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 September 30, 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
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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 Road, 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 September 30, 2000: 695,897
Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended September 30, 2000
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
September 30, 2000 (Unaudited) and June 30, 2000 4
Schedule of Investments (Unaudited),
September 30, 2000 5-6
Schedule of Investments June 30, 2000 7-8
Statements of Operations (Unaudited) for the Three
Months Ended September 30, 2000 and 1999 9
Statements of Cash Flows (Unaudited) for the Three
Months Ended September 30, 2000 and 1999 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
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
2
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 three months ended
September 30, 2000 are not necessarily indicative of the results that
may be expected for the year ended June 30, 2001. Tese 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, 2000.
3
Enercorp, Inc.
Statements of Assets and Liabilities
September 30, June 30,
ASSETS 2000 2000
--------------- ---------------
Investments, at fair value, cost of $2176,227 and $2,204,888
at Sept. 30, 2000 and June 30, 2000, respectively $ 3,409,876 $ 3,873,815
Cash 477 23,844
Accounts receivable - related party 17,848 17,848
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $20,999 and
$20,264 at September, 2000 and June, 2000, respectively 6,187 6,105
Notes receivable - related parties, net of allowance for
uncollectible notes receivable of $27,776 at Sept. 30, 2000
and $27,776 at June 30, 2000 3,086 3,086
Furniture and fixtures, net of accumulated depreciation
of $10,100 at Sept. 30, 2000 and $9,633 at June 30, 2000,
respectively 2,336 2,804
Other assets 999 1,318
--------------- ---------------
$ 3,440,808 $ 3,928,820
=============== ===============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,141,649 $ 2,141,649
Note payable - Other 83,500 36,000
Accounts payable and accrued liabilities 6,995 25,127
Deferred tax liability -0- -0-
--------------- ---------------
2,232,144 2,202,776
--------------- ---------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 shares issued and
outstanding at June 30, 2000 and June 30, 1999
respectively 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,322,576) (1,268,084)
Unrealized net gain on investments, net of deferred
income taxes of $1,498,000 and $1,498,000 at
June 30, 2000 and 1999, respectively 642,988 1,105,877
--------------- ---------------
1,208,663 1,726,044
--------------- ---------------
$ 3,440,808 $ 3,928,820
=============== ===============
See notes to financial statements
4
Enercorp, Inc.
Schedule of Investments
September 30, 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 $ - $ 58
(i) 10,000,000 106,477 333,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 200,000 30,000 308,750
control systems (e) 850,000 127,500 1,312,188
(e) 330,000 412,500 509,438
(e) 30,000 108,750 46,313
(e) 50,000 125,000 77,188
(e) 150,000 61,500 231,563
(e) 42,329 100,000 65,345
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e)(g) 294,118 600,000 68,824
(e)(g) 16,667 37,500 3,900
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 1,125
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)(i) 50,000 - -
10/02/08 (c)(f) 50,000 - -
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2,176,227 3,404,692
See notes to financial statements
5
Enercorp, Inc.
Schedule of Investments (Continued)
September 30, 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)
Vitro Diagnostics Diagnostic Test Kits 300 1,500 394
ProConnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
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Sub-total - UNAFFILIATED COMPANIES 21,711 5,184
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Total - ALL COMPANIES $ 2,197,938 $ 3,409,876
========== ===========
(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)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, 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 $ - $ 72
(i) 10,000,000 106,477 414,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 200,000 30,000 353,286
control systems (e) 850,000 127,500 1,501,466
(e) 330,000 412,500 582,922
(e) 30,000 108,750 52,993
(e) 50,000 125,000 88,322
(e) 150,000 61,500 264,965
(e) 42,329 100,000 74,771
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e)(g) 294,118 600,000 74,435
(e)(g) 16,667 37,500 4,218
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)(i) 50,000 - -
10/02/08 (c)(f) 50,000 - -
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2,176,227 3,860,025
See notes to financial statements
7
Enercorp, Inc.
Schedule of Investments
June 30, 2000
Restrictions Number
Expiration as to of
Company Description of Business Date Resale Shs. Owned
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company (h) 7,000
Vitro Diagnostics Diagnostic Test Kits 300
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610
Sub-total - UNAFFILIATED COMPANIES
Total - ALL COMPANIES
(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 & 10/02/01 consecutively. (g) Reflects 1-for-6 reverse stock split
effective August 14, 1998. (h) In August, 1999, Immune Response colmpleted a
1-for-100 reverse stock split and also completed a 1-for-3 reverse split in
January, 2000. (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
8
Enercorp, Inc.
Statements of Operations
For the Three Months
Ended September 30,
-------------------------------------
2000 1999
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REVENUES
Interest income $ -0- $ -0-
Interest income from related entities 823 12,324
Consulting fees from related companies -0- -0-
Net realized gain on sale of investments 8,464 -0-
Dividend income from affiliated company -0- -0-
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9,287 12,324
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EXPENSES
Salaries - officer -0- 21,750
Bonus expense - officer -0- -0-
Directors' fees -0- -0-
Staff salaries -0- -0-
Legal, accounting and other professional fees 1,281 6,750
Interest expense - other 57,509 53,191
Bad debt expense 735 5,364
Other general and administrative expenses 4,253 8,639
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63,779 95,694
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Net gain (loss) from operations before taxes (54,492) (83,370)
Income taxes (Note 5) 0 35,000
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Net gain (loss) from operations after taxes (54,492) (48,370)
--------------- ---------------
Net unrealized gain (loss) on investments before taxes (442,230) (1,382,452)
Income taxes (Note 5) 0 470,000
--------------- ---------------
Net unrealized gain (loss) on investment after taxes (442,230) (912,452)
--------------- ---------------
Increase (decrease) in net assets resulting from operations $ (496,722) $ (960,822)
=============== ===============
Increase (decrease) in net assets per share $ (0.84) $ (1.63)
=============== ===============
See notes to financial statements
9
Enercorp, Inc.
Statements of Cash Flows
For the Three Months
Ended September 30,
------------------------------------------
2000 1999
------------------- ---------------
Cash flows from operating activities:
Increase (decrease) in net assets $ (496,722) $ (960,822)
------------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 467 467
Bad debt provision on notes receivable
and interest net of write offs (82) 5,364
Gain on sale of investments (8,464) -0-
Unrealized (gain) loss on investments 442,230 1,802,452
(Increase) in accounts receivable - related party 0 (172)
(Increase) in interest receivable 0 (432,324)
(Increase) Decrease in other assets 320 314
Increase (Decrease) in accounts payable and
accrued expenses (18,132) 795
Increase (Decrease) in deferred taxes -0- (505,000)
------------------- ---------------
Total adjustments 416,339 871,896
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Net cash (used) by operating activities (80,383) (88,926)
------------------- ---------------
Cash flows from investing activities:
Proceeds from sale of stock 9,516 0
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Cash flows from financing activities:
Proceeds from notes payable 47,500 90,400
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Net cash provided by investing activities 47,500 90,400
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Increase (Decrease) in cash (23,367) 1,474
Cash, beginning of period 23,844 16,907
------------------- ---------------
Cash, end of period $ 477 $ 18,381
=================== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 56,099 $ 53,324
=================== ===============
Interest received $ 6 $ -0-
=================== ===============
See notes to financial statements
10
Notes to Financial Statements
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 June 24, 1999, the Registrant completed a private offering of its
common stock through which it raised $420,000 in gross proceeds. The
proceeds from this offering were used to purchase 4.2 Units in a private
offering made jointly by Pro Golf International, Inc. ("PGI") and Pro Golf
Online, Inc. ("PGO"). Each Unit in this offering consisted of 4,000 shares
of PGI common stock and 10,000 warrants, each to purchase one share of PGO
common stock for $5.00 per share, exercisable on or before June 23, 2002.
The purpose of the offering was to raise the funds necessary for PGI to
acquire Pro Golf of America, Inc. ("Pro Golf"). During the quarter ended
September 30, 1999, the units of PGI held by the Registrant were exchanged
for a Subordinated Promissory Note in the principal amount of $420,000
dated June 22, 1999, due on July 22, 2000 and bearing interest at ten
percent per annum. On February 29, 2000, the Registrant converted
principal and interest due under its Subordinated Promissory Note into
common stock of PGI. The conversion was made at the rate of $60 per share,
the price at which PGI was then offering equity capital for sale in a
private offering. The Registrant agreed to this conversion, in part, to
assist PGI in raising other equity capital to allow PGI to refinance its
bank debt. At the time of the conversion, the Registrant believed
converting its debt to equity would be the best available means to protect
the Registrant's original investment in PGI. Upon conversion of the
$420,000 note and $27,000 of accrued interest, the Registrant received
7,450 shares of PGI common stock.
Item 2. Management's Discussion and Analysis of Financial Condition / Results
of Operations.
Material Changes in Financial Condition:
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, as well as
the availability of borrowing under the credit line.
11
In July 2000, the Registrant renewed its line of credit from Comerica Bank
("Comerica") under which it may borrow up to $2,250,000 at 3/4% over
Comerica's prime lending rate. The collateral for this line of credit is
1,652,329 shares of Williams Controls common stock owned by the Registrant
and 310,785 shares of the post-split common stock of Ajay Sports, Inc.
("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.
Based on the Advance Formula Agreement that the Registrant has with
Comerica Bank for this loan, the Registrant's loan is out of compliance
with the terms of the loan agreement, and has been so for a number of
months. As previously disclosed, Comerica has the right to demand payment
on the loan by the Registrant. While Comerica has not made a request for a
formal forbearance agreement with the Registrant related to this matter,
it has not allowed for any further advances against the credit line until
the loan is brought back into formula, either through loan paydown or
through the providing of additional collateral acceptable to the bank. The
Registrant is considering its options and ability to bring the loan back
into formula, including the sale of some of its portfolio securities and
using the proceeds to pay the loan in part or in full. The balance of the
Registrant's note payable to Comerica as of September 14, 2000 was
$2,141,649 and the balances at June 30, 2000 and 1999 were $2,141,649 and
$2,323,249, respectively.
Due to the lack of working capital, the President of the Registrant has
made loans to the Registrant to cover its short term working capital needs
since May 31, 2000. These loans are evidenced by a promissory note, are
payable on demand, and are secured the assets of the Registrant, including
the portfolio securities of the Registrant's investees. As of September
30, 2000, the note payable to the Registrant's president is $64,500 and
has accrued interest of $1,529. The note payable bears an interest rate of
prime plus .75%, the same rate at which the Registrant borrows from
Comerica. There is no guarantee that these loans will continued to be made
to the Registrant.
Material Changes in Results of Operations:
The Registrant's revenues were $9,287 and $12,324 for the first quarter
ended September 30, 2000 and 1999, respectively. The decrease in revenues
for the quarter, compared with the prior year's quarter, is due to an
decrease in interest income from related companies of $11,501, offset by
the net realized gain on sale of investments of $8,464.
The Registrant recorded an unrealized loss on investments of $442,330 for
the first quarter ended September 30, 2000 compared to a loss of
$1,382,452 for the first quarter ended September 30, 1999. This is mainly
due to the changes in fair market value of the Registrant's investment in
Williams and Ajay.
12
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 continues to recognize that there is risk associated
with its lack of diversification due to its large investment concentration
in Williams. 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
13
Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended September 30, 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
----------------------------------
President and Chief Financial Officer
Date: November 14, 2000
14