U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from...............to...............
Commission file number 0-9378
ENEX RESOURCES CORPORATION
(Name of small business issuer in its charter)
Delaware 93-0747806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Rockmead Drive
Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)(Zip Code)
Issuer's telephone number: (713) 358-8401
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.05 par value
(Title of class)
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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-
KSB or any amendment to this Form 10-KSB.(x)
State issuer's revenues for its most recent fiscal year. $6,743,212
State the aggregate market value of the voting stock held by non-
affiliates computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days (See definition of affiliate in Rule 12b-2 of the Exchange
Act) $7,751,630 at March 1, 1995.
Applicable Only to Corporate Registrants
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At March 1, 1995 -
1,333,248.
Documents Incorporated by Reference:
Portions of the Proxy Statement for the 1995 Annual Meeting of
Shareholders are incorporated by reference in Part III.
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1994
ENEX RESOURCES CORPORATION
Item No. Part I Page
1 Description of Business I-1
2 Description of Property I-4
3 Legal Proceedings I-8
4 Submission of Matters to a Vote of
Security Holders I-8
Part II
5 Market for Common Equity and
Related Stockholder Matters II-1
6 Management's Discussion and Analysis
or Plan of Operation II-2
7 Financial Statements and Supplementary
Data II-7
8 Changes In and Disagreements With
Accountants on Accounting and Financial
Disclosure II-26
Part III
9 Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act III-1
10 Executive Compensation III-1
11 Security Ownership of Certain
Beneficial Owners and Management III-1
12 Certain Relationships and Related
Transactions III-1
13 Exhibits and Reports on Form 8-K III-1
Signatures S-1
Item 1. Description of Business
General
Enex Resources Corporation ("Enex" or the "Company") was
incorporated on August 17, 1979 in Colorado. On June 30, 1992, the
Company reincorporated in Delaware. The Company is engaged in the
business of acquiring interests in producing oil and gas properties and
managing oil and gas income limited partnerships. The Company's
operations are concentrated in a single industry segment.
The Company's principal executive offices are maintained at 800
Rockmead Drive, Three Kingwood Place, Kingwood, Texas 77339. The
telephone number at these offices is (713) 358-8401. The Company has no
regional offices.
As of March 1, 1995, the Company and one of its subsidiaries, Enex
Securities Corporation, employed 26 persons. All employees are engaged
on a full-time basis.
Since 1982, the Company has financed most of its oil and gas
activities through the public sale of interests in limited partnerships
formed to purchase and hold working interests and other operating and
non operating interests in producing oil and gas properties (the
"Partnerships"). Until 1986, most of the Company's ownership of proved
reserves was derived through the purchase of producing properties by the
Partnerships. The Company acts as general partner in, and contributes
capital to, each such Partnership. As general partner, the Company has
a 10% interest in the net revenues and gains generated by properties
owned by these Partnerships, which, in most instances, will increase to
15% should the limited partners receive distributions in total equal to
their aggregate subscriptions. As general partner, the Company is
obligated to periodically offer to repurchase the interests of those
limited partners electing to present their interests to the Company,
except for interests in the Partnerships in Programs I, V and VI.
Prior to 1992, 55 Partnerships commenced operations with aggregate
investor subscriptions of $221.3 million received from 68,678 investors,
including reinvestors. Producing property acquisitions for those
Partnerships totaled approximately $198.5 million.
During 1992, one Partnership commenced operations with aggregate
subscriptions of $1.2 million received from 670 investors, including
reinvestors. Producing property acquisitions for the Partnership
totaled approximately $1.1 million. During 1994, one Partnership
commenced operations with aggregate subscriptions of $1.0 million
received from 461 investors, including reinvestors. Producing property
acquisitions for the Partnership totaled approximately $1.1 million,
including $.1 million from borrowed funds. Aggregate investor
subscriptions through December 31, 1994 in all Partnerships totaled
$223.5 million. The properties include interests in more than 12,000
wells in 14 states. In addition to these Partnership activities, the
Company owns and manages oil and gas producing properties for its own
account.
I-1
Prior to May 1994, the Company marketed interests in the oil and
gas partnerships it sponsored through its subsidiary, Enex Securities
Corporation, a registered broker-dealer and member of the National
Association of Securities Dealers, Inc., and through other registered
broker-dealers. As the distributor of such interests, Enex Securities
Corporation received commissions, substantially all of which were paid
to dealers and others, and received other selling expense allowances.
Effective March 31, 1990, the Company transferred its interests as
a general partner and limited partner in Enex Program I Partners, L.P.;
Enex Oil & Gas Income Program II-1, L.P.; Enex Oil & Gas Income Program
II-2, L.P.; Enex Oil & Gas Income Program II-3, L.P.; Enex Oil & Gas
Income Program II-4, L.P.; Enex Oil & Gas Income Program II-5, L.P.;
Enex Oil & Gas Income Program II-6, L.P.; (collectively, the "Subject
Partnerships"); certain oil and gas properties, accounts and notes
receivable (including all accounts receivable due from the Subject
Partnerships); cash and other assets directly held by the Company to a
subsidiary of Energy Development Partners, Ltd. ("EDP") in exchange for
68.64% of the Company's outstanding stock (the "Repurchase"). This
Repurchase resulted in significant changes in the Company's capital
structure. The surrender of the stock owned beneficially by EDP reduced
the number of shares of stock outstanding, with related reductions in
net assets of approximately $19,174,000 (including $4,353,000 of cash).
On August 8, 1991, effective June 30, 1991, the Company acquired
from Hallwood Energy Partners, L.P., formerly EDP, all of the capital
stock of the general partner of the Subject Partnerships. As a result of
the transaction, the Company acquired the general partner interests and
certain limited partner interests in the Subject Partnerships and the
related notes receivable due the general partner from these
partnerships. This transaction is hereinafter referred to as the "EAC
Acquisition." The Company financed the $3.55 million purchase price
with $2.75 million of secured borrowings from a bank and $0.8 million
of its own working capital. The acquisition was accounted for using the
purchase method; accordingly, the assets and liabilities were recorded
at their fair value at the time of the acquisition.
Approximately 71% of the Company's estimated future net revenues
from proved reserves at December 31, 1994 is attributable to its
interests in the Partnerships and approximately 29% is attributable to
the properties owned directly by the Company.
In acquiring properties for its own account, the Company is
required to avoid conflicts of interest with the Partnerships for which
it acts as general partner. Such requirements may restrict the
Company's operations for its own account. The Company is also
contingently liable for partnership obligations.
Competition
The business of exploring for, developing and producing oil and
gas is intensely competitive. The Company competes with companies which
have greater financial resources, larger staffs and labor forces, more
equipment for exploration and longer operating experience than the
Company. The oil and gas industry is dominated by a number of companies
with greater assets and resources than the Company.
I-2
Marketing and Prices
The marketing and prices of oil and gas found and produced by the
Company are affected by a number of factors which are beyond the
Company's control, the exact nature of which cannot be accurately
predicted. These factors include the quantity and price of crude oil
imports, fluctuating supply and demand, the availability of adequate
pipeline and other transportation facilities, the marketing of
competitive fuels, state and federal regulation of oil and gas
production, and distribution and other matters affecting the
availability of a ready market. All of these factors are extremely
volatile. In addition, in recent years there have been surpluses in
crude oil and natural gas supplies which have caused a decline in oil
and gas prices. "Market-out" and similar contract provisions of some
gas purchase contracts have been exercised by gas pipeline companies and
some existing contracts have been renegotiated in order to reduce the
quantities of gas the pipeline companies are obligated to purchase
and/or the price paid.
Environmental and Conservation Regulation
State regulatory authorities in the states in which the Company
owns producing properties are empowered to make and enforce regulations
to prevent waste of oil and gas and to protect correlative rights and
opportunities to produce oil and gas between owners of a common
reservoir. Each of such regulatory authorities also regulates the
amount of oil and gas produced by assigning allowable rates of
production, which may be increased or decreased in accordance with
supply and demand. Requirements regarding the prevention and clean-up
of pollution and similar environmental matters are also generally
applicable.
The existence of such regulations has had no material adverse
effect on the Company's operations to date, and the cost of compliance
has not yet been material. There are no material administrative or
judicial proceedings arising under such laws or regulations pending
against the Company. The Company is unable to assess or predict the
impact that compliance with environmental and pollution control laws and
regulations may have on its future operation, capital expenditures,
earnings or competitive position.
Price Regulation
Prices for most natural gas sold in the United States were
deregulated in 1987. Virtually all of the Company's natural gas
production is currently deregulated. There is no current regulation of
crude oil prices. Accordingly, all domestically produced crude oil may
be sold at world market prices.
Recent Tax Laws
In General. The operations of the Company are affected by federal
income tax laws, particularly those provisions of the Internal Revenue
Code of 1986, as amended, which provide certain tax benefits to owners
of economic interests in oil and gas properties. In general, the major
sources of federal income tax deduction available to the Company are the
deductions for the greater of cost depletion or percentage depletion, if
available, depreciation of tangible lease and well equipment and the
deduction for intangible drilling and development costs.
I-3
The Company is subject to regular income tax at graduated rates up
to a maximum 34% rate. Additionally, the Company may also be subject to
the corporate alternative minimum tax which is imposed at a rate of 20%.
Tax preference items which may cause the Company to incur the
alternative minimum tax include the following:
* the excess of accelerated depreciation over depreciation using the
alternative minimum tax lives and method
* the limitation on the deduction of net operating losses to 90% of
the Company's alternative minimum taxable income (with the
disallowed portion of the net operating loss carried over to other
years)
* 75% of the excess of the Company's adjusted current earnings over
its alternative minimum taxable income (determined without regard
to such adjustment and prior to reduction by operating losses.)
Prior to 1993, the excess of the deduction of intangible drilling
costs over the deduction allowable under 10 year amortization and to the
extent in excess of 65% of net oil and gas income constituted an item of
tax preference. However, this excess IDC preference has been repealed
for taxable years beginning after December 31, 1992. The repeal of the
excess IDC preference, however, could not result in more than a 30%
reduction in 1993 (40% for subsequent years) in the amount of the
Company's alternative minimum taxable income computed as if the excess
IDC preference had not been repealed.
Item 2. Description of Property
Oil and Gas Properties
Until 1986, the Company had acquired most of its interests in
producing oil and gas properties through purchases made by the
Partnerships. Prior to 1992, the Partnerships acquired approximately
$196.8 million of producing oil and gas properties. A total of $2.8
million was spent on Partnership property acquisitions in 1992. No
properties were acquired for the Partnerships in 1993. A total of $1.1
million was spent on Partnership property acquisitions in 1994. The
Company, as general partner, has a 10% interest in the net revenues and
gains generated by properties owned by these Partnerships, which, in
most instances, increases to 15% should the limited partners receive
distributions in total equal to their aggregate subscriptions.
In addition to Partnership activities, the Company owns interests
in 378 oil and gas productive properties for its own account, and is the
operator of 161 properties. The total properties for its own account
and the Partnerships include interests in more than 12,000 producing
wells in 14 states.
The producing oil and gas properties in which the Company owns
interests are all located within the United States. The Company's
interests in these properties (including properties in which the
I-4
Company's interest is derived through the Partnerships for which it acts
as general partner*) at December 31, 1994 are summarized below:
* As general partner, the Company generally has a 10% interest in the
net revenues and gains generated by the Partnerships' properties, which,
in most instances, increases to 15% should the limited partners receive
distributions in total equal to their aggregate subscriptions. In most
instances, the Company has purchased additional interests in each
Partnership which entitle the Company to an additional 3% to 52% of each
Partnership's net income and capital. Unless otherwise indicated,
quantitative information contained in this report regarding the
Company's oil and gas properties, the production therefrom and related
data includes the Company's indirect interest in the properties owned by
the Partnerships.
Developed Acres Undeveloped Acres
Gross Net Gross Net
Working Interests 413,149 13,014 6,609 3,642
Royalty Interests 605,338 1,663 13,481 4,693
"Developed acres" are acres spaced or assigned to productive wells.
"Undeveloped acres" are those leased acres on which wells have not
been drilled or completed to a point that permits the production of
commercial quantities of oil and gas, regardless of whether such acreage
contains proved reserves.
A "gross acre" is an acre in which an interest is owned. The number
of gross acres is the total number of acres in which such interest is
owned.
A "net working interest acre" is deemed to exist when the sum of
fractional working interests owned in gross acres equals one. The
number of net working interest acres is the sum of fractional working
interests owned in gross acres expressed as a whole number.
A "net royalty acre" is deemed to exist when the sum of fractional
royalty interests owned in gross acres equals one. The number of net
royalty acres is the sum of fractional royalty interests owned in gross
acres expressed as a whole number.
Property Acquisitions
The following acquisitions were made for the Company during 1994:
McBride acquisition. Working interest in forty-one wells located
in Caldwell and Bastrop Counties, Texas, were purchased in two
transactions. The first transaction, for $663,493, was effective
January 1, 1994. The second, for $134,900, was effective May 1,
1994.
Larto Lake acquisition. Working interests in seven oil wells
located primarily in Catahoula Parish, Louisiana, were purchased
from a managed limited partnership effective October 1, 1994 for
$199,928.
Florida acquisition. Working interests in three wells located in
Hendry County, Florida, were purchased from a managed limited
partnership for $99,196 effective November 1, 1994.
I-5
Net Oil and Gas Production
The following table shows for the years ended December 31, 1994,
1993 and 1992, the approximate production attributable to the Company's
oil and gas interests including interests derived through the Company's
interests in the Partnerships. The figures in the table represent "net
production"; i.e., production owned by the Company or the Partnerships
and produced to the Company's interest after deducting royalty and other
similar interests. All production occurred in the United States.
1994 1993 1992
Crude oil and condensate (Bbls) 191,499 157,440 145,860
Natural gas - leasehold or royalty (Mcf) 1,407,432 1,285,512 2,382,780 (3)
Natural gas liquids (Bbls) (1) 21,441 18,648 18,276
Natural gas - gas plant sales (Mcf) (1) 133,980 105,564 109,392
The following table sets forth the Company's average sales price
per barrel of oil, per Mcf of gas, per barrel of natural gas liquids
("NGL"), per Mcf of gas plant gas sales and average production cost per
unit produced for the years ended December 31, 1994, 1993 and 1992:
1994 1993 1992
Average sales price per Bbl of crude oil and
condensate $ 14.74 $ 15.38 $ 16.72
Average sales price per Mcf of 1.94 2.20 1.84
natural gas
Average production cost per
equivalent barrel of production 4.87 4.99 5.65
Average sales price per Bbl of NGL (1) 8.06 9.53 8.74
Average sales price per Mcf of gas
plant gas (1) 1.72 1.67 1.42
Average production cost per
equivalent Bbl of NGL production (1)(2) 9.84 (4) 7.17 6.62
(1) Natural gas liquids production and gas plant gas sales were
obtained through gas processing plant ownership rather than
through leasehold ownership.
(2) Includes cost of gas purchased at plants for processing.
(3) Includes 1,116,966 Mcf related to net proceeds received from the
settlement of take-or-pay disputes.
(4) Includes the recognition of processing charges related to a
lawsuit brought against the Company's interest in a gas plant.
Without such charges, the average production cost would have been
$7.11 per equivalent Bbl of NGL production in 1994.
I-6
The following table shows, as of December 31, 1994, the
approximate number of gross and net producing oil and gas wells in which
the Company own interests, including wells in which the Company's
interest is derived through its interests in the Partnerships:
Productive Oil Wells Productive Gas Well
Net Working Net Net Working Net
Gross Interest Royalty Gross Interest Royalty
Wells Wells Wells Wells Wells Wells
11,472 81.61 2.04 1,671 53.63 10.94
"Productive wells" are producing wells and wells capable of production,
including shut-in wells.
A "gross well" is a well in which an interest is held. The number of
gross wells is the total number of wells in which an interest is owned.
A "net working interest (`W.I.') well" is deemed to exist when the
sum of fractional interests owned in gross W.I. wells equals one. The
number of net W.I. wells is the sum of the fractional interests owned in
gross W.I. wells, expressed as whole numbers and fractions thereof.
A "net royalty well" is deemed to exist when the sum of fractional
interests owned in gross royalty wells equals one. The number of net
royalty wells is the sum of the fractional interests owned in gross
royalty wells, expressed as whole numbers and fractions thereof.
Oil and Gas Reserves
Proved oil and gas reserves reported herein for the Company are based
primarily on engineering studies performed by the Company's engineering
staff. Proved oil and gas reserves reported herein for the Partnerships
and for the Company's share of such Partnership reserves are based
primarily on engineering studies performed by the petroleum engineering
consulting firm of H. L. Gruy & Associates, Inc. The reserves included
in this report are estimates only and should not be construed as exact
quantities. Future conditions may affect recovery of estimated reserves
and revenues, and all reserves may be subject to revision as more
performance data becomes available. The proved reserves used in this
report conform to the applicable definitions promulgated by the
Securities and Exchange Commission. No major discovery or other
favorable or adverse event that is believed to have caused a significant
change in the estimated proved reserves has occurred since December 31,
1994.
Drilling Activities
In 1994, 1993 and 1992, the Company did not participate in any
significant developmental drilling for its own account or as an operator
of Partnership properties.
During 1992, affiliated partnerships participated in the drilling
of three wells, of which one was completed as a producing well, one was
abandoned and one was completed as a water injection well. These
drilling activities resulted in the development of two gross wells (0.05
net wells).
I-7
Current Activities
The Company is continuing to acquire interests in producing oil
and gas properties and to operate properties both for its own account
and for its managed limited partnerships.
Offices
The Company's corporate headquarters are at 800 Rockmead Drive,
Three Kingwood Place, Kingwood, Texas, where it leases 13,354 square
feet of office space for itself and on behalf of Enex Securities
Corporation.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the
Company or any of its subsidiaries are a party or to which any of their
properties are subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
I-8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The principal market where the Company's common stock is traded is the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ").
Price Range of Common Stock
The following table shows the range of closing prices for the common
stock in the over-the-counter market for each quarter during the
Company's past two fiscal years, as reported by the NASDAQ National
Market System. The quotations represent prices in the over-the-counter
market between dealers in securities and do not include retail markup,
markdown or commissions and do not necessarily represent actual
transactions.
1994 1993
Period High Low High Low
First Quarter . . . . . . . 8 1/2 7 1/2 7 1/2 6
Second Quarter . . . . . . 11 1/4 7 1/2 9 1/4 6 3/4
Third Quarter . . . . . . . 13 10 1/2 8 7 1/4
Fourth Quarter . . . . . . 12 9/16 8 1/4 8 1/4 7 3/8
Number of Equity Security Holders
Number of Record Holders
(as of March 1, 1995)
Title of Class
Common Stock ($.05 par value) 1,148*
(*) Includes "nominee" or "street" name holders of record.
Dividends
The Company paid its first semi-annual dividend in June 1994. The
Company also increased the dividends paid in 1994 to $.20 per common
share. In 1993 the Company paid a cash dividend of $.19 per common
share to shareholders, and, in 1992 a dividend of $.15 per common share
was paid. The payment of future cash dividends will depend on the
Company's earnings, financial condition, capital requirements and other
factors, although the Company intends to continue with regular
dividends.
II-1
Item 6. Managements Discussion and Analysis or Plan of Operation
Selected Financial Data
(Dollar amounts in thousands, except per share da
Selected Statement of 1994 1993 1992 1991 1990 (1)
Operations Data
Total revenues $ 6,743 $ 6,247 $ 7,880 $ 6,543 $ 5,925
Earnings before income
taxes $ 630 $ 968 $ 1,268 $ 671 $ 689
Net income $ 1,051 $ 932 $ 1,141 $ 833 $ 6,253
Net inc per primarey
share $ 0.75 $ 0.69 $ 0.82 $ 0.58 $ 2.68
Cash dividend declared
per common share $ 0.20 $ 0.19 $ 0.15 $ 0.12 $ 0.10
Selected Balance Sheet Data
Total assets $ 17,231 $ 15,177 $ 17,698 $ 18,257 $ 23,699
Long-term debt excluding
current maturities $ 974 $ 259 $ 401 $ 745 $ -
Stockholders' equity $ 14,214 $ 13,259 $ 12,343 $ 12,448 $ 11,820
Stockholders' equity
per share $ 11.02 $ 10.60 $ 10.04 $ 8.62 $ 8.14
Statistical:
Cumulative number of
limited partnerships
formed 57 56 56 55 51
Cumulative amount of
limited partnership
capital raised $223,500 $ 222,489 $222,489 $221,258 $216,673
Proved reserves at
December 31:
Barrels of oil
(000's) 971 633 765 550 458
Bcf of gas 9.330 10.562 7.791 8.251 4.116
Standardized measure
of discounted future
net cash flows of
proved oil and gas
reserves at
December 31 $ 10,435 $ 10,718 $ 9,280 $ 9,393 $ 6,893
(1) Effective March 31, 1990, the Company repurchased 68.64% of its outstand-
ing shares for certain oil and gas assets.
II-2
In 1994, Enex increased net income and cash flow from operations while adding
to its oil and gas reserve base. Revenues were up 8% from 1993 despite low
prices for oil and natural gas.
Liquidity and Capital Resources
Increased production of both oil and gas in 1994 enabled Enex to increase cash
flow. Operating activities provided cash flow of $2,341,038 in 1994 as
compared to $2,285,514 in 1993 and $2,599,190 in 1992. The higher cash flow
in 1992 was primarily the result of take-or-pay settlements which were resolv-
ed in 1992. To these cash flows from operating activities, proceeds were
added from the sale of properties of $45,392, $26,627 and $113,780 in 1994,
1993 and 1992, respectively.
Enex continued to reinvest a portion of its cash flows in oil and gas proper-
ties. A total of $2,962,465, $2,354,938 and $1,122,503 was used for the acqui-
sition and development of oil and gas properties during 1994, 1993 and 1992,
respectively. In 1994, Enex acquired over 320,000 equivalent barrels of oil
reserves through the purchase of interests in managed limited partnerships
for $1,271,377. The Company also obtained working interests in 41 wells in
McBride Field, in Caldwell and Bastrop Counties, Texas for $798,393. These
wells, which are operated by the Company, have development potential which
will allow the Company to increase future production. The Company also
purchased working interests in the Larto Lake and Florida acquisitions in
1994 for $199,928 and $99,196, respectively. In 1993, the Company acquired
working interests in nine gas wells located in San Patricio County, Texas and
17 gas wells and two oil wells located primarily in Freestone County, Texas.
The Company used operating cash flow and net proceeds of $349,385 from the
sale of mortgage-backed securities to finance all but $237,380 of these
purchases, which was borrowed from a bank. During 1992, the Company purchased
a working interest in 62 oil wells in the Charlotte field, Atascosa County,
Texas, and acquired both operations and a direct working interest in the
Southwest Muldoon field in Fayette County, Texas. These two purchases were the
primary cause of a 39% increase in the Company's oil reserves in 1992.
The Company also continued its stock repurchase program in 1994, acquiring
19,161 shares of its common stock for $171,845. In 1994, the Company
initiated the payment of a semi-annual dividend to its shareholders. Due to
the increased cash flow, Enex was able to raise the dividend for the fifth
consecutive year to $259,681 or $.20 per share.
In addition to the property acquisitions made in 1993, the Company used a
total of $159,881 to purchase 20,071 shares of its common stock, of which
5,071 shares were retired. Enex was also able to increase the dividend paid
on its common shares to $239,491 or $.19 per share - a 27% increase from 1992.
In 1992 the Company utilized $1,038,766 to repurchase and refinance 241,210
shares of its common stock. The shares, of which 233,428 were acquired in a
single transaction, were purchased at a substantial discount relative to book
value and net asset value. Cash flow from operations was also used to repay
a net $681,656 of long-term debt and to pay a $.15 per share cash dividend in
December 1992 of $185,991.
Working capital increased to $2,333,517 at December 31, 1994, from $2,009,281
at December 31, 1993. The increase is primarily attributable to the increased
net income recorded by the Company in 1994. At December 31, 1994, the Company
's current ratio was 2.14 and its debt-to-equity ratio was 6.9%, as long-term
debt, was $974,000.
II-3
Results of Operations
Enex reported net income in 1994 of $1,051,476, as compared to $931,874 in
1993 and $1,141,260 in 1992. Net income was $.75 per share in 1994 as compared
to $.69 in 1993 and $.82 in 1992. The increase from 1993 to 1994 was primarily
attributable to lower income tax expense and higher revenues produced in 1994.
The higher net income in 1992 was primarily a result of take-or-pay settle-
ments.
Oil, gas and gas plant sales were $5,959,395 in 1994, $5,604,624 in 1993 and
$7,153,283 in 1992. The increased sales in 1992 were primarily attributable to
take-or-pay settlements resolved in 1992. Such settlements added $2,115,715 to
sales in 1992. Oil sales increased $400,049 or 17% in 1994 from 1993. A 22%
increase in production increased sales by $523,954. This increase was
partially offset by a 4% decrease in average oil prices. Gas sales decreased
by $87,550 or 3% in 1994 from 1993. This decrease was primarily the result of
an 11% decrease in average prices, which reduced sales by $356,125. The lower
prices were partially offset by a 9% increase in gas production. Gas plant
sales increased by 10% or $34,770. A 21% increase in gas plant production
increased sales by $74,425. This increase was partially offset by a 9%
decrease in average gas plant prices. The increases in production were
primarily a result of the acquisition of additional interests in managed
limited partnerships and oil and gas properties purchased in 1994, as noted
above.
Oil sales decreased by $16,197 from 1992 to 1993. The decrease was primarily
due to a 7% decrease in average oil prices which decreased sales by $209,769.
The lower oil prices were partially offset by a 7% increase in oil production.
Gas sales decreased by $1,571,952 in 1993 from 1992. The decrease was
primarily due to the take-or-pay settlements resolved in 1992. Absent the
effect of these settlements, gas sales increased by $543,763 or 24%. A 2%
increase in gas production increased gas sales by $35,489 while a 22% increase
in average gas prices increased sales by an additional $508,274. Gas plant
sales increased by $39,490 or 12%. A 13% increase in average gas plant prices
increased sales by $41,813. The higher prices were partially offset by a 1%
decrease in gas plant gas production. The increases in oil and gas production
were primarily attributable to the acquisition of additional property
interests in 1993 partially offset by natural production declines. The changes
in average prices correspond with changes in the overall market for the sale
of oil and gas.
Other revenues were $760,644 in 1994 as compared with $565,367 in 1993 and
$534,044 in 1992. Such revenues included rig rental revenues of $24,885,
$189,947 and $142,656 in 1994, 1993 and 1992, respectively, gain recognized
from the early receipt of notes receivable of $201,000, $175,660 and $218,417
in 1994, 1993 and 1992, respectively, and commission fee income of $45,089 in
1994 and $42,736 in 1992. No commission fee income was recognized in 1993. The
increase in other revenues from 1993 to 1994 was primarily due to the
reversal of a litigation contingency accrual, which was initially recognized
in 1993, and the recognition of a related receivable, plus accrued interest,
from an appellate court verdict which was rendered in December 1994 in favor
of one of the Company's managed limited partnerships. The Company's share of
the contingency reversal and receivable increased other income by $421,065 in
1994. See Note 10 of the Notes to Consolidated Financial Statements for
further information. The increase in other income in 1994 from 1993 was also
due to a larger gain recognized from the early receipt of notes receivable,
and higher commission fee income, partially offset by lower rig rental
revenues, as noted above. The increase in other revenues from 1992 to 1993
was primarily a result of the recognition of a $101,063 gain from the sale of
investments and increased rig rental revenues partially offset by lower
commission fee income and a lower gain recognized from the early receipt of
notes receivable, as noted above.
II-4
General and administrative expenses increased to $1,738,507 in 1994 from
$1,590,128 in 1993. In 1992 such expenses were $1,648,404. The increase from
1993 to 1994 was primarily the result of the additional interests acquired
in managed limited partnerships in 1994. These purchases added approximately
$175,000 to general and administrative expense. The decrease from 1992 to 1993
was primarily due to lower selling and marketing expenses in 1993. This
decrease was partially offset by the recognition of a litigation contingency
accrued in the third quarter of 1993. The Company's share of the contingency
was $243,274, and was accrued to reflect a judgement against one of the
Company's managed limited partnerships. The Company appealed the verdict and
it was reversed in December 1994. The resultant income from the contingency
accrual reversal was included in other income, as discussed above. See Note
10 of the Notes to Consolidated Financial Statements for further information.
Lease operating expenses increased to $1,984,420 in 1994 from $1,662,666 in
1993 and $1,818,198 in 1992. Lease operating expenses increased by $321,754
or 19% from 1993 to 1994. This increase was primarily the result of operating
costs incurred on properties and partnership
interests acquired in 1994. The properties acquired during 1994 (McBride,
Larto Lake and Florida acquisitions) added $146,762 to lease operating
expenses, while the additional partnership interests acquired added approxi-
mately $250,000. The decrease from 1992 to 1993 was primarily a result of
lower workover and plugging costs incurred in 1993 as compared to 1992,
partially offset by operating costs incurred on properties acquired in 1993.
Depletion, depreciation and amortization expense ("DD&A") was $1,487,141 in
1994, $1,375,191 in 1993 and $1,575,952 in 1992. DD&A increased by $111,950
or 8% from 1993 to 1994. The increases in production, noted above, increased
DD&A expense by $208,699 in 1994. This increase was partially offset by a 6%
decrease in the depletion rate. The decrease in the depletion rate was
primarily due to an upward revision of the oil reserves at December 31, 1994
and the acquisition of additional properties with relatively lower depletion
rates, partially offset by a downward revision of the gas reserves. The
decrease of $200,761 or 13% from 1992 to 1993 was primarily due to a 15%
decrease in the depletion rate which reduced DD&A expense by $233,446. This
decrease was partially offset by the increases in oil and gas production,
noted above. The lower depletion rate in 1993 was primarily attributable to an
upward revision of the gas reserves at December 31, 1993, partially offset by
a downward revision of the oil reserves.
On September 30, 1992, the Company reduced the amounts owed to it from certain
managed limited partnerships and an unaffiliated entity by $654,477. This one-
time reduction was made to reflect the anticipated repayments from the
respective entities. Net interest expense of $120,617 was recognized in 1994
as compared to net interest income of $7,889 recorded in 1993 and $176,241 of
net interest expense recorded in 1992. Interest expense increased in 1994 from
1993 due to the additional debt utilized to finance the purchase of property
and partnership interests in 1994. Interest expense declined from 1992 to 1993
due to the repayment of debt used to fund the purchase of property and
repurchase of stock in 1992. Both interest income and interest expense were
lower in 1993, due to the sale in February 1993, of the Company's investment
in mortgage-backed securities and the retirement of the corresponding debt
(See Note 3 to the Consolidated Financial Statements).
II-5
The Company recognized an income tax credit of $421,125 in 1994 as compared
with income tax expense of $36,227 in 1993 and $127,237 in 1992. This
represents an effective rate of 4% in 1993 and 10% in 1992. The credit
recognized in 1994 was a result of the Company filing amended returns for
$127,034 to reflect additional expenses allowed to the Company in prior years
and from the carryback of a tax net operating loss of $133,702. Also
recognized in 1994 was a portion of the Company's deferred tax asset that is
expected to be utilized in future years. The lower relative rates experienced
by the Company in 1993 and 1992 are primarily the result of the utilization of
deferred tax assets which resulted from the EAC Acquisition. At December 31,
1994, the Company had a substantial deferred tax asset of $4,777,227. Due to
uncertainties inherent in the oil and gas market, a valuation allowance
reserved all but $248,753 of the assets.
Future Outlook
Operating results for 1994 were tempered by lower oil and gas prices. Oil
prices, which began the year at very low levels, rebounded somewhat in 1994.
Gas prices did not fare as well and ended the year at depressed levels. Enex's
strong financial position did not significantly deteriorate because of the
lower prices. Enex's financial strength is evidenced by the Company's debt-to-
equity ratio of 6.9% and its current ratio of 2.14 to 1. Proved oil and gas
reserves were added in 1994 which will enable the Company to take full
advantage of future increases in oil and gas prices.
During 1994, a number of offers to purchase Enex were evaluated by staff
members and the board of directors. While a mutually acceptable agreement was
not successfully concluded, discussions with other interested parties to
affect a stock acquisition or other business combination or joint venture have
continued. The Company has also resumed its 50,000 share stock buyback
program. Cash flow will be utilized, in 1995, to reduce the Company's debt
obligations and acquire additional producing properties. The Company will
increase the drilling of development locations on corporate and partnership
properties. Enex continues to seek larger properties with future development
potential as well as current cash flow. In order to achieve the Company's goal
to become better recognized as an operating and development company, it is
anticipated that the majority of the acquisitions will be operated by Enex.
Enex will continue to expand its reserve base and asset value by evaluating
opportunities on a risk/reward basis. We will aggressively pursue only those
alternatives that show the greatest potential with an acceptable level of
risk. Maximizing shareholder value remains the most important part of our
mission.
II-6
Item 7.Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
Enex Resources Corporation:
We have audited the accompanying consolidated balance sheets of Enex Resources
Corporation and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of Enex Resources
Corporation's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Enex Resources Corporation and
subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE, LLP
Houston, Texas
March 1, 1995
II-7
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1994 AND 1993
ASSETS 1994 1993
CURRENT ASSETS:
Cash and certificates of deposit $ 642,659 $ 307,466
Accounts receivable:
Managed limited partnerships 1,226,046 1,149,822
Oil and gas sales 631,115 538,906
Joint owner 368,297 169,334
Other accounts receivable 829,390 892,540
Notes receivable from managed limited
partnerships 89,266 399,578
Federal income tax receivable 232,989 -
Prepaid expenses and other current assets 257,386 122,169
Deferred tax asset 99,501 88,364
Total current assets 4,376,649 3,668,179
PROPERTY:
Oil and gas properties (successful efforts
accounting method) Proved m
and related equipment and facilities:
Direct ownership 7,598,999 6,200,355
Derived from investment in managed
limited partnerships 8,549,929 7,630,619
Furniture, fixtures and other (at cost) 327,364 294,429
Total property 16,476,292 14,125,403
Less accumulated depreciation,
depletion and amortization 6,444,108 5,573,004
Property, net 10,032,184 8,552,399
OTHER ASSETS:
Receivable from managed limited
partnerships for start-up costs 2,655,172 2,942,375
Deferred tax asset 149,252 -
Deferred organization expenses and other 17,387 13,863
Total other assets 2,821,811 2,956,238
TOTAL $ 17,230,644 $ 15,176,816
See accompanying notes to consolidated financial statements.
II-8
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1994 AND 1993
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
CURRENT LIABILITIES:
Accounts payable $ 1,093,132 $ 919,695
Current portion of long-term debt 950,000 691,310
Accrued federal income tax liability - 47,893
Total current liabilities 2,043,132 1,658,898
LONG-TERM DEBT:
Note payable to a bank 974,000 258,563
COMMITMENTS AND
CONTINGENT LIABILITIES - -
TOTAL LIABILITIES 3,017,132 1,917,461
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;
1,627,859 shares issued at December 31, 1994
and 1,599,859 shares issued at December 31, 81,393 79,993
Additional paid-in capital 9,814,617 9,630,749
Retained earnings 6,040,573 5,248,778
Less cost of treasury stock;
337,936 shares at December 31, 1994 and
349,385 shares at December 31, 1993 (1,723,071) (1,700,165)
TOTAL STOCKHOLDERS' EQUITY 14,213,512 13,259,355
TOTAL $ 17,230,644 $ 15,176,816
See accompanying notes to consolidated financial statements.
II-9
ENEX RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
1994 1993 1992
REVENUES:
Oil and gas sales $ 5,566,340 $ 5,246,339 $ 6,834,488
Gas plant sales 393,055 358,285 318,795
Other revenues 760,644 565,367 534,044
Interest income 23,173 77,053 192,214
Total revenues 6,743,212 6,247,044 7,879,541
EXPENSES:
General and administrative 1,738,507 1,590,128 1,648,404
Lease operating and other expenses 1,984,420 1,662,666 1,818,198
Gas purchases and
plant operating expenses 430,789 259,950 241,814
Production taxes 328,214 321,844 303,744
Depreciation, depletion and amort 1,487,141 1,375,191 1,575,952
Other expense - - 654,477
Interest expense 143,790 69,164 368,455
Total expenses 6,112,861 5,278,943 6,611,044
Earnings before income taxes 630,351 968,101 1,268,497
INCOME TAX EXPENSE (CREDIT)
Current (260,736) 124,591 127,237
Deferred (160,389) (88,364) -
Net income tax expense (credit) (421,125) 36,227 127,237
NET INCOME $ 1,051,476 $ 931,874 $ 1,141,260
PRIMARY EARNINGS PER SHARE $ 0.75 $ 0.69 $ 0.82
FULLY DILUTED EARNINGS PER SHARE $ 0.75 $ 0.69 $ 0.80
See accompanying notes to consolidated financial statements.
II-10
ENEX RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Common Stock Additional
Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE January 1, 1992 1,794,140 89,706 10,421,099 3,601,126 (1,663,649) 12,448,282
Repurchase and retirement
of common shares (241,210) (12,060) (1,026,706) (1,038,766)
Exercise of stock opt 20,000 1,000 101,500 102,500
Reissue 7,850 shares of
Treasury stock through SPP 7,975 37,288 45,263
Payment of $.15 per share
cash dividend (185,991) (185,991)
Net income 1,141,260 1,141,260
BALANCE,
December 31, 1992 1,572,930 78,646 9,503,868 4,556,395 (1,626,361) 12,512,548
Repurchase and retirement
of common shares (5,071) (253) (45,140) (45,393)
Exercise of stock opt 32,000 1,600 98,150 99,750
Tax benefit from exercise
of stock options 53,611 53,611
Reissue 8,565 shares of
Treasury stock through SPP 20,260 40,684 60,944
Purchase of 15,000 shares
of Treasury stock (114,488) (114,488)
Payment of $.19 per share
cash dividend (239,491) (239,491)
Net income 931,874 931,874
BALANCE,
December 31, 1993 1,599,859 $79,993 $9,630,749 $5,248,778 (1,700,165) 13,259,355
Exercise of stock options 28,000 1,400 89,850 91,250
Reissue 30,610 shares of
Treasury stock through SPP 94,018 148,939 242,957
Purchase of 19,161 shares
of Treasury stock (171,845) (171,845)
Payment of $.20 per share
cash dividend (259,681) (259,681)
Net income 1,051,476 1,051,476
BALANCE,
December 31, 1994 1,627,859 $81,393 $9,814,617 $6,040,573 (1,723,071) 14,213,512
See accompanying notes to consolidated financial statements.
</TABLE>
II-11
ENEX RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,051,476 $ 931,874 $ 1,141,260
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,487,141 1,375,191 1,575,952
Other expense - - 654,477
Increase in deferred tax asset (160,389) (88,364) -
Noncash expense from stock purchase plan and 242,957 60,944 72,763
Net gain on sale of property (2,812) (4,513) (70,614)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (250,032) 86,248 (34,043)
(Increase) decrease in prepaid expenses and o (152,847) (59,339) 35,468
Increase (decrease) in accounts payable 173,437 65,699 (824,410)
Increase (decrease) in accrued liabilities (47,893) (82,226) 48,337
Net cash provided by operating activities 2,341,038 2,285,514 2,599,190
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 45,392 26,627 113,780
Property additions (2,995,400) (2,413,418) (1,155,371)
(Increase) decrease in notes receivable from
managed limited partnerships 310,312 (253,480) 151,981
(Increase) decrease in temporary investments - 3,784,949 (849,693)
Net cash provided (used) by investing activitie(2,639,696) 1,144,678 (1,739,303)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt - (3,435,564) 834,461
Proceeds from issuance of long-term debt 2,805,583 1,215,690 2,973,046
Repayment of long-term debt (1,831,456) (978,310) (3,654,702)
Purchase of treasury stock (171,845) (114,488) -
Repurchase and retirement of capital stock - (45,393) (1,038,766)
Proceeds from exercise of stock options 91,250 99,750 75,000
Payment of cash dividend (259,681) (239,491) (185,991)
Net cash provided (used) by financing activitie 633,851 (3,497,806) (996,952)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 335,193 (67,614) (137,065)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 307,466 375,080 512,145
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 642,659 $ 307,466 $ 375,080
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 138,539 $ 72,389 $ 285,080
Income taxes - 140,344 10,000
See accompanying notes to consolidated financial statements.
II-12
</TABLE>
ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation (the "Company") acquires
interests in producing oil and gas properties and sponsors and
manages oil and gas income limited partnerships. At December 31,
1994, the Company served as managing general partner for 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 has a 10% interest as the general
partner in addition to its proportional interest as a limited
partner which ranges from 3% to 52%. Accumulated depreciation and
depletion for such oil and gas properties at December 31, 1994
totalled $167 million.
In addition to Partnership activities, the Company owns interests
in 378 productive oil and gas properties for its own account, and
is the operator of 161 properties. The total properties managed for
its own account and the Partnerships include interests in more than
12,000 producing wells in 14 states.
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of the Company, its wholly
owned subsidiaries, Enex Securities Corporation and Gulf-Tex
Maintenance Corporation and the Company's pro rata share of the
assets, liabilities, revenues and expenses of the managed limited
partnerships in which it participates as the general partner. All
intercompany balances and transactions have been eliminated in
consolidation.
Oil and Gas Properties - The Company uses the successful efforts
method of accounting for its oil and gas operations. Under this
method, the costs of all development wells are capitalized. The
costs of unsuccessful exploratory wells are charged to earnings.
Capitalized costs are amortized on the units-of-production method
based on production and estimated total proved reserves. The
Company has not capitalized any internal costs into property. A
ceiling test is performed quarterly wherein total capitalized costs
may not exceed future undiscounted net revenues on a Company-wide
basis. The acquisition costs of unproved oil and gas properties are
capitalized and periodically assessed for impairment on an
individual property basis.
Furniture, Fixtures and Other - The Company records expenditures for
furniture and fixtures at cost. Expenditures for improvements are
capitalized. Expenditures for maintenance and repairs are charged
to operations as incurred. The Company provides for depreciation
of its furniture, fixtures and other equipment using the straight-
line method over an estimated useful life not to exceed five years.
Deferred Organization Expenses - The Company's pro rata share of the
organization costs of the managed limited partnerships is being
amortized on a straight-line basis over a five-year period.
II-13
Commission Income - Through April 30, 1994, Enex Securities
Corporation ("Securities") marketed interests in the Partnerships.
Securities earned a commission of up to 10% of solicited
subscriptions of which up to 8% was reallowed to soliciting dealers.
Commission income was recognized upon the attainment of a $1 million
level of subscriptions for Partnership interests and is presented
in the accompanying consolidated financial statements net of
reallowed commissions of approximately $92,000, $9,000, and $26,000
in 1994, 1993 and 1992, respectively. Net commission income is
included in other revenues in the Consolidated Statements of Income.
Income Per Common Share - Primary and fully diluted earnings per
common share are based on the weighted average number of shares of
common stock and common share equivalents outstanding during the
year. Common share equivalents include common stock options. The
weighted average number of shares used to compute primary and fully
diluted earnings per common share was:
Primary Shares Fully Diluted Shares
1994 1,397,870 1,397,870
1993 1,346,511 1,350,958
1992 1,389,365 1,427,533
Managed Limited Partnerships - The Company serves as the general
partner to the Partnerships and also participates as a limited
partner to the extent of limited partnership interests purchased
directly by the Company.
The Company is entitled as general partner to 10% of partnership
production revenues less 10% of partnership expenses, other than the
costs of acquiring partnership properties. In most instances, at
such time as the limited partners receive distributions in total
equal to their aggregate subscriptions, the Company is entitled to
15% of such net revenues. The Company recognizes its share of these
net revenues as they are sold.
If, after certain time periods, the aggregate purchase price of the
interests in certain programs plus cumulative distributions to the
limited partners does not equal limited partner subscriptions (the
"Deficiency"), the general partner will forego its 10% share of such
Program's net revenues. The foregone net revenues will be allocated
to the limited partners until such time as no Deficiency exists.
During 1993 and 1994, the general partner's 10% share of Program II
net revenues, totaling $37,122 and $41,119, respectively, was
allocated to the limited partners. Beginning May 1994, the general
partner's 10% share of Program I net revenues, totaling $31,830, was
allocated to the limited partners.
In addition to the above, the Company is reimbursed for direct
expenditures made on behalf of the partnership operations. Overhead
billed to the managed limited partnerships, which is treated as a
reduction in general and administrative expenses, was $2,240,194,
$1,953,176, and $2,306,009 in 1994, 1993 and 1992, respectively.
II-14
Income Taxes - The Company uses the liability method to account for
deferred income taxes, which focuses on the future tax return
consequences of temporary differences in determining the deferred
tax balances. Under this method, the deferred tax expense is
calculated as the change in the deferred tax balance sheet accounts
during the period. Temporary differences are measured at the
balance sheet date and are valued in accordance with current tax
laws. See Note 4 for more information.
Cash Flows - The Company presents its cash flows using the indirect
method and considers all highly liquid investments with a maturity
of three months or less to be cash equivalents.
Reclassifications - Certain reclassifications have been made to the
prior year balances to conform to current year presentation.
2. COSTS REIMBURSABLE BY AND RECEIVABLE FROM
MANAGED LIMITED PARTNERSHIPS
During the start-up phase of partnership operations, certain general
and administrative costs are incurred by the Company on behalf of
the partnerships. These start-up costs are allocated to the newly
formed partnerships with remaining unspent acquisition funds and are
reimbursed to the Company over a period generally not to exceed five
years. During 1992, the Company reduced the amount owed to it by
the Partnerships by $424,477. This reduction was included in other
expense in the Consolidated Statements of Income.
3. DEBT
The long-term debt at December 31, 1994 consisted of a $1,924,000
loan from a bank under a $5.925 million revolving line of credit
collaterized by substantially all of the assets of the Company. The
bank loan bore interest at an average rate of 8.16% in 1994. In
1995, the Company expects to repay $950,000 of the debt, which
matures July 1996.
The long-term debt at December 31, 1993 consisted of a $775,690 loan
from a bank under a $4.925 million revolving line of credit and the
Company's pro rata share of the long-term debt of managed limited
partnerships of $174,183. The bank loan bore interest at an average
rate of 6.75% in 1993, while the debt derived from the limited
partnerships bore interest at an average rate of 6.49%.
II-15
4. INCOME TAXES
Total income tax expense for 1994, 1993 and 1992 was different from
the amount computed by applying the federal statutory income tax
rate of 34% to earnings before income taxes for the following
reasons:
1994 1993 1992
Computed statutory tax expense $ 214,319 $ 329,154 $ 431,289
Increase (reduction) in taxes
resulting from:
Reduction in unrecognized
deferred tax asset (624,317) (300,473) (342,877)
Utilization of Section 29
tax credit - (14,080) -
Other, net (11,127) 21,626 38,825
Actual income tax expense
(credit) $(421,125) $ 36,227 $ 127,237
The components of income tax expense (credit) are as follows:
1994 1993 1992
Income taxes currently
payable (receivable) $(260,736) $ 124,591 $ 127,237
Deferred income tax (credit) (160,389) (88,364) -
Income tax expense (credit) $(421,125) $ 36,227 $ 127,237
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 adoption of
SFAS No. 109 had no impact at January 1, 1993 because of a 100%
valuation allowance at that time. For the years ended December 31,
1994 and 1993, the adoption of SFAS No. 109 increased net income by
$160,389 and $88,364, respectively.
II-16
Deferred income taxes reflect the net tax effects 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 December 31, 1994 and 1993
were as follows:
December 31, 1994 December 31, 1993
Difference between tax and book
net property basis $ 27,591 $ 69,931
Difference between basis in
managed limited partnerships for
financial reporting purposes and
income tax purposes 4,554,981 $ 5,114,385
Intangible drilling costs which
remain capitalized for financial
reporting purposes which were
deducted for federal income tax
purposes (53,836) (11,040)
Net operating loss carryforward
(expires 2009) 293,772 -
Timing difference from lawsuit
contingency (45,281) 88,364
Other, net - (4,711)
Gross deferred tax asset 4,777,227 5,256,929
Valuation allowance (4,528,474) (5,168,565)
Net deferred tax asset recognized $ 248,753 $ 88,364
The valuation allowance reserves the net deferred tax asset due to
uncertainties inherent in the oil and gas market.
II-17
5. NOTES RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
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 at the
Company's borrowing rate of prime plus three-fourths of one percent
(9.25% and 6.75% as of December 31, 1994 and 1993, respectively) on
the unpaid principal. Principal payments of $126,410 were received
during 1993. At December 31, 1993, the total outstanding principal
balance of the notes was $311,758. In 1994, an additional $99,853
was borrowed by three limited partnerships to finance workover
costs. Principal payments of $322,345 were received during 1994.
At December 31, 1994, the total outstanding principal balance of
the notes was $89,266.
On August 8, 1991, in conjunction with the EAC Acquisition, the
Company acquired notes receivable from certain partnerships. The
notes, which accrue interest at prime plus three-fourths of one
percent, were recorded at their discounted realizable value. The
discounted realizable value of the notes was fully repaid in 1993.
On December 3, 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. At December 31, 1993, the outstanding principal balance
was $87,820. The note was completely repaid in 1994.
6. COMMON STOCK OPTIONS
The Company has an incentive stock option plan and a nonqualified
stock option plan, which authorize the issuance of options to
purchase up to 362,000 shares of common stock to directors,
officers and key employees. The Company has also granted options
not covered by a plan. The options expire at various dates through
2003 and are exercisable at prices ranging from $3 - $8 per share.
The exercise price of any options granted may not be less than the
fair market value of the Company's stock at the date of the grant.
The following table summarizes the Company's stock option activity:
1994 1993 1992
Number Average Number Average Number Average
of shares Price of shares price of shares price
Outstanding, beginning
of year 237,000 $ 4.52 214,000 $ 3.42 234,000 $ 3.45
Granted - - 55,000 8.00 - -
Exercised (28,000) 3.26 (32,000) 3.12 (20,000) 3.75
Outstanding, end of
year 209,000 $ 4.69 237,000 $ 4.52 214,000 $ 3.42
Exercisable at end
of year 209,000 $ 4.69 182,000 $ 4.68 159,000 $ 3.22
II-18
On May 19, 1992, the Company's shareholders approved the Enex
Resources Corporation Employee Stock Purchase Program (the "SPP").
All full-time employees, officers and directors are eligible for
participation in the SPP, which provides for the monthly
contribution of shares of the Company's common stock equal to 50%
of a participant's open market purchases of the Company's common
stock for the preceding month (the "Stock Contribution"). The Stock
Contribution is limited to a maximum of 2,500 shares per
participant per SPP year. Each Stock Contribution, although
immediately vested, is held in escrow for a six month holding
period prior to its distribution to the participant. During 1994,
1993 and 1992, 30,610, 8,565 and 7,850 shares, respectively, were
contributed to participants in the SPP. At December 31, 1994,
3,750 of these shares were held in escrow. The Company recognized
an expense of $242,957, $60,944 and $72,763 from the SPP in 1994,
1993 and 1992, respectively.
7. LEASE COMMITMENTS
The Company is the lessee under noncancelable operating leases for
office space and equipment. The following is a schedule of the
Company's remaining future rental requirements under the leases as
of December 31, 1994:
1995 $ 210,808
1996 21,108
1997 17,314
1998 12,960
Total payments required $ 262,190
Rent expense for all operating leases was $254,004, $265,666 and
$264,841 for the years ended December 31, 1994, 1993 and 1992,
respectively.
8. STOCK REPURCHASE
In June 1992 the Company repurchased 233,428 shares of the
Company's outstanding common stock from Hammer Investments, Limited
and a director of Hammer Investments. Eighty percent of the total
repurchase cost of $992,069 was financed by the sellers of the
stock. The loan, which bore interest at prime plus 1%, was fully
repaid on September 15, 1992.
II-19
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is committed to offer to repurchase the limited
partners' interests in its managed limited partnerships formed
under the Programs (except for Programs I,V and VI) at annual
intervals. The purchase price is based primarily on reserve
reports prepared by independent petroleum engineers, reduced by a
risk factor. Generally, for the first three annual purchase offers
after the formation of a partnership, the Company's annual
repurchase obligation is limited to the lesser of 10% to 25% of
initial partnership subscriptions or $1,000,000 per partnership.
During 1994, 1993 and 1992, the Company paid cash to repurchase
limited partner interests as follows:
1994 1993 1992
Program I $ 750,019 $ 469,369 $ 133,021
Program II 130,441 88,710 30,115
Program III 66,061 70,901 40,280
Program IV 98,351 17,899 34,694
Program V 63,730 58,424 38,599
Program VI 7,222 - -
Income and Retirement Fund 73,264 11,044 7,990
88-89 Income and Retirement
Fund 43,022 2,014 7,492
90-91 Income and Retirement
Fund 39,267 3,848 35,500
TOTAL $ 1,271,377 $ 722,209 $ 327,691
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.
The Company has an employment agreement with its founder and President,
Gerald B. Eckley. The agreement, which was amended on May 19, 1992,
provides that Mr. Eckley will be paid a minimum salary of $240,000 per year
for a five year term. As long as Mr. Eckley is employed by the Company, the
agreement will be automatically extended every May 19th for an additional
year. The agreement provides for compensation continuation benefits in the
event of Mr. Eckley's death or disability. If Mr. Eckley terminates the
agreement following a change of control of the Company or because of a
breach of the material provisions of the agreement or because performance
of his duties becomes hazardous to his health, he will remain entitled to
the full base compensation then in effect as severance pay until the normal
expiration of the agreement.
II-20
10. LITIGATION SETTLEMENTS
The Company and one of its managed limited partnerships, Enex
Program I Partners, L.P. ("Program I"), in which the Company owns
general and limited partnership interests, were named as parties
to a lawsuit filed by Texas Crude, Inc. ("Texas Crude"). Texas
Crude sought to recover legal and other fees totaling $600,000.
In August 1993, a judgement was granted in favor of Texas Crude for
$414,203, plus interest by the 101st Judicial District Court of
Texas. During the third quarter of 1993 Program I accrued a
liability for $504,350 related to this judgement, of which $243,274
was the Company's share.
The Company appealed the verdict and filed a counterclaim for funds
that were wrongfully withheld by Texas Crude. In December 1994,
the Fifth District Court of Appeals reversed the judgement of the
trial court and rendered judgement in favor of the Company and
Program I. Program I will recover $163,019 plus interest.
Accordingly, the contingent liability, initially recognized in
1993, was reversed in December 1994 and Program I established a
receivable for $254,588, of which the Company's share is $133,180.
On August 25, 1992, the Company entered into an agreement to settle
a lawsuit brought by the Company against Lone Star Gas Company
("Lone Star"). The lawsuit was a result of certain disputes that
arose from a contract between the Company and Lone Star concerning
the purchase and sale of gas from wells owned by the Company in
Webb County, Texas. Under the terms of the settlement, the Company
received $1.5 million in three $500,000 installments, with the
final installment received on October 15, 1992.
On December 9, 1992, the Company entered into an agreement to
settle a lawsuit brought by the Company on behalf of Program I
against Southern Natural Gas Company and Grace Petroleum
Corporation. The lawsuit was a result of certain take-or-pay
contract claims concerning the purchase and sale of gas from wells
owned by Program I in Monroe County, Mississippi. Under the terms
of the settlement agreement, Program I received $2.0 million in
December 1992. The proceeds were used to retire Partnership debt.
The Company recognized revenue of $840,715 from the settlement
through its ownership of general and limited partner interests in
Program I.
II-21
ENEX RESOURCES CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
Costs Incurred
The following costs were incurred in connection with the Company's oil and gas
activities for the years ended December 31:
1994 1993 1992
Acquisition of proved mineral
interests and related equipment
and facilities $ 2,415,803 $ 2,000,625 $ 921,954
Development costs 546,662 354,313 200,549
Capitalized Costs
The following presents the Company's capitalized costs at December 31,
relating to its oil and gas activities:
1994 1993
Proved mineral interests and
related equipment and facilities $ 16,148,928 $ 13,830,974
Accumulated depreciation,
depletion and amortization 6,180,287 5,329,556
II-22
Proved Oil and Gas Reserves Quantities (Unaudited)
The following presents an estimate of the Company's proved oil and gas reserve
quantities. Oil reserves are stated in barrels and natural gas reserves in
thousand cubic feet ("Mcf"). All of the Company's reserves are located within
the United States.
Oil Natural Gas
PROVED DEVELOPED AND UNDEVELOPED RESERVES: (Barrels) (Mcf)
January 1, 1992 549,853 8,250,814
Revisions of previous estimates 56,537 510,754
Purchases of minerals in place 306,511 294,783
Sales of minerals in place (1,744) -
Production (145,860) (1,265,814)
December 31, 1992 765,297 7,790,537
Revisions of previous estimates (78,008) 1,281,240
Purchases of minerals in place 107,164 2,775,978
Sales of minerals in place (3,623) (413)
Production (157,440) (1,285,512)
December 31, 1993 633,390 10,561,830
Revisions of previous estimates 129,402 (1,076,124)
Purchases of minerals in place 408,039 1,280,441
Sales of minerals in place (8,123) (28,234)
Production (191,499) (1,407,432)
December 31, 1994 971,209 9,330,481
PROVED DEVELOPED RESERVES:
December 31, 1992 761,047 7,489,298
December 31, 1993 630,987 10,393,884
December 31, 1994 877,659 9,174,506
II-23
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves at December 31, 1994, 1993 and 1992
(Unaudited)
The following presents the Company's standardized measure of discounted future
net cash flows as of December 31:
1994 1993 1992
Future cash inflows $ 30,767,733 $31,790,790 $27,821,797
Future production & development
cost (13,163,073) (11,854,142) (10,813,697)
Future net cash flows before income 17,604,660 19,936,648 17,008,100
10% annual discount (6,411,638) (7,991,008) (6,564,102)
Discounted future net cash flows
before income taxes 11,193,022 11,945,640 10,443,998
Future income taxes, net of 10%
annual discount (758,358) (1,227,681) (1,164,211)
Standardized measure of future
discounted net cash flows of
proved oil and gas reserves $ 10,434,664 $10,717,959 $ 9,279,787
The future net cash flows were computed using year-end prices and costs and
year-end statutory tax rates that relate to proved oil and gas reserves in
which the Company has an interest.
The following presents the principal sources of change in the standardized
measure of discounted future net cash flows during 1994, 1993 and 1992:
1994 1993 1992
Sales and transfers of oil and gas
produced, net of production
costs $ (3,266,885) $(3,261,829) $(2,784,822)
Net changes in prices and
production costs (1,897,397) 265,663 (497,484)
Purchases of minerals in place 3,013,306 2,590,014 1,863,984
Sales of minerals in place (95,769) (12,196) (6,743)
Revisions of previous quantity
estimates (209,215) 704,128 731,084
Accretion of discount 1,194,564 1,044,400 1,043,094
Net change in income taxes 469,323 (63,470) (126,678)
Changes in production rates
(timing) and other 508,778 171,462 (336,057)
Change in standardized measure of
discounted future net cash flows $ (283,295) $ 1,438,172 $ (113,622)
II-24
In addition to the above presented oil and gas reserves, the
Company also has interests in certain gas processing plants and gas
gathering systems. The total estimated future production of plant
products is 226,839 barrels. The discounted future net cash flows
(net of estimated future income taxes) relating to the Company's
interests in these facilities are estimated to be approximately
$515,977.
This valuation procedure does not purport to represent the fair
market value of the Company's oil and gas properties. An estimate
of fair market value would also take into account, among other
factors, anticipated changes in future prices of oil and gas and
related development and production costs and the likelihood of
future recoveries of oil and gas quantities different from the
current estimate of proved reserves.
II-25
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable
II-26
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Company's sole General Partner is Enex Resources Corporation, a
Colorado corporation. The Company has no Directors or executive officers.
The Directors of Enex are:
Gerald B. Eckley. Mr. Eckley, age 68, has served as a Director,
President and Chief Executive Officer of the General Partner since its
formation in 1979. He was employed by Shell Oil Company from 1951 to 1967
and served in managerial capacities from 1959 to 1967. From 1967 to 1969,
he was Director of Fund Raising at the University of Oklahoma and from 1969
to 1971, was Vice President of Land and Operations for Imperial American
Management Company. In 1971, Mr. Eckley was a petroleum consultant and in
1972-1973 was General Counsel and Executive Director of the Oil Investment
Institute. From 1973 to 1974, he was Manager of Oil Properties, Inc. and
from 1974 to 1976, was Vice President, Land and Joint Ventures for Petro-
Lewis Corporation. From 1977 to August 1979, Mr. Eckley was President of
Eckley Energy, Inc., a company engaged in purchasing and selling oil and
gas properties. Mr. Eckley received an L.L.B. degree from the University
of Oklahoma in 1951 and a Juris Doctor degree from the University of
Oklahoma in 1970.
William C. Hooper, Jr. Mr. Hooper, age 57, has been a Director of
the General Partner since its formation in 1979 and is a member of the
General Partner's Audit and Compensation and Options Committees. In 1960
he was a staff engineer in the Natural Gas Department of the Railroad
Commission of Texas, with principal duties involving reservoir units and
gas proration. In 1961 he was employed by the California Company as a
Drilling Engineer and Supervisor. In 1963 he was employed by the
California Company as a Drilling Engineer and Supervisor. In 1963 he was
employed as a Staff Engineer by California Research Corporation and in 1964
rejoined the California Company as a project manager having various duties
involving drilling and reservoir evaluations. In 1966 he was Executive
Vice President for Moran Bros. Inc., coordinating and managing all company
activities, drilling operations, bidding and engineering. From 1970 until
the present, he has been self-employed as a consulting petroleum engineer
providing services to industry and government and engaged in business as an
independent oil and gas operator and investor. From 1975 to 1987 he was
also a Director and President of Verna Corporation, a drilling contractor
and service organization. He received a B.S. degree in Petroleum
Engineering in 1960 from the University of Texas and an M.S. degree in
Petroleum Engineering from that same University in 1961.
Stuart Strasner. Mr. Strasner, age 65, was a Director of the
General Partner from its formation until October of 1986. He was
reappointed to the Board on April 19, 1990 to fill a vacancy. He is a
member of the Audit Committee. He is a professor of business law at
Oklahoma City University and was Dean of the law school at Oklahoma City
University from July 1984 until June 1991. Prior to July 1984, Mr.
Strasner was an attorney in private practice with McCollister, McCleary,
Fazio and Holliday in Oklahoma City, Oklahoma. From 1959 to 1974, he was
employed by various banks, bank holding companies and an insurance company
in executive capacities. From 1974 to 1978, he was a consultant to various
corporations such as insurance companies, bank holding companies and small
business investment companies. From 1978 until late 1981, he was Executive
Director of the Oklahoma Bar Association, and from 1981 to 1983 was a
Director and President of PRST Enterprises, Inc., a real estate development
company. Mr. Strasner holds an A.B. degree from Panhandle A&M College,
Oklahoma, and a J.D. degree from the University of Oklahoma. He is a
member of the Fellows of the American Bar Association and a member of the
Oklahoma Bar Association. Mr. Strasner is also a director of Health
Images, Inc., a public company which provides fixed site magnetic resonance
imaging ("MRI") services.
Martin J. Freedman. Mr. Freedman, age 70, was one of the General
Partner's founders and a member of its Board of Directors as well as a
board member of Enex Securities Corporation until June of 1986. He was
reappointed to the Board on April 19, 1990 to fill a vacancy. He is a
member of the Compensation and Options Committee. He is currently
President of Freedman Oil & Gas Company, engaged primarily in the
management of its exploration and producing properties, and the managing
partner of MJF Energy which has an interest in several gas pipelines and
gas wells. Mr. Freedman is a lifetime member of the Denver Petroleum Club.
He was an officer and Director and/or founder of several former private and
public companies, among which were Valex Petroleum and Kissinger Drilling
and Exploration. Mr. Freedman entered the oil and gas business in 1954
when he joined Mr. Marvin Davis of the Davis Oil Company. In 1956, he
became President of Central Oil Corporation, a company engaged in oil and
gas exploration. From 1958 on, Mr. Freedman operated as Martin J. Freedman
Oil Properties and was President of Oil Properties, Inc., a private
corporation. Mr. Freedman attended Long Island University and New York
University. He received a bachelor's degree in Psychology and also
attended New York University's graduate school.
James Thomas Shorney. Mr. Shorney, age 69, has been a Director of
the General Partner since April of 1990 and is a member of the Compensation
and Options Committee. He has been a petroleum consultant and
Secretary/Treasurer of the Shorney Company, a privately held oil and gas
exploration company, from 1970 to date. From 1970 to 1976, he also served
as a petroleum consultant in Land and Lease Research Analysis Studies for
the GHK Company. He was an oil and gas lease broker from 1962 to 1970 and
employed by Shell Oil Company in the Land Department from 1954 to 1962.
Before joining Shell Oil Company, he served as Public Information Officer
in the U.S. Army Air Force from 1950 to 1953 including attending Georgetown
University Graduate School in 1952. Mr. Shorney graduated from the
University of Oklahoma with a B.A. degree in Journalism in 1950. From 1943
to 1945, he served in the U.S. Army Air Force as an air crew member on a B-
24 Bomber. Mr. Shorney is a member of the Oklahoma City Association of
Petroleum Landmen on which he has served as Director and
Secretary/Treasurer. He is an active member of the American Association of
Petroleum Landmen. In 1975, Mr. Shorney was first listed in the London
Financial Times' Who's Who in World Oil and Gas.
Robert D. Carl, III. Mr. Carl, age 41, was appointed a Director of
the General Partner on July 30, 1991 and is a member of the Audit
Committee. He is Chief Executive Officer and Chairman of the Board of
Health Images, Inc., a public company whose securities are traded on NYSE,
which provides fixed site magnetic resonance imaging ("MRI") services.
From 1978 to 1981, Mr. Carl also served as President of Carl Investment
Associates, Inc. a registered investment advisor. In 1981, Mr. Carl joined
Cardio-Tech, Inc., as general counsel and as an officer and Director. Upon
the sale and reorganization of Cardio-Tech, Inc. into Cardiopul
Technologies in 1982, he served as its Executive Vice President and as a
Director. In March, 1985 he was elected President, Chief Executive Officer
and Chairman of Cardiopul Technologies which spun off its non-imaging
medical services business and changed its name to Health Images, Inc. Mr.
Carl received a B.A. in History from Franklin and Marshall College,
Lancaster, Pennsylvania in 1975 and a J.D. from Emory University School of
Law, Atlanta, Georgia in 1978 and is a member of the State Bar of Georgia.
Robert E. Densford. Mr. Densford, age 37, was appointed a Director
of the General Partner on September 11, 1991. He joined the General
Partner as Controller on May 1, 1985 and became Vice President-Finance,
Secretary and Treasurer on March 1, 1989. From January 1983 to April 1985,
he was Senior Accountant for Deloitte Haskins & Sells in Houston, Texas,
auditing both closely held and publicly owned oil and gas companies. From
September 1981 to December 1982, he was a staff accountant for Coopers &
Lybrand in Houston. Mr. Densford is a C.P.A. and holds a B.B.A. degree in
Accounting and an M.S. degree in Oil and Gas Accounting from Texas Tech
University and is a member of the American Institute of Certified Public
Accountants and the Texas Society of Certified Public Accountants.
The other executive officers of Enex are:
Jesse Q. Ozbolt. Mr. Ozbolt, age 53, was appointed Vice President-
Engineering of the General Partner on March 31, 1984 and Vice President-
Engineering and Operations on July 1, 1985. He joined the General Partner
in March 1982 as Manager of Engineering and Acquisitions. Prior thereto,
he was Manager of Houston operations of Core Laboratories, Inc., a Dallas-
based engineering and consulting organization. From October 1978 through
May 1981, he was Chief Petroleum Engineer and Vice President at First City
National Bank of Houston. From May 1973 to October 1978, he was Manager of
Engineering of the Exploration and Production Division of Texas Eastern
Corporation. From 1969 to 1973, he was Senior Project Engineer in the
Production Department of Exxon Company, U.S.A. Mr. Ozbolt holds a B.S.
degree in Civil Engineering, Magna Cum Laude, from Duke University.
James A. Klein. Mr. Klein, age 32, joined the General Partner as
Controller in February 1991. In June 1993, he was appointed President and
Principal of Enex Securities Corporation. From June 1988 to February 1991,
he was employed by Positron Corporation in Houston. From July 1987 to May
1988, he was employed by Transworld Oil Company in Houston and from
September 1985 until July 1987, he was an accountant with Deloitte Haskins
& Sells in Houston, Texas, auditing oil and gas and oil service companies.
Mr. Klein is a Certified Public Accountant and holds a B.A. in Accounting
(1985) from the University of Iowa. He is a member of the American
Institute of Certified Public Accountants and the Iowa Society of Certified
Public Accountants.
Item 10. Executive Compensation
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal
year ended December 31, 1994, of those persons
who were (i) the chief executive officer and (ii) the other executive
officers of the Company (the "Named Officers") who earned at least $100,000
during such fiscal year:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Shares
Name and Underlying All Other
Principal Position Year Salary Bonus Options Compensation (1)
Gerald B. Eckley 1994 $ 240,000 $ 36,000 -0- $ 4,000
President, Chief 1993 $ 240,000 $ 52,800 10,000 $ 17,000
Executive Officer 1992 $ 180,000 $ 180,000 -0- $ 11,313
Robert E. Densford 1994 $ 112,000 $ 16,800 -0- $ 19,500
Vice President - 1993 $ 112,000 $ 24,640 10,000 $ 17,000
Finance,Secretary
and Treasurer 1992 $ 112,000 $ 22,400 -0- $ 10,813
Jesse Q. Ozbolt 1994 $ 106,000 $ 15,900 -0- $ -0-
Vice President - 1993 $ 106,000 $ 23,320 5,000 $ -0-
Engineering
and Operations 1992 $ 106,000 $ 21,299 -0- $ -0-
(1) The Company's Employee Stock Purchase Program (the "Program"), in
which all officers, directors and full-time employees are eligible
to participate, provides for the monthly contribution of shares of
the company's common stock equal to 50% of a participant's open
market purchases of the Company's common stock for the preceding
month (the "Stock Contribution"). The Stock Contribution, on which
dividends are paid, is limited to a maximum of 2,500 shares per
participant per Program year. Each Stock Contribution, although
immediately vested, is held in escrow for a six month holding period
prior to its distribution to the participant, and will be forfeited
if the participant ceases to be an employee or director of the
Company for any reason other than retirement, death or disability.
The values shown in the table represent 500 shares contributed to
Mr. Eckley and 2,500 shares contributed to Mr. Densford during 1994.
No Named Officer held any other unvested restricted stock at
December 31, 1994.
Option Grants
No options were granted under the Company's 1984 Incentive Stock
Option Plan or the 1991 Non-Qualified Stock Option Plan during 1994.
Option Exercises and Year-End Values
Shown below is information concerning the exercise and year-end
values of the options to purchase the Company's common stock granted in
prior years for the Named Officers and held by them at December 31, 1994;
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE
<TABLE>
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1994 December 31, 1994
<CAPTION>
Number of
Shares Acquired Value
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable(1)
<S> <C> <C> <C> <C> <C> <C>
Gerald B. Eckley 70,000 - $ 335,000 $ -0-
Robert E. Densford 40,000 - $ 172,500 $ -0-
Jesse Q. Ozbolt 22,500 - $ 102,500 $ -0-
</TABLE>
(1) The dollar values are calculated by determining the difference
between the fair market value of the securities underlying the
options and the exercise price of the options at fiscal year-end.
Compensation of Directors
During 1994, each non-employee director received $1,200 as
compensation for each meeting which he attended in person and $1,800 per
calendar quarter. Under the terms of the Employee Stock Purchase Program
described above, 2,500 shares (having values of $20,625 calculated on the
applicable contribution dates) were contributed by the Company to Mr.
Freedman in 1994. At December 31, 1994 all of these shares had been
distributed.
Employment Agreement
The employment agreement between the Company and its founder and
president, Gerald B. Eckley, provides for a minimum salary of $200,000 per
year for a five-year term beginning May 19, 1992. Salary increases are at
the discretion of the board. Mr. Eckley's base salary was $240,000 in
1994. So long as Mr. Eckley is employed by the company, the agreement will
be automatically extended for an additional year every May 19 unless Mr.
Eckley or the board elects to terminate the automatic extension feature.
The agreement provides for compensation continuation benefits in the event
of Mr. Eckley's death or disability. If Mr. Eckley terminates the
agreement following a change of control of the Company, for a breach of the
material provisions of the agreement or because performance of his duties
becomes hazardous to his health, he will remain entitled to the full base
compensation then in effect, as severance pay, until the expiration of the
agreement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 15, 1995 the ownership
of the Company's common stock held by (i) each person who owns of record or
who is known by the Company to own beneficially more than 5% of such stock,
(ii) each of the directors and nominees for election as directors of the
Company, (iii) each of the executive officers of the Company named in the
Summary Compensation Table below, and (iv) all of the Company's directors
and executive officers as a group. As of such date, the Company had
1,336,048 shares of common stock issued and outstanding. The number of
shares and the percentage of the class beneficially owned by the persons
named in the table and by all directors and executive officers as a group
is presented in accordance with Rule 13d-3 of the Securities and Exchange
Commission and includes, in addition to shares actually issued and
outstanding, unissued shares which are subject to issuance upon exercise of
options within 60 days. Except as otherwise indicated, the persons named
in the table have sole voting and dispositive power with respect to all
securities listed.
Number
of Shares
Beneficially Percent
Names and Addresses of Beneficial Owners Owned of Class
FMR Corp.
82 Devonshire Street
Boston, Ma 02109 . . . . . . . . . . . . 144,300 (1) 10.80%
Franklin/Templeton
Group of Funds
777 Mariners Island Blvd.
San Mateo, CA 94404 . . . . . . . . . . . 100,000 (2) 7.50%
Directors and Executive Officers (3)
Gerald B. Eckley . . . . . . . . . . . . 276,500 19.67%
Robert D. Carl, III . . . . . . . . . . . 60,000 4.47%
Robert E. Densford . . . . . . . . . . . 67,960 4.94%
William C. Hooper, Jr. . . . . . . . . . 8,000 .60%
Martin J. Freedman . . . . . . . . . . . 37,500 2.80%
James Thomas Shorney . . . . . . . . . . 5,000 .37%
Stuart Strasner. . . . . . . . . . . . . 5,000 .37%
Jesse Q. Ozbolt . . . . . . . . . . . . . 25,700 1.89%
Directors and Executive Officers as a
group (9 Persons) 509,960 33.68%
(1) FMR Corp. ("FMR") is a holding company one of whose principal assets
is the capital stock of Fidelity Management and Research Company
("Fidelity"), the investment advisor to a large number of investment
companies (the "Fidelity Funds"), including the Fidelity Low-Priced
Stock Fund, which owns the shares shown in the table. FMR, through
its control of Fidelity, and the Chairman of FMR each has sole power
to dispose of such shares. Neither FMR nor its principal
shareholder has the sole power to vote of direct the voting of such
shares, which power resides with the Fidelity Funds' Board of
Trustees. Fidelity carries out the voting of the shares under
written guidelines established by the Fidelity Funds' Board of
Trustees.
(2) Franklin Resources, Inc. ("FRI"), a holding company whose
subsidiaries include a bank, broker-dealers, and the investment
advisors to a large number of investment companies (the
"Franklin/Templeton Funds"), has reported that the above shares are
held for the benefit of the Franklin Balance Sheet Investment Fund
("FBSIF"), which has the right to receive dividends on and the
proceeds from the sale of such shares. FRI has reported that it has
the sole power to vote, and shares with Franklin Advisors, Inc. (the
investment advisor to FBSIF) the power to dispose of, such shares.
(3) 800 Rockmead, Three Kingwood Place, Suite 200, Kingwood, TX 77339 is
the address for all directors and executive officers. Actual
ownership of outstanding shares, excluding unissued shares subject
to options is as follows: Mr. Eckley - 206,500 shares, 15.46%; Mr.
Carl - 55,000 shares, 4.12%; Mr. Densford - 27,960 shares, 2.09%;
Mr. Freedman - 32,500 shares, 2.43%; Mr. Ozbolt - 3,200 shares,
.24%; all directors and executive officers as a group - 331,960
shares, 24.85%.
Board of Directors and Committees
The Company's Board of Directors held 8 Meetings in 1994. Of the
incumbent directors, none attended fewer than 75% of the aggregate number
of Meetings of the Board of Directors and the Committees on which they
serve that were held during the period that they served.
The functions of the Company's Audit Committee, currently consisting
of Messrs. Hooper, Strasner and Carl, include recommending the engagement
and discharge of the independent auditors, directing and supervising
special investigations, reviewing with the independent auditors the plan
and results of the Company's procedures for internal auditing, approving
each professional service provided by the independent auditors, considering
the range of audit and nonaudit fees and reviewing the adequacy of the
Company's system of internal accounting controls. The Audit Committee held
3 meetings in 1994.
The functions of the Company's Compensation and Options Committee,
currently consisting of Messrs. Hooper, Freedman and Shorney, are to review
and determine salaries for officers and certain key employees, to
administer the Company's 1984 incentive stock option plan, the 1991 Non-
Qualified Stock Option Plan and to review and determine the officers and
employees to whom stock options should be granted, the number of shares to
be optioned and the option price to be paid, and to review and determine
bonuses and other special awards of employee compensation and benefits.
The Compensation and Option Committee held 3 meetings in 1994.
Section 162(m) of the Internal Revenue Code generally limits the
annual corporate tax deduction for compensation paid to executive officers
named in the Summary Compensation Table below to $1 million, unless certain
requirements are met. The Compensation and Options Committee has
determined that it is not necessary to modify any currently existing
compensation arrangements or incentive plans because all compensation paid
to executive officers under existing arrangements and plans would either be
less than the deductibility limit or exempted under the transition
provisions provided in the Regulations. The Committee intends to monitor
the Company's compensation and benefit plans to insure that the Company's
corporate tax deduction is maximized without limiting the Company's
flexibility to attract and retain qualified executives to manage the
Company.
The Company currently has no executive committee or standing
nominating committee.
The Company's directors are not personally liable for monetary
damages to the Company or to its stockholders in instances in which
directors have unintentionally breached their fiduciary duty to the
Company. Thus, the Company or its stockholders do not have the right to
bring an action for damages against a director in cases involving an error
in judgement or otherwise arising from the director's failure to exercise
due care in carrying out his responsibilities as a director, unless the
director's conduct involved a breach of the director's duty of loyalty to
the Company, was not taken in good faith, provided an improper persona
benefit to the director or involved the payment of an unlawful dividend,
stock repurchase or stock redemption.
Item 12. Certain Relationships and Related Transactions
Not Applicable
Item 13. Exhibits and Reports on Form 8-K Sequential
Page No.
(a) Exhibits
(3) (a) Certificate of Incorporation of the
Company as currently in effect.
Incorporated by reference to the
Registrant's Current Report on Form 8-
K dated June 30, 1992 where the same
appeared as Exhibit 2.
(b) By-Laws of the Company as currently in
effect. Incorporated by reference to
the Registrant's Current Report on
Form 8-K, dated June 30, 1992, where
the same appeared as Exhibit 3.
(4) (a) Articles Four, Six, Seven, Fourteen,
Fifteen, Seventeen and Twenty of the
Company's Certificate of Incorporation
and Article II of the Company's By-
Laws. See 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.
(9) Not Applicable
(10) (a) Employment Agreement between
the Company and Gerald B.
Eckley, as amended May 19,
1992. Incorporated by
reference to the Predecessor's
Current Report on Form 8-K
dated May 19, 1992, where the
same appeared as Exhibit 2.
(b) Enex Employees Stock Purchase Program.
Incorporated by reference to the
Registration Statement on Form S-8 in
Registration Statement No. 33-48644
filed with the Securities and Exchange
Commission on March 22, 1993, where
the same appeared as Exhibit 4.
(c) 1991 Non-qualified Stock Option Award
Program. Incorporated by reference to
the Registration Statement on Form S-8
in Registration Statement No. 33-60086
filed with the Securities and Exchange
Commission on March 22, 1993, where
the same appeared as Exhibit 4.
(d) 1990 Non-qualified Stock Option Plan.
Incorporated by reference to the
Registration Statement on Form S-8 in
Registration Statement No. 33-60084
filed with the Securities and Exchange
Commission on March 22, 1993, where
the same appeared as Exhibit 4.
(e) 1984 Incentive Stock Option Plan and
1979 Employees Non-qualified Stock
Option Plan. Incorporated by
reference to the Registration
Statement on Form S-8 in Registration
Statement No. 2-93688 filed with the
Securities and Exchange Commission on
July 1, 1992, where the same appeared
as Exhibits 4(a) and 4(b).
(11) Statement re: computation of per share earnings
(13) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Subsidiaries of Registrant.
Incorporated by reference to Annual
Report Form 10-K filed with the
Securities and Exchange Commission on
March 16, 1992.
(23) Consent of Independent Auditor
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
(29) Not Applicable
(b) Reports on Form 8-K
No current report on Form 8-K was filed by the Company during the
last quarter of the period covered by this report.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENEX RESOURCES CORPORATION
March 17, 1995 By: /s/ G. B. Eckley
G. B. Eckley, President
In accordance with the Exchange Act, this report has been signed below
on March 17, 1995, by the following persons in the capacities indicated.
ENEX RESOURCES CORPORATION
By: /s/ G. B. Eckley President, Chief Executive
G. B. Eckley Officer and Director
/s/ R. E. Densford Vice President, Secretary,
R. E. Densford Treasurer, Chief Financial
Officer and Director
/s/ James A. Klein Controller and Chief Accounting
James A. Klein Officer
S-1
EXHIBIT 11
Enex Resources Corporation
Statement re: Computation of Per Share Earnings
For the year ended December 31, 1994
Primary Fully-diluted
Earnings per Earnings per
Share Share
Net Income $1,051,476 $1,051,476
Divided By:
Weighted average shares 1,284,409 1,284,409
Plus: Common Stock Equivalents 113,461 113,461
(for stock options - treasury stock method)
Adjusted weighted average shares 1,397,870 1,397,870
Earnings per Share $0.75 $0.75
EXHIBIT 24
Consent of Independent Auditors
Enex Resources Corporation:
We consent to the incorporation by reference of our report dated March 1,
1995, appearing in this Annual Report on Form 10-KSB of Enex Resources
Corporation for the year ended December 31, 1994 in the Enex Employee
Stock Purchase Plan filed in Registration Statement No. 33-48644 on Form
S-8 on March 22, 1993; in the 1984 Incentive Stock Option Plan and 1979
Employees Non-qualified Stock Option Plan filed in Registration Statement
No. 2-93688 on Form S-8 on July 1, 1992; in the 1990 Non-Qualified Stock
Option Plan filed in Registration Statement No. 33-60084 on Form S-8 on
March 22, 1993 and the 1991 Non-Qualified Stock Option Award Program filed
in Registration Statement No. 33-60086 on Form S-8 on March 22, 1993.
DELOITTE & TOUCHE, LLP
Houston, Texas
March 27, 1995
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