United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...............to...............
Commission file number 0-9378
ENEX RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 93-0747806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 200, Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)
Issuer's telephone number (713) 358-8401
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 10, 1995
Common Stock, $.05 par value 1,325,723
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 1995 1994
(Unaudited)
CURRENT ASSETS:
Cash and certificates of deposit $ 391,689 $ 642,659
Accounts receivable:
Managed limited partnerships 1,156,624 1,226,046
Oil and gas sales 648,520 631,115
Joint owner 439,672 368,297
Other accounts receivable 875,160 829,390
Notes receivable from managed limited
partnerships 64,312 89,266
Federal income tax receivable 228,898 232,989
Prepaid expenses & other current assets 299,770 257,386
Deferred tax asset - current portion 56,268 99,501
Total current assets 4,160,913 4,376,649
PROPERTY:
Oil & gas properties (Successful efforts
accounting method) Proved m
interests and related equipment & facilities:
Direct ownership 7,676,799 7,598,999
Derived from investment in managed
limited partnerships 8,613,482 8,549,929
Furniture, fixtures and other (at cost) 329,209 327,364
Total property 16,619,490 16,476,292
Less accumulated depreciation,
depletion and amortization 6,659,934 6,444,108
Property, net 9,959,556 10,032,184
OTHER ASSETS
Receivable from managed limited
partnerships for start-up costs 2,794,068 2,655,172
Deferred tax asset 264,369 149,252
Deferred organization expenses and other 14,423 17,387
Total other assets 3,072,860 2,821,811
TOTAL $ 17,193,329 $ 17,230,644
See accompanying notes to consolidated financial statements.
I-1
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1994
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 479,376 $ 1,093,132
Current portion of long-term debt 950,000 950,000
Total current liabilities 1,429,376 2,043,132
LONG-TERM DEBT:
Note payable derived from investment in
a managed limited partnership 1,134,000 974,000
COMMITMENTS AND
CONTINGENT LIABILITIES
TOTAL LIABILITIES 2,563,376 3,017,132
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
$5,000,000 shares authorized;
no shares issued
Common stock, $.05 par value;
10,000,000 shares authorized;
1,640,859 shares issued at March 31, 1995 and
1,627,859 shares issued at December 31, 19 82,043 81,393
Additional paid-in capital 9,937,567 9,814,617
Retained earnings 6,217,014 6,040,573
Less cost of treasury stock;
315,136 shares at March 31, 1995 and
337,936 shares at December 31, 1994 (1,606,671) (1,723,071)
TOTAL STOCKHOLDERS' EQUITY 14,629,953 14,213,512
TOTAL $ 17,193,329 $ 17,230,644
See accompanying notes to consolidated financial statements.
I-2
ENEX RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
March 31, March 31,
1995 1994
REVENUES:
Oil and gas sales $ 1,300,516 $ 1,341,591
Gas plant sales 93,553 94,387
Other revenues 24,920 86,927
Interest income 15,370 13,228
Total revenues 1,434,359 1,536,133
EXPENSES:
General and administrative 281,462 372,072
Lease operating and other expenses 454,314 448,886
Gas purchases and plant operating expenses 67,381 90,543
Production taxes 82,487 71,463
Depreciation, depletion and amortization 392,634 375,896
Interest expense 51,524 16,233
Total expenses 1,329,802 1,375,093
Earnings before other income
and income taxes 104,557 161,040
INCOME TAX CREDIT:
Deferred (71,884) (40,359)
NET INCOME $ 176,441 $ 201,399
PRIMARY EARNINGS PER SHARE $ 0.13 $ 0.15
FULLY DILUTED EARNINGS PER SHARE $ 0.13 $ 0.15
See accompanying notes to consolidated financial statements.
I-3
ENEX RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED) THREE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 176,441 $ 201,399
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 392,634 375,896
Increase in deferred tax asset (71,884) (40,359)
Noncash expense from stock purchase plan 201,000 79,519
Changes in assets and liabilities:
(Increase) in accounts receivable (199,933) (379,472)
(Increase) decrease in prepaid expenses &
other assets (42,433) 51,247
Increase (decrease) in accounts payable (613,756) 167,281
Net cash provided (used) by operating
activities (157,931) 455,511
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (316,993) (1,151,342)
Increase in payable for oil & gas property - 533,107
Issuance of notes receivable to managed LP's - (42,016)
Receipt of payment on notes receivable from
managed limited partnerships 24,954 190,928
Net cash used by investing activities (292,039) (469,323)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 260,000 240,000
Repayment of long-term debt (100,000) (221,848)
Proceeds from exercise of stock options 39,000 54,000
Purchase of treasury stock - (25,125)
Net cash provided by financing activities 199,000 47,027
NET INCREASE (DECREASE) IN CASH (250,970) 33,215
CASH AT BEGINNING OF YEAR 642,659 307,466
CASH AT END OF QUARTER $ 391,689 $ 340,681
See accompanying notes to financial statements.
I-4
ENEX RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation (the "Company") acquires
interests in producing oil and gas properties and sponsors and manages
investment limited partnerships. At March 31, 1995, the Company
served as managing general partner for the 45 publicly offered limited
partnerships of Enex Program I Partners, L.P., Enex Oil & Gas Income
Programs II, III, IV, V, VI, Enex Income and Retirement Fund, Enex 88-
89 Income and Retirement Fund, and Enex 90-91 Income and Retirement
Fund, (collectively, the "Partnerships"). The Partnerships own $190
million, at cost, of proved oil and gas properties in which the
Company generally has a 10% interest as the general partner in
addition to its proportional interest as a limited partner of
approximately 3% to 52%. Accumulated depreciation and depletion for
such oil and gas properties at March 31, 1995 was $168 million.
The interim financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the
interim periods.
Income Per Share - Primary and fully diluted earnings per share are
based on the weighted average number of common shares outstanding and
common stock equivalents outstanding during the respective periods.
The weighted average number of shares used to compute primary and
fully diluted earnings per common share was:
Primary Fully Diluted
Quarter ended March 31, 1995 1,386,864 1,386,864
Quarter ended March 31, 1994 1,360,421 1,361,586
2. DEBT
The long-term debt at March 31, 1995 consists of a $2,084,000 loan
from a bank under a $5.925 million revolving line of credit. The bank
loan proceeds were primarily utilized to purchase producing oil and
gas properties and additional interests in managed limited
partnerships. The bank loan bears interest at a rate of prime plus
three-quarters of one percent (3/4%) or an average rate of 9.29% and
6.76% in the first quarter of 1995 and 1994, respectively. Principal
payments of $100,000 and $221,848 were made in the first quarter of
1995 and 1994, respectively. During the next twelve months, the
Company expects to repay $950,000 of the debt, which matures in July
1996.
3. COMMITMENTS AND CONTINGENT LIABILITIES
As general partner, the Company is contingently liable for all debts
and actions of the managed limited partnerships. However, in
management's opinion, the existing assets of the limited partnerships
are sufficient to satisfy any such partnership indebtedness.
4. NOTES RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
In 1990, a managed limited partnership borrowed $191,577 from the
Company in order to finance workover costs. The Company received
monthly principal payments from the partnership on the resulting
demand note plus interest at the Company's borrowing rate of prime
plus three-fourths of one percent (7.00% at March 31, 1994) on the
unpaid principal. Principal payments of $102,869 were received in the
first quarter of 1994. The outstanding principal balance was $26,967
at March 31, 1994. The note was completely repaid in the second
quarter of 1994.
In 1993, five managed limited partnerships borrowed a total of
$438,168 from the Company to repay bank debt and finance workover
costs. The Company receives monthly principal payments from the
partnerships on the resulting demand notes plus interest payable at
the Company's borrowing note of prime plus three-fourths of one
percent (9.75% at March 31, 1995) on the unpaid principal. Principal
payments of $24,954 and $88,059 were received in the first quarter of
1995 and 1994, respectively. At March 31, 1995, the total outstanding
principal balance was $64,312.
5. INCOME TAXES
The Company adopted Statement of Financial Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective January 1, 1993. This
Statement supersedes SFAS No. 96, "Accounting for Income Taxes," which
wa adopted by the company in 1988. The Company recognized a deferred
tax credit of $71,884 and $40,359 in the first quarter of 1995 and
1994, respectively.
Deferred income taxes reflect the net tax of temporary differences
between the carrying amount of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes. The
tax effects of significant items comprising the Company's net deferred
tax asset as of March 31, 1995, are as follows:
Difference between tax and book net property
basis $ 43,184
Difference between basis in managed limited
partnerships for financial reporting purposes
and income tax purposes 4,390,145
Intangible drilling costs which remain
capitalized for financial reporting purposes
which were deducted for federal income tax
purposes (60,012)
Timing difference from lawsuit contingency (45,281)
Net operating loss carryforward (expires 2009) 317,716
Deferred tax asset 4,645,752
Valuation allowance (4,325,115)
Net deferred tax asset $ 320,637
The valuation allowance reserves the net deferred tax asset at March 31,
1995, due to uncertainties inherent in the oil and gas market.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
In the first quarter of 1995, lower natural gas prices reduced oil and gas
revenues and earnings. Enex Resources Corporation ("the Company") was able
to continue to record positive earnings by reducing overall expenses while
increasing production.
Liquidity and Capital Resources
The lower natural gas revenues had minimal effect on the Company's cash
flow from operations. Cash flow from operations before changes in working
capital increased to $698,191 in the first quarter of 1995 as compared with
$616,455 in the same period of 1994. This represents an increase of
$81,736 or 13%. A decrease in cash expenses of $183,510 was the primary
cause of the increase. The decrease in cash expenses resulted from lower
general and administrative expenses in 1995 as the Company continues to
focus on reducing general and administrative expenses including a reduction
of the number of its employees by 13%. Cash flow used by operating
activities was $157,931 in the first quarter of 1995 as compared with cash
flow provided by operating activities of $455,511 during the first quarter
of 1994. The lower cash flow was primarily the result of a $613,756
decrease in accounts payable in the first quarter of 1995 as compared to a
$167,281 increase in accounts payable in 1994. To this cash flow from
operations, net payments received on notes receivable from managed limited
partnerships added $24,954 and $190,928 in the first quarter of 1995 and
1994, respectively. Proceeds from the exercise of stock options added
$39,000 and $54,000, in the first quarter of 1995 and 1994, respectively,
while net borrowings against a bank line of credit added $160,000 in 1995
and $18,152 in 1994.
In the first quarter of 1995, the Company utilized its cash flow to purchase
additional reserves and limited partnership interests. A total of $316,993
was used for the acquisition of proved oil and gas reserves. The Company
utilized the funds to purchase partnership interests, drill wells on the FEC,
O' Neil and A&W acquisitions, participate in a waterflood expansion program
at Shafter Lake and recomplete wells in the McBride and Florida acquisitions.
The Company utilized the cash flow generated in the first quarter of 1994
to acquire additional limited partnership interests, oil and gas
properties, and treasury stock. The Company used $578,220 to purchase
presented limited partnership interests. The Company also acquired working
interests in forty-one wells in the McBride acquisition for $581,000. The
acquisition has additional acreage available for future development. The
Company utilized an additional $25,125 to purchase 3,000 shares of treasury
stock.
Working capital improved to $2,731,537 at March 31, 1995 as compared to
$2,333,517 at December 31, 1994. At March 31, 1995, the Company's current
ratio was 2.91 and its debt to equity ratio was 14%, as total debt totaled
$2,084,000.
Results of Operations
The Company reported net income in the first quarter of 1995 of $176,441,
or $.13 per share, as compared to $201,399, or $.15 per share, in the first
quarter of 1994. The decrease in net income in 1995 was primarily
attributable to lower revenues resulting from depressed natural gas prices,
partially offset by lower general and administrative expenses.
Oil and gas sales were $1,300,516 in the first quarter of 1995 versus
$1,341,591 in the corresponding period of 1994. This decrease of $41,075
or 3% was due primarily to lower natural gas prices in 1995, partially
offset by higher oil and gas production. Gas revenues decreased by
$225,242 or 30% from $761,626 in the first quarter of 1994 to $536,384 in
the first quarter of 1995. This decrease was primarily a result of a 27%
decrease in average gas prices, which reduced gas revenues by $195,662 and
a 4% decrease in gas production, which reduced gas sales by an additional
$29,580. The decrease in gas prices corresponds with changes in the
overall market for the sale of gas. The decrease in gas production was
primarily due to natural production declines, partially offset by the
acquisition of additional partnership interests.
Oil revenues increased by $184,167, or 32%, from $579,965 in the first
quarter of 1994 to $764,132 in the first quarter of 1995. This increase
was primarily a result of a 22% increase in average oil prices which
increased sales by $136,755. An 8% increase in oil production due to the
acquisition of the McBride acquisition and the purchase of additional
partnership interests, increased oil sales by an additional $47,412.
The increase in average oil prices corresponds with higher prices in the
overall market for the sale of oil.
Other revenues were $24,920 and $86,927 in the first quarter of 1995 and
1994, respectively. This decrease of $62,007 was primarily due to
commissions and selling fee income of $39,592 in 1994 and due to the
recognition of a $32,277 gain from the early receipt of note receivable in
1994 versus a similar gain of $17,000 in the first quarter of 1995. Rig
rental revenues also decreased from $14,261 in 1994 to $1,600 in 1995.
General and administrative expenses were $281,462 in the first quarter of
1995 versus $372,072 in the corresponding period in 1993. The decrease of
$90,610 was primarily a result of the Company reducing the number of
employees by 13% coupled with the implementation of overhead cost
reductions.
Lease operating and other expenses increased from $448,886 in the first
quarter of 1994 to $454,314 in the first quarter of 1995. The increase of
$5,428 or 1% was primarily a result of the changes in oil and gas
production, noted above, coupled with workover expenses incurred on the
McBride, Florida and FEC acquisitions.
Depletion, depreciation and amortization expense increased from $375,896 in
the first quarter of 1994 to $392,634 in the first quarter of 1995. This
represents an increase of $16,738 or 4%. The increase is primarily the
result of the changes in oil and gas production, noted above, which
increased depreciation and depletion expenses by $6,697, coupled with a 3%
increase in the depletion rate, which increased depreciation and depletion
expense by an additional $10,041. The increase in the depletion rate was
primarily a result of a downward revision of the gas reserves at December
31, 1994, partially offset by an upward revision of the oil reserves at
December 31, 1994.
In the first quarter of 1995, the Company incurred $36,154 of net interest
expense as compared to $3,005 in the first quarter of 1994. The increase
in net interest expense corresponds with an increase in the amount of bank
debt in 1995.
In the first three months of 1995, the Company recorded an income tax
credit of $71,884 as compared to a credit of $40,359 in the first quarter
of 1994. The credits are primarily a result of the Company's continued
utilization of its deferred tax asset which resulted from the acquisition
of properties with a higher tax basis. At March 31, 1995, the Company had
a substantial net deferred tax asset of $4,645,752. Due to uncertainties
inherent in the oil and gas market, a valuation allowance reserved all but
$320,637 of the asset.
Future Outlook
In the first quarter of 1995, natural gas prices languished at a level which
was, at best, marginally profitable. The low prices affected earnings and
cash flow. Although a significant rebound in natural gas prices is not
expected in the near term, the Company believes that natural gas prices
hold tremendous potential as an environmentally clean fuel that is
domestically produced.
Since the Company is not able to control the market prices for its oil and
gas, the proficient control of oil and gas production and operating and
administrative cost is essential. We continue to evaluate potential joint
ventures or business combinations in order to maximize shareholder value.
Cash flow will be used to reduce debt and acquire additional producing
properties. The Company has evaluated several drilling locations for
further development. While the Company has no other material commitments
for capital, a line of credit is maintained which allows the Company to
respond to acquisition and investment opportunities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(2) Not Applicable
(4) (a) Articles Fourth, Sixth, Seventh, Fourteenth, Fifteenth,
Seventeenth and Twentieth of the Company's Certificate
of Incorporation and Article II of the Company's By-
Laws. Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1992, where the same appeared as part of
Exhibits 3(a) and 3(b).
(b) Form of Rights Agreement dated as of September 4, 1990
between the Company's predecessor-in-interest, Enex
Resources Corporation, a Colorado corporation
(the"Predecessor") and American Securities Transfer,
Incorporated as Rights Agent, which includes as
exhibits thereto the Form of Rights Certificate and the
Summary of Rights to Purchase Common Stock.
Incorporated by reference to the Predecessor's Current
Report on Form 8-K, dated as of September 4, 1990,
where the same appeared as Exhibit 4.
(11) Not Applicable
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
ENEX RESOURCES CORPORATION
(Registrant)
By:
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
May 11, 1995 By:
James A. Klein
Controller and Chief
Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned hereunto duly authorized.
ENEX RESOURCES CORPORATION
(Registrant)
By: /s/ R. E. Densford
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
May 11, 1995 By: /s/ James A. Klein
James A. Klein
Controller and Chief
Accounting Officer
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<PERIOD-END> MAR-31-1995
<CASH> 391,689
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<RECEIVABLES> 3,413,186
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<OTHER-SE> 14,547,910
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<SALES> 1,394,069
<TOTAL-REVENUES> 1,434,359
<CGS> 996,816
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