UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------
Commission File Number: 0-9083
Enercorp, Inc.
(Exact name of Registrant as specified in its Charter)
Colorado 84-0768802
- ---------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
32751 Middlebelt Rd., Suite B
Farmington Hills, Michigan 48334
- ------------------------------------------ -------------------------
(Address of principal executive offices) (Zip Code)
(248) 851-5651
---------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Number of shares of common stock outstanding at March 31, 2000: 695,897
Enercorp, Inc.
Form 10-Q Filing for the Third Quarter Ended March 31, 2000
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
March 31, 2000 (Unaudited) and June 30, 1999 4
Schedule of Investments (Unaudited), March 31, 2000 5-6
Schedule of Investments June 30, 1999 7-8
Statements of Operations (Unaudited) for the Three
And Nine Months Ended March 31, 2000 and 1999 9
Statements of Cash Flows (Unaudited) for the Nine
Months Ended March 31, 2000 and 1999 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
Enercorp, Inc.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included, and the disclosures are adequate to make the information
presented not misleading. Operating results for the nine months ended
March 31, 2000 are not necessarily indicative of the results that may be
expected for the year ended June 30, 2000. These statements should be
read in conjunction with the financial statements and notes thereto
included in the Annual 10-K Report (filed with the Securities and
Exchange Commission) for the year ended June 30, 1999.
Enercorp, Inc.
Statements of Assets and Liabilities
(Unaudited)
March 31, June 30,
ASSETS 2000 1999
------------ ------------
Investments, at fair value, cost of $2,176,227 and
$2,179,227 at March 31, 2000 and June 30, 1999 $ 4,114,447 $ 6,610,996
Cash 61,513 16,907
Accounts receivable - related parties 12,018 6
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $19,537 and $17,339
at March 31, 2000 and June 30, 1999, respectively 6,024 5,780
Note receivable - related parties, net of allowance for
uncollectible notes receivable of $23,147 at
March 31, 2000 and June 30, 1999, respectively 3,086 7,715
Furniture and fixtures, net of accumulated depreciation
of $9,165 and $7,763 at March 31, 2000 and
June 30, 1999, respectively 3,271 4,674
Other assets 1,620 1,767
------------ ------------
$ 4,201,979 $ 6,647,846
============ ============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,141,649 $ 2,323,249
Accounts payable and accrued liabilities 32,238 23,730
Deferred tax liability (5,000) 773,000
------------ ------------
2,168,887 3,119,979
------------ ------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 shares issued and outstanding
March 31, 2000 and June 30, 1999 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,119,993) (1,268,492)
Unrealized net gain on investments, net of deferred
income taxes of $956,000 and $1,498,000 at
March 31, 2000 and June 30, 1999, respectively 1,264,834 2,908,108
------------ ------------
2,033,092 3,527,867
------------ ------------
$ 4,201,979 $ 6,647,846
============ ============
4
Enercorp, Inc.
Schedule of Investments
March 31, 2000
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 102
(i) 10,000,000 106,477 72,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 200,000 30,000 403,750
control systems (e) 850,000 127,500 1,715,938
(e) 330,000 412,500 666,188
(e) 30,000 108,750 60,563
(e) 50,000 125,000 100,938
(e) 150,000 61,500 302,813
(e) 42,329 100,000 85,452
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e)(g) 294,118 600,000 198,529
(e)(g) 16,667 37,500 11,250
Pro Golf International, Inc. Franchisor of retail golf stores (a) 7,450 447,000 447,000
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 6,750
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - -
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c) 50,000 -
03/12/08 (c)(j) 50,000 - -
10/02/08 (c)(f) 50,000 - -
---------- -----------
2,176,227 4,071,273
See notes to financial statements
5
(Continued)
Enercorp, Inc.
Schedule of Investments (Continued)
March 31, 2000
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company (h) 11,501 1,725 37,378
Vitro Diagnostics Diagnostic Test Kits 300 1,500 1,106
ProConnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
---------- -----------
Sub-total - UNAFFILIATED COMPANIES 22,386 43,274
---------- -----------
Total - ALL COMPANIES $ 2,198,613 $ 4,114,547
========== ===========
(a)Non-public company whose securities are privately owned.
(b)May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated.
(c)No public market for this security exists.
(d)The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors, including recent and historical prices of these securities,
recent transactions completed by the Company, and other factors that the
Board believes are applicable.
(e)Pledged as collateral against a line of credit with Comerica Bank.
(f)Options 50% vested and will vest at 25% additional on 10/02/00 and
10/02/01 consecutively.
(g)Reflects 1-for-6 reverse stock split effective August 14, 1998.
(h)In August 1999, Immune Response completed a 1-for-100 reverse stock split
and also completed a 1-for-3 reverse split in January 2000.
(i)Reflects a per share value lower than the
closing price of $0.065 per share on March 31, 2000, to be used until the
Registrant has completed its review of transfer restrictions which may
be related to these shares which could affect the Registrant's ability
to readily dispose of them.
(j)Options are 75% vested and will vest the final 25% on 03/12/01.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
6
Enercorp, Inc.
Schedule of Investments
June 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 400,000 60,000 1,187,500
control systems (e) 850,000 127,500 2,523,438
(e) 330,000 412,500 979,688
(e) 30,000 108,750 89,063
(e) 50,000 125,000 148,438
(e) 150,000 61,500 445,313
42,329 100,000 125,664
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 294,118 600,000 537,750
(e) 16,667 37,500 30,473
Pro Golf International, Inc. Franchisor of retail golf stores (a) 16,800 419,832 419,832
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 9,000
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - 13,280
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c)(f) 50,000 21,250
03/12/03 (c)(g) 50,000 - 29,113
10/02/08 (c)(h) 50,000 - 37,188
Pro Golf Online, Inc. Internet sale of golf related 06/23/02 (c) 42,000 168 168
products ---------- -----------
2,179,227 6,606,161
See notes to financial statements
7
(Continued)
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 45
ProConnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
---------- ----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,835
---------- ----------
Total - ALL COMPANIES $ 2,204,888 $ 6,610,996
========== ==========
(a)Non-public company whose securities are privately owned.
(b)May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated.
(c)No public market for this security exists.
(d)The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors, including recent and historical prices of these securities,
recent transactions ompleted by the Company, and other factors that the
Board believes are applicable.
(e)Pledged as collateral against a line of credit with Comerica Bank.
(f)Options will vest an additional 25% on 9/13/99.
(g)Options will vest an additional 25% on 3/12/00 and 3/12/01 consecutively.
(h)Options will vest an additional 25% on 10/2/99, 10/2/00 & 10/2/01 consecutively.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
8
Enercorp, Inc.
Statements of Operations
(Unaudited)
For the Three Months For the Nine Months
Ended March 31 Ended March 31
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Interest income 161 1,202 161 5,394
Interest income from related entities 1,715 -0- 29,442 -0-
Consulting fees from related companies 16,000 -0- 16,000 -0-
Net realized gain on sale of investments 456,624 -0- 456,624 -0-
------------ ------------ ------------ ------------
474,500 1,202 502,227 5,394
------------ ------------ ------------ ------------
EXPENSES
Salaries - officer 21,750 25,375 65,250 65,250
Directors Fees -0- -0- 1,000 -0-
Bonus -0- -0- -0- 12,500
Legal, accounting and other professional fees 2,949 4,482 18,438 17,185
Interest expense - other 54,015 47,038 164,051 144,624
Bad debt expense 727 599 6,827 1,825
Other general and administrative expenses 11,292 16,774 29,162 35,658
------------ ------------ ------------ ------------
90,733 94,268 284,728 277,042
------------ ------------ ------------ ------------
Net income (loss) from operations before taxes 383,768 (93,066) 217,499 (271,648)
Income taxes (119,000) 33,000 (69,000) 90,000
------------ ------------ ------------ ------------
Net income (loss) from operations after taxes 264,768 (60,066) 148,499 (181,648)
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investments before taxes (482,972) 39,869 (2,490,274) (42,066)
Income taxes 165,000 (14,000) 847,000 14,000
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investment after taxes (317,972) 25,869 (1,643,274) (28,066)
------------ ------------ ------------ ------------
Increase (decrease) in net assets (53,204) $ (34,197) $ (1,494,775) $ (209,714)
============ ============ ============ ============
Increase in net assets per share (0.07) $ (0.05) $ (2.15) $ (0.35)
============ ============ ============ ============
9
Enercorp, Inc.
Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended March 31,
----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Increase (decrease) in net assets $ (1,494,775) $ (209,714)
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,402 925
Bad debt provision on notes receivable
and interest net of write offs 6,827 1,825
Gain on sale of investments (456,624) -0-
(Increase) decrease in unrealized gain on investments 2,490,274 42,066
(Increase) decrease in accounts receivable - related party (11,842) -0-
(Increase) in interest receivable (2,442) 2,213
(Increase) Decrease in other assets (22) (184)
Increase (Decrease) in accounts payable & accrued expenses 8,508 (796)
(Decrease) in deferred taxes (778,000) (104,000)
------------ ------------
Total adjustments 1,258,081 (57,951)
------------ ------------
Net cash (used) by operating activities (236,693) (267,665)
------------ ------------
Cash flows from investing activities:
Purchase of Investments (27,000) (100,000)
Proceeds from Sale of Investments 489,899 -0-
Payments from notes receivable -0- 189,515
------------ ------------
Net cash provided by investing activities 462,899 89,515
------------ ------------
Cash flows from financing activities:
Payments to notes payable (358,000) -0-
Proceeds from notes payable 176,400 176,500
------------ ------------
Net cash provided by financing activities (181,600) 176,500
------------ ------------
Increase in cash 44,606 (1,650)
Cash, beginning of period 16,907 16,128
------------ ------------
Cash, end of period $ 61,513 $ 14,478
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 164,051 $ 146,008
============ ============
10
Note 1: Investments
On August 13, 1998, Ajay Sports, Inc. ("Ajay") announced that its board of
directors had authorized the implementation of a 1-for-6 reverse split of
the company's common stock, effective with the commencement of trading on
August 14, 1998. The reverse split was approved by the stockholders of
Ajay at the company's annual meeting on May 29, 1998.
Following the reverse split, holders of Ajay's common stock received one
new share of $.01 par value common stock for every six shares of common
stock currently held. Therefore, the number of Ajay shares held by the
Company is 310,785.
On February 29, 2000, the Registrant converted its note receivable from
Pro Golf International, Inc. ("PGI"), and the interest accrued but unpaid
on such note receivable, into common stock of PGI. The conversion was made
at the rate of $60 per common share, the price at which PGI was raising
equity capital under a Confidential Private Placement Memorandum dated
February 4, 2000. The Registrant had initially made an investment in the
subordinated debt of the Registrant on June 23, 1999, as part of the
purchase of Pro Golf of America, Inc. on that date by PGI, a majority
owned subsidiary of the Registrant's investee company, Ajay Sports, Inc.
on that date, and the Registrant had held the note from PGI from June 23,
1999 until the time of this conversion into common stock. In exchange for
converting the $420,000 note and $27,000 of interest, the Registrant
received 7,450 shares of PGI's common stock.
PGI operates through its wholly owned operating subsidiary, Pro Golf of
America. Under its prior ownership, PGOA opened one of America's second
`off-course' retail golf stores in 1962, virtually inventing the retail
discount golf store concept. The retail success led the company to begin
franchising in 1975. Today, its franchised stores generate nearly $240
million in golf equipment and apparel sales through the off-course golf
shop distribution channel each year. PGOA collects initial franchise fees
from each new store and ongoing monthly royalties based on product sale
that occurs in franchised stores. Pro Golf.Com, Inc., a subsidiary of PGI,
was formed to acquire the Internet operations of PGOA and Ajay, and has
obtained only limited financing. The Internet site generates limited sales
and is still under development. During the 2000 fiscal year, this entity
will be assembling its management team, expanding sales and seeking
additional financing and the Registrant believes this opportunity has
significant potential for long-term success.
During the quarter, the Registrant sold 200,000 shares of Williams
Controls, Inc. common stock for $412,481. The Registrant also sold 21,832
shares of Immune Response, Inc. The proceeds of these sales were used to
reduce the Comerica loan and working capital.
The Registrant's investment in CompuSonics Video Corporation ("CVC") is
valued at a price substantially lower than the closing price of $.065 per
share on March 31, 2000. This price will be used until the Registrant has
appropriate documentation reflecting the Registrant's ability to sell or
transfer this investee's shares on the OTC market. CompuSonics Video
Corporation holds patents in several countries covering fundamental
techniques for digital recording and playback audio and video data.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
In June 1998, the Registrant renewed its line of credit with Comerica
Bank and the line was increased to $2,500,000 at 3/4% over Comerica's
prime lending rate. The collateral for this line of credit was 1,652,329
shares of Williams Controls ("Williams") common stock owned by the
Registrant and 310,785 shares of common stock of Ajay owned by the
Registrant. Borrowing is limited to 50% of the fair market value of the
collateral, except that the maximum amount that can be borrowed against
the Ajay stock is $400,000. This loan is due on demand.
In January, the Registrant sold 200,000 shares of the common stock of
Williams. The stock sale yielded net proceeds of $412,366, which were
used to pay down the Registrant's loan with Comerica ($358,000) with the
balance being used to pay interest on the loan and for operating
expenses. The Registrant's loan outstanding with Comerica is $2,141,649
as of March 31, 2000.
The Registrant was informed by Comerica on January 31, 2000 that its
loan was out of formula with the bank's requirement and that the
Registrant had not maintained a minimum 50% loan-to-collateral-value
ratio on its loan. As of the date of this filing, the Registrant is
working out a plan with Comerica to regain compliance with the 50%
ratio.
To address its liquidity needs, the Registrant has also sold 21,832
shares of common stock of Immune Response, Inc. that it held in its
portfolio. Proceeds of these sales were used for debt repayment and
working capital.
The Registrant's liquidity is affected primarily by the business
success, securities prices and marketability of its investee companies
and by the amount and timing of new or incremental investments it makes.
At March 31, 2000, due to the out-of-formula circulation of its loan
with Comerica, the Registrant was unable to borrow any additional
amounts against its credit line. The Registrant has several options for
continued cash flow including selling some shares of Immune Response,
Ajay or Williams common stock.
Material Changes in Results of Operations:
The Registrant's revenues were $502,227 and $5,394 for third quarter
ended March 31, 2000 and 1999, respectively. The increase in revenues
for the quarter, compared with the prior year's quarter, is due mainly
to an increase in interest income from related companies of $24,048, an
increase in consulting fees of $16,000, and the gain on sale of Williams
Controls, Inc. common stock of $382,481 and Immune Response, Inc. common
stock of $74,143.
The Registrant recorded an unrealized loss on investments of $2,490,274
for the third quarter ended March 31, 2000 compared to a loss of $42,066
for the third quarter ended March 31, 1999. This is mainly due to the
changes in fair market value of the Registrant's investment in Williams
and Ajay.
Williams Controls, Inc. - Investee Company
The Registrant's largest investee company, Williams, is a publicly held
company (Nasdaq: WMCO) in which the Registrant owns common stock and
options. Management recognizes that there is risk associated with its
lack of diversification due to its large investment concentration in
Williams, and is currently addressing that matter. Williams Controls,
Inc., through its subsidiary companies, manufactures and markets
sensors, controls and communication systems for the transportation and
communication industries.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit 27 Financial Data Schedule
B) Form 8-K
None
Enercorp, Inc.
Form 10-Q
For the Third Quarter Ended March 31, 2000
Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enercorp, Inc.
(Registrant)
BY \s\Robert R. Hebard
----------------------------------
Robert R. Hebard
President and Chief Financial Officer
Date: May 22, 2000