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, 1997
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 0-17557
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0251410
(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:
(713) 358-8401
Check whether the issuer (1) has 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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
BALANCE SHEET
- ---------------------------------------------------------------------------
September 30,
ASSETS 1997
-------------
(Unaudited)
CURRENT ASSETS:
<S> <C>
Cash $ 8,261
Accounts receivable - oil & gas sales 15,970
-------------
Total current assets 24,231
-------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,578,968
Less accumulated depletion 1,544,199
-------------
Property, net 34,769
-------------
TOTAL $ 59,000
=============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Payable to general partner $ 74,624
-------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (22,391)
General partner 6,767
-------------
Total partners' capital (deficit) (15,624)
-------------
TOTAL $ 59,000
=============
Number of $500 Limited Partner units outstanding 3,605
</TABLE>
See accompanying notes to financial statements.
- ---------------------------------------------------------------------------
I-1
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------
(UNAUDITED) QUARTER ENDED NINE MONTHS ENDED
--------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
----------- ------------ ------------- ------------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 10,298 $ 2,946 $ 34,375 $ 29,224
----------- ------------ ------------- ------------
EXPENSES:
Depletion 4,182 (877) 12,560 16,177
Impairment of property - - - 333,294
Production taxes 421 524 1,450 3,280
General and administrative 8,898 3,428 15,941 12,622
----------- ------------ ------------- ------------
Total expenses 13,501 3,075 29,951 365,373
----------- ------------ ------------- ------------
NET INCOME (LOSS) $ (3,203) $ (129) $ 4,424 $ (336,149)
=========== ============ ============= ============
</TABLE>
See accompanying notes to financial statements.
- ----------------------------------------------------------------------------
I-2
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND-SERIES 1, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------
PER $500
LIMITED
PARTNER
GENERAL LIMITED UNIT OUT-
TOTAL PARTNER PARTNERS STANDING
------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 305,259 $ 2,840 $ 302,419 $ 84
NET INCOME (LOSS) (325,307) 2,229 (327,536) (91)
------------- ---------------- --------------- -----------
BALANCE, DECEMBER 31, 1996 (20,048) 5,069 (25,117) (7)
NET INCOME 4,424 1,698 2,726 1
------------- ---------------- --------------- -----------
BALANCE, SEPTEMBER 30, 1997 $ (15,624) $ 6,767 $ (22,391)(1) $ (6)
============= ================ =============== ===========
</TABLE>
(1) Includes 467 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------
I-3
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
-------------------------------
September 30, September 30,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 4,424 $ (25,518)
------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion and amortization 12,560 38,113
Impairment of property 0 -
(Increase) decrease in:
Accounts receivable - oil & gas sales 2,245 10,981
Receivable from affiliated limited partnership - (221)
(Decrease) in:
Accounts payable (2,485) (3,050)
Payable to general partner (11,807) (13,868)
------------ ------------
Total adjustments 513 31,955
------------ ------------
Net cash provided by operating activities 4,937 6,437
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions - (7,600)
------------ ------------
NET INCREASE (DECREASE) IN CASH 4,937 (1,163)
CASH AT BEGINNING OF YEAR 3,324 4,171
------------ ------------
CASH AT END OF PERIOD $ 8,261 $ 3,008
============ ============
</TABLE>
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
I-4
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 1, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. The interim financial information included herein is unaudited;
however, such information reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of results for the
interim periods.
2. The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires certain assets to be reviewed for impairment whenever events or
circumstances indicate the carrying amount may not be recoverable. Prior to
this pronouncement, the Company assessed properties on an aggregate basis.
Upon adoption of SFAS 121, the Company began assessing properties on an
individual basis, wherein total capitalized costs may not exceed the
property's fair market value. The fair market value of each property was
determined by H. J. Gruy and Associates, ("Gruy"). To determine the fair
market value, Gruy estimated each property's oil and gas reserves, applied
certain assumptions regarding price and cost escalations, applied a 10%
discount factor for time and certain discount factors for risk, location,
type of ownership interest, category of reserves, operational
characteristics, and other factors. In the first quarter of 1996, the
Company recognized a non-cash impairment provision of $333,294 for certain
oil and gas properties primarily due to downward reserve revisions on the
Lake Decade acquisition. The Lake Decade acquisition included significant
reserves that were considered "proved" but not yet developed. Proved
undeveloped reserves were assigned to these leases based on offset
production in existing wells and on geologic mapping of the existing wells
north of the producing wells. Enex and its affiliated entities owned less
than 10% of this acquisition. The other working interest owners which held
the remaining interest in the acquisition, including the operator of the
field, also carried these reserves as "proved undeveloped" reserves prior
to 1996. Wells drilled near the acquisition in an attempt to increase
production from the field were dry holes. Revised geologic mapping, based
on production from existing wells and the unsuccessful wells drilled
offsetting the property, indicated a much smaller productive area than had
been originally calculated. It was determined by the operator of the
acquisition that future drillings could not be justified. The well which
was holding the lease, which had undeveloped reserves assigned to it, was
recompleted by the operator in 1996 to a zone in which the Company did not
own an interest. As a result, the lease expired and the undeveloped
reserves associated with the lease had to be written off. This was the
cause of both the downward reserve revisions in 1996 and the reserve
valuation write downs taken by the Company in the first quarter of 1996.
3. A Special Meeting, whose purpose was to vote on the proposal to sell
Partnership's assets and, thereafter, dissolve and liquidate the
partnership in accordance with the applicable provisions of the limited
partnership agreements, commenced at 2:00 P.M. on October 28, 1997.
I-5
<PAGE>
The proxy votes received prior to the meeting were voted as follows:
Enex 88-89 Income & Retirement Fund, Series 1
For Against
Liquidation Liquidation Abstain
--------------- ----------------- -----------
49.29% 3.44% 6.53%
As indicated in the table above, while a large majority of the votes cast by the
limited partners of the Partnership were in favor of the proposed liquidation,
over 40% of the limited partnership interests failed to vote on the proposal.
This resulted in an inability to approve the proposal by a majority of the total
outstanding limited partnerships interests. As such, the meeting was adjourned
until December 1, 1997, to allow time for a sufficient number of votes to be
received to attain a majority-in-interest vote on the liquidation.
Subsequent to the Special Meeting, proxy votes were received in favor of the
proposed liquidation, which together with the above noted votes, represent a
majority-in-interest vote for the liquidation. As such, the Partnership will be
dissolved at the Special Meeting on December 1, 1997. The properties owned by
the partnership will be sold and any proceeds remaining after payment of all the
partnership's debt, will be distributed to the limited partners.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Third Quarter 1996 Compared to Third Quarter 1997
Oil and gas sales for the third quarter increased from $2,946 in 1996 to $10,298
in 1997. This represents an increase of $7,352 (250%). Oil sales increased by
$502 or 18%. A 67% increase in average net oil prices increased sales by $1,295.
This increase partially offset by a 27% decrease in oil production. Gas sales
increased by $6,850 or 3200%. An 1,119% increase in the average net gas sales
price increased gas sales by $6,484. A 171% increase in gas production increased
sales by an additional $366. The decrease in oil production was primarily due to
natural production declines. The increase in gas production was primarily due to
lower production in 1996 from the Corinne acquisition which had been shut-in for
workovers in the third quarter of 1996. The increases in the average net oil and
gas sales price were primarily due to lower operating costs charged against the
Company's net profits royalty properties, especially at the Bagley acquisition,
which had a workover in the third quarter of 1996.
Depletion expense increased from a negative $877, in the third quarter of 1996
to $4,182 in the third quarter of 1997. This represents an increase of $5,059.
The negative depletion expense in the third quarter of 1996 was the result of
accrual reversals for production from the Corinne field, which was shut-in 1996.
The changes in production, noted above, increased depletion expense by $4,212.
An increase in the depletion rate increased depletion expense by an additional
$847. This rate increase was primarily the result of a relatively higher
production from properties with a higher depletion rate.
I-6
<PAGE>
General and administrative expenses increased from $3,428 in 1996 to $8,898 in
1997. This increase of $5,470 (160%) is primarily due to more staff time being
required to manage the Company's operations.
First Nine Months in 1996 Compared to First Nine Months in 1997
Oil and gas sales for the first nine months increased from $29,224 in 1996 to
$34,375 in 1997. This represents an increase of $5,151 (18%). Oil sales
decreased by $190 (2%). A 27% decrease in oil production reduced sales by
$2,472. This decrease was partially offset by a 34% increase in the average net
oil sales price. Gas sales increased by $5,341 or 27%. A 35% increase in gas
production increased sales by $6,914. This increase was partially offset by a 6%
decrease in the average net gas sales price. The decrease in oil production was
primarily the result of natural production declines, which were especially
pronounced on the Bagley acquisition. The increase in gas production was
primarily due to lower production in 1996 from the Corinne acquisition which had
been shut-in for a workover in the third quarter of 1996, coupled with a
successful workover on the T.A. Richardson 6-2 in the Corinne acquisition in the
first quarter of 1997. The increase in the average net oil sales price
corresponds with higher prices in the overall market for the sale of oil. The
decrease in the average net gas sales price is due to relatively higher
production from properties with a lower average net gas sales price.
Depletion expense decreased from $16,177 in the first nine months of 1996 to
$12,560 in the first nine months of 1997. This represents a decrease of $3,617
(22%). A 32% decrease in the depletion rate reduced depletion expense by $5,924.
This decrease was partially offset by the changes in production noted above. The
decrease in the depletion rate was primarily due to an upward revision of the
gas reserves during December 1996.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
certain assets to be reviewed for impairment whenever events or circumstances
indicate the carrying amount may not be recoverable. Prior to this
pronouncement, the Company assessed properties on an aggregate basis. Upon
adoption of SFAS 121, the Company began assessing properties on an individual
basis, wherein total capitalized costs may not exceed the property's fair market
value. The fair market value of each property was determined by H. J. Gruy and
Associates, ("Gruy"). To determine the fair market value, Gruy estimated each
property's oil and gas reserves, applied certain assumptions regarding price and
cost escalations, applied a 10% discount factor for time and certain discount
factors for risk, location, type of ownership interest, category of reserves,
operational characteristics, and other factors. In the first quarter of 1996,
the Company recognized a non-cash impairment provision of $333,294 for certain
oil and gas properties primarily due to downward reserve revisions on the Lake
Decade acquisition. The Lake Decade acquisition included significant reserves
that were considered "proved" but not yet developed. Proved undeveloped reserves
were assigned to these leases based on offset production in existing wells and
on geologic mapping of the existing wells north of the producing wells. Enex and
its affiliated entities owned less than 10% of this acquisition. The other
working interest owners which held the remaining interest in the acquisition,
including the operator of the field, also carried these reserves as "proved
undeveloped" reserves prior to 1996. Wells drilled near the acquisition in an
attempt to increase production from the field were dry holes.
I-7
<PAGE>
evised geologic mapping, based on production from existing wells and the
unsuccessful wells drilled offsetting the property, indicated a much smaller
productive area than had been originally calculated. It was determined by the
operator of the acquisition that future drillings could not be justified. The
well which was holding the lease, which had undeveloped reserves assigned to it,
was recompleted by the operator in 1996 to a zone in which the Company did not
own an interest. As a result, the lease expired and the undeveloped reserves
associated with the lease had to be written off. This was the cause of both the
downward reserve revisions in 1996 and the reserve valuation write downs taken
by the Company in the first quarter of 1996.
General and administrative expenses increased from $12,622 in 1996 to $15,941 in
1997. This increase of $3,319 (26%) is primarily due to more staff time being
required to manage the Company's operations.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash flow from operations is a direct result of the amount of net
proceeds realized from the sale of oil and gas production. Accordingly, the
changes in cash flow from 1996 to 1997 are primarily due to the changes in oil
and gas sales described above.
A Special Meeting, whose purpose was to vote on the proposal to sell
Partnership's assets and, thereafter, dissolve and liquidate the partnership in
accordance with the applicable provisions of the limited partnership agreements,
commenced at 2:00 P.M. on October 28, 1997.
The proxy votes received prior to the meeting were voted as follows.
Enex 88-89 Income & Retirement Fund, Series 1
For Against
Liquidation Liquidation Abstain
--------------- ---------------- ------------------
49.29% 3.44% 6.53%
As indicated in the table above, while a large majority of the votes cast by the
limited partners of the Partnership were in favor of the proposed liquidation,
over 40% of the limited partnership interests failed to vote on the proposal.
This resulted in an inability to approve the proposal by a majority of the total
outstanding limited partnerships interests. As such, the meeting was adjourned
until December 1, 1997, to allow time for a sufficient number of votes to be
received to attain a majority-in-interest vote on the liquidation.
Subsequent to the Special Meeting, proxy votes were received in favor of the
proposed liquidation, which together with the above noted votes, represent a
majority-in-interest vote for the liquidation. As such, the Partnership will be
dissolved at the Special Meeting on December 1, 1997. The properties owned by
the partnership will be sold and any proceeds remaining after payment of all the
partnership's debt, will be distributed to the limited partners.
I-8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) There are no exhibits to this report.
(b) The Company filed no reports on Form 8-K during the
quarter ended September 30, 1997.
II-1
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ENEX 88-89 INCOME AND
RETIREMENT FUND - SERIES 1, L.P.
(Registrant)
By:ENEX RESOURCES CORPORATION
General Partner
By: /s/ James A. Klein
-------------------
James A. Klein
Secretary, Treasurer and
Chief Financial Officer
November 11, 1997 By: /s/ Larry W. Morris
-------------------
Larry W. Morris
Controller and Chief
Accounting Officer
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000837896
<NAME> Enex 88-89 Income & Retirement Fund-Series 1, L.P.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-START> jan-01-1997
<PERIOD-END> sep-30-1997
<CASH> 8261
<SECURITIES> 0
<RECEIVABLES> 15970
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24231
<PP&E> 1578968
<DEPRECIATION> 1544199
<TOTAL-ASSETS> 59000
<CURRENT-LIABILITIES> 74624
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (15624)
<TOTAL-LIABILITY-AND-EQUITY> 59000
<SALES> 34375
<TOTAL-REVENUES> 34375
<CGS> 14010
<TOTAL-COSTS> 14010
<OTHER-EXPENSES> 15941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4424
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
