UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 0-9083
Enercorp, Inc.
(Exact name of Registrant as specified in its Charter)
Colorado 84-0768802
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322
(Address of principal executive offices) (Zip Code)
(810) 851-5654
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of common stock outstanding at February 10, 1997: 590,897
Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended December 31, 1996
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
December 31, 1996 (Unaudited) and June 30, 1996 4
Schedule of Investments (Unaudited), December 31, 1996 5-6
Schedule of Investments June 30, 1996 7-8
Statements of Operations (Unaudited) for the Six
Months Ended December 31, 1996 and 1995 9
Statements of Cash Flows (Unaudited) for the Six
Months Ended December 31, 1996 and 1995 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
2
Enercorp, Inc.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included, and the disclosures are adequate to make the information
presented not misleading. Operating results for the six months ended
December 31, 1996 are not necessarily indicative of the results that may
be expected for the year ended June 30, 1997. These statements should be
read in conjunction with the financial statements and notes thereto
included in the Annual 10-K Report (filed with the Securities and
Exchange Commission) for the year ended June 30, 1996.
3
Enercorp, Inc.
Statements of Assets and Liabilities
December 31, June 30,
1996 1996
----------------- -----------------
(Unaudited)
ASSETS
Investments, at fair value, cost of $1,623,388 and
$1,532,388 at December 31, 1996 and June 30, 1996 $ 3,683,539 $ 3,966,631
Cash 3,986 495
Accounts receivable - related parties 2,985 125,000
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $11,271 and $10,045
at December 31, 1996 and June 30, 1996, respectively 3,757 3,350
Accrued interest receivable - related party 4,815
Note receivable, net of allowance for uncollectible note
receivable of $23,147 at December 31, 1996 and
June 30, 1996 7,715 7,715
Note receivable - related party 200,000 -0-
Furniture and fixtures, net of accumulated depreciation
of $4,878 and $3,840 at December 31, 1996 and
June 30, 1996, respectively 6,006 3,530
Other assets 9,813 17,035
----------------- -----------------
$ 3,922,616 $ 4,123,756
================= =================
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 1,586,400 $ 1,454,721
Accounts payable and accrued liabilities 28,657 6,145
Deferred tax liability 240,000 360,000
----------------- -----------------
1,855,057 1,820,866
----------------- -----------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and outstanding
December 31, 1996 and June 30, 1996 1,468,251 1,468,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (760,843) (772,605)
Unrealized net gain on investments, net of deferred
income taxes of $700,000 and $827,000 at
December 31, 1996 and June 30, 1996, respectively 1,360,151 1,607,244
----------------- -----------------
2,067,559 2,302,890
----------------- -----------------
$ 3,922,616 $ 4,123,756
================= =================
4
Enercorp, Inc.
Schedule of Investments
December 31, 1996
(Unaudited)
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of automotive electronics, (f) 400,000 60,000 720,000
components and consumer products (f) 850,000 127,500 1,530,000
(f) 330,000 412,500 594,000
(b) 5/97(f) 30,000 108,750 48,000
(b)10/98(f) 50,000 125,000 80,000
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 1,764,706 600,000 446,294
(b)12/97 100,000 37,500 25,290
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Furniture Manufacturer 2,000 20,000 11,475
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 electronics, 11/08/97 (c) 150,000 - 214,650
components and consumer products 08/04/99 (c)(e) 25,000 - -
05/03/00 (c) 25,000 - -
09/13/99 (c) 50,000 - -
------------ ----------
1,597,727 3,678,711
(Continued)
5
Enercorp, Inc.
Schedule of Investments (Continued)
December 31, 1996
(Unaudited)
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 38
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
------------ ------------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,828
------------ ------------
Total - ALL COMPANIES $ 1,623,388 $ 3,683,539
============ ============
<FN>
(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) 75% currently vested; 25% vesting 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.
</FN>
6
Enercorp, Inc.
Schedule of Investments
June 30, 1996
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of automotive electronics, (f) 400,000 60,000 720,000
components and consumer products (f) 850,000 127,500 1,530,000
(f) 330,000 412,500 594,000
(b)4/98 (f) 100,000 34,000 180,000
(b)5/97 (f) 30,000 108,750 48,000
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (b)10/96 1,764,706 600,000 617,647
(b)12/97 100,000 37,500 35,000
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf, Billiard & Furniture Manufacturer 2,000 20,000 13,500
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 electronics, 11/08/97 (c) 150,000 - 214,650
components and consumer products 08/04/99 (c)(e) 25,000 - -
05/03/00 (c) 25,000 - -
--------- --------
1,506,727 3,961,799
(Continued)
7
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1996
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 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
============ ==========
<FN>
(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) 25% vesting at 8/94, 8/95, 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.
</FN>
8
Enercorp, Inc.
Statements of Operations
(Unaudited)
For the Three Months For the Six Months
Ended December 31 Ended December 31
-------------------------- -------------------------
1996 1995 1996 1995
----------- ------------ ---------- -----------
REVENUES
Interest income $ 817 $ 1,982 $ 1,641 $ 4,511
Interest income from related entities 4,663 -0- 4,815 -0-
Consulting fees from related companies 893 31,575 1,565 31,575
Net realized gain on sale of investments 216,000 28,410 216,000 28,410
Royalties and settlement income -0- 2,751 -0- 2,811
Recovery of bad debt -0- 42,942 -0- 42,942
Dividend income from affiliated company 500 370 1,000 370
----------- ----------- ---------- -----------
222,873 108,030 225,021 110,619
----------- ----------- ---------- -----------
EXPENSES
Salaries - officer 56,875 18,000 74,875 36,000
Bonus expense - officer -0- (2,893) -0- -0-
Directors' fees -0- -0- -0- 1,000
Staff salaries 10,732 9,600 20,332 19,000
Legal, accounting and other professional fees 1,699 7,142 6,013 27,359
Interest expense - related entity -0- 12,197 -0- 24,418
Interest expense - other 36,773 26,532 72,050 50,866
Bad debt expense 614 1,138 1,227 3,310
Other general and administrative expenses 17,429 19,847 31,763 30,614
----------- ------------ ---------- -----------
124,122 91,563 206,260 192,567
----------- ------------ ---------- -----------
Net income (loss) from operations before taxes 98,751 16,467 18,761 (81,948)
Income taxes (34,000) (4,000) (7,000) 28,000
----------- ------------ ---------- -----------
Net income (loss) from operations after taxes 64,751 12,467 11,761 (53,948)
----------- ------------ ---------- -----------
Net unrealized gain (loss) on investments before taxes (1,534,549) (2,025,921) (374,089) (1,788,007)
Income taxes 522,000 688,900 127,000 608,000
----------- ------------ ---------- -----------
Net unrealized gain (loss) on investment after taxes (1,012,549) (1,337,021) (247,089) (1,180,007)
----------- ------------ ---------- -----------
Increase (decrease) in net assets $ (947,798) $ (1,324,554) $ (235,328) $ (1,233,955)
=========== ============ ========== ===========
Increase (decrease) in net assets per share $ (1.60) $ (2.24) $ (0.40) $ (2.09)
============ ============ =========== ============
9
Enercorp, Inc.
Statements of Cash Flows
(Unaudited)
For the Six Months
Ended December 31,
--------------------------------------
1996 1995
----------------- -----------------
Cash flows from operating activities:
Increase (decrease) in net assets $ (235,328) $ (1,233,955)
----------------- -----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,038 861
Bad debt provision on notes receivable
and interest net of write offs 1,226 3,310
Gain on sale of investments (216,000) -0-
Recovery of bad debts -0- (42,941)
Decrease in unrealized gain on investments 374,092 1,788,007
(Increase) decrease in accounts receivable - related party 122,015 58
(Increase) in interest receivable (1,633) (4,413)
(Increase) in interest receivable - related party (4,815) -0-
Decrease in other assets 7,222 8,306
Increase (decrease) in acts. payable and accrued exp. 22,509 (21,921)
(Decrease) in deferred taxes (120,000) (636,000)
----------------- -----------------
Total adjustments 185,654 1,095,267
----------------- -----------------
Net cash (used) by operating activities (49,674) (138,688)
----------------- -----------------
Cash flows from investing activities:
Purchase of investments (125,000) (50,000)
Proceed from sale of investments 250,000 -0-
Payments received from notes receivable -0- 75,864
Issuance of notes receivable (200,000) (1,500)
Purchase of furniture and fixtures (3,514) -0-
----------------- -----------------
Net cash provided by investing activities (78,514) 24,364
----------------- -----------------
Cash flows from financing activities:
Payments to notes payable (250,000) -0-
Proceeds from notes payable 381,679 176,104
----------------- -----------------
Net cash provided by financing activities 131,679 176,104
----------------- -----------------
Increase in cash 3,491 61,780
Cash, beginning of period 495 1,191
----------------- -----------------
Cash, end of period $ 3,986 $ 62,971
================= =================
Supplemental disclosures of cash flow information:
Interest paid $ 72,051 $ 73,821
================= =================
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
Net assets decreased by $947,798, or $1.60 per share, during the second
quarter ended December 31, 1996. This compares to a decrease in net
assets of $1,324,554, or $2.24 per share, during the second quarter
ended December 31, 1995. The decrease during the quarter was due mainly
to a decrease in the fair market value of the Registrant's investment
in its largest investee, Williams Controls, Inc. ("Williams"), which
represented 87% of the Registrant's investments (at fair value) at
December 31, 1996.
The Registrant has a line of credit with NBD Bank ("NBD"). The
collateral is all of the shares of Williams common stock currently
owned by the Registrant (1,660,000 shares) and all future shares of
Williams common stock acquired by the Registrant. The interest rate is
NBD's prime rate plus 1%. The Registrant may borrow up to the lessor of
$2,000,000 or 50% of the fair market value of the collateral. The
amount available at December 31, 1996, based on the above formula, was
$73,600. This line expires on January 31, 1998. The amount outstanding
at December 31, 1996 and June 30, 1996 were $1,586,400 and $1,454,721,
respectively. As of December 31, 1996, the Registrant has no material
commitments for capital expenditures.
On September 27, 1996 the Registrant loaned Ajay Sports, Inc. ("Ajay")
$200,000 for working capital. This loan is a 90 day note with an
interest rate of NBD's prime rate plus 1%. In December 1997 the
Registrant changed this note to a demand note. The accrued interest on
the note at December 31, 1996 was $4,815. The Registrant expects
repayment of the note and interest some time during 1997.
On October 1, 1996 the Registrant sold 100,000 shares of Williams
common stock for $2.50/share. The proceeds from this sale were used to
decrease the line of credit. The Registrant also received 50,000 shares
of Williams' common stock and 50,000 options to purchase common stock
from Williams as fee income on that date.
The Registrant's liquidity is affected primarily by the business
success, securities prices and marketability of its investee companies
and by the amount and timing of new or incremental investments it
makes.
At December 31, 1996 the Registrant's borrowing availability against
the NBD line of credit was $73,600. The Registrant has several options
11
for continued cash flow including, (1) a potential waiver from NBD of
the formula cap, (2) increasing the availability with NBD by pledging
Ajay's common stock and preferred stock as additional collateral, (3)
selling some shares Ajay or Williams common stock (4) demanding from
Ajay, payment of the $200,000 note payable.
Material Changes in Results of Operations:
The Registrant's revenues were $222,873 and $108,030 for second quarter
ended December 31, 1996 and 1995, respectively. The increase in
revenues for the quarter, compared with the prior year's quarter, is
due mainly to an increase in the net realized gain on the sale of
investments offset by the decrease of recovery from bad debt. The
Registrant's operating expenses for the second quarter ended December
31, 1996 increased by $32,559 (36%) over the same period of the prior
year. This was due mainly to the increase in salary accrual that is
based on the increase in consulting income.
The Registrant recorded an unrealized loss on investments of $1,534,549
for the second quarter ended December 31, 1996 compared to a loss of
$2,025,921 for the second quarter ended December 31, 1995. This is
mainly due to the changes in fair market value of the Registrant's
investment in Williams.
Williams Controls, Inc. - Investee Company
The Registrant's largest investee company, Williams Controls, is a
publicly held company (Nasdaq:WMCO) in which the Registrant owns common
stock and options. Management recognizes that there is risk associated
with its lack of diversification due to its large investment
concentration in Williams. Williams Controls, Inc., through its
subsidiary companies, manufactures and markets sensors, controls,
communication systems and accessories for the transportation,
communication and agricultural industries.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
12
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
13
Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended December 31, 1996
Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enercorp, Inc.
(Registrant)
BY s\Robert R. Hebard
------------------------------
Robert R. Hebard
President and Chief Financial Officer
Date: February 13, 1997