UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 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
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Enercorp, Inc.
(Exact name of Registrant as specified in its Charter)
Colorado 84-0768802
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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 September 30, 1998: 590,897
Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended September 30, 1998
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
September 30, 1998 (Unaudited) and June 30, 1998 4
Schedule of Investments (Unaudited), September 30, 1998 5-6
Schedule of Investments June 30, 1998 7-8
Statements of Operations (Unaudited) for the Three
Months Ended September 30, 1998 and 1997 9
Statements of Cash Flows (Unaudited) for the Three
Months Ended September 30, 1998 and 1997 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13-14
Item 6. Exhibits and Reports on Form 8-K 14
Signature Page 15
2
Enercorp, Inc.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included, and the disclosures are adequate to make the information
presented not misleading. Operating results for the three months ended
September 30, 1998 are not necessarily indicative of the results that
may be expected for the year ended June 30, 1999. 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, 1998.
3
Enercorp, Inc.
Statements of Assets and Liabilities
September 30, June 30,
ASSETS 1998 1998
------------- -------------
Investments, at fair value, cost of $1,784,888 and $1,684,888
at September 30, 1998 and June 30, 1998, respectively $ 4,503,892 $ 4,538,361
Cash 17,482 16,128
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $15,520 and $14,908
at September 30, 1998 and June 30, 1998, respectively 6,801 9,707
Note receivable - related parties net of allowance for
uncollectible notes receivable of $23,147 at September
30, 1998 and June 30, 1998 57,715 207,715
Furniture and fixtures, net of accumulated depreciation
of $6,546 and $6,238 at September 30, 1998 and
June 30, 1998, respectively 2,389 2,697
Other assets 1,735 1,897
------------- -------------
$ 4,590,014 $ 4,776,505
============= =============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,121,749 $ 2,081,749
Accounts payable and accrued liabilities 21,951 22,739
Deferred tax liability 289,000 367,000
------------- -------------
2,432,700 2,471,488
------------- -------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and outstanding
September 30, 1998 and June 30, 1998 1,468,251 1,468,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,105,941) (1,046,707)
Unrealized net gain on investments, net of deferred
income taxes of $842,000 and $970,000 at
September 30, 1998 and June 30, 1998, respectively 1,795,004 1,883,473
------------- -------------
2,157,314 2,305,017
------------- -------------
$ 4,590,014 $ 4,776,505
============= =============
4
Enercorp, Inc.
Schedule of Investments
September 30, 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
& Website Development 1,751 $ - $ 2
10,000,000 106,477 9,000
Williams Controls, Inc.* Manufacturer of sensor (e) 400,000 60,000 904,400
and control systems (e) 850,000 127,500 1,921,850
(e) 330,000 412,500 746,130
(e) 30,000 108,750 67,830
(e) 50,000 125,000 113,050
(b)(e)11/8/98 150,000 61,500 339,150
(b)(e)7/1/99 42,329 100,000 191,412
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e)(h) 294,118 600,000 190,257
(e)(h) 16,667 37,500 10,781
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 5,184
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product & Website (c) 300,000 - -
Development
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 - -
03/12/03 (c)(f) 50,000 - -
----------- -----------
1,759,227 4,499,046
See notes to financial statements
5 (Continued)
Enercorp, Inc.
Schedule of Investments (Continued)
September 30, 1998
Restrictions 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 Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 56
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
----------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,846
----------- -----------
Total - ALL COMPANIES $ 1,784,888 $ 4,503,892
=========== ===========
(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.
(f) Options 25% vested and will vest at 25% on 9/12/99, 9/12/00 & 9/12/01
consecutively.
(h) Reverse stock split of 1-for-6 effective August 14, 1998.
* 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, 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 60,000 945,000
and control systems (e) 850,000 127,500 2,008,125
(e) 330,000 412,500 779,625
(e) 30,000 108,750 70,875
(e) 50,000 125,000 118,125
(b)(e)11/8/98 150,000 61,500 334,688
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 5,850
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 - -
03/12/03 (c)(f) 50,000 - -
----------- -----------
1,659,227 4,533,515
See notes to financial statements
7
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1998
Restrictions 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 Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 56
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
----------- ----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,846
----------- ----------
Total - ALL COMPANIES $ 1,684,888 $ 4,538,361
=========== ===========
(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.
(f) Options will vest at 25% on 9/12/98, 9/12/99, 9/12/00 & 9/12/01
consecutively.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
8
Enercorp, Inc.
Statements of Operations
For the Three Months
Ended September 30,
----------------------------
1998 1997
------------ ------------
REVENUES
Interest income from related entities $ 2,444 $ 5,606
------------ ------------
EXPENSES
Salaries - officer 21,750 21,750
Bonus 12,500 -0-
Legal, accounting and other professional fees 1,633 7,100
Interest expense - other 49,408 71,924
Bad debt expense 613 613
Other general and administrative expenses 7,775 9,334
------------ ------------
93,678 110,721
------------ ------------
Net (loss) from operations before taxes (91,234) (105,115)
Income tax expense (benefit) 32,000 35,000
------------ ------------
Net (loss) from operations after taxes (59,234) (70,115)
------------ ------------
Net unrealized gain (loss) on investments before taxes (134,469) (156,038)
Income tax expense (benefit) 46,000 18,000
------------ ------------
Net unrealized gain on investment after taxes (88,469) (138,038)
------------ ------------
Increase in net assets $ (147,703) $ (208,153)
============ ============
Increase in net assets per share $ (0.25) $ (0.35)
============ ============
9
Enercorp, Inc.
Statements of Cash Flows
For the Three Months
Ended September 30,
-------------------------
1998 1997
------------ -----------
Cash flows from operating activities:
Increase in net assets $ (147,703) $ (208,153)
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 308 516
Bad debt provision on notes receivable
and interest net of write offs 613 613
Unrealized (gain) on investments 134,469 156,038
(Increase) in accounts receivable - related party -0- 2,985
(Increase) in interest receivable 2,293 5,332
Decrease in other assets 162 2,208
Increase (decrease) in accounts payable and
accrued expenses (788) 22,727
Increase in deferred taxes (78,000) (53,000)
------------ -----------
Total adjustments 59,057 137,418
------------ -----------
Net cash (used) by operating activities (88,646) (70,735)
------------ -----------
Cash flows from investing activities
Payments received on note receivable - related party 150,000 -0-
Purchase of investments (100,000) -0-
------------ -----------
Net cash (used) by investing activities 50,000 -0-
------------ -----------
Cash flows from financing activities:
Proceeds from notes payable 40,000 86,649
------------ -----------
Net cash provided by investing activities 40,000 86,649
------------ -----------
Increase in cash 1,354 15,914
Cash, beginning of period 16,128 99
------------ -----------
Cash, end of period $ 17,482 $ 16,013
============ ===========
Supplemental disclosures of cash flow information:
Interest paid $ 49,394 $ 23,484
============ ===========
10
Note 1: Investments
On August 13, 1998, Ajay Sports, Inc. ("Ajay") announced that its board of
directors had authorized the implementation of a 1-for-6 reverse split of
the company's common stock, effective with the commencement of trading on
August 14, 1998. The reverse split was approved by the stockholders of
Ajay at the company's annual meeting on May 29, 1998.
Following the reverse split, holders of Ajay's common stock will receive
one new share of $.01 par value common stock for every six shares of
common stock currently held. Therefore, the number of Ajay shares held by
the Company is 310,785.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
----------------------------------------
Net assets decreased by $147,703 during the first quarter ended
September 30, 1998 from June 30, 1998. This compared to a decrease in
net assets of $208,153 during the first quarter ended September 30,
1997. 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 95% of
the Registrant's investments (at fair value) at September 30, 1998.
In July 1997, the Registrant was approved for a $2,250,000 line of
credit at 3/4% over prime by Comerica Bank ("Comerica"), replacing the
previous $2,000,000 loan with NBD Bank ("NBD"). The collateral for the
line of credit was all of the shares of Williams Controls common stock
owned by the Registrant at the time (1,660,000) and all of the shares of
common stock of Ajay Sports, Inc. ("Ajay") owned by the Registrant at
the time (1,864,706). Borrowing was 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 was scheduled to
expire in July, 1998. In June 1998, the loan limit was increased to
$2,500,000 and renewed on the same basic remaining terms as were present
in the original loan. The balance of the Registrant's note payable to
Comerica as of September 30, 1998 was $2,121,749.
11
On July 1, 1998, the Registrant and Williams signed an agreement under
which Williams would issue 42,329 shares of its common stock to the
Registrant and issue a note payable to the Registrant in the amount of
$100,000, as payment in full for the $200,000 note originally due to the
Registrant from Ajay. The balance of the note receivable from Williams,
which replaced the note receivable from Ajay, was $50,000 as of
September 30, 1998.
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 September 30, 1998 the Registrant's borrowing availability against
the Comerica line of credit was $194,218. 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 $2,444 and $5,606 for first quarter ended
September 30, 1998 and 1997, respectively. The decrease in revenues for
the quarter, compared with the prior year's quarter, is due to a
decrease in interest income from related companies.
The Registrant recorded an unrealized loss on investments of $134,469
for the first quarter ended September 30, 1998 compared to a loss of
$156,038 for the first quarter ended September 30, 1997. This is mainly
due to the changes in fair market value of the Registrant's investment
in Williams and Ajay.
Williams Controls, Inc. - Investee Company
------------------------------------------
The Registrant's largest investee company, Williams, is a publicly held
company (Nasdaq: WMCO) in which the Registrant owns common stock and
options. Management 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,
telecommunication 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
At the request of Nasdaq, and as a condition of an exception granted by
them to the Registrant on July 28, 1998, Enercorp filed a Form 8-K report
on August 14, 1998. This report stated that the Registrant met all Nasdaq
continued listing requirements, including the requirement that it have a
minimum of 500,000 shares in the public float, reporting that it had
517,897 shares in the public float as the result of a change in ownership
by a principal stockholder of the Registrant. In the absence of any NASD
regulations as a guide, the Registrant believed that it had complied with
the relevant SEC rules, had informed Nasdaq of this position, and was
awaiting a response to its correspondence when a Notice of Delisting of the
Registrant's common stock was received by the Registrant from Nasdaq. The
Registrant believes that during this review process it has complied with
all Nasdaq requirements and requests, and has filed an appeal with Nasdaq
to attempt to have its common stock reinstated as eligible to trade on the
SmallCap Market. There is no assurance that the Registrant will be
successful in an appeal, which is scheduled to be heard by a Nasdaq
Hearings Panel in January 1999. During the appeal process, the Registrant's
common stock will continue to be eligible to trade under the symbol "ENCP"
on the OTC Bulletin Board.
13
On October 19, 1998, Williams notified the Registrant that an S-3
registration statement filed by Williams had been declared effective and
that the common shares of Williams owned by the Registrant were now
registered for resale under this registration statement. The Registrant has
no current intention to sell any of the shares it holds in Williams.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit 27 Financial Data Schedule
B) Form 8-K
A Form 8-K was filed on August 14, 1998, regarding the statement that the
Registrant met all Nasdaq continued listing requirements, including the
requirement that it have a minimum of 500,000 shares in the public float,
reporting that it had 517,897 shares in the public float as the result of a
change in ownership by a principal stockholder of the Registrant.
14
Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended September 30, 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: November 12, 1998