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, 1997
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)
(248) 851-5651
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(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 December 31, 1997: 590,897
Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended December 31, 1997
INDEX
Page
Number
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements 3
Statements of Assets and Liabilities
December 31, 1997 (Unaudited) and June 30, 1997 4
Schedule of Investments (Unaudited), December 31, 1997 5-6
Schedule of Investments June 30, 1997 7-8
Statements of Operations (Unaudited) for the Three
And Six Months Ended December 31, 1997 and 1996 9
Statements of Cash Flows (Unaudited) for the Six
Months Ended December 31, 1997 and 1996 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 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
2
Enercorp, Inc.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included, and the disclosures are adequate to make the information
presented not misleading. Operating results for the six months ended
December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ended June 30, 1998. 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, 1997.
3
Enercorp, Inc.
Statements of Assets and Liabilities
(Unaudited)
December 31, June 30,
ASSETS 1997 1997
------------ ------------
Investments, at fair value, cost of $1,684,888 and
$1,623,388 at December 31, 1997 and June 30, 1997 4,297,338 $ 4,287,148
Cash 1,086 99
Accounts receivable - related parties -0- 2,985
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $13,702 and $12,477
at December 31, 1997 and June 30, 1997, respectively 9,357 18,273
Note receivable - related parties, net of allowance for
uncollectible notes receivable of $23,147 at
December 31, 1997 and June 30, 1997, respectively 207,715 207,715
Furniture and fixtures, net of accumulated depreciation
of $5,779 and $4,747 at December 31, 1997 and
June 30, 1997, respectively 3,157 4,189
Other assets 1,580 3,693
------------ ------------
$ 4,520,233 $ 4,524,102
============ ============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 1,921,049 $ 1,712,900
Accounts payable and accrued liabilities 35,938 51,238
Deferred tax liability 329,000 395,000
------------ ------------
2,285,988 2,159,138
------------ ------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and outstanding
December 31, 1997 and June 30, 1997 1,468,251 1,468,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (958,457) (861,049)
Unrealized net gain on investments, net of deferred
income taxes of $888,000 and $906,000 at
December 31, 1997 and June 30, 1997, respectively 1,724,452 1,757,762
------------ ------------
2,234,246 2,364,964
------------ ------------
$ 4,520,233 $ 4,524,102
============ ============
4
Enercorp, Inc.
Schedule of Investments
December 31, 1997
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product
Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of sensor (e) 400,000 60,000 900,000
and control systems (e) 850,000 127,500 1,912,500
(e) 330,000 412,500 742,500
(e) 30,000 108,750 60,000
(e) 50,000 125,000 100,000
(e) 150,000 61,500 300,000
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 1,764,706 600,000 248,162
(e) 100,000 37,500 14,063
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 6,300
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 sensors 08/(c)99 25,000 - -
and control systems 05/(c)00 25,000 - -
09/(c)99 50,000 - -
----------- -----------
1,659,227 4,292,597
See notes to financial statements
5 (Continued)
Enercorp, Inc.
Schedule of Investments
December 31, 1997
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Vitro Diagnostics Holding Company 10,000,000 5,000 -
Immune Response, Inc. Diagnostic Test Kits 300 1,500 21
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
----------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,811
----------- -----------
Total - ALL COMPANIES $ 1,684,888 $ 4,297,338
=========== ===========
(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 exists for this security.
(d) The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors including recent and historical prices of these securities,
recent transactions completed by the Company, and other factors that
the Board believes are applicable.
(e) Pledged as collateral against a line of credit with Comerica Bank.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
6
Enercorp, Inc.
Schedule of Investments
June 30, 1997
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 sensors, controls (f) 400,000 60,000 866,160
and communication systems (f) 850,000 127,500 1,840,590
(f) 330,000 412,500 714,582
(b) 5/97 (f) 30,000 108,750 57,744
(b) 10/97 (f) 50,000 125,000 96,240
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 1,764,706 600,000 397,059
(b) 12/96 100,000 37,500 22,500
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 9,000
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensors, controls 11/(c)97 150,000 - 269,460
and communication systems 08/(c)(e) 25,000 - -
05/(c)00 25,000 - -
09/(c)99 50,000 - -
----------- -----------
1,597,727 4,282,337
See notes to financial statements
(Continued)
7
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1997
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 21
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
----------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,811
----------- -----------
Total - ALL COMPANIES $ 1,623,388 $ 4,287,148
=========== ===========
(a) Non-public company whose securities are privately owned.
(b) May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated.
(c) No public market for this security exists.
(d) The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors including recent and historical prices of these securities,
recent transactions completed by the Company, and other factors that
the Board believes are applicable.
(e) 75% currently vested; 25% vesting 8/97.
(f) Pledged as collateral against a line of credit with NBD Bank as of June
30, 1997.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
8
Enercorp, Inc.
Statements of Operations
(Unaudited)
For the Three Months For the Six Months
Ended December 31 Ended December 31
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
REVENUES
Interest income -0- 817 -0- $ 1,641
Interest income from related entities 5,606 4,663 11,212 4,815
Consulting fees from related companies -0- 893 -0- 1,565
Net realized gain on sale of investments -0- 216,000 -0- 216,000
Dividend income from affiliated company -0- 500 -0- 1,000
------------ ------------ ------------ ------------
5,606 222,873 11,212 225,021
------------ ------------ ------------ ------------
EXPENSES
Salaries - officer 18,125 56,875 39,875 74,875
Staff salaries -0- 10,732 -0- 20,332
Legal, accounting and other professional fees 3,636 1,699 10,736 6,013
Interest expense - other 15,615 36,773 87,539 72,050
Bad debt expense 613 614 1,226 1,227
Other general and administrative expenses 7,911 17,429 17,245 31,763
------------ ------------ ------------ ------------
45,900 124,122 156,621 206,260
------------ ------------ ------------ ------------
Net income (loss) from operations before taxes (40,293) 98,751 (145,408) 18,761
Income taxes 13,000 (34,000) 48,000 (7,000)
------------ ------------ ------------ ------------
Net income (loss) from operations after taxes (27,293) 64,751 (97,408) 11,761
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investments before taxes 104,727 (1,534,549) (51,311) (374,089)
Income taxes -0- 522,000 18,000 127,000
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investment after taxes 104,727 (1,012,549) (33,311) (247,089)
------------ ------------ ------------ ------------
Increase (decrease) in net assets $ 77,434 (947,798) (130,719) $ (235,328)
============ ============ ============ ============
Increase in net assets per share $ 0.13 (1.60) (0.22) (0.40)
============ ============ ============ ============
9
Enercorp, Inc.
Statements of Cash Flows
(Unaudited)
For the Six Months
Ended December 31,
---------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
Increase (decrease) in net assets (130,719) (235,328)
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,032 1,038
Bad debt provision on notes receivable
and interest net of write offs 1,226 1,226
Gain on sale of investments -0- (216,000)
(Increase) decrease in unrealized gain on investments 51,311 374,092
(Increase) decrease in accounts receivable - related party 2,985 122,015
(Increase) in interest receivable 7,691 (6,448)
Decrease in other assets 2,113 7,222
(Decrease) in accounts payable and accrued expenses (15,300) 22,509
(Decrease) in deferred taxes (66,000) (120,000)
------------ ------------
Total adjustments (14,943) 185,654
------------ ------------
Net cash (used) by operating activities (145,662) (49,674)
------------ ------------
Cash flows from investing activities:
Purchase of investments (61,500) (125,000)
Proceed from sale of investments -0- 250,000
Issuance of notes receivable -0- (200,000)
Purchase of furniture and fixtures -0- (3,514)
------------ ------------
Net cash provided by investing activities (61,500) (78,514)
------------ ------------
Cash flows from financing activities:
Payments to notes payable -0- (250,000)
Proceeds from notes payable 208,149 381,679
------------ ------------
Net cash provided by financing activities 208,149 131,679
------------ ------------
Increase in cash 987 3,491
Cash, beginning of period 99 495
------------ ------------
Cash, end of period 1,086 3,986
============ ============
Supplemental disclosures of cash flow information:
Interest paid 87,539 72,051
============ ============
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
Net assets increased by $77,434 during the second quarter ended December
31, 1997 from June 30, 1997. This compares to a decrease in net assets
of $947,748 during the second quarter ended December 31, 1996. The
Registrant's largest investee, Williams Controls, Inc. ("Williams"),
increased in fair market value at December 31, 1997 as compared to June
30, 1997. Williams represents approximately 92% of the Registrant's
investments (at fair market value).
In July 1997, the Registrant was approved for a $2,250,000 line of
credit at 3/4% over prime with Comerica Bank ("Comerica"), replacing the
NBD loan. The collateral for the line of credit is all of the shares of
Williams Controls common stock owned by the Registrant (1,810,000) and
all of the shares of common stock of Ajay Sports, Inc. ("Ajay") owned by
the Registrant (1,864,706). Borrowing is limited to 50% of the fair
market value of the collateral, except that the maximum amount that can
be borrowed against the Ajay stock is $400,000. This loan expires in
July, 1998. The balance of the Registrant's note payable to Comerica as
of December 31, 1997 was $1,921,049.
On September 27, 1996 the Registrant loaned Ajay Sports, Inc. ("Ajay")
$200,000 for working capital. This loan was a 90 day note with an
interest rate of prime plus 1%. In December 1997, the Registrant changed
this note to a demand note. In July 1997, Ajay entered into a new loan
agreement with Wells Fargo Bank. One of the conditions of the loan was
that any outstanding loans to Ajay made by the Registrant be
subordinated to the position of Wells Fargo Bank. As such, the
Registrant signed a Subordination Agreement with Wells Fargo Bank at the
time of closing of Ajay's loan with Wells Fargo Bank. The subordination
conditions can only be removed and the $200,000 loan from the Registrant
to Ajay can only be repaid if certain financial and operating conditions
are met. The balance of this note at December 31,1997 was $200,000. The
accrued interest on the note at December 31, 1997 was $4,789.
In November 1997, the Registrant exercised 150,000 stock options of
Williams Controls, Inc. for common stock at $.41 per share, or a total
of $61,500.
11
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, 1997 the Registrant's borrowing availability against the
Comerica line of credit was $328,951. The Registrant has several options
for continued cash flow including selling some shares of Ajay or
Williams common stock.
Material Changes in Results of Operations:
The Registrant's revenues were $5,606 and $222,873 for second quarter
ended December 31, 1997 and 1996, respectively. The decrease in revenues
for the quarter is due mainly to the net realized gain on investments of
$216,000 reported in the prior year's quarter.
The Registrant recorded an unrealized gain on investments of $104,727
for the second quarter ended December 31, 1997 compared to a loss of
$1,534,549 for the second quarter ended December 31, 1996. This is
mainly due to the increase in fair market value of the Registrant's
investment in Williams, offset by a decrease in the market value of the
Registrant's investment in Ajay.
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 and
communication systems for the transportation, communication and
agricultural industries.
12
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed by the Registrant on February 13, 1998 regarding
a letter from Nasdaq.
Exhibit 27 Financial Data Schedule
13
Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended December 31, 1997
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, 1998
14