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
FOR THE FISCAL YEAR ENDED: June 30, 2000
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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Commission File Number: 0-9083
Enercorp, Inc.
(Exact name of Registrant as specified in its charter)
Colorado 84-0768802
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
32751 Middlebelt Road, Suite B
Farmington Hills, Michigan 48334
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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
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(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
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, 2000, 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 $734,284.
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Enercorp, Inc.
Form 10-K Filing for the Year Ended June 30, 2000
INDEX
<S> <C> <C> <C>
PAGE
PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management 19
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 21
SIGNATURES 23
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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 currently maintains a line of credit from Comerica Bank
("Comerica") under which it may borrow up to $2,250,000 at 3/4% over Comerica's
prime lending rate. The collateral for this line of credit is 1,652,329 shares
of Williams Controls common stock owned by the Registrant and 310,784 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, 2000 was $2,141,649 and the balances at June 30, 2000 and
1999 were $2,141,649 and $2,323,249, respectively.
On June 24, 1999, the Registrant completed a private offering of its
common stock through which it raised $420,000 in gross proceeds. The proceeds
from this offering were used to purchase 4.2 Units in a private offering made
jointly by Pro Golf International, Inc. ("PGI") and Pro Golf Online, Inc.
("PGO"). Each Unit in this offering consisted of 4,000 shares of PGI common
stock and 10,000 warrants, each to purchase one share of PGO common stock for
$5.00 per share, exercisable on or before June 23, 2002. The purpose of the
offering was to raise the funds necessary for PGI to acquire Pro Golf of
America, Inc. ("Pro Golf"). During the quarter ended September 30, 1999, the
units of PGI held by the Registrant were exchanged for a Subordinated Promissory
Note in the principal amount of $420,000 dated June 22, 1999, due on July 22,
2000 and bearing interest at ten percent per annum. On February 29, 2000, the
Registrant converted principal and interest due under its Subordinated
Promissory Note into common stock of PGI. The conversion was made at the rate of
$60 per common share, the price at which PGI then was offering equity capital
for sale in a private offering. The Registrant agreed to this conversion, in
part, to assist PGI in raising equity capital to allow PGI to refinance its bank
debt. At the time of the conversion, the Registrant believed converting its debt
to equity would be the best available means to protect the Registrant's original
investment in PGI. Upon conversion of the $420,000 note and $27,000 of accrued
interest, the Registrant received 7,450 shares of PGI common stock.
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.
<PAGE>
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.
Should its working capital position allow it to do so, 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 attempt 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.
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 but to some extent with
established investees, 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.
<PAGE>
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 managerial assistance and support to investees in areas needed by
them;
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 where possible, 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, 2000, 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. At the time of
sale of the Registrant's portfolio securities, there may not be a market of
sufficient stability to allow the Registrant to sell its position, potentially
resulting in the Registrant not being able to sell such securities at prevailing
market prices or at the price at which the Registrant may have valued its
position in the investee's securities.
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 80% 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. In fact, in certain circumstances, the Registrant may have to sell
the securities of its investees in the open market at discounts to market prices
at the time of sale, due to the large position it may hold relative to the
average daily trading volume.
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 may sometime require
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.
<PAGE>
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.
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. 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, subject to
management and board discretion, 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.
<PAGE>
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 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.
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, 2000, over 90% 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.
<PAGE>
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.
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.
<PAGE>
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 imposes a
one-year holding period prior to the sale of restricted securities.
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.
<PAGE>
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 and the Registrant is not considering doing so, but
the Registrant may consider doing so in the future.
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.
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 may also seek capital for its investees
from other potential investors and occasionally subordinates its own investment
to those of other investors. Where possible, the Registrant may introduce 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 be involved in the 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 and PGI.
<PAGE>
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 worth, 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, 2000 the Registrant had one employee, who is also an
officer of the Company.
Item 2. Properties
The Registrant subleases office space from a stockholder of the
Registrant. 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 sublease is on a month-to-month basis.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
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 increased standards for
continued listing. The Registrant was not able to meet these new standards and
Nasdaq 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, 1998 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, 1998 through
June 30, 2000, 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 BID LOW BID
Fiscal 1999 - Quarters Ended:
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
Fiscal 2000 - Quarters Ended:
September 30, 1999 $4.88 $3.00
December 31, 1999 $3.63 $2.19
March 31, 2000 $2.50 $1.94
June 30, 2000 $1.94 $1.13
Holders
The approximate number of record holders of the Registrant's common stock
as of June 30, 2000 was approximately 1,340. 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.
None.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
As of June 30 (in dollars)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total assets 3,928,820 6,647,846 4,776,505 4,524,102 4,123,756
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total liabilities 2,202,776 3,119,979 2,471,488 2,159,138 1,820,866
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net assets 1,726,044 3,527,867 2,305,017 2,364,964 2,302,890
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Realized gain (loss) on
investments 461,358 -0- -0- 216,000 269,410
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total revenues 513,795 31,264 47,241 236,643 490,338
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total expenses 358,387 375,050 324,901 369,088 367,489
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net income (loss) from
operations 155,408 (343,785) (277,660) (132,444) 122,849
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Unrealized gain (loss) on
investments (2,730,231)1,552,635 189,713 229,517 (2,569,991
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Incr (decr) in net assets
before cumul effect of
income tax accounting chg. (1,801,823) 802,850 (59,947) 62,074 (1,616,142)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Incr (decr) in net assets
resulting from operations (1,801,823 802,850 (59,947) 62,074 (1,616,142)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Incr (decr) in net assets/
share before income taxes
and cumulative effect of
income tax and accounting
change (3.92) 2.63 0.32 0.39 (4.14)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Incr (decr) in net assets/
share before cumul effect of
income tax accounting change (2.59) 1.36 (.10) .11 (2.74)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Increase (decrease) in net
assets per share resulting
from operations (2.59) 1.36 (.10) .11 (2.74)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Weighted average number of
shares outstanding 695,897 695,897 590,897 590,897 590,897
----------------------------------------------------------------------------------
</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 at the time for this line of credit was 1,660,000 shares of
Williams Controls common stock owned at the time by the Registrant and 1,864,706
shares of common stock of Ajay (310,784 shares following a 6-for-1 reverse stock
split effected by Ajay in 1999) owned by the Registrant. In July 2000, the
Registrant renewed its line of credit from Comerica Bank ("Comerica") under
which it may borrow up to $2,250,000 at 3/4% over Comerica's prime lending rate.
The collateral for this line of credit is 1,652,329 shares of Williams Controls
common stock owned by the Registrant and 310,784 shares of the post-split 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. Based on the Advance Formula Agreement that the
Registrant has with Comerica Bank for this loan, the Registrant's loan is out of
compliance with the terms of the loan agreement, and has been so for a number of
months. As such, Comerica has the right to demand payment on the loan by the
Registrant. While Comerica has not made a request for a formal forbearance
agreement with the Registrant related to this matter, it has not allowed for any
further advances against the credit line until the loan is brought back into
formula, either through loan paydown or through the providing of additional
collateral acceptable to the bank. The Registrant is considering its options and
ability to bring the loan back into formula, including the sale of some of its
portfolio securities and using the proceeds to pay the loan in part or in full
although no final decision has been made by management to sell any of the
Registrant's portfolio securities at the date of this report.. The balance of
the Registrant's note payable to Comerica as of September 14, 2000 was
$2,141,649 and the balances at June 30, 2000 and 1999 were $2,141,649 and
$2,323,249, respectively.
Due to limited working capital, beginning at May 31, 2000, the Registrant
borrowed working capital funds from its president in order to meet its working
capital needs and to pay the interest on the Comerica loan. As of June 30, 2000,
the note payable to the Registrant's president, which is secured by a second
lien on the assets and securities of the Registrant, is $36,000 and has accrued
interest of $159. The note payable bears an interest rate of prime plus .75%,
the same rate at which the Registrant borrows from Comerica.
In September 1999, the Registrant entered into an arrangement with one of
its investees, CompuSonics Video Corporation (CVC), for the Registrant to
provide managerial assistance to CVC for consulting fees payable to the
Registrant of $2,000 per month. Due to a lack of cash available to CVC, no
payments have been made for the last nine months of the Registrant's fiscal year
The Account Receivable balance from CVC was $18,000 and $0 as of June 30, 2000
and 1999, respectively.
Currently, the Registrant's investment activity and operations are limited
by its working capital position. Capital required for the Registrant's
investment activities, if available, is expected to be generated from borrowing
against its credit line, borrowing from officers, 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, 2000.
On January 5, 2000, the Registrant sold 200,000 shares of its position in
its largest investee, Williams Controls for $2.09 per share before commissions.
The proceeds of this sale were used for general working capital purposes and to
pay down the Registrant's loan with Comerica. In addition, from February through
June 2000, the Registrant sold its entire position in Immune Response, Inc.,
another investee. The proceeds of this sale were used for general working
capital purposes.
<PAGE>
Working capital at June 30, 2000 was $1,711,922 as compared to $4,294,426
at June 30, 1999. The decrease in working capital from 1999 to 2000 was mainly
due to the change in the value of the Registrant's investment portfolio. For the
years ended June 30, 2000, 1999 and 1998, 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 and loans from officers.
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.
Another of the Registrant's investees is Ajay Sports. Through its
operating subsidiaries, Ajay is a franchisor of retail golf stores and a
manufacturer and distributor casual outdoor furniture. The Registrant's
president is a director and secretary of Ajay, and is the secretary of Pro Golf
International, Inc. ("PGI") and Pro Golf Online, Inc. (a/k/a ProGolf.com)
("PGO"), two majority owned operating subsidiaries of Ajay. During fiscal 1999
and 2000, the Registrant made investments in the securities of PGI.
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 licensing its patented technology related to
audio and video analog-to-digital signal compression.
Management of the Registrant devoted time and resources to providing
significant managerial assistance to Williams, Ajay, PGI, PGO and CVC, in
varying degrees, during the fiscal year ended June 30, 2000.
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 did not experience Year 2000 compliance requirements
related to the change in year date from December 31, 1999 to January 1, 2000,
and as such the date change had no material impact on its operations. In
connection with the managerial assistance provided by the Registrant to its
investee companies, the Registrant generally monitored the activities and
actions taken by its investee companies to ensure their compliance with Year
2000 requirements, and, to the best of the Registrant's knowledge, none of its
investees experienced material problems related to the Year 2000 issue.
<PAGE>
Results of Operations. The Company had total revenues of $513,795 for the
fiscal year ended June 30, 2000 as compared to $31,264 during fiscal year ended
June 30, 1999 and $47,241 during the fiscal year ended June 30, 1998. The
$482,531 increase was mainly due to the increase in the net realized gain on
sale of investments. The revenue decrease of $15,977 from fiscal year June 30,
1998 to June 30, 1999 was due mainly to the decrease in interest income from
related parties.
Total assets for the fiscal year ending June 30, 2000 were $3,928,820, an
aggregate decrease of $2,719,026 over the total assets at June 30, 1999 of
$6,647,846. The changes in total assets at June 30, 2000 versus June 30, 1999
were mainly the result of changes in the value of Registrant's ownership in its
investees, particularly its largest investee, Williams.
For the year ended June 30, 2000 the Registrant had a net gain from
operations of $155,408, compared to a net loss from operations of $343,785 for
the year ended June 30, 1999 and a net loss from operations of $277,660 for the
year ended June 30, 1998. The increase from 1999 to 2000 was primarily due to
the gain realized on the sale of 200,000 shares ofthe Registrant's common stock
owned in Williams, used to pay down the Registrant's loan with Comerica. The
decline from 1998 to 1999 was due to a increase in interest expense and bonus
expense.
The Registrant recorded an unrealized loss on investments of $2,730,231
for the fiscal year ended June 30, 2000 as compared to a unrealized gain on
investments of $1,552,635 for the fiscal year ended June 30, 1999 and an
unrealized gain on investments of $189,713 for the fiscal year ended June 30,
1998. 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 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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, 47 6/29/93
Chief Executive Officer,
President, Treasurer
& Director
H. Samuel Greenawalt Director 71 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 the Company to serve one-year terms or until the next
election of directors at an annual meeting.
On September 29, 2000, Carl W. Forsythe resigned as a director of the Company to
pursue other business interests. Mr. Forsythe had been a director since June
1993. There were no disputes between Mr. Forsythe and the company. The company
has not yet filled the vacancy on its board of directors created by Mr.
Forsythe's resignation.
(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. 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. Mr. Hebard is also
President and a director of CompuSonics Video Corporation, an investee of the
Registrant.
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, and is on the board of directors of
Williams Controls, an investee of the Registrant.
(f) Involvement in Certain Legal Proceedings
None
(g) Promoters and Control Persons
Not applicable
(h) Section 16(a) Beneficial Ownership Reporting Compliance
<PAGE>
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, 2000, and written
representations of the persons required to file said reports, the Registrant
believes that all reports were filed and done so on a timely basis.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information regarding compensation paid to
the Company's chief executive officer for the three years ending June 30, 2000.
No other person who is currently an executive officer of the Company earned
compensation exceeding $100,000 during any of those years.
Annual Compensation Awards
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Annual Compensation (in dollars)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Securities
Name and Principal Other Annual Underlying
Position Year Salary Bonus Compensation Stock Options
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Robert R.Hebard,
President, Chief
Executive Officer and
Treasurer 2000 78,500 -0- -0- -0-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 87,000 25,000 -0- -0-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 87,000 -0- -0- -0-
--------------------------------------------------------------------------------
</TABLE>
Option/SAR Grant Table
No stock options or stock appreciation rights were granted during the
fiscal year ended June 30, 2000.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
No stock options were exercised during the fiscal year ended June 30,
2000. The table below sets forth information related to the value at June 30,
2000 of unexercised options held by the Company's President and Chief Executive
Officer.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Stock Options
Name Stock Options at June 30, at June 30, 2000 ($)
2000 (#)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Robert R. Hebard,
President, Chief Exec. 3,601 0 $ 0 $ 0
Officer and Treasurer
--------------------------------------------------------------------------------
</TABLE>
<PAGE>
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, either in person or by telephone .
Item 12. Security Ownership of Certain Beneficial Owners and Management
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, 2000:
<TABLE>
<CAPTION>
<S> <C> <C>
Amount and Nature
Name and Address of of Beneficial Percent
Beneficial Owner Ownership of Class
Robert R. Hebard 32,668 4.7%
32751 Middlebelt Road (1)(2)(3)
Suite B
Farmington Hills, MI 48334
H. Samuel Greenawalt 14,333 2.1%
27777 Inkster Road
Farmington Hills, MI 48333
Thomas W. Itin 49,149 7.1%
32751 Middlebelt Road, Suite B (4)(5)
Farmington Hills, MI 48334
Charles Maginnis 60,000 8.6%
P.O. Box 267
Little Switzerland, NC 28749
Dr. Vasant Chheda 50,000 7.2%
1025 Cardinal Drive
Effingham, IL 62401
Executive officers and 47,001 6.8%
directors as a group (1)(2)(3)
(two persons)
</TABLE>
<PAGE>
(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 3,601 shares of common stock options currently exercisable
or exercisable within 60 days from September 21, 2000.
(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.
(5) Includes the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
Due to the lack of working capital, the President of the Registrant has
made loans to the Registrant to cover its short term working capital needs since
May 31, 2000. These loans are evidenced by a promissory note, are payable on
demand, and are secured the assets of the Registrant, including the portfolio
securities of the Registrant's investees. As of June 30, 2000, the note payable
to the Registrant's president is $36,000 and has accrued interest of $156.69.
The note payable bears an interest rate of prime plus .75%, the same rate at
which the Registrant borrows from Comerica.
In September 1999, the Registrant entered into an arrangement with one of
its investees, CompuSonics Video Corporation (CVC), whereby the Registrant would
provide managerial assistance to CVC and CVC would pay the consulting fees to
the Registrant. The Account Receivable balance from CVC was $18,000 and $0 as of
June 30, 2000 and 1999, respectively.
Except as may otherwise be disclosed in this report, the Registrant does
not have any other relationships nor has it 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
<TABLE>
<CAPTION>
(1) Financial Statements
<S> <C> <C>
-----------------------------------------------------------------
Independent Auditor's Report F-1
-----------------------------------------------------------------
-----------------------------------------------------------------
Statements of Assets and Liabilities, June 30, 2000
and 1999 F-2
-----------------------------------------------------------------
-----------------------------------------------------------------
Schedule of Investments, June 30, 2000 and 1999 F-3 to F-6
-----------------------------------------------------------------
-----------------------------------------------------------------
Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 2000, 1999, and 1998 F-7
-----------------------------------------------------------------
-----------------------------------------------------------------
Statements of Operations for the Years Ended June
30, 2000, 1999, and 1998 F-8
-----------------------------------------------------------------
-----------------------------------------------------------------
Statements of Cash Flows for the Years Ended June
30, 2000, 1999 and 1998 F-9 to F-10
-----------------------------------------------------------------
-----------------------------------------------------------------
Notes to Financial Statements F-11 to
F-14
-----------------------------------------------------------------
(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
-----------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(3) Exhibits:
<S> <C> <C>
-----------------------------------------------------------------
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
-----------------------------------------------------------------
</TABLE>
*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 13, 2000
----------------
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 13, 2000 \S\Robert R. Hebard
-------------------- ------------------------
RobertR. Hebard, Director
(PrincipalExecutive, Accounting and
Financial Officer)
Date: October 13, 2000 \S\H. Samuel Greenawalt
-------------------- ------------------------
H. Samuel Greenawalt, Director
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
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, 2000 and
1999, and the related statements of changes in stockholders' equity, operations
and cash flows for the years ended June 30, 2000 and 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 were
audited by other auditors whose report dated September 22, 1998 expressed an
unqualified opinion on those statements.
We conducted our audit 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, 2000 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,
2000 and 1999, and the results of its operations and its cash flows for the
years ended June 30, 2000 and 1999 in conformity with generally accepted
accounting principles.
Our audit was 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/ J L Stephan Co, PC
J L Stephan Co, PC
Traverse City, Michigan
September 30,
2000
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Enercorp, Inc.
Statements of Assets and Liabilities
June 30, June 30,
ASSETS 2000 1999
----------------- -------------------
Investments, at fair value, cost of $2,204,888 and
$2,204,888 at June 30, 2000 and 1999, respectively $ 3,873,815 6,610,996
Cash 23,844 16,907
Accounts receivable - related party 17,848 6
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $20,264 and
$17,339 at June 30, 2000 and 1999, respectively 6,105 5,780
Notes receivable - related parties, net of allowance for
uncollectible notes receivable of $27,776 at June
30, 2000 and $23,147 at June 30, 1999 3,086 7,715
Furniture and fixtures, net of accumulated depreciation
$9,633 and $7,763 at June 30, 2000 and 1999,
respectively 2,804 4,674
Other assets 1,318 1,767
----------------- -------------------
$ 3,928,820 6,647,846
================= ===================
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,141,649 2,323,249
Note payable - related party 36,000 -0-
Accounts payable and accrued liabilities 25,127 23,730
Deferred tax liability -0- 773,000
----------------- -------------------
2,202,776 3,119,979
----------------- -------------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 shares issued and
outstanding at June 30, 2000 and June 30, 1999
respectively 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,268,084) (1,268,492)
Other comprehensive income, net of deferred
income taxes of $570,000 and $1,498,000 at
June 30, 2000 and 1999, respectively 1,105,877 2,908,108
----------------- -------------------
1,726,044 3,527,867
----------------- -------------------
$ 3,928,820 6,647,846
================= ===================
See notes to financial statements
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments
June 30, 2000
Restrictions Number Cost
Expiration as to of and/or Fair
Company Description of Business Date Resale Shares Owned Equity Value
<S> <C> <C> <C> <C> <C> <C> <C>
AFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development 1,751 $ - $ 72
(i) 10,000,000 106,477 414,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 200,000 30,000 353,286
control systems (e) 850,000 127,500 1,501,466
(e) 330,000 412,500 582,922
(e) 30,000 108,750 52,993
(e) 50,000 125,000 88,322
(e) 150,000 61,500 264,965
(e) 42,329 100,000 74,771
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e)(g) 294,118 600,000 74,435
(e)(g) 16,667 37,500 4,218
Common Stocks - Cost Method of Valuation
Pro Golf International, Inc. Franchisor of retail golf stores (a)(d) 7,450 447,000 447,000
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 6,750
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - -
control systems 05/03/05 (c) 25,000 - -
09/13/06 (c) 50,000 -
03/12/08 (c)(i) 50,000 - -
10/02/08 (c)(f) 50,000 - -
---------- -----------
2,176,227 3,860,025
See notes to financial statements
F-3
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments (Continued)
March 31, 2000
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> <C> <C> <C>
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company (h) 7,000 1,050 7,877
Vitro Diagnostics Diagnostic Test Kits 300 1,500 1,125
ProConnextions, Inc. Sports Memorabilia Marketing (a) 191,610 19,161 4,790
---------- -----------
Sub-total - UNAFFILIATED COMPANIES 21,711 13,792
---------- -----------
Total - ALL COMPANIES $ 2,197,938 $ 3,873,817
========== ===========
(a)Non-public company whose securities are privately owned.
(b)May be sold under the provisions of Rule 144 of the Securities Act of
1933 after a holding period which expires in the month indicated.
(c)No public market for this security exists.
(d)The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors, including recent and historical prices of these securities,
recent transactions completed by the Company, and other factors that the
Board believes are applicable.
(e)Pledged as collateral against a line of credit with Comerica Bank.
(f)Options 50% vested and will vest at 25% additional on 10/02/00 and
10/02/01 consecutively.
(g)Reflects 1-for-6 reverse stock split effective August 14, 1998. (h)In
August 1999, Immune Response completed a 1-for-100 reverse stock split
and also completed a 1-for-3 reverse split in January 2000. (i)Options
are 75% vested and will vest the final 25% on 03/12/01.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
F-4
</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> <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 and (e) 400,000 60,000 1,187,500
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 (e) 294,118 600,000 537,750
(e) 16,667 37,500 30,473
Common Stocks - Cost Method of Valuation
Pro Golf International, Inc. Franchisor of retail golf stores (a)(d) 16,800 419,832 419,832
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 9,000
Warrants and Stock Options - Board Appraisal Method of Valuation (d)
CompuSonics Video Corporation* Digital Video Product Development (c) 300,000 - -
Williams Controls, Inc.* Manufacturer of sensor and 08/04/04 (c) 25,000 - 13,280
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
10/02/08 (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-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Continued)
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> <C> <C> <C>
UNAFFILIATED COMPANIES
Common Stocks - Public Market Method of Valuation (d)
Immune Response, Inc. Holding Company 10,000,000 5,000 -
Vitro Diagnostics Diagnostic Test Kits 300 1,500 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 for this security exists.
(d)The fair value of restricted securities is determined in good faith by
the Company's Board of Directors, which may take into account a variety
of factors, including recent and historical prices of these securities,
recent transactions ompleted 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 & 10/2/01 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>
<S> <C> <C> <C> <C> <C>
Enercorp, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ended June 30, 2000, 1999, and 1998
Retained Earnings
-------------------------------------
Common Stock (Accumulated Other Comprehensive
Shares Amount Deficit) Income Total
----------------- ----------------- ------------------ ------------------ -----------------
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, 1999 695,897 1,888,251 (1,268,492) 2,908,108 3,527,867
----------------- ----------------- ------------------ ------------------ -----------------
Increase in Common Stock -- -- -- -- --
Net gain (loss) -- -- 408 -- 408
Unrealized gain on investments,
net of taxes -- -- -- (1,802,231) (1,802,231)
----------------- ----------------- ------------------ ------------------ ---------------
Balance at June 30, 2000 695,897 $1,888,251 $(1,268,084) $1,105,877 1,726,044
----------------- ----------------- ------------------ ------------------ ---------------
----------------- ----------------- ------------------ ------------------ ---------------
See notes to financial statements
F-7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Enercorp, Inc.
Statements of Operations
For the years ended June 30,
-------------------------------------------------------------
2000 1999 1998
----------------- ------------------ -----------------
REVENUES
Interest income $ 187 $ -0- $ -0-
Interest income from related entities 30,250 6,264 22,241
Consulting fees from related companies 22,000 25,000 25,000
Net realized gain on sale of investments 461,358 -0- -0-
Dividend income from affiliated company -0- -0- -0-
----------------- ------------------ ----------------
513,795 31,264 47,241
----------------- ------------------ ----------------
EXPENSES
Salaries - officer 78,500 87,000 87,000
Bonus expense - officer -0- 25,000 -0-
Directors' fees 1,000 -0- 1,000
Staff salaries -0- -0- -0-
Legal, accounting and other professional fees 24,073 19,921 14,686
Interest expense - other 217,885 193,552 181,123
Bad debt expense 7,554 2,431 2,431
Other general and administrative expenses 29,374 47,145 38,661
----------------- ------------------ ----------------
358,387 375,050 324,901
----------------- ------------------ ----------------
Net gain (loss) from operations before taxes 155,408 (343,785) (277,660)
Income taxes (Note 5) (155,000) 122,000 92,000
----------------- ------------------ ----------------
Net gain (loss) from operations after taxes 408 (221,785) (185,660)
----------------- ------------------ ----------------
Net unrealized gain (loss) on investments before taxes (2,730,231) 1,552,635 189,713
Income taxes (Note 5) 928,000 (528,000) (64,000)
----------------- ------------------ ----------------
Net unrealized gain (loss) on investment after taxes (1,802,231) 1,024,635 125,713
----------------- ------------------ ----------------
Increase (decrease) in net assets resulting from operations $ (1,801,823) $ 802,850 $ (59,947)
================= ================== ================
Increase (decrease) in net assets per share $ (2.59) $ 1.36 $ (0.10)
================= ================== ================
See notes to financial statements
F-8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Enercorp, Inc.
Statements of Cash Flows
For the years ended June 30,
---------------------------------------------------------------------
2000 1999 1998
----------------- ------------------ ------------------
Cash flows from operating activities:
Increase (decrease) in net assets $ (1,801,823) $ 802,850 $ (59,947)
----------------- ------------------ ------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,870 1,525 1,491
Bad debt provision on notes receivable
and interest net of write offs 7,554 2,431 2,431
Stock received for consulting services -0- -0- -0-
Gain on sale of investments (461,358) -0- -0-
(Gain) Loss on sale of fixed assets -0- -0- -0-
Unrealized (gain) loss on investments 2,730,231 (1,552,635) (251,213)
(Increase) in accounts receivable -
related party (17,842) (6) 2,985
(Increase) in interest receivable (3,250) 1,496 6,135
(Increase) Decrease in other assets 449 130 1,796
Increase (Decrease) in accounts payable and
accrued expenses 1,397 990 3,751
Increase(Decrease) in accrued salaries -0- -0- (32,250)
Increase (Decrease) in deferred taxes (773,000) 406,000 (28,000)
----------------- ------------------ ------------------
Total adjustments 1,486,052 (1,140,070) (292,873)
----------------- ------------------ ------------------
Net cash (used) by operating activities (315,771) (337,220) (352,820)
----------------- ------------------ ------------------
Cash flows from investing activities:
Purchase of investments (27,000) (520,000) -0-
Sale of investments 495,308 -0- -0-
Payments received on note receivable -0- 200,000 -0-
Issuance of notes receivable -0- -0- -0-
Proceeds from sale of fixed assets -0- -0- -0-
Purchase of furniture and fixtures -0- (3,501) -0-
----------------- ------------------ ------------------
Net cash provided (used) by investing activities 468,308 (323,501) -0-
----------------- ------------------ ------------------
See notes to financial statements
F-9
<PAGE>
Enercorp, Inc.
Statements of Cash Flows (Continued)
For the years ended June 30,
---------------------------------------------------------------------
2000 1999 1998
----------------- ------------------ ------------------
Cash flows from financing activities:
Proceeds from sale of common stock -0- 420,000 -0-
Proceeds from notes payable 212,400 267,500 368,849
Principal payments of notes payable (358,000) (26,000) -0-
----------------- ------------------ ------------------
Net cash provided by investing activities (145,600) 661,500 368,849
----------------- ------------------ ------------------
Increase (Decrease) in cash 6,937 779 16,029
Cash, beginning of period 16,907 16,128 99
----------------- ------------------ ------------------
Cash, end of period $ 23,844 $ 16,907 $ 16,128
================= ================== ==================
Supplemental disclosures of cash flow information:
Interest paid $ 218,668 $ 176,704 $ 165,099
================= ================== ==================
Interest received $ 187 $ 3,023 $ 28,377
================= ================== ==================
See notes to financial statements
F-10
</TABLE>
<PAGE>
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, 2000, 1999 and 1998 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.
F-11
<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, 2000 and June 30, 1999, respectively was $ 2.48 and $5.07 per
share based on 695,897 shares outstanding in 2000 and 1999.
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, 2000 Williams represented 75.3% of
the Company's investments at fair market value.
Note 3: Related Party Transactions
--------------------------
a. Accounts Receivable - Related Party
In September 1999, the Registrant entered into an arrangement with one of
its investees, CompuSonics Video Corporation (CVC), whereby the Registrant
would provide managerial assistance
F-12
<PAGE>
to CVC and CVC would pay consulting fees to the Registrant at the rate of
$2,000 per month. The Account Receivable balance from CVC was $18,000 and
$0 as of June 30, 2000 and 1999, respectively.
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 $3,086 and $7,715 at June 30, 2000 and 1999
respectively.
Note 4: Note Payables
-------------
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.
In July 2000, the Registrant renewed its line of credit from Comerica Bank
("Comerica") under which it may borrow up to $2,250,000 at 3/4% over
Comerica's prime lending rate. The collateral for this line of credit is
1,652,329 shares of Williams Controls common stock owned by the Registrant
and 310,784 shares of the post-split 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.
Based on the Advance Formula Agreement that the Registrant has with
Comerica Bank for this loan, the Registrant's loan is out of compliance
with the terms of the loan agreement, and has been so for a number of
months. As such, Comerica has the right to demand payment on the loan by
the Registrant. While Comerica has not made a request for a formal
forebearance agreement with the Registrant related to this matter, it has
not allowed for any further advances against the credit line until the
loan is brought back into formula, either through loan paydown or through
the providing of additional collateral acceptable to the bank. The
Registrant is seeking ways to remedy this situation, including obtaining
additional collateral or repaying the loan, in full or in part, prior to
the time that the loan may have to be paid off by the Registrant,
including using the proceeds from the sale of securities from its investee
portfolio as the means of payment. The balance of the Registrant's note
payable to Comerica as of September 14, 2000 was $2,141,649 and the
balances at June 30, 2000 and 1999 were $2,141,649 and $2,323,249,
respectively.
Note Payable - Related Party
Due to limited working capital, beginning at May 31, 2000, the Company
borrowed working capital funds from its president in order to meet its
working capital needs and to pay the interest on the Comerica loan. The
note payable bears an interest rate of prime plus .75%, the same rate at
which the Company borrows from Comerica. The balance of the notes payable
to Robert Hebard is $36,000 and $0 at June 30, 2000 and June 30, 1999,
respectively.
F-13
<PAGE>
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.
Income tax expense for the years ended June 30, 2000, 1999 and 1998
consisted of:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
2000 1999 1998
---- ---- ----
Current, net of $ -0- $ -0- $ -0-
benefit of NOL
carryover
Deferred 155,000 406,000 (28,000)
------- ------- --------
$ 155,000 $ 406,000 $(28,000)
</TABLE>
The components of the deferred tax asset (liability) at June 30, 2000
and 1999 consist of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
6/30/00 6/30/99
--------- -----------
Unrealized gain on investments $ (570,000) $ 1,498,000
Capital loss carryover -0- -0-
Accrued officer wages -0- -0-
Allowance for notes receivable (16,000) (12,000)
Valuation Allowance (109,000) -0-
Net operating loss carry over (663,000) ( 713,000)
--------- ---------
$ -0- $ 773,000
================== ===========
</TABLE>
At June 30, 2000, the Company has net operating losses carry forward
available to offset future taxable income of approximately $1,950,000 that
expires during various years through June 30, 2014.
Note 6: Operating Leases
----------------
The Company is currently occupying a space provided by a stockholder.
Lease expense was $5,233, $6,088 and $6,180 for the years ending June 30,
2000, 1999 and 1998, respectively.
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.
F-14
<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, 2000
Notes receivable from ProConnextions, Inc. 30,862 - - 30,862 -
affiliated companies Williams Controls, Inc. $ 0 - - 0
Accounts receivable from Ajay Sports, Inc. $ 0 - - 0 -
affiliated companies Williams Controls, Inc. $ 6 $ 12 18
CompuSonics Video Corp $ 0 $18,000 18,000
---------------------------------------------------------------------------------
$30,868 $18,012 $ 0 $0 $48,880 $0
====================================================================================================================================
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
====================================================================================================================================
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, 2000
Allowance for uncollectible accounts
-------------------------------------------------------------------------------------------
Notes receivable $23,147 4,629 $27,776
-------------------------------------------------------------------------------------------
Interest receivable $17,339 2,925 $20,264
-------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements
S-2
</TABLE>
