U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-QSB/A-2
(Filed July 27, 2000)
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended September 30, 1999.
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 X No ___
The number of Class A common stock, $0.001 par value, outstanding as of November
15, 1999 is 18,641,302.
2
Onsite Energy Corporation
Condensed Consolidated Balance Sheet
September 30, 1999
(Unaudited)
ASSETS
Current Assets:
Cash $ 585,325
Accounts receivable, net of allowance for
doubtful accounts of $35,000 4,690,765
Inventory 183,760
Capitalized project costs 206,169
Costs and estimated earnings in excess of
billings on uncompleted contracts 723,299
Assets held for sale 328,172
Other current assets 43,423
-------------
TOTAL CURRENT ASSETS 6,760,913
Cash-restricted 118,775
Property and equipment, net of accumulated
depreciation and amortization $1,122,000 1,284,791
Other assets 41,221
-------------
TOTAL ASSETS $ 8,205,700
=============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable - related parties $ 81,456
Notes payable 1,806,869
Accounts payable 9,384,270
Billings in excess of costs and estimated earnings
on uncompleted contracts 955,798
Accrued expenses and other liabilities 611,570
-------------
TOTAL CURRENT LIABILITIES 12,839,963
Long-Term Liabilities:
Deferred income 1,083,557
-------------
TOTAL LIABILITIES 13,923,520
-------------
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,
18,641,302 issued and outstanding 18,641
Class B common stock, 1,000 shares authorized, none
issued and outstanding -
Additional paid-in capital 27,413,164
Notes receivable - stockholders (4,335,523)
Accumulated deficit (28,814,801)
-------------
TOTAL SHAREHOLDERS' DEFICIT (5,717,820)
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 8,205,700
=============
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 September 30,
1999 1998
------------ ------------
Revenues $ 9,594,181 $ 9,312,759
Utility revenues 145,900 141,668
------------ ------------
Total revenues 9,740,081 9,454,427
Cost of sales 7,443,959 7,902,823
------------ ------------
Gross margin 2,296,122 1,551,604
Selling, general, and administrative expenses 2,979,350 2,691,458
Depreciation and amortization expense 143,625 290,622
Recovery of reserve provided for sale
or disposal of subsidiary (358,670) -
------------ ------------
Operating loss (468,183) (1,430,476)
------------ ------------
Other income (expense):
Interest expense (118,834) (110,066)
Interest income 5,623 37,924
------------ ------------
Total other expense (113,211) (72,142)
------------ ------------
Loss before provision for income taxes (581,394) (1,502,618)
Provision for income taxes 3,600 -
------------ ------------
Net loss $ (584,994) $ (1,502,618)
============ ============
Net loss allocated to common shareholders $ (1,347,756) $ (1,528,193)
============ ============
Basic and diluted loss per common share: $ (0.07) $ (0.08)
============ ============
Weighted average number of shares
used in per common share calculation: 18,628,894 18,295,536
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
Onsite Energy Corporation
Condensed Consolidated Statement of Cashflows
(Unaudited)
Three Months Ended September 30,
1999 1998
----------- ------------
Cash flows from operating activities:
Net loss $ (584,994) $ (1,502,618)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of excess purchase price over net
assets acquired 8,279 125,598
Amortization of acquired contract costs (59,147) -
Non-cash compensation related to stock issuance 47,500
Provision for bad debts - 74,970
Depreciation 135,345 165,024
Recovery of reserve provided for sale or disposal
of subsidiary (358,670) -
(Increase) decrease:
Accounts receivable 705,086 (2,544,304)
Costs and estimated earnings in excess of billings
on uncompleted contracts 381,431 204,360
Inventory 1,802 16,786
Other assets (15,387) 283,501
Cash-restricted 29,063 -
Increase (decrease):
Accounts payable 980,634 2,082,451
Billings in excess of costs and estimated earnings
on uncompleted contracts (440,965) -
Accrued expenses and other liabilities (594,497) (162,287)
Deferred income (23,739) (10,578)
----------- ------------
Net cash provided by (used in) operating activities 211,741 (1,267,097)
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment (21,186) (38,544)
Loan to shareholders (242,424) (806,735)
----------- ------------
Net cash used in investing activities (263,610) (845,279)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,000,000 1,000,000
Proceeds from exercise of stock options - 15,301
Proceeds from borrowings, net - 417,901
Repayment of notes payable - related party (130,458) (143,794)
Repayment of notes payable (1,132,756) (122,056)
----------- ------------
Net cash provided by (used in) financing activities (263,214) 1,167,352
----------- ------------
Net decrease in cash (315,083) (945,024)
Cash, beginning of period 900,408 2,093,006
----------- ------------
Cash, end of period $ 585,325 $ 1,147,982
=========== ============
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 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 September 30, 1999, and the
consolidated statements of operations and cash flows for the three
months ended September 30, 1999 and 1998, represent the financial
position and results of operations of the Company.
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.
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
6
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 month periods ended
September 30, 1999:
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
As Originally Filed As Restated As Originally Filed As Restated
Revenues $ 9,575,572 $ 9,740,081 $ 9,318,550 $ 9,454,427
=========== =========== ============ ============
Net income (loss) $ (738,953) $ (584,994) $ (1,610,506) $ (1,502,618)
=========== =========== ============ ============
Net income (loss per share) - basic and diluted $ (0.08) $ (0.07) $ (0.09) $ (0.08)
=========== =========== ============ ============
NOTE 4: For current disclosures, refer to Form 10-QSB for the period ended
March 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Background
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995. With the exception of historical facts
7
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.
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, institutional and residential 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 upgrade 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
environmental impact feasibility studies. The Company has been accredited by the
National Association of Energy Service Companies ("NAESCO"). 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.
In October 1997, the Company acquired Westar Business Services, Inc., which was
renamed Onsite Business Services, Inc., and recently renamed Onsite Energy
Services, Inc. ("OES"). OES provides utility services and industrial water
services primarily in the states of Kansas, Missouri and Oklahoma.
8
In February 1998, OES acquired the operating assets of Mid-States Armature
Works, Inc. through a newly-formed subsidiary, Onsite/Mid-States, Inc. ("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 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.
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% of its interest in LTS.
On June 30, 1998, the Company acquired the assets and certain liabilities of
SYCOM Enterprises, LLC, through a newly-formed subsidiary, SYCOM ONSITE
Corporation ("SO Corporation"). SO Corporation is 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 of REEP, Inc. for assumption of certain liabilities. 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.
Results of Operations.
Revenues for the three-month period ended September 30, 1999 were $9,740,081
compared to $9,454,427 for the same period in 1998, an increase of $285,654, or
3.02 percent. The increase in revenue was due primarily to the existence of
several major contracts (in excess of $1,000,000) in the current fiscal quarter,
whereas the prior year only benefited from one major contract.
Cost of sales for the quarter ended September 30, 1999 was $7,443,959 compared
to $7,902,823 for the quarter ended September 30, 1998, a decrease of $458,864
or 5.81 percent.
Gross margin for the three month period ended September 30, 1999 was $2,296,122
(23.57 percent of revenues), compared to $1,551,604 (16.41 percent of revenues).
The increase in gross margin as a percentage of sales was the result of several
contracts in the quarter ended September 30, 1998 with lower than historical
margins as well as lower than typical margins at LTS.
Selling, general and administrative ("SG&A") expense for the quarter ended
September 30, 1999 was $2,979,350 compared to $2,691,458 for the quarter ended
September 30, 1998, an increase of $287,892, or 10.70 percent. The increase was
substantially due to an overall increase in salaries and benefits due to the
addition of two lighting subsidiaries and expansion at LTS, an increase in
general liability insurance resulting from expansion and increased revenues and
an increase of overall facilities expenses for the Company due also to the
addition and expansion of the lighting subsidiaries.
Goodwill amortization and depreciation expense for the quarter ended September
30, 1999 was $143,625, compared to $290,622 for the comparable quarter in the
9
previous year, a decrease of $146,997, or 50.58 percent. 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% of the
Company's interest in LTS. The Company had decided on exploring options 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 a
definitive agreement for sale. The ultimate sale resulted in a loss of
approximately $651,000.
Net other expense for the quarter ended September 30, 1999 was $113,211,
compared to $72,142 for the three month period ended September 30, 1998, an
increase of $41,069. The primary reason for the change is the $32,301 decrease
in interest income.
Net loss for the three months ended September 30, 1999 was $584,994, or $0.07
loss per share, compared to net loss of $1,502,618, or $0.08 loss per share for
the same period in 1998.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $585,325 as of September 30, 1999,
compared to $900,408 as of June 30, 1999, a decrease of $315,083. Working
capital was a negative $6,079,050 as of September 30, 1999, compared to a
negative $6,511,390 as of June 30, 1999.
Cash flows provided by operating activities were $211,741 for the three month
period ended September 30, 1999 compared to cash flows used in operating
activities of $1,267,097 for the same three month period in 1998. The change was
primarily due to the decline in net loss from $1,502,618 for the three months
ended September 30, 1998 to $584,994 for the three months ended September 30,
1999.
Cash flows used in investing activities in the first three months of 1999 were
$263,610, compared to $845,279 in the first fiscal quarter in the prior year.
The decrease was attributable to a reduction in loans and advances to affiliates
of the Company.
Cash flows used in financing activities were $263,214 for the three months ended
September 30, 1999, compared to cash flows provided by financing activities of
$1,167,352 for the three month period ended September 30, 1998. Although there
were proceeds from the issuance of stock in the amount of $1,000,000 in both
fiscal quarters, the principal reason for the decrease in the quarter ended
September 30, 1999 was the repayment of notes payable for $1,132,756.
The Company has shown significant net losses for the year ended June 30, 1999 as
well as the three months ended September 30, 1999. Management believes that the
Company will be able to generate additional revenues and operating efficiencies
through its acquisitions as well as by other means to achieve profitable
operations. During the quarter ended September 30, 1999, 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
10
to explore the sale or disposition of the Company's lighting subsidiaries, which
could provide capital, 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% of its interest in LTS. In addition, the Company is
exploring strategic relationships with companies that could involve an
investment in the Company. The Company may also raise cash through the sale of
long term future revenue streams that it currently owns or has rights to. The
Company is also examining ways to further reduce overhead including, but not
limited to, the possibility of targeted staff reductions. Further, the Company,
through the acquisition of other energy service companies, expects to continue
to gain economies of scale through the use of a consolidated management team and
the synergies of marketing efforts of the different entities. 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.
Year 2000. The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's or its suppliers' and customers' computer programs that have date
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company believes that substantially all software applications
currently being used for the financial and operational systems have adequately
addressed any year 2000 issues. All hardware systems have been assessed and
plans have been developed to address systems modification requirements. The
costs incurred to date related to its Year 2000 activities have not been
material to the Company, and based upon current estimates, the Company does not
believe that the total cost of its Year 2000 readiness programs will have a
material adverse impact on the Company's results of operations or financial
position. Any risks the Company faces are expected to be external to ongoing
operations. The Company has numerous alternative vendors for critical supplies,
materials and components. Current vendors and subcontractors who have not
adequately prepared for the year 2000 can be substituted in favor of those that
have prepared.
Part II - Other Information
Item 1. Legal Proceedings. In October 1998, Energy Conservation Consultants,
Inc. ("ECCI"), a Louisiana-based company, filed a suit (United States District
Court, Eastern District of Louisiana, Case No. 98-2914) against OES alleging
breach of contract in connection with one of the Company's projects. The suit
seeks reimbursement for expenses allegedly incurred by ECCI in the preparation
of an audit and lost profits. Discovery is ongoing and management is continuing
its attempts to settle the matter, including through mediation; however, no
agreement has been reached. A continuance has been granted and trial now is set
for February 2000.
Additionally, 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 action seeks compensatory damages and punitive damages in excess of
$25,000. Mediation engaged in by the parties in an effort to settle this matter
was unsuccessful. Hence, discovery is ongoing, and the Company intends to
vigorously defend itself in this matter.
11
In November 1999, Independent Energy Services, Inc., a subcontractor to the
Company, filed a suit (United States District Court, District of New Jersey,
Case No. 99-5159 (AET)) against the Company and three of its directors and
officers alleging breach of contract and related causes of action in connection
with one of the Company's projects. The suit seeks payment of monies ($434,234)
allegedly due under a subcontract, as well as consequential damages, interest
and costs of suit. The Company is attempting to settle the matter; however, no
settlement agreement has been reached.
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
Form 8-K filed November 16, 1999, regarding the Acquisition and
Release Agreement to sell ninety-five percent of the issued and
outstanding stock of Lighting Technology Services, Inc.
Exhibit 27 Financial Data Schedules
12
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: July 26, 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