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 0-17595
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
(Exact name of small business issuer as specified in its charter)
New Jersey 76-0251417
(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 3, L.P.
BALANCE SHEET
- -------------------------------------------------------------------------------
September 30,
ASSETS 1996
---------------------
(Unaudited)
CURRENT ASSETS:
<S> <C>
Cash $ 2,498
Accounts receivable - oil & gas sales 9,178
---------------------
Total current assets 11,676
---------------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests 1,510,573
Less accumulated depletion 1,475,912
---------------------
Property, net 34,661
---------------------
TOTAL $ 46,337
=====================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Payable to general partner $ 14,081
---------------------
Total current liabilities 14,081
---------------------
NONCURRENT PAYABLE TO GENERAL PARTNER 84,461
---------------------
PARTNERS' CAPITAL (DEFICIT):
Limited partners (56,782)
General partner 4,577
---------------------
Total partners' capital (52,205)
---------------------
TOTAL $ 46,337
=====================
Number of $500 Limited Partner units outstanding 3,414
</TABLE>
See accompanying notes to financial statements.
- -------------------------------------------------------------------------------
I-1
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, 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 $ 6,778 $ 11,208 $ 26,665 $ 28,540
---------------- ----------------- ----------------- -------------------
EXPENSES:
Depletion 6,660 6,845 16,022 25,151
Impairment of property - - 258,758 -
Production taxes 12 110 227 363
General and administrative 2,538 2,473 8,989 7,559
---------------- ----------------- ----------------- -------------------
Total expenses 9,210 9,428 283,996 33,073
---------------- ----------------- ----------------- -------------------
NET INCOME (LOSS) $ (2,432) $ 1,780 $ (257,331) $ (4,533)
================ ================= ================= ===================
</TABLE>
See accompanying notes to financial statements.
- ------------------------------------------------------------------------------
I-2
<PAGE>
<TABLE>
<CAPTION>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, 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) $ (257,331) $ (4,533)
------------------- -------------------
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depletion 16,022 25,151
Impairment of property 258,758 -
(Increase) decrease in:
Accounts receivable - oil & gas sales (1,420) 4,035
(Decrease) in:
Accounts payable (1,595) (2,862)
Payable to general partner (12,712) (23,863)
------------------- -------------------
Total adjustments 259,053 2,461
------------------- -------------------
Net cash provided (used) by operating activities 1,722 (2,072)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions - (5,029)
------------------- -------------------
NET INCREASE (DECREASE) IN CASH 1,722 (7,101)
CASH AT BEGINNING OF YEAR 776 7,540
------------------- -------------------
CASH AT END OF PERIOD $ 2,498 $ 439
=================== ===================
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------
I-3
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT FUND - SERIES 3, 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 $50,639 for certain
oil and gas properties due to market indications 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 $6,778 in 1996 from $11,208
in 1995. This represents a decrease of $4,430 (40%). Oil sales decreased by
$2,560 or 35%. A 43% decrease in the average net oil sales price decreased sales
by $3,747. This decrease was partially offset by a 15% increase in oil
production. Gas sales decreased by $1,870 or 51%. A 62% decrease in the average
net gas sales price decreased sales by $3,077. This decrease was partially
offset by an 32% increase in gas production. The increases in oil and gas
production were primarily due to the successful completion of a workover on the
Lake Decade acquisition in the third quarter of 1996. The decreases in average
net sales prices was the result of the lower net profits received during the
period as a result of higher expenses incurred on the Lake Decade acquisition
for workover costs in the third quarter of 1996.
Depletion expense decreased to $6,660 in the third quarter of 1996 from $6,845
in the third quarter of 1995. This represents a decrease of $185 (3%). A 21%
decrease in the depletion rate reduced depletion expense by $1,910. 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 $258,758 property impairment in the first
quarter of 1996.
General and administrative expenses increased to $2,538 in 1996 from $2,473 in
1995. This increase of $65 (3%) is primarily due to more 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 $26,665 in 1996 from
$28,540 in 1995. This represents a decrease of $1,875 (7%). Oil sales decreased
by $1,383 or 7%. An 8% decrease in the average net oil sales price decreased
sales by $1,775. This decrease was partially offset by a 2% increase in oil
production. Gas sales decreased by $492 or 6%. A 5% decrease in the average net
gas sales price decreased sales by $425. A 1% decrease in gas production reduced
gas sales by an additional $67. The changes in oil and gas production were
primarily due to the successful completion of a workover on the Lake Decade
acquisition in the third quarter of 1996, offset by natural production declines.
The decreases in average net sales prices were the result of lower net profits
received from the Lake decade acquisition due to higher workover expenses
incurred in 1996, partially offset by higher prices in the overall market for
the sale of oil and gas.
Depletion expense decreased to $16,022 in the first nine months of 1996 from
$25,151 in the first nine months of 1995. This represents a decrease of $9,129
(36%). A 37% decrease in the depletion rate reduced depletion expense by $9,255.
This decrease was partially offset by the
I-5
<PAGE>
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
$258,758 property impairment in the first quarter of 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 $258,758 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 $8,989 in 1996 from $7,559 in
1995. This increase of $1,430 (19%) 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.
II-1
<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 3, 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> 0000848081
<NAME> Enex 88-89 Income & Retirement Fund - Sr 3, 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> 2498
<SECURITIES> 0
<RECEIVABLES> 9178
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11676
<PP&E> 1510573
<DEPRECIATION> 1475912
<TOTAL-ASSETS> 46337
<CURRENT-LIABILITIES> 14081
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (52205)
<TOTAL-LIABILITY-AND-EQUITY> 46337
<SALES> 26665
<TOTAL-REVENUES> 26665
<CGS> 227
<TOTAL-COSTS> 283996
<OTHER-EXPENSES> 283769
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (257331)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
