United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from...............to...............
Commission file number 0-9378
ENEX RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 93-0747806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 200, Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)
Issuer's telephone number (713) 358-8401
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes x No
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at May 10, 1996
Common Stock, $.05 par value 1,374,156
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
- ------
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and certificates of deposit $ 178,862 $ 806,196
Accounts receivable:
Managed limited partnerships 763,260 756,741
Oil and gas sales 769,531 684,609
Joint owner 171,567 325,816
Receivable from property sales - 123,202
Other accounts receivable 1,293,437 1,298,698
Notes receivable from managed limited
partnerships 20,039 29,523
Federal income tax receivable 98,614 98,614
Prepaid expenses & other current assets 425,481 505,206
Deferred tax asset - current portion 109,706 112,174
------------ -------------
Total current assets 3,830,497 4,740,779
------------ -------------
PROPERTY:
Oil& gas properties (Successful efforts
accounting method) Proved mineral
interests and related equipment & facilities:
Direct ownership 7,219,786 8,134,074
Derived from investment in managed
limited partnerships 5,869,775 6,707,824
Furniture, fixtures and other (at cost) 342,835 341,507
------------ -------------
Total property 13,432,396 15,183,405
------------ -------------
Less accumulated depreciation,
depletion and amortization 6,851,998 5,602,987
------------ -------------
Property, net 6,580,398 9,580,418
------------ -------------
OTHER ASSETS
Receivable from managed limited
partnerships for start-up costs 1,770,496 2,171,636
Deferred tax asset 565,326 536,256
Deferred organization expenses and other 6,894 8,233
------------ -------------
Total other assets 2,342,716 2,716,125
------------ -------------
TOTAL $12,753,611 $ 17,037,322
============ =============
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------------------------
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<PAGE>
<TABLE>
<CAPTION>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
- ------------------------------------
--------------- --------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 246,650 $ 725,110
Current portion of long-term debt 145,000 850,000
--------------- -------------
Total current liabilities 391,650 1,575,110
--------------- -------------
COMMITMENTS AND
CONTINGENT LIABILITIES
--------------- -------------
TOTAL LIABILITIES 391,650 1,575,110
--------------- ------------
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;
1,676,342 shares issued at March 31, 1996 and
1,642,859 shares issued at December 31, 1995 83,817 82,143
Additional paid-in capital 10,077,611 9,944,967
Retained earnings 3,741,159 7,041,773
Less cost of treasury stock;
302,186 shares at March 31, 1996 and
315,136 shares at December 31, 1995 (1,540,626) (1,606,671)
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 12,361,961 15,462,212
--------------- -------------
TOTAL $ 12,753,611 $ 17,037,322
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
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<PAGE>
ENEX RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
March 31, March 31,
1996 1995
----------------- ------------
REVENUES:
Oil and gas sales $ 1,303,677 $ 1,300,516
Gas plant sales 113,235 93,553
Other revenues 60,049 24,920
Interest income 6,820 15,370
----------------- ------------
Total revenues 1,483,781 1,434,359
----------------- ------------
EXPENSES:
General and administrative 360,818 281,462
Lease operating and other expenses 492,211 454,314
Gas purchases and plant operating expenses 85,149 67,381
Production taxes 73,054 82,487
Depreciation, depletion and amortization 207,559 392,634
Impairment of assets 3,581,603 -
Interest expense 10,603 51,524
----------------- ------------
Total expenses 4,810,997 1,329,802
----------------- ------------
Earnings(loss) before other income
and income taxes (3,327,216) 104,557
----------------- ------------
INCOME TAX CREDIT:
Deferred (26,602) (71,884)
----------------- ------------
NET INCOME(LOSS) $ (3,300,614) $ 176,441
================= ============
PRIMARY EARNINGS(LOSS)PER SHARE $ (2.30) $ 0.13
================= ============
FULLY DILUTED EARNINGS(LOSS)PER SHARE $ (2.30) $ 0.13
================= ============
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------------------------
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<PAGE>
ENEX RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED) THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ------------ ----------
Net income (loss) $ (3,300,614) $ 176,441
Adjustments to reconcile net income(loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 207,559 392,634
Impairment of assets 3,581,603 -
Increase in deferred tax asset (26,602) (71,884)
Noncash expense from stock purchase plan 100,363 201,000
Gain from sale of property (54,416) -
---------- --------
507,893 698,191
---------- --------
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 368,155 (199,933)
(Increase) in prepaid expenses & other assets (148,148) (42,433)
(Decrease) in accounts payable (518,964) (613,756)
---------- --------
Net cash provided (used) by operating activities 208,936 (157,931)
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 69,051 -
Property additions (309,805) (316,993)
Receipt of payment on notes receivable from
managed limited partnerships 9,484 24,954
---------- --------
Net cash used by investing activities (231,270) (292,039)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - 260,000
Repayment of long-term debt (705,000) (100,000)
Proceeds from exercise of stock options 100,000 39,000
---------- --------
Net cash provided (used) by financing activities (605,000) 199,000
---------- --------
NET (DECREASE) IN CASH (627,334) (250,970)
CASH AT BEGINNING OF YEAR 806,196 642,659
---------- --------
CASH AT END OF QUARTER $ 178,862 $ 391,689
========== ========
See accompanying notes to financial statements.
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<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation (the "Company") acquires interests in
producing oil and gas properties and sponsors and manages investment
limited partnerships. At March 31, 1996, the Company served as managing
general partner for the 41 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 $156 million, at cost, of proved oil
and gas properties in which the Company generally has a 10% interest as
the general partner in addition to its proportional interest as a limited
partner of approximately 4% to 53%. Accumulated depreciation and depletion
for such oil and gas properties at March 31, 1996 was $141 million.
The interim financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of results for the interim periods.
Income Per Share - Primary and fully diluted earnings per share are based
on the weighted average number of common shares outstanding and common
stock equivalents outstanding during the respective periods. The weighted
average number of shares used to compute primary and fully diluted
earnings per common share was:
Primary Fully Diluted
------------------ -------------------
Quarter ended March 31, 1996 1,432,922 1,832,922
Quarter ended March 31, 1995 1,386,864 1,386,864
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<PAGE>
2. DEBT
The long-term debt at March 31, 1996 consists of a $145,000 loan from a
bank under a $2.8 million revolving line of credit collateralized by
substantially all of the assets of the Company. The bank loan proceeds
were primarily utilized to purchase producing oil and gas properties and
additional interests in managed limited partnerships. The bank loan bears
interest at a rate of prime plus three-quarters of one percent (3/4%) or
an average rate of 9.00% and 9.29% in the first quarter of 1995 and 1994,
respectively. Principal payments of $705,000 and $100,000 were made in the
first quarter of 1996 and 1995, respectively. The debt was completely
repaid in May, 1996.
3. COMMITMENTS AND CONTINGENT LIABILITIES
As general partner, the Company is contingently liable for all debts and
actions of the managed limited partnerships. However, in management's
opinion, the existing assets of the limited partnerships are sufficient to
satisfy any such partnership indebtedness.
4. NOTES RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
On December 29, 1994, in order to partially finance the purchase of a
property acquisition, a managed limited partnership borrowed a net $60,572
from the Company. The resulting note receivable bears interest at the
Company's borrowing rate of prime plus three-fourths of one percent, or a
weighted average 9.00% and 9.75% in the first quarter of 1996 and 1995,
respectively. Principal payments of $9,484 and $24,954 were received on
the note receivable in the first quarter of 1996 and 1995, respectively.
5. IMPAIRMENT OF ASSETS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires certain assets to be reviewed for impairment whenever events or
circumstances indicate the carrying amount may not be recoverable. This
standard requires the evaluation of oil and gas assets on an individual
property basis versus a company-wide basis which would not have resulted
in a write-down. In the first quarter of 1996, the Company recognized a
non-cash impairment provision of $3,581,603 for certain oil and gas
properties and other assets due to market indications that the carrying
amounts were not fully recoverable.
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<PAGE>
6. INCOME TAXES
The Company recognized a deferred tax credit of $26,602 and $71,884 in the
first quarter of 1996 and 1995, respectively.
Deferred income taxes reflect the net tax of temporary differences between
the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
significant items comprising the Company's net deferred tax asset as of
March 31, 1996, are as follows:
Difference between tax and book net property
basis $ 432,729
Difference between basis in managed limited
partnerships for financial reporting purposes
and income tax purposes 4,308,259
Intangible drilling costs which remain
capitalized for financial reporting purposes
which were deducted for federal income tax (77,928)
purposes
Timing difference from lawsuit contingency (50,683)
Other, net 61,999
Net operating loss carryforward (expires 2009) 602,248
-----------------
Deferred tax asset 5,276,624
Valuation allowance (4,601,592)
-----------------
Net deferred tax asset $ 675,032
=================
The valuation allowance reserves the net deferred tax asset at March 31, 1996,
due to uncertainties inherent in the oil and gas market.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
In the first quarter of 1996, higher oil and gas prices increased oil and gas
revenues and earnings. A noncash write-down of the Company's assets in
accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," resulting in
a loss for the first quarter of 1996. Excluding this charge, net income was
$280,989 or $.20 per share in the first quarter of 1996 as compared to $176,441
or $.13 per share in the first quarter of 1995.
Liquidity and Capital Resources
The higher oil and gas prices in the first quarter of 1996 increased the
Company's cash flow from operations. Cash flow from operations increased to
$208,936 in the first quarter of 1996 as compared with $157,931 used by
operations in the same period of 1995. This represents an increase of $366,867.
The higher cash flow was primarily the result of a $368,155 decrease in accounts
receivable in the first quarter of 1996 as compared to a $199,933 increase in
accounts receivable in 1995. The Company lowered accounts payable by $548,964
and $613,756 in the first quarter of 1996 and 1995, respectively. To this cash
flow from operations, net payments received on notes receivable from managed
limited partnerships added $9,484 and $24,954 in the first quarter of 1996 and
1995, respectively. Proceeds from the exercise of stock options added $100,000
and $39,000, in the first quarter of 1996 and 1995, respectively, while net
borrowings against a bank line of credit added $160,000 in 1995.
In the first quarter of 1996, the Company utilized its cash flow to repay the
bank loan and purchase additional reserves and limited partnership interests.
The Company repaid $705,000 of the bank loan in the first quarter of 1996. The
remaining $145,000 debt was repaid in May, 1996. A total of $309,805 was used
for the improvement of proved oil and gas properties and acquisition of limited
partnership interests. The Company utilized the funds to purchase partnership
interests and drill wells in the Schlensker and Dent acquisitions.
In the first quarter of 1995, the Company utilized its cash flow to purchase
additional reserves and limited partnership interests. A total of $316,993 was
used for the acquisition and improvement of proved oil and gas reserves. The
Company utilized the funds to purchase partnership interests, drill wells on the
FEC, O' Neil and A&W acquisitions, participate in a waterflood expansion program
at Shafter Lake and recomplete wells in the McBride and Florida acquisitions.
Working capital was $3,161,579 at March 31, 1996 as compared to $3,165,669 at
December 31, 1995. At March 31, 1996, the Company's current ratio was 9.07 to
one and its debt to equity ratio was 1%, as total debt was $145,000.
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<PAGE>
Results of Operations
The Company reported a net loss in the first quarter of 1996 of $3,300,614, or
$2.30 per share. This includes a $3,581,603 nonrecurring charge due to SFAS 121.
Excluding this charge, net income was $280,989 or $.20 as compared to $176,441,
or $.13 per share, in the first quarter of 1995. The increase in net income in
1996 was primarily attributable to higher prices for oil and gas.
Oil and gas sales were $1,303,677 in the first quarter of 1996 versus $1,300,516
in the corresponding period of 1995. This increase of $3,161 was due primarily
to higher oil and gas prices in 1995, partially offset by lower oil and gas
production. Gas revenues increased by $47,404 or 8% from $570,595 in the first
quarter of 1995 to $617,999 in the first quarter of 1996. This increase was
primarily a result of a 31% increase in average gas prices, which increased gas
revenues by $145,567. The price increase was partially offset by a 17% decrease
in gas production. The increase in gas prices corresponds with changes in the
overall market for the sale of gas. The decrease in gas production was primarily
due to natural production declines.
Oil revenues decreased by $44,243, or 6%, from $729,921 in the first quarter of
1995 to $685,678 in the first quarter of 1995. A 17% decrease in oil production
reduced sales by $122,248. This decrease was partially offset by a 13% increase
in average oil prices. The decrease in oil production was primarily due to
natural production declines. The increase in average oil prices corresponds with
higher prices in the overall market for the sale of oil.
Gas plant sales increased by $19,682 or 21% from $93,553 in the first quarter of
1995 to $113,235 in the first quarter of 1996. A 21% increase in the average
sales price of gas plant product increased sales by $19,633. A slight increase
in the production of gas plant products increased sales by an additional $49.
The increase in the average sales price of gas plant products corresponds with
higher prices in the overall market for the sale of gas plant products.
Other revenues were $60,049 and $24,920 in the first quarter of 1996 and 1995,
respectively. This increase of $35,129 was primarily due to gains from sales of
properties of $54,416 in the first quarter of 1996.
General and administrative expenses were $281,462 in the first quarter of 1995
versus $360,818 in the corresponding period in 1996. The increase of $79,356 was
primarily a result of the Company retaining a larger portion of the general and
administrative expenses allocated to its managed limited partnerships.
Lease operating and other expenses increased from $454,314 in the first quarter
of 1995 to $492,211 in the first quarter of 1996. The increase of $37,897 or 8%
was primarily a result of workover expenses incurred on the McBride and Florida
acquisitions.
Depletion, depreciation and amortization ("DD&A") expense decreased from
$392,634 in the first quarter of 1995 to $207,559 in the first quarter of 1996.
This represents a decrease of $185,075 or 47%. A 41% decrease in the depletion
rate reduced DD&A expense by $142,311. The changes in production, noted above,
reduced DD&A expense by an additional $42,764. The
I-9
<PAGE>
decrease in the depletion rate was primarily due to the lower property basis
resulting from the recognition of a $3,581,603 impairment during the first
quarter of 1996.
In the first quarter of 1996, the Company incurred $3,783 of net interest
expense as compared to $36,154 in the first quarter of 1995. The decrease in net
interest expense is a result of the repayment of the bank debt during 1995 and
the first quarter of 1996.
In the first three months of 1996, the Company recorded an income tax credit of
$26,602 as compared to a credit of $71,884 in the first quarter of 1995. The
credits are primarily a result of the Company's continued utilization of its
deferred tax asset which resulted from the acquisition of properties with a
higher tax basis. At March 31, 1996, the Company had a substantial net deferred
tax asset of $5,276,624. Due to uncertainties inherent in the oil and gas
market, a valuation allowance reserved all but $675,032 of the net deferred tax
asset.
Future Outlook
Higher prices for oil and gas in the first quarter of 1996, increased net income
and allowed the Company to completely repay its bank loan in May 1996. Enex has
positioned itself to take advantage of business favorable business
opportunities.
We continue to evaluate potential joint ventures or business combinations in
order to maximize shareholder value. Cash flow will be used to reduce debt and
acquire additional producing properties. The Company has evaluated several
drilling locations for further development. While the Company has no other
material commitments for capital, a line of credit is maintained which allows
the Company to respond to acquisition and investment opportunities.
I-10
<PAGE>
PART II. OTHER INFORMATION
Item 1Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(2) Not Applicable
(4) (a) Articles Fourth, Sixth, Seventh, Fourteenth,
Fifteenth, Seventeenth and Twentieth of the Company's
Certificate of Incorporation and Article II of the
Company's By-Laws. Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1992, where the same appeared as
part of Exhibits 3(a) and 3(b).
(b) Form of Rights Agreement dated as of September 4, 1990 between the
Company's predecessor-in-interest, Enex Resources Corporation, a
Colorado corporation (the"Predecessor") and American Securities
Transfer, Incorporated as Rights Agent, which includes as exhibits
thereto the Form of Rights Certificate and the Summary of Rights to
Purchase Common Stock. Incorporated by reference to the Predecessor's
Current Report on Form 8-K, dated as of September 4, 1990, where the
same appeared as Exhibit 4.
(11) Not Applicable
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<PAGE>
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
March 31, 1996.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENEX RESOURCES CORPORATION
--------------------------
(Registrant)
By: /s/ R. E. Densford
------------------
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
May 11, 1996 By: /s/ James A. Klein
-------------------
James A. Klein
Controller and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000314864
<NAME> ENEX RESOURCES CORPORAION
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> mar-31-1996
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