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, 2001
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.
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(Exact name of Registrant as specified in its charter)
Colorado 84-0768802
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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
--------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
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Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: X
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As of September 30, 2001, 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 $(434,284).
Enercorp, Inc.
Form 10-K Filing for the Year Ended June 30, 2001
INDEX
PAGE
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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
Enercorp, Inc.
FORM 10-K
PART 1
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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.
On March 7,2001, the Registrant sold 1,077,800 shares of the common stock it
held in its largest investee, Williams Controls, Inc. , and on March 12, 2001
the Registrant sold an additional 574,529 shares of Williams Controls, Inc.,
for a total of 1,652,329 shares, representing all the shares of Williams
Controls, Inc. common stock owned by the Registrant at the time of this filing.
These shares were acquired by the Registrant in transactions between April 1991
and August 1998. The shares were sold in open market transactions through an
unaffiliated broker. Upon settlement of the trades, the Registrant received
total net proceeds of approximately $2,424,800. These proceeds were used to pay
off the Company's demand loan from a bank with a balance of $2,141,649 plus
accrued interest and make payments of or toward other deft obligations and
payables that the Company had outstanding.
Investment Decisions and Policies. The Registrant's investment decisions
are made by its management in accordance with policies approved by its Board of
Directors. The Registrant is not a registered investment advisor nor does it
operate pursuant to a written investment advisory agreement that must be
approved periodically by stockholders. The Registrant relies solely upon its
management, particularly its officers, on a day-to-day basis, and also on the
experience of its directors in making investment decisions.
Consistent with its objective of long-term capital appreciation, the
Registrant consults with its investees with respect to obtaining capital and
offers managerial assistance to selected businesses that, in the opinion of the
Registrant's management, have a significant potential for growth.
In addition to acquiring investment positions in new and developing
companies, the Registrant also may occasionally 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 providing 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.
The Registrant will attempt to reduce the level of its investment risks
through one or more of the following:
- carefully investigating potential investees;
- financing only what it believes to be practical business
opportunities, as contrasted with research projects;
- selecting effective, entrepreneurial management for its
investees;
- providing managerial assistance and support to investees in
areas needed by them;
- obtaining, alone or with others, actual or working control of
its investees;
- supporting the investees in obtaining necessary financing and
arranging major contracts, joint ventures or mergers and
acquisitions where feasible; and
- 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, 2001, 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.
(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 its 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 Controls, Inc.,
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.
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.
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, 2001, 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.
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.
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.
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 Corporation,
Williams Controls, Inc. Ajay Sports, Inc. and Pro Golf International, Inc.
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, 2001 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 30, 2000 through June 30, 2001, 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 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
Fiscal 2001-Quarters Ended:
---------------------------
September 30, 2000 $1.25 $1.14
December 31, 2000 $ .97 $ .88
March 31, 2001 $ .91 $ .77
June 30, 2001 $ .77 $ .35
Holders
-------
The approximate number of record holders of the Registrant's common stock
as of June 30, 2001 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.
Item 6. Selected Financial Data
As of June 30, and for the Year ended
------------------------------------------
2001 2000 1999 1998 1997
Total assets 985,489 3,928,820 6,647,846 4,776,505 4,524,102
Total liabilities 54,634 2,202,776 3,119,979 2,471,488 2,159,138
Net assets 932,055 1,726,044 3,527,867 2,305,017 2,364,964
Realized gain (loss) on
Investments 1,474,184 461,358 -0- -0- 216,000
Total revenues 1,617,561 513,795 31,264 47,241 236,643
Total expenses 173,939 358,387 375,050 324,901 369,088
Net income (loss) from
Operations 1,443,622 155,408 (343,785) (277,660) (132,444)
Unrealized gain (loss) on
investments (247,594) (2,730,231) 1,552,635 189,713 229,517
Increase (decrease) in net
assets before
cumulative effect of
income tax accounting
change (2,943,331) (1,801,823) 802,850 (59,947) 62,074
Increase (decrease) in net
assets resulting from
operations (2,943,331) (1,801,823) 802,850 (59,947) 62,074
Increase (decrease) in net assets/
share before income taxes
and cumulative effect of
income tax and accounting
change (4.22) (3.92) 2.63 0.32 0.39
Increase (decrease) in net assets/
share before cumulative effect
of income tax accounting
change (2.78) (2.59) 1.36 (.10) .11
Increase (decrease) in net
assets per share resulting
from operations (2.78) (2.59) 1.36 (.10) .11
Weighted average number of
shares outstanding 695,897 695,897 695,897 590,897 590,897
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Capital Resources and Liquidity.
---------------------------------
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 its outstanding bank loan. As of
March 22, 2001, the note payable to the Registrant's president was $187,000
and accrued interest of $7,960. Upon the sale of the Williams Controls, Inc.
common stock, the full principal of the promissory note and $2,000 of the
$7,960 of accrued interest on the note were repaid to the Registrants
President. The balance of $5,960 was paid on September 29, 2001.
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 new
investment, 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, 2001.
On March 7, 2001, the Registrant sold 1,077,800 shares of the common stock
it held in its largest investee, Williams Controls, and on March 12,
2001 the Registrant sold an additional 574,529 shares of Williams Controls,
for a total of 1,652,329 shares, representing all the shares of Williams
Controls, common stock owned by the Registrant at the time of this filing
These shares were acquired by the Registrant in transactions between April 1991
and August 1998. The shares were sold in open market transactions through an
unaffiliated broker. Upon settlement of the trades, the Registrant received
total net proceeds of approximately $2,424,800. These proceeds were used to pay
off the Company's demand loan from a bank with a balance of $2,141,649 plus
accrued interest and make payments of or toward other debt obligations and
payables that the Company had outstanding.
Working capital at June 30, 2001was $1,711,922 as compared to $932,055 in
2001. The decrease in working capital from 2000 to 2001was due to the change
in the value of the Registrant's investment portfolio. For the years ended
June 30,2000, and June 30, 2001. The Company'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.
For the year ended June 30, 2001, the Registrant had a net gain from
operations of $1,443,622, compared to a net gain from operations of $155,408
for the year ended June 30, 2000, and a net loss from operations of $343,785
for the year ended June 30, 1999. The increase from 2000 to 2001 was
primarily due to the gain realized on the sale of 1,652,329 shares of the
Registrant's common stock owned in Williams, used to retire the Registrant's
loan with Comerica. The decline from 1999 to 2000 was due to the sale of
200,000 shares of the Registrants common stock owned in Williams Controls,
Inc.
The Registrant recorded an unrealized loss on investments of $639,173 for
the fiscal year ended June 30, 2001 as compared to a unrealized gain on
investments of $2,730,231 for the fiscal year ended June 30, 2000 and an
unrealized gain on investments of $1,552,635 for the fiscal year ended June 30,
1999 The change in the unrealized gain for the years indicated is largely the
result of the sale of the common stock of the Registrant's largest investee,
Williams Controls, Inc.
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.
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
--------------- --------------------- --- --------------
Thomas W Itin Chairman of the Board 67 5/1/2001
Chief Executive Officer,
President, Treasurer
& Director
H. Samuel Greenawalt Director 72 6/8/93
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, with the exception of Mr.
Thomas Itin, who was elected President, CEO, Treasurer, & Director.
Robert R Hebard had resigned as an officer of the Registrant effective
April 30, 2001, and as a director of the Company effective May 1, 2001.
Effective May 2, 2001 the Board appointed Thomas W Itin as director,
Chairman of the Board, Chief Executive Officer and President. Mr. Itin is a
significant stockholder of the Registrant. Mr. Hebard has been a director
of the Company since June 1993. There were no disputes between Mr. Hebard and
the Company.
(c) Significant Employees
---------------------
Not applicable
(d) Family Relationships
--------------------
None
(e) Business Experience
-------------------
Thomas W. Itin. Mr. Itin was elected Chairman of the Board and President of
the Company in May of 2001. Mr. Itin has been a director of Williams Controls,
Inc., a publicly held company since its inception in November 1988. He also
served as Chairman of the Board and Chief Executive Officer of Williams from
March 1989 until January 2001 and also as President and Treasurer from June
1993 until January 2001. He has served as Chairman of the Board, Chief
Executive Officer and Chief Operating Officer of LBO Capital Corp. since its
inception. Mr. Itin has been Chairman, President and Owner of TWI
International, Inc. since he founded the firm in 1967. TWI International
acts as a consultant for mergers, acquisitions, financial structuring,
new ventures and asset management .Mr. Itin also has been Owner and
Principal Officer of Acrodyne Corporation since1962. In April 2001, Mr. Itin
became Chief Executive Officer of CompuSonics Video Corp., a publicly held
company. In April 2001 Mr. Itin became Chief Executive Officer of Enercorp,
Inc., a publicly held company. He received a Bachelor of Science degree from
Cornell University and an MBA from New York University. Mr. Itin served on
he Cornell University Council and was Chairman of the Technology Transfer
Committee.
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
--------------------------------------------------------
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 $100,000 during any of those years.
Annual Compensation Awards
Annual Compensation (in dollars)
Awards
Name and Principal Position Year Salary Bonus Other Securities
Annual Underlying
Compensation Stock
Options
Thomas W Itin, President, Chief
Executive Officer &
Treasurer. 2001 -0- -0-
Robert R. Hebard,
former President, Chief 2000 78,500 -0- -0- -0-
Executive Officer and 1999 87,000 25,000 -0- -0-
Treasurer 1998 87,000 -0- -0- -0-
Option/SAR Grant Table
----------------------
No stock options or stock appreciation rights were granted during the
fiscal year ended June 30, 2001.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
--------------------------------------------------------------------
Table
-----
No stock options were exercised during the fiscal year ended June 30,
2001. The table below sets forth information related to the value at June 30,
2001of unexercised options held by the Company's President and Chief Executive
Officer.
Name Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Stock Options at
Stock Options at June June 30, 2000 ($)
30, 2001(#)
-------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------------------
Robert R. Hebard,
President, Chief Exec.
Officer and Treasurer 3,601 0 $ 0 $ 0
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, 2001.
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%
7 Highland Place
Great Neck, NY 11020
Executive officers and 47,001 6.8%
directors as a group (1)(2)(3)
(two persons)
(1) Includes 1,333 shares held in a custodian account under the
Uniform Gifts to Minors Act for the benefit of Mr. Hebard's
daughter. Mr. Hebard disclaims beneficial ownership of the
1,333 shares in the custodial account.
(2) Includes 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:
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
======
A change in control of the Company has occurred since April 30, 2001.
Robert Hebard resigned on April 30, 2001 as Director, Chairman of the Board,
and from all officer- ship positions in the Company. Effective May 2, 2001
the Board appointed Thomas W Itin as Director, Chairman of the Board, Chief
Executive Officer and President. Mr. Itin is a significant stockholder of the
Registration.
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 former President of the Registrant
had made loans to the Registrant to cover its short term working capital needs
since May 31, 2000. These loans were 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, 2001 the
note has been repaid in full, including $2,000 of accrued interest. The
balance of $5,960 has subsequently been paid in September 2001.
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.
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form
8-K
(a) The following documents are filed as part of this report
immediately following the signature page, or are incorporated by
reference
(1) Financial Statements
Independent Auditor's Report F-1
Statements of Assets and Liabilities, June 30,
2001 and 2000 F-2
Schedule of Investments, June 30, 2001 and June 2000 F-3
Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 2001, 2000, & 1999 F-4
Statements of Operations for the Years Ended
June 30, 2001,2000, & 1999 F-5
Statements of Cash Flows for the Years Ended June
30, 2001 2000, & 1999. F-6 to F-7
Notes to Financial Statements F-8 to F-11
(2) Financial Statement Schedules:
Amounts Receivable from Affiliated Parties,
Underwriters, Promoters, and Employees Other than
Related Parties S-1
Valuation and Qualifying Accounts and Reserves S-2
(3) Exhibits:
3.1 Amended and Restated Articles of Incorporation as
Filed with the Secretary of State, State of
Colorado, April 2, 1996****
3.2 Bylaws*
10.4 Comerica Loan documents with Enercorp, Inc. dated
July 30, 1997.*****
10.5 Amended Comerica Loan document with Enercorp,
Inc. regarding increase in line of credit.******
20.1 Statement of Risk to Stockholders ******
27 Financial Data Schedule FILED HEREWITH
--------------------
*Incorporated by reference from Exhibits 3.1 and 3.2 to the Registrant's Form
10-K for the fiscal year ended June 30, 1981.
**Incorporated by reference from Exhibit 10.1 to the Registrant's Form 10-K
for the fiscal year ended June 30, 1989.
***Incorporated by reference from Exhibits 10.2 to 10.3 and 20.1 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1990.
**** Incorporated by reference from Exhibits 3.1 to the Registrant's Form 10-K
for the fiscal year ended June 30, 1996.
***** Incorporated by reference from Exhibits 10.1 to 10.5 to the Registrant's
Form 10-Q for quarter ending September 30, 1997.
****** Incorporated by reference from Exhibits 10.5 to 20.1 to the
Registrant's Form 10-K for the fiscal year ended June 30, 1998.
(b) Reports on Form 8-K.
(c) Required exhibits are incorporated by reference.
(d) Financial statement schedules are attached hereto.
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\ Thomas W. Itin
-----------------------
Thomas W Itin ,President
Date: October 16, 2001
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 16, 2001 M \S\ Thomas W Itin
-------------------------------
Thomas W. Itin, (Principal Executive
Office, Chief Financial Officer
Date: October 16, 2001 \S\ H. Samuel Greenawalt
------------------------------
H. Samuel Greenawalt, Director
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, 2001
and 2000, and the related statements of changes in stockholders' equity,
operations and cash flows for the years ended June 30, 2001 and 2000.
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.
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, 2001 and 2000 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.
hese 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
October 13,2001
F-1
Enercorp, Inc.
Statements of Assets and Liabilities
June 30, June 30,
2001 2,000
-------- --------
ASSETS
Investments, at fair value, cost of $1,210,977
And $2,204,888 at June 30, 2001 and 2000 $ 984,214 $ 3,3873,815
Cash 342 23,844
Accounts receivable-related party 17,848
Accrued interest receivable - net of allowance
for uncollectible interest receivable of $20,264
at June 30, 2000 6,105
Notes receivable - related parties, net of
allowance for uncollectible notes receivable
of $27,776 at June 30, 2001 3,086
Furniture and fixtures, net of accumulated
depreciation of $11,503 and 9,633
at June 30, 2001 and 2000 933 2,804
Other assets 1,318
---------- --------
$ 985,489 $ 3,928,820
=============== ==============
LIABILITIES AND NET ASSETS
Liabilities
Note payable - bank $ $ 2,141,649
Note payable 0 Other 36,000
Accounts payable and accrued liabilities 54,634 25,127
Deferred tax liability 0
-------------- ------------
54,634 2,202,776
-------------- ------------
Net assets
Common stock, no par value: 10,000,000
shares authorized, 695,897 shares issued
and outstanding at June 30, 2001 and
June 30, 2000 1,888,251 1,888,251
Preferred stock, no par value: 1,000,000
shares authorized, -0- issued and
outstanding -0- -0-
Accumulated deficit (709,802) (1,268,084)
Unrealized net gain on investments, net of
deferred income taxes of $1,498,000 and
$1,480,000 at June 30, 2001 and 2000 (247,594) 1,105,877
---------- ----------
930,855 1,726,044
--------- ----------
$ 985,489 $ 3,928,820
============== =============
See notes to financial statements
F-2
Enercorp, Inc.
Schedule of Investments
June 30, 2001
Affiliated Description of No. of Share Cost/ Fair Market
Net Fair
Companies Business Restrictns Shares Price Equity Value
Discount Market Value
Common Stocks-Public Market Method of Valuation
CompuSonics Video
Corp Digital Video
Product & 1,751
28 28
Web Site Development 10,000,000 0.03 106,477 300,000
(100,000) 200,000
Ajay Sports, Golf & Casual (h) 294,118 0.02 600,000 5,882
5,882
Inc. Furniture Manuf
(h) 16,667 0.02 37,500 333
333
Preferred Stocks-Public Market Method of Valuation
--------------------------------------------------
Ajay Sports, Golf & Casual 2,000 20,000 500
500
Inc. Furniture Manufacturer
Common Stocks-Board Appraisal Method of Valuation
-------------------------------------------------
Pro Golf Franchisor of (a & c) 7,450 447,000 447,000
(44,700) 402,30
International Retail Golf
ProGolf.com Web Sales of Golf (c) 300,000 2.5 252,000 750,000
(375,000) 375,000
Subtotal 1,462,977 1,503,744
(519,700) 984,044
Unaffiliated Companies
-----------------------
Common Stocks-Public Market Method of Valuation
------------------------------------------------
Vior Diagnostics
Proconnextions, Inc.
Total All Companies 1,462,977 1,503,744
(519,700) 984,044
Est. Liabilities
(54,634)
Net Asset Value
929,410
Per share value
$1.34
(a) No public market for this security exists
(b) In August 1999, Immune Response completed a 1-for-100 reverse stock spit
and also completed a
(c) Subject to Rule 144
See notes to financial statements
F-3
Enercorp, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ended June 30, 2001, 2000, and 1999
Retained Earnings
------------------------
Common Stock (Accumulated Unrealized
Shares Amount Deficit) Net Gain Total
------ ------ -------- -------- -----
Balance at June 30, 1998 590,897 1,468,251 (1,045,709) 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 tax --- --- --- 1,024,633 1,024,633
------- --------- --------- --------- ---------
Balance at June 1999 695,897 1,888,251 (1,268,492) 2,908,108 3,527,867
-------- --------- --------- --------- ---------
Increase in Common stock --- --- --- --- ---
Net Loss --- --- 408 --- 408
Unrealized gain on investments,
net of taxes --- --- --- 1,802,231)(1,802,231)
------ ------- ----- -------- ----------
Balance at June 30, 2 695,897 1,888,251 (1,268,084) 1,105,877 1,726,044
------- --------- ---------- -------- --------
Increase in Common Stock 0 0 0
Net Gain 558,282 558,282
Unrealized gain on investments,
net of taxes (1,353,471)(1,353,471)
Balance at June 30, 2001 695,897 $1,888,251 $(709,802)$(247,594)$930,855
------- --------- --------- -------- -------
See notes to financial statements
F-4
Enercorp, Inc.
Statements of Operations
For the Years ended June 30,
---------------------------
2001 2000 1999
----- ----- ------
REVENUES
Interest Income $ 6 $ 187 $ -0-
Interest income from related entities 1,634 30,250 6,264
Consulting fees from related companies 22,000 25,000
Net realized gain on sale of investments 1,474,184 461,358 -0-
Divided income form affiliated company -0- -0-
--------- --------- ---------
1,475,824 513,795 31,264
EXPENSES
Salaries - officer 78,500 78,500 87,000
Bonus expense - officer -0- -0- 25,000
Directors' fees 2,000 1,000 -0-
Staff salaries 15,355 -0- -0-
Legal, accounting and other professional
Fees 29,224 24,073 19,921
Interest expense - other 173,773 217,885 193,552
Bad debt expense 28,673 7,554 2,421
Other general and administrative expenses 20,187 29,374 47,145
------- ------ -------
347,712 357,387 375,050
------- ------- --------
Net gain (loss) from operations
before taxes 1,128,112 155,408 (343,785)
Income taxes (Note 5) (569,830) (155,408) 122,000
---------- ------- --------
Net gain (loss) from operations
after taxes 558,282 408 (221,785)
-------- ------- ---------
Net unrealized gain (loss) on investments before
Taxes (247,594) (442,230) 1,552,635
Income taxes (Note 5) (528,000)
--------- --------- ----------
Net unrealized gain (loss) on
investment after taxes (247,594) (442,230) 1,024,635
-------- -------- ---------
Increase (decrease) in net assets
resulting from operations $ (2,943,331) $(442,822) $ 802,850
============== ========== =========
Increase (decrease) in net assets
per share $ (422) $ (0.75) $ 1.36
============ ======== ========
See notes to financial statements
F-5
Enercorp, Inc.
Statements of Cash Flow
For the Years Ended June 30,
2001 2000 1999
----- ------ ------
Cash flows from operating activities:
Increase (decrease in net assets $ 558,282 $ (441,822) $ 802,850
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation 1,870 1,870 1,525
Bad debt provision on notes receivable
and interest net of write offs 3,086 7,554 2,431
Stock received for consulting services -0- -0-
Gain on sale of investments 2,889,602 (461,358) -0-
(Gain) Loss on sale of fixed assets -0- -0-
Unrealized (gain) loss on
Investments (1,923,471) 2,730,231 (1,552,635)
(Increase) in accounts receivable -
related party 17,848 (17,842) (6)
(Increase) in interest receivable 6,105 (3,250) 1,496)
(Increase) Decrease in other assets 1,318 449 130
Increase (Decrease) in accounts payable and
accrued expenses 29,507 1,397 990
Increase (Decrease) in accrued salaries -0- -0-
Increase (Decrease) in deferred taxes 570,000 (773,000) 406,000
Total adjustments 1,595,865 1,486,052 (1,140,070)
--------- -------- ---------
Net cash (used) by operating activities 2,154,147 1,044,230 (337,220)
--------- --------- ---------
Cash flows from investing activities:
Purchase of investments (27,000) (520,000
Sale of investments 495,308 -0-
Payments received on note receivable -0- 200,000
Issuance of notes receivable -0- -0-
Proceeds from sale of fixed assets -0- -0-
Purchase of furniture and fixtures -0- (3,501)
-------- -------- --------
Net cash provided (used) by investing
Activities -0- 468,308 $323,501
-------- --------- ---------
See notes to financial statements
F-6
Enercorp, Inc.
Statements of Cash Flow (continued)
For the Years Ended June 30,
--------------------------------------
2001 2000 1999
------- --------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock -0- 420,000
Proceeds from notes payable (360,000) 212,400 267,500
Principal payments of notes
Payable (2,141,649) (358,000) (26,000)
---------- ----------- -----------
Net cash provided by investing
Activities (2,177,649) (145,600) 661,500
---------- --------- ----------
Increase (Decrease) in cash (23,502) 1,366,938 779
Cash, beginning of period 23,844 16,907 16,128
---------- --------- ----------
Cash, end of period $ 342 $ 1,383,845 $ 16,907
======== ============= -==========
Supplemental disclosures of cash flow information:
Interest paid $ 173,768 $ 218,669 $ 176,704
=========== =========== ===========
Interest received $ 1,634 $ 187 $ 3,023
=========== =========== ==========
See notes to financial statements
F-7
Notes to Financials
-------------------
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, 2001, 2000, and 1999
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-8
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, 2001 and June 30, 2000 , respectively was $1.34 and $2.48
per share based on 695,897 shares outstanding in 2001 and 2000.
Note 2: Investments
------------
Investments consist of holdings of securities in publicly and
privately held companies.
Note 3: Related Party Transactions
--------------------------
a
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.
F-9
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.
On March 7,2001, the Registrant sold 1,077,800 shares of the
common stock it held in its largest investee, Williams Controls,
Inc. , and on March 12, 2001 the Registration sold an additional
574,529 shares of Williams Controls, Inc., for a total of
1,652,329 shares, representing all the shares of Williams
Controls, Inc. common stock owned by the Registrant at the time
of this filing. These shares were acquired by the Registrant in
transactions between April 1991 and August 1998. The shares
were sold in open market transactions through an unaffiliated
broker. Upon settlement of the trades, the Registrant received
total net proceeds of approximately $2,424,800. These proceeds
were used to pay off the Company's demand loan from a bank
with a balance of $2,141,649 plus accrued interest and make
payments of or toward other deft obligations and payables that
the Company had outstanding.
Note Payable - Related Party
Due to limited working capital, beginning at May 31, 2000, the
Company borrowed working capital funds from its former 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. As of June 30, 2001 the note has been repaid in full,
including $2,000 in accrued interest. The remaining interest has
subsequently been paid in September 2001.
F-10
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, 2001, 2000 and 1999
consisted of:
2001 2000 1999
----- ----- -----
Current, net of $ -0 $ -0 $ -0
benefit of NOL
carryover
Deferred 568,196 155,000 406,000
---------- -------- --------
$ 568,096 $ 155,000 $ 406,000
The components of the deferred tax asset (liability) at June 30,
2001 and 2000 consist of the following:
6/30/01 6/30/00
------- -------
Unrealized gain on investments $ (247,594) $ (570,000)
Capital loss carryover -0- -0-
Accrued officer wages -0- -0-
Allowance for notes receivable -0- (16,000)
Valuation Allowance (109,000)
Net operating loss carry over (663,000) ( 663,000)
----------- ----------
$ -0- $ -0-
================= ==========
At June 30, 2001 the Company has net operating losses carry
forward available to offset future taxable income of approximately
$1,352,380 that expires during various years through June 30, 2014.
Note 6: Operating Leases
----------------
The Company is in the process of relocating its Corporate
headquarters to California, and is currently negotiating a new
lease on Premises in Los Angeles, California.
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-11