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 June 30, 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 August 11, 1995
Common Stock, $.05 par value 1,325,723
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30,
ASSETS 1995
(Unaudited)
CURRENT ASSETS:
Cash and certificates of deposit $ 480,574
Accounts receivable:
Managed limited partnerships 901,507
Oil and gas sales 658,378
Joint owner 397,336
Other accounts receivable 857,411
Notes receivable from managed limited
partnerships 51,066
Federal income tax receivable 228,898
Deferred tax asset - current portion 69,231
Prepaid expenses & other current assets 396,192
Total current assets 4,040,593
PROPERTY:
Oil & gas properties (Successful efforts
accounting method) Proved m
interests and related equipment & facilities:
Direct ownership 7,753,554
Derived from investment in managed
limited partnerships 8,725,122
Furniture, fixtures and other (at cost) 333,789
Total property 16,812,465
Less accumulated depreciation,
depletion and amortization 7,047,404
Property, net 9,765,061
OTHER ASSETS
Receivable from managed limited
partnerships for start-up costs 2,780,331
Deferred tax asset 328,992
Deferred organization expenses and other 11,771
Total other assets 3,121,094
TOTAL $ 16,926,748
See accompanying notes to consolidated financial statement
I-1
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 399,644
Current portion of long-term debt 950,000
Total current liabilities 1,349,644
LONG-TERM DEBT:
Note payable to a bank 834,000
COMMITMENTS AND
CONTINGENT LIABILITIES
TOTAL LIABILITIES 2,183,644
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 June 30, 1995 and
1,627,859 shares issued at December 31, 19 82,043
Additional paid-in capital 9,937,567
Retained earnings 6,330,165
Less cost of treasury stock;
315,136 shares at June 30, 1995 and
337,936 shares at December 31, 1994 (1,606,671)
TOTAL STOCKHOLDERS' EQUITY 14,743,104
TOTAL $ 16,926,748
See accompanying notes to consolidated financial statements.
I-2
ENEX RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED) QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
REVENUES:
Oil and gas sales $ 1,205,141 $ 1,473,875 $ 2,505,657 $ 2,825,110
Gas plant sales 108,777 112,614 202,330 197,357
Other revenues 92,702 119,049 117,622 205,976
Interest income 5,335 2,915 20,705 16,143
Total revenues 1,411,955 1,708,453 2,846,314 3,244,586
EXPENSES:
General and admin 301,313 299,950 582,775 672,022
Lease operating expen 496,348 490,072 950,662 938,958
Gas plant operating exp 65,609 73,725 132,990 164,268
Production taxes 76,239 87,896 158,726 159,359
D D & A 388,634 465,360 781,268 841,256
Interest expense 48,228 41,463 99,752 57,696
Total expenses 1,376,371 1,458,466 2,706,173 2,833,559
Income before inc taxes 35,584 249,987 140,141 411,027
INCOME TAX EXPENSE (CREDIT):
Current (77,567) (53,640) (149,451) (93,999)
NET INCOME $ 113,151 $ 303,627 $ 289,592 $ 505,026
PRIMARY EPS $ 0.08 $ 0.22 $ 0.20 $ 0.36
See accompanying notes to consolidated financial statements.
I-3
ENEX RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED) SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 289,592 $ 505,026
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 781,268 841,256
Noncash expense from stock purchase plan 201,000 178,831
Increase in deferred tax asset (149,470) (61,019)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 119,148 (298,866)
(Increase) in prepaid expenses & other assets (138,902) (111,822)
(Decrease) in accounts payable (693,488) (123,153)
(Decrease) in accrued liabilities - (47,893)
Net cash provided by operating activities 409,148 882,360
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (508,433) (1,641,048)
Reduction in notes receivable from
managed limited partnerships 38,200 212,048
Net cash (used) by investing activities (470,233) (1,429,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 260,000 2,281,583
Repayment of long-term debt (400,000) (887,316)
Purchase of treasury stock - (44,550)
Payment of cash dividend - (129,707)
Proceeds from exercise of stock options 39,000 60,000
Net cash provided (used) by financing activitie (101,000) 1,280,010
NET INCREASE (DECREASE) IN CASH (162,085) 733,370
CASH AT BEGINNING OF YEAR 642,659 307,466
CASH AT END OF QUARTER $ 480,574 $ 1,040,836
See accompanying notes to financial statements.
I-4
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 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. As of June 30, 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 $191
million, at cost, of proved oil and gas properties in which the
Company normally has a 10% interest as the general partner in addition
to its proportional interest as a limited partner of approximately 1%
to 53%. Accumulated depreciation and depletion for such oil and gas
properties at June 30, 1995 was $169 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.
Common share equivalents include common stock options. The weighted
average number of shares used to compute primary earnings per common
share was:
Primary
Quarter ended June 30, 1995 1,424,906
Quarter ended June 30, 1994 1,380,980
Six months ended June 30, 1995 1,427,454
Six months ended June 30, 1994 1,369,882
2. DEBT
The long-term debt at June 30, 1995 consists of a $1,784,000 loan from
a bank under a $5.925 million revolving line of credit. The bank loan
proceeds were primarily used to purchase producing oil and gas
properties and additional interests in managed limited partnerships.
The loan bears interest at a rate of prime plus three-quarters of one
percent (3/4%) or an average rate of 9.60% and 7.70% during the second
quarter of 1995 and 1994, respectively. Principal payments of
$100,000 were made on the debt in the second quarter of 1995. The
Company expects to repay $950,000 of the debt during the next twelve
months.
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 on the unpaid principal. Payments of
$26,967 completely repaid the note in the second quarter of 1994.
In 1993, five managed limited partnerships borrowed a total of
$438,108 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 rate of prime plus three-fourths of one
percent (at June 30, 1995 the rate was 9 3/4%) on the unpaid
principal. Principal payments of $13,246 and $60,736 were received in
the second quarter of 1995 and 1994, respectively. At June 30, 1995,
the total outstanding principal balance was $51,066.
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
was adopted by the company in 1988. The Company recognized a deferred
tax credit of $77,567 and $61,020 in the second 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 June 30, 1995, are as follows:
Difference between tax and book net property basis $ 7,382
Difference between basis in managed
limited partnerships for financial
reporting purposes and income tax purposes 4,494,807
Intangible drilling costs which remain capitalized
for financial reporting purposes which were deducted
for federal income tax purposes (83,807)
Timing difference from lawsuit contingency (45,281)
Net operating loss carryforward (expires 2009) 346,231
Deferred tax asset 4,719,332
Valuation allowance (4,321,109)
Net deferred tax asset $ 398,223
The valuation allowance reserves the net deferred tax asset at June
30, 1994 due to uncertainties inherent in the oil and gas market.
Item 2. Management's Discussion and Analysis or Plan of Operation
In the second quarter of 1995, lower natural gas prices continued to
negatively impact earnings for Enex Resources Corporation ("the Company").
Liquidity and Capital Resources
Cash flow provided by operating activities decreased to $409,148 in the first
half of 1995 as compared with $882,360 in the same period of 1994. This
represents a decrease of $473,212. A decrease in accounts payable of $693,488
and lower net income were the primary reasons for this decrease. To this
cash flow from operations, payments received on notes receivable from managed
limited partnerships added $38,200 in the first six months of 1995 versus the
Company receiving $212,048 from such loans in 1994. In the first six months
of 1995, net payments on the Company's bank line-of-credit were $140,000. In
the first six months of 1994, the line of credit provided a net $1,394,267.
Proceeds from the exercise of stock options added $39,000 and $60,000 to the
cash flow in 1995 and 1994, respectively.
The cash flow allowed the Company to continue to purchase additional limited
partnership interests and improve oil and gas properties. In the first six
months of 1995, $508,433 of the cash flow was utilized to purchase interests
in the Company's managed limited partnerships, drill wells on the A&W, Dent
and FEC acquisitions, participate in a waterflood expansion program at Shafter
Lake and recomplete wells in the McBride and Florida acquisitions.
In the first six months of 1994, the Company used $773,000 to acquire a
working interest in forty-one wells in the McBride Field in Caldwell and
Bastrop Counties in Texas. The acquisition has additional acreage available
for future development. Additionally, $737,000 was used to acquire additional
interests in managed limited partnerships. The Company also purchased 5,500
shares of treasury stock for $44,550. In June of 1994, the Company also paid
a semi-annual dividend of $.10 per share utilizing $129,707.
Working capital improved to $2,690,949 at June 30, 1995 versus $2,333,517 at
December 31, 1994. At June 30, 1995, the Company's current ratio was 2.99 and
its debt to equity ratio was 12%, as debt totaled $1,784,000.
Results of Operations
The Company reported net income in the second quarter of 1995 of $113,151, or
$.08 per share, as compared to $303,627, or $.22 per share, in the second
quarter of 1994. In the first half of 1995, the Company earned $289,592 or
$.20 per share versus $505,026 or $.36 per share in the first half of 1994.
The lower net income in 1995 was attributable to decreased oil and gas
revenues due primarily to lower gas prices in the overall market for the sale
of natural gas.
Oil and gas sales were $1,205,141 in the second quarter of 1995 versus
$1,473,875 in the corresponding period of 1994. This decrease of $268,734 or
18% was due primarily to the lower natural gas prices experienced by the
industry in 1995. Oil revenues decreased by $67,562 or 9% from $755,788 in
the second quarter of 1994 to $688,226 in the second quarter of 1995. A 21%
decrease in oil production reduced sales by $155,486. This decrease was
partially offset by a 15% increase in the average oil sales price which
increased sales by $87,924. The decrease in oil production was primarily a
result of the partial shut-in of production from the McBride and Florida
acquisitions to perform workovers in 1995, coupled with natural production
declines. The increase in the average oil sales price corresponds with higher
prices in the overall market for the sale of oil. Gas revenues decreased by
28% or $201,172 in the second quarter from $718,087 in 1994 to $516,915 in
1995. A 27% decrease in the average gas sales price reduced sales by $189,792.
A 2% decrease in gas production reduced gas revenues by an additional $11,380.
The decrease in gas production was primarily a result of natural production
declines, partially offset by the acquisition of additional partnership
interests and increased production from Shafter Lake, which had a waterflood
expansion program, and from the Dent and Schlensker acquisitions which had new
wells drilled. The decrease in the average gas price corresponds with lower
prices in the overall market for the sale of natural gas.
In the first half of 1995, oil and gas sales were $2,505,657 versus $2,825,110
in the first half of 1994. This represents a decrease of $319,453 or 11%.
During the first six months of 1995, oil revenues increased by 9%, or
$115,954, from $1,335,753 in 1994 to $1,451,707 in the first half of 1995. A
16% increase in the average oil sales price increased sales by $203,100. This
increase was partially offset by a 7% decrease in oil production which
decreased oil revenues by $87,146. The increase in the average oil sales price
corresponds with higher prices in the overall market for the sale of oil.
The decrease in oil production was primarily the result of natural production
declines, partially offset by the purchase of additional interests in limited
partnerships. Gas revenues decreased by 29% or $435,407 from $1,489,357 in the
first six months of 1994 to $1,053,950 in the first half of 1995. A 27%
decrease in the average gas sales price reduced gas sales by $381,964. A 4%
decrease in gas production reduced gas sales by an additional $53,443. The
decrease in the average gas sales price corresponds with lower prices in the
overall market for the sale of gas. The decrease in gas production was
primarily a result of natural production declines, partially offset by the
acquisition of additional partnership interests and increased production from
Shafter Lake, which had a waterflood expansion program, and from the Dent and
Schlensker acquisitions which had new wells drilled.
Other revenues were $92,702 and $119,049 in the second quarter of 1995 and
1994, respectively. For the first six months of 1995, other revenues were
$117,622 versus $205,976 in the first half of 1994. The decreases were
primarily due to the recognition of a $102,000 gain from the early receipt of
notes receivable in 1994 versus a similar gain of $57,000 recognized in 1995.
In 1994, the Company also recognized $83,149 of commissions and selling income
as compared to $6,577 in 1995. These decreases were offset by $54,045 of rig
rental and other revenues earned in the first six months of 1995 versus
$20,827 of such revenues earned in the first six months of 1994.
General and administrative expenses decreased to $582,775 in the first six
months of 1995 as compared to $672,022 in the first half of 1994. This
represents a decrease of $89,247 or 13%. The decrease was primarily a result
of the Company continuing to reduce overhead costs. General and administrative
expenses were $301,313 in the second quarter of 1995 versus $299,950 in the
second quarter of 1993. This increase of $1,363 is primarily a result of the
Company retaining a higher proportion of allocated general and administrative
expenses in 1995, due to the acquisition of additional partnership interests.
Lease operating and other expenses increased from $490,072 in the second
quarter of 1994 to $496,348 in the second quarter of 1995. This represents
an increase of $6,276 or 1%. For the first half of 1995, lease operating
expenses increased by $11,704 or 1% from $938,958 in 1994 to $950,662 in 1995.
The increases were primarily a result of workover expenses incurred on the
McBride, Florida and FEC acquisitions in 1995.
Depletion, depreciation and amortization expense decreased from $465,360 in
the second quarter of 1994 to $388,634 in the second quarter of 1995. This
represents a decrease of $76,726 or 16%. The decreases in production, noted
above, reduced depreciation and depletion expenses by $48,562. A 7% decrease
in the depletion rate reduced depreciation and depletion expense by an
additional $28,164. Depreciation, depletion and amortization increased from
$841,256 in the first half of 1994 to $781,268 in the first half of 1995, a
decrease of $59,988 or 7%. The decreases in production, noted above, reduced
depreciation and depletion expense by $41,307. A 2% decrease in the depletion
rate reduced depreciation and depletion expense by an additional $18,681. The
decreases in the depletion rate were the primarily the result of an upward
revision of the oil reserves at December 31, 1994, partially offset by a
downward revision of the gas reserves at December 31, 1994.
In the second quarter of 1995, the Company had net interest expense of $42,893
as compared with net interest expense of $38,548 in the second quarter of
1994. In the first six months of 1995, the Company had net interest expense of
$79,047 versus net interest expense of $41,553 in the first half of 1994. The
changes from 1994 to 1995 were primarily due to the issuance of additional
debt to provide funding for acquisitions of oil and gas properties and
additional partnership interests, as noted above.
In the first six months of 1995, the Company recorded an income tax credit of
$149,451 as compared with a credit of $93,999 recognized in 1994. These
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 June 30, 1995, the Company had a substantial net deferred tax asset of
$4,719,332. Due to uncertainties inherent in the oil and gas market, a
valuation allowance reserved all but $398,223 of the net deferred tax asset.
Future Outlook
Natural gas prices remained at marginally profitable levels in the first half
of 1995. The low prices detrimentally affected earnings and cash flow. With
the colder weather of fall and winter approaching, a marginal rebound in
natural gas prices should increase earnings in the near term. For the
long-term, the Company continues to believe that natural gas prices hold
tremendous potential as an environmentally clean fuel that is domestically
produced.
While low prices adversely affected earnings, the negative impact has not
diluted the Company's strong balance sheet. The current ratio improved to
2.99 and the debt to equity ratio was reduced to 12% during 1995. We continue
to evaluate potential joint ventures or business combinations in order to
maximize shareholder value. Cash flow will continue to 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.
In June 1995, the Company declared a $.10 per share dividend, which was paid
to shareholders in July 1995. This payment continues the Company's regular
semi-annual dividend payment.
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
Predecessors 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
June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ENEX RESOURCES CORPORATION
(Registrant)
By:
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
August 11, 1995 By:
James A. Klein
Controller and Chief
Accounting Officer
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