<PAGE>
U.S. 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, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______ to _______
Commission File No. 0-9378
ENEX RESOURCES CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 93-0747806
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1221 LAMAR STREET, SUITE 1020
HOUSTON, TX 77010
(Address of principal executive offices)
(713) 759-6808
(Issuer's telephone number)
N/A
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of Exchange Act during the preceding 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 [ ]
Number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Common stock, $.05 par value
1,342,672 shares as of June 30, 1999
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE>
ENEX RESOURCES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets)-
June 30, 1999 (Unaudited) and December 31, 1998 ............... 1
Consolidated Statements of Operations (Unaudited)
Three and six months ended June 30, 1999 and 1998 ................ 3
Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1999 and 1998 .......................... 4
Notes to Consolidated Financial Statements (Unaudited)............... 5
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations...... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 17
</TABLE>
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------
JUNE 30,
1999 DECEMBER 31,
ASSETS UNAUDITED 1998
- ------ --------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 33,649
Accounts receivable:
Oil and gas sales 183,638 250,763
Joint owners 31,514 29,926
Prepaid expenses and other current assets 20,182 20,182
--------------- ------------------
Total current assets 235,334 334,520
--------------- ------------------
PROPERTY:
Oil and gas properties (successful efforts method) 3,651,983 3,662,353
Furniture, fixtures and other (at cost) 345,919 345,919
--------------- ------------------
3,997,902 4,008,272
Less accumulated depreciation,
depletion and amortization 3,157,550 3,101,968
--------------- ------------------
Net property 840,352 906,304
--------------- ------------------
OTHER ASSETS:
Preferred Stock-Middle Bay 6,467,610 6,467,610
Note receivable-Middle Bay 5,538,102 5,147,548
Deferred tax asset 133,273 199,879
--------------- ------------------
Total other assets 12,138,985 11,815,037
TOTAL ASSETS $ 13,214,671 $ 13,055,861
--------------- ------------------
--------------- ------------------
See accompanying notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------
JUNE 30,
1999 DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY UNAUDITED 1998
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 242,030 $ 212,514
----------------- -----------------
Total current liabilities 242,030 212,514
----------------- -----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized;
none issued - -
Common stock, $.05 par value;
10,000,000 shares authorized;
1,804,912 shares issued and outstanding at
June 30, 1999 and December 31, 1998 90,246 90,246
Additional paid-in capital 10,807,472 10,807,472
Retained earnings 5,319,870 5,190,576
Less Cost of treasury stock:
462,240 shares at June 30, 1999 and December 31, 1998 (3,244,947) (3,244,947)
----------------- -----------------
Total stockholders' equity 12,972,641 12,843,347
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,214,671 $ 13,055,861
----------------- -----------------
----------------- -----------------
See accompanying notes to consolidated financial statements.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
- -----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
- ----------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1999 1998 1999 1998
-------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 288,434 $ 1,877,367 $ 478,129 $ 3,981,969
Gas plant sales - - - 17,733
Gain (loss) on sale of assets 1,170 (230,834) 1,170 441,089
Preferred stock dividends 161,690 - 323,380 -
Interest income 94,223 3,632 189,898 3,632
Other income (expense) (16,131) (1,409) 10,616 8,590
-------------- ---------------- -------------- --------------
Total revenues 529,386 1,648,756 1,003,193 4,453,013
-------------- ---------------- -------------- --------------
COSTS AND EXPENSES:
General and administrative 117,227 360,917 313,341 1,777,324
Lease operating and other 242,017 990,209 393,539 1,888,817
Gas purchases and plant operating - 4,169 - 8,166
Production taxes 16,268 104,896 28,444 204,942
Depreciation, depletion and amortization 42,557 542,309 70,582 1,090,337
Interest expense 314 - 1,386 -
-------------- ---------------- -------------- --------------
Total costs and expenses 418,383 2,002,500 807,292 4,969,586
-------------- ---------------- -------------- --------------
Income (loss) before minority interest and income taxes 111,003 (353,744) 195,901 (516,573)
MINORITY INTEREST - 94,833 - (253,357)
-------------- ---------------- -------------- --------------
Income (loss) before income taxes 111,003 (258,911) 195,901 (769,930)
INCOME TAX EXPENSE (BENEFIT) 69,966 - 66,606 (86,700)
-------------- ---------------- -------------- --------------
NET INCOME (LOSS) $ 41,037 $ (258,911) $ 129,295 $ (683,230)
-------------- ---------------- -------------- --------------
-------------- ---------------- -------------- --------------
NET INCOME (LOSS) PER SHARE
Basic Income (loss) per Share $ 0.03 $ (0.19) $ 0.10 $ (0.51)
-------------- ---------------- -------------- --------------
-------------- ---------------- -------------- --------------
Diluted Income (loss) per Share $ 0.03 $ (0.19) $ 0.10 $ (0.51)
-------------- ---------------- -------------- --------------
-------------- ---------------- -------------- --------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 1,342,672 1,342,672 1,342,672 1,342,601
-------------- ---------------- -------------- --------------
-------------- ---------------- -------------- --------------
Diluted 1,342,672 1,342,672 1,342,672 1,342,601
-------------- ---------------- -------------- --------------
-------------- ---------------- -------------- --------------
See accompanying notes to consolidated financial statements.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
- -----------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 129,295 $ (683,230)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation, depletion and amortization 70,582 1,090,337
Deferred income tax benefit 66,606 (86,702)
Gain on sale of properties (1,170) (441,089)
Minority interest - 253,357
Changes in operating assets and liabilities:
Increase in note receivable - Middle Bay (390,554) (3,000,000)
Decrease in accounts receivable 65,537 665,379
Increase in prepaid expenses and other assets - (9,935)
Increase (decrease) in accounts payable 29,516 (565,657)
-------------- --------------
Net cash used by operating activities (30,188) (2,777,540)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of properties 1,170 1,053,000
Property additions (4,631) (222,933)
-------------- --------------
Net cash provided (used) by investing activities (3,461) 830,067
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock - (45,669)
Proceeds from exercise of stock options - 80,000
Partnership distributions - (915,703)
-------------- --------------
Net cash used by financing activities - (881,372)
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (33,649) (2,828,845)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,649 4,244,470
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 1,415,625
-------------- --------------
-------------- --------------
See accompanying notes to consolidated financial statements.
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Enex Resources Corporation (the Company) was incorporated under the
laws of the state of Colorado on August 17, 1979. On June 30, 1992, the
Company reincorporated in Delaware. Effective March 27, 1998, Middle Bay Oil
Company, Inc. ("Middle Bay") acquired 79.2% of the common stock of the
Company. Subsequently, Middle Bay increased its ownership to 80% of the
common stock of the Company. Effective October 1, 1998, the Company sold all
of its partnership units in Enex Consolidated Partners, L.P. (the
"Consolidated Partnership"), a limited partnership of which the Company owned
greater than a 50% interest, to Middle Bay. The Company is engaged in the
acquisition, development and production of oil and natural gas in the
contiguous United States. The Company considers its business to be a single
operating segment.
The Consolidated Partnership was formed from thirty-four managed
limited partnerships effective June 30, 1997 (the "Consolidation") The
Company had a 4.1% carried revenue interest as general partner in addition to
its proportional interest as a limited partner of approximately 56.2%.
BASIS OF PRESENTATION
In management's opinion, the accompanying consolidated financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the consolidated financial position
of the Company as of June 30, 1999 and December 31, 1998 and the consolidated
results of operations and consolidated cash flows for the periods ended June
30, 1999 and 1998.
The consolidated financial statements were prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. An
independent accountant has not audited the accompanying consolidated
financial statements. Certain information and disclosures normally included
in annual audited financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. These consolidated financial statements should be
read in conjunction with the Company's financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
5
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PRINCIPLES OF CONSOLIDATION
Subsequent to September 30, 1998, the consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiary, Enex Securities Corporation. Prior to October 1, 1998 the
consolidated financial statements of the Company also included the accounts
of the Consolidated Partnership. All significant intercompany balances and
transactions have been eliminated in consolidation.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted earnings per
share reflects dilution from all potential common shares, including options,
warrants and convertible preferred stock. For the three-month periods ending
June 30, 1999 and 1998 and the six-month period ending June 30, 1999 there
were no common stock equivalents outstanding. For the six-month period ending
June 30, 1998 there was a weighted-average of 22,517 common stock equivalents
excluded from the calculation of basic earnings per share due to the loss
recorded for the period.
(2) CONSOLIDATED PARTNERSHIP DIVESTITURE AND RECEIPT OF MIDDLE BAY
PREFERRED STOCK
On December 29, 1998, the Company sold all of its units of the
Consolidated Partnership to Middle Bay. The sale consisted of an exchange
offer (the "Exchange Offer") whereby the Company exchanged each Consolidated
Partnership unit for 2.086 shares of Middle Bay Series C Preferred Stock
("Middle Bay Preferred Stock"). In connection with the Exchange Offer, a
proposal was submitted to the limited partners in the Consolidated
Partnership to amend the partnership agreement to provide for the transfer of
all of the assets and liabilities of the Consolidated Partnership to Middle
Bay as of October 1, 1998 and dissolve the Consolidated Partnership. The
Exchange Offer was approved on December 29, 1998 and 2,177,481 shares of
Middle Bay Preferred Stock were issued for 100% of the outstanding limited
partner units.
6
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(2) CONSOLIDATED PARTNERSHIP DIVESTITURE AND RECEIPT OF MIDDLE BAY
PREFERRED STOCK (continued)
The Company was issued 1,293,522 shares of Middle Bay Preferred Stock for its
limited partner ownership in the Consolidated Partnership.
As a holder of Middle Bay Preferred Stock the Company is entitled to
receive cumulative cash dividends in an amount per share of $0.50 per year
(10% annual rate), payable semi-annually on March 31 and September 30 of each
year. These dividends are payable in preference to and prior to the payment
of any dividend or distribution to any holder of Middle Bay common stock or
other junior security. Dividends on the Middle Bay Preferred Stock began to
accrue on December 30, 1998. Middle Bay's primary bank has granted Middle Bay
a waiver allowing it to pay the dividends on the Middle Bay Preferred Stock
as long as no default or event of default exists or would exist as a result
of any dividend payment. The Middle Bay Preferred Stock has a liquidation
preference of $5.00 per share plus an amount equal to all accumulated,
accrued and unpaid dividends. The liquidation preference of the Middle Bay
Preferred Stock ranks on parity with Middle Bay's Series B Preferred Stock
outstanding. As of June 30, 1999, Middle Bay had no other preferred stock
outstanding.
All of the preferred dividends attributable to the Company's
ownership of the Middle Bay Preferred Stock are accrued on the financial
statement and are part of the note receivable from Middle Bay (See the
"Related Party Transactions" footnote for further information on the note
receivable from Middle Bay). As of June 30, 1999, the Company had accrued
$323,380 in dividends on the Middle Bay Preferred Stock.
Each share of Middle Bay Preferred Stock is convertible into one
share of Middle Bay common stock. On or after January 1, 2000, Middle Bay may
redeem all or a portion of the Middle Bay Preferred Stock, at its option, at
a purchase price of $5.00 per share, plus an amount equal to all accumulated,
accrued and unpaid dividends.
The Middle Bay Preferred Stock is generally nonvoting; however,
holders are entitled to vote on any amendment, alteration or appeal of any
provision of Middle Bay's Articles of Incorporation which would adversely
affect any holder's rights and preferences.
7
<PAGE>
NEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(2) CONSOLIDATED PARTNERSHIP DIVESTITURE AND RECEIPT OF MIDDLE BAY
PREFERRED STOCK (continued)
The following pro forma data presents the results of the Company for
the six months ended June 30, 1998 as if the divestiture of the Consolidated
Partnership had occurred on January 1, 1998. The pro forma results are
presented for comparative purposes only and are not necessarily indicative of
the results which would have been obtained had the divestiture been
consummated as presented. Dollars are presented in thousands, except for per
share amounts.
<TABLE>
<CAPTION>
ProForma
(Unaudited)
Six Months Ended
June 30, 1998
-----------------
<S> <C>
Total revenues excluding dividend income $ 684
Preferred dividend income 323
Net loss available to stockholders (748)
Net loss per share to stockholders (0.56)
</TABLE>
(3) MIDDLE BAY TENDER OFFER
On March 27, 1998, Middle Bay purchased 1,064,432 of the outstanding
common shares of the Company for $15,966,480. Middle Bay purchased the common
shares through a cash tender offer that commenced February 19, 1998. Over the
three-week period ended December 23, 1998, Middle Bay acquired an additional
9,747 shares (approximately 0.80%) of the outstanding common shares of the
Company.
8
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(4) RELATED PARTY TRANSACTIONS
The Company has a note receivable from Middle Bay, an owner of 80%
of the outstanding common stock of the Company, as of June 30, 1999 of
$5,538,000. The principal balance of the note accrues interest at the prime
rate and is due on demand. The principal balance of the unsecured note
consists of advances to Middle Bay for general corporate purposes, accrued
preferred stock dividends on the Middle Bay Preferred Stock and accrued
interest. Interest of $417,000 was accrued on the note as of June 30, 1999.
Middle Bay financed its tender offer with cash provided by Compass
Bank and Bank of Oklahoma (the "Banks"). The debt proceeds used to finance
the tender offer, approximately $15.9 million, was shown on the balance sheet
of Middle Bay. Pursuant to the terms of the credit agreement between Middle
Bay, the Company and the Banks, the Banks hold a security interest in certain
oil and gas properties of the Company. If certain properties are sold by the
Company an amount determined by the Banks would have to be paid on the
outstanding principal balance of the debt. The debt payment could be made by
Middle Bay or the Company. Amounts paid to the Banks by the Company would
reduce the amount of sales proceeds the Company would retain. If the debt
payment to the Banks was paid by Middle Bay, the amount of cash available to
be paid to the Company by Middle Bay for any outstanding obligations would be
reduced. The principal balance of debt outstanding on Middle Bay's financial
statements at June 30, 1999 was approximately $28.5 million.
Middle Bay allocates certain general and administrative expenses to
the Company based on the ratio of the Company's total oil and gas revenues to
Middle Bay's total oil and gas revenues. The amount of expenses allocated by
Middle Bay to the Company for the six months ended June 30, 1999 was
approximately $68,000.
All of the officers and directors of the Company also serve as the
officers and directors of Middle Bay.
(5) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in various legal proceedings which are
considered routine litigation incidental to the Company's business, the
disposition of which management believes will not have a material effect on
the financial position or results of operations of the Company.
9
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(6) SUBSEQUENT EVENTS
On July 1, 1999, Middle Bay entered into an agreement with another
party to issue $10.7 million in convertible debt and 4,755,556 shares
of common stock and 3,600,000 warrants to purchase common stock for
$10.7 million.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net cash flow used by operating activities was approximately $30,000 for the
current period compared to approximately $2,777,000 for the comparable period.
The divestiture of the Consolidated Partnership as of October 1, 1998 and the
acquisition of the company by Middle Bay caused the more significant effects on
cash flow comparability between the periods. The divestiture of the Consolidated
Partnership reduced the cash flow from oil and gas properties and the
consolidation of corporate overheads with Middle Bay decreased the general and
administration expenses for the Company and increased the cash flow from
operations. In addition, a decrease in cash advances to Middle Bay in the
current period increased cash flow.
Cash additions to oil and gas properties were lower than the comparable
period due primarily to the divestiture of the Consolidated Partnership and
minimal activity by the Company. The Company made no distributions to the
limited partners of the Consolidated Partnership in the current period due to
the divestiture effective October 1, 1998.
The Company had current assets of $235,000 and current liabilities of
$242,000, which resulted in working capital deficit of $7,000 as of June 30,
1999. This was a decrease in working capital of $129,000 from the working
capital of $122,000 as of December 31, 1998. Working capital decreased primarily
due to a decrease in accounts receivable from oil and gas sales and an increase
in accounts payable.
FUTURE CAPITAL REQUIREMENTS
The Company does not anticipate any capital expenditures for acquisition or
exploration of oil and natural gas reserves in the future. The Company expects
to make expenditures to develop its proved undeveloped reserves, to maintain its
proved developed reserves and to plug and abandon certain wells in Florida. The
Company expects to incur a minimum of $150,000 in capital expenditures over the
next twelve months. The Company expects that cash flows from operations,
proceeds from sales of certain oil and gas properties and advances from Middle
Bay will be sufficient to fund the planned capital expenditures for the next
twelve months.
Because future cash flows are subject to a number of variables, such
as the level of production and prices received for oil and gas and the prices
received on property sales, there can be no assurance that the Company's capital
resources will be sufficient to maintain planned levels of capital expenditures
and accordingly, oil and gas revenues and operating results may be adversely
affected.
11
<PAGE>
YEAR 2000 COMPLIANCE
Readers are cautioned that the forward-looking statements contained in the
following Year 2000 discussion should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements." The disclosures also
constitute a "Year 2000 Readiness Disclosure" and "Year 2000 Statement" within
the meaning of the Year 2000 Information and Readiness Disclosure Act of 1998.
STATEMENT OF READINESS
The Company has undertaken various initiatives to ensure that its hardware,
software and equipment will function properly with respect to dates before and
after January 1, 2000. For this purpose, the phrase "hardware, software and
equipment" includes systems that are commonly thought of as Information
Technology systems ("IT"), as well as those Non-Information Technology systems
("Non-IT") and equipment which include embedded technology. IT systems include
computer hardware and software and other related systems. Non-IT systems include
certain oil and gas production and field equipment, gathering systems, office
equipment, telephone systems, security systems and other miscellaneous systems.
The Non-IT systems present the greatest readiness challenge since identification
of embedded technology is difficult and because the Company is, to a great
extent, reliant on third parties for Non-IT compliance.
The Company has formed a Year 2000 ("Y2K") Project team, which is chaired by its
Chief Financial Officer, Frank C. Turner, II. The team includes corporate staff
and representatives from the Company's business units. In response to the
possible risks posed to the Company, the team has developed a Y2K Plan (the
"Plan") which includes guidelines for inventory, assessment, remediation,
testing and contingency planning.
The following categories represent the mission-critical operational systems of
the Company. A "mission-critical system" is a system that is vital to the
successful continuation of a core business activity. An application may be
mission critical if it interfaces with a designated mission-critical system.
Each system has been evaluated by the Company as to (a) the risks to the Company
in the event of the most reasonably likely worst case scenario (the "Worst Case
Scenario"); (b) the status of the Company's remediation plan, if any ("Status");
and (c) the Company's contingency plans, if any ("Contingency Plans").
ACCOUNTING SOFTWARE SYSTEMS. The Company relies solely on the software
accounting packages ("Accounting Packages") to provide management with various
reports that allow managers to determine the cash flow and profitability of
individual properties and of the Company as a whole. Management also relies on
the Accounting Packages to provide financial information necessary to prepare
quarterly and annual financial reports that are sent to the Securities and
Exchange Commission, NASDAQ Stock Market, banks and stockholders. In addition,
the Company relies on the Accounting Packages to process and print checks to be
sent to working and royalty
12
<PAGE>
interest owners for their share of the monthly oil and gas sales, to process
and print checks for payment to vendors and to process and print monthly
joint-interest statements to be sent to working interest owners in
Company-operated oil and gas properties. Under a Worst Case Scenario, all
accounting functions would have to be completed manually, significantly
hindering the Company's ability to complete the above-described
mission-critical systems.
Status: The Company has updated its accounting systems. Testing
was completed on June 30, 1999 and all primary functions
utilizing dates functioned properly.
Contingency Plans: Based on the results of the independent testing of
the Accounting Software System, the Y2K Team believes the
risk of the Accounting Software System being adversely
affected by Y2K is remote. If the Accounting Software
System is adversely affected by Y2K, the Company has
developed various contingency plans which include the
utilization of support personnel and the performance of
manual tasks.
CONTROL SYSTEMS AND IMBEDDED TECHNOLOGY. These systems include the
equipment used to produce, monitor, control, sell and record hydrocarbon
production, including all artificial lift equipment, storage, measurement and
control facilities and third-party systems and technology interrelated to the
Company's business. Under a Worst Case Scenario, multiple fields of oil and gas
would lose the ability to account for the amount of hydrocarbon production,
temporarily shutting down the field(s) for an extended period of time until the
malfunctioning part(s) could be repaired or replaced which would adversely
affect the Company.
Status: The Company operates the Segundo and Muldoon fields that
are expected to account for approximately 75% of the
Company's cash flow for the year ending December 31, 1999.
These field's production operations are not affected by
Y2K issues.
Contingency Plans: The Company will continue to monitor the operations at its
field locations and develop contingency planning if an
exposure becomes apparent.
THIRD-PARTY SYSTEMS - OIL AND GAS PURCHASERS. The Company utilizes
third-party purchasers to sell the oil and gas produced from the wells in which
it has a working or royalty interest. The Company also depends on third-party
purchasers to remit to the Company its share of the proceeds from the sales of
oil and gas. The Company does not directly sell any oil and gas produced from
the wells in which it has a working or royalty interest and does not take any
oil or gas in kind as an alternative to cash payment. Under a Worst Case
Scenario, multiple major purchasers would be temporarily shut down due to Y2K
issues, materially adversely effecting the Company's revenues.
Status: The Company has two purchasers, Cerrito Gathering Co. and
Conoco, which are expected to account for approximately
75% of its oil and gas revenues for the year ending
December 31, 1999. The Company has
13
<PAGE>
obtained information about these two purchasers and their
Y2K readiness. These purchasers have Y2K Plans and are
expected to have all of their non-compliant, mission-
critical systems Y2K compliant by September 30, 1999.
Contingency Plans: The Company continues to monitor the Y2K status of its
major purchasers. Should a purchaser not become Y2K
compliant, the Company will identify alternative
purchasers for its production and, if necessary,
temporarily shut-in production.
THIRD-PARTY SYSTEMS - BANKING. The Company relies on its banks to
deposit checks payable to the Company and credit the checks to the appropriate
accounts. The Company also relies on its banks to credit third-party accounts
for payment. A Worst Case Scenario would occur if the Company's principal bank
is unable to provide certain services for an extended period of time due to Y2K,
causing the Company to be materially adversely affected.
Status: The Company's principal bank currently has a formal Y2K
Plan in effect and has substantially remediated and tested
all of its non-compliant, in-house and vendor-supported
mission-critical systems as of June 30, 1999.
Contingency Plans: The Company intends to have cash on hand sufficient to
cover short-term emergency payments and payroll. The
Company also plans to open accounts with other
institutions in the event its principal bank is unable to
rectify its problems in a timely manner. The Company has
no long-term contingency plans in the event of a
system-wide failure of banking institutions.
THIRD-PARTY SYSTEMS - SUPPORT FUNCTIONS. The primary material support
functions provided by third parties are electrical service, communication
service and office space. Under a Worst Case Scenario, all primary support
functions would be hindered in the short term.
Status: All vendors of these services have reported that formal
Y2K remediation plans are in effect and will be
substantially complete by September 30, 1999.
Contingency Plans: Short-term (less than two weeks) interruptions of services
will not materially adversely effect the Company. The
Company will be able to conduct business on a reduced
scale using alternative business methods. Longer-term
interruptions may materially adversely effect the Company.
The Company has no plans sufficient to fully offset the
effect of long-term interruptions.
COMPUTER OPERATING SYSTEMS AND APPLICATION SOFTWARE SYSTEMS. The
Company relies solely on its personal computer systems to access the accounting
software package through the Company's computer network. In addition, certain
schedules and databases that are used for critical
14
<PAGE>
functions rely on spreadsheet and work-processing applications that are run
on the Company's personal computer systems.
Status: All systems appear to be Y2K ready.
Contingency Plans: Operations could be performed manually until
non-functioning equipment or software is repaired or
replaced
COSTS OF Y2K COMPLIANCE
The costs incurred by the Company to implement the Plan were not material to the
Company's financial condition or results of operations. The Company does not
expect any future costs related to the Plan to be material to the Company's
financial condition or results of operations.
The Risks of Y2K Issues
The Company presently believes that Y2K issues will not pose significant
operational problems. However, if all significant Y2K issues are not properly
identified or assessed, remediation and testing are not effected timely, the Y2K
issues, either individually or in combination, may materially and adversely
impact the Company's results of operations, liquidity and financial condition or
materially and adversely affect its relationships with its business partners.
Additionally, the misrepresentation of compliance by other entities or the
persistent, universal failure of financial, transportation or other economic
systems will likely have a material and adverse impact on the Company's
operations or financial condition for which it cannot adequately prepare.
MIDDLE BAY OIL COMPANY, INC. SECURITIES PURCHASE AGREEMENT
On July 1, 1999, Middle Bay entered into an agreement with another party
to issue $10.7 million in convertible debt and 4,755,556 shares of common stock
and 3,600,000 warrants to purchase common stock for $10.7 million.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
For the comparable period, the results of operations included the
results of operations of the Consolidated Partnership. The Company's entire
interest in the Consolidated Partnership was sold to Middle Bay, effective
October 1, 1998. Because of the sale, the results of operations of the
Consolidated Partnership are not included in the accounts of the Company
subsequent to the October 1.
For the current period, income before minority interest and taxes of
$111,000 increased $465,000 from a loss before minority interest and taxes of
$354,000 in the comparable period. The income before minority interest and taxes
increased because of a decrease in a loss on sale of assets and a reduction in
all expense categories and an increase in income from preferred
15
<PAGE>
stock dividends and interest income which were significantly offset by a
decrease in income from oil and gas operations.
The Company's oil and gas revenues, operating expenses, production taxes
and depletion, depreciation and amortization for the current period decreased
from the comparable period because of the divestiture of the Consolidated
Partnership.
During the current period, the Company sold 7,000 barrels of oil at an
average price of $11.77 per barrel and 101,000 Mcf of gas at an average price of
$2.09 per Mcf.
The preferred stock dividend income in the current period represents the
dividend accrued on the Middle Bay Preferred Stock owned by the Company. The
interest income in the current period represents interest accrued on the loans
to Middle Bay.
During the current period, the Company incurred approximately $120,000
of plugging and abandonment expense related to certain wells in Florida. This
expense is included in lease operating and other expenses.
General and administrative expenses ("G&A") decreased because of the
consolidation of the Company's general and administrative functions with those
of Middle Bay. Subsequent to the March 27, 1998 tender offer by Middle Bay, the
Company began to consolidate it operations with Middle Bay. As of October 1,
1998, substantially all of the employees of the Company had resigned and the
Company headquarters were vacated. As of June 30, 1999, the Company had no
permanent or temporary employees. Substantially all of the general and
administrative functions for the current period were performed by Middle Bay
employees at a cost substantially less than was previously incurred by the
Company. Middle Bay allocates certain general and administrative expenses to the
Company based on the ratio of the Company's total oil and gas revenues to Middle
Bay's total oil and gas revenues. The amount of expenses allocated by Middle Bay
to the Company for the current period was approximately $40,000.
The net income for the current period of $41,000 increased $300,000 from
the net loss of $259,000 in the comparable period. The increase in net income
was caused primarily by an increase in net income before minority interest.
Because of the divestiture of the Consolidated Partnership, the Company no
longer records a minority interest related to the interest in the Consolidated
Partnership that it did not own. In the comparable period, the Company recorded
a minority interest for the 44% of the Consolidated Partnership that it did not
own.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
For the comparable period, the results of operations included the
results of operations of the Consolidated Partnership. The Company's entire
interest in the Consolidated Partnership was sold to Middle Bay, effective
October 1, 1998. Because of the sale, the results of operations of the
16
<PAGE>
Consolidated Partnership are not included in the accounts of the Company
subsequent to the October 1.
For the current period, income before minority interest and taxes of
$196,000 increased $713,000 from a loss before minority interest and taxes of
$517,000 in the comparable period. The income before minority interest and taxes
increased because of a reduction in all expense categories and an increase in
income from preferred stock dividends and interest which were substantially
offset by a decrease in income from oil and gas operations and gain on sale of
assets.
The Company's oil and gas revenues, operating expenses, production taxes
and depletion, depreciation and amortization for the current period decreased
from the comparable period because of the divestiture of the Consolidated
Partnership.
During the current period, the Company sold 11,000 barrels of oil at an
average price of $11.51 per barrel and 186,000 Mcf of gas at an average price of
$1.90 per Mcf.
The preferred stock dividend income in the current period represents the
dividend accrued on the Middle Bay Preferred Stock owned by the Company. The
interest income in the current period represents interest accrued on the loans
to Middle Bay.
During the current period, the Company incurred approximately $169,000
of plugging and abandonment expense related to certain wells in Florida. This
expense is included in lease operating and other expenses.
General and administrative expenses ("G&A") decreased because of the
consolidation of the Company's general and administrative functions with those
of Middle Bay. Subsequent to the March 27, 1998 tender offer by Middle Bay, the
Company began to consolidate it operations with Middle Bay. As of October 1,
1998, substantially all of the employees of the Company had resigned and the
Company headquarters were vacated. As of June 30, 1999, the Company had no
permanent or temporary employees. Substantially all of the general and
administrative functions for the current period were performed by Middle Bay
employees at a cost substantially less than was previously incurred by the
Company. Middle Bay allocates certain general and administrative expenses to the
Company based on the ratio of the Company's total oil and gas revenues to Middle
Bay's total oil and gas revenues. The amount of expenses allocated by Middle Bay
to the Company for the current period was approximately $68,000.
The net income for the current period of $129,000 increased $812,000
from the net loss of $683,000 in the comparable period. The increase in net
income was caused by an increase in net income before minority interest and a
decrease in the minority interest deduction offset partially by a decrease in
the deferred tax benefit. Because of the divestiture of the Consolidated
Partnership, the Company no longer records a minority interest related to the
interest in the Consolidated Partnership that it did not own. In the comparable
period, the Company recorded a minority interest for the 44% of the Consolidated
Partnership that it did not own.
17
<PAGE>
FORWARD LOOKING STATEMENTS
The Company may make forward looking statements, oral or written,
including statements in this report, press releases and other filings with the
SEC, relating to the Company's drilling plans, capital expenditures, the ability
of expected sources of liquidity to support working capital and capital
expenditure requirements, and the Company's financial position, business
strategy and other plans and objectives for future operations. Such statements
involve risks and uncertainties, including those relating to the volatility of
oil and gas prices, capital requirements of the Company's business and other
factors detailed in filings with the SEC. All subsequent oral and written
forward looking statements attributable to the Company are expressly qualified
in their entirety by these factors. The Company assumes no obligation to update
these statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits filed with this report
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ENEX RESOURCES CORPORATION
(Registrant)
Date: August 19, 1999 By: /s/ Frank C. Turner II
---------------------------------
Frank C. Turner II
Vice-President and
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 215,152
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 235,334
<PP&E> 3,997,902
<DEPRECIATION> (3,157,550)
<TOTAL-ASSETS> 13,214,671
<CURRENT-LIABILITIES> 242,030
<BONDS> 0
0
0
<COMMON> 10,897,718
<OTHER-SE> 2,074,923
<TOTAL-LIABILITY-AND-EQUITY> 13,214,671
<SALES> 478,129
<TOTAL-REVENUES> 1,003,193
<CGS> 421,983
<TOTAL-COSTS> 807,292
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,386
<INCOME-PRETAX> 195,901
<INCOME-TAX> 66,606
<INCOME-CONTINUING> 129,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,295
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
