - - 27,862 27,862 Shares issued in October 1994...................... 755,378 7,554 176,605 - - (12,492) 171,667 Accrual of dividends....... - - - - (421,696) - (421,696) Accretion on preferred stock..................... - - - - (30,367) - (30,367) Net loss................... - - - - (385,013) - (385,013) --------- --------- ----------- ------------ ----------- ------------ ----------- Balance at December 31, 1994...................... 2,987,908 29,879 841,604 - (1,519,298) (26,157) (673,972) Principal collections...... - - - - - 36,156 36,156 Shares issued in 1995...... - - - - - (57,755) (57,755) Accrual of dividends....... - - - - (1,058,956) - (1,058,956) Accretion on preferred stock..................... - - - - (48,408) - (48,408) Deferred compensation related to certain stock options................... - - 888,855 (888,855) - - - Compensation expense related to certain stock options................... - - - 50,991 - - 50,991 Net loss................... - - - - (2,488,375) - (2,488,375) --------- --------- ----------- ------------ ----------- ------------ ----------- Balance at December 31, 1995...................... 2,987,908 29,879 1,730,459 (837,864) (5,115,037) (47,756) (4,240,319) Principal collections...... - - - - - 47,756 47,756 Shares issued for exercise of stock options.......... 3,124 31 573 - - - 604 Accrual of dividends....... - - - - (520,393) - (520,393) Accretion on preferred stock..................... - - - - (54,844) - (54,844) Deferred compensation related to certain stock options................... - - 922,806 (922,806) - - - Compensation expense related to certain stock options................... - - - 867,630 - - 867,630 Shares issued for Initial Public Offering (net of offering costs)........... 2,400,000 24,000 23,539,064 - - - 23,563,064 Conversion of Series C preferred to common stock. 1,450,145 14,502 7,996,798 - - - 8,011,300 Redemption of Series B preferred stock........... - - - - (365,810) - (365,810) Net loss................... - - - - (2,735,364) - (2,735,364) --------- --------- ----------- ------------ ----------- ------------ ----------- Balance at December 31, 1996...................... 6,841,177 $ 68,412 $34,189,700 $ (893,040) $(8,791,448) $ - $24,573,624 ========= ======== =========== ============ =========== ============ ===========
The accompanying notes are an integral part of these financial statements. F-4 3DX TECHNOLOGIES INC. STATEMENTS OF CASH FLOWS
Years Ended December 31, ------------------------------------------ 1994 1995 1996 ---- ---- ---- Cash flows from operating activities: Net loss............................... $ (385,013) $(2,488,375) $(2,735,364) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depletion, depreciation and amortization....................... 210,347 446,350 883,962 Compensation expense related to certain stock options.............. - 50,991 867,630 Impairment of oil and gas properties......................... - 1,627,321 1,476,690 (Increase) decrease in accounts receivable......................... 147,928 (45,485) (440,506) (Increase) decrease in prepaid expenses........................... (8,237) (76,188) (79,309) Increase (decrease) in accounts payable............................ 24,441 (3,005) 388,767 Increase (decrease) in accrued liabilities........................ 26,777 (14,540) 253,415 ----------- ----------- ----------- Net cash provided by (used in) operating activities.................. 16,243 (502,931) 615,285 ----------- ----------- ----------- Cash flows from investing activities: Acquisition, exploration and development of oil and gas properties. (1,822,174) (2,185,804) (6,166,219) Sales proceeds-undeveloped oil and gas interests............................. - 480,931 - Purchase of technical and office equipment and leasehold improvements.. (108,817) (395,093) (229,311) Purchase of technical equipment from Landmark Graphics..................... (87,373) (405,480) (226,953) (Purchase of) proceeds from securities held to maturity...................... - (1,595,167) 1,595,167 Other.................................. 500 (12,886) 5,000 ----------- ----------- ----------- Net cash used in investing activities.. (2,017,864) (4,113,499) (5,022,316) ----------- ----------- ----------- Cash flows from financing activities: Common stock proceeds, net of issuance costs................................. 162,651 - 23,563,668 Series B preferred stock proceeds, net of issuance costs..................... 2,352,722 25,297 - Series C preferred stock proceeds, net of issuance costs..................... - 7,851,133 143,843 Redemption of Series B preferred stock. - - (6,687,100) Payment of Series C preferred stock dividends............................. - - (795,649) ----------- ----------- ----------- Net cash provided by financing activities............................ 2,515,373 7,876,430 16,224,762 ----------- ----------- ----------- Net change in cash and cash equivalents. 513,752 3,260,000 11,817,731 Cash and cash equivalents at beginning of year................................ 1,930,262 2,444,014 5,704,014 ----------- ----------- ----------- Cash and cash equivalents at end of the year................................... $ 2,444,014 $ 5,704,014 $17,521,745 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-5 3DX TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BASIS OF PRESENTATION 3DX Technologies Inc. ("3DX" or the "Company"), began operations in January 1993 to offer its 3-D seismic data and computer-aided exploration capabilities as a partner to experienced oil and gas operators in 3DX's geographical areas of interest. By combining the operator's local knowledge and infrastructure with 3DX's imaging capabilities, 3DX believes it is able to evaluate and exploit drilling opportunities at lower-than-normal cost. The Company primarily invests in prospects where 3-D seismic evaluation and interpretation is expected to reduce drilling risk. Working interests in major prospects have ranged from 5% up to 40% in property investments to date. All of the Company's operations are currently located in the United States. The Company's future operations are dependent on a variety of factors, including its successful application of its technical expertise, profitable exploitation of its oil and gas properties, successful access to capital sources and variable oil and gas prices and costs, among others. The Company was initially funded by its three founding stockholders and by Landmark Graphics Corporation (Landmark), a Houston company which is a leading supplier of interactive computer-aided exploration systems used by geoscientists to analyze subsurface data in the process of exploring for and producing petroleum reserves. The three founding stockholders of 3DX were formerly employed by Landmark. The Company completed an Initial Public Offering ("Initial Public Offering" or the "Offering") in December 1996, with the sale of 2,400,000 shares of common stock, resulting in proceeds to the Company approximating $23.6 million, net of issuance costs. (See Note 6). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Oil and Gas Properties 3DX accounts for its oil and gas properties using the full-cost method. All costs associated with the acquisition, exploration and development of oil and gas properties (including such costs as leasehold acquisition costs, geological and geophysical expenditures, dry hole costs and tangible and intangible development costs) are capitalized as incurred. Included in capitalized costs for the years ended December 31, 1994, 1995 and 1996 are general and administrative costs of $375,922, $618,614, and $1,146,722, respectively. Such capitalized costs include payroll and related costs of the exploration department personnel which are directly attributable to the Company's current acquisition, exploration and development activities. Other costs (primarily including office rent, technical computer maintenance and support, and communication costs) are also capitalized to the extent they are attributed to the Company's own oil and gas property acquisition and exploration activities and would not otherwise be incurred if such activities were not being undertaken. Dispositions of proved oil and gas properties are reported as adjustments to capitalized costs, with gains and losses not recognized unless such adjustments would significantly alter the relationship between capitalized costs and estimated proved oil and gas reserves. The evaluated costs of oil and gas properties plus estimated future development and dismantlement costs (including plugging, abandonment and site- restoration costs) are charged to operations as depreciation, depletion, and amortization using the unit-of-production method based on the ratio of current production to proved recoverable oil and gas reserves as estimated by the Company and corroborated by independent petroleum engineering firms. The Company excludes unevaluated property costs from the depreciation, depletion and amortization computations until the discovery of proved reserves or a determination of impairment occurs. Unevaluated properties are evaluated for impairment on a property-by-property basis annually through 1995 and quarterly beginning in 1996. When the determination has been made that an unproved property has either encountered proved reserves or has been impaired, the related costs are transferred to the evaluated cost pool. Information regarding the number of, and total investment in, abandoned projects at the time of abandonment by the Company is set forth below: F-6 Number of Investment in Projects Abandoned Accounting Period Abandoned Projects ----------------- --------- -------------- Year ended December 31, 1994 0 $ 0 Year ended December 31, 1995 3 1,173,644 Year ended December 31, 1996 2 927,366 Impairment of capitalized costs of oil and gas properties is determined for each cost center, determined on a country-by-country basis. The Company's only active cost center since inception has been the United States of America. For each cost center, to the extent that capitalized costs of oil and gas properties, net of related accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the discounted future net revenues of estimated proved oil and gas reserves, net of income tax effects, plus the lower of cost or fair value of unevaluated properties, such excess costs are charged to operations as an impairment of oil and gas properties. No such write-downs were required during 1994. Write-downs of $1,627,321 and $1,476,690 were required for the years ended December 31, 1995 and 1996, respectively. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 121 ("SFAS No. 121") regarding accounting for the impairment of long-lived assets. The Company adopted SFAS No. 121 effective January 1, 1996. However, such adoption did not affect the primary test of asset recoverability because the Company's oil and gas properties are accounted for under the full-cost method of accounting as discussed above. The adoption of SFAS No. 121 had no effect on the Company's results of operations for the year ended December 31, 1996. Technical interpretation equipment, including software, and office furniture and equipment are recorded at cost. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of the technical interpretation equipment, including software, is three years, and for office furniture and equipment, it is five years. Depletion, depreciation and amortization expense includes depreciation related to technical interpretation equipment, including software, and office furniture and equipment of $119,675, $288,014, and $459,189 for the years ended December 31, 1994, 1995 and 1996, respectively. Securities held to Maturity Securities held to maturity at December 31, 1995 include various types of government debt securities which matured on March 31, 1996, and are carried at amortized cost at December 31, 1995. Accounting for Income Taxes The Company provides deferred income taxes at the balance sheet date for the estimated tax effects of differences in the existing tax bases of assets and liabilities and their financial statement carrying amounts. Natural Gas Revenues Natural gas revenues are recorded using the sales method, whereby the Company recognizes natural gas revenues based on the amount of gas sold to product purchasers on its behalf. The Company has no material gas imbalances. Rental Income In January 1993, the Company entered into an informal revenue-sharing arrangement with a seismic processing company whereby the Company would receive a percentage of the seismic processing company's gross billings in exchange for providing office space and use of the Company's technical equipment. Revenues under this ongoing arrangement amounted to $100,962, $58,195 and $229,556 in 1994, 1995 and 1996, respectively. Statements of Cash Flows For the purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. F-7 Concentration of Credit Risk All of the Company's receivables are due from oil and gas producing companies located in the United States. The Company has not experienced any significant credit losses related to its receivables. Major Customers Operators for producing oil and gas wells in which the Company holds working interests sold the majority of oil and gas production to three customers in 1994, 1995 and 1996. Sales to these customers exceeded 10% of oil and gas revenues during the years indicated (in thousands): 1994 1995 1996 ---- ---- ---- Enron Corp. its subsidiaries and affiliates $ 154 $ 134 $ 43 Dow Hydrocarbon U.S.A. - - 493 Ada Crude Oil Company 120 82 47 Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, securities held to maturity and accounts receivable, approximate their fair values due to their short-term nature. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Oil and gas reserve estimates, which are the basis for units-of-production depletion and the ceiling test, are inherently imprecise and are expected to change as future information becomes available. Prior Year Reclassifications Certain prior year amounts have been reclassified to conform with the current presentation. Accounting Pronouncements In October 1996, the American Institute of Certified Public Accountants issued Statement of Position No. 96-1, "Environmental Remediation Liabilities," which establishes new accounting and reporting standards for the recognition and disclosure of environmental remediation liabilities. The provisions of the statement are effective for fiscal years beginning after December 15, 1996. The impact of this new standard is not expected to have a significant effect on the Company's financial position or results of operations. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings Per Share," which establishes new computation, presentation, and disclosure requirements for earnings per share for public companies. The statement is effective for financial statements issued for periods ending after December 15, 1997. F-8 3. INCOME TAXES Significant components of the Company's deferred tax liabilities and assets are as follows: December 31, --------------------------------------- 1994 1995 1996 ---- ---- ---- Deferred tax liability: Exploration and development expenditures deducted for tax and capitalized for books................. $(345,831) $ (103,867) $ (325,812) Other items, net....................... - (37,523) (54,872) --------- ----------- ----------- Total deferred tax liability........ (345,831) (141,390) (380,684) --------- ----------- ----------- Deferred tax assets: Net operating loss carryforwards....... 653,394 1,238,317 2,039,546 Other items, net....................... 28,419 66,375 126,517 --------- ----------- ----------- Total deferred tax assets........... 681,813 1,304,692 2,166,063 Less: Valuation allowance.............. (335,982) (1,163,302) (1,785,379) --------- ----------- ----------- Net deferred tax assets................. 345,831 141,390 380,684 --------- ----------- ----------- Net deferred tax liability.............. $ - $ - $ - ========= =========== =========== The Company did not record any current or deferred income tax provision or benefit in any of the periods presented. The Company's provision for income taxes differs from the amount computed by applying the statutory rate due principally to the valuation allowance recorded against its deferred tax asset account relating to net operating tax loss carryforwards. Management believes that such allowance is necessary until there is greater assurance that the net operating tax loss carryforwards can be utilized. The Company has recorded a valuation allowance against its deferred tax assets in each year to reflect the estimated portion for which realization is uncertain. As of December 31, 1996, the Company has tax net operating loss carryforwards of $5,998,666 which begin to expire in 2008. As a result of recent stock transactions, including the Initial Public Offering, (See Note 6), there is a yearly limitation on the Company's utilization of its Net Operating Losses under Section 382 of the Internal Revenue Code. 4. RELATED-PARTY TRANSACTIONS The Company purchased technical equipment, supplies, and software and hardware maintenance amounting to $118,630 in 1994, $521,128 in 1995, and $267,007 in 1996 from Landmark. 5. MANDATORILY REDEEMABLE PREFERRED STOCK The Company's Series B and Series C redeemable preferred stocks described below were presented on the balance sheet outside of common equity because they both had mandatory-redemption provisions outside the control of the Company, and both were being accreted to their projected redemption values through a charge to common equity during the periods such securities were outstanding. Series B In November 1993, the Company negotiated an agreement pursuant to which certain investors agreed to purchase 54,000 units (each unit consisting of one share of redeemable Series B preferred stock and 30.215 shares of common stock) for total consideration in the amount of $5,400,000. The sales of the units was timed to be funded in two traunches to match the projected cash flow needs of the Company, with the first traunch (consisting of 29,000 units) funded in November 1993 and the second traunch (consisting of 25,000 units) funded in October 1994. The terms of the agreement provided a substantial penalty for any investor who committed to purchase units in the second traunch and failed to do so. All investors who committed to purchase units in the second traunch did so in October 1994. Sales of the 54,000 units were as follows: 4,500 units were sold to members of management (8.3% of the total units sold), 4,000 units were sold to Landmark (7.4% of the total units sold), 1,750 units were sold to consultants to the Company (3.2% of the total units sold), 28,820 units were sold to two investment funds (18,820 units to Citi Growth Fund L.P. and 10,000 units to R. Chaney & Partners - 1993 L.P.) whose purchases were conditioned on the ability of each investor group to designate one member of the Board of Directors (53.4% of the total units sold), 1,500 units were F-9 sold to one investor-designated member and one future member of the Board of Directors (2.8% of the total units sold), and the remaining 13,430 units were sold to other unrelated investors (24.9% of the total units sold). In November 1993, the Company sold 29,000 equity units consisting of an aggregate of 29,000 shares of the Company's redeemable Series B preferred stock, par value of $.01 per share, and 876,237 shares of common stock, par value of $.01 per share. The stock was sold for net proceeds of $94.1558 per share of Series B preferred stock and $.19 per share of common stock. The difference between the sales price and the redemption price of $100 per share was subject to an annual pro-rata accretion charge to retained earnings, so that at the time of the mandatory redemption, the value of each share of preferred stock will equal the redemption price of $100. The Series B preferred stockholders were entitled to 100 votes for each share held, and shall vote together with holders of common stock and not as a separate class. The Series B preferred stockholders were entitled to receive (out of any funds legally available therefor) dividends (in cash or in shares of Series B preferred stock, as determined by the Board of Directors) at an annual rate per share of $12.50 if in cash or .13276 shares of Series B preferred stock if in stock, payable annually on December 31, commencing in December 1994. In the event the Board of Directors failed to declare the dividend in stock or cash ten working days prior to the end of each year, the dividend was deemed declared in stock as of the end of the year. As a result, the dividend was constructively cumulative. The Series B preferred stock had a redemption price of $100 per share. The Series B preferred stock also contained a mandatory-redemption feature under which the stock was to be redeemed at the redemption price in two installments (50% on November 9, 2002 and 50% on November 9, 2003). 3DX had the option to redeem the outstanding Series B Preferred stock at any time with funds legally available therefor. As consideration for the Series B preferred and common stock sale, the Company received $2,875,019 in cash and promissory notes from two of its founders amounting to $24,984. The Company incurred legal and other offering costs of $103,659 in connection with this Series B preferred stock unit sale. On October 24, 1994, the Company sold 25,000 equity units consisting of an aggregate of 25,000 shares of the Company's redeemable Series B preferred stock, par value of $.01 per share, and 755,378 shares of common stock, par value of $.01 per share. The stock was sold for net proceeds of $94.1558 per share of Series B preferred stock and $.19 per share of common stock. As consideration for the Series B preferred and common stock sale, the Company received $2,487,511 in cash and a promissory note from one of its founders amounting to $12,492. Dividends on the Series B preferred stock have been paid in stock rather than in cash as determined by the Board of Directors. In connection with the Initial Public Offering which became effective on December 26, 1996, all of the issued and outstanding shares of the Series B Preferred Stock were redeemed. A $365,810 redemption premium (which adjusts the Series B Preferred Stock carrying value to the liquidation price of $100 per share) was charged to the Company's accumulated deficit. Series C During the period from July 26, 1995 until September 25, 1995, the Company sold a total of 2,662,241 shares of the Company's senior redeemable convertible Series C preferred stock, par value of $.01 per share. The stock was sold for $3 per share. Purchasers of the 2,662,241 shares of Series C Preferred Stock consisted of members of management who purchased 89,237 shares (3.4% of the total Series C shares sold), consultants to the Company who purchased 17,134 shares (0.6% of the total Series C shares sold), two members of the Board of Directors who purchased 10,000 shares (0.4% of the total Series C shares sold), other previous Series B unit investors who purchased 329,203 shares (including 125,467 shares purchased by Citi Growth Fund L.P. and 66,667 shares by R. Chaney & Partners - 1993 L.P.) (12.3% of the total Series C shares sold), NationsBank Capital Corporation whose purchase of 1,333,333 shares was conditioned on its ability to designate a member of the Company's Board of Directors (50.1% of the total Series C shares sold), and the remaining 883,334 shares were sold to other unaffiliated investors (33.2% of the total Series C shares sold). The Series C preferred stockholders were entitled to one vote for each number of common shares their Series C preferred stock was convertible into, and voted together with holders of common stock and not as a separate class. The Series C preferred stockholders were entitled to receive when, as and if declared by the Board of Directors (out of any funds legally available therefor) dividends (in cash or in shares of Series C preferred stock, as determined by the Board of Directors) at an annual rate per share of $.24 if in cash or .08 shares of Series C preferred stock if in stock, payable or accruing quarterly, commencing on December 31, 1995. If dividends are accrued, the unpaid dividends compound at an annual interest rate of 8%. In the event the Board of Directors failed to declare the dividend in stock or cash ten working days prior to the end of each calendar quarter, the dividend was automatically deemed declared in cash as of the end of the quarter. As a result the dividend was constructively cumulative. F-10 The Series C preferred stock also contained a right to convert to common stock on a one share for one share basis at any time (See below for discussion of the impact of the October 1996 reverse stock split), and the shares were to be automatically converted upon the occurrence of certain automatic conversion events (including the successful completion of an initial public offering of the Company's common stock if certain pricing and other criteria were met). The Series C preferred stock also contained a mandatory-redemption feature under which the stock was to be redeemed (if requested in writing with at least 30 days notice by at least 67% of the holders) at the liquidation price in two installments (50% on November 9, 2002 and 50% on November 9, 2003). In the event of a merger, sale or dissolution of the Company, or initiation of mandatory redemption of the senior preferred Series C stock where the proceeds to the holders are less than two times the holders' original basis plus accrued dividends, then in such event the holders were to receive the face value of their investment plus accrued dividends and were also entitled to participate on an "as if converted" basis in all remaining net proceeds of the Company. As consideration for the Series C preferred stock sale, the Company received $7,928,968 in cash, and promissory notes from two of its founders and one board member amounting to $57,755. The Company incurred legal and other offering costs of $87,834 in connection with this Series C preferred stock sale. In October 1995, the Board of Directors granted each purchaser of shares of senior redeemable convertible Series C preferred stock a warrant to purchase additional shares equal to 10% of the shares owned by such purchaser, at an exercise price of $3 per share, such shares to be exercisable at any time until the earlier of (a) five years from the date of issuance and (b) the effective date of an initial public offering of the Company's securities. No value was assigned to these warrants as the computed value of the warrants using the Black-Scholes model was zero. In October 1996, the Board of Directors authorized a reverse stock split whereby stockholders of common stock will receive .517 shares of common stock for every one share previously owned. The previous conversion ratio of one share of Series C Preferred Stock for one share of Common Stock was adjusted for this reverse split so that one share of Series C Preferred Stock was convertible into .517 shares of common stock. In connection with the Initial Public Offering which became effective on December 26, 1996, all of the issued and outstanding shares of the Series C Preferred Stock, and all outstanding Series C Preferred Stock warrants were converted into common stock. During the year ended December 31, 1996, the Company accrued and paid dividends on the Series C preferred stock of $795,649. The following table summarizes the 1994, 1995 and 1996 activity of Series B and Series C mandatorily redeemable preferred stock:
Redeemable Preferred Stock -------------------------------------------------- Series B Series C ---------------------- ----------------------- Shares Amount Shares Amount ------ ------ ------ ------ Balance at December 31, 1993...... 29,560 $ 2,683,615 - $ - - Shares issued in October 1994..... 25,000 2,315,844 - - Accrual of dividends.............. 4,474 421,696 - - Accretion to redemption value..... - 30,367 - - ------- ----------- ---------- ----------- Balance at December 31, 1994...... 59,034 5,451,522 - - Shares issued in 1995............. - - 2,662,241 7,986,723 Issuance costs.................... - (860) - (87,834) Accrual of dividends.............. 7,837 783,700 - - Accretion to redemption value..... - 43,464 - 4,944 ------- ----------- ---------- ----------- Balance at December 31, 1995...... 66,871 6,277,826 2,662,241 7,903,833 Accretion to redemption value..... - 43,464 - 11,380 Redemption of Series B Preferred.. (66,871) (6,321,290) - - Exercise of outstanding warrants For cash...................... - - 32,029 96,087 Under cashless tender......... - - 110,653 - Conversion to common stock........ - - (2,804,923) (8,011,300) ------- ----------- ---------- ----------- Balance at December 31, 1996...... - $ - - $ - ======= =========== ========== ===========
F-11 6. COMMON STOCKHOLDERS' EQUITY (DEFICIT) On January 27, 1993, the Company sold 768,117 shares of common stock to its founding stockholders for $44,572 ($.06 per share). These shares were subject to a stock purchase and restriction agreement under which the Company had retained a right to repurchase any "unvested" shares at the original sales price of $.06 per share. These shares became fully vested on January 26, 1997. On November 9, 1993, the Company sold 259,172 shares of common stock to its founding stockholders at $.19 per share. As consideration for the common stock sale, the Company received net proceeds of $33,587 in cash and a promissory note from one of its founders amounting to $16,543. (See Note 8). On May 24, 1995, the stockholders approved a 10-for-1 stock split of the Company's common stock. All references in this report to number of common shares outstanding reflect stock splits retroactively to inception of the Company. In October 1996, the Board of Directors authorized a reverse stock split whereby stockholders of common stock received .517 shares of common stock for every one share previously owned. The previous conversion ratio of one share of Series C Preferred Stock for one share of Common Stock was also adjusted for this reverse split so that one share of Series C Preferred Stock was convertible into .517 shares of common stock. In addition, authorized, issued, and outstanding options under the Company's 1994 stock option plan were revised to reflect the impact of the reverse stock split on share and option prices. All references in this report to number of common shares outstanding reflect this reverse stock split retroactively to inception of the Company. Initial Public Offering On December 26, 1996, the Company completed an Initial Public Offering for the sale of 2,400,000 shares of Common Stock. From the date of the Initial Public Offering through March 26, 1997, the net proceeds of the Offering which approximated $23.6 million, have been used (1) to redeem all the issued and outstanding shares of the Series B Preferred Stock, (2) for capital and exploration expenditures, (3) to pay dividends accrued on the issued and outstanding Series C Preferred Stock and (4) for general corporate purposes, including expenses associated with hiring additional personnel. The Company plans to use the remaining proceeds to fund future capital and exploration programs and general corporate purposes. F-12 7. STOCK OPTIONS In June 1994, the Board of Directors approved the 1994 Stock Option Plan (the Plan) for employees, officers, directors and certain consultants of the Company. The ten year options vest for employees over four years (annually for the first two years and monthly the last two years) and for directors and consultants over three years (annually with 50% in year one) and certain of these options are eligible for accelerated vesting upon a change of control of the Company. At December 31, 1996 the Company had reserved 1,504,937 shares of common stock for issuance under this Plan. The following table summarizes option balances and activity for the Plan: Year Ended December 31, -------------------------- 1994 1995 1996 ---- ---- ---- Option shares: Outstanding at beginning of year................... - 438,783 686,943 Granted during year..... 438,783 248,160 267,806 Exercised during year... - - (3,124) Canceled during year.... - - (157,146) -------- -------- -------- Outstanding at end of year. 438,783 686,943 794,479 Options exercisable at end of year................... - - - Shares available for grant at end of year............ 549,154 300,994 707,334 Weighted average price of options: Granted during year....... $ 0.22 $ 0.56 $ 2.81 Exercised during year..... - - $ 0.19 Outstanding at end of year... $ 0.22 $ 0.42 $ 0.70 Weighted average fair value of options granted during year............... - $ 3.72 $ 8.95
At December 31, 1996 At December 31, 1996 ----------------------------------- ------------------------------------ Weighted- Weighted- Weighted - Range of average average average exercise prices Number outstanding exercise price contractual life Number exercisable exercise price - - --------------- ------------------ --------------- ---------------- ----------------- -------------- $0.19-0.58 761,908 $ 0.37 8.0 337,980 $0.28 $7.95 27,401 $ 7.95 9.8 - - $11.00 5,170 $ 11.00 9.8 - - ------- ------- Total Options 794,479 $ 0.70 8.1 337,980 $0.28 ======= =======
In connection with stock options granted within one year of the Initial Public Offering, the Company has recorded deferred compensation as additional paid in capital and an offsetting contra-equity account. Such compensation accrual is based on the difference between the option price and the $11.00 per share Initial Public Offering common stock price. Such deferred compensation is being recorded as compensation over the period during which the options become vested. F-13 In October 1995, the FASB issued SFAS No. 123. SFAS No. 123 is a new standard of accounting for stock-based compensation and establishes a fair value method of accounting for awards granted after December 31, 1995 under stock compensation plans. The Company has elected to continue accounting for grants of employee stock options under Accounting Principles Board Opinion No. 25. Had the Company elected to apply SFAS No. 123, the estimated effects on net income and earnings per share resulting from grants made after December 31, 1994 would have been as follows: 1995 1996 ---- ---- Net Loss As Reported $(2,488,375) $(2,735,364) Pro forma (2,480,893) (2,450,298) Primary and Fully Diluted Earnings per Share As Reported $ (1.14) $ (1.16) Pro forma $ (1.14) $ (1.07) Pro forma Assumptions: Risk Free Interest Rate: Maximum 5.98% 6.68% Minimum 5.59% 5.35% Expected Option Life: Maximum 5.0 years 4.5 years Minimum 4.6 years 3.7 years Volatility was not considered in the above calculation as the Company was not publicly traded until December 26, 1996. 8. NOTES RECEIVABLE FROM STOCK SALES During 1994, 1995 and 1996, two officers and one member of the Board of Directors purchased common or preferred stock for notes, which are reflected as an offset to equity in the accompanying financial statements. The notes were full recourse promissory notes bearing interest at a fixed rate of 6% per annum. The notes from the two employees were collateralized by certain vested stock options the individuals hold from their former employer. The principal and all accrued interest on the notes held at December 31, 1995 were repaid in 1996. 9. SAVINGS PLAN The Company has joined with Landmark in offering its employees an employee 401-K savings plan (the Plan) which became effective upon inception of the Company. The Plan covers substantially all employees and entitles them to contribute up to 15% of their annual compensation, subject to maximum limitations imposed by the Internal Revenue Code. While the Plan allows for employer matching of a portion of the employee contributions, the Company has elected not to match contributions. 10. COMMITMENTS Effective March 1, 1995, the Company entered into a 5-year office facilities operating lease agreement which required an 18-month rent prepayment at inception, and contains typical renewal options and escalation clauses. Future minimum payments under non-cancelable office facilities and office equipment operating leases having initial terms of one year or more are as follows at December 31, 1996: 1997.......................................... $ 99,681 1998.......................................... 99,870 1999.......................................... 99,374 2000.......................................... 18,037 Thereafter.................................... 189 -------- Total minimum lease payments.................. $317,151 ======== Rental expense under these operating leases was approximately $61,000 in 1994, $90,370 in 1995, and $106,825 in 1996. F-14 11. SALE OF ASSETS In April 1995, the Company sold 66.67% of its working interest in the Double Diamond/Jones Ranch prospect to a group of individual investors who are stockholders in the Company (through a limited partnership). Proceeds from the sale, which represented both the estimated fair market value of the interest sold as well as 3DX's proportionate cost to date on the prospect, amounted to $480,931. No gain or loss was recorded on this transaction. 12. SUPPLEMENTAL CASH FLOW INFORMATION The following table summarizes cash paid for interest and taxes as well as non-cash transactions for the indicated years: 1994 1995 1996 ---- ---- ---- Cash paid during the year for interest... $ - $ - $ 289 Non-cash Transactions: Dividends declared but not paid.......... $ - $275,256 $ - Accretion on preferred stock............. 30,367 48,408 54,844 Sale of Series B preferred and common stock in exchange for promissory note from one of the founders (October 24, 1994)...................... 12,492 - - Stock dividend on Series B preferred stock................................... 421,699 783,700 - Sale of Series C preferred stock in exchange for promissory notes from two of the founders......................... - 57,755 - 10 for 1 common stock split (Note 6)..... - - - Exercise of outstanding warrants......... - - 572 13. SUBSEQUENT EVENTS In January 1997, the Company's underwriters exercised their 30-day option to purchase 375,000 additional shares of Common Stock at the Offering price of $11.00 per share, less underwriting discounts and commissions. The Company received net proceeds of approximately $3.8 million upon issuance of these shares. This option was granted to the underwriters to cover over-allotments in connection with the Initial Public Offering and sale of 2,400,000 shares of the Company's common stock which became effective on December 26, 1996. On January 21, 1997, the Company entered into an agreement with Esenjay Petroleum Corp., one of 3DX's active partners, to increase the 3DX working interest in three active projects in the Texas Gulf Coast trend and one active project in the Mississippi/Alabama trend for a consideration of $1,337,500. On March 5, 1997, the Company, along with Santa Fe Energy Resources, Inc., one of 3DX's active partners, was the successful bidder on four offshore blocks offered in the Federal Lease Sale No. 166, Central Gulf of Mexico. These successful bids are subject to final review and approval by the Minerals Management Service, and are not final until approval is obtained. The Company has incurred pre-lease costs of $260,000 and has committed an additional $839,765 for this acreage. F-15 14. RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) The following table sets forth the Company's results of operations for oil and gas producing activities for the years ended December 31, 1994, 1995 and 1996. 1994 1995 1996 ---- ---- ---- Oil and gas revenues................ $ 303,836 $ 274,511 $ 851,827 Lease operating costs............... 14,225 60,877 49,016 Production taxes.................... 19,812 17,656 58,660 Impairment of oil and gas properties......................... - 1,627,321 1,476,690 Depletion, depreciation and amortization....................... 90,672 158,336 422,839 ---------- ----------- ----------- Income (loss) before income taxes... 179,127 (1,589,679) (1,155,378) Income tax expense (credit)......... - - - ---------- ----------- ----------- Net income (loss)................... $ 179,127 $(1,589,679) $(1,155,378) ========== =========== =========== Amortization per physical unit of production (equivalent Mcf of gas). $ 0.64 $ 1.15 $ 1.31 ========== =========== =========== The results of operations from oil and gas producing activities were determined in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities" ("SFAS No. 69") and, therefore, do not include corporate overhead, interest and other general income and expense items. 15. COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) The aggregate amounts of capitalized costs relating to the Company's oil and gas producing activities and the related accumulated depletion, depreciation, and amortization and impairment at December 31, 1994, 1995 and 1996 were as follows: 1994 1995 1996 ---- ---- ---- Unproved properties................. $ 828,321 $ 1,375,145 $ 4,403,165 Proved properties................... 1,575,146 2,648,724 7,164,397 --------- ----------- ----------- Total capitalized costs............. 2,403,467 4,023,869 11,567,562 Less-accumulated depletion, depreciation and amortization...... (90,672) (1,876,329) (3,775,858) ---------- ----------- ----------- $2,312,795 $ 2,147,540 $ 7,791,704 ========== =========== =========== Unevaluated properties and associated costs not currently being amortized and included in oil and gas properties were $828,321, $1,375,145, and $4,403,165 at December 31, 1994, 1995 and 1996, respectively. The projects represented by these costs were at such dates undergoing exploration or development activities or projects in which the Company intends to commence such activities in the future. The Company will begin to amortize these costs when proved reserves are established or impairment is determined. The Company believes that the unevaluated properties at December 31, 1996 will be fully evaluated in 24 to 36 months. The following table represents an analysis of remaining unevaluated oil and gas property costs at December 31, 1996, and the years in which they were incurred: 1994 1995 1996 ========== =========== =========== Acquisition costs.................. $ 13,075 $ 70,865 $ 3,512,948 Exploration costs.................. 7,114 3,617 795,546 ---------- ----------- ----------- Total............................ $ 20,189 $ 74,482 $ 4,308,494 ========== =========== =========== F-16 The following table sets forth the costs incurred in the Company's oil and gas property acquisition, exploration and development activities for the years presented: 1994 1995 1996 ---- ---- ---- Property acquisition costs- Proved $ - $ - $ - Unproved 372,134 490,141 1,171,217 Exploration costs 1,618,149 1,611,192 6,269,266 Development costs - - 103,210 ---------- ---------- ---------- $1,990,283 $2,101,333 $7,543,693 ========== ========== ========== 16. OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) Reserves The process of estimating proved developed and proved undeveloped oil and gas reserves is very complex, requiring significant subjective decisions in the evaluation of available geologic, engineering and economic data for each reservoir. The data for a given reservoir may change over time as a result of, among other things, additional development activity, production history and viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates may occur in the future. Although every reasonable effort is made to ensure that reserve estimates are based on the most accurate and complete information possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. The Company began its exploration program in 1993, by participating in an exploration program as a royalty owner. The Company did not produce any discovered oil and gas reserves in 1993. The Company added proved oil and gas reserves in 1994 as a result of exploration efforts on one prospect. In 1995, the Company added proved reserves from one additional well in the 1994 prospect, and drilled one additional successful well in a new prospect. In addition, there was a significant downward revision in oil and gas reserves associated with the Bright Falcon project. The primary factors contributing to the reserve revision include (1) the premature loss of a well due to mechanical reasons which was unanticipated at the time of the initial estimate, and (2) the removal of proved, undeveloped reserves attributable to a well location, which the project partners elected not to drill. In the year ended December 31, 1996, the Company added proved reserves from ten successful wells from drilling on various prospects. The Company also made certain downward revisions to its previous estimates. Such revisions result from additional production and performance information which became available during 1996. F-17 The following information regarding estimates of the Company's proved oil and gas reserves, all located in the United States, is based on reports prepared on behalf of the Company by independent petroleum engineers, Ryder Scott Company. The following table sets forth the changes in the Company's total proved reserves (all of which are developed) for the years ended December 31, 1994, 1995 and 1996.
Year Ended December 31, ----------------------------------- 1994 1995 1996 --------- ---------- --------- Oil (Bbls) ----------------------------------- Proved reserves at the beginning of the year................................... 4,000 39,886 41,193 Extensions, discoveries, and other additions.............................. 42,000 26,000 9,797 Revisions of previous estimates......... - (18,000) (10,079) Production.............................. (6,114) (6,693) (8,483) --------- -------- -------- Proved reserves at the end of the year.. 39,886 41,193 32,428 ========= ======== ======== Gas (Mcf) ----------------------------------- Proved reserves at the beginning of the year................................... 20,000 1,236,915 442,795 Extensions, discoveries, and other additions.............................. 1,322,000 104,000 2,284,482 Revisions of previous estimates......... - (801,000) 7,661 Production.............................. (105,085) (97,120) (271,202) --------- --------- --------- Proved reserves at the end of the year.. 1,236,915 442,795 2,463,736 ========= ========= =========
F-18 Standardized Measures of Discounted Future Net Cash Flows The Company's standardized measure of discounted future net cash flows, and changes therein, related to proved oil and gas reserves are as follows (in thousands):
December 31, ----------------------------- 1994 1995 1996 -------- ------- ------- Future cash inflow $ 2,997 $ 1,405 $ 9,354 Future production, development and abandonment costs (755) (329) (1,430) ------- ------- ------- Future cash flows before income taxes 2,242 1,076 7,924 Future income taxes - - - ------- ------- ------- Future net cash flows 2,242 1,076 7,924 10% Discount factor (636) (305) (1,301) ------- ------- ------- Standardized measure of discounted future net cash flow $ 1,606 $ 771 $ 6,623 ======= ======= ======= Changes in standardized measure of discounted future net cash flows: Sales of oil, gas and natural gas liquids, net of production costs $ (270) $ (196) $ (744) Extensions, discoveries and other additions 1,878 349 6,594 Revisions of estimates of reserves proved in prior years: Quantities estimated - (1,280) (200) Net changes in price and production cost - (71) 173 Accretion of discount 6 161 77 Changes in future development costs (112) 103 (82) Changes in production rates (timing) and other 44 99 34 ------ ------- ------- Net change $1,546 $ (835) $ 5,852 ====== ======= =======
Estimated future cash inflows are computed by applying year-end prices of oil and gas to year-end quantities of proved reserves. Future price changes are considered only to the extent provided by contractual arrangements. Estimated future development and production costs are determined by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. Estimated future income tax expense is calculated by applying year-end statutory tax rates to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis (including net operating loss carryforwards projected to be usable) of the properties involved. These estimates were determined in accordance with SFAS No. 69. Because of unpredictable variances in expenses and capital forecasts, crude oil and gas prices and oil and gas reserve volume estimates, as well as the arbitrary pricing and discounting assumptions used in these cash flow estimates, management believes the usefulness of this data is limited. These estimates of future net cash flows do not necessarily represent management's assessment of estimated fair market value, future profitability or future cash flow to the Company. Management's investment and operating decisions are based upon reserve estimates that include proved as well as probable reserves and upon different price and cost assumptions from those used herein. The future cash flows presented in the "Standardized Measures of Discounted Future Net Cash Flows" are based on year-end oil and gas prices for oil and gas reserves which as of December 31, 1996 were approximately $24.64 per barrel of oil and approximately $3.47 per Mcf of gas. The Company does not have oil and gas reserves which are committed under oil and gas contracts. F-19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Houston, State of Texas on the 30th day of April, 1997. 3DX TECHNOLOGIES INC. By: /s/ Randall D. Keys --------------------------------------------- Vice President of Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 1 to the Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 30th day of April 1997. Signature Title(s) --------- -------- /s/ C. Eugene Ennis President, Chief Executive Officer, - - -------------------------------- Director (Principal Executive Officer C. Eugene Ennis and Principal Accounting Officer) Peter M. Duncan * Vice President, Technology - - -------------------------------- Peter M. Duncan Douglas C. Nester * Vice President, Exploration - - -------------------------------- Douglas C. Nester Robert J. Bacon, Jr. * Vice President, Joint Ventures - - -------------------------------- Robert J. Bacon, Jr. Joseph Schuchardt, III * Vice President, Business Development - - -------------------------------- Joseph Schuchardt, III /s/ Randall D. Keys Vice President of Finance, Chief - - -------------------------------- Financial Officer (Principal Randall D. Keys Accounting and Financial Officer) Jon W. Bayless * Director - - -------------------------------- Jon W. Bayless Robert H. Chaney * Director - - -------------------------------- Robert H. Chaney Charles E. Edwards * Director - - -------------------------------- Charles E. Edwards Douglas C. Williamson * Director - - -------------------------------- Douglas C. Williamson By: /s/ C. Eugene Ennis ----------------------------- C. Eugene Ennis Attorney-in-fact -----END PRIVACY-ENHANCED MESSAGE-----