<PAGE> 1
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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. Employer
incorporation or organization) Identification No.)
Suite 200, Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices)
Issuer's telephone number (281) 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.
<TABLE>
<CAPTION>
Class Outstanding at August 11, 1998
----- ------------------------------
<S> <C>
Common Stock, $.05 par value 1,342,671
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
ASSETS 1998 1997
- ------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and certificates of deposit $ 1,415,625 $ 4,244,470
Accounts receivable:
Parent Company 3,000,000 --
Oil and gas sales 1,033,441 1,587,400
Joint owner 32,618 144,038
Prepaid expenses and other current assets 374,317 364,382
Deferred tax asset - current portion 125,505 133,703
----------- -----------
TOTAL CURRENT ASSETS 5,981,506 6,473,993
----------- -----------
PROPERTY:
Oiland gas properties (successful efforts
accounting method) Proved mineral
interests and related equipment and facilities:
Direct ownership 6,108,677 8,005,331
Derived from investment in managed
limited partnerships 11,449,630 11,906,965
Furniture, fixtures and other (at cost) 343,622 368,780
----------- -----------
TOTAL PROPERTY 17,901,929 20,281,076
Less accumulated depreciation,
depletion and amortization 6,514,664 7,344,892
----------- -----------
PROPERTY, NET 11,387,265 12,936,184
----------- -----------
OTHER ASSETS:
Deferred tax asset 686,525 591,625
----------- -----------
TOTAL $18,055,296 $20,001,802
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
I-1
<PAGE> 3
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 312,989 $ 878,646
------------ ------------
TOTAL CURRENT LIABILITIES 312,989 878,646
------------ ------------
COMMITMENTS AND
CONTINGENT LIABILITIES -- --
------------ ------------
TOTAL LIABILITIES 312,989 878,646
------------ ------------
MINORITY INTEREST 4,963,033 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 June 30, 1998
and at December 31, 1997 90,246 89,746
Additional paid-in capital 10,807,472 10,727,972
Retained earnings 5,126,503 5,809,733
Less cost of treasury stock;
462,840 shares at June 30, 1998 and
458,040 shares at December 31, 1997 (3,244,947) (3,199,278)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 12,779,274 13,428,173
------------ ------------
TOTAL $ 18,055,296 $ 20,001,802
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
I-2
<PAGE> 4
ENEX RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED) QUARTER ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, June 30, JUNE 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 1,877,367 $ 1,492,704 $ 3,981,969 $ 3,192,034
Gas plant sales 0 212,113 17,733 559,899
Gain from Sale of Property (230,834) -- 441,089 --
Other income (1,409) 25,350 8,590 288,376
Interest income 3,632 -- 3,632 --
----------- ----------- ----------- -----------
TOTAL REVENUES 1,648,756 1,730,167 4,453,013 4,040,309
----------- ----------- ----------- -----------
EXPENSES:
General and administrative 360,917 273,774 1,777,324 690,554
Lease operating and other expenses 990,209 597,296 1,888,817 1,168,778
Gas purchases and plant operating expenses 4,169 141,497 8,166 421,437
Production taxes 104,896 79,102 204,942 181,332
Depreciation, depletion and amortization 542,309 193,157 1,090,337 429,050
----------- ----------- ----------- -----------
Total expenses 2,002,500 1,284,826 4,969,586 2,891,151
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST
AND INCOME TAXES (353,744) 445,341 (516,573) 1,149,158
----------- ----------- ----------- -----------
MINORITY INTEREST 94,833 (12,115) (253,357) (196,259)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (258,911) 433,226 (769,930) 952,899
INCOME TAX EXPENSE (CREDIT):
Deferred 0 (36,602) (86,700) (18,581)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (258,911) $ 469,828 $ (683,230) $ 971,480
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ (0.19) $ 0.36 $ (0.51) $ 0.73
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ (0.19) $ 0.35 $ (0.51) $ 0.72
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
I-3
<PAGE> 5
ENEX RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED) SIX MONTHS ENDED
---------------------------
JUNE, 30 June 30,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (683,230) $ 971,480
----------- -----------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, depletion and amortization 1,090,337 429,050
Gain on sale of property (441,089) (243,246)
(Increase) decrease in deferred tax asset (86,702) (18,581)
Minority interest share of net income after distributions (662,346) (263,829)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) in accounts receivable-Parent (3,000,000) --
Decrease in accounts receivable 665,379 1,520,248
(Increase) in prepaid expenses & other assets (9,935) (80,132)
(Decrease) in accounts payable (565,657) (486,409)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES (3,693,243) 1,828,581
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,053,000 445,940
Property additions (222,933) (125,804)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 830,067 320,136
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (45,669) (457,575)
Proceeds from exercise of stock options 80,000 --
----------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES 34,331 (457,575)
----------- -----------
NET INCREASE (DECREASE) IN CASH (2,828,845) 1,691,142
CASH AT BEGINNING OF YEAR 4,244,470 1,862,281
----------- -----------
CASH AT END OF PERIOD $ 1,415,625 $ 3,553,423
=========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
I-4
<PAGE> 6
ENEX RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE SIC MONTHS ENDED JUNE 30, 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 June 30, 1998, the Company served as
managing general partner for Enex Consolidated Partners, L.P. Enex
Consolidated Partners, L.P. 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 56.2%.
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; 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 June 30,
1998.
The interim financial information included herein is unaudited;
however, such information reflects all adjustments (except for the
impairment of assets, discussed in note 5, all such adjustments were
normal recurring 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
are 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:
I-5
<PAGE> 7
<TABLE>
<CAPTION>
Basic Diluted
--------- ---------
<S> <C> <C>
Quarter ended June 30, 1998 1,342,671 1,342,671
Quarter ended June 30, 1997 1,317,951 1,337,413
Six months ended June 30, 1998 1,342,601 1,342,601
Six months ended June 30, 1997 1,330,702 1,341,001
</TABLE>
2. 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 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. At June 30,
1998, the company estimates it had gross deferred tax assets of
approximately $6,193,178. Due to the uncertainties in the oil and gas
market, the Company has applied a valuation allowance of $5,381,148
against the gross deferred tax asset. The Company estimated the amount
of future tax benefit to be received from the deferred tax asset using
estimated future net revenues and future tax expenses. The remaining
amount of the gross deferred tax asset is reserved by a valuation
allowance.
4. COMPANY SALE
In February 1998, Middle Bay Oil Company, Inc.(Middle Bay), an
independent oil and gas producer, announced a tender offer for all of
the outstanding shares of Enex Resources Corporation, (the Company).
The tender offer was accepted by a majority of Enex shareholders and
was completed on March 27, 1998, whereas; Enex became a subsidiary of
Middle Bay Oil Company.
5. SUBSEQUENT EVENT
On July 17, 1998, the Securities and Exchange Commission declared
effective a registration statement filed under the Securities Act of
1933 for the merger of Enex Resources Corporation into Middle Bay Oil
Company. A special meeting of the stockholders of Middle Bay Oil
Company will be held on August 20, 1998. Middle Bay intends to issue
common stock for the remaining shares of the Company that is not
currently owned.
I-6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In the first six months of 1998, lower oil and gas sale prices depressed oil and
gas revenues. The Company reported a net loss of $683,230 or $.51 per share. In
the first six months of 1997 the Company earned net income of $971,480 or $.73
per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities decreased to a negative $3,693,243 in the
first six months of 1998 as compared to $1,828,581 in the first six months of
1997. This represents a decrease of $5,521,824. The primary reason for this
decrease was an advance to the Parent Company (Middle Bay) in the amount of
$3,000,000, coupled with overall lower oil and gas prices in the first six
months of 1998.
The Company continued to purchase additional limited partnership interests and
improve oil and gas properties. In the first six months of 1998, the Company
used $89,624 to purchase interests in the Company's managed limited partnership.
Working capital improved to $5,668,517 at June 30, 1998 versus $5,595,347 at
December 31, 1997. At June 30, 1998, the Company's current ratio was 19:1 and
the Company had no long-term debt.
RESULTS OF OPERATIONS
The Company reported a net loss in the second quarter of 1998 of $258,911, or
$.19 per share. This period net loss is due primarily to the lower oil and gas
prices. In the second quarter of 1997 the Company reported net income of
$469,828, or $.36 per share, which was primarily attributable to higher prices
for oil and gas sales.
Oil and gas sales were $1,877,367 in the second quarter of 1998 versus
$1,492,704 in the corresponding period of 1997. This increase of $384,663 or 26%
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 to
$849,906 from $703,742 in the second quarter of 1997. This is an increase of
$146,164 or 21%. A 94% increase in oil production increased sales by $661,382.
This increase was offset by a 38% 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 decrease in the average
oil sales price corresponds with lower prices in the overall market for the sale
of oil. Gas revenues increased to $1,027,461 in the second quarter of 1998 from
$788,962 in the second quarter of 1997. This is an increase of $238,499 or 30%.
A 29% increase in gas production increased sales by $227,743. A 1% increase in
gas sales price increased gas revenue by an additional $10,756. The increase in
gas production was primarily a result of the recognition of a larger minority
interest as a result of the Consolidation. The increase in the average gas price
was due primarily to higher volume sales from properties with higher gas sales
prices for the period.
I-7
<PAGE> 9
There were no Gas plant sales for the second quarter of 1997 primarily due to
the sale of the Dover Hennessey Gas Plant by the Enex Consolidated Partners,
L.P., which was effective January 1, 1998.
Other revenues were negative $232,243 in the second quarter of 1998 verses
$25,350 in the second quarter of 1997. The decrease was primarily due to a $
167,302 loss recognized from the sale of the Corkscrew acquisition which was
effective June 1, 1998.
General and administrative expenses were $360,917 in the second quarter of 1998
versus $273,774 in the second quarter of 1997. This represents an increase of
$87,143 or 32%. This increase was primarily a result of the recognition of a
larger minority interest as a result of the Consolidation.
Lease operating and other expenses were $990,209 and $597,296 in the second
quarter of 1998 and 1997 respectively. This represents an increase of $392,913
or 66%. The increases were primarily the result of the recognition of a larger
minority interest due to the Consolidation.
Depletion, depreciation and amortization expense increased from $193,157 in the
second quarter of 1997 to $542,309 in the second quarter of 1998. This
represents an increase of $349,152 or 181%. The increases in production, noted
above, increased depreciation and depletion expenses by $137,317. An increase in
the depletion rate increased depletion by an additional $211,835. The increase
in the depletion rate was primarily due to a downward revision of the reserves
at December 31, 1997.
In the first six months oil and gas sales were $3,981,969 in 1998 verses
$3,192,034 in 1997. This represents an increase of $247,769 or 7%. Oil sales
were $1,843,968 and $1,402,146 in 1998 and 1997 respectively. This represents an
increase of $441,822 or 32%. A 105% increase in oil production increased oil
sales by $1,469,880. This was offset by a 10% decrease in the average oil sales
price. The increase in oil and 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 oil and gas sales price corresponds with lower prices in
the overall market for the sale of oil and gas. Gas plant sales were $17,733 in
the first six months of 1998 verses $559,899 in the first six months of 1997.
This decease was primarily due to the sale of the Dover Hennessey Gas Plant by
the Enex Consolidated Partners, L.P., which was effective January 1, 1998.
Other revenues in the first six months of 1998 were $449,679 verses $288,376 in
1997. The increase is primarily due to the sale of the Dover Hennessey Gas Plant
by the Enex Consolidated Partners, L.P., which was effective January 1, 1998.
General and administrative expenses were $1,777,324 in the first six months of
1998 verses $690,554 in the first six months of 1997. This increase was
primarily a result of the recognition of a larger minority interest as a result
of the Consolidation.
Lease operating expenses in the first six months of 1998 were $1,888,817 verses
$1,168,778 in the first six months of 1997. This represents an increase of
$720,039 or 62%. This increase was primarily a result of the recognition of a
larger minority interest as a result of the Consolidation.
I-8
<PAGE> 10
Depreciation, depreciation and amortization expense increased from $429,050 in
the first six months of 1998 to $1,090,337 in the first six months of 1998. This
represents an increase of $661,301 or 154%. The increase in production noted
above increased expense by $150,919. An increase in the depletion rate increased
expense by an additional $510,382. This increase was primarily a result of the
recognition of a larger minority interest as a result of the Consolidation.
FUTURE OUTLOOK
In February 1998, Middle Bay Oil Company, Inc., an independent oil and gas
producer, announced a tender offer for all of the outstanding shares of Enex
Resources Corporation, (the Company). The tender offer was accepted by a
majority of Enex shareholders and was completed on March 27, 1998, whereas; Enex
became a subsidiary of Middle Bay Oil Company.
On July 17, 1998, the Securities and Exchange Commission declared effective a
registration statement filed under the Securities Act of 1933 for the merger of
Enex Resources Corporation into Middle Bay Oil Company. A special meeting of the
stockholders of Middle Bay Oil Company will be held on August 20, 1998. Middle
Bay intends to issue common stock for the remaining shares of the Company that
is not currently owned.
The completion of the consolidation of thirty-four partnerships and the merger
of the Company into Middle Bay will simplified the Company's structure and will
allow the Company to further reduce overhead charges. We continue to evaluate
potential joint ventures or business combinations in order to maximize
shareholder value.
I-9
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(2) Not Applicable
(4) (a) Articles Fourth, Sixth, Seventh, Fourteenth, Fifteenth,
Seventeenth and Twentieth of the Company's Certificate
of Incorporation and Article II of the Company's
By-Laws. Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1992, where the same appeared as part of
Exhibits 3(a) and 3(b).
(b) Form of Rights Agreement dated as of September 4, 1990
between the Company's predecessor-in-interest, Enex
Resources Corporation, a Colorado corporation
(the"Predecessor") and American Securities Transfer,
Incorporated as Rights Agent, which includes as
exhibits thereto the Form of Rights Certificate and the
Summary of Rights to Purchase Common Stock.
Incorporated by reference to the Predecessor's Current
Report on Form 8-K, dated as of September 4, 1990,
where the same appeared as Exhibit 4.
(15) Not Applicable
(18) Not Applicable
II-1
<PAGE> 12
(19) Not Applicable
(20) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(27) Financial Data Schedule (for SEC use only)
(28) Not Applicable
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter
ended June 30, 1998.
II-2
<PAGE> 13
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/ Frank C. Turner II
--------------------------
Frank C. Turner II
Vice President, Chief
Financial Officer
August 11, 1998 By: /s/ Larry W. Morris
--------------------------
Larry W. Morris
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS - BALANCE SHEETS AT JUNE 30, 1998 (UNAUDITED) AND THE
STATEMENTS OF OPERATIONS AT JUNE 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,415,625
<SECURITIES> 0
<RECEIVABLES> 4,066,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,981,506
<PP&E> 17,901,929
<DEPRECIATION> (6,514,664)
<TOTAL-ASSETS> 18,055,296
<CURRENT-LIABILITIES> 312,989
<BONDS> 0
0
0
<COMMON> 90,246
<OTHER-SE> 12,689,028
<TOTAL-LIABILITY-AND-EQUITY> 18,055,296
<SALES> 3,999,702
<TOTAL-REVENUES> 4,453,013
<CGS> 1,896,983
<TOTAL-COSTS> 4,969,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (769,930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (769,930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (683,230)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
