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, 2000
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
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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)
32751 Middlebelt Road, Suite B
Farmington Hills, Michigan 48334
------------------------------------------ ---------------------------
(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 December 31, 2000: 695,897
Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended December 31, 2000
INDEX
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Assets and Liabilities
December 31, 2000 (Unaudited) and June 30, 2000 4
Schedule of Investments (Unaudited),
December 31, 2000 5-6
Schedule of Investments June 30, 2000 7-8
Statements of Operations (Unaudited) for the Three
Months and Six Monts Ended December 31, 2000 and 1999 9
Statements of Cash Flows (Unaudited) for the Six
Months Ended December 31, 2000 and 1999 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 14
Signature Page 15
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, 2000 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2001. 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, 2000.
Enercorp, Inc.
Statements of Assets and Liabilities
December 31, June 30,
ASSETS 2000 2000
--------------- --------------
Investments, at fair value, cost of $2,196,888 and
$2,204,888 at December 31, 2000 and June 30, 2000,
respectively $ 2,065,109 $ 3,873,815
Cash 1,684 23,844
Accounts receivable - related party 17,848 17,848
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $21,735 and
$20,264 at December 31, 2000 and June, 2000, respectively 6,268 6,105
Notes receivable - related parties, net of allowance for
uncollectible notes receivable of $27,776 at
December 31, 2000 and $27,776 at June 30, 2000 3,086 3,086
Furniture and fixtures, net of accumulated depreciation
of $10,568 at December 31, 2000 and $9,633 at
June 30, 2000, respectively 1,869 2,804
Other assets 678 1,318
--------------- ---------------
$ 2,096,542 $ 3,928,820
=============== ==============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,141,649 $ 2,141,649
Note payable - Other 145,500 36,000
Accounts payable and accrued liabilities 14,413 25,127
Deferred tax liability -0- -0-
--------------- --------------
2,301,562 2,202,776
--------------- --------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 shares issued and
outstanding at December 31, 2000 and June 30, 2000
respectively 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,961,492) (1,268,084)
Unrealized net gain on investments, net of deferred
income taxes of $1,498,000 and $1,498,000 at
December 31, 2000 and June 30, 2000, respectively (131,779) 1,105,877
--------------- --------------
(205,020) 1,726,044
--------------- --------------
$ 2,096,542 $ 3,928,820
=============== ==============
See notes to financial statements
4
Enercorp, Inc.
Schedule of Investments
December 31, 2000
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shrs Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product and Website 1,751 $ - $ 28
Development 10,000,000 6,477 162,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 200,000 30,000 172,178
control systems (e) 850,000 127,500 731,757
(e) 330,000 412,500 284,094
(e) 30,000 108,750 25,827
(e) 50,000 125,000 43,045
(e) 150,000 61,500 129,134
(e) 42,329 100,000 36,441
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) (h) 294,118 600,000 26,471
(e) (h) 16,667 37,500 1,500
Pro Golf International, Inc. Franchisor of retail golf stores 7,450 447,000 447,000
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 563
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product and Website (c) 300,000 - -
Development
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - -
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c) 50,000 - -
03/12/08 (c)(j) 50,000 - -
10/02/08 (c)(f) 50,000 - -
--------- -----------
$2,176,227 $2,060,038
5
Enercorp, Inc.
Schedule of Investments
December 31, 2000
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shrs Owned Equity Value
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Vitro Diagnostics Diagnostic Test Kits 300 1,500 281
--------- ----------
Sub-total - UNAFFILIATED COMPANIES 20,661 5,071
--------- ----------
Total - ALL COMPANIES $ 2,196,888 $ 2,065,109
=========== ===========
(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) Pledged as collateral against a line of credit with Comerica Bank.
(f) Options 50% vested and will vest at 25% additional on 10/02/00 &
10/02/01 consecutively.
(g) Reflects 1-for-6 reverse stock split effective August 14, 1998.
(h) In August, 1999, Immune Response completed a 1-for-100 reverse stock
split and also completed a 1-for-3 reverse split in January, 2000.
(j) Options are 75% vested and will vest the final 25% on 03/12/01.
* 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, 2000
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shrs Owned Equity Value
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product and Website 1,751 $ - $ 72
Development (i) 10,000,000 106,477 414,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 200,000 30,000 353,286
control systems (e) 850,000 127,500 1,501,466
(e) 330,000 412,500 582,922
(e) 30,000 108,750 52,993
(e) 50,000 125,000 88,322
(e) 150,000 61,500 264,965
(e) 42,329 100,000 74,771
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) (h) 294,118 600,000 74,435
(e) (h) 16,667 37,500 4,218
Pro Golf International, Inc. Franchisor of retail golf stores 7,450 447,000 447,000
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 1,575
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product and Website (c) 300,000 - -
Development
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - -
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c) 50,000 - -
03/12/08 (c)(j) 50,000 - -
10/02/08 (c)(f) 50,000 - -
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$2,176,227 $3,860,025
See notes to financial statements
7
Enercorp, Inc.
Schedule of Investments
June 30, 2000
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, Inc. Holding Company (h) 7,000 1,050 7,877
Vitro Diagnostics Diagnostic Test Kits 300 1,500 1,125
Proconnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
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Sub-total - UNAFFILIATED COMPANIES 21,711 13,792
--------- --------
Total - ALL COMPANIES $2,197,938 $3,873,817
========== ==========
(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) Pledged as collateral against a line of credit with Comerica Bank.
(f) Options 50% vested and will vest at 25% additional on 10/02/00 &
10/02/01 consecutively.
(g) Reflects 1-for-6 reverse stock split effective August 14, 1998.
(h) In August, 1999, Immune Response completed a 1-for-100 reverse stock
split and also completed a 1-for-3 reverse split in January, 2000.
(j) Options are 75% vested and will vest the final 25% on 03/12/01.
* 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 For the Six Months
Ended December 31, Ended December 31,
------------------------------ -----------------------------
2000 1999 2000 1999
------------- ------------ ----------- -----------
REVENUES
Interest income from related entities $ 817 $ 15,403 $ 1,640 $ 27,727
Net realized gain on sale of investments (0) -0- 8,464 -0-
----------- ------------ ----------- -----------
817 15,403 10,104 27,727
----------- ------------ ----------- -----------
EXPENSES
Salaries - officer -0- 21,750 -0- 43,500
Legal, accounting and other professional fees 6,131 8,739 7,412 15,489
Interest expense - other 58,742 56,845 116,251 110,036
Bad debt expense 736 735 1,471 6,100
Other general and administrative expenses 4,125 10,232 8,378 18,870
----------- ------------ ----------- -----------
69,734 98,302 133,512 193,995
----------- ------------ ----------- -----------
Net gain (loss) from operations before taxes (68,916) (82,899) (123,408) (166,269)
Income taxes (Note 5) -0- 15,000 -0- 50,000
----------- ------------ ----------- -----------
Net gain (loss) from operations after taxes (68,916) (67,899) (123,408) (116,269)
----------- ------------ ----------- -----------
Net unrealized gain (loss) on investments before taxes (1,365,426) (624,850) (1,807,656) (2,007,302)
Income taxes (Note 5) -0- 212,000 -0- 682,000
----------- ------------ ----------- -----------
Net unrealized gain (loss) on investment after taxes (1,365,426) (412,850) (1,807,656) (1,325,302)
----------- ------------ ----------- -----------
Increase (decrease) in net assets resulting from
operations $ 1,434,342) $ (480,749) $ (1,931,064) $ (1,441,571)
=========== ============ =========== ===========
Increase (decrease) in net assets per share $ (2.06) $ (0.69) $ (2.77) $ (2.07)
=========== ============ =========== ===========
See notes to financial statements
9
Enercorp, Inc.
Statements of Cash Flows
For the Six Months
Ended December 31,
----------------------------
2000 1999
------------ -----------
Cash flows from operating activities:
Increase (decrease) in net assets $ (1,931,064) $ (1,441,571)
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 935 935
Bad debt provision on notes receivable
and interest net of write offs (163) 6,100
Gain on sale of investments (8,464) -0-
Unrealized (gain) loss on investments 1,807,656 2,427,302
(Increase) in accounts receivable - related party 0 77
(Increase) in interest receivable 0 (443,727)
(Increase) Decrease in other assets 639 159
Increase (Decrease) in accounts payable and
accrued expenses (10,714) 11,504
Increase (Decrease) in deferred taxes -0- (732,000)
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Total adjustments 1,789,888 1,270,350
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Net cash (used) by operating activities (141,176) (171,222)
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Cash flows from investing activities:
Proceeds from sale of stock 9,516 -0-
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Cash flows from investing activities: 9,516 -0-
---------- -----------
Cash flows from financing activities:
Proceeds from notes payable 109,500 158,400
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Net cash provided by investing activities 109,500 158,400
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Increase (Decrease) in cash (22,160) (12,822)
Cash, beginning of period 23,844 16,907
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Cash, end of period $ 1,684 $ 4,086
========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 112,199 $ 98,526
============ ===========
Interest received $ -0- $ -0-
============ ===========
See notes to financial statements
10
Notes to Financial Statements
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 received 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.
On June 24, 1999, the Registrant completed a private offering of its
common stock through which it raised $420,000 in gross proceeds. The
proceeds from this offering were used to purchase 4.2 Units in a private
offering made jointly by Pro Golf International, Inc. ("PGI") and Pro Golf
Online, Inc. ("PGO"). Each Unit in this offering consisted of 4,000 shares
of PGI common stock and 10,000 warrants, each to purchase one share of PGO
common stock for $5.00 per share, exercisable on or before June 23, 2002.
The purpose of the offering was to raise the funds necessary for PGI to
acquire Pro Golf of America, Inc. ("Pro Golf"). During the quarter ended
September 30, 1999, the units of PGI held by the Registrant were exchanged
for a Subordinated Promissory Note in the principal amount of $420,000
dated June 22, 1999, due on July 22, 2000 and bearing interest at ten
percent per annum. On February 29, 2000, the Registrant converted
principal and interest due under its Subordinated Promissory Note into
common stock of PGI. The conversion was made at the rate of $60 per share,
the price at which PGI was then offering equity capital for sale in a
private offering. The Registrant agreed to this conversion, in part, to
assist PGI in raising other equity capital to allow PGI to refinance its
bank debt. At the time of the conversion, the Registrant believed
converting its debt to equity would be the best available means to protect
the Registrant's original investment in PGI. Upon conversion of the
$420,000 note and $27,000 of accrued interest, the Registrant received
7,450 shares of PGI common stock.
Item 2. Management's Discussion and Analysis of Financial Condition / Results
of Operations.
Material Changes in Financial Condition:
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, as well as
the availability of borrowing under the credit line.
11
In July 2000, the Registrant renewed its line of credit from Comerica Bank
("Comerica") under which it may borrow up to $2,250,000 at 3/4% over
Comerica's prime lending rate. The collateral for this line of credit is
1,652,329 shares of Williams Controls common stock owned by the Registrant
and 310,785 shares of the post-split common stock of Ajay Sports, Inc.
("Ajay") owned by the Registrant. Under the loan agreement, 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 is due on demand. Based on the Advance Formula Agreement that
the Registrant has with Comerica for this loan, the Registrant's loan is
out of compliance with the terms of the loan agreement, and has been so
for a number of months. As previously disclosed, Comerica has the right to
demand immediate payment on the loan by the Registrant at any time. While
Comerica has not made a request for a formal forbearance agreement with
the Registrant related to this matter, it has not allowed any further
advances against the credit line until the loan is brought back into
formula, either through loan paydown or through the providing of
additional collateral acceptable to the bank. The Registrant is
considering its options, including its ability to bring the loan back into
formula, including the sale of its portfolio securities and using the
proceeds to pay the loan in part or in full, should payment be demanded by
Comerica. The balance of the Registrant's note payable to Comerica as of
January 31, 2001 was $2,141,649.
Due to the lack of working capital, the President of the Registrant has
made loans to the Registrant to cover its short term working capital needs
since May 31, 2000. These loans are evidenced by a promissory note, are
payable on demand, and are secured the assets of the Registrant, including
the portfolio securities of the Registrant's investees. As of December 31,
2000, the note payable to the Registrant's president was $145,500 and has
accrued interest of $4,211. The note payable bears an interest rate of
10.25%. There is no guarantee that these loans will continue to be made to
the Registrant by its president, and the Registrant has no other immediate
sources of cash to meet its working capital and loan interest needs, other
than from the sale of portfolio securities.
Material Changes in Results of Operations:
The Registrant's revenues were $817 and $15,403 for the second quarter
ended December 31, 2000 and 1999, respectively. The change in
revenues for the quarter, compared with the prior year's quarter,
is due to the change in interest income from related entities.
The Registrant recorded an unrealized loss on investments of
$1,807,656 for the second quarter ended December 31, 2000 compared to a
loss of $2,007,302 for the second quarter ended December 31, 1999.
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 Controls, Inc.
(Williams), is a publicly held company (Nasdaq: WMCO) in which the
Registrant owns common stock and options. Management continues to
recognize 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 and
communication 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 January 8, 2001, Williams Controls, the Registrant's largest investee,
announced that it had retained the investment banking firm W.Y. Campbell &
Company to act as its financial advisor and assist Williams in evaluating
and pursuing various strategic alternatives available to it, including a
possible sale of the company or its operating units. The company also
announced that Thomas K. Ziegler was named chief executive officer, chief
operating officer and president of Williams Controls, replacing Thomas W.
Itin who has retired from those same positions, which he has held since
1988.
W.Y. Campbell & Company (WYC&C), based in Detroit, is a leading
international specialty investment banking firm concentrating on middle
market merger and divestiture activity, targeting companies with sales of
$50 million to $500 million. WYC&C has represented a number of Fortune 500
companies, including numerous automotive manufacturing companies and Tier
1 automotive and truck suppliers, and has completed in excess of 200
sell-side transactions during the last 12 years.
Williams announced that it expects that W.Y. Campbell & Company will
immediately complete a business review and develop a definitive
recommendation for the approval of the board of Williams Controls. WYC&C
will then work with management to execute the approved plan and enter into
discussions and/or negotiations with third parties regarding the
alternatives identified.
13
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits Exhibit 27
Financial Data Schedule
B) Form 8-K
None
14
Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended December 31, 2000
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
President and Chief Financial Officer
Date: February 20, 2001
15