<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 September 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 November 12, 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>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
- ------ ------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and certificates of deposit $ 1,741,556 $ 4,244,470
Accounts receivable:
Parent Company 4,263,470 --
Oil and gas sales 866,863 1,587,400
Joint owner 29,686 144,038
Prepaid expenses and other current assets 387,047 364,382
Deferred tax asset - current portion 125,503 133,703
----------- -----------
TOTAL CURRENT ASSETS 7,414,125 6,473,993
----------- -----------
PROPERTY:
Oil and gas properties (successful efforts
accounting method) Proved mineral interest
and related equipment and facilities:
Direct ownership 3,717,542 8,005,331
Derived from investment in managed
limited partnerships 11,024,416 11,906,965
Furniture, fixtures and other (at cost) 345,919 368,780
----------- -----------
TOTAL PROPERTY 15,087,877 20,281,076
Less accumulated depreciation,
depletion and amortization 4,851,006 7,344,892
----------- -----------
PROPERTY, NET 10,236,871 12,936,184
----------- -----------
OTHER ASSETS:
Deferred tax asset 686,525 591,625
----------- -----------
TOTAL $18,337,521 $20,001,802
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 3
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ------------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 545,449 $ 878,646
------------ ------------
TOTAL CURRENT LIABILITIES 545,449 878,646
------------ ------------
COMMITMENTS AND
CONTINGENT LIABILITIES -- --
------------ ------------
TOTAL LIABILITIES 545,449 878,646
------------ ------------
MINORITY INTEREST 4,757,945 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 September 30, 1998
and at December 31, 1997 90,246 89,746
Additional paid-in capital 10,807,472 10,727,972
Retained earnings 5,381,356 5,809,733
Less cost of treasury stock;
462,840 shares at September 30, 1998 and
458,040 shares at December 31, 1997 (3,244,947) (3,199,278)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,034,127 13,428,173
------------ ------------
TOTAL $ 18,337,521 $ 20,001,802
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
ENEX RESOURCES CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) QUARTER ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 1,612,787 $ 2,867,931 $ 5,594,756 $ 6,059,965
Gas plant sales 0 187,731 17,733 747,630
Gain from Sale of Property 648,555 1,089,644 --
Other income 2,623 255,256 11,213 543,632
Interest income 63,702 -- 67,334 --
----------- ----------- ----------- -----------
TOTAL REVENUES 2,327,667 3,310,918 6,780,680 7,351,227
----------- ----------- ----------- -----------
EXPENSES:
General and administrative 295,595 396,853 2,072,919 1,087,407
Lease operating and other expenses 981,365 1,141,603 2,870,182 2,310,381
Gas purchases and plant operating expenses 50,666 172,406 58,832 593,843
Production taxes 86,304 162,087 291,246 343,419
Depreciation, depletion and amortization 497,353 455,383 1,587,690 884,433
----------- ----------- ----------- -----------
Total expenses 1,911,283 2,328,332 6,880,869 5,219,483
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES 416,384 982,586 (100,189) 2,131,744
----------- ----------- ----------- -----------
MINORITY INTEREST (161,531) (515,557) (414,888) (711,816)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 254,853 467,029 (515,077) 1,419,928
INCOME TAX EXPENSE (CREDIT):
Deferred -- (38,871) (86,700) (57,452)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 254,853 $ 505,900 $ (428,377) $ 1,477,380
=========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ 0.19 $ 0.28 $ (0.32) $ 1.10
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.26 $ 0.23 $ (0.32) $ 0.89
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
ENEX RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED) NINE MONTHS ENDED
---------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (428,377) $ 1,477,380
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 1,587,690 884,433
Gain on sale of property (1,089,644) (244,333)
(Increase) decrease in deferred tax asset (86,700) (51,606)
Minority interest share of net income after distributions (862,580) (260,580)
CHANGES IN ASSETS AND LIABILITIES:
(Increase) in accounts receivable-Parent (4,263,470) --
Decrease in accounts receivable 834,889 1,234,591
(Increase) in prepaid expenses & other assets (22,665) (88,129)
(Decrease) in accounts payable (333,197) (597,928)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES (4,664,054) 2,353,828
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 2,440,850 447,027
Property additions (314,041) (235,846)
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,126,809 211,181
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (45,669) (643,508)
Payment of cash dividend -- (196,748)
Proceeds from exercise of stock options 80,000 398,750
----------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES 34,331 (441,506)
----------- -----------
NET INCREASE (DECREASE) IN CASH (2,502,914) 2,123,503
CASH AT BEGINNING OF YEAR 4,244,470 1,862,281
----------- -----------
CASH AT END OF PERIOD $ 1,741,556 $ 3,985,784
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 6
ENEX RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 September
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 dilative 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:
<TABLE>
<CAPTION>
Basic Diluted
--------- ---------
<S> <C> <C>
Quarter ended September 30, 1998 1,342,671 1,456,289
Quarter ended September 30, 1997 1,373,586 1,689,634
Nine months ended September 30, 1998 1,342,671 1,342,671
Nine months ended September 30, 1997 1,344,452 1,660,500
</TABLE>
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<PAGE> 7
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 September
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 $5,381,150
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.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
In the first nine months of 1998, lower oil and gas sale prices depressed oil
and gas revenues. The Company reported a net loss of $428,377 or $.32 per share.
In the first nine months of 1997 the Company earned net income of $1,477,380 or
$1.10 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities decreased to a negative $4,664,054 in the
first nine months of 1998 as compared to $2,353,828 in the first nine months of
1997. This represents a decrease of $7,017,882. The primary reason for this
decrease was an advance to the Parent Company (Middle Bay) in the amount of
$4,263,470, coupled with overall lower oil and gas prices in the first nine
months of 1998.
The Company continued to purchase additional limited partnership interests and
improve oil and gas properties. In the first nine months of 1998, the Company
used $94,478 to purchase interests in the Company's managed limited partnership.
Working capital improved to $6,868,676 at September 30, 1998 versus $5,595,347
at December 31, 1997. At September 30, 1998, the Company's current ratio was
14:1 and the Company had no long-term debt.
RESULTS OF OPERATIONS
The Company reported net income in the third quarter of 1998 of $254,853, or
$.19 per share. This was primarily due to a $648,555 gain on the sale of
property. In the third quarter of 1997 the Company reported net income of
$505,900, or $.28 per share, which was primarily attributable to higher prices
for oil and gas sales.
Oil and gas sales were $1,612,787 in the third quarter of 1998 versus $2,867,931
in the corresponding period of 1997. This decrease of $1,255,144 or 44% was due
primarily to the depressed conditions in the oil and gas markets. Oil revenues
decreased to $812,381 from $1,565,766 in the third quarter of 1997. This is a
decrease of $753,385 or 48%. A 24% decrease in oil production decreased sales by
$371,860. A 32% decrease in the average oil sales price decreased oil sales by
an additional $381,525. The decrease in oil production was primarily a result of
reduced demand during this period of lower oil prices. The decrease in the
average oil sales price corresponds with lower prices in the overall market for
the sale of oil. Gas revenues decreased to $800,406 in the third quarter of 1998
from $1,302,165 in the third quarter of 1997. This is a decrease of $501,759 or
39%. A 32% decrease in gas production decreased sales by $409,689. An 11%
decrease in gas sales price decreased gas revenue by an additional $92,070. The
decrease in gas production was primarily a result of reduced demand due to the
market conditions for the sale of gas. The decrease in the average gas sales
price corresponds with lower prices in the overall market for the sale of gas.
There were no Gas plant sales for the third 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.
I-7
<PAGE> 9
Other revenues were $651,178 in the third quarter of 1998 verses $255,256 in the
third quarter of 1997. The increase was primarily due to a $648,555 gain on the
sale of properties effective September 1, 1998.
General and administrative expenses were $295,595 in the third quarter of 1998
versus $396,853 in the third quarter of 1997. This represents a decrease of
$101,258 or 26%. This decrease was primarily a result of the Consolidation of
Enex Consolidated Partners, LP.
Lease operating and other expenses were $981,365 and $1,141,603 in the third
quarter of 1998 and 1997 respectively. This represents a decrease of $160,238 or
14%. The decrease was primarily the result of the sale of the Lake Decade and
Mcbride acquisitions in 1997, and the decrease in production noted above.
Depletion, depreciation and amortization expense increased from $455,383 in the
third quarter of 1997 to $497,353 in the third quarter of 1998. This represents
an increase of $41,970 or 9%. The decreases in production, noted above,
decreased depreciation and depletion expenses by $158,994. This was offset by an
increase in the depletion rate, which increased depletion by $200,964. The
increase in the depletion rate was primarily due to a downward revision of the
reserves at December 31, 1997.
In the first nine months oil and gas sales were $5,594,756 in 1998 verses
$6,059,965 in 1997. This represents a decrease of $465,209 or 8%. Oil sales were
$2,656,349 and $2,967,912 in 1998 and 1997 respectively. This represents a
decrease of $311,563 or 11%. A 34% increase in oil production increased oil
sales by $1,004,812. This was offset by a 33% decrease in the average oil sales
price which decreased oil sales by $1,316,375. Gas sales were $2,938,407 in 1998
verses $3,092,053 in 1997. This represents a decrease of $153,646 or 5%. A 3%
increase in gas production increased gas sales by $96,782. This was offset by an
8% decrease in the average gas sales pricewhich reduced gas sales by $250,428.
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
nine months of 1998 verses $747,630 in the first nine 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 nine months of 1998 were $1,100,857 verses $543,632
in 1997. The increase is primarily due to a $1,089,644 gain from the sale of
properties in 1998.
General and administrative expenses were $2,072,919 in the first nine months of
1998 verses $1,087,407 in the first nine months of 1997. This increase was
primarily a result of $826,250 in stock options exercised, for the sale of the
Company in March 1998.
Lease operating expenses in the first nine months of 1998 were $2,270,182 verses
$2,310,381 in the first nine months of 1997. This represents an increase of
$559,801 or 24%. This increase was primarily a result of the recognition of a
larger minority interest as a result of the Consolidation.
Depreciation, depreciation and amortization expense increased from $884,433 in
the first nine months of 1998 to $1,587,690 in the first nine months of 1998.
This represents an increase of $703,257 or 80%. The increase in production noted
above increased expense by $12,921. An increase in the depletion rate increased
expense by an additional $690,336. This increase was primarily due to a
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<PAGE> 10
downward revision of the reserves at December 31, 1997.
FUTURE OUTLOOK
In February 1998, Middle Bay Oil Company, Inc., an independent oil and gas
producer, ("Middle Bay") 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.
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. A special meeting of the
stockholders of Enex was held on August 20, 1998. At the
meeting, Middle Bay declared to complete the proposed merger and entered into a
merger termination agreement with the Company due to changed market conditions.
We continue to evaluate potential joint ventures or business combinations in
order to maximize shareholder value.
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<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
(19) Not Applicable
II-1
<PAGE> 12
(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 September 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
November 12, 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 OF ENEX RESOURCES CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,741,556
<SECURITIES> 0
<RECEIVABLES> 4,263,470
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,414,125
<PP&E> 15,087,877
<DEPRECIATION> 4,851,006
<TOTAL-ASSETS> 18,337,521
<CURRENT-LIABILITIES> 545,449
<BONDS> 0
0
0
<COMMON> 90,246
<OTHER-SE> 13,034,127
<TOTAL-LIABILITY-AND-EQUITY> 18,337,521
<SALES> 0
<TOTAL-REVENUES> 6,780,680
<CGS> 2,870,182
<TOTAL-COSTS> 6,880,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (515,077)
<INCOME-TAX> (86,700)
<INCOME-CONTINUING> (428,377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (428,377)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
