U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
<checked-box> QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
<square> 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 incorporation or organization) (I.R.S.
Employer Identification No.)
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 May
20, 1998 is 15,585,569.
Onsite Energy Corporation
Condensed Consolidated Balance Sheet
March 31, 1998
(Unaudited)
Current Assets:
Cash $ 511,897
Cash -Restricted 152,925
Accounts receivable, net of allowance for doubtful
accounts of $15,030 4,830,298
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,173,637
Inventory 110,273
Other assets 96,857
----------
TOTAL CURRENT ASSETS 6,875,887
Cash-restricted 78,990
Costs incurred on future projects 80,215
Property and equipment, net 809,368
Goodwill, net of amortization of $1,611,472 364,884
Other 24,478
----------
TOTAL ASSETS $ 8,233,822
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,203,140
Current portion of notes payable 75,572
Accrued expenses and other liabilities 837,381
----------
TOTAL CURRENT LIABILITIES 4,116,093
----------
Long-Term Liabilities:
Accrued future operation and maintenance costs
associated with energy services agreements 421,432
----------
TOTAL LIABILITIES 4,537,525
----------
Commitments and contingencies -
Shareholders' Equity:
Preferred Stock, Series A, 4,000 shares authorized,
none issued and outstanding -
Preferred Stock, Series B, 625,000 shares
authorized, none issued and outstanding -
Preferred Stock, Series C, 1,000,000 shares authorized,
203,250 issued and outstanding 203
Common Stock, $.001 par value, 24,000,000 shares authorized:
Class A common stock, 23,999,000 shares authorized,
15,512,272 shares issued and outstanding 15,510
Class B common stock, 1,000 shares authorized,
none issued and outstanding -
Additional paid-in capital 20,709,567
Accumulated deficit (17,028,983)
----------
TOTAL SHAREHOLDERS' EQUITY 3,696,297
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,233,822
==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Onsite Energy Corporation
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
----------- ---------- ---------- ----------
Revenues $ 5,401,634 $ 1,646,305 $ 11,345,548 $ 7,892,695
Cost of sales 4,154,730 1,322,262 8,296,595 5,782,767
----------- ---------- ---------- ----------
Gross Margin 1,246,904 324,043 3,048,953 2,109,928
Selling, General,
and Administrative
Expenses 1,029,331 785,912 2,458,356 2,699,303
Depreciation
& Amortization 148,552 71,173 407,657 360,656
----------- ---------- ---------- ----------
Operating income (loss) 69,021 (533,042) 182,940 (950,031)
----------- ---------- ---------- ----------
Other income (expense):
Interest (expense) (5,762) (40,858) (14,350) (141,688)
Interest income 9,392 383 22,766 7,759
Other income (expense):(47,641) - (53,200) -
Loss on sale of
partnership interest - (425,240) - (425,240)
----------- ---------- ---------- ----------
Total other
income(expense) (44,011) (465,715) (44,784) (559,169)
----------- ---------- ---------- ----------
Income (loss) from operations
before provision(benefit)
for income taxes 25,010 (998,757) 138,156 (1,509,200)
Provision (benefit) for
income taxes 4,438 - 16,675 -
----------- ---------- ---------- ----------
Net income (loss) $ 20,572 $ (998,757) $ 121,481 $ 1,509,200)
=========== ========== ========== ==========
Basic and Diluted income
(loss) per Class A
common share $ ** $ (0.09) $ ** $ (0.14)
=========== ========== ========== ==========
**Less than $ 0.01 per share
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Onsite Energy Corporation
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
March 31,
1998 1997
___________ ____________
Cash flows from operating activities:
Net income (loss) $ 121,481 $ (1,509,200)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Amortization of goodwill 278,139 300,000
Inventory (110,273) -
Amortization of acquired contract costs 192,061 386,773
Provision for future operation and
maintenance costs - 54,256
Depreciation and amortization 129,518 60,656
Loss on disposal of partnership interest - 425,640
Change in operating assets and liabilities:
Accounts receivable (3,447,315) 19,545
Increase (decrease) in billings related
to costs and estimated earnings on
uncompleted contracts (1,222,752) 1,039,531
Amounts due pursuant to sale of subsidiary - (421,834)
Other assets (76,806) 65,696
Cash-restricted 41,252 (272,592)
Accounts payable and accrued expenses 2,522,955 (1,062,347)
___________ ____________
Net cash used in operating activities (1,571,740) (913,876)
___________ ____________
Cash flows from investing activities:
Acquisition of Fixed Assets (327,597) -
Proceeds from sale of subsidiary - 778,166
___________ ____________
Net cash provided (used)
by investing activities (327,597) 778,166
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of stock 1,947,287 -
Proceeds from exercise of stock options 20,157 44,679
Repayment of long-term debt (83,104) (631,813)
___________ ____________
Net cash provided (used) by
financing activities 1,884,340 (587,134)
___________ ____________
Net increase (decrease) in cash (14,997) (722,844)
Cash, beginning of year 526,894 976,470
___________ ____________
Cash, end of quarter $ 511,897 $ 253,626
=========== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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 consolidated financial
statements and footnotes have been condensed and do not contain all
disclosures required by generally accepted accounting principles
and, therefore, should be read in conjunction with the Form 10-KSB
for Onsite Energy Corporation ("Onsite") as of and for the year
ended June 30, 1997. In the opinion of management, the accompanying
unaudited condensed consolidated 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 condensed consolidated balance sheet as of March 31, 1998, and
the condensed consolidated statements of operations and cash flows
for the three and nine months ended March 31, 1998 and 1997,
represent the financial position and results of operations of
Onsite. The results of operations for the three and nine months
ended March 31, 1998 and 1997 are not necessarily indicative of the
results to be expected for the forthcoming year.
**The remainder of this page left intentionally blank**
NOTE 3: In February 1997, the Financial Accounting Standards Board issued a
new statement titled "EARNINGS PER SHARE" ("FAS 128"). The new
statement is effective for both interim and annual periods ending
after December 15, 1997. FAS 128 replaces the presentation of
primary and fully diluted earnings per share with the presentation
of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is calculated by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Common stock equivalents for
the three and nine months ended March 31, 1997 were anti-dilutive
and excluded in the earnings per share computation.
Onsite Energy Corporation
Earnings per Share
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
--------- ------------ --------- -----------
BASIC EARNINGS PER SHARE:
Net income (loss) $ 20,572 $ (998,757) $ 121,481 $(1,509,200)
Less-Preferred Stock Dividends 4,955 - 8,374 -
--------- ------------ --------- -----------
Net Income (Loss) applicable
to common shareholders $ 15,617 $ (998,757) $ 113,107 $(1,509,200)
========= ============ ========= ===========
Weighted average number of
common shares 14,714,361 10,935,598 13,061,167 10,776,607
Basic Earnings (Loss)
per share $ ** (0.09) $ ** (0.14)
========= ============ ========= ===========
DILUTED EARNINGS PER SHARE:
Net Income from primary income
per common share $ 15,617 $ (998,957) $ 113,107 $(1,509,200)
Add: Preferred Stock Dividend 4,955 - 8,374 -
--------- ------------ --------- -----------
Net Income for diluted earnings
(loss) per share $ 20,572 $ (998,957) $ 121,481 $(1,509,200)
--------- ------------ --------- -----------
Weighted average number of shares
used in calculating basic earnings
per common share 14,714,361 10,935,598 13,061,167 10,776,607
Add: Common stock equivalents 1,332,622 - 1,043,761 -
--------- ------------ --------- -----------
Weighted Average number of shares
used in calculation of diluted
earnings per share 16,046,983 10,935,598 14,104,928 10,776,607
--------- ------------ --------- -----------
Diluted Earnings (Loss)
per share $ ** $ (0.09) $ ** $ (0.14)
========= ============ ========= ===========
**Less than $ 0.01 per share
NOTE 4: On October 28, 1997, Onsite entered into a Stock Subscription
Agreement (the "Stock Agreement") with Westar Capital, Inc.
("Westar Capital"). Pursuant to the Stock Agreement, Onsite made a
private placement of 2,000,000 shares of Onsite's Class A Common
Stock at $0.50 per share and 200,000 shares of Onsite's newly
created Series C Convertible Preferred Stock at $5.00 per share.
Each share of Onsite's Series C Convertible Preferred Stock is
convertible into five shares of Onsite's Class A Common Stock and
earns a dividend of 9.75 percent per annum.
In a related transaction on October 28, 1997, Onsite entered into a
Plan and Agreement of Reorganization (the "Reorganization
Agreement") with Westar Capital, Westar Energy, Inc. and Westar
Business Services, Inc., a Kansas corporation ("WBS").
Pursuant to the Reorganization Agreement, the parties effected a
"tax free" exchange under Section 368 (a) (1) (B) of the Internal
Revenue Code of 1986, as amended (the "Reorganization").
Specifically, Onsite acquired 100 percent of WBS's issued and
outstanding capital stock, consisting solely of Common Stock, no
par value, in exchange for 1,700,000 shares of Onsite's Class A
Common Stock, par value $0.001 per share. On or about March 31,
1998, an additional 800,000 shares of Onsite Class A Common Stock
were delivered to Westar Capital based on the execution of certain
additional business contracts. The number of shares issued was
determined through negotiations between the parties. As a result
of the Reorganization, WBS is now a wholly owned subsidiary of
Onsite, and has legally changed its name to Onsite Business
Services, Inc.
WBS provides performance contracting services, utility services and
industrial water services primarily in the states of Kansas,
Missouri and Oklahoma. The acquisition provides Onsite with the
ability to develop new markets in the Midwest and other areas.
The following presents Pro Forma information as if the acquisition of WBS
occurred on July 1, 1996:
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
--------- ---------- ---------- ----------
Revenues $5,401,634 $ 2,225,555 $11,944,216 $9,630,445
Income (Loss) from Operations$ 69,021 $ (571,792) $ (35,728) $(1,066,281)
Net Income (Loss) $ 20,572 $(1,037,507) $ (97,187) $(1,625,450)
Basic and Diluted Income
(Loss) Per Share $ ** $ (0.07) $ ** $ (0.11)
========= ============ ========= ===========
**Less than $ 0.01 per share
**The remainder of this page left intentionally blank**
NOTE 5: On or about May 19, 1998, Onsite entered into an Asset Purchase
Agreement and an Employment and Noncompetition Agreement with SYCOM
Enterprises, LLC ("SYCOM LLC"), SYCOM Corporation and/or SYCOM
Enterprises, L.P. ("SYCOM L.P."), and related entities for the
purchase by a to-be-formed wholly-owned subsidiary of Onsite, SYCOM
ONSITE Corporation ("SYCOM ONSITE"), of all of the assets, and the
assumption of specific liabilities, of SYCOM LLC in exchange for
1,750,000 shares of Onsite's Class A Common Stock. In addition,
pursuant to the Employment Agreement and Noncompetition Agreement,
SYCOM ONSITE will retain the services of all of the employees of,
and enter into a noncompete agreement with, SYCOM Corporation and
SYCOM L.P. in exchange for non-dividend preferred stock of Onsite
that is convertible into 15,750,000 shares of Onsite Class A Common
Stock. The preferred stock will be held in escrow until certain
performance-related conditions are met. Onsite's Board of
Directors will be increased by two members designated by SYCOM LLC.
The transaction is expected to be completed before June 30, 1998.
**The remainder of this page left intentionally blank**
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
BACKGROUND
Onsite is a comprehensive energy services company ("ESCO") involved in the
development, engineering, installation and operation of energy projects for
industrial, commercial and institutional facilities. By combining development,
engineering, analysis, project management and financial management skills,
Onsite provides a complete package of services, ranging from feasibility
assessment through construction and operation for energy efficiency projects
incorporating lighting, energy management systems, HVAC upgrades, cogeneration
and other energy efficiency measures. Onsite also provides comprehensive energy
supply (natural gas and electricity) services to commercial and industrial
customers related to the evolving restructured competitive retail market for
energy.
Unless the context indicates otherwise, reference to Onsite shall include all
of its wholly owned subsidiaries.
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1997
RESULTS OF OPERATIONS. Revenues for the nine months ended March 31, 1998 were
$11,345,548 compared to $7,892,695 for the nine months ended March 31, 1997, an
increase of $3,452,853 or 43.7 percent. The increase in revenues was primarily
attributed to one larger sized energy efficiency contract in 1998, as well as
the addition of operating revenues from Onsite Business Services, Inc. ("OBS"),
which was acquired in October 1997.
Gross margin for the nine months ended March 31, 1998 was $3,048,953 or 26.9
percent of revenues, compared to $2,109,928, or 26.7 percent of revenues, for
the nine months ended March 31, 1997. The modest increase in gross margin as a
percentage of revenues was the result of a larger percentage of consulting
revenues, which generally provide higher gross margins.
Selling, General and Administrative ("SG&A") expenses were $2,866,013 for the
nine month period ended March 31, 1998, compared to $3,059,959 for the nine
months ended March 31, 1997. The reduction of $193,946 or 6.3 percent is
attributable to the continued efforts by Onsite to implement savings and
expense reductions in an effort to improve overall operating results.
Net other income/expense was $44,784 in other expense for the nine months ended
March 31, 1998 compared to $559,169 in net other expense for the nine months
ended March 31, 1997. Included in net other expense for the nine months ended
March 31, 1997, was a one time non-recurring loss on the sale of Onsite's
interests in a cogeneration system of $425,240.
Net income for the nine months ended March 31, 1998 was $121,481, or less than
$0.01 income per share, compared to a net loss of $1,509,200, or $0.14 loss per
share for the nine month period ended March 31, 1997. Per share numbers in 1998
were adjusted for dividends accrued on the convertible Series C Preferred
Stock.
Three Months Ended March 31, 1998 Compared to the Three Months Ended March 31,
1997
RESULTS OF OPERATIONS. Revenues for the three month period ended March 31, 1998
were $5,401,634 compared to $1,646,305 for the three months ended March 31,
1997, an increase of $3,755,329, or 228 percent. The increase in revenues is
largely due to one large contract signed in the most recent quarter and
revenues from OBS, which was acquired in October 1997.
Gross Margin was $1,246,904, or 23 percent of revenues for the three month
period ended March 31, 1998, compared to $324,043, or 19.7 percent of revenues
for the three month period ended March 31, 1997. The
increase in margin is largely attributable to higher margins on new contracts
and an increase in consulting revenue, which generally provides higher gross
margin.
SG&A expenses were $1,177,883 for the three months ended March 31, 1998,
compared to $857,085 for the three months ended March 31, 1997. The change was
attributable to the additional expenses acquired with OBS.
Net other income/expense was $44,011 in other expense for the three month
period ended March 31, 1998, compared to $465,715 in net other expense for the
three month period ended March 31, 1997, a decrease of $421,704 in net other
expense. As discussed above, the decrease is due to the $425,240 one time non-
recurring loss recorded on the sale of Onsite's interest in a cogeneration
system.
Net income for the three months ended March 31, 1998 was $20,572, or less than
$0.01 income per share, compared to net loss of $998,757, or $0.09 loss per
share for the three month period ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES. Onsite's cash and cash equivalents were
$511,897 as of March 31, 1998, compared to $526,894 as of June 30, 1997.
Working capital was $2,759,794 as of March 31, 1998 compared to a negative
working capital of $30,333 as of June 30, 1997. The increase in working
capital is largely due to the transaction, including the sale of securities,
with Westar Capital completed in October 1997.
Cash flows used by operating activities during the nine months ended March 31,
1998 were $1,571,740, compared to cash flows used by operating activities of
$913,876 for the nine months ended March 31, 1997, an increase of $657,864.
The increase in cash flow used by operating activities is due primarily to the
increase in accounts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts as it relates to the increase in accounts
payable.
Cash flows used by investing activities were $327,597 for the nine month period
ended March 31, 1998, compared to cash flows provided by investing activities
of $778,166 for the nine month period ended March 31, 1997. The increase in
cash flows used by investing activities is due to the acquisition of additional
fixed assets for the nine month period ended March 31, 1998 whereas the nine
month period ended March 31, 1997 included cash flows provided by the sale of
Onsite's interest in the cogeneration system as discussed above.
Cash flows provided by financing activities were $1,884,340 during the nine
months ended March 31, 1998, compared to $587,134 for the comparable period
last year. The increase in cash provided by financing activities in the
current year includes $1,947,287 in proceeds from the issuance of stock to
Westar Capital, which is offset by $83,104 in repayment of long-term debt.
YEAR 2000. The Company is developing plans to address issues related to the
impact on its computer systems of the year 2000. Financial and operational
systems are being assessed and plans are being developed to address systems
modification requirements. The financial impact of making the required systems
changes is not expected to be material to the Company's consolidated financial
position liquidity and results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 5. Other Information
On or about May 19, 1998, Onsite entered into an Asset Purchase Agreement and
an Employment and Noncompetition Agreement with SYCOM Enterprises, LLC ("SYCOM
LLC"), SYCOM Corporation and/or SYCOM Enterprises, L.P. ("SYCOM L.P."), and
related entities for the purchase by a to-be-formed wholly-owned subsidiary of
Onsite, SYCOM ONSITE Corporation ("SYCOM ONSITE"), of all of the assets, and
the assumption of specific liabilities, of SYCOM LLC in exchange for 1,750,000
shares of Onsite's Class A Common Stock. In addition, pursuant to the
Employment Agreement and Noncompetition Agreement, SYCOM ONSITE will retain the
services of all of the employees of, and enter into a noncompete agreement
with, SYCOM Corporation and SYCOM L.P. in exchange for non-dividend preferred
stock of Onsite that is convertible into 15,750,000 shares of Onsite Class A
Common Stock. The preferred stock will be held in escrow until certain
performance-related conditions are met. Onsite's Board of Directors will be
increased by two members designated by SYCOM LLC. The transaction is expected
to be completed before June 30, 1998.
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
revenue and earnings from operations of Onsite, projected costs and expenses
related to Onsite's energy services agreements, and the availability of future
debt and equity capital on commercially reasonable terms. Factors that could
cause actual results to differ materially include, in addition to the other
factors identified in this report, the cyclical and volatile price of energy,
the inability to continue to contract sufficient customers to replace contracts
as they become completed, unanticipated delays in the approval of proposed
energy efficiency measures by Onsite's customers, delays in the receipt of, or
failure to receive necessary governmental or utility permits, or approvals, or
the renewals thereof, risks and uncertainties relating to general economic and
political conditions, both domestically and internationally, changes in the law
and regulations governing Onsite's activities as an energy services company and
the activities of the nation's public utilities seeking energy efficiency as a
cost effective alternative to constructing new power generation facilities,
results of project specific and company working capital and financing efforts
and market conditions, and other risk factors detailed in Onsite's Securities
and Exchange Commission filings including the risk factors set forth in
Onsite's Registration Statement on Form S-4, SEC File 33-66010. Readers of this
report are cautioned not to put undue reliance on "forward looking statements,
which are, by their nature, uncertain as reliable indicators of future
performance. Onsite disclaims any intent or obligation to publicly update these
"forward looking" statements, whether as a result of new information, future
events, or otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit
10.88 Performance Based Energy Savings Agreement dated March 31, 1998, between
Onsite Energy Corporation and Unified School District No. 500, Wyandotte
County, Kansas
10.89 Engineering, Procurement and Construction Agreement between Onsite Energy
Corporation and Lighting Technology Services, Inc., dated as of March 31,
1998
10.90 Engineering, Procurement and Construction Agreement between Onsite Energy
Corporation and The Fagan Company, dated as of March 31, 1998
b) Reports on Form 8-K
Form 8-K filed November 12, 1997, as amended on January 12, 1998, regarding the
private placement by Onsite Energy Corporation of its securities with Westar
Capital, Inc.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ONSITE ENERGY CORPORATION
Dated: MAY 20, 1998 By: RICHARD T. SPERBERG
Richard T. Sperberg
Chief Executive Officer
Chief Financial Officer