UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Filed on November 12, 1998)
(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, 1998
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 (IRS Employer Identification No.)
incorporation or organization)
701 Palomar Airport Road, Suite 200
Carlsbad, California 92009
(Address of principal executive offices) (Zip Code)
(760) 931-2400
(Issuer's telephone number)
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.
2
ONSITE ENERGY CORPORATION
Part I - Financial Information Page
Item 1 Financial Statements
Condensed Consolidated Balance Sheet at
March 31, 1998 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997
Nine Months Ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 1. Financial Statements
[Remainder of page intentionally left blank]
3
Onsite Energy Corporation
Condensed Consolidated Balance Sheet
March 31, 1998
Current Assets:
Cash $ 511,897
Cash - Restricted 152,925
Accounts receivable, net of allowance for
doubtful accounts of $15,030 4,596,374
Costs and estimated earnings in excess of
billings on uncompleted contracts 334,291
Inventory 110,273
Other assets 794,644
-----------
TOTAL CURRENT ASSETS 6,500,404
Cash-restricted 78,990
Costs incurred on future projects 80,215
Property and equipment, net 1,166,489
Goodwill, net of amortization of $1,611,472 -
Other 141,615
-----------
TOTAL ASSETS $ 7,967,713
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,547,811
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,180,592
Current portion of notes payable 75,572
Accrued expenses and other liabilities 928,261
TOTAL CURRENT LIABILITIES 4,732,236
-----------
Long-Term Liabilities:
Accrued future operation and maintenance costs
associated with energy services agreements 421,432
-----------
TOTAL LIABILITIES 5,153,668
-----------
Commitments and contingencies -
Shareholders' Equity:
Preferred Stock, Series C, 1,000,000 shares authorized,
203,250 issued and outstanding
(Aggregate $1,016,250 liquidation preference) 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 15,512
Class B common stock, 1,000 shares authorized,
none issued and outstanding -
Additional paid-in capital 20,709,565
Accumulated deficit (17,911,235)
-------------
TOTAL SHAREHOLDERS' EQUITY 2,814,045
------------
TOTAL LIABILTIES AND SHAREHOLDERS' EQUITY $ 7,967,713
============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Onsite Energy Corporation
Condensed Consolidated Statement of Operations
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
-------------- ------------- -------------- --------------
Revenues $ 3,452,652 $ 1,646,305 $ 8,994,035 $ 7,892,695
Cost of sales 2,677,705 1,322,262 6,819,570 5,782,767
------------ ------------ ------------ ------------
Gross Margin 774,947 324,043 2,174,465 2,109,928
Selling, General, and
Administrative Expenses 1,029,331 785,912 2,458,356 2,699,303
Depreciation & Amortization 151,497 71,173 415,421 360,656
------------ ------------ ------------ ------------
Operating loss (405,881) (533,042) (699,312) (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)
------------ ------------ ------------ ------------
Loss from operations before
provision for income taxes (449,892) (998,757) (744,096) (1,509,200)
Provision for income taxes 4,438 - 16,675 -
------------ ------------ ------------ ------------
Net Loss $ (454,330) $ (998,757) $ (760,771) $ (1,509,200)
============ ============ ============ ============
Net loss applicable to
Common Shareholders $ (478,705) $ (998,757) $ (785,146) $ (1,509,200)
============ ============ ============ ============
Basic and diluted loss
per Common Share $ (0.03) $ (0.09) $ (0.06) $ (0.14)
============ ============ ============ ============
Weighted average shares
outstanding 14,714,361 10,935,598 13,061,167 10,776,607
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Onsite Energy Corporation
Condensed Consolidated Statement of Cash Flows
Nine Months Ended
March 31,
1998 1997
----------------- ----------------
Cash flows from operating activities:
Net Loss $ (760,771) $ (1,509,200)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of goodwill 266,667 300,000
Amortization of acquired contract costs 101,048 386,773
Provision for future operation and
maintenance costs - 54,256
Depreciation and amortization 148,754 60,656
Loss on disposal of partnership interest - 425,640
Change in operating assets and liabilities:
Accounts receivable (3,213,391) 19,545
Increase (decrease) in billings related to
costs and estimated earnings on uncompleted
contracts 800,611 1,039,531
Inventory (110,273) -
Amounts due pursuant to sale of subsidiary - (421,834)
Other assets (804,143) 65,696
Cash-restricted 41,252 (272,592)
Accounts payable and accrued expenses 1,958,506 (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 by (used in) 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 by (used in) financing activities 1,884,340 (587,134)
------------- ------------
Net decrease in cash (14,997) (722,844)
Cash, beginning of year 526,894 976,470
------------- ------------
Cash, end of period $ 511,897 $ 253,626
============= ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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 (the
"Company") 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 the Company. 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
entire year.
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, 1998 and 1997 were anti-dilutive and excluded
in the earnings per share computation.
NOTE 4: On October 28, 1997, the Company entered into a Stock Subscription
Agreement (the "Stock Agreement") with Westar Capital, Inc. ("Westar
Capital"). Pursuant to the Stock Agreement, the Company made a private
placement of 2,000,000 shares of the Company's Class A Common Stock at
$0.50 per share and 200,000 shares of its newly-created Series C
Convertible Preferred Stock ("Series C Stock") at $5.00 per share. Each
share of Series C Stock is convertible into five shares of the Company's
Class A Common Stock and earns a dividend of 9.75 percent per annum.
In a related transaction on October 28, 1997, the Company 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 an exchange under Section 368 (a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Reorganization"). Specifically, the
Company acquired 100
7
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 the
Company's Class A Common Stock, par value $0.001 per share. On or about
March 31, 1998, an additional 800,000 shares of the Company's Class A
Common Stock were issued to Westar Capital based on the execution of
a certain additional business contract. 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 the Company, and
has legally changed its name to Onsite Business Services, Inc. ("OBS").
OBS provides performance contracting services, utility services and
industrial water services primarily in the states of Kansas, Missouri and
Oklahoma.
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 $ 3,452,652 $ 2,225,555 $ 9,592,703 $ 9,630,445
============ ============= ============ =============
Loss from Operations (405,881) (571,792) (917,980) (1,066,281)
============ ============= ============ =============
Net Loss (454,330) (1,037,507) (979,439) (1,625,450)
============ ============= ============ =============
Basic and Diluted Loss Per Share $ (0.03) $ (0.07) $ (0.07) $ (0.11)
============ ============= ============ =============
NOTE 5: Subsequent Events
Effective in June 1998, the Company entered into an agreement to acquire
Lighting Technology Services, Inc. ("LTS"), a Santa Ana, California based
lighting services company. In exchange for all of the outstanding shares
of LTS, the Company initially issued a total of 690,000 shares of the
Company's Class A Common Stock plus $500,000 in cash to the former stock-
holders. The former LTS shareholders also may receive a one-time earn-out
payment in 1999, payable in either cash, or, at the Company's option, Class
A Common Stock. The earn-out payment will be based on LTS's actual pre-tax
earnings contribution for a 12 month period ending March 31, 1999. LTS is
a wholly-owned subsidiary of the Company, and will continue to pursue
independent lighting services opportunities in commercial, industrial and
educational markets while also providing lighting subcontractor services to
the Company and other energy services companies.
On or about May 19, 1998, the Company entered into an Asset Purchase
Agreement and an Employment and Noncompetition Agreement with SYCOM
Enterprises, LLC
8
("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 the Company, SYCOM ONSITE Corporation
("SO Corporation"), of all of the assets, and the assumption of specific
liabilities, of SYCOM LLC in exchange for 1,750,000 shares of the Company's
Class A Common Stock. In addition, pursuant to the Employment and
Noncompetition Agreement, SO Corporation will retain the services of all
of the employees of SYCOM Corporation, and SYCOM Corporation and SYCOM L.P.
will enter into a noncompete agreement with SO Corporation and the
Company in exchange for non-voting, non-dividend Series D Convertible
Preferred Stock of the Company ("Series D Stock") that is convertible into
15,750,000 shares of the Company's Class A Common Stock. The Series D Stock
will be held in escrow until certain performance-related conditions are
met. The Company'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.
NOTE 6: The purpose of this amendment to the Form 10-QSB for the Company for the
period ended March 31, 1998 (the "Original Filing") is to reflect
adjustments arising from inadvertent errors in the way it accrued revenues,
in the valuation of equipment acquired in a business combination, in a
billing to a customer, and in costs budgeted and incurred under two
contracts accounted for under the percentage of completion method of
accounting.
Any item in the Original Filing not expressly changed hereby shall be as
set forth in the Original Filing. All information contained in this
amendment and the Original Filing is subject to updating and supplementing
as provided in the Company's periodic reports filed with the SEC subsequent
to the date of such reports.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information included in this Form 10-QSB/A should be read in conjunction
with Management's Discussion and Analysis and financial statements and notes
thereto included in the Company's Form 10-KSB, as amended, for the year ending
June 30, 1997.
9
Background
The Company is a comprehensive energy service company (an ESCO) that assists its
customers in reducing electricity and fuel costs by developing, designing,
constructing, owning and operating efficient, environmentally sound energy
projects. The Company offers a full range of professional consulting services,
which include direct access planning, market assessments, business strategy and
public policy analysis, utility deregulation and environmental
impact/feasibility studies. It is the Company's mission to save its customers
money and improve the quality of the environment through independent energy
solutions.
The Company, a Delaware corporation, was formed pursuant to a business
reorganization effective February 15, 1994 (the "Reorganization"), between
Western Energy Management, Inc., a Delaware corporation formed in 1991 ("WEM"),
and Onsite Energy, a California corporation formed in 1982 ("Onsite-Cal"). Under
the Reorganization, Onsite-Cal merged with and into the Company, and a newly
formed subsidiary of the Company merged with and into WEM, which survived and
became a wholly-owned subsidiary of the Company. This transaction was accounted
for as a purchase of Onsite-Cal by the Company.
As of October 28, 1997, the Company owns all of the stock in OBS, which provides
performance contracting services, utility services and industrial water services
primarily in the states of Kansas, Missouri and Oklahoma.
Unless the context indicates otherwise, reference to the Company 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 $8,994,035 compared to $7,892,695 for the nine months ended March 31, 1997,
an increase of $1,101,340 or 13.9 percent. The increase in revenues was
primarily attributed to one larger sized energy efficiency contract and several
smaller sized contracts in 1998, as well as the addition of operating revenues
from OBS, which was acquired in October 1997.
Gross margin for the nine months ended March 31, 1998 was $2,174,465 or 24.2
percent of revenues, compared to $2,109,928, or 26.7 percent of revenues, for
the nine months ended March 31, 1997. The slightly lower margin as a percent of
sales is due to the completion of several small projects with lower gross
margins and the commencement of construction on one large contract with lower
gross margins compared to the prior period. This lower gross margin was
partially offset by an increase in higher margin consulting revenues.
Selling, General and Administrative ("SG&A") expenses were $2,458,356 for the
nine month period ended March 31, 1998, compared to $2,699,303 for the nine
months ended March 31, 1997. The reduction
10
of $240,947 or 8.9 percent is attributable to the continued efforts by the
Company to implement savings and expense reductions in an effort to improve
overall operating results. This decrease was partially offset by the increased
SG&A from OBS and a new office in Northern California.
Net other expense was $44,784 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 the decrease in net other expense for the nine months ended March
31, 1998, was a one-time non-recurring loss on the sale of the Company's
interests in a cogeneration system of $425,240 in the prior period and reduced
interest expense attributable to substantial reductions in principal loan
balances outstanding.
Net loss for the nine months ended March 31, 1998 was $760,771, or $0.06 loss
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 declared on the Series C 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 $3,452,652 compared to $1,646,305 for the three months ended March
31, 1997, an increase of $1,806,347, or 110 percent. The increase in revenues is
largely due to one large contract signed in the quarter as well as revenues from
OBS, which was acquired in October 1997.
Gross Margin was $774,947, or 22.4 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 in consulting revenue.
SG&A expenses were $1,029,331 for the three months ended March 31, 1998,
compared to $785,912 for the three months ended March 31, 1997. The increase of
$243,419 or 31 percent, was largely attributable to the additional SG&A expenses
acquired with OBS, as well as increased SG&A associated with a new office in
Northern California.
Net other expense was $44,011 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 the Company's interest in a cogeneration system in 1997.
Net loss for the three months ended March 31, 1998 was $454,330, or $0.03 loss
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. The Company'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 $1,768,168 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 sale of securities to 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 other assets.
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
11
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 the
Company'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 cash flows used by financing activities
of $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 net 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.
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
Dated: November 12, 1998 By: RICHARD T. SPERBERG
-------------------------------
Richard T. Sperberg
Chief Executive Officer (Principal
Executive Officer) and Interim Chief
Financial Officer
(Principal Accounting and Financial
Officer)