UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
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
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Number of shares of common stock outstanding at March 31, 1998: 590,897
Enercorp, Inc.
Form 10-Q Filing for the Third Quarter Ended March 31, 1998
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
March 31, 1998 (Unaudited) and June 30, 1997 4
Schedule of Investments (Unaudited), March 31, 1998 5-6
Schedule of Investments June 30, 1997 7-8
Statements of Operations (Unaudited) for the Three
And Nine Months Ended March 31, 1998 and 1997 9
Statements of Cash Flows (Unaudited) for the Nine
Months Ended March 31, 1998 and 1997 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 nine months ended
March 31, 1998 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)
March 31, June 30,
ASSETS 1998 1997
------------ ------------
Investments, at fair value, cost of $1,684,888 and
$1,623,388 at March 31, 1998 and June 30, 1997 4,590,780 $ 4,287,148
Cash 399 99
Accounts receivable - related parties -0- 2,985
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $14,302 and $12,477
at March 31, 1998 and June 30, 1997, respectively 14,242 18,273
Note receivable - related parties, net of allowance for
uncollectible notes receivable of $23,147 at
March 31, 1998 and June 30, 1997 207,715 207,715
Furniture and fixtures, net of accumulated depreciation
of $6,008 and $4,747 at March 31, 1998 and
June 30, 1997, respectively 2,927 4,189
Other assets 1,311 3,693
------------ ------------
4,817,374 $ 4,524,102
============ ============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank 2,013,549 $ 1,712,900
Accounts payable and accrued liabilities 28,106 51,238
Deferred tax liability 402,000 395,000
------------ ------------
2,443,655 2,159,138
------------ ------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and outstanding
March 31, 1998 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 (1,012,426) (861,049)
Unrealized net gain on investments, net of deferred
income taxes of $988,000 and $906,000 at
March 31, 1998 and June 30, 1997, respectively 1,917,894 1,757,762
------------ ------------
2,373,719 2,364,964
------------ ------------
4,817,374 $ 4,524,102
============ ============
4
Enercorp, Inc.
Schedule of Investments
March 31, 1998
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 60,000 967,500
and control systems (e) 850,000 127,500 2,055,938
(e) 330,000 412,500 798,188
(e) 30,000 108,750 72,563
(e) 50,000 125,000 120,938
(b)(e)11/8/98 150,000 61,500 342,656
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 1,764,706 600,000 198,529
(e) 100,000 37,500 11,250
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 6,750
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensors 08/04/99 (c) 25,000 - -
and control systems 05/03/00 (c) 25,000 - -
09/13/99 (c) 50,000 - 2,656
----------- -----------
1,659,227 4,585,969
See notes to financial statements
5 (Continued)
Enercorp, Inc.
Schedule of Investments
March 31, 1998
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 20
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
----------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,810
----------- -----------
Total - ALL COMPANIES $ 1,684,888 $ 4,590,779
=========== ===========
(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 11/08/97 (c) 150,000 - 269,460
and communication systems 08/04/99 (c)(e) 25,000 - -
05/03/00 (c) 25,000 - -
09/13/99 (c) 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 Nine Months
Ended March 31 Ended March 31
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
REVENUES
Interest income -0- 799 -0- $ 2,440
Interest income from related entities 5,484 4,562 16,696 9,377
Consulting fees from related companies -0- 224 -0- 1,788
Net realized gain on sale of investments -0- 0 -0- 216,000
Dividend income from affiliated company -0- 0 -0- 1,000
------------ ------------ ------------ ------------
5,484 5,585 16,696 230,605
------------ ------------ ------------ ------------
EXPENSES
Salaries - officer 25,375 25,375 65,250 100,250
Staff salaries -0- -0- -0- 20,332
Legal, accounting and other professional fees 1,720 457 12,456 6,470
Interest expense - other 45,813 40,707 133,352 119,507
Bad debt expense 599 600 1,825 1,827
Other general and administrative expenses 12,946 15,276 30,191 40,288
------------ ------------ ------------ ------------
86,453 82,415 243,073 288,674
------------ ------------ ------------ ------------
Net income (loss) from operations before taxes (80,969) (76,830) (226,377) (58,069)
Income taxes 27,000 26,000 75,000 19,000
------------ ------------ ------------ ------------
Net income (loss) from operations after taxes (53,969) (50,830) (151,377) (39,069)
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investments before taxes 293,443 651,560 242,132 277,471
Income taxes (100,000) (222,000) (82,000) (95,000)
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investment after taxes 193,443 429,560 160,132 182,471
------------ ------------ ------------ ------------
Increase (decrease) in net assets 139,474 378,730 8,755 143,402
============ ============ ============ ============
Increase in net assets per share 0.24 0.64 0.01 0.24
============ ============ ============ ============
9
Enercorp, Inc.
Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended March 31,
---------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Increase (decrease) in net assets 8,755 143,402
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,262 1,557
Bad debt provision on notes receivable
and interest net of write offs 1,825 1,827
Gain on sale of investments -0- (216,000)
Loss on sale of fixed assets -0- 777
(Increase) decrease in unrealized gain on investments (242,132) (277,471)
(Increase) decrease in accounts receivable - related party 2,985 122,015
(Increase) in interest receivable 2,206 (11,810)
Decrease in other assets 2,382 10,853
(Decrease) in accounts payable and accrued expenses (23,132) 23,359
(Decrease) in deferred taxes 7,000 76,000
------------ ------------
Total adjustments (247,604) (268,893)
------------ ------------
Net cash (used) by operating activities (238,849) (125,491)
------------ ------------
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- (3,414)
------------ ------------
Net cash provided by investing activities (61,500) (78,414)
------------ ------------
Cash flows from financing activities:
Payments to notes payable -0- -0-
Proceeds from notes payable 300,649 203,729
------------ ------------
Net cash provided by financing activities 300,649 203,729
------------ ------------
Increase in cash 300 (176)
Cash, beginning of period 99 495
------------ ------------
Cash, end of period 399 319
============ ============
Supplemental disclosures of cash flow information:
Interest paid 133,352 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 $139,474 during the third quarter ended March
31, 1998. This compares to an increase in net assets of $378,730 during
the third quarter ended March 31, 1997. The Registrant's largest
investee, Williams Controls, Inc. ("Williams"), increased in fair market
value at March 31, 1998 as compared to June 30, 1997. Williams
represents approximately 95% of the Registrant's investments (at fair
market value). This was offset by a decline in the value of the
Registrant's investment in Ajay Sports, Inc. ("Ajay").
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 and the Registrant is currently in discussions with Comerica
to extend the due date and/or increase the credit line. The balance of
the Registrant's note payable to Comerica as of March 31, 1998 was
$2,013,549.
On September 27, 1996 the Registrant loaned Ajay $200,000 for working
capital. This loan was a 90 day note with an interest rate of prime plus
1%. In December 1996, 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
March 31, 1998 was $200,000. The accrued interest on the note at March
31, 1998 was $9,474.
11
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.
The Registrant's liquidity is affected primarily by the business
success, securities prices and marketability of its investee companies
and by the amount and timing of new or incremental investments it makes.
At March 31, 1998 the Registrant's borrowing availability against the
Comerica line of credit was $236,451. The Registrant has several options
for continued cash flow including selling some shares of Ajay or
Williams common stock or raising additional capital.
Material Changes in Results of Operations:
The Registrant's revenues were $5,484 and $5,585 for third quarter ended
March 31, 1998 and 1997, respectively.
The Registrant recorded an unrealized gain on investments of $193,443
for the nine month period ended March 31, 1998 compared to a gain of
$429,560 for the nine month period ended March 31, 1997. This is mainly
due to the decrease 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 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
On May 8, 1998, the Registrant issued a press release reporting a Form
13-D filing by Charles Maginnis, an individual investor that accumulated a 5.9%
stake of the Registrant's common stock.
Item 6. Exhibits and Reports on Form 8-K
On February 13, 1998, the Registrant filed an 8-K with the Securities &
Exchange Commission. On February 2, 1998, the Registrant received a notice from
the Nasdaq Stock Market, Inc. that it may be delisted from the Nasdaq Smallcap
Market unless it meets certain new continued listing requirements that were
effective February 23, 1998. On March 6, 1998, the Registrant filed its proposal
to Nasdaq related to how it will cure the deficiencies. The Registrant has not
yet received a response from Nasdaq.
Exhibit 27 Financial Data Schedule
13
Enercorp, Inc.
Form 10-Q
For the Third Quarter Ended March 31, 1998
Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enercorp, Inc.
(Registrant)
BY s\Robert R. Hebard
------------------------------------
Robert R. Hebard
President and Chief Financial Officer
Date: May 14, 1998