<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 March 31, 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 April 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-
March 31, 1999 (Unaudited) and December 31, 1998................... 1
Consolidated Statements of Operations (Unaudited) -
Three months ended March 31, 1999 and 1998......................... 2
Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 1999 and 1998......................... 3
Notes to Consolidated Financial Statements (Unaudited)................ 4
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations.............. 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................ 15
</TABLE>
4
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
ASSETS UNAUDITED 1998
------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ 33,649
Accounts receivable:
Oil and gas sales 263,571 250,763
Joint owners 17,053 29,926
Prepaid expenses and other current assets 20,182 20,182
------------- --------------
TOTAL CURRENT ASSETS 300,806 334,520
------------- --------------
PROPERTY:
Oil and gas properties (successful efforts method) 3,651,488 3,662,353
Furniture, fixtures and other (at cost) 345,919 345,919
------------- --------------
3,997,407 4,008,272
Less accumulated depreciation,
depletion and amortization 3,114,993 3,101,968
------------- --------------
NET PROPERTY 882,414 906,304
------------- --------------
OTHER ASSETS:
Preferred Stock-Middle Bay 6,467,610 6,467,610
Note receivable-Middle Bay 5,477,798 5,147,548
Deferred tax asset 203,239 199,879
------------- --------------
TOTAL OTHER ASSETS 12,148,647 11,815,037
TOTAL ASSETS $ 13,331,867 $ 13,055,861
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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F-4
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31,
1999 DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY UNAUDITED 1998
----------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 400,262 $ 212,514
-------------- --------------
TOTAL CURRENT LIABILITIES 400,262 212,514
-------------- --------------
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 March 31, 1999 and December 31, 1998 90,246 90,246
Additional paid-in capital 10,807,472 10,807,472
Retained earnings 5,278,834 5,190,576
Less cost of treasury stock:
462,240 shares at March 31, 1999 and December 31, 1998 (3,244,947) (3,244,947)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 12,931,605 12,843,347
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,331,867 $ 13,055,861
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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F-5
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 189,695 $ 2,104,602
Gas plant sales - 17,733
Gain on sale of assets - 671,923
Preferred stock dividends 161,690 -
Interest income 95,675 -
Other income 26,747 9,999
------------ ------------
TOTAL REVENUES 473,807 2,804,257
------------ ------------
COSTS AND EXPENSES:
General and administrative 196,114 1,416,407
Lease operating and other 151,522 898,608
Gas purchases and plant operating - 3,997
Production taxes 12,176 100,046
Depreciation, depletion and amortization 28,025 548,028
Interest expense 1,072 -
------------ ------------
TOTAL COSTS AND EXPENSES 388,909 2,967,086
------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND INCOME TAXES 84,898 (162,829)
MINORITY INTEREST - (348,190)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 84,898 (511,019)
INCOME TAX BENEFIT (3,360) (86,700)
------------ ------------
NET INCOME (LOSS) $ 88,258 $ (424,319)
============ ============
NET INCOME (LOSS) PER SHARE
BASIC INCOME (LOSS) PER SHARE $ 0.07 $ (0.32)
============ ============
DILUTED INCOME (LOSS) PER SHARE $ 0.07 $ (0.32)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 1,342,672 1,342,541
============ ============
DILUTED 1,342,672 1,342,541
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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F-6
<PAGE>
ENEX RESOURCES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 88,258 $ (424,319)
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation, depletion and amortization 28,025 548,028
Deferred income tax benefit (3,360) (86,700)
Gain on sale of properties - (671,923)
Minority interest share of net income after distributions - 348,190
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Increase in note receivable - Middle Bay (330,250) -
Decrease in accounts receivable 65 455,169
Increase in prepaid expenses and other assets - (1,630)
Increase (decrease) in accounts payable 187,748 (178,493)
------------ ------------
NET CASH USED BY OPERATING ACTIVITIES (29,514) (11,678)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of properties - 1,000,000
Property additions (4,135) (69,945)
------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (4,135) 930,055
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to limited partners - (498,967)
Purchase of treasury stock - (45,669)
Proceeds from exercise of stock options - 80,000
------------ ------------
NET CASH USED BY FINANCING ACTIVITIES - (464,636)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (33,649) 453,741
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 33,649 4,244,470
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ - $ 4,698,211
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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F-7
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
March 31, 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. 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 March 31, 1999 and December 31, 1998 and the consolidated
results of operations and consolidated cash flows for the periods ended March
31, 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 March 31, 1999 and 1998
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.
4
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
March 31, 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 period ending March 31, 1999, there
were no common stock equivalents outstanding. For the period ending March 31,
1998, a weighted average of 90,606 common stock equivalents are not considered
in the calculation of diluted earnings per share due to the net loss recorded
during this 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. The Company
was issued 1,293,522 shares of Middle Bay Preferred Stock for its limited
partner ownership in the Consolidated Partnership.
5
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
(2) CONSOLIDATED PARTNERSHIP DIVESTITURE AND RECEIPT OF MIDDLE BAY
PREFERRED STOCK (continued)
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, Middle Bay's only other preferred
stock outstanding.
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.
6
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
March 31, 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 three months ended March 31, 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)
Three Months Ended
March 31, 1998
------------------
<S> <C>
Total revenues excluding dividend income $ 331
Preferred dividend income 162
Net loss available to stockholders (754)
Net loss per share to stockholders (0.56)
</TABLE>
(3) 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 March 31, 1999 of $5,478,000.
The principal balance of the note accrues interest at the prime rate and is due
on demand. The note consists of advances to Middle Bay for general corporate
purposes and is unsecured. Interest of $323,000 was accrued on the note as of
March 31, 1999.
7
<PAGE>
ENEX RESOURCES CORPORATION
Notes to Consolidated Financial Statements
March 31, 1999
(Unaudited)
(3) RELATED PARTY TRANSACTIONS (continued)
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 required debt payment could be
paid 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 and
increase the note receivable from Middle Bay. Amounts paid to the Banks by
Middle Bay would reduce the amount of cash available to be paid to the
Company on the note receivable from Middle Bay. The principal balance of debt
outstanding on Middle Bay's financial statements at March 31, 1999 was
approximately $27.9 million.
Substantially all of the general and administrative functions for
the period ended March 31, 1999 were performed by Middle Bay employees at a
cost substantially less than was previously incurred by the Company.
All of the officers and directors of the Company also serve as the
officers and directors of Middle Bay.
(4) 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.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Net cash flow used by operating activities was approximately $29,000
for the current period compared to approximately $12,000 for the comparable
period. The divestiture of the Consolidated Partnership as of October 1, 1998
and the acquisition of the Company by Middle Bay cause 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 administrative expenses for the Company.
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 which was effective October 1, 1998.
The Company had current assets of $301,000 and current liabilities of
$400,000, which resulted in working capital deficit of $99,000 as of March 31,
1999. This was a decrease in working capital of $221,000 from the working
capital of $122,000 as of December 31, 1998. Working capital decreased because
of 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.
9
<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 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
10
<PAGE>
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 is scheduled
to be completed by June 30, 1999.
Contingency Plans: The Company is currently considering contingency plans for
processing its accounting data. Depending on the results of the
testing phase, contingency plans will be developed.
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 two fields that are expected to account for
over 10% 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 that are expected to account for over
10% of its oil and gas revenues for the year ending December 31,
1999. The Company has obtained information about these two
purchasers and their Y2K readiness. These purchasers have formal Y2K
Plans and are expected to have all of their non-compliant,
mission-critical systems Y2K compliant by September 30, 1999.
11
<PAGE>
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 anticipates that all non-compliant, in-house
mission-critical systems will be substantially remediated by
December 31, 1998 and substantially completed by March 31, 1999 for
vendor-supported systems. The Company's principal bank expects to
have all of its non-compliant, mission-critical systems Y2K
compliant by 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 affect the Company. The
Company will be able to conduct business on a reduced scale using
alternative business methods. Longer-term interruptions may
materially adversely affect 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 functions rely on spreadsheet
and word processing applications that are run on the Company's personal computer
systems.
12
<PAGE>
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
For the three months ended March 31, 1998, 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 October 1, 1998.
For the current period, net income before minority interest of
$85,000 increased $248,000 from a net loss before minority interest of
$163,000 in the comparable period. The net income before minority interest
increased because of a reduction in general and administrative expenses and
an increase in income from preferred stock dividends and interest and other
income which were partially 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.
13
<PAGE>
During the current period, the Company sold 4,400 barrels of oil at an
average price of $11.12 per barrel and 85,000 Mcf of gas at an average price of
$1.67 per Mcf.
During the current period, the Company incurred approximately $48,000
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 March 31, 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.
The net income for the current period of $88,000 increased $512,000 from
the net loss of $424,000 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.
The interest income in the current period was the interest accrued on
the loans to Middle Bay.
The preferred stock dividend income in the current period was the
dividend accrued on the Middle Bay Preferred Stock owned by the Company. Middle
Bay paid the dividend in April, 1999.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) There are no exhibits filed with this report
(b) On January 14, 1999, the Company filed a Form 8-K under Item 2
describing the acquisition of substantially all of the assets of Enex
Consolidated Partners LLP.
15
<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: May 21, 1999 By: /s/ FRANK C. TURNER II
---------------------------------
Frank C. Turner II
Vice-President and
Chief Financial Officer
16
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<SECURITIES> 0
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