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, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission File Number: 0-9083
Enercorp, Inc.
(Exact name of Registrant as specified in its Charter)
Colorado 84-0768802
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(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
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Number of shares of common stock outstanding at March 31, 1999: 590,897
Enercorp, Inc.
Form 10-Q Filing for the Third Quarter Ended March 31, 1999
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
March 31, 1999 (Unaudited) and June 30, 1998 4
Schedule of Investments (Unaudited), March 31, 1999 5-6
Schedule of Investments June 30, 1998 7-8
Statements of Operations (Unaudited) for the Three
And Nine Months Ended March 31, 1999 and 1998 9
Statements of Cash Flows (Unaudited) for the Nine
Months Ended March 31, 1999 and 1998 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-13
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, 1999 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
(Unaudited)
March 31, June 30,
ASSETS 1999 1998
------------ ------------
Investments, at fair value, cost of $1,784,888 and
$1,684,888 at March 31, 1999 and June 30, 1998 4,596,295 $ 4,538,361
Cash 14,478 16,128
Accounts receivable - related parties -0- -0-
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $16,733 and $14,908
at March 31, 1999 and June 30, 1998, respectively 5,668 9,707
Note receivable - related parties, net of allowance for
uncollectible notes receivable of $23,147 at
March 31, 1999 and June 30, 1998, respectively 18,201 207,715
Furniture and fixtures, net of accumulated depreciation
of $7,163 and $6,238 at March 31, 1999 and
June 30, 1998, respectively 1,773 2,697
Other assets 2,081 1,897
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4,638,496 $ 4,776,505
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LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank 2,258,249 $ 2,081,749
Accounts payable and accrued liabilities 21,943 22,739
Deferred tax liability 263,000 367,000
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2,543,193 2,471,488
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Net assets
Common stock, no par value: 10,000,000 shares
authorized, 590,897 shares issued and outstanding
March 31, 1999 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 (1,228,355) (1,046,707)
Unrealized net gain on investments, net of deferred
income taxes of $956,000 and $970,000 at
March 31, 1999 and June 30, 1998, respectively 1,855,407 1,883,473
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2,095,303 2,305,017
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4,638,496 $ 4,776,505
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4
Enercorp, Inc.
Schedule of Investments
March 31, 1999
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 60,000 926,060
and control systems (e) 850,000 127,500 1,967,878
(e) 330,000 412,500 764,000
(e) 30,000 108,750 69,455
(e) 50,000 125,000 115,758
(e) 150,000 61,500 347,273
(b)(e)7/1/99 42,329 100,000 195,996
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e)(h) 294,118 600,000 182,118
(e)(h) 16,667 37,500 10,320
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 3,600
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 - -
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1,759,227 4,591,460
See notes to financial statements
5 (Continued)
Enercorp, Inc.
Schedule of Investments (Continued)
March 31, 1999
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 45
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
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Sub-total - UNAFFILIATED COMPANIES 25,661 4,835
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Total - ALL COMPANIES $ 1,784,888 $ 4,596,295
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(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 - -
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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
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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
(Unaudited)
For the Three Months Nine Months
Ended March 31 Ended March 31
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES
Interest income from related entities 1,202 5,484 5,394 16,696
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EXPENSES
Salaries - officer 25,375 25,375 65,250 65,250
Bonus -0- -0- 12,500 -0-
Legal, accounting and other professional fees 4,482 1,720 17,185 12,456
Interest expense - other 47,038 45,813 144,624 133,352
Bad debt expense 599 599 1,825 1,825
Other general and administrative expenses 16,774 12,946 35,658 30,191
------------ ------------ ------------ ------------
94,268 86,453 277,042 243,073
------------ ------------ ------------ ------------
Net income (loss) from operations before taxes (93,066) (80,969) (271,648) (226,377)
Income taxes 33,000 27,000 90,000 75,000
------------ ------------ ------------ ------------
Net income (loss) from operations after taxes (60,066) (53,969) (181,648) (151,377)
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investments before taxes 39,869 293,443 (42,066) 242,132
Income taxes (14,000) (100,000) 14,000 (82,000)
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Net unrealized gain (loss) on investment after taxes 25,869 193,443 (28,066) 160,132
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Increase (decrease) in net assets $ (34,197) 139,474 (209,714) 8,755
============ ============ ============ ============
Increase in net assets per share $ (0.05) 0.24 (0.35) 0.01
============ ============ ============ ============
9
Enercorp, Inc.
Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended March 31,
---------------------------
1999 1998
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Cash flows from operating activities:
Increase (decrease) in net assets (209,714) 8,755
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 925 1,262
Bad debt provision on notes receivable
and interest net of write offs 1,825 1,825
Gain on sale of investments -0- -0-
(Increase) decrease in unrealized gain on investments 42,066 (242,132)
(Increase) decrease in accounts receivable - related party -0- 2,985
(Increase) in interest receivable 2,213 2,206
(Increase) Decrease in other assets (184) 2,383
(Decrease) in accounts payable and accrued expenses (796) (23,132)
(Decrease) in deferred taxes (104,000) 7,000
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Total adjustments (57,951) (247,604)
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Net cash (used) by operating activities (267,665) (238,849)
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Cash flows from investing activities:
Purchase of investments (100,000) (61,500)
Payments from notes receivable 189,515 -0-
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Net cash provided by investing activities 89,515 (61,500)
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Cash flows from financing activities:
Payments to notes payable -0- -0-
Proceeds from notes payable 176,500 300,649
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Net cash provided by financing activities 176,500 300,649
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Increase in cash (1,650) 300
Cash, beginning of period 16,128 99
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Cash, end of period 14,478 399
============ ============
Supplemental disclosures of cash flow information:
Interest paid 146,008 133,352
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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 nine shares of
common stock currently held. Therefore, the number of Ajay shares held by
the Company is 310,785.
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.
Note 2: Year 2000 Conversion
The Company does not anticipate the year 2000 compliance requirements will
have a material impact on earnings. The Company has initiated replacement
of the Company's most significant computer programs with new updates that
are warranted to be year 2000 compliant. Installation of these updates is
anticipated to be completed prior to June 30, 1999. All other programs
subject to year 2000 concerns will be evaluated utilizing internal and
external resources to reprogram ,replace or test each of them.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
----------------------------------------
Net assets decreased by $209,714 during the third quarter ended March
31, 1999 from June 30, 1998. This compared to an increase in net assets
of $8,755 during the third quarter ended March 31, 1998. The decrease
during the year was due mainly to a decrease in the fair market value of
the Registrant's investment in Ajay and its largest investee, Williams
Controls, Inc. ("Williams"), which represented 95% of the Registrant's
investments (at fair value) at March 31, 1999.
11
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 March 31, 1999 was $2,258,249.
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 $10,485 as of March
31, 1999.
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, 1999 the Registrant's borrowing availability against the
Comerica line of credit was $107,724. 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 $5,394 and $16,696 for third quarter
ended March 31, 1999 and 1998, 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 $42,066 for
the third quarter ended March 31, 1999 compared to a gain of $242,132
for the third quarter ended March 31, 1998. This is mainly due to the
changes in fair market value of the Registrant's investment in Williams
and Ajay.
12
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.
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) Exhibits
Exhibit 27 Financial Data Schedule
B) Form 8-K
None
13
Enercorp, Inc.
Form 10-Q
For the Third Quarter Ended March 31, 1999
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 8, 1999