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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from...............to...............
Commission file number 0-17558
ENEX 88-89 INCOME AND RETIREMENT FUND - Series 2, L.P.
(Name of small business issuer in its charter)
New Jersey 76-0251416
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Rockmead Drive
Three Kingwood Place
Kingwood, Texas 77339
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including: (713) 358-8401
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Interest
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.[x]
State issuer's revenues for its most recent fiscal year. $ 22,555
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock as of a specified date within
the past 60 days (See definition of affiliate in Rule 12b-2 of the Exchange
Act):
Not Applicable
Documents Incorporated By Reference:
None
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<PAGE>
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1995
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
Item No. Part I Page
- -------- ------- ----
1 Description of Business ..................... I-1
2 Description of Property ..................... I-3
3 Legal Proceedings ........................... I-4
4 Submission of Matters to a Vote
of Security Holders ......................... I-4
Part II
-------
5 Market for Common Equity and
Related Security Holder Matters ............. II-1
6 Management's Discussion and Analysis
or Plan of Operation ........................ II-2
7 Financial Statements and Supplementary
Data ........................................ II-3
8 Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure ...... II-13
Part III
---------
9 Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act ......................... III-1
10 Executive Compensation ...................... III-3
11 Security Ownership of Certain
Beneficial Owners and Management ............ III-4
12 Certain Relationships and Related
Transactions ................................ III-4
13 Exhibits and Reports on Form 8-K ............ III-4
Signatures .................................. S-1
<PAGE>
PART I
Item 1. Description of Business
General
Enex 88-89 Income and Retirement Fund - Series 2, L.P. (the "Company") was
formed under the New Jersey Uniform Limited Partnership Act (1976) on November
12, 1987 and commenced operations on September 8, 1988 with aggregate
subscriptions of $1,548,859, $1,533,370 of which was received from 226 limited
partners, including investors whose distributions from earlier partnerships
sponsored by the Company's general partner, Enex Resources Corporation ("Enex"),
were automatically invested in the Company.
The Company is engaged in the oil and gas business through the ownership of
non-operating interests in producing oil and gas properties. A non-operating
interest typically entitles the holder to receive a specified share of such
production, without obligation to develop or operate such property, or bear any
development or operating costs (such obligations being assumed by the owner of
the working interest in the property).
The Company's non-operating interests are net profits royalties or other
royalty interests which entitle the Company to a share of gross revenues from
producing oil and gas properties measured by a specified percentage of the net
profits realized by the owners of the underlying working interests in such
properties, after deducting operating costs, geological and engineering costs,
property, severance and other taxes, and certain other specified expenses. If
such taxes, operating costs or other expenses exceed gross revenues in any
specified measuring period, a net profits royalty holder will not be liable for
payment of any portion of such excess, but a percentage of such excess equal to
the specified percentage of net profits (together with interest thereon) will be
carried over to subsequent periods and will reduce future amounts accruing to
the holder. The Company's net profits royalties and other non-operating
interests are generally derived from working interests in oil and gas properties
owned by other affiliates of Enex .
The Company does not own working interests nor does it engage directly in
any drilling, completing or operating activities, but may benefit from such
activities undertaken by the owners of the working interests in properties
burdened by the Company's non-operating interests. The Company's operations are
concentrated in a single industry segment.
The principal executive office of the Company is maintained at Suite 200,
Three Kingwood Place, Kingwood, Texas 77339. The telephone number at this office
is (713) 358-8401. The Company has no regional offices.
The Company has no employees. On March 1, 1996, Enex and its subsidiaries
employed 24 persons.
I-1
<PAGE>
Marketing
The marketing of oil and gas produced by the Company is affected by a
number of factors which are beyond the Company's control, the exact nature of
which cannot be accurately predicted. These factors include the quantity and
price of crude oil imports, fluctuating supply and demand, pipeline and other
transportation facilities, the marketing of competitive fuels, state and federal
regulation of oil and gas production and distribution and other matters
affecting the availability of a ready market. All of these factors are extremely
volatile.
Global Natural Resources Corporation accounted for 49% while Coalinga
Company and Omimex Company accounted for 39% and 12%, respectively of the
Company's total sales in 1995. Global Natural Resources Corporation accounted
for 51% while Coalinga Company and Omimex Company accounted for 34% and 10%,
respectively of the Company's total sales in 1994. No other purchaser
individually accounted for more than 10% of such sales. Although the Company
marketed a significant portion of its sales to the above noted companies, such a
concentration does not pose a significant risk due to the commodity nature of
the Company's products.
Environmental and Conservation Regulation
State regulatory authorities in the states in which the Company owns net
profits interests in producing properties are empowered to make and enforce
regulations to prevent waste of oil and gas and to protect correlative rights
and opportunities to produce oil and gas for owners of a common reservoir. Each
of such regulatory authorities also regulates the amount of oil and gas produced
by assigning allowable rates of production, which may be increased or decreased
in accordance with supply and demand. Requirements regarding the prevention and
clean-up of pollution and similar environmental matters are also generally
applicable. The costs, if any, that may be incurred in this regard cannot be
predicted.
The existence of such regulations has had no material adverse effects on
the Company's operations to date, and the cost of compliance has not yet been
material. There are no material administrative or judicial proceedings arising
under such laws or regulations pending against the Company. The Company is
unable to assess or predict the impact that compliance with environmental and
pollution control laws and regulations may have on its future operations,
capital expenditures, earnings or competitive position.
Tax Laws
The operations of the Company are affected by the federal income tax laws
contained in the Internal Revenue Code of 1986, as amended (the "Code"). In
general, the limited partners of the Company will generate income from the
receipt of royalties and net profits interests and will be entitled to a
depletion deduction. Net income, if any, will generally be characterized as
portfolio income under the Code and will be taxed in the same manner as
dividends and interest.
Partnerships with interests that are "publicly traded" are taxed as
corporations unless at least 90% of their income is "qualifying income." Because
the Company's income will be qualifying income for this purpose, the Company
will not be taxed as a corporation under this rule.
I-2
<PAGE>
Item 2. Description of Property
Presented below is a summary of the Company's property acquisitions.
BYRUM acquisition. An overriding royalty interest in the Byrum 1-28 well
located in Onondago Field, Ingham County, Michigan was purchased for $31,680
from Pasadena Oil & Gas Corp. effective March 1, 1989. The Byrum acquisition is
operated by Global Natural Resources, Inc. The Company owns a .99% royalty
interest in the wells in the Byrum acquisition at December 31, 1995.
BAGLEY acquisition. Net profits royalty interests in 7 oil wells located in
Bagley Field, Otsego County, Michigan, were acquired for $190,222. The Bagley
acquisition is operated by Terra Energy, Ltd. The Company owns net profits
royalty interests ranging from 1.19% to 1.20% in the wells in the Bagley
acquisition at December 31, 1995.
LAKE DECADE acquisition. Effective July 1, 1989, net profits royalty
interests in 2 gas wells in Lake Decade Field, Terrebonne Parish, Louisiana,
were purchased for $878,186. The Lake Decade acquisition is operated by
Southwestern Energy Production. The Company owns net profits royalty interests
ranging from 1.0312% to 1.4551% in the wells in the Lake Decade acquisition at
December 31, 1995.
EL MAC acquisition. Net profits royalty interests in 3 wells in Otsego
County, Michigan were purchased for $92,850 from Wolverine Exploration, Ltd.,
Tenexco, Inc., and Terra Energy, Ltd., effective November 1, 1989 and March 1,
1990. The El Mac acquisition is operated by Don Yohe Enterprises, Inc. The
Company owns a 0.844% net profits royalty interest in the wells in the El Mac
acquisition at December 31, 1995.
BAYWOOD acquisition. Royalty interests in 4 wells located in E. Baton Rouge
and St. Helena Parishes, Louisiana were purchased for $161,600 from Steamboat
Petroleum Corporation et al., effective January 1, 1990. The Baywood acquisition
is operated by Coalinga Company. The Company owns royalty interests ranging from
.61% to .79% in the Baywood acquisition at December 31, 1995.
Purchase price as used above is defined as the actual contract price plus
finders' fees, if applicable. Miscellaneous acquisition expenses, subsequent
capital additions, etc. are not included.
Oil and Gas Reserves
For quantitative information regarding the Company's oil and gas reserves,
please see Supplementary Oil and Gas Information and related tables which follow
the Notes to Financial Statements in Item 7 of this report. The Company has not
filed any current oil and gas reserve estimates or included any such estimates
in reports to any federal or foreign governmental authority or agency, including
the Securities and Exchange Commission.
Proved oil and gas reserves reported herein are based on engineering
reports prepared by the petroleum engineering consulting firm of H. J. Gruy and
Associates, Inc. The reserves included in this report are estimates only and
should not be construed as exact quantities. Future conditions may affect
recovery of estimated reserves and revenue, and all reserves may be subject to
revision as more performance data become available. The proved reserves used in
this report conform to the applicable
I-3
<PAGE>
definitions promulgated by the Securities and Exchange Commission. No major
discovery or other favorable or adverse event that is believed to have caused a
significant change in the estimated proved reserves has occurred since December
31, 1995.
Net Oil and Gas Production
The following table shows for the years ended December 31, 1995 and 1994,
the approximate production attributable to the Company's oil and gas interests.
The figures in the table represent "net production"; i.e., production owned by
the Company and produced to its interest after deducting royalty and other
similar interests. All production occurred in the United States.
1995 1994
---- ----
Crude oil and condensate (Bbls).............. 1,059 1,681
Natural gas (Mcf)............................ 6,966 19,984
The following table sets forth the Company's average sales price per barrel
of oil, per Mcf of gas, and average production cost per unit produced for the
years ended December 31, 1995 and 1994. The average prices are lower than the
average market prices for oil and gas as they are computed using the net
revenues received from the Company's ownership of net profit royalty interests.
1995 1994
---- ----
Average sales price per barrel of oil.......... $ 13.46 $ 10.31
Average sales price per Mcf of gas............. 1.19 0.85
Average production taxes per equivalent
barrel of production......................... 0.30 0.15
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
I-4
<PAGE>
PART II
Item 5. Market for Common Equity and Related Security Holder Matters
Market Information
There is no established public trading market for the Company's outstanding
limited partnership interests.
Number of Equity Security Holders
Number of Record Holders
Title of Class (as of March 1, 1996)
--------------- -------------------------
General Partner's Interests 1
Limited Partnership Interests 268
Dividends
The Company made cash distributions to partners of $1 and $7
per $500 investment in 1995 and 1994, respectively. The Company discontinued the
payment of distributions in the second quarter of 1995. Future distributions are
dependent upon, among other things, an increase in the prices received for oil
and gas. The Company will continue to recover its reserves and reduce
obligations in 1996. Based upon current projected cash flows from its property,
it does not appear that the Company will have sufficient net cash flow after
debt service to pay distributions in the near future.
II-1
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
This discussion should be read in conjunction with the financial statements
of the Company and the notes thereto included in this Form 10-KSB.
Oil and gas sales decreased to $22,555 in 1995 from $34,264 in 1994. This
represents a decrease of $11,709 or 34%. Oil sales decreased by $3,081 or 18%. A
37% decline in oil production caused revenues to decrease by $6,417. This
decrease was partially offset by a 31% increase in the average oil net sales
price. Gas sales decreased by $8,628 or 51%. A 65% decrease in gas production
reduced sales by $10,096. This decrease was partially offset by a 40% increase
in the average gas net sales price. The decreases in oil and gas production were
primarily due to a surge in production in 1994 resulting from the successful
completion of a workover on the Lake Decade acquisition. The increase in average
oil and gas net prices were primarily due to workover charges incurred in 1994
on the Lake Decade acquisition, in which the Company has a net profits royalty
interest, coupled with changes in the overall market for the sale of oil and
gas.
Depletion expense decreased to $17,148 in 1995 from $55,713 in 1994. This
represents a decrease of $38,565 or 69%. The changes in production, noted above,
caused depletion expense to decrease by $31,031. A 31% decrease in the depletion
rate reduced depletion expense by an additional $7,534. The decrease in the
depletion rate was due to the lower property basis resulting from the
recognition of an impairment for $80,662 in December 1994.
As a result of declining oil and gas prices, the Company recorded an
impairment of property for $80,662 in 1994, which represented the excess of the
net capitalized costs over the undiscounted future net revenues of the reserves.
General and administrative expenses decreased to $13,149 in 1995 from
$18,311 in 1994. This decrease of $5,162 or 28% was primarily due to a $3,888
decrease in direct costs incurred by the Company in 1995, coupled with less
staff time being required to manage the Company's operations. The decrease in
direct expenses was due to lower audit and tax fees incurred by the Company in
1995.
Capital Resources and Liquidity
The Company's cash flow from operations is a direct result of the amount of
proceeds realized from the sale of oil and gas production. Accordingly, the
changes in cash flow from 1994 to 1995 are primarily due to the changes in oil
and gas sales described above. It is the general partner's intention to
distribute substantially all of the Company's available net cash flow to the
Company's partners.
The Company will continue to recover its reserves and distribute to the
partners the net proceeds realized from the sale of oil and gas production after
payment of debt obligations. The Company plans to repay the amount owed to the
general partner from such proceeds over a seven year period. Distributions
decreased from 1994 to 1995 due primarily to the decrease in the oil and gas
sales as noted above. The Company discontinued the payment of distributions in
the second quarter of 1995. Future distributions are dependent upon among other
things, an increase in the prices received for oil and gas. The Company will
continue to recover its reserves and reduce its obligations in 1996. The general
partner does not intend to accelerate the repayment of the debt beyond the cash
flow provided by operating activities. Based upon current projected cash flows,
it does not appear that the Company will have sufficient cash to pay its
operating expenses and debt obligations and pay distributions.
II-2
<PAGE>
Item 7. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Partners
Enex 88-89 Income and Retirement Fund Series 2, L.P.:
We have audited the accompanying balance sheet of Enex 88-89 Income and
Retirement Fund - Series 2, L.P. (a New Jersey limited partnership) as of
December 31, 1995 and the related statements of operations, changes in partners'
capital, and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the general
partner of Enex 88-89 Income and Retirement Fund - Series 2, L.P. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Enex 88-89 Income and Retirement Fund -
Series 2, L.P. at December 31, 1995 and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
March 18, 1996
II-3
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
BALANCE SHEET, DECEMBER 31, 1995
- --------------------------------------------------------------------------
ASSETS 1995
---------------
CURRENT ASSETS:
<S> <C>
Cash $ 878
Accounts receivable - oil & gas sales 5,336
---------------
Total current assets 6,214
---------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,374,397
Less accumulated depletion 1,065,073
---------------
Property, net 309,324
---------------
TOTAL $ 315,538
===============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 1,599
Payable to general partner 23,201
---------------
Total current liabilities 24,800
---------------
NONCURRENT PAYABLE TO GENERAL PARTNER 139,200
---------------
PARTNERS' CAPITAL:
Limited partners 150,106
General partner 1,432
---------------
Total partners' capital 151,538
---------------
TOTAL $ 315,538
===============
See accompanying notes to financial statements.
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</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
STATEMENTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- -------------------------------------------------------------------------------
1995 1994
----------- ----------
REVENUES:
<S> <C> <C>
Oil and gas sales $ 22,555 $ 34,264
----------- ----------
EXPENSES:
Depletion and amortization 17,148 55,713
Impairment of property - 80,662
Production and other taxes 670 744
General and administrative:
Allocated from general partner 12,287 13,561
Direct expense 862 4,750
----------- ----------
Total expenses 30,967 155,430
----------- ----------
NET LOSS $ (8,412) $(121,166)
=========== ==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
PER $500
LIMITED
PARTNER
GENERAL LIMITED UNIT OUT-
TOTAL PARTNER PARTNERS STANDING
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 309,888 $ 1,918 $ 307,970 $ 99
CASH DISTRIBUTIONS (24,376) (2,441) (21,935) (7)
NET INCOME (LOSS) (121,166) 1,520 (122,686) (39)
------------ --------- ---------- ----------
BALANCE, DECEMBER 31, 1994 164,346 997 163,349 53
CASH DISTRIBUTIONS (4,396) (438) (3,958) (1)
NET INCOME (LOSS) (8,412) 873 (9,285) (3)
------------ --------- ---------- ----------
BALANCE, DECEMBER 31, 1995 $ 151,538 $ 1,432 $ 150,106 (1) $ 49
============ ========= ========== ==========
(1) Includes 192 units purchased by the general partner as a limited partner.
See accompanying notes to financial statements.
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</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
STATEMENTS OF CASH FLOWS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------
1995 1994
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (8,412) $121,166)
--------- --------
Adjustments to reconcile net loss to net cash
provided by operating activities
Depletion and amortization 17,148 55,713
Impairment of property - 80,662
Decrease in:
Accounts receivable - oil & gas sales 3,995 327
Increase (decrease) in:
Accounts payable (1,224) 1,908
Payable to general partner (11,943) 12,283
--------- --------
Total adjustments 7,976 150,893
--------- --------
Net cash provided (used) by operating activities (436) 29,727
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions (4,396) (24,376)
--------- --------
NET INCREASE (DECREASE) IN CASH (4,832) 5,351
CASH AT BEGINNING OF YEAR 5,710 359
--------- --------
CASH AT END OF YEAR $ 878 $ 5,710
========= ========
See accompanying notes to financial statements.
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</TABLE>
II-7
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
NOTES TO FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
1. PARTNERSHIP ORGANIZATION
Enex 88-89 Income and Retirement Fund -
Series 2, L.P. (the "Company"), a New Jersey limited partnership, commenced
operations on September 8, 1988 for the purpose of acquiring non-operating
interests in producing oil and gas properties. Total limited partner
contributions were $1,548,859, of which $15,489 was contributed by Enex
Resources Corporation ("Enex"), the general partner.
In accordance with the partnership agreement, the Company paid
syndication fees and due diligence expenses of $159,911 for solicited
subscriptions to Enex Securities Corporation, a subsidiary of Enex, and
reimbursed Enex for organization expenses of approximately $46,000.
The Company owns only non-operating interests in producing oil and gas
properties. Such interests typically entitle the Company to receive its
pro rata share of net profits and royalties from the underlying properties
without obligating the Company to develop or operate the properties or
directly bear any share of development or operating costs.
Information relating to the allocation of costs and revenues between Enex,
as general partner, and the limited partners is as follows:
Limited
Enex Partners
Commissions and selling expenses 100%
Company reimbursement of organization
expense 100%
Company property acquisition 100%
General and administrative costs 10% 90%
Revenues from temporary investment
of partnership capital 100%
Revenues from producing properties 10% 90%
At the point in time when the cash distributions to the limited partners
equal their subscriptions ("payout"), revenues from producing properties
and general and administrative costs will be allocated 15% to the general
partner and 85% to the limited partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Oil and Gas Properties - The Company uses the successful efforts
method of accounting for its oil and gas operations. Capitalized costs are
amortized on the units-of-production method based on estimated total proved
reserves. The acquisition costs of proved oil and gas properties are
capitalized and periodically assessed for impairments.
II-8
<PAGE>
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
The Company has not determined the effect, if any, on its financial
position or results of operations from the adoption of this statement in
the first quarter of 1996.
Cash Flows - The Company has presented its cash flows using the
indirect method and considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
General and Administrative Expenses - The Company reimburses the
General Partner for direct costs and administrative costs incurred on its
behalf. Administrative costs allocated to the Company are computed on a
cost basis in accordance with standard industry practices by allocating the
time spent by the General Partner's personnel among all projects and by
allocating rent and other overhead on the basis of the relative direct time
charges.
Uses of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contigent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual
results could differ from these estimates.
3. FEDERAL INCOME TAXES
General - The Company is not a taxable entity for federal income tax
purposes. Such taxes are liabilities of the individual partners and the
amounts thereof will vary depending on the individual situation of each
partner. Accordingly, there is no provision for income taxes in the
accompanying financial statements.
II-9
<PAGE>
Set forth below is a reconciliation of net income (loss) as reflected in the
accompanying financial statements and net income (loss) for federal income tax
purposes for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Allocable to
------------------ Per $500
Limited
General Limited Partner Unit
TOTAL Partner Partners Outstanding
--------- -------- -------- -----------
Net income (loss) as reflected in
the accompanying financial
<S> <C> <C> <C> <C>
statements $ (8,412) $ 873 (9,285) (3)
Reconciling item:
Difference in depletion computed
for federal income tax purposes
and the amount computed for
financial reporting purposes (21,487) - (21,487) (7)
--------- -------- -------- -----
Net income (loss) for federal
income tax purposes $(29,899) $ 873 (30,772) (10)
========= ======== ======== =====
</TABLE>
Net income (loss) for federal tax purposes is a summation of ordinary income
(loss), portfolio income (loss), cost depletion and intangible drilling costs as
presented in the Company's federal income tax return.
Set forth below is a reconciliation between partners' capital as reflected in
the accompanying financial statements and partners' capital for federal income
tax purposes as of December 31, 1995:
<TABLE>
<CAPTION>
Allocable to Per $500
-------------------- Limited
General Limited Partner Unit
TOTAL Partner Partners Outstanding
---------- --------- ---------- -----------
Partners' capital as reflected
in the accompanying financial
<S> <C> <C> <C> <C>
statements $ 151,538 $ 1,432 150,106 49
Reconciling items:
Difference in accumulated
depletion and amortization
for financial reporting and
federal income tax purposes 341,888 - 341,888 110
Commissions and syndication
fees capitalized for federal
income tax purposes 159,911 - 159,911 52
---------- --------- ---------- -----------
Partners' capital for federal
income tax purposes $ 653,337 $ 1,432 $ 651,905 $ 211
========== ========= ========== ===========
</TABLE>
II-10
<PAGE>
4. PAYABLE TO GENERAL PARTNER
The payable to general partner primarily consists of general and
administrative expenses allocated to the Company by Enex during the
Company's start-up phase and for its ongoing operations. The Company plans
to repay the amounts owed to the general partner over a period of seven
years.
5. REPURCHASE OF LIMITED PARTNER INTERESTS
In accordance with the partnership agreement, the general partner is
required to purchase limited partner interests (at the option of the
limited partners) at annual intervals beginning after the second year
following the formation of the Company. The purchase price, as specified in
the partnership agreement, is based primarily on reserve reports prepared
by independent petroleum engineers as reduced by a specified risk factor.
6. SIGNIFICANT PURCHASERS
Global Natural Resources Corporation accounted for 49% while Coalinga
Company and Omimex Company accounted for 39% and 12%, respectively of the
Company's total sales in 1995. Global Natural Resources Corporation
accounted for 51% while Coalinga Company and Omimex Company accounted for
34% and 10%, respectively of the Company's total sales in 1994. No other
purchaser individually accounted for more than 10% of such sales.
7. IMPAIRMENT OF PROPERTY
A noncash write-down of capitalized costs of $80,662 was made in 1994.
This write-down was computed as the excess of the net capitalized costs
over the undiscounted future net revenues from proved oil and gas reserves.
The undiscounted future net revenues were computed using certain arbitrary
assumptions such as holding the oil and gas prices constant at the prices
in effect at the time of the computation.
II-11
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
SUPPLEMENTARY OIL AND GAS INFORMATION
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
- ---------------------------------------------------------------------------
Proved Oil and Gas Reserve Quantities (Unaudited)
The following presents an estimate of the Company's proved oil and gas reserve
quantities and changes therein for each of the two years in the period ended
December 31, 1995. Oil reserves are stated in barrels ("BBLS") and natural gas
in thousand cubic feet ("MCF"). The amounts per $500 limited partner unit do not
include a potential 5% reduction after payout. All of the Company's reserves are
located within the United States.
<TABLE>
<CAPTION>
Per $500 Per $500
Limited Natural Limited
Oil Partner Unit Gas Partner Unit
(BBLS) Outstanding (MCF) Outstanding
------- ------------- ------------ -----------
PROVED DEVELOPED AND
UNDEVELOPED RESERVES:
<S> <C> <C> <C> <C>
January 1, 1994 7,889 2 193,647 56
Revisions of previous estimates (14) - 6,220 2
Production (1,681) - (19,984) (6)
------- ------------- ------------ -----------
December 31, 1994 6,194 2 179,883 52
Revisions of previous estimates 245 - (20,898) (6)
Production (1,059) - (6,966) (2)
------- ------------- ------------ -----------
December 31, 1995 5,380 2 152,019 44
======= ============= ============ ===========
PROVED DEVELOPED RESERVES:
January 1, 1994 4,943 1 50,811 15
======= ============= ============ ===========
December 31, 1994 3,238 1 37,047 11
======= ============= ============ ===========
December 31, 1995 2,424 1 9,183 3
======= ============= ============ ===========
</TABLE>
II-12
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not Applicable
II-13
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
------------------------------------------------------------
The Company's sole General Partner is Enex Resources Corporation, a
Delaware corporation. The Company has no Directors or executive officers. The
Directors and executive officers of Enex are:
Gerald B. Eckley. Mr. Eckley, age 69, has served as a Director, President
and Chief Executive Officer of the General Partner since its formation in 1979.
He was employed by Shell Oil Company from 1951 to 1967 and served in managerial
capacities from 1959 to 1967. From 1967 to 1969, he was Director of Fund Raising
at the University of Oklahoma and from 1969 to 1971, was Vice President of Land
and Operations for Imperial American Management Company. In 1971, Mr. Eckley was
a petroleum consultant and in 1972-1973 was General Counsel and Executive
Director of the Oil Investment Institute. From 1973 to 1974, he was Manager of
Oil Properties, Inc. and from 1974 to 1976, was Vice President, Land and Joint
Ventures for Petro-Lewis Corporation. From 1977 to August 1979, Mr. Eckley was
President of Eckley Energy, Inc., a company engaged in purchasing and selling
oil and gas properties. Mr. Eckley received an L.L.B. degree from the University
of Oklahoma in 1951 and a Juris Doctor degree from the University of Oklahoma in
1970.
William C. Hooper, Jr. Mr. Hooper, age 58, has been a Director of the
General Partner since its formation in 1979 and is a member of the General
Partner's Audit and Compensation and Options Committees. In 1960 he was a staff
engineer in the Natural Gas Department of the Railroad Commission of Texas, with
principal duties involving reservoir units and gas proration. In 1961 he was
employed by the California Company as a Drilling Engineer and Supervisor. In
1963 he was employed as a Staff Engineer by California Research Corporation and
in 1964 rejoined the California Company as a project manager having various
duties involving drilling and reservoir evaluations. In 1966 he was Executive
Vice President for Moran Bros. Inc., coordinating and managing all company
activities, drilling operations, bidding and engineering. From 1970 until the
present, he has been self-employed as a consulting petroleum engineer providing
services to industry and government and engaged in business as an independent
oil and gas operator and investor. From 1975 to 1987 he was also a Director and
President of Verna Corporation, a drilling contractor and service organization.
He received a B.S. degree in Petroleum Engineering in 1960 from the University
of Texas and an M.S. degree in Petroleum Engineering from that same University
in 1961.
Stuart Strasner. Mr. Strasner, age 66, was a Director of the General
Partner from its formation until October of 1986. He was reappointed to the
Board on April 19, 1990 to fill a vacancy. He is a member of the Audit
Committee. He is a professor of business law at Oklahoma City University and was
Dean of the law school at Oklahoma City University from July 1984 until June
1991. Prior to July 1984, Mr. Strasner was an attorney in private practice with
McCollister, McCleary, Fazio and Holliday in Oklahoma City, Oklahoma. From 1959
to 1974, he was employed by various banks, bank holding companies and an
insurance company in executive capacities. From 1974 to 1978, he was a
consultant to various corporations such as insurance companies, bank holding
companies and small business investment companies. From 1978 until late 1981, he
was Executive Director of the Oklahoma Bar Association, and from 1981 to 1983
was a Director and President of PRST Enterprises, Inc., a real estate
development company. Mr. Strasner holds an A.B. degree from Panhandle A&M
College, Oklahoma, and a J.D. degree from the University of Oklahoma. He is a
member of the Fellows of the American Bar Association and a member of the
Oklahoma Bar Association. Mr. Strasner is also a director of Health Images,
Inc., a public company which provides fixed site magnetic resonance imaging
("MRI") services.
III-1
<PAGE>
Martin J. Freedman. Mr. Freedman, age 71, was one of the General Partner's
founders and a member of its Board of Directors as well as a board member of
Enex Securities Corporation until June of 1986. He was reappointed to the Board
on April 19, 1990 to fill a vacancy. He is a member of the Compensation and
Options Committee. He is currently President of Freedman Oil & Gas Company,
engaged primarily in the management of its exploration and producing properties,
and the managing partner Martin J. Freedman & Company which has an interest in
approximately one hundred producing oil and/or gas wells. Mr. Freedman is a
lifetime member of the Denver Petroleum Club as well as being a lifetime member
of the Denver Association of Petroleum Landmen. He was an officer and Director
and/or founder of several former private and public companies. Mr. Freedman
entered the oil and gas business in 1954 when he joined Mr. Marvin Davis of the
Davis Oil Company. In 1956, he became President of Central Oil Corporation, a
company engaged in oil and gas exploration. From 1958 on, Mr. Freedman operated
as Martin J. Freedman Oil Properties and was President of Oil Properties, Inc.,
a private corporation. Mr. Freedman attended Long Island University and New York
University. He received a bachelor's degree in Psychology and also attended New
York University's graduate school.
James Thomas Shorney. Mr. Shorney, age 70, has been a Director of the
General Partner since April of 1990 and is a member of the Compensation and
Options Committee. He has been a petroleum consultant and Secretary/Treasurer of
the Shorney Company, a privately held oil and gas exploration company, from 1970
to date. From 1970 to 1976, he also served as a petroleum consultant in Land and
Lease Research Analysis Studies for the GHK Company. He was an oil and gas lease
broker from 1962 to 1970 and employed by Shell Oil Company in the Land
Department from 1954 to 1962. Before joining Shell Oil Company, he served as
Public Information Officer in the U.S. Army Air Force from 1950 to 1953
including attending Georgetown University Graduate School in 1952. Mr. Shorney
graduated from the University of Oklahoma with a B.A. degree in Journalism in
1950. From 1943 to 1945, he served in the U.S. Army Air Force as an air crew
member on a B-24 Bomber. Mr. Shorney is a member of the Oklahoma City
Association of Petroleum Landmen on which he has served as Director and
Secretary/Treasurer. He is an active member of the American Association of
Petroleum Landmen. In 1975, Mr. Shorney was first listed in the London Financial
Times' Who's Who in World Oil and Gas.
Robert D. Carl, III. Mr. Carl, age 42, was appointed a Director of the
General Partner on July 30, 1991 and is a member of the Audit Committee. He is
President, Chief Executive Officer and Chairman of the Board of Health Images,
Inc., a public company whose securities are traded on NYSE, which provides fixed
site magnetic resonance imaging ("MRI") services. From 1978 to 1981, Mr. Carl
also served as President of Carl Investment Associates, Inc. a registered
investment advisor. In 1981, Mr. Carl joined Cardio-Tech, Inc., as general
counsel and as an officer and Director. Upon the sale and reorganization of
Cardio-Tech, Inc. into Cardiopul Technologies in 1982, he served as its
Executive Vice President and as a Director. In March, 1985 he was elected
President, Chief Executive Officer and Chairman of Cardiopul Technologies which
spun off its non-imaging medical services business and changed its name to
Health Images, Inc. Mr. Carl received a B.A. in History from Franklin and
Marshall College, Lancaster, Pennsylvania in 1975 and a J.D. from Emory
University School of Law, Atlanta, Georgia in 1978. Mr. Carl is a trustee of
Franklin & Marshall College and is a member of the State Bar of Georgia.
On January 4, 1996, the SEC filed a complaint in the United States District
Court for the District of Columbia against Mr. Carl alleging that Mr. Carl
violated Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act"),
and Rule 16a-2 and 16a-3 (and former Rule 16a-1) thereunder, by failing to
timely file reports concerning thirty-eight securities transactions in his
mother's brokerage accounts involving shares of Health Images, Inc. stock.
Although Mr. Carl's mother apparently did not
III-2
<PAGE>
live in his household, the SEC took the position that because Mr. Carl (1)
provided substantial financial support to his mother, (2) commingled his
mother's assets with his own, (3) provided a substantial portion of the funds
used to purchase the shares in question, and (4) received from his mother a
substantial portion of the sales proceeds, he, therefore, had a pecuniary
interest in, and was a beneficial owner of, the shares in question.
In response to the SEC's action, Mr. Carl disgorged to Health Images, Inc.
approximately $92,400 in short-swing profits from the trading in his mother's
account, plus interest thereon of approximately $52,600. The SEC further
requested the court to impose a $10,000 civil penalty against Mr. Carl pursuant
to Section 21(d)(3) of the Exchange Act. Without admitting or denying the
allegations in the complaint, Mr. Carl consented to the entry of a final
judgement imposing the $10,000 penalty. On January 12, 1996, a federal judge
entered the final judgement in this matter, and Mr. Carl has since filed amended
reports on Forms 4 and 5 reflecting these transactions in his mother's accounts.
In relation to the same matter, the SEC has issued an administrative Order
pursuant to Section 21C of the Exchange Act against Mr. Carl, finding that he
violated Section 16(a) and the rules thereunder and requiring him to cease and
desist from committing or causing any violation or future violation of those
provisions. Without admitting or denying allegations in the SEC's Order, Mr.
Carl consented to the entry of the Order.
Robert E. Densford. Mr. Densford, age 38, was appointed a Director of the
General Partner on September 11, 1991. He joined the General Partner as
Controller on May 1, 1985 and became Vice President-Finance, Secretary and
Treasurer on March 1, 1989. From January 1983 to April 1985, he was Senior
Accountant for Deloitte Haskins & Sells in Houston, Texas, auditing both closely
held and publicly owned oil and gas companies. From September 1981 to December
1982, he was a staff accountant for Coopers & Lybrand in Houston. Mr. Densford
is a C.P.A. and holds a B.B.A. degree in Accounting and an M.S. degree in Oil
and Gas Accounting from Texas Tech University and is a member of the American
Institute of Certified Public Accountants and the Texas Society of Certified
Public Accountants.
James A. Klein. Mr. Klein, age 32, joined the General Partner as Controller
in February 1991. In June 1993, he was appointed President and Principal of Enex
Securities Corporation. From June 1988 to February 1991, he was employed by
Positron Corporation in Houston. From July 1987 to May 1988, he was employed by
Transworld Oil Company in Houston and from September 1985 until July 1987, he
was an accountant with Deloitte Haskins & Sells in Houston, Texas, auditing oil
and gas and oil service companies. Mr. Klein is a Certified Public Accountant
and holds a B.A. in Accounting (1985) from the University of Iowa. He is a
member of the American Institute of Certified Public Accountants and the Iowa
Society of Certified Public Accountants.
Item 10. Executive Compensation
The Company has no Directors or executive officers.
The Company does not pay a proportional or fixed share of the compensation
paid to the officers of the General Partner.
The Company reimburses the General Partner for direct costs and
administrative costs incurred on its behalf. Administrative costs allocated to
the Company are computed on a cost basis in accordance with standard industry
practices by allocating the time spent by the General Partner's personnel among
all projects and by allocating rent and other overhead on the basis of the
relative direct time charges.
III-3
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
$500 Limited
Name of Partner Units Percent
Title of Class Beneficial Owner Owned Directly of Class
--------------- ---------------- -------------- --------
Limited Partner Enex Resources 192 6.2112%
Item 12. Certain Relationships and Related Transactions
See the Statements of Operations included in the Financial Statements in
Item 7 of this report for information concerning general and administrative
costs incurred by Enex and allocated to the Company, and Note 1 to such
Financial Statements for information concerning payments to Enex Securities
Corporation, a wholly owned subsidiary of Enex and to Enex for certain offering
and organization expenses incurred by the Company.
Item 13. Exhibits and Reports on Form 8-K
Sequential
Page No.
----------
(a) Exhibits
(3) a. Certificate of Limited Partnership, as amended. Incorporated
by reference to Exhibit 3(a) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988.
b. Amended Agreement of Limited Partnership. Incorporated by
reference to Exhibit 3(a) to the Registration Statement on
Form S-1 (No. 33-18776) of Enex 88-89 Income and Retirement
Fund filed with the Securities and Exchange Commission on
November 27, 1987.
(4) Not Applicable
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(18) Not Applicable
(19) Not Applicable
III-4
<PAGE>
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(25) Not Applicable
(28) Not Applicable
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
last quarter of the period covered by this
report.
III-5
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) 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 2, L.P.
By: ENEX RESOURCES CORPORATION
the General Partner
March 18, 1996 By: /s/ G. B. Eckley
--------------------
G. B. Eckley, President
In accordance with the Exchange Act, this report has been
signed below on March 18, 1996, by the following persons in the capacities
indicated.
ENEX RESOURCES CORPORATION General Partner
By: /s/ G. B. Eckley
------------------------
G. B. Eckley, President
/s/ G. B. Eckley
President, Chief Executive
------------------ Officer and Director
G. B. Eckley
/s/ R. E. Densford Vice President, Secretary, Treasurer,
Chief Financial Officer and Director
-------------------
R. E. Densford
/s/ James A. Klein Controller and Chief Accounting Officer
-----------------
James A. Klein
S-1
<PAGE>
/s/ Robert D. Carl, III
--------------------------
Robert D. Carl, III Director
/s/ Martin J. Freedman
--------------------------
Martin J. Freedman Director
/s/ William C. Hooper, Jr.
--------------------------
William C. Hooper, Jr. Director
/s/ Tom Shorney
--------------------------
Tom Shorney Director
/s/ Stuart Strasner
--------------------------
Stuart Strasner Director
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000842829
<NAME> Enex 88-89 Income & Retirement Fund Series 2 LP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> dec-31-1995
<PERIOD-START> jan-01-1995
<PERIOD-END> dec-31-1995
<CASH> 878
<SECURITIES> 0
<RECEIVABLES> 5336
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6214
<PP&E> 1374397
<DEPRECIATION> 1065073
<TOTAL-ASSETS> 315538
<CURRENT-LIABILITIES> 24800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 151538
<TOTAL-LIABILITY-AND-EQUITY> 315538
<SALES> 22555
<TOTAL-REVENUES> 22555
<CGS> 670
<TOTAL-COSTS> 17818
<OTHER-EXPENSES> 13149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8412)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
