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 September 30, 2001.
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
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(Name of small business issuer in its charter)
Delaware 33-0576371
--------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
701 Palomar Airport Road, Suite 200, Carlsbad, CA 92009
(Address of principal executive offices)
(760) 931-2400 Issuer's telephone number:
The number of Class A common stock, $0.001 par value, outstanding as of November
1, 2001 is 21,575,000.
2
Part I - Financial Information
Item 1. Financial Information
Onsite Energy Corporation
Condensed Consolidated Balance Sheet
(Amounts in thousands except per share amounts)
Balance at
September 30, 2001 June 30, 2001
(Unaudited) (Audited)
----------- -------------
ASSETS
Current Assets:
Cash $ 308 $ 113
Cash-restricted 20 75
Accounts receivable, net of allowance for doubtful accounts of $35 and $38 as of 1,594 1,947
September 30, 2001 and June 30, 2001, respectively
Costs and estimated earnings in excess of billings on uncompleted contracts 21 5
Capitalized Project Costs 115 234
Other assets 28 27
----------- -------------
TOTAL CURRENT ASSETS 2,086 2,401
Property and equipment, net of accumulated depreciation and
amortization of $630 and $563 as of September 30, 2001 and June 30, 2001,
respectively 209 220
Note receivable 600 600
Other assets 44 36
----------- -------------
TOTAL ASSETS $ 2,939 $ 3,257
=========== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable, current portion $ 174 $ 265
Capitalized lease obligation, current portion 122 171
Liabilities in excess of assets held for sale 2,830 3,139
Accounts payable 1,598 1,693
Billings in excess of costs and estimated earnings on uncompleted contracts 478 278
Accrued expenses and other liabilities 2,515 2,474
----------- -------------
TOTAL CURRENT LIABILITIES 7,717 8,020
Long-Term Liabilities:
Notes payable, less current portion --
Capitalized lease obligation, less current portion --
Deferred income 611 731
----------- -------------
TOTAL LIABILITIES 8,328 8,751
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Commitments and contingencies
Stockholders' Deficit
Preferred Stock, Series C, $.001 par value, 742 shares authorized, 649 issued
and outstanding as of September 30, 1001 and June 30, 2001 (aggregate
$3,246 liquidation preference). 1 1
Preferred Stock, Series D, $.001 par value, 158 shares authorized, none
issued and outstanding as of September 30, 2001 and June 30, 2001. -- --
Preferred Stock, Series E, $.001 par value, 50 shares authorized,
issued and outstanding as of September 30, 2001 and June 30, 2001 (aggregate
$1,000 liquidation preference). -- --
Common Stock, $.001 par value, 40,000 shares authorized as of September
30, 2001 and June 30, 2001:
Class A common stock, 37,999 shares authorized as of Septmeber 30, 2001
and June 30, 2001, 21,575 and 20,439 issued and outstanding of
September 30, 2001 and June 30, 2001, respectively 22 20
Class B common stock, 1,000 shares authorized, none issued and outstanding as
of September 30, 2001 and June 30, 2001. -- --
Additional paid-in capital 28,070 27,956
Notes receivable - stockholders' (248) (150)
Accumulated deficit (33,234) (33,321)
----------- -------------
TOTAL STOCKHOLDERS' DEFICIT (5,389) (5,494)
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,939 $ 3,257
=========== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Onsite Energy Corporation
Condensed Consolidated Statement of Operations
(Amounts in thousands except per share amounts)
(Unaudited)
Three Months Ended September 30,
2001 2000
---------- ---------
Revenues $ 3,270 $ 2,091
Project incentive revenue 272 844
---------- ---------
Total revenues 3,542 2,935
Cost of revenues 2,543 1,328
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Gross profit 999 1,607
Selling, general and administrative expenses 905 827
Depreciation and amortization expense 67 70
Compensation under variable incentive stock option plan (5) 177
---------- ---------
Operating income 32 533
---------- ---------
Other income (expense):
Interest expense (36) (29)
Interest income -- --
Other income 7 15
---------- ---------
Total other expense (29) (14)
---------- ---------
Income before provision for income taxes and extraordinary item 3 519
Provision for income taxes 2 --
---------- ---------
Net income from operations 1 519
Extraordinary Item:
Gain on extinguishment of liabilities 86 43
---------- ---------
Net income $ 87 $ 562
---------- ---------
Basic earnings per common share
Income from operations $ -- $ 0.03
Extraordinary item $ -- $ --
---------- ---------
Net income $ -- $ 0.03
========== =========
Diluted earnings per common share
Income from operations $ -- $ 0.01
Extraordinary item $ -- $ --
---------- ---------
Net income $ -- $ 0.01
========== =========
4
Onsite Energy Corporation
Condensed Consolidated Statement of Cashflows
(Amounts in thousands except per share amounts)
(Unaudited)
Three months ended September 30,
2001 2000
-------- -------
Cash flows from operating activities:
Net income $ 87 $ 562
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 67 70
Compensation under variable incentive stock option plan (5) 177
Gain on extinguishment of debt (86) (43)
(Increase) decrease in:
Cash-restricted 351 --
Accounts receivable 110 (336)
Costs and estimated earnings in excess of billings on uncompleted contracts (184) (54)
Capitalized project costs 119 95
Other assets (9) (57)
Increase (decrease) in:
Accounts payable (171) 18
Billings in excess of costs and estimated earnings on uncompleted contracts 200 302
Accrued expenses and other liabilities 38 (140)
Deferred income (149) (45)
-------- -------
Net cash provided by operating activities 368 549
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (56) (6)
Loans to Stockholders (98) (89)
-------- -------
Net used in investing activities (154) (95)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 121 --
Proceeds from notes payable -- 136
Repayment of notes payable (140) (271)
-------- -------
Net cash used in financing activities (19) (135)
-------- -------
Net increase in cash 195 320
Cash, beginning of period 113 226
-------- -------
Cash, end of period $ 308 $ 546
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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 (the "Company") as of and for the year ended June 30,
2001, 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 sheets as of September 30, 2001 and June
30, 2001, and the consolidated statements of operations and cash flows
for the three months ended September 30, 2001 and 2000, represent the
financial position and results of operations of the Company. The
results for the interim period ended September 30, 2001 are not
necessarily indicative of results that will be obtained in future
periods.
NOTE 3: Earnings per share calculations for the three month periods ended
September 30, 2001 and September 30, 2000 are as follows:
(Amounts in thousands except per share amounts)
Three Months Ended September 30,
2001 2000
------------ ---------------
BASIC EARNINGS (LOSS)
Net income $ 87 $ 562
Less: Preferred stock dividends (81) (81)
------------ ---------------
Net income allocated to common shareholders $ 6 $ 481
============ ===============
Weighted average number of common shares 21,162 18,694
============ ===============
Basic earnings per common share $ 0.00 $ 0.03
============ ===============
DILUTED EARNINGS (LOSS)
Net income available to common shareholders $ 6 $ 481
Preferred stock dividends 81 81
------------ ---------------
Net income available to common shareholders plus assumed conversion $ 87 $ 562
============ ===============
Weighted average number of common shares 21,162 18,694
Common stock equivalent shares representing assumed conversions of preferred stock 8,246 23,996
Common stock equivalent shares representing shares issuable upon exercise of of stock
options 782 362
------------ ---------------
Weighted average number of shares used in calculation of diluted earnings per common share 30,189 43,052
============ ===============
Diluted earnings per common share $ 0.00 $ 0.01
============ ===============
6
NOTE 4: In August of 2001, two officers of the Company elected to exercise
their options to purchase shares of the Company's Class A Common Stock
under the Company's incentive stock option plan. A total of 1,000,000
shares were purchased in this exercise. The officers purchased the
shares by executing promissory notes to the Company totaling $101,000.
The notes are secured by the stock purchased under the exercise,
provide for interest at 6% per annum payable annually, and mature upon
sale of the exercised option shares or August 1, 2006 whichever occurs
earlier and has been recorded as a reduction of stockholders' equity.
Item 2. Management's Discussion and Analysis or Plan 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
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, 2001. 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 and institutional customers. By combining development, engineering,
analysis, and project and financial management skills, the Company provides a
comprehensive 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
7
Company offers bill auditing, tariff analysis, transmission and distribution
analysis and upgrades, and measurement and verification ("M&V") services.
Through its subsidiary, Energy Nexus Group, Inc. ("ENG"), the Company also
provides professional consulting services in the areas of direct access
planning, market assessment, business strategies and public policy analysis. It
is the Company's mission to help customers save money through independent energy
solutions.
As of June 30, 2001, 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 negative shareholders' equity. See the Liquidity and Capital Resources
discussion below for details of the Company's plan for dealing with these
issues.
On July 1, 2001, the Company activated ENG, to facilitate the Company's
continuing consulting services business. The Company owns 100 percent of the
issued and outstanding common stock of ENG. As of July 1, 2001, the Company
transferred all of its consulting business unit personnel and related consulting
projects backlog to ENG.
In September 2001, an affiliate of the entities that own the underlying
collateral related to the notes receivable from stockholders, filed for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. Management
does not believe that the bankruptcy will have an impact on the Company's
existing interest in the underlying collateral.
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 providing
industrial water services.
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. Since the close of the SYCOM
transaction in June 1998, Onsite experienced significant losses and as a result
has terminated the Sale and Noncompetition Agreement with SYCOM Corporation
effective June 30, 2000. The Company, however, retained the project assets
purchased from SYCOM LLC in June 1998 as well as projects developed since that
date. The Company continues to 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 ceased as of June 30,
2000.
Since October 15, 2000, as a result of the Company's inability to issue dividend
payments because of its stockholders' deficit, the Company has been in default
on its quarterly requirement to pay dividends on the Series C Convertible
Preferred Stock (the "Series C Stock"). Under the Certificate of Designations
for the Series C Stock 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
8
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. Westar Industries, Inc. (fka Westar
Capital, Inc.) ("Westar") owns all of the Series C Stock. 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. The Company remains delinquent on the July
15, 1999, dividend (payable in 15,823 shares of Series C Stock, valued at
$1,661), and cash dividends of $567,000 payable from April 15, 2000 to October
15, 2001. The total cash value of dividends in arrears as of September 30, 2001,
was $486,000. While the Company has been unable to pay eight quarterly
dividends, as of the date of this quarterly report, Westar has not exercised its
right, discussed above, to elect a majority of the Board of Directors.
The Company has gone through significant changes over the past few years that
involved aggressive growth through acquisition and the subsequent divestiture or
ceased operations of nearly all of the added/created subsidiaries. As a result,
the Company has experienced substantial reductions in revenues, cost of sales
and selling, general and administrative expenses since July 2000. The Company
has focused itself back on its core business of being an energy services company
with primary emphasis in California markets.
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, 2001 were $3,542,000,
compared to $2,935,000 for the three month period ended September 30, 2000, an
increase of $607,000, or 21 percent. This increase was due primarily to
increased energy project installation activity on one major project located in
California and a continuing construction project on the East Coast.
Cost of sales for the three months ended September 30, 2001 was $2,543,000
compared to $1,328,000 for the three months ended September 30, 2000, an
increase of $1,215,000, or 91 percent. This increase was also primarily
attributable to energy project installation activity mentioned above.
Gross profit for the three months ended September 30, 2001 was $999,000 (28
percent of revenues), compared to $1,607,000 (55 percent of revenues) for the
three months ended September 30, 2000, a decrease of $608,000. This decline in
gross margins was primarily attributable to the one-time sale in the quarter
ended September 30, 2000 of approximately $566,000 in rights to receive future
utility incentive payments under certain energy efficiency projects owned by the
Company. These revenues had no direct costs associated with them.
9
Selling, general and administrative ("SG&A) expense was $905,000 for the three
months ended September 30, 2001, compared to $827,000 for the same three months
last year, an increase of $78,000. The increase is primarily attributable to
additional personnel hired to grow the California operations of the Company.
Depreciation expense for the three month period ended September 30, 2001 was
$67,000 compared to $70,000 for the same three months in the prior year, a
decrease of $3,000.
Compensation under variable incentive stock option plan was negative $5,000 for
the three months ended September 30, 2001 compared to positive $177,000 for the
same period in the prior year. The decrease is associated primarily with
differences in the change in the Company's quoted stock price and the exercise
of options by executives of the Company in August 2001. The quoted stock price
during the three months ended September 30, 2001 decreased approximately $0.01,
whereas the quoted stock price increased by approximately $0.09 during the same
period in the prior year.
Other expense was $29,000 for the three month period ended September 30, 2001,
compared to net other expense of $14,000 for the same three months in 2000.
Net income from operations for the three months ended September 30, 2001 was
$1,000 compared to $519,000 for the same period in 2000. Lower gross margin
rates and the hiring of personnel as discussed above were the primary reason for
this result.
Gain from extinguishment of liabilities at less than face value for the three
months ended September 31, 2001 was $86,000 compared to $43,000 for the same
period in 2000. This reflects the Company's continuing efforts to retire its
past due trade debt.
Net income for the three months ended September 30, 2001 was $87,000, which was
less than $0.01 per fully diluted share. Net income for the three months ended
September 30, 2000 was $562,000, or $0.01 per fully diluted share. The decrease
results primarily from the sale of project revenues in September 2000 discussed
above.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $308,000 as of September 30, 2001,
compared to $113,000 at June 30, 2001. Working capital was negative $5,631,000
as of September 30, 2001, compared to negative $5,619,000 at June 30, 2001, an
increase in negative working capital of $12,000.
Cash flows provided by operating activities was $368,000 for the three months
ended September 30, 2001, compared to $549,000 for the same three month period
in the prior year. The decrease was primarily attributable to reduced net income
between the comparable periods. Trade accounts payable was also reduced as the
Company continued to settle past due trade debts.
Cash flows used in investing activities was $154,000 for the three months ended
September 30, 2001, compared to $95,000 for the same three month period in 2000,
an increase of $59,000. The increase was associated with capital equipment
purchased in connection with start-up operations of ENG. Additionally, the
10
Company made loans to two officers of the Company, totaling $101,000, in
connection with the exercise of incentive stock options held by those officers.
Cash flows used in financing activities was $19,000 for the three months ended
September 30, 2001, compared to cash flows used in financing activities of
$135,000 for the same three month period last year, a decrease of $116,000. The
decrease is due to a reduction in the service of debt on notes and capital
leases payable between the three months ended September 30, 2001 and 2000.
The Company has suffered losses from operations of $6,637,000 and $6,477,000 in
the fiscal years ended June 30, 2000 and 1999, respectively. As a result, the
Company had a negative working capital of $7,703,629 and a stockholders' deficit
of $8,314,000 as of June 30, 2000. Through the fiscal year ended June 30, 2001
the Company was able to achieve net income of $1,657,000, reduce its negative
working capital to $5,619,000, and reduce its stockholders' deficit to
$5,494,000. The Company continued to reduce its stockholders' deficit by
$105,000 to $5,389,000 during the three months ended September 30, 2001.
Management achieved this improvement primarily by substantially reducing
overhead expenses, liquidating rights to future utility incentive payments for
cash and negotiating reductions of trade debt. The Company continued to pursue
similar measures to continue to improve its financial position. As a result, the
Company has made significant progress toward improving its financial position.
Management believes that continuing efforts develop new business and to minimize
cost as well as actions to sell or finance its remaining cash flow entitlements
will improve the Company's ability 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.
Seasonality and Inflation. Management does not believe that the business of the
Company is affected by seasonality or inflation.
Impact of Recently Issued Standards. In June 2001, the FASB issued SFAS No. 142
"Goodwill and Other Intangible Assets". This statement addresses how intangible
assets that are acquired individually or with a group of other assets should be
accounted for upon their acquisition. The statement also addresses how goodwill
and other intangible assets should be accounted for after they have been
initially recognized in the financial statements. The Company will adopt SFAS
No. 142, in fiscal year ending June 30, 2002. The adoption of SFAS No. 142 is
not expected to have a material effect on the Company's financial position or
results of operations.
In October 2001 the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement establishes the accounting model
for long-lived assets to be disposed of by sale and applies to all long-lived
assets, including discontinued operations. This new statement requires that
those long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. The Company will adopt SFAS No. 144 in fiscal year ending
June 30, 2002. The adoption of SFAS No. 144 is not expected to have a material
effect on the Company's financial position or results of operations.
11
Part II - Other Information
Item 1. Legal Proceedings. In October 2001, REEP Onsite, Inc. ("REEP Onsite"), a
subsidiary of the Company, settled an action filed in June 2000, by Planergy,
Inc. (Superior Court of New Jersey, Law Division, Somerset County, Docket No.
SOM-L-1069-00) against REEP Onsite, the Company and other parties, including
another the Company's subsidiaries. The action sought payment of monies
($94,428) allegedly owed for equipment and services supplied by Planergy, Inc.,
plus interest and attorneys' fees. This matter was previously disclosed by the
Company in its Form 10-KSB for fiscal year ended June 30, 2000. Execution of the
final settlement agreement is pending.
Item 2. Changes in Securities and Use of Proceeds - Not Applicable.
Item 3. Defaults upon Senior Securities. The Company is required to pay
quarterly dividends on its Series C Stock. As of the date of this report, the
Company has not paid eight quarterly dividends. The total amount due as of the
date of this report is $567,000. See Part I, Item 2 Management's Discussion and
Analysis or Plan of Operations for further discussion.
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
None.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONSITE ENERGY CORPORATION
Date: November 12, 2001 By: \s\ RICHARD T. SPERBERG
--------------------------
Richard T. Sperberg
Chief Executive Officer
Date: November 12, 2001 By: \s\ Paul E. Blevins
-------------------------
Paul E. Blevins
Chief Financial Officer
and Principal Accounting
Officer