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, 1998
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. Employee
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
Transitional Small Business Disclosure Format (Check one):
Yes No x
(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 13, 1998
Common Stock, $.05 par value 1,342,541
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
--------------------- ---------------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and certificates of deposit $ 4,698,211 $ 4,244,470
Accounts receivable:
Oil and gas sales 1,129,345 1,587,400
Joint owner 146,924 144,038
Prepaid expenses & other current assets 366,012 364,382
Deferred tax asset - current portion 125,504 133,703
--------------------- ---------------------
Total current assets 6,465,996 6,473,993
--------------------- ---------------------
PROPERTY:
Oil & gas properties (Successful efforts
accounting method) Proved mineral
interests and related equipment & facilities:
Direct ownership 8,014,564 8,005,331
Derived from investment in managed
limited partnerships 11,585,518 11,906,965
Furniture, fixtures and other (at cost) 371,263 368,780
--------------------- ---------------------
Total property 19,971,345 20,281,076
--------------------- ---------------------
Less accumulated depreciation,
depletion and amortization 7,841,322 7,344,892
--------------------- ---------------------
Property, net 12,130,023 12,936,184
--------------------- ---------------------
OTHER ASSETS
Deferred tax asset 686,525 591,625
--------------------- ---------------------
TOTAL $ 19,282,544 $ 20,001,802
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------------------------
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<PAGE>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
-------------------- ---------------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 700,153 $ 878,646
COMMITMENTS AND
CONTINGENT LIABILITIES - -
--------------------- -----------------------
TOTAL LIABILITIES 700,153 878,646
--------------------- ---------------------
MINORITY INTEREST 5,544,206 5,694,983
--------------------- -----------------------
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;
1,804,912 shares issued at March 31, 1998 and
1,794,912 shares issued at December 31, 1997 90,246 89,746
Additional paid-in capital 10,807,472 10,727,972
Retained earnings 5,385,414 5,809,733
Less cost of treasury stock;
462,840 shares at March 31, 1998 and
458,040 shares at December 31, 1997 (3,244,947) (3,199,278)
--------------------- -----------------------
TOTAL STOCKHOLDERS' EQUITY 13,038,185 13,428,173
--------------------- -----------------------
TOTAL $ 19,282,544 $ 20,001,802
===================== =======================
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
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<PAGE>
ENEX RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
---------------------------------------------
March 31, March 31,
1998 1997
----------------- ---------------
REVENUES:
<S> <C> <C>
Oil and gas sales $ 2,104,602 $ 1,699,330
Gas plant sales 17,733 347,786
Gain from Sale of Property 671,923 237,518
Other revenues 9,999 25,508
----------------- ----------------
Total revenues 2,804,257 2,310,142
----------------- ----------------
EXPENSES:
General and administrative 1,416,407 416,780
Lease operating and other expenses 898,608 571,482
Gas purchases and plant operating expenses 3,997 279,940
Production taxes 100,046 102,230
Depreciation, depletion and amortization 548,028 235,893
----------------- ---------------
Total expenses 2,967,086 1,606,325
----------------- ---------------
Earnings (loss) before minority interest
and income taxes (162,829) 703,817
----------------- ---------------
MINORITY INTEREST (348,190) (184,144)
----------------- ---------------
EARNINGS (LOSS) BEFORE INCOME TAXES (511,019) 519,673
----------------- ---------------
INCOME TAX EXPENSE (CREDIT):
Deferred (86,700) 18,021
----------------- ---------------
NET INCOME (LOSS) $ (424,319) $ 501,652
================= ===============
Basic Earnings (Loss) per Share $ (0.32) $ 0.37
================= ===============
Diluted Earnings (Loss) per Share $ (0.32) $ 0.35
================= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
ENEX RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED) THREE MONTHS ENDED
-----------------------------------------------
MARCH 31, MARCH 31,
1998 1997
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (424,319) $ 501,652
------------------- ------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 548,028 235,893
(Increase) decrease in deferred tax asset (86,700) 18,021
Gain from sale of property (671,923) (237,306)
Minority interest share of net income after distributions (150,777) (118,362)
Changes in assets and liabilities:
Decrease in accounts receivable 455,169 573,841
(Increase) in prepaid expenses & other assets (1,630) (60,109)
Increase (decrease) in accounts payable (178,493) 147,381
------------------- ------------------
Net cash provided (used) by operating activities (510,645) 1,061,011
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,000,000 440,000
Property additions (69,945) (42,102)
------------------- ------------------
Net cash provided by investing activities 930,055 397,898
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (45,669) (321,963)
Proceeds from exercise of stock options 80,000 -
------------------- ------------------
Net cash provided (used) by financing activities 34,331 (321,963)
------------------- ------------------
NET INCREASE IN CASH 453,741 1,136,946
CASH AT BEGINNING OF YEAR 4,244,470 1,862,281
------------------- ------------------
CASH AT END OF QUARTER $ 4,698,211 $ 2,999,227
=================== ==================
</TABLE>
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, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation (the "Company") acquires
interests in producing oil and gas properties and sponsors and manages
investment limited partnerships. As of March 31, 1998, the Company
served as managing general partner for one partnership, Enex
Consolidated Partners, L.P., which was formed, effective June 30,
1997, from the consolidation of 34 other managed limited partnerships.
The Company has a 4.11% revenue interest as the general partner in
addition to its proportional interest as a limited partner of 55.66%.
Prior to the consolidation of the 34 partnerships into Enex
Consolidated Partners, L.P., the Company recorded its interests in all
of the partnerships except Enex Program I Partners, L.P. using the pro
rata basis of accounting. The Company's interest in Enex Program I
Partners, L.P. has been reflected as fully consolidated in the
accompanying financial statements. The Consolidation of Enex
Consolidated Partners, L.P. was recorded using the purchase accounting
method; as such, assets are recorded at their fair market value. The
Company's interest in Enex Consolidated Partners, L.P. is shown as
fully consolidated on the accompanying balance sheet as of March 31,
1998.
The interim financial information included herein is unaudited;
however, such information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of results
for the interim periods.
Income Per Common Share - The Financial Accounting Standards
Board has issued Statement of Financial Accounting Standard ("SFAS")
No. 128, Earnings Per Share ("EPS"), which establishes standards for
computing and presenting earnings per share. Earnings per share are to
be presented in two forms, basic earnings per share and diluted
earnings per share. Net income used in the computation of basic and
fully diluted earnings per share is identical. The basic earnings per
share is calculated using the weighted average number of common shares
outstanding as the denominator, and the diluted earnings per share is
calculated using the weighted number of common shares outstanding plus
all dilutive common shares, as the denominator. Common share
equivalents include common stock options. The weighted average number
of shares used to compute basic and diluted earnings per common share
was:
Basic Diluted
Quarter ended March 31, 1998 1,342,541 1,433,147
Quarter ended March 31, 1997 1,433,291 1,433,291
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<PAGE>
2. COMMITMENTS AND CONTINGENT LIABILITIES
As general partner, the Company is contingently liable for all
debts and actions of the managed limited partnership. However, in
management's opinion, the existing assets of the limited partnership
are sufficient to satisfy any such partnership indebtedness.
3. INCOME TAXES
The Company adopted Statement of Financial Standards (SFAS) No.
109, "Accounting for Income Taxes," effective January 1, 1993. In, the
first quarter of 1998, the Company recognized a deferred tax credit of
$86,700; in the first quarter of 1997, the Company recognized an
expense of $18,020.
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, 1998, are as follows:
<TABLE>
<S> <C>
Difference between tax and book net property basis $ 351,103
Difference between basis in managed limited
partnerships for financial reporting purposes and income
tax purposes 4,652,396
Intangible drilling costs which remain capitalized for
financial reporting purposes which were deducted for
federal income tax purposes (66,832)
Timing difference from lawsuit contingency (63,952)
Allowance for bad debts not yet recognized 72,940
for income tax purposes
Net operating loss carry forward (expires 2009 - 2011) 1,159,493
----------------------
Gross deferred tax asset 6,105,148
Valuation allowance (5,293,119)
----------------------
Net deferred tax asset $ 812,029
======================
</TABLE>
The valuation allowance reserves the net deferred tax asset at
March 31, 1998 was due to uncertainties inherent in the oil and gas
market. The Company estimated the amount of future tax benefit to be
received from the deferred tax asset using estimated future net
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<PAGE>
revenues and future tax expenses. The remaining amount of the
gross deferred tax asset is reserved by a valuation allowance.
4. TENDER OFFER
On March 27, 1998, Middle Bay Oil Company, Inc. ("Middle Bay")
acquired 1,064,432 shares of the common stock of Enex for $15 per
share pursuant to Middle Bay's Tender Offer which began February 19,
1998. The Enex shares acquired by Middle Bay represent 79.2% of the
total outstanding Enex common stock.
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
In the first quarter of 1998, depressed oil and gas revenues resulting from
lower oil and gas sales prices, coupled with the payment of $826,250 for former
officers' and directors' options, resulted in a net loss to Enex. The Company
reported a net loss of $424,319, or $.32 per share. In the first quarter of
1997, the Company earned net income of $501,652, or $.35 per share.
Liquidity and Capital Resources
Lower oil and gas prices in the first quarter of 1998 decreased the
Company's cash flow from operations. Cash flow used by operating activities
was a negative $510,645 in the three months of 1998 as compared with
$1,061,011 provided by operating activities in the same period of 1997.
This represents a decrease of $1,571,656.
The Company continued to purchase additional limited partnership interests
and improve oil and gas properties. In the first three months of 1998, the
Company used $69,945 to purchase interests in the Company's managed limited
partnerships and improve its oil and gas properties versus similar
expenditures of $42,102 in the first quarter of 1997. The Company also used
$45,669 to purchase 4,200 shares of treasury stock and received $80,000
from the exercise of options for 10,000 shares in the first quarter of
1998.
Working capital improved to $5,765,843 at March 31, 1998 versus $5,595,347
at December 31, 1997. At March 31, 1998, the Company's current ratio was
9.24 to one and the Company had no long-term debt.
Results of Operations
The Company reported a net loss in the first quarter of 1998 of $424,319,
or $.32 per share. This net loss is due primarily to the lower oil and gas
market prices experienced in the first quarter of 1998 coupled with the
payment of $826,250 . In the first quarter of 1997, the Company reported
net income of $501,652, or $.35 per share, which was primarily attributable
to higher prices for oil and gas sales.
Oil and gas sales were $2,104,602 in the first quarter of 1998 versus
$1,699,330 in the corresponding period of 1997. This increase of $405,272
or 24% was due to increased oil and gas production due to the recognition
of a larger minority interest as a result of the Consolidation. Oil
revenues increased by $295,658 or 42% to $994,062 in the first quarter of
1998 from $698,404 in the first quarter of 1997. A 118% increase in oil
production increased sales by $824,246. This increase was partially offset
by a 35% decrease in the average oil sales price. The increase in oil
production was primarily a result of the recognition of a larger minority
interest as a result of the Consolidation. The
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<PAGE>
decrease in the average oil sales price corresponds with lower prices in
the overall market for the sale of oil. Gas revenues increased by $109,614
or (11%). A 35% increase in gas production increased sales by $360,159.
This increase was partially offset with an 18% decrease in the average gas
sales price. The increase in gas production was primarily a result of the
recognition of a larger minority interest as a result of the Consolidation.
The decrease in the average gas price corresponds with lower prices in the
overall market for the sale of gas. Gas plant sales decreased to $17,733 in
the first quarter of 1998 from $347,786 in the first quarter of 1997. This
represents a decrease of $330,053 or 95%. This reduction in sales was due
the sale of the Dover Hennessey Gas Plant by the Enex Consolidated
Partners, L.P., which was effective January 1, 1998.
Other revenues were $681,922 and $263,026 in the first quarter of 1998 and
1997, respectively. The increase was primarily due to a $671,923 gain
recognized from the sale of the Dover Hennessey Gas Plant in the first
quarter of 1998.
General and administrative expenses were $1,416,407 in the first quarter of
1998 versus $416,780 in the first quarter of 1997. This represents an
increase of $999,627 or 240%. This increase was primarily a result of an
$826,250 payment to former officers' and directors' of the Company to pay
off all of the outstanding options of the Company. The recognition of a
larger minority interest as a result of the Consolidation also increased
general and administrative expenses of the Company.
Lease operating and other expenses were $898,608 and $571,482 in the first
quarter of 1998 and 1997 respectively. This represents an increase of
$327,126. The increase was primarily the result of the recognition of a
larger minority interest due to the Consolidation.
Depletion, depreciation and amortization expense increased from $235,893 in
the first quarter of 1997 to $548,028 in the first quarter of 1998. This
represents an increase of $312,149 or 132%. The increases in production,
noted above, increased depreciation and depletion expenses by $96,502. An
increase in the depletion rate increased depletion by an additional
$215,647. The increase in the depletion rate was primarily due to a
downward revision of the reserves during December 1997.
In the first quarter of 1998, the Company recognized an income tax credit
of $86,700 as compared to an expense of $18,021 in the first quarter of
1997. The credit was 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, 1998 the Company had a
substantial deferred tax asset of $6,105,148. Due to uncertainties inherent
in the oil and gas market, a valuation allowance reserved all but $812,029
of the net deferred tax asset.
I-9
<PAGE>
Acquisition by Middle Bay
On March 27, 1998, Middle Bay Oil Company, Inc. ("Middle Bay") acquired
1,064,432 shares of the common stock of Enex for $15 cash per share pursuant to
Middle Bay's Tender Offer which began February 19, 1998. The Enex shares
acquired by Middle Bay represent 79.2% of the total outstanding Enex common
stock. The management of Middle Bay and the Company are evaluating the Company's
properties and cost structure and will reduce costs by eliminating redundant
expenditures. Middle Bay is determining what steps will be taken to fully
consolidate the Company into Middle Bay.
Middle Bay is an independent oil and gas exploration and production company
headquartered in Houston, Texas with operations in the Gulf Coast and
Mid-Continent Regions.
.
I-10
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(2) Plan of Acquisition of the Company by Middle Bay Oil
Co., Inc. Incorporated by reference to Middle Bay Oil Co., Inc.'s
Tender Offer Statement on Schedule 14D-1, as amended with
exhibits, dated February 19, 1998.
(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, as amended Marh 17, 1998
between the Company 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 Comapny's
Current Report on Form 8-K, dated as of March 20, 1998, where the
same appeared as Exhibit 1.
(15) Not Applicable
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<PAGE>
(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 an amendment of the Form of Rights Agreement dated as of
March 17, 1998 on Form 8-K on March 20, 1998.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ENEX RESOURCES CORPORATION
(Registrant)
By: /s/ James A. Klein
James A. Klein
Secretary, Treasurer and
Chief Financial Officer
May 13, 1998 By: /s/ Larry W. Morris
Larry W. Morris
Controller and Chief
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Enex Resources Corporation Form 10-QSB)
</LEGEND>
<CIK> 0000314864
<NAME> Enex Resources Corporation
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> jan-01-1998
<PERIOD-END> mar-31-1998
<CASH> 4,698,211
<SECURITIES> 0
<RECEIVABLES> 1,276,269
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,465,996
<PP&E> 19,971,345
<DEPRECIATION> 7,841,322
<TOTAL-ASSETS> 19,282,544
<CURRENT-LIABILITIES> 700,153
<BONDS> 0
0
0
<COMMON> 10,897,718
<OTHER-SE> 2,140,467
<TOTAL-LIABILITY-AND-EQUITY> 19,282,544
<SALES> 2,122,335
<TOTAL-REVENUES> 2,804,257
<CGS> 902,275
<TOTAL-COSTS> 1,450,633
<OTHER-EXPENSES> 1,416,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (511,019)
<INCOME-TAX> (86,700)
<INCOME-CONTINUING> (424,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (424,319)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
