10QSB 1 0001.txt FORM 10-QSB FOR QUARTER ENDED SEPTEMBER 30, 2000 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ______ to _______ Commission File No. 0-9378 ENEX RESOURCES CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 93-0747806 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 777 Walker Street Two Shell Plaza, Suite 2400 Houston, TX 77002 (Address of principal executive offices) (713) 821-7100 (Issuer's telephone number) N/A (Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: Common stock, $.05 par value 1,342,672 shares as of September 30, 2000 Transitional Small Business Disclosure Format (check one) Yes [_] No [X] ENEX RESOURCES CORPORATION INDEX
Page No. ---- Part I. Financial Information Item 1. Financial Statements Balance Sheets- September 30, 2000 (Unaudited) and December 31, 1999 ........... 1 Statements of Operations (Unaudited)- Three and nine months ended September 30, 2000 and 1999 ........ 3 Statements of Cash Flows (Unaudited)- Nine months ended September 30, 2000 and 1999 .................. 4 Notes to Financial Statements (Unaudited) ........................ 5 Item 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations ........ 7 Part II. Other Information Item 6. Exhibits and reports on Form 8-K ......................... 9
PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS ENEX RESOURCES CORPORATION -------------------------- BALANCE SHEETS --------------
September 30, 2000 December 31, ASSETS (unaudited) 1999 ------ ----------- ------------ CURRENT ASSETS: Cash and cash equivalents $ - $ - Accounts receivable: Oil and gas sales 736,020 208,956 Joint owners 5,321 6,443 Preferred stock redemption 6,467,610 - ----------- ----------- Total current assets 7,208,951 215,399 ----------- ----------- PROPERTY: Oil and gas properties (successful efforts method): 3,363,264 3,363,151 Furniture, fixtures and other (at cost) 345,919 345,919 ----------- ----------- 3,709,183 3,709,070 Less accumulated depreciation, depletion and amortization 2,988,685 2,918,652 ----------- ----------- Net property 720,498 790,418 ----------- ----------- OTHER ASSETS: Preferred Stock-3TEC - 6,467,610 Note receivable-3TEC 7,219,687 6,310,942 ----------- ----------- Total other assets 7,219,687 12,778,552 TOTAL ASSETS $15,149,136 $13,784,369 =========== ===========
See accompanying notes to unaudited financial statements. --------------------------------------------------------- 1 ENEX RESOURCES CORPORATION -------------------------- BALANCE SHEETS --------------
September 30, 2000 December 31, LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1999 ------------------------------------ ----------- ------------ CURRENT LIABILITIES: Accounts payable $ 186,109 $ 249,092 ----------- ----------- Total current liabilities 186,109 249,092 ----------- ----------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued Common stock, $.05 par value; - - 10,000,000 shares authorized; 1,804,912 shares issued and outstanding at September 30, 2000 and December 31,1999 90,246 90,246 Additional paid-in capital 10,807,472 10,807,472 Retained earnings 7,310,256 5,882,506 Less Cost of treasury stock: 462,240 shares at September 30, 2000 and December 31, 1999 (3,244,947) (3,244,947) ----------- ----------- Total stockholders' equity 14,963,027 13,535,277 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,149,136 $13,784,369 =========== ===========
See accompanying notes to unaudited financial statements. --------------------------------------------------------- 2 ENEX RESOURCES CORPORATION -------------------------- STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 ---------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED September 30 September 30 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 2000 1999 2000 1999 ---------- ---------- ---------- ---------- REVENUES: Oil and gas sales $ 537,547 $ 330,049 $1,256,724 $ 808,178 Gain on sale of assets - - 36,226 1,170 Preferred stock dividends 161,690 161,691 485,070 485,071 Interest income 102,866 99,445 320,766 289,343 Other income 136 (43,565) 2,574 (32,949) ---------- ---------- ---------- ---------- Total revenues 802,239 547,620 2,101,360 1,550,813 ---------- ---------- ---------- ---------- COSTS AND EXPENSES: General and administrative 71,110 102,989 183,776 416,330 Lease operating and other 89,446 105,209 346,104 498,748 Production taxes 25,485 20,303 72,926 48,747 Depreciation, depletion and amortization 23,834 14,826 70,033 85,408 Interest expense - - 592 1,386 Other expense - - 179 - ---------- ---------- ---------- ---------- Total costs and expenses 209,875 243,327 673,610 1,050,619 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 592,364 304,293 1,427,750 500,194 INCOME TAX EXPENSE - 103,460 - 170,066 ---------- ---------- ---------- ---------- NET INCOME $ 592,364 $ 200,833 $1,427,750 $ 330,128 ========== ========== ========== ========== NET INCOME PER SHARE Basic $0.44 $0.15 $1.06 $0.25 ========== ========== ========== ========== Diluted $0.44 $0.15 $1.06 $0.25 ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 1,342,672 1,342,672 1,342,672 1,342,672 ========== ========== ========== ========== Diluted 1,342,672 1,342,672 1,342,672 1,342,672 ========== ========== ========== ==========
See accompanying notes to unaudited financial statements. --------------------------------------------------------- 3 ENEX RESOURCES CORPORATION -------------------------- STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 -----------------------------------------------------
2000 1999 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $1,427,750 $ 330,128 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 70,033 85,408 Deferred income tax expense - 170,066 Gain on sale of properties (36,226) (1,170) Changes in operating assets and liabilities: (Increase) Decrease in accounts receivable (525,942) 21,445 (Increase) Decrease in prepaid expenses and other assets - 20,182 (Decrease) Increase in accounts payable (62,983) 6,515 ---------- --------- Net cash provided by operating activities 872,632 632,574 ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in note receivable - 3TEC (908,745) (662,009) Proceeds from sale of properties 36,226 1,170 Property additions (113) (5,384) ---------- --------- Net cash used by investing activities (872,632) (666,223) ---------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS - (33,649) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - 33,649 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ - =========== =========
See accompanying notes to unaudited financial statements. --------------------------------------------------------- 4 ENEX RESOURCES CORPORATION Notes to Financial Statements September 30, 2000 (Unaudited) (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization ------------ Enex Resources Corporation (the "Company") was incorporated under the laws of the state of Colorado on August 17, 1979. On September 30, 1992, the Company reincorporated in Delaware. 3TEC Energy Corporation ("3TEC") owns 80% of the common stock of the Company. The Company is engaged in the development and production of oil and natural gas in the contiguous United States. The Company considers its business to be a single operating segment. Basis of Presentation --------------------- In management's opinion, the accompanying consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company as of September 30, 2000 and December 31, 1999 and the consolidated results of operations and consolidated cash flows for the periods ended September 30, 2000 and 1999. The consolidated financial statements were prepared pursuant to the rules and regulations of the Securities and Exchange Commission. An independent accountant has not audited the accompanying consolidated financial statements. Certain information and disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999. Earnings Per Share ------------------ Basic earnings per share is based on the weighted average shares outstanding without any dilutive effects considered. Diluted earnings per share reflects dilution from all potential common shares, including options, warrants and convertible preferred stock. The Company currently has no transactions with a dilutive effect on diluted shares outstanding. 5 ENEX RESOURCES CORPORATION Notes to Financial Statements September 30, 2000 (Unaudited) (2) RELATED PARTY TRANSACTIONS The Company has a note receivable from 3TEC, an owner of 80% of the outstanding common stock of the Company, as of September 30, 2000 of $7,219,687 The principal balance of the note accrues interest at the prime rate and is due on demand. The note consists of advances to 3TEC for general corporate purposes and is unsecured. Interest of $947,845 was accrued on the note as of September 30, 2000 and is included in the note receivable balance. The Company owns 1,293,522 shares of 3TEC Series C Preferred Stock ("Series C"). As a holder of Series C, the Company is entitled to receive cumulative cash dividends at an annual rate of $0.50 per share, payable March 31 and September 30 of each year. The Series C has a liquidation preference of $5.00 per share plus an amount equal to all accumulated, accrued and unpaid dividends. Each share of Series C is convertible into 1/3 share of 3TEC common stock. 3TEC has the right to redeem all or a portion of the Series C at its option (upon 30 days written notice), at a purchase price of $5.00 per share plus all accumulated, accrued and unpaid dividends. On August 31, 2000, 3TEC sent notices to the holders of its Series C Preferred Stock advising that the Series C would be redeemed on September 30, 2000. The Company is a party to the credit agreement between the Company, 3TEC and certain banks. If certain properties are sold by the Company an amount determined by the banks would have to be paid on the outstanding principal balance of the debt. The debt payment could be made by 3TEC or the Company. Amounts paid to the banks by the Company would reduce the amount of sales proceeds the Company would retain. Amounts paid to the banks by 3TEC would reduce the amount of cash available to be paid to the Company. The principal balance of bank debt outstanding on 3TEC's financial statements at September 30, 2000 was approximately $55 million. All but one of the officers and directors of the Company also serve as the officers and directors of 3TEC. (3) COMMITMENTS AND CONTINGENCIES The Company is a defendant in various legal proceedings which are considered routine litigation incidental to the Company's business, the disposition of which management believes will not have a material effect on the financial position or results of operations of the Company. (4) ACCOUNTING PRONOUNCEMENTS In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, standardizes the accounting for and disclosures of derivative instruments, including certain derivative instruments embedded in other contracts. The statement is effective for the Company's financial statements on January 1, 2001. As of September 30, 2000, the Company has not done a final review, but does not believe there are any derivative instruments or hedging activities that will impact the 2001 operations and therefore does not expect any income statement or balance sheet impact for 2001. However, the Company cannot assure that such instruments or activities will not be put into place in the future. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- The principal source of the Company's cash flow will be sales of oil and natural gas and income from the Company's investment in 3TEC preferred stock and the note receivable from 3TEC. The Company does not anticipate any capital expenditures for acquisition or exploration of oil and natural gas reserves in the future. The Company expects to make expenditures to develop its proved undeveloped reserves, to maintain its proved developed reserves and to plug and abandon certain wells in Florida. The Company expects to incur a minimum of $50,000 in capital expenditures over the next twelve months. The Company also expects that cash flows from operations, proceeds from sales of certain oil and gas properties and advances from 3TEC will be sufficient to fund the planned capital expenditures for the next twelve months. Because future cash flows from the Company's oil and gas properties are subject to a number of variables, such as, the level of production and prices received for oil and gas and the prices received on property sales, there can be no assurance that the Company's capital resources will be sufficient to maintain planned levels of capital expenditures and accordingly, oil and gas revenues and operating results may be adversely affected. As of September 30, 2000, the Company has not done a final review, but does not believe there are any derivative instruments or hedging activities that will impact the 2001 operations and therefore does not expect any income statement or balance sheet impact as a result of the issuance of FAS 133. However, the Company cannot assure that such instruments or activities will not be put into place in the future. The continued accrual of income from the Company's investment in 3TEC preferred stock and the note receivable from 3TEC depends solely upon the creditworthiness of the Company's 80% owner, 3TEC. Should 3TEC experience problems that adversely affect its financial condition, the financial condition and results of operations of the Company will be adversely affected. On August 31, 2000, 3TEC sent notices to the holders of its Series C Preferred Stock advising that the Series C would be redeemed on September 30, 2000. Results of Operations --------------------- Three months ended September 30, 2000 and 1999 ----------------------------------------- The Company's total revenues increased 46% to $802,239 caused primarily by a 63% increase in oil and gas revenues to $537,547. Increases in oil and gas prices caused the oil and gas revenue increase. During the current period, the Company sold 4,287 barrels of oil at an average price of $29.79 per barrel and 97,999 Mcf of gas at an average price of $4.26 per Mcf. In the comparable period, the Company sold 4,000 barrels of oil at an average price of $27.51 per barrel and 86,000 Mcf of gas at an average price of $2.68 per Mcf. 7 Total costs and expenses decreased 14% to $209,875 caused primarily by a decline in lease operating and general and administrative expenses. Lease operating expenses decreased because of operational improvements on the Segundo field, as well as the sale of properties late in 1999. General and administrative expenses decreased as a result of continued savings due to consolidation of its administrative function into 3TEC. The amount of current income tax expense calculated based on pre-tax income for the three months ended September 30, 2000 was offset by a reduction in the valuation allowance placed on the Company's deferred tax asset. Management of the Company believes that sufficient evidence to date does not support a full reversal of the valuation allowance placed on the Company's deferred tax asset. The Company reported net income of $592,364 for the current period versus a net income of $200,833 for the comparable period. The primary reason for the increase was higher oil and gas revenues and lower lease operating and general and administrative expenses. Nine months ended September 30, 2000 and 1999 --------------------------------------- The Company's total revenues increased 36% to $2,101,360 caused primarily by a 56% increase in oil and gas revenues to $1,256,724. Increases in oil and gas prices caused the oil and gas revenue increase. During the current period, the Company sold 10,973 barrels of oil at an average price of $26.67 per barrel and 283,450 Mcf of gas at an average price of $3.40 per Mcf. In the comparable period, the Company sold 15,000 barrels of oil at an average price of $15.54 per barrel and 271,000 Mcf of gas at an average price of $2.14 per Mcf. Total costs and expenses decreased 36% to $673,610 caused primarily by a decline in general and administrative lease operating expenses. General and administrative expenses decreased because of the consolidation of the Company's general and administrative functions which are now performed by 3TEC employees. Lease operating expenses decreased because of operational improvements on the Segundo field, as well as the sale of properties late in 1999. The amount of current income tax expense calculated based on year-to-date pre-tax income was offset by a reduction in the valuation allowance placed on the Company's deferred tax asset. Management of the Company believes that sufficient evidence to date does not support a full reversal of the valuation allowance placed on the Company's deferred tax asset. The Company reported net income of $1,427,750 for the current period versus a net income of $330,128 for the comparable period. The primary reason for the increase was higher oil and gas revenues and lower lease operating and general and administrative expenses. 8 PART II. OTHER INFORMATION --------------------------- (a) Exhibits 3.1 Certificate of Incorporation of the Company as currently in effect/(1)/ 3.2 Bylaws of the Company as currently in effect/(1)/ 4.1 Form of Rights Agreement dated as of September 4, 1990 between the Company's predecessor-in-interest, Enex Resources Corporation, a Colorado corporation (the "Predecessor"), and American Securities Transfer, Incorporated, as Rights Agent, which includes as exhibits thereto the Form of Rights Certificate and the Summary of Rights to Purchase Common Stock/(2)/ 10.1 Enex Employees Stock Purchase Program/(3)/ 10.2 1991 Non-Qualified Stock Option Award Program/(3)/ 10.3 1990 Non-Qualified Stock Option Plan/(3)/ 10.4 1984 Incentive Stock Option Plan and 1979 Employees Non- Qualified Stock Option Plan/(4)/ 10.5 Credit Agreement between the Company and Middle Bay Oil Company, Inc., as borrower, and Compass Bank, as agent and lender, Bank of Oklahoma, N.A., as a lender, and the other lenders signatory thereto dated March 27, 1998/(5)/ 16.1 from Deloitte & Touche, LLP regarding change in certifying public accountants dated October 26, 1998/(6)/ 21.1 Subsidiaries of the Company/(7)/ 27.1 Financial Data Schedule (Filed herewith) 1. Incorporated by reference to Exhibits to Form 8-K dated September 30, 1992 2. Incorporated by reference to Exhibits to Form 8-K dated September 4, 1990 3. Incorporated by reference to Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 22, 1993 4. Incorporated by reference to Exhibits to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 1, 1992 5. Incorporated by reference to Exhibits to Amendment No. 3 and Final Amendment to Schedule 14D-1 filed by Middle Bay Oil Company, Inc. (MBOC) on April 13, 1998 6. Incorporated by reference to Exhibits to Form 8-K filed October 29, 1998 7. Incorporated by reference to Exhibits to Annual Report on Form 10-K dated March 16, 1992 9 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized, as of November 16, 2000. ENEX RESOURCES CORPORATION (Registrant) By: /s/ FLOYD C. WILSON --------------------------------------- Floyd C. Wilson Chief Executive Officer and Chairman By: /s/ R.A. WALKER --------------------------------------- R.A. Walker President and Chief Financial Officer By: /s/ STEPHEN W. HEROD --------------------------------------- Stephen W. Herod Executive Vice President Corporate Development By: /s/ SHANE M. BAYLESS --------------------------------------- Shane M. Bayless Vice President - Controller 10