U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
Commission File Number 1-12738
ONSITE ENERGY CORPORATION
Delaware 33-0576371
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
701 Palomar Airport Road, Suite 200, Carlsbad, CA 92009
- ------------------------------------------------- --------------------------
(Address of principal executive offices) (ZIP Code)
Issuer's telephone number, including area code: (619) 931-2400
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
The number of Class A common stock, $0.001 par value, outstanding as of February
10, 1997 is 10,938,219
Onsite Energy Corporation
Consolidated Balance Sheet
December 31, 1996
Current Assets:
Cash $ 32,788
Accounts receivable, net of allowance for
doubtful accounts of $20,000 2,323,053
Costs and estimated earnings in
excess of billings on
uncompleted contracts 1,863,499
Net assets held for sale 887,182
Other assets 39,983
---------------
TOTAL CURRENT ASSETS 5,146,505
Cash-restricted 265,944
Costs incurred on future projects 36,905
Property and equipment, net 111,681
Goodwill, net of amortization of $1,133,000 466,667
Other 157,672
---------------
TOTAL ASSETS $ 6,185,374
===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,723,666
Billings in excess of costs and
estimated earnings
on uncompleted contracts 1,001,162
Current portion of notes payable 615,479
Accrued expenses and other liabilities 1,118,228
Deferred income 50,000
---------------
TOTAL CURRENT LIABILITIES 4,508,535
Long-Term Liabilities:
Notes payable, less current portion 351,956
Related party notes payable 50,440
Accrued future operation and
maintenanence costs
associated with energy services agreements 516,809
---------------
TOTAL LIABILITIES 5,427,740
---------------
Commitments and contingencies
Shareholders' Equity:
Preferred Stock,$.001 par value,
1,000,000 shares authorized:
none issued and outstanding
Common Stock, $.001 par value, 24,000,000
shares authorized:Class A common stock,
23,999,000 shares authorized, 10,897,450
issued and outstanding
10,897
Class B common stock, 1,000 shares
authorized, none issued and outstanding
Additional paid-in capital 17,015,795
Accumulated deficit (16,269,058)
---------------
TOTAL SHAREHOLDERS' EQUITY 757,634
---------------
TOTAL LIABILTIES AND SHAREHOLDERS' EQUITY $ 6,185,374
===============
Onsite Energy Corporation
Consolidated Statements of Operations
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
-------------- ------------ ------------- ---------------
Revenues $2,935,524 $6,815,220 $6,246,390 $9,353,400
Cost of sales 1,965,966 5,546,054 4,460,505 7,250,660
-------------- ------------ ------------- --------------
Gross Margin 969,558 1,269,166 1,785,885 2,102,740
Selling, General,
and Administrative
Expenses 1,113,377 717,339 2,202,874 1,934,645
-------------- ------------ ------------- --------------
Operating income
(loss) (143,819) 551,827 (416,989) 168,095
-------------- ------------ ------------- --------------
Other income (expense):
Interest (expense) (42,386) (69,173) (100,830) (137,869)
Interest income 2,704 4,694 7,376 8,447
-------------- ------------ ------------- --------------
Total other income
(expense) (39,682) (64,479) (93,454) (129,422)
-------------- ------------ ------------- --------------
Income (loss) from
operations before
provision(benefit)
for income taxes (183,501) 487,348 (510,443) 38,673
Provision (benefit)
for income taxes - - - -
-------------- ------------ ------------- --------------
Net income (loss) $ (183,501) $ 487,348 $ (510,443) $ 38,673
============== ============ ============= ==============
Net income (loss)
per Class A
common share $ (0.02) $ 0.03 $ (0.05) $ (0.03)
============== ============ ============= ==============
Weighted average
shares outstanding 10,859,203 10,171,308 10,698,414 10,033,964
============== ============ ============= ==============
Onsite Energy Corporation
Consolidated Statements of Cash Flows
Six Months Ended
December 31,
1996 1995
------------- --------------
Cash flows from operating activities:
Net income (loss) $ (510,443) $ 38,673
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Amortization of goodwill 200,000 231,704
Amortization of acquired
contract costs 363,536 -
Depreciation and amortization 89,483 108,556
(Increase) decrease
in operating assets (462,741) (5,086,717)
Decrease (increase)
in operating liabilitites (431,255) 5,679,849
------------- --------------
Net cash provided (used)
by operating activities (751,420) 972,065
------------- --------------
Cash flows from investing activities:
------------- --------------
Net cash provided (used)
by investing activities - -
------------- --------------
Cash flows from financing activities:
Proceeds from issuance of debt - 54,698
Proceeds from exercise
of stock options 20,110
Repayment of long-term debt (212,372) (141,443)
Repayment of capital
lease obligations (3,589)
------------- --------------
Net cash (used) by financing activities (192,262) (90,334)
------------- --------------
Net increase (decrease) in cash (943,682) 881,731
Cash, beginning of year 976,470 17,569
------------- --------------
Cash, end of quarter $ 32,788 $ 899,300
============= ==============
ONSITE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: As contemplated by the Securities and Exchange Commission under Item
310 of Regulation S-B, the accompanying financial statements and
footnotes have been condensed and do not contain all disclosures
required by generally accepted accounting principles and, therefore,
should be read in conjunction with the Form 10-KSB for Onsite Energy
Corporation ("Onsite") as of and for the year ended June 30, 1996. In
the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly its financial position and
results of its operations for the interim period.
NOTE 2: The consolidated balance sheet as of December 31,
1996, and the consolidated statements of operations
and cash flows for the three and six months ended
December 31, 1996 and 1995, represent the financial
position and results of operations of Onsite.
NOTE 3: Net income (loss) per common share is based upon the net income
(loss) for the period divided by the weighted average number of
common shares and common share equivalents outstanding during the
period. Options and other convertible securities that are
anti-dilutive or do not qualify as a common stock equivalents as of
December 31, 1996 have been excluded from the per share calculations.
There were 4,467,710 in common stock equivalents added to the
weighted average shares outstanding for each of the three and six
month periods ended December 31, 1995.
NOTE 4: Onsite entered into an agreement for the sale of all or substantially
all of its interests in Television City Cogen, L.P. ("TCC"), subject
to the buyer paying the purchase price as well as obtaining the
consent of certain third parties. In August 1996, as a result of the
impending agreement, and as a result of the desire of TCC's lender
for full repayment of long term debt secured by the assets of TCC,
Onsite agreed to a modification of the maturity date under the note
to December 20, 1996. The original maturity of the loan was November
30, 2000 and as of December 31, 1996 the loan had an outstanding
principal balance of approximately $780,000. TCC has reached an
agreement in principle, subject to final documentation with its
lender, and conditioned upon a partial payment of principle and loan
fees, for the forbearance of its collection rights under the note to
March 31, 1997. As a forward looking statement, Onsite anticipates
finalizing the forbearance agreement by February 28, 1997, subject to
obtaining a satisfactory documentation from the lender.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Background
Onsite is an energy efficiency services company ("ESCO") specializing in the
development, engineering, installation and operation of energy efficient
retrofits for industrial, commercial and institutional facilities. By combining
development, engineering, analysis, project management and financial management
skills, Onsite provides a complete package of services, ranging from feasibility
assessment through construction and operation for energy efficiency projects
incorporating lighting, energy management systems, HVAC upgrades, cogeneration
and other energy efficiency measures.
Onsite, a Delaware corporation, was formed pursuant to a business reorganization
effective February 15, 1994 (the "Reorganization"), between Western Energy
Management, Inc., a Delaware corporation formed in 1991 ("Western"), and Onsite
Energy, a California corporation formed in 1982 ("Onsite-Cal"). Under the
Reorganization, Onsite-Cal merged with and into Onsite, and a newly formed
subsidiary of Onsite merged with and into Western, which survived and became a
wholly-owned subsidiary of Onsite. This transaction was accounted for as a
purchase of Onsite-Cal by Onsite.
Onsite also owns general and limited partnership interests in TCC. Onsite owns
all the stock of Onsite/TCC Corp., a Delaware corporation, which is the other
partner in TCC. Thus, directly and indirectly, Onsite owns 100% of TCC. Onsite
also owns a general partnership interest in Onsite Partners, a California
general partnership, and a general partnership interest in American Private
Power II, a California general partnership, both of which are inactive. Onsite's
has reached an agreement for the sale of its interests in TCC and Onsite/TCC
Corp.. (See also: Liquidity and Capital Resources below). As a result of the
impending sale, the assets, liabilities and equity are combined under the
caption "Net assets held for sale" on Onsite's consolidated balance sheet as of
December 31, 1996.
In addition, on June 16, 1994, Onsite acquired Lanikai Lighting, Inc., a Hawaii
corporation ("Lanikai"). Onsite sold its interests in Lanikai effective February
20, 1996. While under Onsite ownership, Lanikai installed lighting and other
energy efficiency measures at commercial and institutional facilities in Hawaii.
Unless the context indicates otherwise, reference to Onsite shall include all of
its wholly-owned subsidiaries.
Six Months ended December 31, 1996 compared to the six months ended December 31,
1995
Results of Operations. Revenues for the six months ended December 31, 1996 were
$6,246,390 compared to $9,353,400 for the six months ended December 31, 1995.
Fiscal 1995 revenues benefited from three major projects while fiscal 1996 had
just one project of similar significance.
Gross margin for the six months ended December 31, 1996 was $1,785,885, or 28.6%
of revenues, compared to $2,102,740, or 22.5 % of revenues, for the six months
ended December 31, 1995. The improvement in margin as a percentage of revenues
is primarily due to a higher percentage of projects implemented under the
Southern California Edison ("SCE") Demand Side Management contract in the
current year that had higher margins as a result of the SCE payment
contributions for estimates of achieved savings.
Selling , General and Administrative expenses ("SG&A") were $2,202,874 for the
six month period ended December 31, 1996, compared to $1,934,645 for the same
six month period a year ago. The increase of $268,229, or 13.9% was primarily to
due increases in staffing at several of Onsite's offices, including its new
Northern California office (opened in June, 1996) and increased staff at its El
Paso, Texas and Troy, Michigan offices.
Net other income/expense was $93,454 net other expense for the six months ended
December 31, 1996, down $35,968 from $129,422 in net other expense for the six
months ended December 31, 1995. The decrease is primarily due to a decline in
interest expense attributable to reductions in principal balances outstanding.
SG&A expense includes $200,000 in expense for the amortization of goodwill. The
goodwill is being amortized at the rate of $100,000 per quarter through
February, 1998.
Net loss for the six months ended December 31, 1996 was $510,443, or $.05 loss
per share, compared to Net income of $38,673, or $.03 loss per share for the six
month period ended December 31, 1995. Per share numbers in 1995 were adjusted
for dividends accrued on then existing convertible Preferred Stock which was
converted to Class A Common Stock in the current fiscal year.
As a result of the operating loss in the current fiscal year, Onsite has reduced
staff and implemented other savings and cash outflow reductions in an effort to
improve overall operating results.
Three Months ended December 31, 1996 compared to the three months ended December
31, 1995
Results of Operations. Revenues for the three month period ended December 31,
1996 were $2,935,524, compared to $6,815,220 for the three months ended December
31, 1995, a decrease of $3,879,696. One project accounted for approximately $3.5
million in revenues in the quarter ended December 31, 1995. In addition, there
were two other significant projects that contributed to the higher revenues
achieved in 1995.
Gross Margin was $969,558, or 33.0% of revenues for the three month period ended
December 31, 1996, compared to $1,269,166, or 18.6% of revenues for the three
month period ended December 31, 1995. The increase in margin as a percentage of
revenues was attributable to two of the larger projects from the prior year
having lower margins as well as higher margins resulting from the SCE Demand
Side Management payment contributions for estimates of achieved savings.
SG&A expenses were $1,113,377 for the three months ended December 31, 1996,
compared to $717,339 for the three months ended December 31, 1995, an increase
of $396,038. The increase was attributable to increases in staff and offices as
discussed above in the six month analysis.
Net other income/expense was $39,682 in net expense in the quarter ended
December 31, 1996, compared to $64,479 in net other expense for the three month
period ended December 31, 1995, a decrease of $24,797. The decrease in net other
expense was substantially attributable to a decrease in interest expense as the
outstanding balances of Onsite's notes payable have been reduced as a result of
scheduled principal payments.
Net loss for the three months ended December 31, 1996 was $183,501, or $.02
loss per share, compared to net income of $487,348, or $.03 earnings per share.
As a result of the operating loss in the current fiscal year, Onsite has reduced
staff and implemented other savings and cash outflow reductions in an effort to
improve overall operating results.
Liquidity and Capital Resources Onsite's cash and cash equivalents were $32,788
as of December 31, 1996, compared to $976,470 as of June 30, 1996. Working
capital was $637,970 as of December 31, 1996 compared to $354,544 as of June 30,
1996. Cash flows used by operating activities during the six months ended
December 31, 1996 were $751,420, compared to cash flows provided by operating
activities of $74,921 for the same period in 1995, a decrease of $684,604.
Significant contributing factors to the decrease was: the net loss for the six
months ended December 31, 1996 of $510,443, compared to net income of $38,073; a
net increase in accounts receivable of $673,083 from June 30, 1996; and a net
decrease in accounts payable and accrued expenses of $456,255 from June 30 1996.
There were no cash flows from investing activities in either of the six month
periods of 1996 and 1995.
Cash flows used by financing activities were $192,262 during the six months
ended December 31, 1996, compared to $90,334 for the comparable period last
year. The increase in cash used by financing activities in the current year
includes regularly scheduled principal payments and the prior year total was
reduced by a new financing of $54,698 in the period.
Onsite issued 4,633,987 shares of its Class A Common Stock during the six months
ended December 31, 1996. A total of 4,177,135 shares were issued as a result of
the conversion of Series A and B convertible preferred shares into Class A
Common Stock. A total of 347,048 shares were issued in lieu of cash for dividend
payments on the Class A and B preferred stocks. Other issuances totaled 109,804
and resulted from shares issued to the Onsite 401(k) plan (20,504), from the
exercise of employee stock options (8,862) and from shares issued in lieu of
cash for services rendered (43,413).
The impending sale of Onsite's interests in Television City Cogen, L.P. ("TCC"),
previously scheduled to close by January 31, 1997, has been delayed. The
completion of the transaction is subject to certain conditions, including, but
not limited to the buyer paying the purchase price as well as obtaining the
consent of certain third parties. As a forward looking statement, Onsite
anticipates the closing of the transaction will occur by the end of the current
fiscal year (June 30, 1997), subject to the above conditions having been
achieved.
Also, as previously disclosed, approximately $780,000 in TCC's debt matured on
December 20, 1996 in anticipation of an earlier closing date. As a result of the
delays in closing the transaction, the loan has matured and remains unpaid. TCC
has reached an agreement in principle, subject to final documentation with its
lender, and conditioned upon a partial payment of principal and loan fees, for
the forbearance of its collection rights under the note to March 31, 1997. As a
forward looking statement, Onsite anticipates finalizing the forbearance
agreement by February 28, 1997, subject to obtaining a satisfactory agreement
with the buyer.
The closing of the transaction involving the sale of TCC is subject to certain
conditions which are not controlled by Onsite. For example, the buyer must
obtain third party financing in order to pay the purchase price, most of which
will be used to pay off the TCC debt. While the buyer has assured Onsite that it
has been diligent in its efforts to obtain the financing, no assurances can be
given that the buyer will be successful in financing the purchase of TCC. In the
event that the buyer is not able to advance funds towards the purchase price in
an amount sufficient to pay off the TCC debt by March 31, 1997 as presently
negotiated under the purchase and sale agreement, or TCC is unable to secure
other sources of financing sufficient to retire the debt, and no further
extensions are given, TCC's lender may exercise its rights under its security
agreement and foreclose on the assets of TCC. A default on the TCC loan is also
an "event of default" under Onsite's indebtedness to another lender in the
approximate amount of $600,000. While it is uncertain whether TCC's lender, or
Onsite's lender, would necessarily be anxious to exercise its collection rights
while the transaction involving the sale of TCC is still pending, if the TCC
debt does not get repaid on or before March 31, 1997, and one or both lenders
decide to exercise their rights under their security agreements, then Onsite may
suffer material adverse financial consequences if it is not able to promptly
cure the defaults by additional agreements or refinancing the TCC debt.
Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders-Not Applicable
The Annual Meeting of Stockholders of Onsite was held in Carlsbad, California,
on December 4, 1996. The following matters were submitted to a vote of
stockholders:
1. To elect one director of Onsite by holders of Class A Common
Stock, and to elect one director of Onsite by holders of
Series A Convertible Preferred Stock to hold office until the
1997 Annual Meeting of Stockholders and until their respective
successors are elected and qualified; and
2. To approve an amendment to Onsite's 1993 Stock Option Plan (i)
increasing the number of shares available for grant under the
Plan; and (ii) increasing the number of shares to be granted
to non-employee directors of Onsite.
Stockholders of record at the close of business on October 11, 1996, were
entitled to notice of, and to vote at, the meeting.
The following is a summary of the results of that meeting:
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Name of Director Result Votes For Votes Total
Withheld
William M. Gary, III ELECTED 10,255,532 15,778 10,271,310
H. Tate Holt ELECTED 10,255,532 15,778 10,271,310
Timothy G. Clark ELECTED 10,255,532 15,778 10,271,310
PROPOSAL NO. 2 - AMENDMENT TO STOCK OPTION PLAN
Proposal Result Votes For Votes Votes Total
Against Withheld
Amendment to ADOPTED 8,169,843 240,050 14,613 8,424,506
1993 Stock
Option Plan
Item 5. Other - With the exception of historical facts stated herein, the
matters discussed in this report are "forward looking" statements that involve
risks and uncertainties that could cause actual results to differ materially
from projected results. Such "forward looking" statements include, but are not
necessarily limited to , statements regarding anticipated levels of future
revenue and earnings from operations of Onsite, projected costs and expenses
related to Onsite's energy services agreements, and the availability of future
debt and equity capital on commercially reasonable terms. Factors that could
cause actual results to differ materially include, in addition to the other
factors identified in this report, the cyclical and volatile price of energy,
the inability to continue to contract sufficient customers to replace contracts
as they become completed, unanticipated delays in the approval of proposed
energy efficiency measures by Onsite's customers, delays in the receipt of, or
failure to receive necessary governmental or utility permits, or approvals, or
the renewals thereof, risks and uncertainties relating to general economic and
political conditions, both domestically and internationally, changes in the law
and regulations governing Onsite's activities as an energy services company and
the activities of the nation's public utilities seeking energy efficiency as a
cost effective alternative to constructing new power generation facilities,
results of project specific and company working capital and financing efforts
and market conditions, and other risk factors detailed in Onsite's Securities
and Exchange Commission ("SEC") filings including the risk factors set forth in
Onsite's Registration Statement on Form S-4, SEC File NO. 33-66010. Readers of
this report are cautioned not to put undue reliance on "forward looking
statements which are, by their nature, uncertain as reliable indicators of
future performance. Onsite disclaims any intent or obligation to publicly update
these "forward looking" statements, whether as a result of new information,
future events, or otherwise.
Item 6. Exhibits and Reports on Form 8-K -
Exhibit
Number
11 Statement re per share earnings
SIGNATURES
In accordance with the requirements of the Securities Exchange Act , the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ONSITE ENERGY CORPORATION
Dated: February 11, 1997 By: s/Richard T. Sperberg
----------------------- -----------------------
Richard T. Sperberg
Chief Executive Officer
Dated: February 12 1997 By: S/J. Bradford Hanson
----------------------- -----------------------
J. Bradford Hanson
Chief Financial Officer
and Principal
Accounting Officer