UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
------- EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED: June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
------- ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
Commission File Number: 0-9083
Enercorp, Inc.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 851-5651
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
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Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: __X__
As of September 30, 1999, there were 695,897 shares of common stock
outstanding and the aggregate market value of the common stock (based upon the
average of the bid and asked prices of these shares on the over-the-counter
market of the Registrant) held by non-affiliates was approximately $1,836,948.
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Form 10-K Filing for the Year Ended June 30, 1999
INDEX
<S> <C> <C> <C>
PAGE
PART I
Item 1. Business 3-12
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13-15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 16-18
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of the Registrant 19-20
Item 11. Executive Compensation 20-21
Item 12. Security Ownership of Certain Beneficial Owners and Management 21-23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports of Form 8-K 24-25
SIGNATURES 26
</TABLE>
<PAGE>
Enercorp, Inc.
FORM 10-K
PART 1
Item 1. Business
General. Enercorp, Inc. (the "Registrant" or "Company") is a closed-end,
non-diversified investment company under the Investment Company Act of 1940 (the
"Investment Company Act"). The Registrant was incorporated under the laws of the
State of Colorado on June 30, 1978. The Registrant elected to become a Business
Development Company under the Investment Company Act on June 30, 1982. A
Business Development Company is a type of investment company that generally must
maintain 70% of its assets in new, financially troubled or otherwise qualified
companies and offers significant managerial assistance to such companies. The
Registrant presently has four investee companies to which it provides management
assistance. Business development companies are not subject to the full extent of
regulation under the Investment Company Act. (See "Regulation-Business
Development Companies" below). The Registrant is primarily engaged in the
business of investing in and providing managerial assistance to developing
companies, which, in its opinion, have significant potential for growth. The
Registrant's investment objective is to achieve long-term capital appreciation,
rather than current income, on its investments. Currently, the Registrant's
investment activity is limited by its working capital. There is no assurance
that the Company's objective will be achieved.
The Registrant maintains a line of credit from Comerica Bank ("Comerica")
under which it may borrow up to $2,500,000 at 3/4% over Comerica's prime lending
rate. The collateral for this line of credit is 1,660,000 shares of Williams
Controls common stock owned by the Registrant and 1,864,706 shares of common
stock of Ajay Sports, Inc. ("Ajay") owned by the Registrant. 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. The balance of the Registrant's note payable to Comerica
as of September 14, 1999 was $2,382,649 and the balances at June 30, 1999 and
1998 were $2,323,249 and $2,081,749, respectively.
During July 1998, Williams, the Registrant's largest investee company and
a significant stockholder of Ajay, another investee company of the Registrant,
purchased certain notes payable from Ajay. This purchase included a $200,000
note payable by Ajay to the Registrant. As a part of the purchase transaction,
the Registrant entered into an agreement with Williams to convert $100,000 of
the amount owed under the note into shares of Williams common stock. Under this
agreement, during fiscal 1999, Williams issued 42,329 shares of Williams common
stock to the Registrant and repaid the remaining balance of $100,000 plus the
accrued but unpaid interest through the date of repayment. The transaction
resulted in the Registrant making an additional follow on investment in Williams
and assisted Ajay in obtaining a bank credit facility separate from the Williams
bank credit facility.
On June 24, 1999, the Registrant completed a private offering of its
common stock through which it raised $420,000 in gross proceeds. See "Item 5.
Market for Registrant's Common Equity and Related Stockholders' Matters." 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"). This acquisition was completed on June 23, 1999. PGI
and PGO are both majority owned subsidiaries of Ajay. PGI operates through its
wholly owned operating subsidiary, Pro Golf. Under its prior ownership, Pro Golf
opened one of America's first `off-course' retail golf stores in 1962, virtually
inventing the retail and discount golf store concept. The retail success led the
company to begin franchising in 1975. Today, its franchised stores generate
nearly $250 million in golf equipment and apparel sales through the off-course
golf shop distribution channel each year. Pro Golf collects initial franchise
fees from each new store and ongoing monthly royalties based on product sale
that occur in franchised stores. PGO was formed to acquire the Internet
operations of Pro Golf and Ajay, and has obtained only limited financing. The
Internet site generates limited sales and is still under development. During the
2000 fiscal year, this entity will be assembling its management team, expanding
sales and seeking additional financing and the Registrant believes this
opportunity has significant potential for long-term success.
<PAGE>
Investment Decisions and Policies. The Registrant's investment decisions
are made by its management in accordance with policies approved by its Board of
Directors. The Registrant is not a registered investment advisor nor does it
operate pursuant to a written investment advisory agreement that must be
approved periodically by stockholders. The Registrant relies solely upon its
management, particularly its officers, on a day-to-day basis, and also on the
experience of its directors in making investment decisions.
Consistent with its objective of long-term capital appreciation, the
Registrant consults with its investees with respect to obtaining capital and
offers managerial assistance to selected businesses that, in the opinion of the
Registrant's management, have a significant potential for growth.
In addition to acquiring investment positions in new and developing
companies, the Registrant also may occasionally to invest in more mature
privately and publicly-held companies, some of which may be experiencing
financial difficulties, but which the Registrant believes have potential for
further development or revitalization, and which, in the long-term, could
experience growth and achieve profitability.
The Registrant plans to take advantage of other opportunities to maintain
and create independent companies with a significant potential for growth. The
Registrant's priorities for the future will be to (1) maximize the value and
liquidity of its present investees, (2) increase its cash flow and intermediate
term value through the acquisition of securities or assets of more established
companies, and (3) make new higher risk investments in new and developing
companies.
The Registrant has no fixed policy as to the business or industry group in
which it may invest or as to the amount or type of securities or assets that it
may acquire. To date, the Registrant has made investments primarily in new and
developing companies whose securities had no established public market. Most of
these companies initially were unable to obtain significant capital on
reasonable terms from conventional sources. The Registrant endeavors to assist
its investee companies and their management teams in devising realistic business
strategies and obtaining necessary financing.
The Registrant believes that it will be most likely to succeed in its
investment strategies if its investee companies have strong management teams.
Generally, the Registrant focuses as much or more on finding and supporting
business executives who have the ability, entrepreneurial motivation and
experience required to build independent companies with a significant potential
for growth, as it does on identifying, selecting and financing investment
opportunities based on promising ideas, products or marketing strategies.
Consistent with this belief, the Registrant's managerial assistance often is
provided in ways designed to build strong, independent management rather than
simply provide management services. For example, the Registrant encourages its
investee companies to afford their management teams opportunities for meaningful
equity participation and assists them in planning ways to do this. The
Registrant also assists in arranging financing, provides guaranties from time to
time and occasionally provides limited financing to its investee companies to
assist management of its investee companies to achieve their goals with limited
supervision from the Registrant.
The Registrant has never paid cash dividends nor does it have any present
intent to do so. The Registrant's future dividend policy is to make limited
in-kind distributions of its larger investment positions to its stockholders if
and when its Board of Directors deems such distributions appropriate. The
Registrant has not made any distributions of its investment portfolio to date,
nor does it have any immediate plans to do so.
<PAGE>
Business development is by nature a high-risk activity that can result in
substantial losses. The companies in which the Registrant invests and will
invest, especially in the early stages of an investment, often lack effective
management, face operating problems and incur substantial losses. Potential
investees include established businesses which may be experiencing severe
financial or operating difficulties or may, in the opinion of management, be
managed ineffectively and have the potential for substantial growth or for
reorganization into separate independent companies.
The Registrant will attempt to reduce the level of its investment risks
through one or more of the following:
o carefully investigating potential investees;
o financing only what it believes to be practical business
opportunities, as contrasted with research projects;
o selecting effective, entrepreneurial management for its investees;
o providing active managerial assistance and support to investees;
o obtaining, alone or with others, actual or working control of its
investees;
o supporting the investees in obtaining necessary financing and
arranging major contracts, joint ventures or mergers and
acquisitions where feasible; and
o maintaining sufficient capital resources to make follow-on
investments where necessary, appropriate and feasible.
As a Business Development Company, the Registrant is subject to the
provisions of Sections 55 through 65 of the Investment Company Act and certain
additional provisions of the Investment Company Act made applicable to business
development companies by Section 59 of the Investment Company Act. Under these
regulations, the Registrant's investment policies are defined and subject to
certain limitations. See "Regulation-Business Development Companies."
Furthermore, under Section 58 of the Investment Company Act, the Registrant may
not withdraw its election to be so regulated without the consent of a majority
of its outstanding voting securities.
The Registrant has no fixed policy as to business or industry group in
which it may invest or as to the amount or type of securities or assets that it
may acquire. The Registrant has in the past and may continue to invest in assets
that are not qualifying assets under Section 55 of the Investment Company Act;
however, no such additional assets have been identified as of June 30, 1999, and
the Registrant does not intend to fall below the 70% requirement as set forth in
Section 55.
The Registrant endeavors to achieve its objectives in accordance with the
following general policies:
(1) The Registrant acquires securities through negotiated private
placement transactions directly from the investee company, its affiliates, or
third parties, or through open market transactions.
(2) The Registrant attempts to acquire, if possible and consistent with
the Registrant's capital resources, a large or controlling interest in its
investees through purchases of equity securities, including warrants, options,
and other rights to acquire such securities combined, if appropriate, with debt
securities, including demand notes, term loans and guarantees, or debt
instruments or preferred stock convertible into, or with warrants to purchase,
equity securities.
(3) The Registrant may make additional or "follow-on" investments in its
investees when appropriate to sustain the investees or to enhance or protect the
Registrant's existing investment. <PAGE>
(4) The Registrant determines the length of time it will retain its
investment by evaluating the facts and circumstances of each investee and its
relationship with such investee. The Registrant generally retains its
investments for a relatively long period, sometimes many years, with the result
that its rate of portfolio turnover is low. Investments are retained until, in
the opinion of the Registrant, the investee company has a demonstrated record of
successful operations and there is a meaningful public market for its securities
which reflects the investment value the Registrant sought (or such a market can
be readily established) or until the Registrant decides that its investment is
not likely to result in future long-term capital appreciation.
Valuation-Policy Guidelines
The Registrant's Board of Directors is responsible for the valuation of
the Registrant's assets in accordance with their approved guidelines. The
Registrant's Board of Directors is responsible for (1) recommending overall
valuation guidelines and (2) the valuation of the specific investments.
There is a range of values, which are reasonable for an investment at any
particular time. Fair value is generally defined as the price at which the
investment in question could change hands, assuming that both parties to the
transaction are under no unusual pressure to buy or sell and both have
reasonable knowledge of all the relevant facts. To increase objectivity in
valuing the securities, the Registrant uses external measures of value such as
public markets or significant third-party transactions whenever possible.
Neither a long-term workout value nor an immediate liquidation value is used,
and no increment of value is included for changes, which may take place in the
future. The Registrant's largest investee, Williams, represents over 84% of the
total value of the Registrant's investment portfolio and is valued by the Public
Market Method, subject to the judgment of the Board of Directors, except for
valuing the majority of the warrants held by the Registrant, which are valued
under the Appraisal Method and using the best judgment of the Board of
Directors. Certain members of the Company's Board of Directors may hold minor
positions in some of the Registrant's investee companies and certain members of
the Board may hold officer or director positions with some of the Company's
investee companies. No such positions held by the Registrant's board or officers
exceed 5% of the investee company's outstanding securities.
Valuations assume that in the ordinary course of its business the
Registrant will eventually sell its position in the public market or may
distribute its larger positions to its stockholders. Accordingly, no premiums
are placed on investments to reflect the ability of the Registrant to sell block
positions or control of companies, either by itself or in conjunction with other
investors.
The Registrant uses four basic methods of valuation for its investments
and there are variations within each of these methods. The Registrant's Board of
Directors has determined that the Registrant's four basic valuation methods
constitute fair value. As an investee evolves, its progress usually requires
changes in the Registrant's method of valuing the investee's securities. The
Registrant's investment is separated into its component parts (such as debt,
preferred stock, common stock or warrants), and each component is valued
separately to arrive at total value. The Company believes that a mixture of
valuation methods is often essential to represent fairly the value of the
Registrant's investment position in an investee. For example, one method may be
appropriate for the equity securities of a company while another method may be
appropriate for the senior securities of the same company. In various instances
of valuation, the Board of Directors of the Registrant may modify the valuation
methods mentioned below based on their best judgment of the particular
situation.
The Cost Method values an investment based on its original cost to the
Company, adjusted for the amortization of original issue discount, accrued
interest and certain capitalized expenditures of the Company. While the cost
method is the simplest method of valuation, it is often the most unreliable
because it is applied in the early stages of an investee's development and is
often not directly tied to objective measurements. All investments are carried
at cost until significant positive or adverse events subsequent to the date of
the original investment warrant a change to another method. Some examples of
such events are: (1) a major recapitalization; (2) a major refinancing; (3) a
significant third-party transaction; (4) the development of a meaningful public
market for the investee's common stock; and (5) material positive or adverse
changes in the investee's business.
<PAGE>
The Appraisal Method is used to value an investment position based upon a
careful analysis of the best available outside information when there is no
established public or private market in the investee company's securities and it
is no longer appropriate to use the Cost Method. Comparisons are made using
factors (such as earnings, sales or net worth) that influence the market value
of similar public companies or that are used in the pricing of private
transactions of comparable companies. Major discounts, usually 50%, are taken
when private companies are appraised by comparing them to similar public
companies. Liquidation value may be used when an investee is performing
substantially below plan and its continuation as an operating entity is in
doubt. Senior securities are discounted at a rate to yield 15% to 40% to
projected maturity. Depending on the relative uncertainty of the timing of
ultimate collection, 15% is used for relatively predictable positions, and 40%
for less predictable positions. Under the Appraisal Method, the differences
among companies in terms of the source and type of revenues, quality of
earnings, and capital structure are carefully considered.
An Appraisal Method value can be defined as the price at which the
investment in question could change hands, assuming that both parties to the
transaction are under no unusual pressure to buy or sell and both have
reasonable knowledge of all the relevant facts. In the case of start-up
companies where the entire assets may consist of only one or more of the
following: (1) a marketing plan, (2) management or (3) a pilot operation, an
evaluation may be established by capitalizing the amount of the investment that
could reasonably be obtained for a predetermined percentage of the company.
Valuations under the Appraisal Method are considered to be more subjective than
the Cost, Public Market or Private Market Methods.
The Private Market Method uses third-party transactions (actual or
proposed) in the investee's securities as the basis for valuation. This method
is considered to be an objective measure of value since it depends upon the
judgment of a sophisticated, independent investor. Actual firm offers are used
as well as historical transactions, provided that any offer used was seriously
considered and well documented.
The Public Market Method is the preferred method of valuation when there
is an established public market for the investee's securities, since that market
provides the most objective basis for valuation. In determining whether the
public market is sufficiently established for valuation purposes, the Registrant
examines the trading volumes, the number of stockholders and the number of
market makers. Under the Public Market Method, as well as under the other
valuation methods, the Registrant may discount investment positions that are
subject to significant legal, contractual or practical restrictions. When an
investee's securities are valued under the Public Market Method, common stock
equivalents such as presently exercisable warrants or options are valued based
on the difference between the exercise price and the market value of the
underlying common stock. Although the Registrant believes that a public market
could be created for the options and warrants of certain of its investees,
thereby possibly increasing the value of these rights above their arbitrage
value, the Registrant does not reflect this possibility in its valuation.
Regulation - Business Development Companies
The following is a summary description of the Investment Company Act as
applied to business development companies. This description is qualified in its
entirety by reference to the full text of the Investment Company Act of 1940 and
the rules adopted thereunder by the Securities and Exchange Commission (the
"SEC").
The Small Business Investment Incentive Act of 1980 became law on October
21, 1980. This law modified the provisions of the Investment Company Act that
are applicable to a company, such as the Registrant, which elects to be treated
as a "business development company." The Registrant elected to be treated as a
business development company on June 30, 1982. The Registrant may not withdraw
its election without first obtaining the approval of a majority of its
outstanding voting securities.
A business development company must be operated for the purpose of
investing in the securities of certain present and former "eligible portfolio
companies" and certain bankrupt or insolvent companies and must make available
significant managerial assistance to its investee companies. An eligible
portfolio company generally is a United States company that is not an investment
company (except for wholly-owned SBIC's licensed by the Small Business
Administration) and (1) does not have a class of securities included in the
Federal Reserve Board's over-the-counter margin list, (2) is actively controlled
by the business development company and has an affiliate of the business
development company on its board of directors, or (3) meets such other criteria
as may be established by the SEC. Control, under the Investment Company Act, is
presumed to exist where the business development company, and its affiliates or
related parties, own 25% or more of the outstanding voting securities of the
investee.
<PAGE>
The Investment Company Act prohibits or restricts the Registrant from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the
Investment Company Act limits the type of assets that the Registrant may acquire
to "qualifying assets" and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of the acquisition,
less than 70% of the value of the Registrant's assets consists of qualifying
assets. The effect of the regulation is to require that at least 70% of a
business development company's assets be maintained in qualifying assets.
Qualifying assets include: (1) securities of companies that were eligible
portfolio companies at the time the Registrant acquired their securities; (2)
securities of bankrupt or insolvent companies that are not otherwise eligible
portfolio companies; (3) securities acquired as follow-on investments in
companies that were eligible at the time of the Registrant's initial acquisition
of their securities but are no longer eligible, provided that the Registrant has
maintained a substantial portion of its initial investment in those companies;
(4) securities received in exchange for or distributed on or with respect to any
of the foregoing; and (5) cash items, government securities and high-quality,
short-term debt. The Investment Company Act also places restrictions on the
nature of the transactions in which, and the persons from whom, securities can
be purchased in order for the securities to be considered to be qualifying
assets. The Registrant believes that, as of June 30, 1999, at least 95% of its
assets would be considered qualifying assets.
The Registrant is permitted by the Investment Company Act, under specified
conditions, to issue multiple classes of senior debt and a single class of
preferred stock if its asset coverage, as defined in the Investment Company Act,
is at least 200% after the issuance of the debt or the preferred stock. The
Registrant currently has no policy regarding issuing multiple classes of senior
debt or a class of preferred stock.
The Registrant may issue, in limited amounts, warrants, options and rights
to purchase its securities to its directors, officers and employees (and provide
loans to those persons for the exercise thereof) in connection with an executive
compensation plan if certain conditions are met. These conditions include the
authorization of such issuance by a majority of the Registrant's voting
securities (as defined below) and the approval by a majority of the independent
members of the Board of Directors and by a majority of the directors who have no
financial interest in the transaction. The issuance of options, warrants or
rights to directors who are not also officers requires the prior approval of the
SEC.
As defined in the Investment Company Act, the term "majority of the
Registrant's outstanding voting securities" means the vote of (a) 67% or more of
the Registrant's Common Stock present at a meeting, if the holders of more than
50% of the outstanding Common Stock are present or represented by proxy, or (b)
more than 50% of the Registrant's outstanding Common Stock, whichever is less.
The Registrant may sell its securities at a price that is below the
prevailing net asset value per share only upon the approval of the policy by the
holders of a majority of its voting securities, including a majority of the
voting securities held by non-affiliated persons, at its last annual meeting or
within one year prior to the transaction. In addition, the Registrant may
repurchase its Common Stock, subject to the restrictions of the Investment
Company Act.
In accordance with the Investment Company Act, a majority of the members
of the Registrant's Board of Directors must not be "interested persons" of the
Registrant as that term is defined in the Investment Company Act. Generally,
"interested persons" of the Registrant include all affiliated persons of the
Registrant and members of their immediate families, any "interested person" of
an underwriter or of an "investment advisor" to the Registrant, any person who
has acted as legal counsel to the Registrant within the last two fiscal years,
or any broker or dealer, or affiliate or a broker or dealer.
<PAGE>
Most of the transactions involving the Registrant and its affiliates (as
well as affiliates of those affiliates) which were prohibited without the prior
approval of the SEC under the Investment Company Act prior to its amendment by
the Small Business Investment Incentive Act now require the prior approval of a
majority of the Registrant's independent directors and a majority of the
directors having no financial interest in the transactions. The effect of the
amendment is that the Registrant may engage in certain affiliated transactions
that would be prohibited absent prior SEC approval in the case of investment
companies, which are not business development companies. However, transactions
involving certain closely affiliated persons of the Registrant, including its
directors, officers and employees, still require the prior approval of the SEC.
In general, "affiliated persons" of a person include: (a) any person who owns,
controls or holds with power to vote, more than five percent of the Registrant's
outstanding Common Stock, (b) any director, executive officer or general partner
of that person, (c) any person who directly or indirectly controls, is
controlled by, or is under common control with that person, and (d) any person
five percent or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote, by such other person.
Such persons generally must obtain the prior approval of a majority of the
Registrant's independent directors and, in some situations, the prior approval
of the SEC, before engaging in certain transactions involving the Registrant or
any company controlled by the Registrant. In accordance with the Investment
Company Act, a majority of the members of the Registrant's Board of Directors
are not interested persons as defined in the Act. The Investment Company Act
generally does not restrict transactions between the Registrant and its investee
companies.
Finally, notwithstanding restrictions imposed under federal securities
laws, it is anticipated that the Registrant will acquire securities of investee
companies pursuant to stock purchase agreements or other agreements that may
further limit the Registrant's ability to distribute, sell or transfer such
securities. And as a practical matter, even if such transfers are legally or
contractually permissible, there may be no market, or a very limited market, for
the securities. Economic conditions may also make the price and terms of a sale
or transfer unattractive.
Other Securities Law Considerations
In addition to the above-described provisions of the Investment Company
Act, there are a number of other provisions of the federal securities laws which
affect the Registrant's operations. For example, restrictions imposed by the
federal securities laws, in addition to possible contractual provisions, may
adversely affect the ability of the Registrant to sell or otherwise to
distribute its portfolio securities.
Most if not all securities which the Registrant acquires as venture
capital investments will be "restricted securities" within the meaning of the
Securities Act of 1933 ("Securities Act") and will not be permitted to be resold
without compliance with the Securities Act. Thus, the Registrant will not be
permitted to resell portfolio securities unless a registration statement has
been declared effective by the SEC with respect to such securities or the
Registrant is able to rely on an available exemption from such registration
requirements. In most cases the Registrant will endeavor to obtain from its
investee companies "registration rights" pursuant to which the Registrant will
be able to demand that an investee company register the securities owned by the
Registrant at the expense of the investee company. Even if the investee company
bears this expense, however, the registration of the securities owned by the
Registrant is likely to be a time-consuming process, and the Registrant always
bears the risk, because of these delays, that it will be unable to resell such
securities, or that it will not be able to obtain an attractive price for the
securities.
Sometimes the Registrant will not register portfolio securities for sale
but will seek to rely upon an exemption from registration. The most likely
exemption available to the Registrant is section 4(1) of the Securities Act
which, in effect, exempts sales of securities not involving a distribution of
the securities. This exemption will likely be available to permit a private sale
of portfolio securities, and in some cases a public sale, if the provisions of
Rule 144 under the Securities Act are satisfied. Among other things, Rule 144
requires that securities be sold in "broker transactions," and formerly imposed
a two-year holding period prior to the sale of restricted securities. In May
1997, the holding period for Rule 144 transactions was reduced to one year in
certain circumstances. <PAGE>
The Registrant may elect to distribute in-kind securities of investee
companies to its stockholders. Prior to any such distribution, the Registrant
expects that it will need to file, or cause the issuers of such distributed
securities to file, a registration statement or, in the alternative, an
information statement, which will permit the distribution of such securities and
also permit distributee stockholders of the Registrant to sell such distributed
securities.
Federal Income Tax Matters
For federal and state income tax purposes, the Registrant is taxed at
regular corporate rates on ordinary income and realized gain. It is not entitled
to the special tax treatment available to more regulated investment companies,
although the Registrant plans to conduct its affairs, if possible, to minimize
or eliminate federal and state income taxes. Distributions of cash or property
by the Registrant to its stockholders will be taxable as ordinary income only to
the extent that the Registrant has current or accumulated earnings and profits.
The "alternative tax" rate at which corporations are taxed on long-term
capital gains is up to 35% pursuant to the Tax Reform Act of 1986 (the "Tax
Reform Act"). A corporation generally may offset capital loss only against
capital gain. Generally, if the Registrant realizes a net capital loss for any
taxable year, it can carry back such net capital loss only against capital gain.
Such a net capital loss for any taxable year can generally be carried back to
each of the three preceding taxable years, and then any unused portion thereof
may be carried over into the subsequent taxable years for a period of five
years.
Future Distributions
The Registrant does not currently intend to pay cash dividends. The
Registrant's current dividend policy is to make in-kind distributions of its
larger investment positions to its stockholders when the Registrant's Board of
Directors deems such distributions appropriate. Because the Registrant does not
intend to make cash distributions, stockholders would need to sell securities
distributed in-kind, when and if distributed, in order to realize a return on
their investment.
An in-kind distribution will be made only when, in the judgment of the
Registrant's Board of Directors, it is in the best interest of the Registrant's
stockholders to do so. The Board of Directors will review, among other things,
the investment quality and marketability of the securities considered for
distribution; the impact of a distribution of the investee's securities on the
investee's customers, joint venture associates, other investors, financial
institutions and management; tax consequences and the market effects of an
initial or broader distribution of such securities. Securities of the
Registrant's larger investment positions in more mature investee companies with
established public markets are most likely to be considered for distribution. It
is possible that the Registrant may make an in-kind distribution of securities
that are substantially liquid irrespective of the distributee's stockholder
rights to sell such securities. Any such in-kind distribution would require
stockholder approval only if the distribution represents substantially all of
the Registrant's assets. It is possible that the Registrant may make an in-kind
distribution of securities which have appreciated or depreciated from the time
of purchase depending upon the particular distribution. The Registrant has not
established a policy as to the frequency or size of distributions and indeed
there can be no assurance that any distributions will be made. To date, no such
distributions have been made, but the Registrant may consider doing so from time
to time, and such a distribution is currently being considered by its Board of
Directors.
Managerial Assistance
The Registrant believes that providing managerial assistance to its
investees is critical to its business development activities. "Making available
significant managerial assistance" as defined in the Investment Company Act with
respect to a business development company such as the Registrant means (a) any
arrangement whereby a business development company, through its directors,
officers, employees or general partners, offers to provide, and, if accepted,
does so provide, significant guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company; or (b)
the exercise by a business development company of a controlling influence over
the management or policies of a portfolio company by the business development
company acting individually or as a part of a group acting together which
controls such portfolio company. The Registrant is required by the Investment
Company Act to make significant managerial assistance available at least with
respect to investee companies that the Registrant treated as qualifying assets
for purposes of the 70% test. The nature, timing and amount of managerial
assistance provided by the Registrant varies depending upon the particular
requirements of each investee company. <PAGE>
The Registrant may be involved with its investees in recruiting
management, product planning, marketing and advertising and the development of
financial plans, operating strategies and corporate goals. In this connection,
the Registrant may assist clients in developing and utilizing accounting
procedures to efficiently and accurately record transactions in books of account
which will facilitate asset and cost control and the ready determination of
results of operations. The Registrant also seeks capital for its investees from
other potential investors and occasionally subordinates its own investment to
those of other investors. The Registrant introduces its investees to potential
suppliers, customers and joint venture partners and assists its investees in
establishing relationships with commercial and investment bankers and other
professionals, including management consultants, recruiters, legal counsel and
independent accountants. The Registrant also assists with joint ventures,
acquisitions and mergers.
In connection with its managerial assistance, the Registrant may be
represented by one or more of its officers or directors on the Board of
Directors of an investee. As an investment matures and the investee develops
management depth and experience, the Registrant's role will become progressively
less active. However, when the Registrant owns or, on a pro forma basis, could
acquire a substantial proportion of a more mature investee company's equity, the
Registrant remains active in and will frequently initiate planning of major
transactions by the investee. The Registrant's goal is to assist each investee
company in establishing its own independent and effective board of directors and
management. Currently, the Registrant provides managerial assistance to
CompuSonics Video, Williams, Ajay, PGI and its operating subsidiary, Pro Golf,
and PGO
Competition The Registrant is subject to substantial competition from
business development companies, venture capital firms, new product development
companies, marketing companies and diversified manufacturers, most of whom are
larger than the Registrant and have significantly larger net worths, financial
and personnel resources than the Registrant. In addition, the Registrant
competes with companies and individuals engaged in the business of providing
management consulting services.
Employees
As of September 30, 1999 the Registrant had one employee, who is also an
officer of the Company.
<PAGE>
Item 2. Properties
The Registrant subleases office space from a stockholder of the Registrant
for $515 per month. The Registrant occupies an office and shares a common area.
The Registrant believes that the rate paid for this space represents current
market rates. The stockholder's lease expires in March 2000 and the Registrant
expects to move to a new leased facility at that time.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Registrant held its Annual Meeting of Shareholders on January 29, 1999.
On Janaury 29, 1999, the shareholders approved proposals 1, 4(a) and 5 as
described below. The meeting was adjourned to permit the shareholders additional
time to consider and vote on the remaining proposals and was reconvened on March
5, 1999. At the reconvened meeting on March 5, 1999, the shareholders approved
proposal 3 as described below. The meeting was adjourned to permit additional
time for the shareholders to consider their votes on proposals 2, 4(b) and 4(c).
The meeting was reconvened for the final time on April 9, 1999 and proposals 2,
4(b) and 4(c) did not receive sufficient affirmative votes to constitute
approval by the Registrant's shareholders. The voting results for all proposals
considered at the meeting are set forth below.
1. ELECTION OF DIRECTORS
Robert R. Hebard
For 410,631 Withhold 4,185
----------- -----------
Carl W. Forsythe
For 410,404 Withhold 4,411
----------- -----------
H. Samuel Greenawalt
For 410,644 Withhold 4,172
----------- -----------
2. On approval of the proposal to authorize the Company to sell shares of
its capital stock at prices below such stock's net asset value.
For 291,749 Against 18,722 Abstain/Not Voted 111,712
------- ------ -------
3. On approval of the proposal to authorize the Company to change the
nature of its business and withdraw its election as a business
development company under the Investment Company Act of 1940, as
amended.
For 301,196 Against 7,914 Abstain/Not Voted 113,072
------- ------- -------
4. On approval of the three following proposals to amend the Company's
Restated Articles of Incorporation:
a. Limitation of Liability to Directors
For 399,289 Against 13,999 Abstain 1,527
------- ------ -----
b. Reduce quorum to one-third
For 286,731 Against 22,859 Abstain/Not Voted 112,593
------- ------ -------
c. Voting requirement reduced to a majority of shares entitled to vote
For 295,779 Against 14,806 Abstain/Not Voted 111,597
------- ------ -------
5. On approval of a proposal to ratify the appointment of Hirsch,
Silberstein & Subelsky, P.C. as the independent auditors for the years
ended June 30, 1997, 1998 and 1999.
For 408,228 Against 2,991 Abstain 3,596
------- ----- -----
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
From April 11, 1996 through September 17, 1998, the Registrant's common stock
was listed for trading on the Nasdaq SmallCap Market under the stock symbol
ENCP. In early 1998, Nasdaq implemented new standards for continued listing.
Nasdaq determined, through a hearing process, that the Registrant's common stock
did not have sufficient public float to maintain its continued listing and
delisted the common stock after the close of business on September 17, 1998.
Since September 18, 1998, the principal market in which the Registrant's common
stock is traded has been the Over-The-Counter (OTC) market, through the OTC
electronic bulletin board. The range of high and low bid closing quotations for
the Registrant, as published by Nasdaq from July 1, 1997 through September 17,
1998 and the ranges of the high and low bid quotations as published by the OTC
electronic bulletin board for the periods from September 18, 1999 through June
30, 1999 are as set forth below. The OTC electronic bulletin board pricing
information reflects inter-dealer prices, without retail mark-up or mark-down or
commissions and may not necessarily represent actual transactions.
HIGH LOW
Fiscal 1998
September 30, 1997 $1.50 $1.50
December 31, 1997 $2.25 $1.50
March 31, 1998 $2.69 $1.31
June 30, 1998 $5.25 $2.50
Fiscal 1999
September 30, 1998 $4.88 $2.13
December 31, 1998 $3.25 $2.38
March 31, 1999 $3.50 $2.63
June 30, 1999 $4.44 $2.56
Holders
The approximate number of record holders of the Registrant's common stock
as of August 31, 1999 was 1,367. This number does not include beneficial owners
whose shares are held on account in "street name" by banks or brokerage firms.
Dividends
The Registrant has paid no dividends on its common stock within the past
five years, and has no intention to pay cash dividends in the future.
Recent Sales of Securities.
During June 1999, the Registrant offered for sale and sold 105,000 shares
of its common stock at an aggregate offering price of $420,000. This offering
was made by the directors and officer of the Registrant solely to accredited
investors. In making this offering, the Registrant relied upon and complied with
Rule 506 of Regulation D of the rules and regulations promulgated under the
Securities Act of 1933, as amended. The offering was not underwritten and no
underwriting discounts were applied and no commissions were paid in connection
with the sale of these securities.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
------------------------------------------------------------------
Total assets $6,647,846 $4,776,505 $4,524,102 $4,123,756 $6,507,903
Total liabilities $3,119,979 $2,471,488 $2,159,138 $1,820,866 $2,588,871
---------- ---------- ---------- ---------- ----------
Net assets $3,527,867 $2,305,017 $2,364,964 $2,302,890 $3,919,032
========== ========== ========== ========== ==========
Realized gain (loss)
on investments $ -0- $ -0- $ 216,000 $ 269,410 $ 18,914
Total revenues $ 31,264 $ 47,241 $ 236,643 $ 490,338 $ 162,539
Total expenses $ 375,050 $ 324,901 $ 369,088 $ 367,489 $ 773,905
----------- ---------- ---------- ---------- ----------
Net income (loss)
from operations $ (343,785) $ (277,660) $ (132,444) $ 122,849 $ (611,366)
Unrealized gain (loss)
on investments $ 1,552,635 $ 189,713 $ 229,517 $(2,569,991) $1,419,408
Increase (decrease)
in net assets before cumulative
effect of income tax
accounting change $ 802,850 $ (59,947) $ 62,074 $(1,616,142) $ 513,042
========== =========== ========== ============ ===========
Increase (decrease)
in net assets
resulting from
operations $ 802,850 $ (59,947) $ 62,074 $(1,616,142) $ 513,042
========== =========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
*Increase (decrease) in net assets per share -----------------------------------------------------
before income taxes and cumulative effect
of income tax and accounting change $ 2.63 $ .32 $ .39 $(4.14) $ 1.37
======= ======= ======= ======= =======
*Increase (decrease) in net assets per share
before cumulative effect of income tax
accounting change $ 1.36 $ (.10) $ .11 $(2.74) $ .87
======= ======== ======= ======== =======
*Increase (decrease) in net assets per
share resulting from operations $ 1.36 $ (.10) $ .11 $(2.74) $ .87
======= ======== ======= ======== =======
*Weighted average number of
shares outstanding 590,897 590,897 590,897 590,897 590,897
======= ======= ======== ======== =======
*Prior period numbers for shares outstanding and increase (decrease) per share
are restated to reflect the 1-for-75 reverse stock split effected on December
13, 1995.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Capital Resources and Liquidity. In June 1998, the Registrant renewed its line
of credit with Comerica Bank and the line was increased to $2,500,000 at 3/4%
over Comerica's prime lending rate. The collateral for this line of credit is
1,660,000 shares of Williams Controls common stock owned by the Registrant and
1,864,706 shares of common stock of Ajay owned by the Registrant. 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. The balance of the Registrant's note payable to Comerica
as of September 14, 1999 was $2,382,649 and the balances at June 30, 1999 and
1998 were $2,323,249 and $2,081,749, respectively.
Currently, the Registrant's investment activity is limited by its working
capital. Capital required for the Registrant's investment activities is expected
to be generated from borrowing against their credit line, the sale of portfolio
securities or from additional offerings of the Registrant's common stock, of
which there can be no assurance. The ability of the Registrant to liquidate
portfolio stock is dependent on market conditions over which the Registrant has
no control. The Registrant had no material commitments for capital expenditures
as of June 30, 1999.
Working capital at June 30, 1999 was $4,294,426 as compared to $2,667,423 at
June 30, 1998. The increase in working capital from 1998 to 1999 was mainly due
to the change in the value of the Registrant's investment portfolio. For the
years ended June 30, 1999, 1998 and 1997 the Registrant's cash flow was
dependent primarily upon proceeds from the sale of investee shares and advances
from the Registrant's bank lines of credit.
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, along with its ability to
borrow funds and make sales of its portfolio securities when and to the extent
the Board of Directors decides such sales are appropriate or necessary.
The Registrant's largest investee company, Williams, is a publicly held company
in which the Registrant owns common stock, common stock purchase warrants and
options. Williams, through its subsidiary companies, manufactures and markets
sensors, controls and communication systems serving the transportation and
communications industries.
The Registrant's second largest investee is Ajay. Ajay is a manufacturer and
distributor of golf bags, carts and accessories, and casual outdoor furniture.
The Registrant's president is a director and the corporate secretary of Ajay and
PGI and PGO, two majority owned subsidiaries of Ajay. During fiscal 1999, the
Registrant made investments in the securities of PGI and PGO.
The Registrant's other current investee is CompuSonics Video Corporation
("CVC"). The Registrant's president is also president and chairman of the Board
of CVC. CVC is in the business of developing and maintaining internet websites
for third party clients.
Management of the Registrant devoted time and resources to providing significant
managerial assistance to Williams, Ajay, PGI, PGO and CVC during the fiscal year
ended June 30, 1999.
In July 1998, Williams assumed the obligations under a $200,000 note payable
from Ajay to the Registrant. During the fiscal year ended June 30, 1999,
Williams issued to the Registrant 42,329 shares of its common stock and paid the
balance of $100,000 plus accrued but unpaid interest owed to the Registrant
under the note.
The Registrant does not anticipate the year 2000 compliance requirements will
have a material impact on earnings. The Registrant has initiated replacement of
the Registrant's most significant computer programs with new updates that are
warranted to be year 2000 compliant. Installation of these updates was completed
on September 8, 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. In connection with the managerial assistance provided by the
Registrant to its investee companies, the Registrant has monitored the
activities and actions being taken by its investee companies to ensure their
compliance with year 2000 requirements. Based on the information available to
the Registrant, management of the Registrant believes that its investee
companies have taken, or are in the process of taking, all reasonable actions
necessary to prevent any material impact on their earnings as a result of the
change in the millennium.
Results of Operations. The Company had total revenues of $31,264 for the
fiscal year ended June 30, 1999 as compared to $47,241 during fiscal year ended
June 30, 1998 and $236,643 during the fiscal year ended June 30, 1997. The
$15,977 decrease from fiscal year June 30, 1998 to June 30, 1999 was due to the
decrease in interest income from related entities. The revenue decrease of
$189,402 from fiscal year June 30, 1997 to June 30, 1998 was due mainly to the
fiscal 1997 amount of $216,000 in the net realized gain on the sale of
investments offset by an increase of $23,212 in consulting fees from related
companies in 1998. Total assets for the fiscal year ending June 30, 1999 were
$6,647,846, an aggregate increase of $1,871,341 over the total assets at June
30, 1998 which were $4,776,505. The changes in total assets at June 30, 1999
versus June 30, 1998 were mainly the result of changes in the value of
Registrant's ownership in its largest investee, Williams.
For the year ended June 30, 1999 the Registrant had a net loss from
operations of $343,785 compared to a net loss from operations of $277,660 for
the year ended June 30, 1998 and a net loss from operations of $132,444 for the
year ended June 30, 1997. The decline from 1998 to 1999 was due to a increase in
interest expense and bonus expense. The $145,216 decline from 1997 to 1998 was
due to the decrease in net realized gain on sale of investments offset by the
decrease in staff salary expense. The Registrant recorded an unrealized gain on
investments of $1,552,635 for the fiscal year ended June 30, 1999 as compared to
a unrealized gain on investments of $189,713 for the fiscal year ended June 30,
1998 and an unrealized gain on investments of $229,517 for the fiscal year ended
June 30, 1997. The change in the unrealized gain for the years indicated is
largely the result of the change in the market value of the Registrant's largest
investee, Williams.
Item 8. Financial Statements and Supplementary Data
Financial statements and supporting schedules reporting supplementary
financial information are attached hereto and are listed in Item 14 of Part IV
of this Form 10-K.
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
(a)(b) Identification of Directors and Executive Officers
--------------------------------------------------
Commencement
date of service
as officer and/or
Name Position with Company Age director
- ----------------- ---------------------- ----- -----------------
Robert R. Hebard Chairman of the Board, 46 6/29/93
Chief Executive Officer,
President, Treasurer
& Director
Carl W. Forsythe Director 42 6/28/93
H. Samuel Greenawalt Director 70 6/28/93
No arrangement exists between any of the above officers and directors
pursuant to which any one of those persons was elected to any such office or
position. All the officers and directors were elected at the last annual meeting
of the stockholders of Enercorp to serve one-year terms or until the next
election of directors at an annual meeting.
(c) Significant Employees
Not applicable
(d) Family Relationships
None
(e) Business Experience
Robert R. Hebard has served as Chairman of the Board, Chief Executive
Officer, President, Treasurer and Director of the Registrant since June 29,
1993. He received a Bachelors Degree in Marketing/Management from Cornell
University in 1975 and an MBA from Canisius College in 1982. He was a Director
of Kimbro Imaging Systems, Inc. from November 1994 to August 1995. Mr. Hebard
also serves as Vice President of Woodward Partners, Inc., a real estate
development company in suburban Detroit, Michigan. Mr. Hebard also has served as
a Director of Ajay Sports, Inc. since June 1989, and as Ajay's Secretary since
September 1990. In June 1999, Mr. Hebard was appointed as the corporate
secretary and a member of the boards of directors of Pro Golf International,
Inc. and Pro Golf Online, Inc., two majority owned subsidiaries of Ajay.
Carl W. Forsythe has served as Director of the Registrant since June 28,
1993. Mr. Forsythe received a Master of Business Administration degree from
Cornell University in 1982 and a Bachelor of Arts degree from Columbia
University in 1979. From 1995 to 1998, Mr. Forsythe was EVP and Director of
Retail Banking for HF Ahmanson/Home Savings of America in Irwindale, California.
From 1998 to 1999, he was President and CEO of Advanta Mortgage Co. in Spring
House, Pennsylvania, the nation's largest servicer of non-conforming real estate
loans. Mr. Forsythe is currently President of Web Real Estate.Com in Dallas,
Texas. Web Real Estate.Com is an internet-based provider of commercial real
estate sales and leasing information for brokers, developers and investors.
H. Samuel Greenawalt has served as Director of the Registrant since June
28, 1993. Mr. Greenawalt received a Bachelor of Science degree from the Wharton
School of the University of Pennsylvania in 1951, and is a 1960 graduate of the
University of Wisconsin Banking School. From 1954 to 1958, Mr. Greenawalt was
with the investment firm McNaughton-Greenawalt Company. He began his career at
Michigan National Corporation and affiliates in 1958, working in various
commercial lending capacities beginning at that time. From 1987 to June 1995,
Mr. Greenawalt was a Senior Vice President, Business Development, for Michigan
National Bank. Mr. Greenawalt retired from Michigan National in June 1995 and is
now an independent consultant to the bank.
(f) Involvement in Certain Legal Proceedings
None
(g) Promoters and Control Persons
Not applicable
(h) Compliance with Section 16(a) of the Securities Exchange Act of 1934
(the "Exchange Act")
Section 16(a) of the Exchange Act requires executive officers and
directors, and persons who beneficially own more than ten percent of the
Registrant's stock to file initial reports of ownership on Form 3, reports of
changes in ownership on Form 4 and annual statements of changes in ownership on
Form 5 with the Securities and Exchange Commission. Executive officers,
directors and greater than ten percent beneficial owners are required under the
regulations related to Section 16 to furnish the Registrant with a copy of each
report filed.
Based solely upon a review of the copies of the reports received by the
Registrant during the fiscal year ended June 30, 1999, and written
representations of the persons required to file said reports, the Registrant
believes that all reports were filed and filed timely.
Item 11. Executive Compensation
Summary CompensationTable
The following table sets forth information regarding compensation paid to
the Company's chief executive officer for the three years ending June 30, 1993.
No other person who is currently an executive officer of the Company earned
compensation exceeding $100,000 during any of those years.
Annual Compensation Awards
Securities
Name and Other Annual Underlying
Principal Position Year Salary Bonus Compensation Stock Options
($) ($) ($) (#)
Robert R. Hebard 1999 $87,000 $ 25,000 $-0- -0-
President and 1998 $87,000 $ -0- $-0- -0-
Chief Executive 1997 $87,000 $ 25,000 $-0- -0-
Officer
<PAGE>
Option/SAR Grant Table
No stock options or stock appreciation rights were granted during the
fiscal year ended June 30, 1999.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
No stock options were exercised during the fiscal year ended June 30,
1999. The table below sets forth information related to the value at June 30,
1999 of unexercised options held by the Company's President and Chief Executive
Officer.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Stock
Stock Options at June Options at June 30, 1999
30, 1999 (#) ($)
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------ -------------- ------------ --------------
Robert R. Hebard, 10,561 -0- $7,928 $-0-
President and Chief
Executive Officer
- -----------------------------------------------------------------------------------------
</TABLE>
Compensation of Directors
The Registrant has an arrangement with its disinterested non-employee
directors to pay them a fee of $500 for each regular and non-scheduled Board
meeting attended in person.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a)(b) Security Ownership of Certain Beneficial Owners and Security
Ownership of Management
Set forth below is information as to certain persons known by the Company
to be the beneficial owner of more than five percent of the Common Stock, the
Company's directors and named executive officers, individually, and executive
officers and directors as a group, as of September 14, 1999:
<PAGE>
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
- -------------------------- ------------------- -----------
Robert R. Hebard 39,648 5.6%
7001 Orchard Lake Road (1)(2)(3)
Suite 424
W. Bloomfield, MI 48322
H. Samuel Greenawalt 14,333 2.1%
27777 Inkster Road
Farmington Hills, MI 48333
Carl W. Forsythe -0- 0%
4553 Glenn Curtis
P.O. Box 2689
Addison, TX 75001
Thomas W. Itin 49,149 7.1%
7001 Orchard Lake Road, Ste. 424 (4)(5)
W. Bloomfield, MI 48322
Charles Maginnis 60,000 8.6%
c/o Corporate Securities Group, Inc.
7600 Southland Blvd. Suite 101
Orlando, FL 32809
Dr. Vasant Chheda 50,000 7.2%
c/o Corporate Securities Group, Inc.
7600 Southland Blvd. Suite 101
Orlando, FL 32809
Executive officers and 53,981 7.7%
directors as a group (1)(2)(3)
(three persons)
(1) Includes 1,333 shares held in a custodian account under the Uniform
Gifts to Minors Act for the benefit of Mr. Hebard's daughter. Mr.
Hebard disclaims beneficial ownership of the 1,333 shares in the
custodial account.
(2) Includes 10,581 shares of common stock options currently exercisable
or exercisable within 60 days from August 31, 1999.
(3) Does not include 28,443 shares held in trust for Mr. Hebard's
minor children.
(4) Based upon information contained in the Schedule 13D and amendments
thereto filed with the Securities and Exchange Commission. Includes
shares held personally and through partnerships or other entities in
which stockholder holds a beneficial interest. Does not include
shares held in various trusts for the benefit of Mr. Itin's minor
grandchildren.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(5) Includes the following:
Company Shares Relationship to Mr. Itin
------------------------------ --------------- ------------------------------
LBO Capital 15,341 Chairman & principal stockholder
TICO 16,000 Managing Partner
SICO 2,667 Partner
First Equity Corporation 4,875 Spouse is President
Thomas W. Itin IRA Trust 5,333 Trustee
IOC, Inc. Profit Sharing Trust 4,933 Trustee
-------
49,149
=======
</TABLE>
No change in control of the Company has occurred since the beginning of
the last fiscal year.
The Company does not know of any arrangements, the operation of which may,
at a subsequent date, result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
Except as may otherwise be disclosed in this report, the Registrant does
not have relationships with and has not entered into related party transactions
with management or others.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report immediately
following the signature page, or are incorporated by reference
(1) Financial Statements
Independent Auditor's Report F-1
Statements of Assets and Liabilities,
June 30, 1999 and 1998 F-2
Schedule of Investments, June 30, 1999 and 1998 F-3 - F-6
Statements of Changes in Stockholders' Equity
for the Years Ended June 30, 1999, 1998, and 1997 F-7
Statements of Operations for the Years Ended
June 30, 1999, 1998, and 1997 F-8
Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997 F-9 - F-10
Notes to Financial Statements F-11 - F-15
(2) Financial Statement Schedules:
Amounts Receivable from Affiliated
Parties, Underwriters, Promoters,
and Employees Other than Related
Parties S-1
Valuation and Qualifying Accounts and Reserves S-2
(3) Exhibits:
3.1 Amended and Restated Articles of Incorporation as Filed
with the Secretary of State, State of Colorado, April
2, 1996****
3.2 Bylaws*
10.4 Comerica Loan documents with Enercorp, Inc. dated
July 30 1997.*****
10.5 Amended Comerica Loan document with Enercorp, Inc.
regarding increase in line of credit. ******
20.1 Statement of Risk to Stockholders ******
27 Financial Data Schedule FILED HEREWITH
*Incorporated by reference from Exhibits 3.1 and 3.2 to the Registrant's Form
10-K for the fiscal year ended June 30, 1981.
**Incorporated by reference from Exhibit 10.1 to the Registrant's Form 10-K for
the fiscal year ended June 30, 1989.
***Incorporated by reference from Exhibits 10.2 to 10.3 and 20.1 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1990.
**** Incorporated by reference from Exhibits 3.1 to the Registrant's Form 10-K
for the fiscal year ended June 30, 1996.
***** Incorporated by reference from Exhibits 10.1 to 10.5 to the Registrant's
Form 10-Q for quarter ending September 30, 1997.
****** Incorporated by reference from Exhibits 10.5 to 20.1 to the Registrant's
Form 10-K for the fiscal year ended June 30, 1998.
(b) Reports on Form 8-K.
(c) Required exhibits are incorporated by reference.
(d) Financial statement schedules are attached hereto.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: October 12, 1999
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: October 12, 1999 \S\Robert R. Hebard
--------------------- ---------------------------
Robert R. Hebard, Director
Principal Executive,
Accounting and Financial
Officer)
Date: October 12, 1999 \S\Carl W. Forsythe
--------------------- ---------------------------
Carl W. Forsythe, Director
Date: October 12, 1999 \S\H. Samuel Greenawalt
--------------------- ---------------------------
H. Samuel Greenawalt,
Director
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Enercorp, Inc.
We have audited the accompanying statements of assets and liabilities of
Enercorp, Inc., including the schedules of investments, as of June 30, 1999, and
the related statements of changes in stockholders' equity, operations and cash
flows for the year ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of Enercorp, Inc. as of June 30, 1998 and 1997 were audited by other
auditors whose reports dated September 22, 1998 and September 23, 1997 expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of June 30, 1999 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enercorp, Inc. as of June 30,
1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules on S-1 and S-2 are
presented for purposes of complying with rules of the Securities and Exchange
Commission and are not a required part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the 1999 financial data required to be set forth therein in relation to
the basic financial statements taken as whole.
/S/JL Stephan, PC
- -------------------------
JL Stephan, PC
Traverse City, Michigan
September 14, 1999
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Statements of Assets and Liabilities
June 30, June 30,
ASSETS 1999 1998
------------------ ----------------
<S> <C> <C>
Investments, at fair value, cost of $2,204,888 and
$1,684,888 at June 30, 1999 and 1998, respectively $ 6,610,996 $ 4,538,361
Cash 16,907 16,128
Accounts receivable - related party 6 0
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $17,339 and
$14,908 at June 30, 1999 and 1998, respectively 5,780 9,707
Notes receivable - related parties, net of allowance for
uncollectible notes receivable of $23,147 at June
30, 1999 and 1998, respectively 7,715 207,715
Furniture and fixtures, net of accumulated depreciation
of $7,763 and $6,238 at June 30, 1999 and 1998,
respectively 4,674 2,697
Other assets 1,767 1,897
------------------ ----------------
$ 6,647,846 $ 4,776,505
================== ================
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,323,249 $ 2,081,749
Accounts payable and accrued liabilities 23,730 22,739
Deferred tax liability 773,000 367,000
------------------- ----------------
3,119,979 $ 2,471,488
------------------- ----------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 shares issued and
outstanding at June 30, 1999 and 590,897 shares
issued and outstanding at June 30, 1998. 1,888,251 1,468,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,268,492) (1,046,707)
Unrealized net gain on investments, net of deferred
income taxes of $1,485,000 and $970,000 at
June 30, 1999 and 1998, respectively 2,908,108 1,883,473
------------------ ----------------
3,527,867 2,305,017
------------------ ----------------
$ 6,647,846 $ 4,776,505
================== ================
See notes to financial statements
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments
June 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
<S> <C> <C> <C> <C> <C>
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 1,187,500
and control systems (e) 850,000 127,500 2,523,438
(e) 330,000 412,500 979,688
(e) 30,000 108,750 89,063
(e) 50,000 125,000 148,438
(e) 150,000 61,500 445,313
42,329 100,000 125,664
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer
and Distributor (e) 294,118 600,000 537,750
(e) 16,667 37,500 30,473
Pro Golf International, Inc. Franchisor of retail golf stores (a) 16,800 419,832 419,832
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer
and Distributor 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 08/04/04 (c) 25,000 - 13,280
and control systems 05/03/05 (c) 25,000 - -
09/13/06 (c)(f) 50,000 - 21,250
03/12/03 (c)(g) 50,000 - 29,113
10/02/98 (c)(h) 50,000 - 37,188
Pro Golf Online, Inc. Internet sale of golf related 06/23/02 (c) 42,000 168 168
products
----------- -----------
2,179,227 6,606,161
See notes to financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1999
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
<S> <C> <C> <C> <C>
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
----------- -----------
Sub-total - UNAFFILIATED COMPANIES 25,661 4,835
----------- -----------
Total - ALL COMPANIES $ 2,204,888 $ 6,610,996
=========== ===========
(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 an additional 25% on 9/13/99.
(g) Options will vest an additional 25% on 3/12/00 and 3/12/01
consecutively.
(h) Options will vest an additional 25% on 10/2/99, 10/2/00 and 10/2/01
cosecutively.
* 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
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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) 150,000 61,500 334,688
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 1,764,706 600,000 248,162
and Distributor (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
and Distributor
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
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments (Continued)
June 30, 1998
Restrictions Number Cost
Expiration as to of and/or Fair
Date Resale Shares Owned Equity Value
Company Description of Business
<S> <C> <C> <C> <C>
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 November 8, 1998.
(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
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ended June 30, 1999, 1998 and 1997
Retained Earnings
--------------------------------------
Common Stock (Accumulated Unrealized
Shares Amount Deficit) Net Gain Total
--------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 590,897 $1,468,251 ($772,605) $1,607,244 $2,302,890
Net loss -- -- (88,444) -- (88,444)
Unrealized gain on investments,
net of taxes -- -- -- 150,518 150,518
--------------- --------------- -------------- --------------- --------------
Balance at June 30, 1997 590,897 1,468,251 (861,049) 1,757,762 2,364,964
Net loss -- -- (185,660) -- (185,660)
Unrealized gain on investments,
net of taxes -- -- -- 125,713 125,713
--------------- --------------- -------------- --------------- --------------
Balance at June 30, 1998 590,897 1,468,251 (1,046,709) 1,883,475 2,305,017
Increase in Common Stock 105,000 420,000 420,000
Net loss -- -- (221,783) -- (221,783)
Unrealized gain on investments,
net of taxes -- -- -- 1,024,633 1,024,633
--------------- ---------------- -------------- --------------- --------------
Balance at June 30, 1998 695,897 1,888,251 (1,268,492) 2,908,108 3,527,867
=============== ================ ============== =============== ==============
See notes to financial statements
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Statements of Operations
For the years ended June 30,
------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
REVENUES
Interest income $ -0- $ -0- $ -0-
Interest income from related entities 6,264 22,241 17,355
Consulting fees from related companies 25,000 25,000 1,788
Net realized gain on sale of investments -0- -0- 216,000
Dividend income from affiliated company -0- -0- 1,500
------------------ ------------------ ------------------
31,264 47,241 236,643
------------------ ------------------ ------------------
EXPENSES
Salaries - officer 87,000 87,000 122,000
Bonus expense - officer 25,000 -0- -0-
Directors' fees -0- 1,000 -0-
Staff salaries -0- -0- 20,332
Legal, accounting and other professional fees 19,921 14,686 11,537
Interest expense - other 193,552 181,123 162,538
Bad debt expense 2,431 2,431 2,433
Other general and administrative expenses 47,145 38,661 50,248
------------------ ------------------ ------------------
375,050 324,901 369,088
------------------ ------------------ ------------------
Net gain (loss) from operations before taxes (343,785) (277,660) (132,444)
Income taxes (Note 5) 122,000 92,000 44,000
------------------ ------------------ ------------------
Net gain (loss) from operations after taxes (221,785) (185,660) (88,444)
------------------ ------------------ ------------------
Net unrealized gain (loss) on investments before taxes 1,552,635 189,713 229,517
Income taxes (Note 5) (528,000) (64,000) (78,999)
------------------ ------------------ ------------------
Net unrealized gain (loss) on investment after taxes 1,024,635 125,713 150,518
------------------ ------------------ ------------------
Increase (decrease) in net assets resulting
from operatiions $ 802,850 $ (59,947) $ 62,074
================== ================== ==================
Increase (decrease) in net assets per share $ 1.36 $ (0.10) $ 0.11
================== ================== ==================
See notes to finacial statements
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Statements of Cash Flows
For the years ended June 30,
---------------------------------------------------------------
1999 1998 1997
------------------ ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Increase (decrease) in net assets $ 802,850 $ (59,947) $ 62,074
------------------ ----------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,525 1,491 659
Bad debt provision on notes receivable
and interest net of write offs 2,431 2,431 2,433
Stock received for consulting services -0- -0- (125,000)
Gain on sale of investments -0- -0- (216,000)
(Gain) Loss on sale of fixed assets -0- -0- (777)
Unrealized (gain) loss on investments (1,552,635) (251,213) (229,517)
(Increase) in accounts receivable - related party -0- -0- (2,985)
(Increase) in interest receivable 1,496 6,135 (14,922)
Decrease in accounts receivable from
related party (6) 2,985 125,000
(Increase) Decrease in other assets 130 1,796 11,936
Increase (Decrease) in accounts payable and
accrued expenses 990 3,751 12,840
Increase(Decrease) in accrued salaries -0- (32,250) 32,250
Increase (Decrease) in deferred taxes 406,000 (28,000) 35,000
------------------ ----------------- ----------------
Total adjustments (1,140,070) (292,873) (369,083)
------------------ ----------------- ----------------
Net cash (used) by operating activities (337,220) (352,820) (307,009)
------------------ ----------------- ----------------
Cash flows from investing activities:
Purchase of investments (520,000) -0- -0-
Sale of investments -0- -0- 250,000
Payments received on note receivable 200,000 -0- -0-
Issuance of notes receivable -0- -0- (200,000)
Proceeds from sale of fixed assets -0- -0- -0-
Purchase of furniture and fixtures (3,501) -0- (1,565)
------------------ ----------------- ----------------
Net cash provided (used) by investing activities (323,501) -0- 48,435
------------------ ----------------- ----------------
See notes to financial statements
F-9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Statements of Cash Flows (Continued)
For the years ended June 30,
---------------------------------------------------------------
1999 1998 1997
------------------ ----------------- ----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from sale of common stock 420,000 -0- -0-
Proceeds from notes payable 267,500 368,849 508,179
Principal payments of notes payable (26,000) -0- (250,000)
------------------ ----------------- ----------------
Net cash provided by investing activities 661,500 368,849 258,179
------------------ ----------------- ----------------
Increase (Decrease) in cash 779 16,029 (396)
Cash, beginning of period 16,128 99 494
------------------ ----------------- ----------------
Cash, end of period $ 16,907 $ 16,128 $ 99
================== ================= ================
Supplemental disclosures of cash flow information:
Interest paid $ 176,704 $ 165,099 $ 148,982
================== ================= ================
Interest received $ 3,023 $ 28,377 $ -0-
================== ================= ================
See notes to financial statements
F-10
</TABLE>
<PAGE>
Enercorp, Inc.
Notes to Financial Statements (Continued)
Note 1: Summary of Significant Accounting Policies
Significant accounting policies are as follows:
a. Business History
----------------
Enercorp, Inc. (the "Company") was incorporated under the laws of the
state of Colorado on June 30, 1978. During the fiscal year ended June
30, 1982, the Company elected to become a "Business Development
Company" (BDC) as that term is defined in the Small Business Investment
Incentive Act of 1980, which Act is an amendment to the Investment
Company Act of 1940. This change resulted in the Company becoming a
specialized type of investment company. For the years ended June 30,
1999, 1998 and 1997 the Company's cash flows have been dependent
primarily upon sale of stock and loans.
b. Investment Valuation
--------------------
The investment valuation method adopted in 1982 provides for the
Company's Board of Directors to be responsible for the valuation of the
Company's investments (and all other assets) based on recommendations
of a Valuation Committee of the Board, comprised of the independent
disinterested directors of the Company. In the development of the
Company's valuation methods, factors that affect the value of
investees' securities, such as significant escrow provisions, trading
volume and significant business changes are taken into account. These
investments are carried at fair value using the following four basic
methods of evaluation:
1. Cost - The cost method is based on the original cost to the
Company adjusted for amortization of original issue discounts
and accrued interest for certain capitalized expenditures of
the corporation. Such method is to be applied in the early
stages of an investee's development until significant positive
or adverse events subsequent to the date of the original
investment require a change to another method.
2. Private market - The private market method uses actual or
proposed third party transactions in the investee's securities
as a basis for valuation, utilizing actual firm offers as well
as historical transactions, provided that any offer used is
seriously considered and well documented by the investee.
3. Public market - The public market method is the preferred
method of valuation when there is an established public market
for the investee's securities. In determining whether the
public market method is sufficiently established for valuation
purposes, the corporation is directed to examine the trading
volume, the number of shareholders and the number of market
makers in the investee's securities, along with the trend in
trading volume as compared to the Company's proportionate
share of the investee's securities. If the security is
restricted, the value is discounted at an appropriate rate.
4. Appraisal - The appraisal method is used to value an
investment position after analysis of the best available
outside information where there is no established public or
private market method which have restrictions as to their
resale as denoted in the schedule of investments are also
considered to be restricted securities.
All portfolio securities valued by the cost, private market
and appraisal methods are considered to be restricted as to
their disposition. In addition, certain securities valued by
the public market method which have restrictions as to their
resale as denoted in the schedule of investments are also
considered to be restricted securities.
<PAGE>
c. Statement of Cash Flows
-----------------------
Consistent with the reporting requirements of a BDC, cash and cash
equivalents consist only of demand deposits in banks and cash on hand.
Financial statement account categories such as investments and notes
receivable, which relate to the Company's activity as a BDC, are
included as operating activities in the statement of cash flows.
d. Furniture and Equipment
-----------------------
Expenditures for furniture and equipment and for renewals and
betterments, which extend the originally estimated economic life of
assets or convert the assets to a new use are capitalized at cost.
Expenditures for maintenance, repairs and other renewals of items are
charged to expense. When items are disposed of, the cost and
accumulated depreciation are eliminated from the accounts and any gain
or loss is included in the results of operations.
The provision for depreciation is calculated using the straight-line
method over a five or seven year life.
e. Securities Transactions
-----------------------
Purchases and sales of securities transactions are accounted for on the
trade date, which is the date the securities are purchased or sold. The
value of securities sold is reported on the first-in first-out basis
for financial statement presentation.
f. Revenue Recognition
-------------------
Due to the uncertainty of collection, the Company recognizes all types
of consulting fee revenues from portfolio companies as cash is
received. All other revenues are recognized on the accrual basis.
g. Net Assets per Share
--------------------
In accordance with the fair value accounting method used by regulated
investment companies, net assets (total stockholders' equity) per share
at June 30, 1999 and June 30, 1998, respectively was $ 5.07 and $3.90
per share based on 695,897 shares outstanding in 1999 and 590,897
shares outstanding in 1998.
<PAGE>
Note 2: Investments
-----------
Investments consist of holdings of securities in publicly
and privately held companies. The Company's largest portfolio
company is Williams Controls, Inc. ("Williams"). At June 30, 1999
Williams represented 84.7% of the Company's investments at fair
market value.
Note 3: Related Party Transactions
--------------------------
a. Accounts Receivable - Related Party
-----------------------------------
The Company has an account receivable from Williams Controls, Inc. for
miscellaneous expenses for the benefit of Ajay Sports, Inc. At June 30,
1999 and 1998 accounts receivable related party was $6 and $0.
b. Notes Receivable - Related Entities
-----------------------------------
The Company has notes receivable from ProConnextions, Inc., ("PCI").
All of the notes are due on demand. The notes have interest rates of
12% and 10%. There is no collateral for the notes. The Company is a
shareholder in PCI. The notes receivable balance, net of allowance for
uncollectible note receivable, from PCI at was $7,715 at June 30, 1999
and 1998.
On July 1, 1998, the Registrant and Williams signed an agreement under
which Williams agreed to issue 42,329 shares of its common stock to the
Registrant and assumed the $200,000 note payable by Ajay to the
Registrant for $100,000, in full repayment of the Ajay note assumed
payable. The balance of the note from Ajay at June 30, 1999 and 1998
was $0 and $200,000, respectively. The balance of the note receivable
from Williams, which replaced the note receivable from Ajay, was $0 as
of September 14, 1999.
Note 4: Note Payable - Bank
-------------------
In June 1998, the Registrant renewed its line of credit and increased
its borrowing there under to $2,500,000 with interest at 3/4% over
prime by Comerica Bank ("Comerica"). Collateral for the line of credit
included 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 is due on demand. The
balance of the Registrant's note payable to Comerica as of September
14, 1999 was $2,382,649 and the balances of the Registrant's Notes
Payable-Bank at June 30, 1999 and 1998 were $2,323,249 and $2,081,749,
respectively.
Note 5: Income Taxes
------------
The Company adopted, effective July 1, 1992, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting For Income Taxes",
issued in February 1992. Under the liability method specified by SFAS
109, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in
effect when these differences reverse. Deferred tax expense is the
result of changes in deferred tax assets and liabilities.
<PAGE>
Income tax expense for the years ended June 30, 1999, 1998 and 1997
consisted of:
1999 1998 1997
---- ---- ----
Current $ -0- $ -0- $ -0-
Deferred 406,000 (28,000) 35,000
------- -------- ------
$ 406,000 $ (28,000) $35,000
The components of the deferred tax liability at June 30, 1999 and 1998 consist
of the following:
6/30/99 6/30/98
------------- -------------
Unrealized gain on investments $ 1,498,000 $ 970,000
Capital loss carryover -0- -0-
Accrued officer wages -0- -0-
Allowance for notes receivable (12,000) (12,000)
Net operating loss carry over (713,000) ( 591,000)
--------- ----------
$ 773,000 $ 367,000
============= ============
At June 30, 1999, the Company has net operating losses carry forward
available to offset future taxable income of approximately $1,960,000
that expires during various years through June 30, 2014.
Note 6: Operating Leases
----------------
The Company is currently renting space from an affiliate. Lease expense
was $6,088, $6,180 and $8,090 for the years ending June 30, 1999, 1998
and 1997, respectively. Future minimum lease obligations are as
follows:
6/30/99 $6,088
------
Note 7: Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
<PAGE>
Note 8: Other Subsequent Events
-----------------------
On August 27, 1999, the Registrant filed a Form 8-K regarding the
Registrant's engagement with the accounting firm of J.L. Stephan Co.,
P.C. to act as its independent accounting firm, to replace Hirsch
Silberstein & Subelsky, P.C. The decision by Hirsch Silberstein &
Subelsky, P.C. to resign was a result of one of its members, Ronald N.
Silberstein, leaving the firm to become Ajay Sports, Inc.'s Chief
Financial Officer and Chief Administrative Officer. Following Mr.
Silberstein's departure, the Registrant was advised that the firm will
concentrate its practice of providing accounting related services to
individuals and privately held businesses.
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Amounts Receivable from Affiliated Parties
Underwriters, Promoters and Employees Other than Related Parties
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------
Deductions Balance end of period
---------------------------------------------------
Balance at (1) (2) (1) (2)
beginning of Amounts Amounts Non-
Name of Debtor Period Additions (a) Collected (a) Written off Current Current
====================================================================================================================================
For the year ended
June 30, 1999
Notes receivable from ProConnextions, Inc. 30,862 - - 30,862 -
affiliated companies Williams Controls, Inc. $200,000 - $200,000 0
Accounts receivable from Ajay Sports, Inc. $ 0 - - 0 -
affiliated companies
---------------------------------------------------------------------------------
$230,862 $0 $200,000 $0 $30,862 $0
====================================================================================================================================
For the year ended
June 30, 1998
Notes receivable from Pro Connextions, Inc. 30,862 - - 30,862 -
affiliated companies Williams Controls, Inc. $200,000 - 200,000
Accounts receivable from Ajay Sports, Inc. $2,985 $2,985 - 0 -
affiliated companies
---------------------------------------------------------------------------------
$233,847 $0 $2,985 $0 $230,862 $0
====================================================================================================================================
See notes to financial statements
S-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Valuation and Qualifying Accounts and Reserves
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at Charge to Charged to Balance at
beginning costs/ other accounts end
of period expenses describe Deductions of period
====================================================================================================================================
For the year ended June 30, 1999
Allowance for uncollectible accounts
-------------------------------------------------------------------------------------------
Notes receivable $23,147 $23,147
-------------------------------------------------------------------------------------------
Interest receivable $14,908 (2,431) $17,339
-------------------------------------------------------------------------------------------
For the year ended June 30, 1998
Allowance for uncollectible accounts
-------------------------------------------------------------------------------------------
Notes receivable $23,147 $23,147
-------------------------------------------------------------------------------------------
Interest receivable $12,477 (2,431) $14,908
-------------------------------------------------------------------------------------------
For the year ended June 30, 1997
Allowance for uncollectible accounts
-------------------------------------------------------------------------------------------
Notes receivable $23,147 $23,147
-------------------------------------------------------------------------------------------
Interest receivable $10,044 (2,433) $12,477
- ------------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements
S-2
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000313116
<NAME> Enercorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-01-1998
<PERIOD-END> Jun-30-1999
<EXCHANGE-RATE> 1
<CASH> 16,907
<SECURITIES> 6,610,996
<RECEIVABLES> 53,987
<ALLOWANCES> (40,486)
<INVENTORY> 0
<CURRENT-ASSETS> 6,643,172
<PP&E> 12,437
<DEPRECIATION> (7,763)
<TOTAL-ASSETS> 6,647,846
<CURRENT-LIABILITIES> 3,119,979
<BONDS> 0
0
0
<COMMON> 1,888,251
<OTHER-SE> 1,639,616
<TOTAL-LIABILITY-AND-EQUITY> 6,647,846
<SALES> 0
<TOTAL-REVENUES> 31,264
<CGS> 0
<TOTAL-COSTS> 181,498
<OTHER-EXPENSES> (1,552,635)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,552
<INCOME-PRETAX> (1,208,850)
<INCOME-TAX> 406,000
<INCOME-CONTINUING> 802,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 802,850
<EPS-BASIC> 1.36
<EPS-DILUTED> 1.36
</TABLE>
