UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED: June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
ACT OF 1934 (NO FEE REQUIRED)
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)
7001 Orchard Lake Road, Suite 426
West Bloomfield, Michigan 48322
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 851-5654
Securities registered pursuant to Section12(b) of the Act:
None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, No Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K:
As of July 31, 1996 there were 590,897 shares of common stock
outstanding and the aggregate market value of the common stock (based upon the
average of the bid and asked prices of these shares on the over-the-counter
market of the Registrant held by non-affiliates was approximately $790,000.
Enercorp, Inc.
Form 10-K Filing for the Year Ended June 30, 1996
INDEX
PAGE
PART I
Item 1. Business 3-12
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 14-15
Item 6. Selected Financial Data 15-16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16-17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 17
PART III
Item 10. Directory and Executive Officers of the Registrant 18-19
Item 11. Executive Compensation 19-20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20-22
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K 23-24
SIGNATURES 25
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Enercorp, Inc.
FORM 10-K
PART 1
Item 1. Business
(a) General Development of Business
(a)(1) Enercorp, Inc. (the "Registrant" or "Company") is a closed-end,
nondiversified investment company under the Investment Company Act of 1940 (the
"Investment Company Act"). The Registrant was incorporated under the laws of the
State of Colorado on June 30, 1978. The Registrant elected to become a Business
Development Company under the Investment Company Act on June 30, 1982. A
Business Development Company is a type of investment company that generally must
maintain 70% of its assets in new, financially troubled or otherwise qualified
companies and offers significant managerial assistance to such companies. The
Registrant presently has two investee companies to which it provides management
assistance. Business Development Companies are not subject to the full extent of
regulation under the Investment Company Act. (See (c)(1)(i) "Regulation-Business
Development Companies" below). The Registrant is primarily engaged in the
business of investing in and providing managerial assistance to developing
companies which, in its opinion, would have a significant potential for growth.
The Registrant's investment objective is to achieve long-term capital
appreciation, rather than current income, on its investments. Currently, the
Registrant's investment activity is limited by its working capital. There is no
assurance that the Company's objective will be achieved.
In December 1995, the Registrant received 100,000 shares of Ajay
Sports, Inc.'s ("Ajay") common stock for management services rendered during
year ended June 30, 1996.
In February, 1996 the Registrant was approved for a $2,000,000 line of
credit at 1% over prime with NBD Bank ("NBD"). This replaced the Registrant's
$1,000,000 line of credit at 2% over prime with Michigan National Bank. The
collateral for the new line of credit is all of the shares of Williams Controls,
Inc. ("Williams") common stock owned by the Registrant (1,710,000 shares) and
all future shares of Williams common stock acquired by the Registrant. The line
of credit is limited to 50% of the fair market value of the collateral. This
loan expires in August, 1997. The balance of the Registrant's notes payable-
bank at June 30, 1996 and 1995 was $1,454,721 and $823,896, respectively.
On March 28, 1995, the Registrant borrowed $496,310 from Acrodyne
Corporation, at 1% over prime. The collateral for this loan was 150,000 shares
of Williams common stock. Acrodyne and Acrodyne Profit Sharing Trust are
significant shareholders of the Registrant. This note was repaid in February,
1996. The balance of this note at June 30, 1996 and 1995 was $0 and $496,310,
respectively.
The Registrant had a $12,500 note receivable from American Imaging
Systems, Inc. This note was repaid during fiscal year ended June 30, 1996. The
balance of this note at June 30, 1996 and 1995 was $0 and $9,500, respectively.
During the fiscal year ended June 30, 1996, the Registrant was not
involved in any bankruptcy, receivership, or similar proceedings. During that
period, the Registrant did not undergo any material reclassification, merger or
consolidation, nor did it acquire or dispose of any material amount of assets.
During the period, the Registrant did not experience any material changes in the
mode of conducting its business.
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(a)(2) Not Applicable.
(b) Financial Information About Industry Segments
Not Applicable
(c) Narrative Description of Business
Introduction
(c)(1)(i) The Registrant is a closed-end, nondiversified investment
company under the Investment Company Act and has elected to become a Business
Development Company under the Investment Company Act. The Registrant's
investment objective is to achieve long-term capital appreciation, rather than
current income, on its investments. There can be no assurance that this
objective will be realized. The Registrant's investment decisions are made by
its management in accordance with policies approved by its Board of Directors.
The Registrant does not have a registered investment advisor nor does it operate
pursuant to a written investment advisory agreement that must be approved
periodically by shareholders. The Registrant relies solely upon its management,
particularly its officers, on a day-to-day basis, and also on the experience of
its directors in making investment decisions.
In accordance with the objective of long term capital appreciation, the
Registrant consults with its investees with respect to obtaining capital and
offers managerial assistance to selected businesses that, in the opinion of the
Registrant's management, have a significant potential for growth.
In addition to acquiring investment positions in new and developing
companies, the Registrant also plans occasionally to invest in more mature
privately and publicly-held companies, some of which may be experiencing
financial difficulties, which the Registrant believes could be further developed
or revitalized.
The Registrant plans to take advantage of other opportunities to
maintain and create independent companies with a significant potential for
growth. The Registrant's priorities for the future will be to (1) maximize the
value and liquidity of its present investees, (2) increase its cash flow and
intermediate term value through the acquisition of securities or assets of more
established companies, and (3) make new higher risk investments in new and
developing companies.
The Registrant has no fixed policy as to the business or industry group
in which it may invest or as to the amount or type of securities or assets that
it may acquire. To date, the Registrant has made investments primarily in new
and developing companies whose securities had no established public market. Most
of these companies were unable to obtain significant capital on reasonable terms
from conventional sources. The Registrant endeavors to assist its investee
companies and management teams in devising realistic business strategies and
obtaining necessary financing.
The Registrant does not currently intend to pay cash dividends. The
Registrant's current dividend policy is to make in-kind distributions of its
larger investment positions to its stockholders when its Board of Directors
deems such distributions appropriate. The Registrant has not made any
distributions of its investment portfolio to date, nor does it currently intend
to.
The Registrant believes that the key to achieving its objectives is
finding and supporting business executives who have the ability, entrepreneurial
motivation and experience required to build independent companies with a
significant potential for growth. In the Registrant's view, it is more difficult
to locate and attract capable executives than to identify, select and finance
promising investment opportunities. The Registrant believes that its ability to
attract capable executives is enhanced by its policy for
4
maintaining the independence of its investee companies, supporting them when
appropriate in contracts, arranging or supplying necessary financing and
assisting the investee's management in obtaining a meaningful equity
participation in the investee.
Business development is by nature a high risk activity that can result
in substantial losses. The companies in which the Registrant invests and will
invest, especially in the early stages of an investment, often lack effective
management, face operating problems and incur substantial losses. Potential
investees include established businesses which may be experiencing severe
financial or operating difficulties or may, in the opinion of management, be
managed ineffectively and have the potential for substantial growth or for
reorganization into separate independent companies.
The Registrant will attempt to reduce the level of its investment risks
through one or more of the following:
carefully investigating potential investees;
financing only what it believes to be practical business
opportunities as contrasted with research projects;
selecting effective, entrepreneurial management for its
investees;
providing active managerial assistance and support to
investees;
obtaining, alone or with others, actual or working control of
its investees;
supporting the investees in obtaining necessary financing and
arranging major contracts, joint ventures or mergers and
acquisitions where feasible; and
maintaining sufficient capital resources to make follow-on
investments where necessary, appropriate and feasible.
Investment Policies
The Registrant has elected to be regulated as a Business Development
Company and is subject to the provisions of Sections 55 through 65 of the
Investment Company Act and also is subject to those provisions of the Investment
Company Act made applicable to business development companies by Section 59 of
the Investment Company Act. In accordance with those provisions of the
Investment Company Act, the Registrant's investment policies are defined and
subject to certain limitations. See "Regulation-Business Development Companies."
Furthermore, under Section 58 of the Investment Company Act, the Registrant may
not withdraw its election to be so regulated without the consent of a majority
of its outstanding voting securities.
The Registrant has no fixed policy as to business or industry group in
which it may invest or as to the amount or type of securities or assets that it
may acquire. The Registrant has in the past and may continue to invest in assets
that are not qualifying assets under Section 55 of the Investment Company Act;
however, no such additional assets have been identified as of June 30, 1996, and
the Registrant does not intend to fall below the 70% requirement as set forth in
Section 55.
The Registrant endeavors to achieve its objectives in accordance with
the following general policies:
(1) The Registrant acquires securities through negotiated private
placement transactions
5
directly from the investee company, its affiliates, or third parties, or through
open market transactions.
(2) The Registrant attempts to acquire, if possible and consistent with
the Registrant's capital resources, a large or controlling interest in its
investees through purchases of equity securities, including warrants, options,
and other rights to acquire such securities combined, if appropriate, with debt
securities, including demand notes, term loans and guarantees or debt
instruments or preferred stock convertible into, or with warrants to purchase,
equity securities.
(3) The Registrant may make additional or "follow-on" investments in
its investees when appropriate to sustain the investees or to enhance or protect
the Registrant's existing investment.
(4) The Registrant determines the length of time it will retain its
investment by evaluating the facts and circumstances of each investee and its
relationship with such investee. The Registrant generally retains its
investments for a relatively long period, sometimes many years, with the result
that its rate of portfolio turnover is low. Investments are retained until, in
the opinion of the Registrant, the investee company has a demonstrated record of
successful operations and there is a meaningful public market for its securities
which reflects the investment value the Registrant sought (or such a market can
be readily established) or until the Registrant decides that its investment is
not likely to result in future long-term capital appreciation.
Valuation-Policy Guidelines
The Registrant's Board of Directors is responsible for the valuation of
the Registrant's assets in accordance with their approved guidelines. The
Registrant's Board of Directors is responsible for (1) recommending overall
valuation guidelines and (2) the valuation of the specific investments.
There is a range of values which are reasonable for an investment at
any particular time. Fair value is generally defined as the price at which the
investment in question could change hands, assuming that both parties to the
transaction are under no unusual pressure to buy or sell and both have
reasonable knowledge of all the relevant facts. To increase objectivity in
valuing the securities, the Registrant uses external measures of value such as
public markets or significant third-party transactions whenever possible.
Neither a long-term work-out value nor an immediate liquidation value is used,
and no increment of value is included for changes which may take place in the
future. The Registrant's largest investee, Williams, represents 83% of the total
value of the Registrant's investment portfolio and is valued by the Public
Market Method, except for the majority of the warrants which are valued under
the Appraisal Method. Certain members of the Company's Board of Directors may
hold minor positions in some of the Registrant's investee companies and certain
members of the Board may hold officer or director positions with some of the
Company's investee companies. No such positions held by the Registrant's board
or officers exceed 5% of the investee company's outstanding securities.
Valuations assume that in the ordinary course of its business the
Registrant will eventually sell its position in the public market or may
distribute its larger positions to its stockholders. Accordingly, no premiums
are placed on investments to reflect the ability of the Registrant to sell block
positions or control of companies, either by itself or in conjunction with other
investors.
The Registrant uses four basic methods of valuation for its investments
and there are variations within each of these methods. The Registrant's Board of
Directors has determined that the Registrant's four basic valuation methods
constitute fair value. As an investee evolves, its progress usually requires
changes in the Registrant's method of valuing the investee's securities. The
Registrant's investment is separated into its component parts (such as debt,
preferred stock, common stock or warrants), and each component is valued
separately to arrive at total value. The Company believes that a mixture of
valuation methods is often essential to represent fairly the value of the
Registrant's investment position in an
6
investee. For example, one method may be appropriate for the equity securities
of a company while another method may be appropriate for the senior securities
of the same company.
The Cost Method values an investment based on its original cost to the
Company, adjusted for the amortization of original issue discount, accrued
interest and certain capitalized expenditures of the Company. While the cost
method is the simplest method of valuation, it is often the most unreliable
because it is applied in the early stages of an investee's development and is
often not directly tied to objective measurements. All investments are carried
at cost until significant positive or adverse events subsequent to the date of
the original investment warrant a change to another method. Some examples of
such events are: (1) a major recapitalization; (2) a major refinancing; (3) a
significant third-party transaction; (4) the development of a meaningful public
market for the investee's common stock; and (5) material positive or adverse
changes in the investee's business.
The Appraisal Method is used to value an investment position based upon
a careful analysis of the best available outside information when there is no
established public or private market in the investee company's securities and it
is no longer appropriate to use the Cost Method. Comparisons are made using
factors (such as earnings, sales or net worth) that influence the market value
of similar public companies or that are used in the pricing of private
transactions of comparable companies. Major discounts, usually 50%, are taken
when private companies are appraised by comparing them to similar public
companies. Liquidation value may be used when an investee is performing
substantially below plan and its continuation as an operating entity is in
doubt. Senior securities are discounted at a rate to yield 15% to 40% to
projected maturity. Depending on the relative uncertainty of the timing of
ultimate collection, 15% is used for relatively predictable positions, and 40%
for less predictable positions. Under the Appraisal Method, the differences
among companies in terms of the source and type of revenues, quality of
earnings, and capital structure are carefully considered.
An Appraisal value can be defined as the price at which the investment
in question could change hands, assuming that both parties to the transaction
are under no unusual pressure to buy or sell and both have reasonable knowledge
of all the relevant facts. In the case of start-up companies where the entire
assets may consist of only one or more of the following: (1) a marketing plan,
(2) management or (3) a pilot operation, an evaluation may be established by
capitalizing the amount of the investment that could reasonably be obtained for
a predetermined percentage of the company. Valuations under the Appraisal Method
are considered to be more subjective than the Cost, Public Market or Private
Market Methods.
The Private Market Method uses third-party transactions (actual or
proposed) in the investee's securities as the basis for valuation. This method
is considered to be an objective measure of value since it depends upon the
judgement of a sophisticated, independent investor. Actual firm offers are used
as well as historical transactions, provided that any offer used was seriously
considered and well documented.
The Public Market Method is the preferred method of valuation when
there is an established public market for the investee's securities, since that
market provides the most objective basis for valuation. In determining whether
the public market is sufficiently established for valuation purposes, the
Registrant examines the trading volumes, the number of shareholders and the
number of market makers. Under the Public Market Method, as well as under the
other valuation methods, the Registrant discounts investment positions that are
subject to significant legal, contractual or practical restrictions. When an
investee's securities are valued under the Public Market Method, common stock
equivalents such as presently exercisable warrants or options are valued based
on the difference between the exercise price and the market value of the
underlying common stock. Although the Registrant believes that a public market
could be created for the options and warrants of certain of its investees,
thereby possibly increasing the value of these rights above their arbitrage
value, the Registrant does not reflect this possibility in its
7
valuation.
Regulation - Business Development Companies
The following is a summary description of the Investment Company Act as
applied to business development companies. This description is qualified in its
entirety by reference to the full text of the Investment Company Act and the
rules adopted thereunder by the Securities and Exchange Commission (the "SEC").
The Small Business Investment Incentive Act of 1980 became law on
October 21, 1980. This law modified the provisions of the Investment Company Act
that are applicable to a company, such as the Registrant, which elects to be
treated as a "business development company." The Registrant elected to be
treated as a business development company on June 30, 1982. The Registrant may
not withdraw its election without first obtaining the approval of a majority of
its outstanding voting securities.
A business development company must be operated for the purpose of
investing in the securities of certain present and former "eligible portfolio
companies" and certain bankrupt or insolvent companies and must make available
significant managerial assistance to its investee companies. An eligible
portfolio company generally is a United States company that is not an investment
company (except for wholly-owned SBIC's licensed by the Small Business
Administration) and (1) does not have a class of securities included in the
Federal Reserve Board's over-the-counter margin list, (2) is actively controlled
by the business development company and has an affiliate of the business
development company on its board of directors, or (3) meets such other criteria
as may be established by the SEC. Control, under the Investment Company Act, is
presumed to exist where the business development company owns 25% or more of the
outstanding voting securities of the investee.
The Investment Company Act prohibits or restricts the Registrant from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the
Investment Company Act limits the type of assets that the Registrant may acquire
to "qualifying assets" and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of the acquisition,
less than 70% of the value of the Registrant's assets consists of qualifying
assets. The effect of the regulation is to require that at least 70% of a
business development company's assets be maintained in qualifying assets.
Qualifying assets include: (1) securities of companies that were eligible
portfolio companies at the time the Registrant acquired their securities; (2)
securities of bankrupt or insolvent companies that are not otherwise eligible
portfolio companies; (3) securities acquired as follow-on investments in
companies that were eligible at the time of the Registrant's initial acquisition
of their securities but are no longer eligible, provided that the Registrant has
maintained a substantial portion of its initial investment in those companies;
(4) securities received in exchange for or distributed on or with respect to any
of the foregoing; and (5) cash items, government securities and high-quality,
short-term debt. The Investment Company Act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can
be purchased in order for the securities to be considered to be qualifying
assets. The Registrant believes that, as of June 30, 1996, at least 80% of its
assets would be considered qualifying assets.
The Registrant is permitted by the Investment Company Act, under
specified conditions, to issue multiple classes of senior debt and a single
class of preferred stock if its assets coverage, as defined in the Investment
Company Act, is at least 200% after the issuance of the debt or the preferred
stock. The Registrant currently has no policy regarding issuing multiple classes
of senior debt or a class of preferred stock.
The Registrant may issue in limited amounts, warrants, options and
rights to purchase its securities to its directors, officers and employees (and
provide loans to those persons for the exercise
8
thereof) in connection with an executive compensation plan if certain conditions
are met. These conditions include the authorization of such issuance by a
majority of the Registrant's voting securities (as defined below) and the
approval of a majority of the independent members of the Board of Directors and
a majority of the directors who have no financial interest in the transaction.
The issuance of options, warrants or rights to directors who are not also
officers requires the prior approval of the SEC.
As defined in the Investment Company Act, the term "majority of the
Registrant's outstanding voting securities" means the vote of (a) 67% or more of
the Registrant's Common Stock present at a meeting, if the holders of more than
50% of the outstanding Common Stock are present or represented by proxy, or (b)
more than 50% of the Registrant's outstanding Common Stock, whichever is less.
The Registrant may sell its securities at a price that is below the
prevailing net asset value per share only upon the approval of the policy by the
holders of a majority of its voting securities, including a majority of the
voting securities held by non-affiliated persons, at its last annual meeting or
within one year prior to the transaction. In addition, the Registrant may
repurchase its Common Stock, subject to the restrictions of the Investment
Company Act.
In accordance with the Investment Company Act, a majority of the
members of the Registrant's Board of Directors must not be "interested persons"
of the Registrant as that term is defined in the Investment Company Act.
Generally, "interested persons" of the Registrant include all affiliated persons
of the Registrant and members of their immediate families, any "interested
person" of an underwriter or of an "investment advisor" to the Registrant, any
person who has acted as legal counsel to the Registrant within the last two
fiscal years, or any broker or dealer, or affiliate or a broker or dealer.
Most of the transactions involving the Registrant and its affiliates
(as well as affiliates of those affiliates) which were prohibited without the
prior approval of the SEC under the Investment Company Act prior to its
amendment by the Small Business Investment Incentive Act now require the prior
approval of a majority of the Registrant's independent directors and a majority
of the directors having no financial interest in the transactions. The effect of
the amendment is that the Registrant may engage in certain affiliated
transactions that would be prohibited absent prior SEC approval in the case of
investment companies which are not business development companies. However,
transactions involving certain closely affiliated persons of the Registrant,
including its directors, officers and employees, still require the prior
approval of the SEC. In general, "affiliated persons" of a person include: (a)
any person who owns, controls or holds with power to vote, more than five
percent of the Registrant's outstanding Common Stock, (b) any director,
executive officer or general partner of that person, (c) any person who directly
or indirectly controls, is controlled by, or is under common control with that
person, and (d) any person five percent or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with power to
vote, by such other person. Such persons generally must obtain the prior
approval of a majority of the Registrant's independent directors and, in some
situation, the prior approval of the SEC, before engaging in certain
transactions involving the Registrant or any company controlled by the
Registrant. In accordance with the Investment Company Act, a majority of the
members of the Registrant's Board of Directors are not interested persons as
defined in the Act. The Investment Company Act generally does not restrict
transactions between the Registrant and its investee companies.
Finally, notwithstanding restrictions imposed under federal securities
laws, it is anticipated that the Registrant will acquire securities of investee
companies pursuant to stock purchase agreements or other agreements that may
further limit the Registrant's ability to distribute, or sell or transfer such
securities. And as a practical matter, even if such transfers are legally or
contractually permissible, there may be no market, or a very limited market, for
the securities and economic conditions may make the price and terms of a sale or
transfer unattractive.
9
Other Securities Law Considerations
In addition to the above-described provisions of the Investment Company
Act, there are a number of other provisions of the federal securities laws which
affect the Registrant's operations. For example, restrictions imposed by the
federal securities laws, in addition to possible contractual provisions, may
affect adversely the ability of the Registrant to sell or otherwise to
distribute its portfolio securities.
Most if not all securities which the Registrant acquires as venture
capital investments will be "restricted securities" within the meaning of the
Securities Act of 1933 ("Securities Act") and will not be permitted to be resold
without compliance with the Securities Act. Thus, the Registrant will not be
permitted to resell portfolio securities unless a registration statement has
been declared effective by the SEC with respect to such securities or the
Registrant is able to rely on an available exemption from such registration
requirements. In most cases the Registrant will endeavor to obtain from its
investee companies "registration rights" pursuant to which the Registrant will
be able to demand that an investee company register the securities owned by the
Registrant at the expense of the investee company. Even if the investee company
bears this expense, however, the registration of the securities owned by the
Registrant is likely to be a time-consuming process, and the Registrant always
bears the risk, because of these delays, that it will be unable to resell such
securities, or that it will not be able to obtain an attractive price for the
securities.
Sometimes the Registrant will not register portfolio securities for
sale but will seek to rely upon an exemption from registration. The most likely
exemption available to the Registrant is section 4(1) of the Securities Act
which, in effect, exempts sales of securities not involving a distribution of
the securities. This exemption will likely be available to permit a private sale
of portfolio securities, and in some cases a public sale, if the provisions of
Rule 144 under the Securities Act are satisfied. Among other things, Rule 144
requires that securities be sold in "broker transactions," and imposes a
two-year holding period prior to the sale of restricted securities.
The Registrant may elect to distribute in-kind securities of investee
companies to its stockholders. Prior to any such distribution, the Registrant
expects that it will need to file, or cause the issuers of such distributed
securities to file, a registration statement or, in the alternative, an
information statement, which will permit the distribution of such securities and
also permit distributee stockholders of the Registrant to sell such distributed
securities.
Federal Income Tax Matters
For federal and state income tax purposes, the Registrant is taxed at
regular corporate rates on ordinary income and realized gain. It is not entitled
to the special tax treatment available to more regulated investment companies,
although the Registrant plans to conduct its affairs, if possible, to minimize
or eliminate federal and state income taxes. Distributions of cash or property
by the Registrant to its stockholders will be taxable as ordinary income only to
the extent that the Registrant has current or accumulated earnings and profits.
The rate at which corporations are taxed on long-term capital gains is
up to 35% pursuant to the Tax Reform Act of 1986 (the "Tax Reform Act"). A
corporation generally may offset capital loss only against capital gain.
Generally, if the Registrant realizes a net capital loss for any taxable year,
it can carry back such net capital loss only against capital gain. Such a net
capital loss for any taxable year can generally be carried back to each of the
three preceding taxable years, and then any unused portion thereof may be
carried over into the subsequent taxable years for a period of five years.
10
Future Distributions
The Registrant does not currently intend to pay cash dividends. The
Registrant's current dividend policy is to make in-kind distributions of its
larger investment positions to its stockholders when the Registrant's Board of
Directors deems such distributions appropriate. Because the Registrant does not
intend to make cash distributions, shareholders would need to sell securities
distributed in-kind, when and if distributed, in order to realize a return on
their investment.
An in-kind distribution will be made only when, in the judgment of the
Registrant's Board of Directors, it is in the best interest of the Registrant's
stockholders to do so. The Board of Directors will review, among other things,
the investment quality and marketability of the securities considered for
distribution; the impact of a distribution of the investee's securities on the
investee's customers, joint venture associates, other investors, financial
institutions and management; tax consequences and the market effects of an
initial or broader distribution of such securities. Securities of the
Registrant's larger investment positions in more mature investee companies with
established public markets are most likely to be considered for distribution. It
is possible that the Registrant may make an in-kind distribution of securities
that are substantially liquid irrespective of the distributee's stockholders
rights to sell such securities. Any such in-kind distribution would require
shareholder approval only if the distribution represents substantially all of
the Registrant's assets. It is possible that the Registrant may make an in-kind
distribution of securities which have appreciated or depreciated from the time
of purchase depending upon the particular distribution. The Registrant has not
established a policy as to the frequency or size of distributions and indeed
there can be no assurance that any distributions will be made. To date, no such
distributions have been made.
Managerial Assistance
The Registrant believes that providing managerial assistance to its
investees is critical to its business development activities. "Making available
significant managerial assistance" as defined in the Investment Company Act with
respect to a business development company such as the Registrant means (a) any
arrangement whereby a business development company, through its directors,
officers, employees or general partners, offers to provide, and, if accepted,
does so provide, significant guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company; or (b)
the exercise by a business development company of a controlling influence over
the management or policies of a portfolio company by the business development
company acting individually or as a part of a group acting together which
controls such portfolio company. The Registrant is required by the Investment
Company Act to make significant managerial assistance available at least with
respect to investee companies that the Registrant treated as qualifying assets
for purposes of the 70% test. The nature, timing and amount of managerial
assistance provided by the Registrant vary depending upon the particular
requirements of each investee company.
The Registrant may be involved with its investees in recruiting
management, product planning, marketing and advertising and the development of
financial plans, operating strategies and corporate goals. In this connection,
the Registrant may assist clients in developing and utilizing accounting
procedures to efficiently and accurately record transactions in books of account
which will facilitate asset and cost control and the ready determination of
results of operations. The Registrant also seeks capital for its investees from
other potential investors and occasionally subordinates its own investment to
those of other investors. The Registrant introduces its investees to potential
suppliers, customers and joint venture partners and assists its investees in
establishing relationships with commercial and investment bankers and other
professionals, including management consultants, recruiters, legal counsel and
independent accountants. The Registrant also assists with joint ventures,
acquisitions and mergers.
In connection with its managerial assistance, the Registrant may be
represented by one or more of its officers or directors on the Board of
Directors of an investee. As an investment matures and the investee develops
management depth and experience, the Registrant's role will become progressively
less
11
active. However, when the Registrant owns or on a pro forma basis could acquire
a substantial proportion of a more mature investee company's equity, the
Registrant remains active in and will frequently initiate planning of major
transactions by the investee. The Registrant's goal is to assist each investee
company in establishing its own independent and effective board of directors and
management. Currently, the Registrant provides managerial assistance to Williams
and Ajay.
(c)(1)(ii) Not applicable
(c)(1)(iii) Not applicable
(c)(1)(iv) The Registrant holds Patent No. 4186725 on its solar
collector, No. 4372291 on its solar heat exchanger and No. 4455374 on its solar
fermentation process. However, the Registrant currently is not engaged in any
solar business operations.
(c)(1)(v) The operations of the Registrant are not considered
to be seasonal.
(c)(1)(vi) Not applicable
(c)(1)(vii) Not applicable
(c)(1)(viii) Not applicable
(c)(1)(ix) Not applicable
(c)(1)(x) The Registrant is subject to substantial competition from
business development companies, venture capital firms, new product development
companies, marketing companies and diversified manufacturers, most of whom are
larger than the Registrant and have significantly larger net worths, financial
and personnel resources than the Registrant. In addition, the Registrant
competes with companies and individuals engaged in the business of providing
management consulting services.
(c)(1)(xi) During the last three fiscal years the Registrant spent no
amounts on Registrant- sponsored or customer-sponsored research and development
activities.
(c)(1)(xii) The Registrant is not subject to any federal, state or
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment.
(c)(1)(xiii) As of August 31, 1996 the Registrant had two
employees. One of the employees is also an officer of the Company.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales
The Registrant is not engaged in foreign operations.
Item 2. Properties
The Registrant rents approximately 672 square feet of office space at a
rate it considers to be current market.
12
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On December 12, 1995 the Registrant held the 1995 Annual Meeting of
Shareholders. However, The Registrant held the voting open until March 9, 1996.
Stated below are the final results of each proposal (all vote totals are
pre-split shares).
Proposal 1: An amendment to Article IV of the Company's Articles of
Incorporation to cause a 1-for- 75 share reverse stock split whereby every 75
shares of the Company's no par value of Common Stock (the "pre-split Common
Stock") will be converted into one share of newly created no par value Common
Stock (the "post-split Common Stock").
For: 30,994,692 Against: 1,646,150 Abstain: 754,800
This proposal passed.
Proposal 2(a): To change the Company's authorized capital to 11,000,000 shares
of capital stock, which will consist of 10,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock.
For: 29,613,766 Against: 5,829,940 Abstain: 933,500
This proposal passed.
Proposal 2(b): To provide for the limitation of liability for the Company's
directors under certain circumstances.
For: 27,042,667 Against: 5,052,449 Abstain: 3,994,800
This proposal did not pass.
Proposal 2(c): To reduce the quorum required for the transaction of business at
any shareholders meeting from a majority to one third of the shares entitled to
vote at the meeting.
For: 24,212,661 Against: 7,830,580 Abstain: 1,155,450
This proposal did not pass.
Proposal 2(d): To reduce the voting requirements for shareholder approval for
actions requiring a two-thirds vote from two-thirds to a majority of the shares
entitled to vote.
For: 24,719,760 Against: 7,218,131 Abstain: 1,239,300
This proposal did not pass.
Proposal 2(e): To approve all of the other amendments contained in the restated
Articles of Incorporation which are permitted by law but which do not in any
material way change the effect of Company's Articles of Incorporation.
For: 29,613,766 Against: 5,829,940 Abstain: 933,500
13
This proposal passed.
Proposal #3: Election of directors.
Robert R. Hebard
For: 33,416,792 Withhold: 112,750 Total Voted: 33,529,542
Carl W. Forsythe
For: 33,404,292 Withhold: 125,250 Total Voted: 33,529,542
H. Samuel Greenawalt
For: 33,419,292 Withhold: 110,250 Total Voted: 33,529,542
All three nominees were elected.
Proposal #4: To ratify the appointment of Hirsch & Silberstein, P.C. as
independent auditors of the Company for the fiscal year ending June 30, 1996.
For: 32,740,844 Against: 129,400 Abstain: 650,800
This proposal passed.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
The Registrant began trading on the Nasdaq SmallCap Market on April 11,
1996 under the stock symbol ENCP. Prior to this the principal market in which
the Registrant's common stock was traded was the over-the-counter market.
From September 30, 1994 until March 31, 1996, the table below
represents the closing bid and asked prices for the Registrant's common stock as
reported by the National Quotation Service ("Pink Sheets"). The quotations
reflect inter-dealer prices without mark-up, mark-down or commission and may not
necessarily represent actual transactions. The June 30, 1996 prices are reported
by the Nasdaq SmallCap Market.
Closing Prices
As of Bid Asked
September 30, 1994 $2.63 $3.38
December 31, 1994 $3.75 $5.25
March 31, 1995 $3.75 $4.50
June 30, 1995 $3.00 $3.75
September 30, 1995 $2.85 $3.56
December 31, 1995 $3.00 $5.50
March 31, 1996 $3.25 $3.75
June 30, 1996 $2.38 $3.00
14
(b) Holders
The approximate number of record holders of the Registrant's common
stock on July 31, 1996 was 1,468. This amount does not include beneficial owners
whose shares are held on account in "street name" by banks or brokerage firms.
(c) Dividends
The Registrant has paid no dividends on its common stock within the
past three years, and has no intention to pay cash dividends in the future.
Item 6. Selected Financial Data
June 30,
1996 1995 1994 1993 1992
Total assets $4,123,756 $6,507,903 $4,732,185 $2,722,198 $1,224,047
Total liabilities $1,820,866 $2,588,871 $1,326,195 $ 700,503 $ 382,809
Net assets $2,302,890 $3,919,032 $3,405,990 $2,021,695 $ 841,238
Realized gain (loss)
on investments $ 269,410 $ 18,914 $ 398,355 $ 1,571 $ 1,160
Total revenues $ 490,338 $ 162,539 $ 441,634 $ 394,370 $ 181,234
Total expenses $ 367,489 $ 773,905 $ 527,539 $ 328,680 $ 341,287
Net income (loss)
from operations $ 122,849 $ (611,366) $ (85,905) $ 65,690 $ (160,053)
Unrealized gain (loss)
on investments $(2,569,991) $1,419,408 $2,127,201 $1,351,078 $ (204,663)
Increase (decrease)
in net assets before cumulative
effect of income tax
accounting change $(1,616,142) $ 513,042 $1,384,296 $ 944,758 $ (364,716)
Increase (decrease)
in net assets
resulting from
operations $(1,616,142) $ 513,042 $1,384,296 $1,177,758 $ (364,716)
15
June 30,
1996 1995 1994 1993 1992
*Increase (decrease) in net assets per share
before income taxes and cumulative effect
of income tax and accounting change $(4.14) $1.37 $3.45 $2.40 $(.62)
*Increase (decrease) in net assets per share
before cumulative effect of income tax
accounting change $(2.74) $.87 $2.34 $1.60 $(.62)
*Increase (decrease) in net assets per
share resulting from operations $(2.74) $.87 $2.34 $1.99 $(.62)
*Weighted average number of
shares outstanding 590,897 590,897 590,897 590,897 590,897
*Prior period numbers for shares outstanding and increase (decrease) per share
are restated to reflect the 1-for-75 reverse stock split approved on December
12, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Capital Resources and Liquidity. Under the provisions of the
Registrant's line of credit the Registrant may borrow up to the lessor of
$2,000,000 or 50% of the fair market value of all Williams common stock (the
"collateral") owned by the Registrant. This line of credit expires in August,
1997. Currently, the Registrant's investment activity is limited by its working
capital. Capital required for the Registrant's investment activities is expected
to be generated from borrowing against their credit line, the sale of portfolio
securities or from additional offerings of the Registrant's common stock, of
which there can be no assurance. The ability of the Registrant to liquidate
portfolio stock is dependent on market conditions over which the Registrant has
no control. The Registrant had no material commitments for capital expenditures
as of June 30, 1996.
Working capital at June 30, 1996 was $2,642,325 as compared to
$5,104,779 at June 30, 1995 and $4,296,293 at June 30, 1994. The decrease in
working capital from 1996 to 1995 and the increase from 1994 to 1995 was mainly
due to the change in the value of the Registrant's investment portfolio. For the
years ended June 30, 1996, 1995 and 1994 the Registrant's cash flow was
dependent primarily upon proceeds from the sale of investee shares and loans. In
December 1995, the Registrant received 100,000 shares of Ajay Sports, Inc.'s
("Ajay") common stock for management services rendered during year ended June
30, 1996.
The Registrant's liquidity (ability to mobilize cash) 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 along with its ability to borrow funds.
The Registrant's largest investee company, Williams, is a publicly held
company in which the Registrant owns common stock, common stock warrants and
options. Williams, through its subsidiary companies, manufactures and markets
electronic, pneumatic, hydraulic and mechanical sensors and controls,
communications components and consumer products, serving the transportation,
agriculture and telecommunications industries. Management of the Registrant
devoted time and resources to providing significant managerial assistance to
Williams and its subsidiaries during the year ended June 30, 1996.
16
The Registrant's second largest investee is Ajay. Ajay is a
manufacturer and distributor of golf bags, carts and accessories, billiard
equipment and casual furniture. The Registrant's president is a director and the
corporate secretary of Ajay. Management of the Registrant devoted time and
resources to providing significant managerial assistance to Ajay and its
subsidiaries.
The Registrant had a note receivable from American Imaging Systems,
Inc. The balance of this note at June 30, 1996 and 1995 was $0 and $9,500.
Results of Operations. The Company had total revenues of $490,338 for
the fiscal year ended June 30, 1996 as compared to $162,539 during fiscal year
ended June 30, 1995 and $441,634 during the fiscal year ended June 30, 1994. The
$327,799 or 202% increase from fiscal year June 30, 1995 to June 30, 1996 was
due mainly to an increase of $250,496 in the net realized gain on the sale of
investments and an increase of $58,988 in consulting fees from related
companies. The revenue decrease from fiscal year 1994 to 1995 was due mainly to
a decrease in net realized gain on sale of investments of $396,784 and a
decrease in dividend income of $20,795. Total assets for the fiscal year ending
June 30, 1996 were $4,123,756, an aggregate decrease of $2,384,147 over the
total assets at June 30, 1995 which were $6,507,903. The changes in total assets
at June 30, 1996 versus June 30, 1995 were mainly the result of changes in the
market value of the Registrant's largest investee, Williams.
For the year ended June 30, 1996 the Registrant had a net income from
operations of $122,849 compared to a net loss from operations of $611,366 for
the year ended June 30, 1995 and a net loss from operations of $85,905 for the
year ended June 30 1994. The $734,215 improvement from 1995 to 1996 was due to
an increase in net realized gain on sale of investments, an increase in
consulting fees, an increase in recovery of bad debt, a decrease in bonus
expense, a decrease in legal fees and a decrease in bad debt expense. The
increase in net loss from 1994 to 1995 was due mainly to a decrease in revenues,
an increase in loss on worthless investments and an increase in legal fees. The
Registrant recorded an unrealized loss on investments of $2,569,991 for the
fiscal year ended June 30, 1996 as compared to a unrealized gain on investments
of $1,419,408 for the fiscal year ended June 30, 1995 and an unrealized gain on
investments of $2,127,201 for the fiscal year ended June 30, 1994. The change in
the unrealized gain for the years indicated is largely the result of the change
in the market value of the Registrant's largest investee, Williams.
Item 8. Financial Statements and Supplementary Data
Financial statements and supporting schedules reporting supplementary
financial information are attached hereto and are listed in Item 14 of Part IV
of this Form 10-K.
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
17
PART III
Item 10. Directors and Executive Officers of the Registrant
(a)(b) Identification of Directors and Executive Officers
Commencement
date of service
as officer and/or
Name Position with Company Age director
Robert R. Hebard Chairman of the Board, 43 6/29/93
Chief Executive Officer,
President, Treasurer
& Director
Carl W. Forsythe Director 38 6/28/93
H. Samuel Greenawalt Director 66 6/28/93
No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to any such office or
position. All the officers and directors were elected to serve one-year terms.
(c) Significant Employees
Not applicable
(d) Family Relationships
None
(e) Business Experience
Robert R. Hebard has served as Chairman of the Board, Chief Executive
Officer, President, Treasurer and Director of the Registrant since June 29,
1994. After receiving a Bachelors Degree in Marketing/Management from Cornell
University in 1975, Mr. Hebard held various marketing/product management
positions with Goldome Bank, a $10 billion thrift in Buffalo, N.Y. While there,
he received his MBA in 1982 from Canisius College. Mr. Hebard joined Comerica
Bank, Detroit, Michigan in September 1982 as Business Development Manager -
Executives and Professionals. In July 1984 he left Comerica to become Vice
President of Marketing for U.S. Mutual Financial Corporation, then returned to
Comerica in January 1985 as Vice President/Group Product Manager for Consumer
Deposits. In June 1986 he was named First Vice President/Director of Product
Management for Comerica and in February 1992 was named Director of Retail
Marketing for the merged Comerica/Manufacturers Bank. In November 1992 he became
President of Ameritrax Corporation, a company engaged in the bicycle accessory
business and was a Director of Kimbro Imaging Systems, Inc. from November 1994
to August 1995. Mr. Hebard also serves as Vice President of Woodward Partners,
Inc., a real estate development company in suburban Detroit, Michigan. Mr.
Hebard also has served as a Director of Ajay Sports, Inc. since June 1989, and
as Ajay's Secretary since September 1990.
Carl W. Forsythe has served as Director of the Registrant since June
28, 1994. Mr. Forsythe received a Master of Business Administration degree from
Cornell University in 1982 and a Bachelor of Arts degree from Columbia
University in 1979. From 1982 through 1984, Mr. Forsythe worked in Sales
18
Operations for the Ford Motor Company. From 1985 to 1989, he was a Group
Manager-Personal Banking and Manager-Installment Loans for Comerica Bank. From
1989 to 1990, Mr. Forsythe was Senior Vice President of Retail Banking for
Michigan National Bank. From 1990 through July 1994, Mr. Forsythe was Executive
Vice President of First Gibraltar Bank and First Madison Bank. From August 1994
to December 1995, he was Senior Vice President-Chief Retail Officer for Banc
One-Ohio Corporation. From January 1996 to the present he has been Executive
Vice President of Retail Banking for Home Savings of America.
H. Samuel Greenawalt has served as Director of the Registrant since
June 28, 1994. Mr. Greenawalt received a Bachelor of Science degree from the
Wharton School of the University of Pennsylvania in 1951, and is a 1960 graduate
of the University of Wisconsin Banking School. From 1954 to 1958, Mr. Greenawalt
was with the investment firm of McNaughton-Greenawalt Company. He began his
career at Michigan National Corporation and affiliates in 1958, working in
various commercial lending capacities beginning at that time. From 1987 to June
1995, Mr. Greenawalt was a Senior Vice President, Business Development, for
Michigan National Bank. Mr. Greenawalt retired from Michigan National in June
1995 and is now an independent consultant to the bank.
(f) Involvement in Certain Legal Proceedings
None
(g) Promoters and Control Persons
Not applicable
(h) Compliance with Section 16(a) of the Securities Exchange Act
of 1934 (the "Exchange Act")
Section 16(a) of the Exchange Act requires executive officers and
directors, and persons who beneficially own more than ten percent of the
Registrant's stock, to file initial reports of ownership on Form 3, reports of
changes in ownership on Form 4 and annual statements of changes in ownership on
Form 5 with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent beneficial owners are required under the
regulations related to Section 16 to furnish the Registrant with a copy of each
report filed.
Based solely upon a review of the copies of the reports received by the
Registrant during the fiscal year ended June 30, 1996, and written
representations of the persons required to file said reports, the Registrant
believes that all reports were filed and filed timely.
Item 11. Executive Compensation
(b) Summary Table
During fiscal year ended June 30, 1996 the Registrant paid $72,000 to
its Chief Executive Officer.
(c) Option/SAR Grant Table
Not applicable
19
(d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table
12,557 stock options were outstanding at June 30, 1996. Furthermore,
the Registrant plans to file with the SEC a non-employee director stock option
plan.
(e) Long-Term Incentive Plan ("LTIP") Awards Table
The Registrant has no LTIP's.
(f) Defined Benefit or Actuarial Plan Disclosure
The Registrant has no defined benefit or actuarial plans.
(g) Compensation of Directors
The Registrant has an arrangement with its disinterested non-employee
directors, wherein, each director is paid an annual fee of $500 for all regular
and non-scheduled Board meetings. The Registrant also plans to submit a
non-employee director stock option plan to the SEC.
(h) Employment Contracts and Termination of Employment and Change
-in-Control Arrangements
None
(i) Report or Repricing of Options/SARs
Not applicable
(j) Compensation Committee Interlocks and Insider Participation in
Compensation Decisions
Not applicable
(k) Board Compensation Committee Report on Executive Compensation
Not applicable
(l) Performance Graph
Not applicable
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a)(b) Security Ownership of Certain Beneficial Owners and Security
Ownership of Management
Set forth below is information as to certain persons known by the
Company to be the beneficial owner of more than five percent of the Common
Stock, the Company's directors and named executive officers, individually, and
executive officers and directors as a group, as of July 31, 1996:
20
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
Robert R. Hebard 69,248 11.5%
7001 Orchard Lake Road (1)(2)(3)
Suite 426
W. Bloomfield, MI 48322
H. Samuel Greenawalt 14,333 2.4%
27777 Inkster Road
Farmington Hills, MI 48333-9065
Carl W. Forsythe -0- 0%
100 E. Broad Street
Columbus, Ohio 43271-0239
Thomas W. Itin 109,501 18.5%
7001 Orchard Lake Road, Ste. 424 (4)(5)
W. Bloomfield, MI 48322
Acrodyne Profit Sharing Trust 40,427 6.8%
7001 Orchard Lake Road
Suite 424
W. Bloomfield, MI 48322
Wynnefield Partners Small Cap Value LP 29,333 5.1%
17 Battery Place, Suite 2634
New York, NY 10004
Executive officers and 83,581 13.9%
directors as a group (1)(2)(3)
(three persons)
(1) Includes 15,467 shares owned by Mr. Hebard's spouse and 1,333
shares held in a custodian account under the Uniform Gifts to
Minors Act for the benefit of Mr. Hebard's daughter. Mr.
Hebard disclaims beneficial ownership of the 1,333 shares in
the custodial account.
(2) Includes 10,581 shares of common stock options currently
exercisable or exercisable within 60 days from August 31,
1996.
(3) Does not include 10,667 shares held in trust for Mr. Hebard's
minor children. Mr. Hebard's mother-in-law is trustee of these
trusts.
(4) Based upon information contained in the Schedule 13D and
amendments thereto filed with the Securities and Exchange
Commission. Includes shares held personally and through
partnerships or other entities in which shareholder holds a
beneficial interest. Mr. Itin is the father-in-law of the
Registrant's president.
21
(5) Includes the following:
Company Shares Relationship
LBO Capital 15,341 Chairman & principal shareholder
TICO 16,000 Managing Partner
SICO 2,667 Partner
Acrodyne Profit Sharing Trust 40,427 Trustee & beneficiary
Various trusts 24,800 Spouse is trustee
Thomas W. Itin IRA Trust 5,333 Trustee
IOC, Inc. Profit Sharing Trust 4,933 Trustee
109,501
No change in control of the Company has occurred since the beginning of
the last fiscal year.
The Company does not know of any arrangements, the operation of which
may, at a subsequent date, result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
(d)(a) Transactions with Management and Others
In December 1995, the Registrant received 100,000 shares of Ajay
Sports, Inc.'s ("Ajay") common stock for management services rendered during
year ended June 30, 1996.
(b) Certain Business Relationships
Not applicable
(c) Indebtedness of Management
None
(d) Transactions with Promoters
Not applicable.
22
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K
(a) The following documents are filed as part of this report
immediately following the signature page, or are incorporated
by reference
(1) Financial Statements
Independent Auditor's Report F-1
Statements of Assets and Liabilities,
June 30, 1996 and 1995 F-2
Schedule of Investments, June 30, 1996 and 1995 F-3 - F-6
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1996, 1995, and 1994 F-7
Statements of Operations for the Years Ended
June 30, 1996, 1995, and 1994 F-8
Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 F-9 - F-10
Notes to Financial Statements F-11 - F-15
(2) Financial Statement Schedules:
Amounts Receivable from Affiliated
Parties, Underwriters, Promoters,
and Employees Other than Related
Parties S-1
Valuation and Qualifying Accounts and Reserves S-2
(3) Exhibits:
3.1 Amended and Restated Articles of
Incorporation as Filed with the
Secretary of State, State of
Colorado, April 2, 1996 FILED
HEREWITH
3.2 Bylaws*
10.1 Management Agreement between
Enercorp, Inc. and Williams
Controls, Inc. dated May 1, 1989**
10.2 Amendment to Management Agreement
between Enercorp, Inc. and Williams
Controls, Inc. dated September 11,
1990***
10.3 Amendment 2 to Management Agreement
between Enercorp, Inc. and Williams
Controls, Inc. dated December 14
1990***
20.1 Statement of Risk to Shareholders***
23
27 Financial Data Schedule FILED
HEREWITH
*Incorporated by reference from Exhibits 3.1 and 3.2 to the Registrant's Form
10-K for the fiscal year ended June 30, 1981.
**Incorporated by reference from Exhibit 10.1 to the Registrant's Form 10-K for
the fiscal year ended June 30, 1989.
***Incorporated by reference from Exhibits 10.2 to 10.3 and 20.1 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1990.
(b) Reports on Form 8-K.
On December 15, 1995 the Registrant filed a Form 8-K reporting
the results of the Annual Meeting of Shareholders. This report
also stated that the reverse split became effective at the
close of business on December 13, 1995 and the Registrant
received a new stock symbol (ENCP) and a new CUSIP number
(292906-20-3).
On February 6, 1996 The Registrant reported a change in its
borrowing arrangements. The Registrant closed on a $2,000,000
loan facility with NBD Bank using some of the proceeds to pay
off a $1,000,000 loan from Michigan National Bank and a
$496,310 note from Acrodyne Corporation. The note is secured
by all shares of Williams Controls common stock currently held
by The Registrant and any future shares acquired. The interest
rate on the note is prime plus 1%. The Registrant plans to use
the additional funds for working capital needs and
investments.
(c) Required exhibits are incorporated by reference.
(d) Financial statement schedules are attached hereto.
24
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 on
its behalf by the undersigned, thereunto duly authorized.
ENERCORP, INC.
(Registrant)
By S\Robert R. Hebard
---------------------------
Robert R. Hebard, President
Date: September 26, 1996
-----------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: September 26, 1996 S\Robert R. Hebard
----------------------- ----------------------------------
Robert R. Hebard, Director
(Principal Executive, Accounting and
Financial Officer)
Date: September 26, 1996 S\Carl W. Forsythe
----------------------- ----------------------------------
Carl W. Forsythe, Director
Date: September 26, 1996 S\H. Samuel Greenawalt
----------------------- ----------------------------------
H. Samuel Greenawalt, Director
10K696.WPD
25
Hirsch & Silberstein, P.C.
Certified Public Accountants and Consultants
31731 Northwestern Highway
Suite 156 W
Farmington hills MI 48334-1662
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
of Enercorp, Inc.
We have audited the accompanying statements of assets and liabilities of
Enercorp, Inc., including the schedules of investments, as of June 30, 1996 and
1995, and the related statements of changes in stockholders' equity, operations
and cash flows for the years ended June 30, 1996, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1996, 1995, and 1994 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enercorp, Inc. as of June 30,
1996, 1995, and 1994, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules on S-1 and S-2 are
presented for purposes of complying with rules of the Securities and Exchange
Commission and are not a required part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the 1996, 1995 and 1994 financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/Hirsch & Silberstein
- ----------------------------------
Hirsch & Silberstein, P.C.
Farmington Hills, Michigan
September 13, 1996
F - 1
Enercorp, Inc.
Statements fo Assets and Liabilities
June 30, June 30,
1996 1996
--------- ---------
ASSETS
Investements, at fair value cost of $1,532,388 and
$1,440,888 at June 30, 1996 and 1995, respectively $ 3,966,631 $ 6,445,123
Cash 495 1,191
Account receivable - related party 125,000 -0-
Travel advance -0- 58
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $10,045 and
$31,642 at June 30, 1996 and 1995, respectively 3,350 10,548
Notes receivable - related party, net of allowance for
uncollectible notes receivable of $23,147 and
$74,795 at June 30, 1996 and 1995, respectively 7,715 24,931
Note receivable - other -0- 9,500
Furniture and fixtures, net of accumulated depreciation
of $3,840 and $6,639 at June 30, 1996 and 1995,
respectively 3,530 5,253
Other assets 17,035 11,299
---------- ----------
$ 4,123,756 $ 6,507,903
========== ==========
LIABILITIES AND NET ASSETS
Liabilities
Note payable - related company $ -0- $ 496,310
Note payable - bank 1,454,721 823,896
Accounts payable and accrued liabilities 6,145 61,343
Accrued bonus to officer -0- 16,322
Deferred tax liability 360,000 1,191,000
---------- ----------
1,820,866 2,588,871
========== ==========
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and
outstanding June 30, 1996 and 1995 1,468,251 1,468,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (772,605) (852,454)
Unrealized net gain on investments, net of deferred
income taxes of $827,000 and $1,701,000 at
June 30, 1996 and 1995, respectively 1,607,244 3,303,235
---------- ----------
2,302,890 3,919,032
---------- ----------
$ 4,123,756 $ 6,507,903
========== ==========
See notes to financial statements
F-2
Enercorp, Inc.
Schedule of Investments
June 30, 1996
Restriction 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 automotive (f) 400,000 60,000 720,000
electronics, components and (f) 850,000 127,500 1,530,000
consumer products (f) 330,000 412,500 594,000
(b)4/98(f) 100,000 34,000 180,000
(b)5/97 30,000 108,750 48,000
Ajay Sports, Inc.* Golf, Billiard & Casual Furniture (b)10/96 1,764,706 600,000 617,647
Manufacturer (b)12/97 100,000 37,500 35,000
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf, Billiard & Furniture 2,000 20,000 13,500
Manufacturer
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Heavy Truck/Automotive Supplier 11/08/97 (c) 150,000 - 214,650
01/18/99 (c) 25,000 - -
05/03/00 (c)(e) 25,000 - -
--------- ---------
1,506,727 3,961,799
See notes to financial statements
(Continued)
F-3
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1996
Restriction Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
------- ----------------------- ---------- ----------- ------------ ------ -----
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 42
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
--------- ---------
Sub-total - UNAFFILIATED
COMPANIES 25,661 4,832
--------- ---------
Total - ALL COMPANIES 1,532,388 3,966,631
========= =========
(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) A discount factor as determined by the Company's Board of
Directors has been applied to those stocks valued by the public
market method which have restrictions as to resale.
(e) 1/2 vested at 8/96 and 8/97.
(f) Pledged as collateral against a line of credit with NBD Bank.
* 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.
** Equity basis $0 as investments were written off in prior years.
See notes to financial statements
F-4
Enercorp, Inc.
Schedule of Investments
June 30, 1995
Restriction 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 automotive (f) 400,000 60,000 1,170,000
electronics, components (b)1/95(f) 850,000 127,500 2,486,250
consumer products (f) 330,000 412,500 965,250
(f) 30,000 108,750 78,000
Ajay Sports, Inc.* Golf, Billiard & Casual (b)10/96 1,764,706 600,000 816,176
Furniture Manufacturer
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 automotive 03/01/96 (c) 200,000 - 523,800
electronics, components and 11/08/97 (c) 150,000 - 383,400
consumer products 01/18/99 (c) 6,250 - 2,500
01/18/99 (c)(e) 18,750 - -
05/03/00 (c) 25,000 - -
--------- ---------
1,415,227 6,434,378
See notes to financial statements
(Continued)
F-5
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1995
Restriction Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
------- ----------------------- ---------- ----------- ------------ ------ -----
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company 10,000,000 5,000 -
MacGregor Sports and Fitness, Inc. Sporting Goods Manufacturing (b) 11/95 9,046 - 5,880
and Marketing
Vitro Diagnostics Diagnostic Test Kits 300 1,500 75
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
--------- ---------
Sub-total - UNAFFILIATED
COMPANIES 25,661 10,745
--------- ---------
Total - ALL COMPANIES 1,440,888 6,445,123
========= =========
(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) A discount factor as determined by the Company's Board of
Directors has been applied to those stocks valued by the public
market method which have restrictions as to resale.
(e) 1/3 vested at 8/95, 8/96 and 8/97
(f) Pledged as collateral against loans.
* 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.
** Equity basis $0 as investments were written off in prior years.
See notes to financial statements
F-6
Enercorp, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ended June 30, 1996, 1995 and 1994
Retained Earnings
Common Stock (Accumulated Unrealized
Shares Amount Deficit) Net Gain Total
------ ------ ------- -------- -----
Balance at June 30, 1993 590,897 $1,468,251 ($408,183) $961,626 $2,021,694
Net loss -- -- (39,905) -- (39,905)
Unrealized gain on investments,
net of taxes -- -- -- 1,424,201 1,424,201
--------- --------- --------- --------- ---------
Balance at June 30, 1994 590,897 1,468,251 (448,088) 2,385,827 3,405,990
Net loss -- -- (404,366) -- (404,366)
Unrealized gain on investments,
net of taxes -- -- -- 917,408 917,408
--------- --------- --------- --------- ---------
Balance at June 30, 1995 590,897 1,468,251 (852,454) 3,303,235 3,919,032
Net loss -- -- 79,849 -- 79,849
Unrealized gain on investments,
net of taxes -- -- -- (1,695,991) (1,695,991)
--------- --------- --------- --------- ---------
Balance at June 30, 1996 590,897 $1,468,251 ($772,605) $1,607,244 $2,302,890
========= ========= ========= ========= =========
See notes to financial statements
F-7
Enercorp, Inc.
Statements of Operations
For the years ended June 30,
1996 1995 1994
---- ---- ----
REVENUES
Interest income $ 400 $ 35,070 $ -0-
Interest income from related entities 6,033 46 22,824
Consulting fees from related companies 167,738 108,750 -0-
Royalties and settlement income 2,445 -0- -0-
Recovery of bad debt 42,942 -0- -0-
Net realized gain on sale of investments 269,410 18,914 398,355
Loss on sale of fixed assets -0- (241) -0-
Dividend income from affiliated company 1,370 -0- 20,455
--------- --------- ---------
490,338 162,539 441,634
--------- --------- ---------
EXPENSES
Salaries - officer 72,000 72,000 72,000
Bonus expense - officer -0- 16,322 42,380
Directors' fees 1,000 -0- 1,000
Staff salaries 38,200 28,500 -0-
Legal, accounting and other professional fees 31,926 119,341 79,182
Interest expense - related entity 29,303 44,473 2,550
Interest expense - other 115,354 54,264 9,749
Loss on worthless investments -0- 119,809 -0-
Bad debt expense 4,520 262,348 249,285
Other general and administrative expenses 75,186 56,848 71,393
367,489 773,905 527,539
--------- --------- ---------
Net gain (loss) from operations before taxes 122,849 (611,366) (85,905)
Income taxes (Note 6) (43,000) 207,000 46,000
--------- --------- ---------
Net gain (loss) from operations after taxes 79,849 (404,366) (39,905)
--------- --------- ---------
Net unrealized gain (loss) on investments before tax (2,569,991) 1,419,408 2,127,201
Income taxes (Note 6) 874,000 (502,000) (703,000)
--------- --------- ---------
Net unrealized gain (loss) on investment after taxes (1,695,991) 917,408 1,424,201
--------- --------- ---------
Increase (decrease) in net assets $(1,616,142) $ 513,042 $ $ 1,384,296
========= ========= =========
Increase (decrease) in net assets per share $ (2.74) $ 0.87 $ $ 2.34
========= ========= =========
See notes to financial statements
F-8
Enercorp, Inc.
Statements of Cash Flows
For the years ended June 30,
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Increase (decrease) in net assets $(1,616,142) $ 513,042 $ 1,384,296
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,723 2,693 1,541
Bad debt provision on notes receivable
and interest net of write offs 4,520 239,934 249,286
Stock received for consulting services (37,500) (108,750) -0-
Recovery of bad debt (42,942) -0- -0-
Gain on sale of investments (269,410) (3,455) (398,355)
Loss on sale of fixed assets -0- 242 -0-
Write off of worthless investments -0- 119,809 -0-
Unrealized (gain) loss on investments 2,569,992 (1,419,408) (2,127,201)
(Increase) in accounts receivable - related party (125,000) -0- -0-
(Increase) in interest receivable (6,028) (199) (22,778)
Decrease in dividends receivable from
related party -0- -0- 3,390
Decrease in accounts receivable from
related party 58 192 200,000
Decrease in accounts receivable - other -0- -0- 19,750
(Increase) in other assets (5,736) (5,603) (4,484)
(Decrease) in accounts payable and
accrued expenses (55,198) (4,968) (8,285)
(Decrease) in accrued salaries -0- (6,000) -0-
Increase (decrease) in deferred taxes (831,000) 295,000 657,000
(Decrease) in bonus payable to officer (16,322) (26,058) (307,620)
---------- ---------- ----------
Total adjustments 1,187,157 (916,571) (1,737,756)
---------- ---------- ----------
Net cash (used) by operating activities (428,985) (403,529) (353,460)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of investments (88,000) (600,000) (100,000)
Sale of investments 303,410 8,355 577,384
Payments received on note receivable 78,364 -0- -0-
Issuance of notes receivable -0- (9,500) (420,000)
Proceeds from sale of fixed assets -0- 500 -0-
Purchase of furniture and fixtures -0- (2,521) (2,212)
---------- ---------- ----------
Net cash provided (used) by investing activities 293,774 (603,166) 55,172
---------- ---------- ----------
See notes to financial statements
F-9
Enercorp, Inc.
Statements of Cash Flows (Continued)
For the years ended June 30,
1996 1995 1994
---- ---- ----
Cash flows from financing activities:
Proceeds from notes payable 1,905,825 1,809,303 415,500
Principal payments of notes payable (1,771,310) (804,600) (130,904)
Net cash provided by investing activities 134,515 1,004,703 284,596
--------- --------- ---------
(Decrease) in cash (696) (1,992) (13,692)
Cash, beginning of period 1,191 3,183 16,875
Cash, end of period $ 495 $ 1,191 $ 3,183
--------- --------- ---------
Supplemental disclosures of cash flow information:
Interest paid $ 152,332 $ 95,937 $ 15,477
========= ========= =========
Interest received $ 403 $ -0- $ 810
========= ========= =========
See notes to financial statements
F-10
Enercorp, Inc.
Notes to Financial Statements
Note 1: Summary of Significant Accounting Policies
Significant accounting policies are as follows:
a. Business History
Enercorp, Inc. (the "Company") was incorporated under the laws
of the state of Colorado on June 30, 1978. During the fiscal
year ended June 30, 1982, the Company elected to become a
"Business Development Company" (BDC) as that term is defined
in the Small Business Investment Incentive Act of 1980, which
Act is an amendment to the Investment Company Act of 1940.
This change resulted in the Company becoming a specialized
type of investment company. For the years ended June 30, 1996,
1995 and 1994 the Company's cash flows have been dependent
primarily upon sale of stock and loans.
b. Investment Valuation
The investment valuation method adopted in 1982 provides for
the Company's Board of Directors to be responsible for the
valuation of the Company's investments (and all other assets)
based on recommendations of a Valuation Committee of the
Board, comprised of the independent disinterested directors of
the Company. In the development of the Company's valuation
methods, factors which affect the value of investees'
securities, such as significant escrow provisions, trading
volume and significant business changes are taken into
account. These investments are carried at fair value using the
following four basic methods of evaluation:
1. Cost - The cost method is based on the original cost
to the Company adjusted for amortization of original
issue discounts and accrued interest for certain
capitalized expenditures of the corporation. Such
method is to be applied in the early stages of an
investee's development until significant positive or
adverse events subsequent to the date of the original
investment require a change to another method.
2. Private market - The private market method uses
actual or proposed third party transactions in the
investee's securities as a basis for valuation,
utilizing actual firm offers as well as historical
transactions, provided that any offer used is
seriously considered and well documented by the
investee.
3. Public market - The public market method is the
preferred method of valuation when there is an
established public market for the investee's
securities. In determining whether the public market
method is sufficiently established for valuation
purposes, the corporation is directed to examine the
trading volume, the number of shareholders and the
number of market makers in the investee's securities,
along with the trend in trading volume as compared to
the Company's proportionate share of the investee's
securities. If the security is restricted, the value
is discounted at an appropriate rate.
F-11
Enercorp, Inc.
Notes to Financial Statements (Continued)
4. Appraisal - The appraisal method is used to value an
investment position after analysis of the best
available outside information where there is no
established public or private market method which
have restrictions as to their resale as denoted in
the schedule of investments are also considered to be
restricted securities.
All portfolio securities valued by the cost, private
market and appraisal methods are considered to be
restricted as to their disposition. In addition,
certain securities valued by the public market method
which have restrictions as to their resale as denoted
in the schedule of investments are also considered to
be restricted securities.
c. Statement of Cash Flows
Consistent with the reporting requirements of a BDC, cash and
cash equivalents consist only of demand deposits in banks and
cash on hand. Financial statement account categories such as
investments and notes receivable, which relate to the
Company's activity as a BDC, are included as operating
activities in the statement of cash flows.
d. Furniture and Equipment
Expenditures for furniture and equipment and for renewals and
betterments which extend the originally estimated economic
life of assets or convert the assets to a new use are
capitalized at cost. Expenditures for maintenance, repairs and
other renewals of items are charged to expense. When items are
disposed of, the cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is included
in the results of operations.
The provision for depreciation is calculated using the
straight-line method over a five or seven year life.
e. Securities Transactions
Purchases and sales of securities transactions are accounted
for on the trade date, which is the date the securities are
purchased or sold. The value of securities sold is reported on
the first-in first-out basis for financial statement
presentation.
f. Revenue Recognition
Due to the uncertainty of collection, the Company recognizes
all types of consulting fee revenues, from portfolio companies
as cash is received. All other revenues are recognized on the
accrual basis.
h. Net Assets per Share
In accordance with the fair value accounting method used by
regulated investment companies, net assets (total
stockholders' equity) per share at June 30, 1996 and June 30,
1995, respectively was $ 3.90 and $6.63 per share based on
590,897 shares.
F-12
Enercorp, Inc.
Notes to Financial Statements (Continued)
i. Reclassifications
Prior year share and per share amounts have been restated to
reflect the 1 for 75 reverse stock split that occured on
December 13, 1996. Also certain amounts as originally reported
in the June 30, 1995 and 1994 financial statements were
reclassified to conform with the June 30, 1996 presentations.
Note 2: Investments
Investments consist of holdings of securities in publicly and
privately held companies. The Company's largest portfolio
company is Williams Controls, Inc. ("Williams"). At June 30,
1996 Williams represented 83% of the company's investments at
fair market value.
Note 3: Note Receivable - Other
The Company had a note receivable from American Imaging
Systems, Inc. which was repaid during fiscal year end June 30,
1996. The balance of this note at June 30, 1996 and 1995 was
$0 and $9,500, respectively.
Note 4: Related Party Transactions
a. Bonus to President
For the year ended June 30, 1994 the Company accrued $42,380
per an agreement with its current president. The Company paid
this bonus in January 1995. For the year ended June 30, 1995
the Company accrued $16,322 per an agreement with its current
president. In January 1996 the Company paid this bonus. During
the year ended June 30, 1996 no bonus was accrued. At June 30,
1996 and 1995 the "Bonus payable to officer" was $0 and
$16,322, respectively.
b. Accounts Receivable - Related Party
The Company has an account receivable from Williams for
consulting fees for services performed in connection with an
April 1996 Williams acquisition. At June 30, 1996 and 1995
accounts receivable related party was $125,000 and $0.
c. Notes Receivable - Related Entities
The Company had notes receivable from Immune Response, Inc.,
("IRI"). All of the notes were due on demand. The notes had
interest rates of 12% and 10%. There were no collateral for
the loans. The Company is a shareholder in IRI. In November
1995 IRI repaid the principal balance of $68,864 in exchange
for forgiveness of all accrued interest. The notes receivable
balances, net of allowance for uncollectible note receivable,
from IRI at June 30, 1996 and 1995 totaled $0 and $17,216,
respectively.
The Company has notes receivable from ProConnextions, Inc.,
("PCI"). All of the notes are due on demand. The notes have
interest rates of 12% and 10%.
F-13
Enercorp, Inc.
Notes to Financial Statements (Continued)
There is no collateral for the notes. The Company is a
shareholder in PCI. The notes receivable balance, net of
allowance for uncollectible note receivable, from PCI at was
$7,715 at June 30, 1996 and 1995.
d. Notes Payable - Related Company
On March 28, 1995 the Company borrowed $496,310 from Acrodyne
Corporation, at 1% over prime. Acrodyne, and Acrodyne's Profit
Sharing Trust are shareholders of the Company. Collateral for
this loan was 150,000 shares of Williams common stock. In
February 1996 the Company repaid the loan. The balance of this
note at June 30, 1996 and 1995 was $0 and $496,310,
respectively.
Note 5: Note Payable - Bank
The "note payable-bank" at June 30, 1995 represents a line of
credit up to $1,000,000 with Michigan National Bank. This note
was replaced in February 1996 with a $2,000,000 line of credit
from NBD Bank. This new line of credit bears an interest rate
of 1% over the prime rate. The collateral for the note is all
of the shares of Williams Controls, Inc. common stock owned by
the Company (1,710,000 shares) and all future shares of
Williams common stock acquired by the Company. The borrowing
availability is limited by 50% of the fair market value of the
collateral and the line of credit expires in August 1997. The
balance of note payable - bank as of June 30, 1996 and 1995
totaled $1,454,721 and $823,896, respectively.
Note 6: Income Taxes
The Company adopted, effective July 1, 1992, Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting For
Income Taxes", issued in February 1992. Under the liability
method specified by SFAS 109, deferred tax assets and
liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result
of changes in deferred tax assets and liabilities.
Income tax expense for the years ended June 30, 1996, 1995 and
1994 consisted of:
1996 1995 1994
---- ---- ----
Current $ -0- $ -0- $ -0-
Deferred (831,000) 295,000 657,000
-------- ------- -------
$(831,000) $295,000 $657,000
The components of the deferred tax liability at June 30, 1996
and 1995 consist of the following:
6/30/96 6/30/95
------- -------
Unrealized gain on investments $ 827,000 $ 1,701,000
Capital loss carryover -0- (34,000)
Accrued officer wages -0- ( 6,000)
F-14
Enercorp, Inc.
Notes to Financial Statements (Continued)
Allowance for notes receivable ( 11,700) ( 36,000)
Net operating loss carry over (455,300) ( 434,000)
-------- ----------
$ 360,000 $ 1,191,000
At June 30, 1996, the Company has net operating loss carry
forward available to offset future taxable income of
approximately $1,338,000 that expires at various years through
June 30, 2011.
Note 7: Operating Leases
The company leases office space accounted for as an operating
lease. The current lease runs through March 1997. Lease
expense was $9,915, $5,958 and $4,462 for the years ending
June 30, 1996, 1995 and 1994, respectively.
Future minimum lease obligations are as follows:
6/30/97 6,435
F-15
Enercorp, Inc.
Amounts Receivable from Affiliated Parties
Underwriters, Promoters and Employees Other than Related Parties
Column A Column B Column C Column D Column E
Deductions Balance end of period
Balance at (1) (2) (1) (2)
beginning of Amounts Amounts Non-
Name of Debtor Period Additions(a) Collected(a) Written off Current Current
For the year ended
June 30, 1996
Notes receivable from Immune Response, Inc. $ 68,864 - $68,864 $ - -
affiliated companies Pro Connextions, inc. 30,862 - - - 30,862 -
Accounts receivable from Williams Controls, Inc. - $125,000 - - 125,000 -
------- ------- ------- ------- ------- -------
$ 99,726 $125,000 $68,864 $ 0 $155,862 $0
======= ======= ======= ======= ======= =======
For the year ended
June 30, 1995
Notes receivable from Immune Response, Inc. $ 68,864 - - $ - 68,864 -
affiliated companies Pro Connextions, inc. 30,862 - - - 30,862 -
Kimbro Imaging Systems, Inc. 420,000 12,000 24,445 407,555 - -
Accounts receivable from Williams Controls, Inc. 250 - 250 - - -
ffiliated companies Kimbro Imaging Systems, Inc. - 522 522 - - -
------- ------- ------- ------- ------- -------
$519,976 $ 12,522 $25,217 $407,555 $99,726 $0
======= ======= ======= ======= ======= =======
See notes to financial statements
S-1
Enercorp, Inc.
Valuation and Qualifying Accounts and Reserves
Column A Column B Column C Column D Column E
Additions
Balance at Charge to Charged to Balance at
beginning costs/ other accounts end
of period expenses describe Deductions of period
--------- --------- -------------- ---------- ----------
For the year ended June 30, 1996
Allowance for uncollectible accounts
Notes receivable $ 74,795 - 51,648 $ 23,147
Interest receivable $ 31,642 4,520 - 26,118 $ 10,044
For the year ended June 30, 1995
Allowance for uncollectible accounts
Notes receivable $259,863 24,932 - 210,000 $ 74,795
Interest receivable $ 26,641 39,860 - 34,859 $ 31,642
For the year ended June 30, 1994
Allowance for uncollectible accounts
Notes receivable $ 30,632 229,231 - - $259,863
Interest receivable $ 6,587 20,054 - - $ 26,641
See notes to financial statements
S-2