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, 1996
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 0-17558
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0251416
(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 2, L.P.
BALANCE SHEET
- --------------------------------------------------------------------------------
September 30,
ASSETS 1996
---------------------
(Unaudited)
CURRENT ASSETS:
<S> <C>
Cash $ 2,509
Accounts receivable - oil & gas sales 4,247
---------------------
Total current assets 6,756
---------------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,374,397
Less accumulated depletion 1,359,291
---------------------
Property, net 15,106
---------------------
TOTAL $ 21,862
=====================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $
Payable to general partner 22,520
---------------------
Total current liabilities 22,520
---------------------
NONCURRENT PAYABLE TO GENERAL PARTNER 135,123
---------------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (137,903)
General partner 2,122
---------------------
Total partners' capital (135,781)
---------------------
TOTAL $ 21,862
=====================
Number of $500 Limited Partner units outstanding 3,098
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
I-1
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
(UNAUDITED) QUARTER ENDED NINE MONTHS ENDED
------------------------------------- ----------------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---------------- ----------------- ----------------- -------------------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 4,677 $ 7,701 $ 17,187 $ 18,455
---------------- ----------------- ----------------- -------------------
EXPENSES:
Depletion and amortization 3,053 4,851 7,896 16,839
Impairment of property - - 286,322 -
Production and other taxes 152 160 449 513
General and administrative 2,719 2,744 9,839 8,596
---------------- ----------------- ----------------- -------------------
Total expenses 5,924 7,755 304,506 25,948
---------------- ----------------- ----------------- -------------------
NET (LOSS) $ (1,247) $ (54) $ (287,319) $ (7,493)
================ ================= ================= ===================
</TABLE>
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------
I-2
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, L.P.
STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------
(UNAUDITED)
NINE MONTHS ENDED
--------------------------------------------
September 30, September 30,
1996 1995
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (287,319) $ (7,493)
------------------- -------------------
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depletion and amortization 7,896 16,839
Impairment of property 286,322 -
(Increase) in:
Accounts receivable - oil & gas sales 1,089 2,975
(Decrease) in:
Accounts payable (1,599) (2,823)
Payable to general partner (4,758) (9,859)
------------------- -------------------
Total adjustments 288,950 7,132
------------------- -------------------
Net cash provided (used) by operating activities 1,631 (361)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions - (4,397)
------------------- -------------------
NET INCREASE (DECREASE) IN CASH 1,631 (4,758)
CASH AT BEGINNING OF YEAR 878 5,710
------------------- -------------------
CASH AT END OF PERIOD $ 2,509 $ 952
=================== ===================
</TABLE>
See accompanying notes to financial statements.
- ---------------------------------------------------------------------------
I-3
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 2, 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 Inc., ("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 $286,322 for certain
oil and gas properties due to market conditions and reserve revisions on
the Lake Decade acquisition, which indicated that the carrying amounts were
not fully recoverable.
I-4
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Third Quarter 1995 Compared to Third Quarter 1996
Oil and gas sales for the third quarter decreased to $4,677 in 1996 from $7,701
in 1995. This represents a decrease of $3,024 (39%). Oil sales decreased by
$1,252 or 30%. An 8% decrease in oil production reduced sales by $355, while a
24% decrease in average oil prices reduced dales by an additional $897. Gas
sales decreased by $1,773 or 51%. A 64% decrease in the average net gas sales
price decreased sales by $3,009. This decrease was partially offset by an 35%
increase in gas production. The decreases in oil production was primarily due to
natural production declines. The increase in gas production was due mainly to
higher production from the Lake Decade acquisition, which had a successful
workover completed on it during the third quarter of 1996. The increase in
average net oil prices corresponds with higher prices in the overall market for
the sale of oil. The decrease in the average net gas sales price was primarily
due to lower net profits royalty payments received from the Lake Decade
acquisition, which incurred workover costs during the third quarter of 1996.
Depletion expense decreased to $3,053 in the third quarter of 1996 from $4,851
in the third quarter of 1995. This represents a decrease of $1,798 (37%). A 43%
decrease in the depletion rate decreased depletion expense by $2,338. This
decrease was partially offset by the changes in production noted above. The
decrease in the depletion rate was primarily due to the lower property basis
resulting from the recognition of a $286,322 property impairment.
General and administrative expenses decreased to $2,719 in 1996 from $2,744 in
1995. This represents a decrease of $25 or 1%. This decrease was primarily a
result of less staff time being required to manage the Company's operations.
First Nine Months in 1995 Compared to First Nine Months in 1996
- ----------------------------------------------------------------
Oil and gas sales for the first nine months decreased to $17,187 in 1996 from
$18,455 in 1995. This represents a decrease of $1,268 (7%). Oil sales decreased
by $865 or 8%. An 8% decrease in oil production reduced sales by $961. This
decrease was partially offset by a 1% increase in the average oil sales price.
Gas sales decreased by $403 or 6%. A 9% decrease in the gas production reduced
sales by $678. This decrease was partially offset by a 4% increase in the
average gas sales price. The decreases in oil and gas production were primarily
due to natural production declines. The increases in average net oil and gas
sales prices correspond with higher prices in the overall market for the sale of
oil and gas.
Depletion expense decreased to $7,896 in the first nine months of 1996 from
$16,839 in the first nine months of 1995. This represents a decrease of $8,943
(53%). The changes in production, noted above, reduced depletion expense by
$1,530. A 48% decrease in the depletion rate decreased depletion expense by an
additional $7,413. The decrease in the depletion rate was primarily due to the
lower property basis resulting from the recognition of a $286,322 property
impairment.
I-5
<PAGE>
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 Inc., ("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 $286,322 for
certain oil and gas properties due to market conditions and reserve revisions on
the Lake Decade acquisition, which indicated that the carrying amounts were not
fully recoverable.
General and administrative expenses increased to $9,839 in 1996 from $8,596 in
1995. This increase of $1,243 (14%) 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 1995 to 1996 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 cash flow to the
Company's partners.
The Company discontinued the payment of distributions during 1995. The Company
will continue to recover its reserves and distribute to the limited partners the
net proceeds realized from the sale of oil and gas production after payment of
its debt obligations. Distribution amounts are subject to change if net revenues
are greater or less than expected. Based upon current projected cash flows from
the properties, it does not appear that the Company will have sufficient cash to
pay its operating expenses, repay its debt obligations and pay distributions.
I-6
<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, 1996
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 2, L.P.
(Registrant)
By:ENEX RESOURCES CORPORATION
General Partner
By: /s/ R. E. Densford
R. E. Densford
Vice President, Secretary
Treasurer and Chief Financial
Officer
November 13, 1996 By: /s/ James A. Klein
-------------------
James A. Klein
Controller and Chief
Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000842829
<NAME> Enex 88-89 Income & Retirement Fund - Sr 2, L.P.
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> sep-30-1996
<CASH> 2509
<SECURITIES> 0
<RECEIVABLES> 4247
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6756
<PP&E> 1374397
<DEPRECIATION> 1359291
<TOTAL-ASSETS> 21862
<CURRENT-LIABILITIES> 22520
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (135781)
<TOTAL-LIABILITY-AND-EQUITY> 21862
<SALES> 17187
<TOTAL-REVENUES> 17187
<CGS> 449
<TOTAL-COSTS> 304506
<OTHER-EXPENSES> 304057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287319)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
