<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
Commission File Number: 0-9083
--------
Enercorp, Inc.
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(Exact name of Registrant as specified in its Charter)
Colorado 84-0768802
- -------------------------------- --------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7001 Orchard Lake Road, Suite 424
West Bloomfield, Michigan 48322
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(248) 851-5651
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
Number of shares of common stock outstanding at December 31, 1999: 695,897
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Enercorp, Inc.
Form 10-Q Filing for the Second Quarter Ended December 31, 1999
INDEX
Page
Number
PART I. FINANCIAL INFORMATION ------
Item 1. Financial Statements 3
Statements of Assets and Liabilities
December 31, 1999 (Unaudited) and June 30, 1999 4
Schedule of Investments (Unaudited), December 31, 1999 5-6
Schedule of Investments June 30, 1999 7-8
Statements of Operations (Unaudited) for the Three
And Six Months Ended December 31, 1999 and 1998 9
Statements of Cash Flows (Unaudited) for the Six
Months Ended December 31, 1999 and 1998 10
Notes to Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
2
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Enercorp, Inc.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim unaudited condensed financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included, and the disclosures are adequate to make the information
presented not misleading. Operating results for the six months ended
December 31, 1999 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2000. These statements should be
read in conjunction with the financial statements and notes thereto
included in the Annual 10-K Report (filed with the Securities and
Exchange Commission) for the year ended June 30, 1999.
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<CAPTION>
<S> <C> <C>
Enercorp, Inc.
Statements of Assets and Liabilities
(Unaudited)
December 31, June 30,
ASSETS 1999 1999
------------ ------------
Investments, at fair value, cost of $1,784,888 and
$2,204,888 at December 31, 1999 and June 30, 1999 $ 4,183,695 $ 6,610,996
Cash 4,086 16,907
Accounts receivable - related parties (71) 6
Accrued interest receivable - net of allowance for
uncollectible interest receivable of $18,809 and $17,339
at December 31, 1999 and June 30, 1999, respectively 28,036 5,780
Note receivable - related parties, net of allowance for
uncollectible notes receivable of $27,776 and $23,147 at
December 31, 1999 and June 30, 1999, respectively 423,086 7,715
Furniture and fixtures, net of accumulated depreciation
of $8,698 and $7,763 at December 31, 1999 and
June 30, 1999, respectively 3,739 4,674
Other assets 1,606 1,767
------------ ------------
$ 4,644,178 $ 6,647,846
============ ============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ 2,481,649 $ 2,323,249
Accounts payable and accrued liabilities 35,234 23,730
Deferred tax liability 41,000 773,000
------------ ------------
2,557,883 3,119,979
------------ ------------
Net assets
Common stock, no par value: 10,000,000 shares
authorized, 695,897 and 590,897 shares issued and
outstanding December 31, 1999 and June 30, 1999 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000 shares
authorized, -0- issued and outstanding -0- -0-
Accumulated deficit (1,384,761) (1,268,492)
Unrealized net gain on investments, net of deferred
income taxes of $816,000 and $1,498,000 at
December 31, 1999 and June 30, 1999, respectively 1,582,806 2,908,108
------------ ------------
2,086,296 3,527,867
------------ ------------
$ 4,644,178 $ 6,647,846
============ ============
4
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<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments
December 31, 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 72,000
Williams Controls, Inc.* Manufacturer of sensor and (e) 400,000 60,000 843,220
control systems (e) 850,000 127,500 1,791,843
(e) 330,000 412,500 695,657
(e) 30,000 108,750 63,242
(e) 50,000 125,000 105,403
(e) 150,000 61,500 316,208
42,329 100,000 89,232
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer (e) 294,118 600,000 123,882
(e) 16,667 37,500 7,020
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 2,000 20,000 3,150
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 -
03/12/03 (c)(f) 50,000 - -
10/02/08 (c)(g) 50,000 - -
---------- -----------
1,759,227 4,110,860
See notes to financial statements
5
(Continued)
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<TABLE>
<CAPTION>
Enercorp, Inc.
Schedule of Investments (Continued)
December 31, 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 (h) 100,000 5,000 68,000
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 72,835
---------- -----------
Total - ALL COMPANIES $ 1,784,888 $ 4,183,695
========== ===========
(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 will vest an additional 25% on 3/12/00 and 3/12/01 consecutively.
(g)Options will vest an additional 25% on 10/2/00 & 10/2/01 consecutively.
(h)In August 1999, Immune Response completed a 1-for-100 reverse stock split.
* This entity is considered an affiliated company since the Company owns
more than 5% but less than 25% of the Investee company's outstanding
common stock. Because of this, the Company would be affected by a sales
limitation of one percent of the investee's outstanding common stock
during any three-month period, or the average of the last four weeks'
trading volume, whichever is greater.
See notes to financial statements
6
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<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
Pro Golf International, Inc. Franchisor of retail golf stores (a) 16,800 419,832 419,832
Preferred Stocks - Public Market Method of Valuation (d)
Ajay Sports, Inc.* Golf & Casual Furniture Manufacturer 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
7
</TABLE>
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<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 completed by the Company, and other
factors that the Board believes are applicable.
(e)Pledged as collateral against a line of credit with Comerica Bank.
(f)Options will vest an additional 25% on 9/13/99.
(g)Options will vest an additional 25% on 3/12/00 and 3/12/01 consecutively.
(h)Options will vest an additional 25% on 10/2/99, 10/2/00 & 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
8
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<TABLE>
<CAPTION>
Enercorp, Inc.
Statements of Operations
(Unaudited)
<S> <C> <C> <C> <C>
For the Three Months For the Six Months
Ended December 31 Ended December 31
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
REVENUES
Interest income from related entities 15,403 1,748 27,727 4,192
------------ ------------ ------------ ------------
EXPENSES
Salaries - officer 21,750 18,125 43,500 39,875
Bonus -0- -0- 12,500
Legal, accounting and other professional fees 8,739 11,070 15,489 12,703
Interest expense - other 56,845 48,178 110,036 97,586
Bad debt expense 735 613 6,100 1,226
Other general and administrative expenses 10,232 11,110 18,870 18,884
------------ ------------ ------------ ------------
98,302 89,096 193,996 182,774
------------ ------------ ------------ ------------
Net income (loss) from operations before taxes (82,899) (87,348) (166,269) (178,582)
Income taxes 15,000 25,000 50,000 57,000
------------ ------------ ------------ ------------
Net income (loss) from operations after taxes (67,899) (62,348) (116,269) (121,582)
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investments before taxes (624,850) 52,534 (2,007,302) (81,935)
Income taxes 212,000 (18,000) 682,000 28,000
------------ ------------ ------------ ------------
Net unrealized gain (loss) on investment after taxes (412,850) 34,534 (1,325,302) (53,935)
------------ ------------ ------------ ------------
Increase (decrease) in net assets (480,749) (27,814) (1,441,571) (175,517)
============ ============ ============ ============
Increase in net assets per share (0.69) (0.05) (2.07) (0.30)
============ ============ ============ ============
9
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<TABLE>
<CAPTION>
<S> <C> <C>
Enercorp, Inc.
Statements of Cash Flows
(Unaudited)
For the Six Months
Ended December 31,
--------------------------------------
1999 1998
----------------- -----------------
Cash flows from operating activities:
Increase (decrease) in net assets $ (1,441,571) $ (175,517)
----------------- -----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 935 617
Bad debt provision on notes receivable
and interest net of write offs 6,100 1,226
Gain on sale of investments -0- -0-
(Increase) decrease in unrealized gain on investments 2,427,302 81,935
(Increase) decrease in accounts receivable - related party 77 -0-
(Increase) in interest and notes receivable - related (443,727) 2,555
Decrease in other assets 159 354
(Decrease) in accounts payable and accrued expenses 11,504 (1,795)
(Decrease) in deferred taxes (732,000) (85,000)
----------------- -----------------
Total adjustments 1,270,350 (109)
----------------- -----------------
Net cash (used) by operating activities (171,222) (175,626)
----------------- -----------------
Cash flows from investing activities:
Purchase of investments -0- (100,000)
Payments from notes receivable -0- 162,500
----------------- -----------------
Net cash provided by investing activities -0- 62,500
----------------- -----------------
Cash flows from financing activities:
Payments to notes payable -0- -0-
Proceeds from notes payable 158,400 117,500
----------------- -----------------
Net cash provided by financing activities 158,400 117,500
----------------- -----------------
Increase in cash (12,822) 4,374
Cash, beginning of period 16,907 16,128
----------------- -----------------
Cash, end of period $ 4,086 $ 20,502
================= =================
Supplemental disclosures of cash flow information:
Interest paid $ 98,526 $ 98,526
================= =================
10
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Note 1: Investments
On August 13, 1998, Ajay Sports, Inc. ("Ajay") announced that its board of
directors had authorized the implementation of a 1-for-6 reverse split of
the company's common stock, effective with the commencement of trading on
August 14, 1998. The reverse split was approved by the stockholders of
Ajay at the company's annual meeting on May 29, 1998.
Following the reverse split, holders of Ajay's common stock received one
new share of $.01 par value common stock for every six shares of common
stock currently held. Therefore, the number of Ajay shares held by the
Company is 310,785.
On June 24, 1999, the Registrant completed a private offering of its
common stock through which it raised $420,000 in gross proceeds. The
proceeds from this offering were used to make an investment that was later
converted to a note to Pro Golf International, Inc. ("PGI") to assist PGI
in its purchase of the common stock of the Pro Golf of America ("PGOA") on
June 23, 1999. The note bears an interest rate of 10% and is due July 22,
2000. The note is subordinated to PGI's primary lender. The interest
receivable from PGI is $22,093 as of December 31, 1999. The Registrant is
considering the conversion of its note into the common stock of PGI to aid
PGI in obtaining long term financing for its operation, but had not done
so as of the date of this filing. PGI operates through its wholly owned
operating subsidiary, Pro Golf of America. Under its prior ownership, PGOA
opened one of America's second `off-course' retail golf stores in 1962,
virtually inventing the retail discount golf store concept. The retail
success led the company to begin franchising in 1975. Today, its
franchised stores generate nearly $240 million in golf equipment and
apparel sales through the off-course golf shop distribution channel each
year. PGOA collects initial franchise fees from each new store and ongoing
monthly royalties based on product sale that occurs in franchised stores.
Pro Golf.Com, Inc., a subsidiary of PGI, was formed to acquire the
Internet operations of PGOA and Ajay, and has obtained only limited
financing. The Internet site generates limited sales and is still under
development. During the 2000 fiscal year, this entity will be assembling
its management team, expanding sales and seeking additional financing and
the Registrant believes this opportunity has significant potential for
long-term success.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Material Changes in Financial Condition:
In June 1998, the Registrant renewed its line of credit with Comerica
Bank and the line was increased to $2,500,000 at 3/4% over Comerica's
prime lending rate. The collateral for this line of credit was 1,852,329
shares of Williams Controls ("Williams") common stock owned by the
Registrant and 310,785 shares of common stock of Ajay owned by the
Registrant. Borrowing is limited to 50% of the fair market value of the
collateral, except that the maximum amount that can be borrowed against
the Ajay stock is $400,000. This loan is due on demand. The balance of
the Registrant's note payable to Comerica as of December 31, 1999 was
$2,481,649.
The Registrant's liquidity is affected primarily by the business
success, securities prices and marketability of its investee companies
and by the amount and timing of new or incremental investments it makes.
At December 31, 1999 the Registrant's borrowing availability against the
Comerica line of credit was $18,351. The Registrant has several options
for continued cash flow including selling some shares of Ajay or
Williams common stock. See Item 5, Other Information.
Material Changes in Results of Operations:
The Registrant's revenues were $27,727 and $4,192 for second quarter
ended December 31, 1999 and 1998, respectively. The increase in revenues
for the quarter, compared with the prior year's quarter, is due to an
increase in interest income from related companies.
The Registrant recorded an unrealized loss on investments of $2,007,302
for the second quarter ended December 31, 1999 compared to a loss of
$81,935 for the second quarter ended December 31, 1998. This is mainly
due to the changes in fair market value of the Registrant's investment
in Williams and Ajay.
Williams Controls, Inc. - Investee Company
The Registrant's largest investee company, Williams, is a publicly held
company (Nasdaq: WMCO) in which the Registrant owns common stock and
options. Management recognizes that there is risk associated with its
lack of diversification due to its large investment concentration in
Williams. Williams Controls, Inc., through its subsidiary companies,
manufactures and markets sensors, controls and communication systems for
the transportation and communication industries.
12
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On January 5, 2000, the Registrant sold 200,000 shares of the common stock
of Williams. The stock sale yielded net proceeds of $412,366, which were
used to pay down the Registrant's loan with Comerica ($358,000) with the
balance being used to pay interest on the loan and for operating expenses.
The Registrant's loan outstanding with Comerica is $2,141,649 as of
February 15, 2000.
The Registrant was informed by Comerica on January 31, 2000 that its loan
was out of formula with the bank's requirement and that the Registrant
maintain a minimum 50% loan-to-collateral-value ratio on its loan. As of
the date of this filing, the Registrant is working out a plan with
Comerica to regain compliance with the 50% ratio.
To address its liquidity needs, the Registrant has also sold a portion of
the shares of common stock of Immune Response, Inc. that it holds in its
portfolio proceeds of these sales will be used for debt repayment and
working capital.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
Exhibit 27 Financial Data Schedule
B) Form 8-K
None
13
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Enercorp, Inc.
Form 10-Q
For the Second Quarter Ended December 31, 1999
Signature Page
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enercorp, Inc.
--------------------------
(Registrant)
BY______________________________
Robert R. Hebard
President and Chief Financial Officer
Date: February 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000313116
<NAME> Enercorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,086
<SECURITIES> 4,183,695
<RECEIVABLES> 497,637
<ALLOWANCES> (46,586)
<INVENTORY> 0
<CURRENT-ASSETS> 4,640,440
<PP&E> 12,437
<DEPRECIATION> (8,698)
<TOTAL-ASSETS> 4,644,178
<CURRENT-LIABILITIES> 2,557,883
<BONDS> 0
0
0
<COMMON> 1,888,251
<OTHER-SE> 198,045
<TOTAL-LIABILITY-AND-EQUITY> 4,644,178
<SALES> 0
<TOTAL-REVENUES> 27,727
<CGS> 0
<TOTAL-COSTS> 83,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,036
<INCOME-PRETAX> (166,269)
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,269)
<EPS-BASIC> (2.07)
<EPS-DILUTED> (2.07)
</TABLE>
