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 March 31, 2000.
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
(Name of small business issuer in its charter)
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: (760) 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 _ No___X___
The number of Class A common stock, $0.001 par value, outstanding as of June 22,
2000 is 18,049,265.
2
Onsite Energy Corporation
Condensed Consolidated Balance Sheet
March 31, 2000
(Unaudited)
ASSETS
Current Assets:
Cash $ 79,267
Accounts receivable, net of allowance for
doubtful accounts of $31,000 2,273,767
Capitalized project costs 70,327
Costs and estimated earnings in excess of
billings on uncompleted contracts 797,178
Assets held for sale 707,894
Other assets 55,725
------------
TOTAL CURRENT ASSETS 3,984,158
Cash-restricted 779
Property and equipment, net of accumulated
depreciation and amortization $1,197,000 843,433
Other assets 52,745
------------
TOTAL ASSETS $ 4,881,115
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 1,490,296
Accounts payable 7,881,094
Billings in excess of costs and
estimated earnings on uncompleted contracts 1,533,761
Accrued expenses and other liabilities 587,231
------------
TOTAL CURRENT LIABILITIES 11,492,382
Long-Term Liabilities:
Deferred Income 766,510
------------
TOTAL LIABILITIES 12,258,892
------------
Commitments and contingencies
Shareholders' Equity (Deficit):
Preferred Stock, Series C, 842,500 shares authorized,
649,120 issued and outstanding
(Aggregate $3,245,600 liquidation preference) 649
Preferred Stock, Series D, 157,500 shares authorized,
issued and outstanding and held in escrow -
Preferred Stock, Series E, 50,000 shares authorized,
issued and outstanding 50
Common Stock, $.001 par value, 24,000,000 shares authorized:
Class A common stock, 23,999,000 shares authorized,
18,739,265 issued and outstanding 18,739
Class B common stock, 1,000 shares authorized, none issued
and outstanding -
Additional paid-in capital 27,358,174
Notes receivable - stockholders (3,733,142)
Accumulated deficit (31,022,247)
------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (7,377,777)
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 4,881,115
============
The accompanying notes are an integral part of these consolidated financial
statements.
3
Onsite Energy Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31, Nine Months Ended March 31,
2000 1999 2000 1999
------------- -------------- -------------- --------------
Revenues $ 2,810,630 $ 12,626,593 $ 14,715,708 $ 31,254,053
Utility Revenues 207,604 141,668 1,109,950 425,004
------------- -------------- -------------- --------------
Total revenues 3,018,234 12,768,261 15,825,658 31,679,057
Cost of sales 1,631,288 9,309,107 10,992,254 24,979,061
------------- -------------- -------------- --------------
Gross margin 1,386,946 3,459,154 4,833,404 6,699,996
Selling, general, and administrative
expenses 2,019,491 2,691,633 7,166,465 8,139,931
Depreciation and amortization expense 128,108 258,421 402,981 814,044
Recovery of reserve provided for sale
or disposal of subsidiary - - (358,670) -
Loss on disposition of subsidiary 72,520 - 72,520 -
------------- -------------- -------------- --------------
Operating income (loss) (833,173) 509,100 (2,449,892) (2,253,979)
------------- -------------- -------------- --------------
Other income (expense):
Interest expense (57,634) (56,766) (250,952) (261,467)
Interest income 272 30,341 26,277 96,390
------------- -------------- -------------- --------------
Total other expense (57,362) (26,425) (224,675) (165,077)
------------- -------------- -------------- --------------
Income (loss) before provision for
income taxes (890,535) 482,675 (2,674,567) (2,419,056)
Provision for income taxes 2,858 - 6,658 -
------------- -------------- -------------- --------------
Net income (loss) $ (893,393) $ 482,675 $ (2,681,225) $ (2,419,056)
============= ============== ============== ==============
Net income (loss) allocated to common
shareholders $ (981,108) $ 431,079 $ (3,531,702) $ (2,546,394)
============= ============== ============== ==============
Income (loss) per common share - basic: $ (0.05) $ 0.02 $ (0.19) $ (0.14)
============= ============== ============== ==============
Income (loss) per common share - diluted: * $ 0.02 * *
============= ============== ============== ==============
Weighted average number of shares
used in per common share calculation
- basic 18,033,932 18,537,128 18,218,903 18,433,065
============= ============== ============== ==============
Weighted average number of shares
used in per common share calculation
- diluted: * 22,567,490 * *
============= ============== ============== ==============
*Not applicable as effect would be anti-dilutive
The accompanying notes are an integral part of these consolidated financial
statements.
4
Onsite Energy Corporation
Condensed Consolidated Statement of Cashflows
(Unaudited)
Nine Months Ended March 31,
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (2,681,225) $ (2,419,056)
Adjustments to reconcile net loss to net cash (used in)
operating activities:
Amortization of excess purchase price over net assets
acquired - 376,793
Loss on sale of assets 72,520 -
Provision for bad debts (4,000) 90,000
Depreciation 402,981 437,251
Recovery of reserve provided for sale or disposal of
subsidiaries (358,670) -
Non-cash Compensation related to stock issuancce 47,500 -
Non-cash Compensation related to stock issued to 401k 46,283 -
(Increase) decrease:
Accounts receivable 3,720,472 (3,125,213)
Costs and estimated earnings in excess of billings on
uncompleted contracts 307,551 (1,542,681)
Inventory 6,411 (10,803)
Other assets (11,018) 139,877
Capitalized project costs (366,255) 131,720
Cash-restricted 147,059 24,141
Increase (decrease):
Accounts payable (1,006,972) 5,201,100
Billings in excess of costs and estimated earnings on
uncompleted contracts 136,998 -
Accrued expenses and other liabilities (730,231) (478,676)
Deferred income (154,607) (31,735)
------------ ------------
Net cash (used in) operating activities (425,203) (1,207,282)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (29,250) (63,670)
Loans to shareholders 46,699 (1,837,394)
Proceeds from sale of assets 296,697 -
------------ ------------
Net cash provided by (used in) investing activities 314,146 (1,901,064)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,000,000 2,000,000
Proceeds from exercise of stock options - 23,479
Proceeds from borrowings, net 152,942 153,634
Repayment of notes payable - related party (211,914) (178,266)
Repayment of notes payable (1,651,112) (404,766)
------------ ------------
Net cash provided by (used in) financing activities (710,084) 1,594,081
------------ ------------
Net decrease in cash (821,141) (1,514,265)
Cash, beginning of period 900,408 2,093,006
------------ ------------
Cash, end of period $ 79,267 $ 578,741
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
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 dba ONSITE SYCOM Energy Corporation (the "Company") as of
and for the year ended June 30, 1999 (as the same has been amended)
and all other subsequent filings. 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 March 31, 2000, and the
consolidated statements of operations and cash flows for the three and
nine month periods ended March 31, 2000 and 1999, represents the
financial position and results of operations of the Company and are
not necessarily indicative of the results that will be achieved for
the entire fiscal year.
NOTE 3: Financial Statement Restatement. The Company had previously been
corresponding with the SEC regarding the Company's Form 10-KSB for the
year ended June 30, 1998. In response to information submitted by the
Company, on December 3, 1999, the SEC sent a comment letter directing
the Company to restate its financial statements for each of the last
three fiscal years ended June 30, 1999, 1998, and 1997 as well as for
the quarter ended September 30, 1999. The restatement is the result of
a review of the Company's accounting policies as it related to the
timing of the recognition of revenues and expenses.
The SEC took exception to certain applications of accounting
principles as applied by the Company in the areas of the timing of
revenue recognition where utility incentive payments are a part of the
Company's revenue stream, the timing of revenue recognition with
respect to the sale of future utility revenue payments and the timing
of revenue and expense recognition relative to contracts containing
future commitments of services following the implementation of certain
projects. As a result, the Company restated its previously filed
financial statements for each of the fiscal years ending June 30,
1997, 1998 and 1999, as well as the first (a second amendment) and
second fiscal quarters ended September 30, 1999 and December 31, 1999.
6
The Company implemented several projects in fiscal 1998 where the
price to the customer was less than the cost to implement the project,
creating a loss for accounting purposes. This "loss" was recovered and
profits were achieved through the Company's retaining a share of
utility incentive payments that resulted from energy savings from the
implemented project. In these instances, the Company estimated its
revenue from these utility incentive payments and recognized the
revenue as the project was being implemented using the percentage of
completion methodology. The SEC has required the Company to defer
recognition of the utility incentive payment component of revenue
until the point in time that the utility is billed for the incentive
payments. Generally, these billings occur on a quarterly basis over a
three year period.
Further, the Company sold other future utility incentive payment
streams to a third party on a non-recourse basis. At the time of the
sale, in fiscal 1997 and 1998, the Company recognized revenue to the
extent it received cash. The SEC has required the Company to record
these payments as a financing transaction (debt) and to recognize
revenue related to the utility incentive payments on an as billed
basis, again quarterly over a three year period.
In addition, the Company has a small number of contracts for which it
has a commitment to provide relamping and other ongoing services
several years after the initial implementation of the project. The
Company originally recognized all the revenue and an estimate of the
future cost as the project was being implemented. The SEC has required
the Company to defer a portion of the revenue and eliminate the
reserve for future cost until the relampings actually occur.
The following table presents the statements of operations as
originally filed and as amended for the three and nine month periods
ended March 31, 1999:
Three Months Ended Nine Months Ended
March 31, 1999 March 31, 1999
As Originally Filed As Restated As Originally Filed As Restated
------------------- ------------- ------------------- ------------
Revenues $ 12,632,384 $ 12,768,261 $ 31,271,427 $ 31,679,057
============ ============ ============ ============
Net income (loss) $ 374,787 $ 482,675 $ (2,742,720) $ (2,419,056)
============ ============ ============ ============
Net income (loss per share) - basic $ 0.02 $ 0.02 $ (0.16) $ (0.14)
============ ============ ============ ============
Net income (loss per share) - diluted $ 0.02 $ 0.02 - -
============ ============ ============ ============
*Not applicable as effect would be anti-dilutive
7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. With the exception of historical facts
stated herein, the matters discussed in this quarterly report are "forward
looking" statements that involve risks and uncertainties that could cause actual
results to differ materially from projected results. The "forward looking"
statements contained herein are cross-referenced to this paragraph. Such
"forward looking" statements include, but are not necessarily limited to,
statements regarding anticipated levels of future revenue and earnings from
operations of the Company, projected costs and expenses related to the Company'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 the Company'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 the Company's activities as an energy services company
and the activities of the nation's regulators and 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
the Company's Securities and Exchange Commission filings including the risk
factors set forth in the Company's Form 10-KSB for the fiscal year ended June
30, 1999 (as the same has been amended). 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. The Company
disclaims any intent or obligation to publicly update these "forward looking"
statements, whether as a result of new information, future events or otherwise.
Background
The Company is an energy services company ("ESCO") that assists energy customers
in lowering their energy costs by developing, engineering, installing, owning
and operating efficient, environmentally sound energy efficiency and power
supply projects, and advising customers on the purchasing of energy in
deregulating energy markets. The Company offers its services to industrial,
commercial and institutional customers. By combining development, engineering,
analysis, and project and financial management skills, the Company provides a
complete package of services, ranging from feasibility assessment through
construction and operation for projects incorporating energy efficient lighting,
energy management systems, heating, ventilation and air conditioning (HVAC)
upgrades, cogeneration and other energy efficiency measures. In addition, the
Company offers bill auditing, tariff analysis, transmission and distribution
analysis and upgrades, and aggregation services. The Company also provides
professional consulting services in the areas of direct access planning, market
assessment, business strategies, public policy analysis, and engineering and
development services. The Company has been accredited by the National
Association of Energy Service Companies. It is the Company's mission to save its
customers money and improve the quality of the environment through independent
energy solutions.
As of June 30, 1999, the Company's auditors issued a qualified opinion subject
to the Company's ability to continue as a going concern. The going concern
issues are the result of continued operating losses, negative working capital
and a negative shareholders' equity. See the Liquidity and Capital Resources
discussion below for details of the Company's plan for dealing with these
issues.
8
In October 1997, the Company acquired Westar Business Services, Inc., which was
renamed Onsite Business Services, Inc., and subsequently renamed Onsite Energy
Services, Inc. ("OES"). OES previously provided utility services and industrial
water services primarily in the states of Kansas, Missouri and Oklahoma.
However, as a result of the February 2000, sale of substantially all of the
assets of Onsite/Mid-States, Inc. ("OMS"), a wholly-owned subsidiary of OES, and
the loss of certain key employees of OES in connection with that transaction,
all as discussed in detail below, OES currently focuses primarily on industrial
water services.
In February 1998, OES acquired the operating assets of Mid-States Armature
Works, Inc. through its newly-formed subsidiary, OMS. OMS provides specialized
medium and high voltage electrical fabrication, installation, maintenance and
repair services to municipal utility customers and others, primarily in the
states of Kansas, Nebraska, Missouri, Iowa and Oklahoma. In February 2000, OMS
completed a transaction to sell substantially all of the assets of OMS to a
private buyer in exchange for $300,000 cash plus uncollected earnings on
existing projects that were transferred as part of the assets. As part of the
transaction, all of the employees of OMS and certain key employees of OES ceased
employment with OMS and/or OES, as applicable, and began employment with the
buyer.
In April 1998, the Company formed Onsite Energy de Panama, S.A., a Panamanian
corporation, to facilitate the development and acquisition of potential projects
in Panama and Latin America. There has been no financial activity in this
subsidiary since its inception.
In June 1998, the Company acquired Lighting Technology Services, Inc. ("LTS").
LTS provides energy efficiency projects through retrofits of lighting and
controls either independently or as a subcontractor to other energy services
companies primarily in Southern California. Effective September 30, 1999, the
Company sold 95 percent of its interest in LTS. In exchange for the shares of
LTS, the Company received the 690,000 shares of the Company's Class A Common
Stock that it originally had issued in connection with the acquisition of LTS,
as well as a 10 year non-interest bearing note for approximately $936,000, which
may be repaid by LTS by providing lighting services to the Company. The Company
incurred a loss of approximately $652,000 as a result of the sale. In addition,
the note has been fully reserved due to uncertainty surrounding its
recoverability.
On June 30, 1998, the Company acquired the assets and certain liabilities of
SYCOM Enterprises, LLC ("SYCOM LLC"), through a newly-formed subsidiary, SYCOM
ONSITE Corporation ("SO Corporation"). SYCOM LLC was also an ESCO with customers
primarily on the East Coast of the United States.
Effective April 1, 1999, the Company formed REEP Onsite, Inc. ("REEP") and ERSI
Onsite, Inc. ("ERSI"), for the purpose of acquiring substantially all of the
assets and certain liabilities of REEP, Inc. REEP provides residential energy
services while ERSI is a commercial lighting contractor. In the fiscal first
quarter, the Company made a decision to explore the sale or disposition of its
lighting subsidiaries. Unless the context indicates otherwise, reference to the
Company shall include all of its wholly-owned subsidiaries.
Since the close of the SYCOM transaction in June 1998, Onsite has experienced
significant losses and as a result has been unable to provide sufficient loans
to SYCOM Corporation to enable SYCOM Corporation and its affiliate, SYCOM
Enterprises, L.P. ("SYCOM LP"), to make the requisite payments on a previous
loan from Public Service Conservation Resources Corporation ("PSCRC") to SYCOM
LP. PSCRC has given a notice to SYCOM Corporation and SYCOM LP alleging a
default by SYCOM LP under its agreements with PSCRC. The Company has given
notice to SYCOM Corporation of the termination of the Sale and Noncompetition
Agreement, given in accordance with the Company's rights under that Agreement,
as a result of the PSCRC default notice and the Company's continuing losses. The
9
Company, however, will retain the project assets purchased from SYCOM LLC in
June 1998 as well as projects developed since that date. In connection with the
notice of termination, S. Lynn Sutcliffe resigned as the President of the
Company.
The Company will maintain its subsidiary, SO Corporation, for the purpose of
completing several long-term construction projects as well as for the management
of other revenue generating activities and to meet its ongoing commitments for
M&V for projects primarily located on the East Coast. Efforts by SO Corporation
to develop any new business in this region will cease as of June 30, 2000.
In the fiscal year ended June 30, 1999, SO Corporation accounted for
approximately $20,000,000 in revenues and approximately $3.700,000 in gross
margin. In addition, SO Corporation had approximately $5.400,000 in selling,
general and administrative expenses (`S,G&A"). It is anticipated that the
revenue, margin contribution and S,G & A will be substantially less in the
fiscal year ended June 30, 2000, and that all revenue and expense amounts will
continue to decline in future years.
As a result of the disposition of subsidiaries and the decision to terminate its
arrangement with SYCOM, the size of the Company has been reduced to essentially
how it existed at the end of the fiscal year 1997. The Company has become a
smaller ESCO, without as broad a national exposure as it had over the course of
the last two fiscal years. The Company, as it exists today, will generate
significantly less in revenues and expenses than it had generated in fiscal 1999
and what is expected in the fiscal year ending June 30, 2000.
Pursuant to the Certificate of Designations for the Series C Convertible
Preferred Stock (the "Series C Stock"), each holder of Series C Stock is
entitled, when and as declared by the Board of Directors of the Company and out
of any funds legally available therefore to an annual dividend at the rate of
9.75 percent of the liquidation preference ($5 per share), which dividend is
payable quarterly. All of the issued and outstanding shares of Series C Stock
are held by Westar Capital, Inc. ("Westar"). Under the Certificate of
Designations if, at any time, four or more quarterly dividends, whether or not
consecutive, on the Series C Stock are in default, in whole, or in part, the
holders of the Series C Stock are entitled to elect the smallest number of
directors as would constitute a majority of the Board of Directors of the
Company and the holders of the Company's Class A Common Stock as a class are
entitled to elect the remaining directors. Additionally, under the October 1997
Stock Subscription Agreement entered into by Westar and the Company, Westar
agreed for a period of five years to limit its equity ownership of the Company
to 45 percent of the outstanding shares of the Class A Common Stock on a fully
diluted basis and to not take certain other actions related to controlling or
attempting to control the Company unless it receives the Company's permission
via the majority vote of the directors of the Company's Board of Directors who
are not directors designated by Westar or are affiliates of Westar. However, if,
at any time, Westar exercises its rights to elect the majority of the Board of
Directors because four or more quarterly dividends, whether or not consecutive,
on the Series C Stock are in default, in whole or in part, all directors are
entitled to vote on such ownership issue and not just the non-Westar designated
directors.
Dividends were declared and paid as required for each of the quarters through
April 15, 1999. While the Board has authorized the payment of dividends to the
extent such declaration and payment is allowed under applicable Delaware
corporate law, under Delaware law, dividends on the Series C Stock could not be
declared and paid as required on July 15, 1999, October 15, 1999, January 15,
2000 or April 15, 2000. In March 2000, the Company reached an agreement with
Westar whereby the dividends due on October 15, 1999, and the January 15, 2000,
were waived by Westar in exchange for the Company's release of Westar and its
parent, Western Resources, Inc., from certain non-compete agreements. The
Company remains delinquent on the July 15, 1999 (15,823 shares of Series C
Stock) and the April 15, 2000 dividend ($81,040 cash dividend) requirements. The
amounts waived were 16,208 shares of Series C stock related to the October 15,
1999 dividend and $83,015 in cash dividends related to the January 15, 2000
dividend.
10
Results of Operations
In order to perform parallel nine and three month comparisons, the activity from
certain subsidiaries had to be eliminated from each fiscal year. The after
elimination comparisons exclude the activity of LTS, REEP and ERSI from
consolidated balances for the nine and three months ended March 31, 2000.
Nine months ended March 31, 2000 compared to the nine months ended March 31,
1999
Revenues for the nine month period ended March 31, 2000 were $15,825,658
compared to $31,679,057 for the same period in 1999, a decrease of $15,853,399,
or 50.04 percent. After the elimination of amounts related to the subsidiaries
identified above, revenues for the nine month period ended March 31, 2000 were
$11,462,876, compared to $23,549,022 for the same period in 1999 The decrease of
$12,086,146, or 51.32 percent, was primarily due to the 46.98 percent decrease
in revenue recognized on long term construction contracts at SO Corporation.
Cost of sales for the nine months ended March 31, 2000 was $10,992,254 compared
to $24,979,061 for the nine months ended March 31, 1999, a decrease of
$13,986,807, or 55.99 percent. After eliminations of cost of sales from the
identified subsidiaries, cost of sales were $8,180,489 for the nine months ended
March 31,2000, compared to $17,772,285 for the comparable period in 1999. The
decrease of $9,591,796, or 53.97 percent, was primarily due to the decrease in
the long term construction contracts from So Corporation as mentioned above.
Gross margin for the nine month period ended March 31, 2000 was $4,833,404
(30.54 percent of revenues), compared to $6,699,996 (21.15 percent of revenues)
for the nine month period ended March 31, 1999. The increase in gross margin as
a percentage of sales was the result of several contracts in the nine months
ended March 31, 1999 with lower than historical margins as well as lower than
typical margins at LTS. After the elimination of subsidiaries not included in
both periods, the gross margin for the nine month period ended March 31, 2000
was $3,282,387 (28.63 percent of revenues), compared to $5,776,737 (24.53
percent of revenues) for the nine month period ended March 31, 1999.
Selling, general and administrative ("SG&A") expense for the nine months ended
March 31, 2000 was $7,166,465 compared to $8,139,931 for the nine months ended
March 31, 1999, a decrease of $973,466, or 11.96 percent. After the elimination
of SG&A expenses of the identified subsidiaries, SG&A expenses were $5,801,934
for the nine months ended March 31, 2000, compared to $7,309,265 for the same
period on the previous year, a decrease of $1,507,331, or 20.62 percent. This
decrease is primarily attributable to the ongoing attempt by management to
reduce SG&A costs, including reduction in personnel and locations, among other
things.
Goodwill amortization and depreciation expense for the nine months ended March
31, 2000 was $402,981, compared to $814,044 for the comparable period in the
previous year, a decrease of $411,063, or 50.50 percent. After the elimination
of the identified subsidiaries, goodwill amortization and depreciation expenses
for the nine months ended March 31, 2000 were $390,702, compared to $581,727 for
the comparable period last year. The primary reason for the decrease was due to
the elimination of amortization of goodwill for SO Corporation resulting from
the write-off of the remaining goodwill at the fiscal year ended June 30, 1999.
Recovery of reserve provided for sale or disposal of subsidiary was a reduction
in operating loss (income) of $358,670 for the three months ended September 30,
1999 and is a non recurring item relating specifically to the sale of 95 percent
of the Company's interest in LTS. The Company had decided on exploring options
11
for the sale of LTS, and at that time established a reserve for possible loss of
$1,010,000 based upon estimates derived from the facts that existed prior to
entering into a definitive agreement for sale. The ultimate sale resulted in a
loss of approximately $651,000.
Loss on disposition of subsidiary in the amount of $72,520 is the result of
selling substantially all of the assets of OMS for less than the carrying value
of the assets.
Net other expense for the nine months ended March 31, 2000 was $224,675,
compared to a net other expense of $165,077 for the nine month period ended
March 31, 1999, an increase of $59,598, or 36.10 percent. After the elimination
of the activity of the identified subsidiaries, net other expense was $227,464,
compared to $100,252 for the same period in 1999, an increase of $127,212, or
126.89 percent. The increase is due to a reduction in interest income charged to
related parties in the current year.
Net loss for the nine months ended March 31, 2000 was $2,681,225, or $0.19 loss
per share, compared to net loss of $2,419,056, or $0.14 loss per share for the
same period in 1999. After the elimination of revenues and expenses from the
identified subsidiaries, net loss for the six month period ended March 31, 1999
was $3,300,861, compared to $2,220,015 for the comparable period in 1999.
Three months ended March 31, 2000 compared to the three months ended March 31,
1999
Revenues for the three month period ended March 31, 2000 were $3,018,234,
compared to $12,768,261 for the three month period ended March 31, 1999 a
decrease of $9,750,027, or 76.36 percent. In order to perform a parallel
comparison, revenues and expenses of the identified subsidiaries were
eliminated. After eliminations of these subsidiaries, revenues for the three
month period ended March 31, 2000 were $3,191,882, compared to $11,276,626 for
the same period in 1999, a decrease of $8,084,744, or 71.69 percent. This
decrease is primarily attributable to the decrease in revenue on long term
construction contracts at SO Corporation of $8,145,270.
Cost of sales for the three month period ended March 31, 2000 were $1,631,288,
compared to $9,309,107 for the same period ended March 31, 1999, a decrease of
$7,677,819, or 82.48 percent. After the elimination of the activity from the
identified subsidiaries, the cost of sales for the three month period ended
March 31, 2000 were $1,732,737, compared to $7,955,216 for the comparable period
in 1999, a decrease of $6,222,479, or 78.22 percent. This decrease is primarily
attributable to the decline in revenues on long term construction contracts at
SO Corporation as mentioned above.
Gross margin for the three months ended March 31, 2000, was $1,386,946 (45.95
percent of revenues), compared to $3,459,154 (27.09 percent of revenues) for the
three months ended March 31, 1999. After the elimination of revenues and cost of
sales of the identified subsidiaries, gross margin was $1,459,145 (45.71 percent
of revenues) for the three months ended March 31, 2000, compared to $3,321,410
(29.45 percent of revenues) for the comparable period in the previous year. The
increase as percentage of revenue was primarily the result of a concentration on
consulting projects in the quarter ended March 31, 2000, which generally have
higher gross margins.
SG&A expense was $2,019,491 for the three months ended March 31, 2000, compared
to $2,691,633 for the three months ended March 31, 1999, a decrease of $672,142,
or 24.97 percent. After the elimination of SG&A expense from the identified
subsidiaries, SG&A expense was $2,031,351 for the three month period ended March
31, 2000, compared to $2,410,942 for the comparable period in the previous year,
a decrease of $379,591, or 15.74 percent. The decrease was the result of efforts
to reduce SG&A expenses through a reduction in personnel and locations, among
other things.
12
Goodwill amortization and depreciation expense for the quarter ended March 31,
2000 was $128,108, compared to $258,421 for the comparable quarter in the
previous year, a decrease of $130,313, or 50.43 percent. After the elimination
of the identified subsidiaries, goodwill amortization and depreciation expense
for the three months ended March 31, 2000 was $128,108, compared to $183,422 for
the comparable period last year, a decrease of $55,314, or 30.16 percent. The
primary reason for the decrease was due to the elimination of amortization of
goodwill for SO Corporation resulting from the reduction of the remaining
goodwill at the fiscal year ended June 30, 1999.
Net other expense was $57,362 in the three months ended March 31, 2000, compared
to net other expense of $26,425 for the three month period ended March 31, 1999,
an increase of $30,937, or 117.07 percent. After the elimination of net other
income and expense from the identified subsidiaries, net other expense was
$58,562 for the three months ended March 31, 2000, compared to net other income
of $34,955 for the same period in 1999, an increase of $93,517. The change from
period to period was primarily attributable to interest income on related party
notes receivable in the previous year periods.
Net loss for the three months ended March 31, 2000 was $893,393, or $0.05 loss
per share, compared to net income of $482,675, or $0.02 income per share. After
the elimination of revenues and expenses of the identified subsidiaries, net
loss for the quarter ended March 31, 2000 was $834,202, compared to net income
of $756,492 for same period in the previous fiscal year, a decrease of
$1,594,694.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $79,267 as of March 31, 2000,
compared to $900,408 as of June 30, 1999, a decrease of $821,141. Working
capital was a negative $7,508,224 as of March 31, 2000, compared to a negative
$6,511,390 as of June 30, 1999.
Cash flows used in operating activities were $425,203 for the nine month period
ended March 31, 2000 compared to cash flows used in operating activities of
$1,207,282 for the same nine month period in 1999.
Cash flows provided by investing activities in the nine months ended March 31,
2000 were $314,146, compared to $1,901,064 used in investing activities in the
comparable period in the prior year.
Cash flows used in financing activities were $710,084 for the nine months ended
March 31, 2000, compared to cash flows provided by financing activities of
$1,594,081 for the nine month period ended March 31, 1999.
The Company has shown significant net losses for the year ended June 30, 1999,
as well as the nine months ended March 31, 2000. Management believes that the
Company will be able to generate revenues and operating efficiencies through
sales and/or financing of long term project revenue streams, sales of assets or
subsidiaries, as well as by other means to achieve profitable operations. During
the quarter ended March 31, 2000, the Company took steps to mitigate the losses
and enhance its future viability. Subsequent to its most recent fiscal year end,
the Company privately placed shares of newly created Series E Convertible
Preferred Stock ("Series E Stock") to existing shareholders for $1,000,000.
Concurrent with this private placement, members of senior management of the
Company agreed to receive shares of the Company's Class A Common Stock in lieu
of a portion of their salary in an effort to reduce cash outflows related to
compensation. During the first quarter, a decision was made to explore the sale
or disposition of the Company's lighting subsidiaries, which could provide
capital and reduce operating losses, and will allow management to better focus
on its core ESCO business activities. Subsequent to September 30, 1999, the
Company sold 95 percent of its interest in LTS. Subsequent to December 31, 1999,
OMS sold substantially all of its assets to a private party. As a result of the
sale, OES was able to reduce staff from six persons to one person. In addition,
13
subsequent to December 31, 1999, 17 persons were terminated by SYCOM Corporation
in the Company's East Coast operations. The Company also recently gave notice to
SYCOM Corporation of the termination of the Sale and Noncompetition Agreement
between the Company and SYCOM Corporation, in accordance with the Company's
rights under that Agreement.
In addition, the Company has been and is continuing exploring strategic
relationships with companies that could involve an investment in the Company.
The Company also may raise cash through the sale of long term future revenue
streams that it currently owns or has rights to under current agreements. The
Company also is examining ways to further reduce overhead including, but not
limited to, the possibility of targeted staff reductions, asset sales or the
sale of a portion of its operations to a third party that would provide ongoing
offset to the overall overhead of the Company. Management believes that all of
the above actions will allow the Company to continue as a going concern. Future
cash requirements depend on the Company's profitability, its ability to manage
working capital requirements and its rate of growth. Additional financing
through the sale of securities may have an ownership dilution effect on existing
shareholders.
Part II - Other Information
Item 1. Legal Proceedings.
In June 1999, a former officer of the Company (July 1998 through October 1998)
filed a suit (Superior Court of the State of California, County of San Diego,
North County Branch, Case No. N081711) alleging fraud, negligence and wrongful
discharge in connection with his employment termination in October 1998. The
Company settled this matter in April 2000. Any portion of the settlement not
covered by insurance was immaterial and accrued for as of March 31, 2000.
In March 2000, Powerweb Technologies, Inc., a subcontractor to ERSI, filed an
action (Superior Court of New Jersey, Law Division, Essex County, Docket No.
ESX-L-2071-00) against ERSI and the Company alleging breach of contract and
related causes of action in connection with one of the Company's projects. The
suit seeks payment of monies ($121,800) allegedly due under subcontracts, as
well as interest, costs of suit and punitive damages. Because the subcontracts
contain arbitration provisions requiring that any disputes between the parties
be settled by binding arbitration, the Company has filed a motion to dismiss the
action. The Company and ERSI are making efforts to settle this matter; however,
no settlement agreement has been reached.
In April 2000, the Company was served with two separate actions by General
Accident Insurance Company of America (Superior Court of New Jersey, Law
Division, Atlantic County, Docket No. ATL-L-93-00 and Superior Court of New
Jersey, Law Division, Morris County, Docket No. L-214-00) against the Company
and other parties alleging breach of contract and related actions in connection
with one of the Company's projects. The actions seek indemnification (in the
amount of $710,562) allegedly owed under an indemnity agreement executed by the
Company, plus interest, costs and other damages. The Company has filed its
answers in both actions. Additionally, in May 2000, D. Falasca Plumbing,
Heating, Cooling, Inc., a subcontractor to the Company on this project, filed
certain cross-claims against the Company in the above actions alleging breach of
contract and related causes of actions in connection with this project. The
cross-claims seek payment of monies ($757,337) allegedly owed under certain
agreements, including a subcontract, plus interest, costs of suit and other
alleged damages. The Company was served with copies of these claims in late May
and early June 2000, and is in the process of preparing its responsive
pleadings.
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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
Item 5. Other - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a) Reports on Form 8-K - None
Exhibit 27 Financial Data Schedules
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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
Date: June 23, 2000 By: \s\ Richard T. Sperberg
-----------------------------------
Richard T. Sperberg
Chief Executive Officer
By: \s\ J. Bradford Hanson
-----------------------------------
J. Bradford Hanson
Chief Financial Officer and
Principal Accounting Officer