----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
(Amendment No. 1 filed on March 12, 1999)
FORM 8-K/A
to Forms 8-K originally filed on June 24, 1998 and July 15, 1998
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 12, 1998
and
June 30, 1998
(Date of Reports)
ONSITE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE [1-12738] [33-0576371]
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
701 Palomar Airport Road, Suite 200, Carlsbad, California 92009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 760-931-2400
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(1) Financial statements of Lighting Technology Services for
the years ened December 31, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998 (unaudited) are
attached hereto as pages F1-F15
(2) Financial statements of SYCOM LLC for the years ended
December 31, 1996 and 1997 are attached hereto as pages
F16-F43
(3) Financial statements of SYCOM LLC for the months ended
March 31, 1996 and 1997 (unaudited) are attached hereto as
pages F44-F47.
b. PRO FORMA FINANCIAL INFORMATION
(1) Pro Forma financial information is attached hereto as pages
F48-F54
c. EXHIBITS
2.3 Copy of the Stock Purchase Agreement. {(1)}
2.4 Copy of the Asset Purchase Agreement with Ancillary
Agreements. {(2)}
4.2 Copy of the Certificate of Designation of the Series D
Convertible Preferred Stock of Onsite Energy
Corporation {(2})
10.93 Copy of the Royal Employment Agreement. {(1})
10.94 Copy of Aldrich Employment Agreement. {(1})
10.95 Copy of the Share Repurchase Agreement. {(2})
(1) Incorporated by reference to the Company's Form 8-K filed on June 24, 1998.
(2) Incorporated by reference to the Company's Form 8-K filed on July 15, 1998.
F-1
LIGHTING TECHNOLOGY SERVICES, INC.
Financial Statements
For the Years Ended December 31, 1996 and 1997
and
For Three Months ended
March 31, 1997 and 1998 (Unaudited)
F-2
INDEX TO FINANCIAL STATEMENTS
OF
LIGHTING TECHNOLOGY SERVICES, INC.
PAGE
Independent Auditor's Report F-3
Balance Sheets - December 31, 1997 and March 31, 1998 (unaudited) F-4
Statements of Operations - For the Years Ended December 31, 1996
and 1997 and for the three months ended March 31, 1997 and
1998 (unaudited) F-5
Statement of Stockholders' Equity (Deficit) - For the period from
January 1, 1996 to December 31, 1997 and for the three months ended
March 31, 1998 (unaudited) F-6
Statements of Cash Flows- For the Years Ended December 31, 1996 and
1997 and for the three months ended March 31, 1997 and 1998
(unaudited) F-7
Notes to Financial Statements F-8
F-3
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Lighting Technology Services, Inc.
Santa Ana, California
We have audited the accompanying balance sheet of Lighting Technology Services,
Inc. as of December 31, 1997 and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended December 31,
1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lighting Technology Services,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for years ended December 31, 1996 and 1997 in conformity with generally
accepted accounting principles.
\S\ HEIN + ASSOCIATES LLP
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
June 18, 1998
F-4
LIGHTING TECHNOLOGY SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, MARCH 31,
1997 1998
------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,778 $ 21,099
Accounts receivable - trade 1,258,446 436,555
Other receivables 1,079 1,767
Inventories 133,366 157,932
Costs and estimated earnings in
excess of billings on
uncompleted contracts 215,384 73,026
Deferred income taxes 27,375 27,375
Prepaid expenses 15,335 8,958
------------ -----------
Total current assets 1,669,763 726,712
PROPERTY AND EQUIPMENT, net 40,113 42,324
OTHER ASSETS 6,464 6,459
------------ -----------
TOTAL ASSETS $ 1,716,340 $ 775,495
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------
CURRENT LIABILITIES:
Current portion of notes payable $ 30,532 $ 39,094
Accounts payable 1,255,371 744,970
Accrued liabilities 236,463 150,550
Accrued income taxes 78,820 9,440
Billings in excess of costs and estimated
earnings on uncompleted contracts 123,328 89,601
------------- -----------
Total current liabilities 1,724,514 1,033,655
NOTES PAYABLE, less current portion - 14,154
------------- -----------
Total liabilities 1,724,514 1,047,809
------------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10) - -
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value, 60,000 shares
authorized, 40,000 shares issued and outstanding 40,000 40,000
Additional paid in capital 34,856 34,856
Notes Receivable - Related Parties (161,817) (168,142)
Retained earnings (deficit) 78,787 (179,028)
------------- ------------
Total stockholders' equity (deficit) (8,174) (272,314)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,716,340 $ 775,495
============= ============
See accompanying notes to these financial statements.
F-5
LIGHTING TECHNOLOGY SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ---------------------
1996 1997 1997 1998
---------- ---------------- ---------------- -------------
(unaudited) (unaudited)
REVENUES $ 3,553,020 $ 5,041,817 $ 995,374 $ 429,471
COST OF GOODS SOLD 2,904,676 4,075,337 755,230 500,853
---------- ---------------- ---------------- --------------
Gross margin 648,344 966,480 240,144 (71,382)
------------ ---------------- ---------------- ---------------
OPERATING EXPENSES:
Selling expense 190,973 115,010 25,090 35,621
General and administrative 609,491 700,532 121,854 217,114
------------ ---------------- ---------------- ---------------
INCOME (LOSS) FROM
OPERATIONS (152,120) 150,938 93,200 (324,117)
----------- ---------------- ---------------- --------------
OTHER INCOME (EXPENSE):
Interest income 13,512 14,231 3,488 4,155
Interest expense (15,435) (16,707) (2,107) (4,471)
Loss on disposal of asset - - - (3,382)
----------- ---------------- ---------------- --------------
Total other income
(expense) (1,923) (2,476) 1,381 (3,698)
----------- ---------------- ---------------- --------------
INCOME (LOSS) BEFORE
INCOME TAXES (154,043) 148,462 94,581 (327,815)
PROVISION (BENEFIT) FOR
INCOME TAXES (30,034) 71,338 25,000 (70,000)
----------- ---------------- --------------- ----------------
NET INCOME (LOSS) $ (124,009) $ 77,124 $ 69,581 $ (257,815)
=========== ================= =============== ================
See accompanying notes to these financial statements.
F-6
LIGHTING TECHNOLOGY SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR PERIOD FROM JANUARY 1, 1996 TO DECEMBER 31, 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Unaudited)
ADDITIONAL NOTES RETAINED TOTAL
COMMON STOCK PAID IN RECEIVABLE EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL RELATED PARTIES (DEFICIT) EQUITY (DEFICITIT
--------- ---------- ---------- ---------------- --------- ------------------
Balances, January 1, 1996 40,000 $ 40,000 $ 34,856 $ (118,919) $ 125,672 $ 81,609
Loans to related parties - - - (20,017) - (20,017)
Net loss - - - - (124,009) (124,009)
------- --------- --------- ----------- --------- -----------------
Balances, December 31, 1996 40,000 40,000 34,856 (138,936) 1,663 (62,417)
Loans to related parties - - - (22,881) - (22,881)
Net income - - - - 77,124 77,124
------- --------- --------- ----------- --------- -----------------
Balances, December 31, 1997 40,000 40,000 34,856 (161,817) 78,787 (8,174)
Loans to related parties - - - (6,325) - (6,325)
Net loss (unaudited) - - - - (257,815) (257,815)
------- --------- --------- ----------- --------- ----------------
Balances, March 31, 1998
(unaudited) 40,000 $ 40,000 $ 34,856 $ (168,142) $(179,028) $ (272,314)
======== ========== ========= =========== =========== ============
See accompanying notes to these financial statements.
F-7
LIGHTING TECHNOLOGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------------- ------------------------------
1996 1997 1997 1998
------------ ----------- ----------- --------------
(unaudited) (unaudited)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss) $ (124,009) $ 77,124 $ 69,581 $ (257,815)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 45,486 29,779 7,334 5,439
Provision for obsolete inventory 7,000 8,000 - -
Deferred income taxes (9,796) (18,759) - -
Loss on disposal of asset - - - 3,382
Changes in operating assets
and liabilities:
Accounts receivable 93,611 (859,362) (23,116) 821,891
Inventories 72,806 (60,810) 23,583 (24,566)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (8,463) (206,921) 3,417 142,358
Other current assets (10,058) 8,859 10,031 5,694
Accounts payable (137,015) 745,227 (48,231) (510,401)
Accrued liabilities (166,045) 241,244 (41,398) (155,293)
Billings in excess of costs and
estimated earnings on uncompleted
contracts 3,961 87,041 12,014 (33,727)
-------------- ------------- ---------- -------------
Net cash provided by
(used in) operating activities 67,478 51,422 13,215 (3,038)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (16,504) (10,562) - (11,032)
Notes receivable - related parties (20,017) (22,881) (3,473) (6,325)
---------------- --------------- ---------------- ---------------
Net cash (used in) investing
activities (36,521) (33,443) (3,473) (17,357)
---------------- ---------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVIETs
Principal payments on notes payable (83,834) (40,106) (7,779) (5,700)
Proceeds from notes payable 53,376 9,146 - 28,416
--------------- --------------- ---------------- --------------
Net cash provided by (used in)
financing activities (30,458) (30,960) (7,779) 22,716
---------------- ---------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH 499 (12,981) 1,963 2,321
CASH AND CASH EQUIVALENTS,
beginning of period 31,260 31,759 31,759 18,778
--------------- --------------- --------------- ---------------
CASH AND CASH EQUIVALENTS,
end of period $ 31,759 $ 18,778 $ 33,722 $ 21,099
=============== =============== =============== ===============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash payments for:
Interest $ 15,435 $ 16,707 $ 2,107 $ 4,471
=============== =============== ============== ==============
Income taxes $ - $ 61,731 $ 37,392 $ -
================== =============== =============== ==============
See accompanying notes to these financial statements.
F-8
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
1.NATURE OF OPERATIONS:
Lighting Technology Services, Inc., (the Company), was incorporated in
the state of California on October 5, 1992. The Company was formed to
provide energy efficiency projects through retrofits of lighting and
controls primarily in Southern California.
2.SIGNIFICANT ACCOUNTING POLICIES:
Statement of Cash Flows - For purposes of the statements of cash flows,
the Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Revenue Recognition - Revenues on development and construction of
energy efficiency projects requiring contract performance prior to
completion are recorded using the percentage of completion method.
Under this method, the revenue recognized is that portion of the total
contract price that the cost expended to date bears to the anticipated
final total costs based on current estimates of the costs to complete
the project. When the total estimated costs to complete a project
exceed the total contract amount, thereby indicating a loss, the entire
anticipated loss is recognized currently.
Inventories - Inventories consist of building materials and are stated
at the lower of cost or market, determined by the first-in, first-out
method.
Property and Equipment - Property and equipment are stated at cost and
depreciated using the straight-line method over the estimated useful
lives of 5 years. Leasehold improvements are amortized over the useful
life or term of the respective lease, whichever is less. The cost of
normal maintenance and repairs is charged to operating expense as
incurred. Material expenditures which increase the life of an asset are
capitalized and depreciated over the estimated remaining useful life of
the asset. The cost of fixed assets sold, or otherwise disposed of, and
the related accumulated depreciation are removed from the accounts, and
any gains or losses are reflected in current operations.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-9
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The
actual results could differ from those estimates.
The Company's financial statements are based upon a number of
significant estimates, including the allowance for inventory
obsolescence, the estimated useful lives selected for property and
equipment and revenues on uncompleted contracts. Due to the
uncertainties inherent in the estimation process, it is at least
reasonably possible that these estimates will be further revised in the
near term and such revisions could be material.
Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the cost of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash
flow is required.
Concentrations of Credit Risk - Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from financial
instruments exist for groups of customers or groups of counterparties
when they have similar economic characteristics that would cause their
ability to meet contractual obligations to be similarly effected by
changes in economic or other conditions described below. In accordance
with FASB Statement No. 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet-Risk and Financial Instruments with
Concentrations of Credit Risk, the credit risk amounts described in
Note 10 do not take into account the value of any collateral or
security.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, are determined at discrete points in time
based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, which includes all
cash, accounts receivables, notes receivable, accounts payable, and
other debt, approximates the carrying value in the financial statements
at December 31, 1997.
Interim Financial Information - The March 31, 1997 and 1998 financial
statements have been prepared by the Company without audit. In the
opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals)
necessary for a fair presentation of the Company's financial position
as of March 31, 1998, and the results of its operations and its cash
flows for the three month periods ended March 31, 1997 and 1998. The
results of operations for the three month periods ended March 31, 1997
and 1998 are not necessarily indicative of those that will be obtained
for the entire fiscal year.
F-10
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
3. ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following:
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(unaudited)
Contract receivables:
Completed contracts $ 73,328 $ 218,447
Contracts in progress;
Current accounts 1,086,535 211,416
Retentions 98,583 6,692
------------- -----------
$1,258,446 $ 436,555
============= ============
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS:
Costs and estimated earnings on contracts consisted of the following:
DECEMBER 31, MARCH 31,
1997 1998
------------ --------------
(unaudited)
Costs incurred $ 5,338,555 $ 2,797,840
Estimated earnings 1,487,883 563,170
------------- --------------
6,826,438 3,361,010
Less: Billings to date (6,734,382) (3,377,585)
------------- --------------
$ 92,056 $ (16,575)
============= ==============
Included in the accompanying balance
sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 215,384 $ 73,026
Billings in excess of costs and
earnings on uncompleted contracts (123,328) (89,601)
--------------- ----------------
$ 92,056 $ (16,575)
=============== ================
F-11
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
DECEMBER 31, MARCH 31,
1997 1998
------------ -------------
(unaudited)
Office equipment $ 68,117 $ 79,149
Leasehold improvements 1,263 1,263
Automobiles 65,534 65,534
Tools and equipment 18,237 12,040
Furniture and fixtures 6,691 6,691
------------ -------------
159,842 164,677
Accumulated depreciation and amortization (119,729) (122,353)
------------ -------------
$ 40,113 $ 42,324
============ =============
Depreciation and amortization expense was $28,920, $29,334, $7,223, and
$5,439 for the years ended December 31, 1996 and 1997, and for the
three months ended March 31, 1997 and 1998, respectively.
6. NOTES RECEIVABLE - RELATED PARTIES:
The Company has advanced funds to the stockholders of the Company.
Interest is charged on the unpaid principal at 10% per annum. Accrued
interest of $25,678 and $29,887 is included in the balance as of
December 31, 1997 and March 31, 1998, respectively.
Interest income recorded on these notes was $11,892, $13,894, $3,474,
and $4,101 for the years ended December 31, 1996 and 1997, and for the
three months ended March 31, 1997 and 1998, respectively.
F-12
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
7. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
DECEMBER 31 MARCH 31
1997 1998
----------- -------------
(unaudited)
Accrued payroll and benefits $ 141,873 $ 45,751
Accrued sales tax 21,621 21,621
Other 72,969 83,178
------------ -------------
$ 236,463 $ 150,550
============ =============
8. NOTES PAYABLE
Notes payable consisted of the following:
DECEMBER 31 MARCH 31,
1997 1998
------------ ------------
(unaudited)
Notes payable, due in monthly
installments of $1,175,
including interest at
10.75%, maturing June through
September 1998, collateralized
by certain automobiles $ 11,902 $ 11,598
Note payable, due in monthly
installments of $1,000,
principal only 14,711 12,711
Note payable, due in monthly
installments of $200, including
interest at 10.75%, maturing December 1998,
collateralized by certain computer equipment 3,919 2,989
Note payable, due in monthly installments
of $1,631, including interest at 9%
maturing September 1999, without collateral - 25,950
------------ ------------
30,532 53,248
Current portion 30,532 39,094
------------- ------------
$ - $ 14,154
============= =============
F-13
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
9. COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases office space in Santa Ana, California under
a month-to-month operating lease which requires minimum monthly
payments of $1,713.
Rent expense was $27,702, $28,793, $7,092, and $9,273 for the years
ended December 31, 1996 and 1997, and for the three months ended March
31, 1997 and 1998, respectively.
Litigation - In January 1998, the Oregon Bureau of Labor and Industries
filed a suit against the Company and two other parties for alleged
unpaid wages in the amount of $509,205 for 32 employees who worked on a
lighting retrofit project in the state of Oregon. A pre-trial
conference has been set for September 1, 1998 to set the trial date.
Company management has had discussions with the Oregon Bureau of Labor
and Industries to resolve this issue, however no agreement has been
reached. Management believes, based on current information, that any
settlement would not have a material impact on the Company.
10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK, MAJOR CUSTOMERS, AND OTHER
RISKS AND UNCERTAINTIES:
Most of the Company's sales are to customers located in Southern
California. During the years ended December 31, 1997 and 1996, three
individual customers each accounted for more than 10% of total revenue.
In 1997, one customer accounted for approximately 13.7% of total
revenue, one for approximately 18.4% of total revenue and Onsite Energy
Corporation for 23.5%. In 1996, one customer accounted for
approximately 14.3% of revenue, one for approximately 20.6% of revenue
and Onsite Energy Corporation for 21.8% of revenue. (See Note 12).
Financial instruments that subject the Company to credit risk consist
primarily of accounts receivable and notes receivable. The Company
frequently makes large credit sales to customers. At December 31, 1997,
approximately $1,054,000 or 83.8% of the Company's accounts receivable
are due from three customers including approximately $486,000 from
Onsite energy Corporation. At March 31, 1998, approximately $393,000 or
90.1% of the Company's accounts receivable are due from five customers
including approximately $193,000 from Onsite Energy Corporation. (See
Note 12).
F-14
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
11. INCOME TAXES:
Income tax expense (benefit) is comprised of the following:
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1996 1997
---------- ---------
Current:
Federal $(21,038) $ 69,954
State 800 17,773
---------- -----------
(20,238) 87,727
---------- -----------
Deferred:
Federal (4,133) (15,868)
State (5,663) (521)
---------- -----------
(9,796) (16,389)
---------- -----------
Income tax expense (benefit) $(30,034) $ 71,338
========== ===========
The tax effect of temporary differences that give rise to significant
portions of the deferred tax asset are presented below:
FOR THE
YEAR ENDED
DECEMBER 31,
1997
-------------
Deferred Tax Assets:
Compensated absences, principally due to accrual for
financial reporting purposes $ 6,355
Inventory obsolescence reserve 6,021
Settlement accrual 14,048
Other 951
Total gross deferred tax assets -------------
27,375
Valuation allowance -
-------------
Net deferred tax asset $ 27,375
=============
F-15
LIGHTING TECHNOLOGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Information related to March 31, 1997 and 1998
and the three months then ended is unaudited)
Total income tax expense (benefit) differed from the amounts
computed by applying the U.S. federal statutory tax rate to pre-tax
income as follows:
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1996 1997
Total expense (benefit) computed by applying the ------- -----
U.S. statutory rate (34.0%) 34.0%
Non-deductible expenses 7.9 7.7
State income taxes, net of federal benefit (2.9) 8.2
Graduated rates 9.5 (2.6)
Other - 0.7
--------- -------
(19.5%) 48.0%
=========== =========
12. Subsequent Events:
On April 1, 1998, the Company entered into an Agreement of Purchase and
Sale of Stock with Onsite Energy Corporation, whereby the Company
transferred and conveyed all of the outstanding common stock to Onsite
Energy Corporation for 690,000 shares of Onsite's Class A Common Stock
and $500,000 cash. According to the terms of the Agreement, if net
income exceeds $278,414 for the period of April 1, 1998 through March
31, 1999, Onsite shall either (a) pay to the Company's shareholders a
cash amount equal to the Income Eligible for Earn-Out less the target
amount times five, or (b) issue an aggregate number of shares of Onsite
Class A Common Stock, equal to the Cash Amount divided by the average
closing price for the 20 business days preceding March 31, 1999. The
maximum number of shares subject to any equity adjustments is
3,310,000. As a part of the agreement, Onsite has agreed to loan the
Company up to $100,000 for payment of obligations previously incurred.
The loan will bear interest at prime plus 2% and will be adjusted
quarterly with interest payments due quarterly. In addition, Onsite
agreed to issue a revolving line of credit for up to $100,000 to the
Company for the payment of payroll. The loan will bear interest at
prime plus 2% and will be adjusted quarterly with interest payments due
quarterly.
F-16
INDEX TO FINANCIAL STATEMENTS
OF
SYCOM ENTERPRISES
Independent Auditors' Report F-17
Combined Financial Statements
Balance sheets F-18 to F-19
Statements of operations and accumulated deficit F-20
Statements of cash flows F-21 to F-22
Notes to combined financial statements F-23 to F-47
F-17
Independent Auditors' Report
To the Board of Directors
SYCOM Enterprises
We have audited the accompanying combined balance sheets of SYCOM Enterprises as
of December 31, 1997 and 1996 and the related combined statements of operations,
capital deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of SYCOM Enterprises at
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
has negative cash flows from operations and has significant working capital and
net capital deficiencies that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Notes 2 and 13. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
As described in Note 1, the Company changed its method of accounting for certain
contract revenue in 1997 and 1996.
\s\ BDO SEIDMAN, LLP
Certified Public Accountants
Washington, D.C.
April 3, 1998, except
for Note 13 which is
as of June 30, 1998
F-18
SYCOM Enterprises
Combined Balance Sheets
Restated
December 31, 1997 1996
- ------------ ------------- --------------
Assets
Current assets
Cash $ 195,598 $ 1,088,131
Restricted cash (Note 4) 1,965,723 1,570,910
Accounts receivable, net allowance of $170,000
and $70,000 (Note 5) 3,937,781 5,936,707
Costs and estimated earnings in excess
of billings on uncompleted contracts (Note 5) 284,753 -
Inventories 82,273 -
Prepaids and other 2,927 28,009
-------------- ------------
Total current assets 6,469,055 8,623,757
Property and equipment, net (Note 6) 479,950 264,134
Contract rights and costs, net of
amortization of $1,654,265 and $1,429,625 623,330 847,970
Projects being installed (Note 1) - 8,067,246
Projects in commercial operation, net of
amortization of $24,156,114 and $23,578,027 (Note 1) 23,007,069 21,559,291
Other assets 99,650 48,818
-------------- ------------
$ 30,679,054 $39,411,216
============== ============
See accompanying notes to combined financial statements.
F-19
SYCOM Enterprises
Combined Balance Sheets (cont.)
Restated
December 31, 1997 1996
- ----------- -------------- --------------
Liabilities and Capital Deficit
Current liabilities
Current maturities of long-term debt (Notes 7 and 12) $ 4,852,618 $ 3,633,782
Current maturity of loan for project
in commercial operation (Note 8) 141,539 24,222
Current maturity of other long-term payable (Note 9) 10,500 -
Accounts payable 4,145,931 3,715,946
Accrued expenses 1,023,391 559,374
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 5) 363,530 -
Accrued interest expense 870,441 2,855,981
-------------- -----------
Total current liabilities 11,407,950 10,789,305
Deferred revenue (Note 3) 1,228,595 11,997,391
Long-term debt, net of current maturities (Notes 7 and 12) 16,350,383 7,843,613
Loan for project in commercial operation, net of
current maturities (Note 8) 15,034,239 13,601,002
Other long-term payable, net of current maturity (Note 9) 1,049,794 1,161,719
------------- ----------
Total liabilities 45,070,961 45,393,030
Commitments (Note 11)
Capital deficit
Common stock, $.01 par value, 10,000 shares
authorized, 8,492 shares issued and outstanding 85 85
Accumulated deficit (14,391,992) (5,981,899)
------------- ------------
Total capital deficit (14,391,907) (5,981,814)
============= ============
$ 30,679,054 $39,411,216
============= ============
See accompanying notes to combined financial statements.
F-20
SYCOM Enterprises
Combined Statements of Operations and Accumulated Deficit
Years ended December 31, 1997 1996
- ------------------------------------------ ------------- ------------
Revenue (Note 1) $ 17,830,114 $ 35,322,291
Costs and expenses
Cost of sales (Note 1) 17,821,601 26,650,965
General and administrative expenses 5,169,606 2,804,993
------------ -----------
Total costs and expenses 22,991,207 29,455,958
------------ -----------
(Loss) income from operations (5,161,093) 5,866,333
------------ -----------
Other (expense) income
Other (expense) income 30,538 (33,914)
Interest expense, net (3,758,894) (1,473,767)
------------ -----------
Net other expense (3,728,356) (1,507,681)
------------ -----------
Net (loss) income before cumulative effect of
a change in accounting principle (8,889,449) 4,358,652
Cumulative effect of a change
in accounting principle (Note 1) 479,356 -
------------ -----------
Net (loss) income (8,410,093) 4,358,652
Accumulated deficit, beginning of year (5,981,899) (10,340,551)
------------- --------------
Accumulated deficit, end of year $(14,391,992) $ (5,981,899)
============= ==============
See accompanying notes to combined financial statements.
F-21
SYCOM Enterprises
Combined Statements of Cash Flows
Years ended December 31, 1997 1996
- ------------------------------------------------------ ----------- --------------
Cash Flows From Operating Activities
Net (loss) income $(8,410,093) $ 4,358,652
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Write-off of projects being installed 8,067,246 -
Revenue previously deferred (4,364,849) (7,630,913)
Depreciation and amortization 1,905,861 9,208,114
Allowance for doubtful accounts 100,000 70,000
Loss on disposal of assets 21,933 29,215
(Increase) decrease in assets
Restricted cash (394,813) (756,328)
Accounts receivable 1,898,926 (3,417,300)
Inventories (82,273) -
Costs and estimated earnings in excess
of billings on uncompleted contracts (284,753) -
Projects being installed - (4,587,480)
Projects in commercial operation (3,009,712) (14,831,769)
Other assets (25,750) 172,762
Increase (decrease) in liabilities
Accounts payable 429,985 1,035,245
Accrued expenses 464,017 392,671
Deferred revenue - 2,579,393
Billings in excess of costs and estimated
earnings on uncompleted contracts 363,530 -
Accrued interest 698,613 607,308
Deferred charges - (7,478)
------------ ------------
Net cash used in operating activities (2,622,132) (12,777,908)
============ =============
See accompanying notes to combined financial statements.
F-22
SYCOM Enterprises
Combined Statements of Cash Flows
Years Ended December 31, 1997 1996
- -------------------------------------------------- --------- ---------
Cash Flows From Investing Activities
Proceeds from sale of assets 3,600 1,550
Purchases of property and equipment (360,636) (183,389)
----------- -------------
Net cash used in investing activities (357,036) (181,839)
----------- -------------
Cash Flows From Financing Activities
Borrowings under debt agreements 9,376,733 16,460,598
Principal payments on debt (7,290,098) (2,783,004)
----------- -------------
Net cash provided by financing activities 2,086,635 13,677,594
----------- -------------
Net (decrease) increase in cash (892,533) 717,847
Cash, at beginning of year 1,088,131 370,284
----------- -------------
Cash, at end of year 195,598 1,088,131
=========== =============
Supplemental Disclosure
Cash paid for interest $ 3,111,663 $ 1,190,256
========== =============
see accompanying notes to combined financial statements
F-23
SYCOM Enterprises
Notes to Combined Financial Statements
1. Summary of Accounting Policies
Basis of Combination
The combined financial statements reflect the activities of six entities
(collectively "the Company"). SYCOM Corporation ("SYCOM" or "general partner")
and SSBKK, Inc. ("SSBKK" or "limited partner") are partners of SYCOM Enterprises
Limited Partnership (the "Partnership") and own 100% of SB Linden, LLC ("SB
Linden"), SC Wood, LLC ("SC Wood") and SYCOM Enterprises, LLC ("Sycom LLC"). The
Company's activities have been combined to reflect the common ownership by the
stockholders of SYCOM and SSBKK. All material accounts and transactions between
the Companies have been eliminated.
Organization
SYCOM was incorporated in Delaware in August 1986 under the name Restaurant
Conservation Corp. to provide commercial energy conservation services. During
1988, the company changed its name to RCC Corp., and is currently doing business
as SYCOM Corporation. During 1990, SYCOM entered into a partnership agreement
through which it owns 50.1% of the Partnership. As the general partner, SYCOM
functions primarily as the project management company for the Partnership. SSBKK
was incorporated in Delaware in 1993. During 1995, SSBKK purchased the 49.9%
interest in the Partnership from the former limited partners.
The Partnership assumed certain contract rights and associated liabilities
of the general partner at inception. The combined financial statements do not
reflect assets or liabilities that the partners may have outside their interests
in the Partnership.
SB Linden and SC Wood were organized in Delaware in 1996 and 1997,
respectively, to provide commercial energy conservation services to specific
individual projects. (See Note 13).
SYCOM Enterprises, LLC was organized in 1997 in the same business as the
Partnership. (See Note 13).
F-24
Nature of Business
The Company provides services for the reduction of energy consumption and
related energy costs to its customers through the use of engineering analyses
and the acquisition, operation, management and maintenance of energy savings
devices installed on customers' premises. Long-term contracts with utility
companies provide one source of revenue that is directly related to the level of
savings generated. Another source of revenue is provided by energy services
agreements entered into with non-utility customers. These agreements provide the
Company with a share of the savings or a negotiated fee, based upon the savings
realized by the customer. The future recoverability of the costs associated with
these projects, which the Company has deferred, is dependent upon the successful
operation of the energy savings devices. Management has prepared a business plan
which includes forecasted revenues which are sufficient to recover the deferred
costs. Management believes that these forecasted revenues are reasonable based
upon the detailed analyses and feasibility studies performed for each project as
well as management's past experiences. An additional source of revenue is also
provided by the maintenance and monitoring services performed by the Company
over the life of the contract.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses uring the reporting
period. Actual results could differ from those estimates.
Risk and Uncertainties
The most significant risk facing the Company is its ability to continue to
obtain financing to fund future project development, as well as liquidate trade
accounts payable and current debt maturities. Additionally, the Company
currently derives a majority of its business by offering customers incentive
payments through public utility energy savings programs. As a regulated
industry, some public utilities currently offer incentives to their customers
and third parties such as the Company to conserve energy. Future deregulation of
F-25
the utility industry or a reduction in the incentives to conserve energy could
have a direct impact on the Company.
Change of Accounting Principle
During 1997 the Company changed its method of revenue recognition for
customer-funded contracts from the completed contract method to the percentage
of completion method. The percentage of completion method of revenue recognition
was adopted because the Company believes it results in a better matching of
expenses with revenues and is the predominant method used in its industry. Also,
beginning in 1997 the Company is able to sufficiently estimate its future costs
to allow adoption of the percentage of completion method of revenue recognition.
The Company applied the percentage of completion method to all customer-funded
contracts in progress at December 31, 1997. The effect of the change in 1997 was
to decrease the net loss by $430,929. The cumulative effect of applying the
percentage of completion method to customer-funded contracts in progress at
December 31, 1996 of $479,356 is included in income of 1997 as the cumulative
effect of a change in accounting principle.
During 1996 the Company, based on historical trends over the past five
years, changed its revenue recognition policy related to projects in commercial
operation. Prior to 1996, it was the Company's policy to wait one year after the
date of commercial operation ("DOCO") before recognizing revenue. The purpose of
the delay was to allow the Company to better evaluate the amount of future
warranty claims that would reduce revenue. Experience has now shown that
warranty claims have had no impact on the profitability of projects and that
revenue recognition therefore should not be delayed. Approximately 14%
($4,900,000) of the 1996 revenue would have been recognized in subsequent
periods under the previous revenue recognition policy.
F-26
Revenue Recognition
The Company derives its revenue from two primary sources: the management,
maintenance, monitoring and construction of customer-funded energy savings
contracts including lease-financed projects paid from energy savings; and long
term shared energy savings contracts. On customer-funded contracts the Company
receives revenue for the management and installation of energy savings devices
at customer premises.
Contract revenues, related to customer-funded contracts, are recognized
using the percentage-of-completion method, measured by the percentage of
contract costs incurred to estimated total contract costs for each contract.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, supplies, tools,
repairs and depreciation. Selling, general, and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability, including those
arising from contract penalty provisions, and final contract settlements may
result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Profit incentives are included in revenues
when their realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is probable and
the amount can be reliably estimated.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
The Company also enters into long-term contracts to provide sustained
levels of energy savings to its customers. Once completed, these projects will
earn revenue from both contracts with customers and incentive payments from
utility companies for the duration of the contract based on actual energy
savings achieved. The energy savings are largely quantifiable at the beginning
of the contract life insofar as the measurement formula is based on empirical
specifications of the installed energy savings equipment and measured operating
hours or on contract provisions designed to limit the financial impact of
F-27
significant changes to baseline measurements. The Company recognizes revenue as
the energy savings are measured. Management forecasts that the revenue
attributable to Projects in Commercial Operation for which there is no current
recognition is $79,924,900.
With respect to the second source of revenue, during 1992, the Partnership
entered into an agreement with a company whereby the Partnership agreed to
develop energy savings projects and sell the resulting income streams to the
company at a discount. Projected revenue attributable to the sale of project
income streams for which there is no current recognition is $6,848,000.
The Company receives revenue on both types of contracts over the life of
the project as reimbursement for maintenance and other costs incurred.
Income Taxes
There is no provision for income taxes for the Company as taxable income
passes through to and is reported by the general and limited partners
individually. The partners have each elected S Corporation status. Therefore,
their respective shares of any income or loss are included in the shareholders'
individual income tax returns.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
various methods over the estimated useful lives of the assets which range from
three to ten years.
Contract Rights and Costs
Contract rights represent the excess of liabilities assumed over assets
acquired upon transfer of certain contracts from the general partner. The
contract rights are being amortized on a straight line basis over the 10-year
life of the related contracts. Management evaluates the recoverability of
contract rights on a periodic basis and, if necessary, recognizes any
impairment.
F-28
Projects Being Installed and Projects In Commercial Operation
Projects Being Installed and Projects in Commercial Operation consist of
costs incurred to purchase energy savings devices, install the devices and
manage their installation plus an allocation of overhead on shared savings
contracts. Once a project is placed in service, the costs of Projects Being
Installed are classified as Projects in Commercial Operation and amortized as
energy savings revenue is recognized. For those projects where the revenues are
sold, the costs are offset against the revenue from the sale. Management
periodically evaluates the recoverability of Projects Being Installed and
Projects in Commercial Operation and, if necessary, recognizes any impairment.
Upon adoption of the percentage of completion method of revenue recognition on
January 1, 1997, the Company wrote off the amount associated with projects being
installed since it had recognized the related contract revenue.
Interest Costs
The Company capitalizes interest costs on borrowings incurred to finance
the development and construction of its projects. Once the project is completed
and the project goes into commercial operation, capitalization of interest costs
ceases. During the years ended December 31, 1997 and 1996, the Company incurred
interest expense of $3,859,599 and $1,797,564, and capitalized interest of
$275,144 and $2,293,975, respectively.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable and
future amounts due under energy savings agreements. The Company's customer base
is concentrated on the east coast of the United States. In addition, companies
in the energy services industry are either directly or indirectly involved in
all projects developed by the Company. The Company reviews a customer's credit
history before extending credit, and establishes an allowance for doubtful
accounts based on factors surrounding the credit risk of specific customers and
historical trends. In 1997 and 1996, five customers accounted for approximately
75% and 51% of total revenues, respectively.
F-29
Financial Instruments
The Company utilizes interest rate agreements to manage interest rate
exposure. The principle objective of such contracts is to minimize the risks
and/or costs associated with financing activities. The Company does not utilize
financial instruments for trading or speculative purposes. The counterparties to
these contractual arrangements are financial institutions with which the Company
also has other financial relationships. The Company is exposed to credit loss in
the event of nonperformance by these counterparties. However, the Company does
not anticipate nonperformance by the other parties.
Prior Period Adjustment
The Company's financial statements as of December 31, 1996, have been
restated to reflect a liability that existed for interest associated with the
other long-term payable. The effect of the restatement is as follows:
As previously As
December 31, 1996 reported restated
- ----------------- ------------------- -------------
Balance sheet:
Projects in commercial operation $21,158,135 $ 21,559,291
Accrued interest expense $ 2,454,825 $ 2,855,981
- -------------------------------------------------------------------------------
Reclassification
Certain amounts reported in the prior year have been reclassified to
conform with the presentation of related amounts in the current year. The
reclassifications have no effect on previously reported results of operations.
2. Going Concern
The accompanying combined financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has sustained
recurring operating losses and cash flow deficits. Also, the Company has
significant cash commitments to trade creditors and amounts due under note
agreements with unrelated third parties (see Notes 7, 8, 11 and 12). The
Company's ability to meet its obligations is dependent primarily on attracting
F-30
additional debt or equity, in the near term, and ultimately generating
sufficient net income and related cash flows from operations to meet these
commitments as they become due.
3. Deferred revenues
Deferred revenues consist of amounts advanced to the Company for project
Revenues installation. During 1992, the Partnership entered into an agreement
with an unrelated company (Public Service Conservation Resources Corporation
("PSCRC") which provides for the sale of the income streams from certain
existing and future projects. Under the terms of the agreement, the Partnership
receives advances toward the sale of these income streams upon achievement of
certain milestone events during the installation phase of the project. Advances
under this agreement totaled $8,488,094 at December 31, 1996. Advances at
December 31, 1997 were transferred to a note payable from the Company to PSCRC
as part of the litigation settlement with PSCRC (see Note 12).
4. Restricted cash
The restricted collateralizes letters of credit issued to a company to Cash
cover potential liquidated damages if projects are not installed by specified
dates, or if energy savings performance on projects drops below certain levels.
Management does not believe the Company is in jeopardy of missing the
installation deadlines or incurring the performance penalties.
5. Contracts in Progress
Accounts receivables consist of the following at December 31, 1997:
- ------------------------------------------------------------------------
Billed:
Completed contracts $2,806,386
Contracts in progress 808,499
Unbilled and other 492,896
-----------
4,107,781
Allowance for doubtful accounts (170,000)
------------
Net accounts receivables $3,937,781
============
F-31
The billed and unbilled accounts receivables at December 31, 1997 are
expected to be collected before December 31, 1998.
Costs and estimated earnings on uncompleted contracts consist of the
following at December 31, 1997:
- -------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 3,015,335
Estimated earnings 555,622
Billings to date (3,649,734)
--------------
Net accounts receivables $ (78,777)
==============
Included in the accompanying consolidated balance sheets under the
following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 284,753
Billings in excess of costs and estimated
earnings on uncompleted contracts (363,530)
--------------
$ (78,777)
==============
At December 31, 1997, contracts in progress have future estimated contract
revenues and costs to complete of approximately $4,221,000 and $2,656,000,
respectively.
F-32
6. Property and Equipment
Major classes of property and equipment consist of the following:
December 31, 1997 1996
- ----------------------------- ------------ ------------
Leasehold improvements $ 21,965 $ 7,674
Computer equipment 323,302 291,130
Computer software 58,784 28,223
Equipment, furniture and fixtures 390,447 159,899
Automobiles 5,224 19,890
------------- ------------
799,722 506,816
Less accumulated depreciation (319,772) (242,682)
------------- ------------
Net property and equipment $ 479,950 $ 264,134
============== =============
7. Debt
The Company's debt financing can be categorized into project financing and
working capital financing.
Project Financing
The Company has entered into loan agreements to fund the construction of
certain projects. Under the terms of the loan agreements, amounts borrowed
during the project construction period bear interest at various rates and are
due on demand upon completion of the project unless converted to permanent
financing at the Company's option. The Company is not required to make any
periodic payments under the terms of the construction loan provision.
The Company treats each construction loan converted to permanent financing
as a separate note with monthly payments bearing interest at a bank's prime
interest rate, fixed at that date, plus eight percent. At the time of conversion
to permanent financing, the Company classifies the construction loan as
long-term debt.
As of December 31, 1997 and 1996, the outstanding borrowings on the
agreements for uncompleted contracts, excluding any amounts converted to
permanent financing, were $112,503 and $1,451,824, respectively.
F-33
Working Capital Financing
On July 2, 1993, the Partnership entered into a revolving credit and term
loan agreement ("Agreement"). The Agreementt permitted the Partnership to borrow
a maximum of $1,800,000 under a revolving credit line based on future funding
requirements of the Partnership which were to be established on December 31 and
June 30 of each fiscal year through June 30, 1999. During 1995, the Partnership
exercised an option to convert the outstanding amount to a five year term loan.
The agreement also provided the Partnership with a $1,200,000 term loan which
was due on June 30, 1999.
The loans were collateralized by certain service and termination reserves
due under existing and future contracts to sell project income streams (See Note
3). The Partnership used the proceeds from these loans to fund its operations in
1996. These loans were transferred to a note payable as part of the litigation
settlement with PSCRC (Notes 12 and 13).
F-34
Long-term project debt and working capital debt at December 31 consisted
of the following:
1997 1996
------------------------------ ------------- -----------
Note payable to a company with
interest at 10%. See note 12. $14,910,915 -
Note payable to a company with
interest at 14.5%, monthly
payments of principal and interest of
$18,318, due March 2007. 1,157,293 -
Note payable to a company with
interest at 13.5%, due in installments
through July 1998, collateralized
by certain equipment, fixtures and
receivables.
1,148,722 -
Note payable to a company with interest at 14%,
monthly installments of principal and interest
of $28,306, due March 2000; collateralized by
certain equipment, fixtures, inventory,
receivables and intangibles.
838,725 1,019,182
Note payable to a company with interest at
14.5%, monthly installments of principal and
interest of $23,907, due August 1999;
collateralized by certain equipment, fixtures,
inventory, receivables
and intangibles. 824,225 904,711
F-35
1997 1996
----------------------------------------------- ----------- -----------
Note payable to a company with interest at 16%,
monthly installments of principal and interest
of $17,660, due August 1999; collateralized by
certain equipment, fixtures, inventory,
receivables and intangibles.
445,486 493,762
Note payable to a company with
interest at 13.5%, due April 1998,
collateralized by certain equipment,
fixtures and receivables 323,605 -
Note payable to a bank with interest at 10%,
monthly installments of principal and interest
of $6,641, due October 2002; collateralized by
certain equipment, fixtures, inventory,
receivables and
intangibles 304,506 351,177
Note payable to a company with
interest at 13.5%, due July 1998,
collateralized by certain equipment,
fixtures and receivables 249,530 -
Note payable to a company with
interest at 13.5%, due October 2002,
collateralized by certain equipment,
fixtures and receivables 163,500 -
F-36
1997 1996
----------------------------------------------- ------------ -----------
Note payable to a company with interest at 14%,
monthly installments of principal and interest
of $14,894 due November, 2000; collateralized
by certain equipment, fixtures, inventory,
receivables and intangibles.
158,469 372,074
Note payable to a company with
interest at 13.5%, due January 1998,
collateralized by certain equipment,
fixtures and receivables 137,964 -
Notes payable to a company with
interest at 13.5%, due June 1998,
collateralized by certain equipment,
fixtures and receivables 97,765 -
Note payable to bank with interest at 10%,
monthly installments of $1,453 plus interest,
due October 2002; collateralized by certain
equipment, fixtures, inventory, receivables
and intangibles 66,657 76,873
Note payable to bank with interest at 10%,
monthly installments of $1,354 plus interest,
due October 2002; collateralized by certain
equipment, fixtures, inventory, receivables
and intangibles 62,127 71,649
Note payable to a company with interest at
10.5%, monthly payments of principal and
interest of $25,126, due November 1997;
unsecured. 49,601 285,048
F-37
Note payable to a company with interest at
10.5%, monthly installments of principal and
interest of $1,600, due March 2000;
collateralized by certain equipment, fixtures,
inventory, receivables
and intangibles. 38,212 52,570
Note payable to a company with interest at 14%,
monthly installments of principal and interest
of $2,310, due December 1998; collateralized by
certain equipment, fixtures, inventory,
receivables and intangibles. 36,351 53,787
Note payable to a company with interest at 15%,
monthly payments of principal and interest of
$68,444, due December 2004; collateralized by
certain future project income streams and
contract rights - 3,813,991
Demand note payable to a company with
interest at 15%, unsecured - 1,013,716
Note payable to a company with interest at 20%
the first year and the remaining 5 years at an
annual rate ranging from 15% to 7% in the final
year, monthly payments of principal and
interest of $33,052, due June 1999;
collateralized by certain service and
termination reserves as well as future project
income streams. - 881,836
F-38
1997 1996
------------------------------------------------- ------------ ----------
Demand note payable to a company with
interest at 15%, secured - 397,500
Note payable to a company with interest at 14%,
monthly installments of principal and interest
of $2,056, due December 2002; collateralized by
certain equipment, fixtures, inventory,
receivables and intangibles.
- 71,088
Demand note payable to a company with
interest at 15%, unsecured. - 63,870
Note payable to a company with interest at 14%,
monthly installments of principal and interest
of $6,336, due October 1997; collateralized by
certain equipment, fixtures, inventory,
receivables and intangibles. - 45,467
Construction loans payable 112,503 1,451,824
Other notes payable 76,845 57,270
----------- -----------
21,203,001 11,477,395
Less current maturities (4,852,618) (3,633,782)
----------- -----------
$16,350,383 $ 7,843,613
=========== =============
F-39
Scheduled repayments at December 31, 1997 are as follows:
1998 $ 4,852,618
1999 1,422,091
2000 1,971,328
2001 1,817,936
2002 1,943,245
Thereafter 9,195,783
------------
Total $21,203,001
============
8. Loan for Profect in Commercial Operations
On August 15, 1996, the Company entered into a project finance agreement
(the Project in "Agreement") with an international bank. The Agreement provided
for financing in the amount of up to $15,200,000 for the acquisition and
installation of certain natural gas engines and engine driven pumps at a
customer's facility. On February 27, 1997, the bank converted the loan from a
construction to a permanent loan. This loan is collateralized by all assets as
well as all future project income streams. The principal due at December 31,
1997 and 1996 was $15,175,778 and $13,625,224, respectively.
The loan is payable in quarterly installments through January 2011 with
interest accruing at LIBOR + 1.375% in years 1-5; 1.625% in years 6-10 and
1.875% in years 11-14.5.
Scheduled repayments at December 31, 1997 are as follows:
1998 $ 141,539
1999 249,056
2000 390,545
2001 533,937
2002 483,975
Thereafter 13,376,726
------------
Total $ 15,175,778
============
F-40
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its floating rate debt. The swap
agreements are contracts to exchange floating rate for fixed interest payments
quarterly over the life of the agreements without the exchange of the underlying
notional amounts. The notional amounts of interest rate agreements are used to
measure interest to be paid or received and do not represent the amount of
exposure to credit loss. For interest rate instruments that effectively hedge
interest rate exposure, the net cash amounts paid or received on the agreements
are accrued and recognized as an adjustment to interest expense. If an
arrangement is replaced by another instrument and no longer qualifies as a hedge
instrument, then it is marked to market and carried on the balance sheet at fair
value.
As of December 31, 1997 and 1996, the Company had the following interest
rate swap in effect:
1997 1996
----------- ----------
Notional amount $15,175,778 $13,625,224
Average pay rate 7.063% 7.063%
Average receive rate 5.678% 6.665%
Period Matures January, 2011
9. Other Long-Term Payable
Other long-term payable consists of accrued interest and the remaining
turnkey payment payable to an engineering and construction company that procured
and installed the energy conservation measures.
10. Related Party Transactions
The Partnership also has subcontracting services provided by an affiliated
company. These amounted to approximately $3,515,303, in 1997 and $4,337,083 in
1996. Accounts payable included $217,991 and $1,189,731 related to these
services at December 31, 1997 and 1996, respectively.
F-41
11. Commitments
Rent expense, exclusive of amounts allocated to projects, was $157,081 for
1997 and $144,686 for 1996. At December 31, 1997, future minimum rental and
lease payments are as follows:
1998 $ 350,503
1999 305,542
2000 308,657
2001 312,257
2002 210,802
------------
Total $1,487,761
============
12. Litigation Settlement
During 1997 PSCRC delivered a letter to the Partnership formally demanding
repayment of funds borrowed by, or advanced to, the Partnership, inclusive of
interest, late charges and attorneys' fees. On March 31, 1997, PSCRC filed a
lawsuit against the Partnership in the Superior Court of New Jersey seeking
repayment of principal and interest, plus late charges, expenses and attorney's
fees. The Partnership filed a counterclaim and was awarded satisfaction on a
part of that claim. On January 8, 1998, the Company entered into an agreement
with PSCRC in settlement of all amounts owed to PSCRC by the Company. The
settlement amount totaled $14,910,215 and has been recorded effective December
31, 1997.
The settlement is payable in monthly payments of principal and interest
commencing June 1, 1998, and continuing on the first day of each month until the
balance with all accrued interest is paid in full, or January 7, 2005, when all
outstanding principal and interest is due and payable.
F-42
Scheduled repayments of principal and interest, under the settlement
agreement, are as follows in the years ended December 31,
1998 $ 2,819,394
1999 1,580,044
2000 2,715,132
2001 2,715,132
2002 2,715,132
2003 2,715,132
2004 2,715,132
2005 4,366,185
-------------
Total 22,341,283
Less interest portion (7,430,368)
--------------
Principle balance $14,910,915
==============
13. Sale of Affiliates
Subsequent to December 31, 1997, the Company entered into negotiations with
a contractor to sell SC Wood. The terms of the agreement sold the assets and
future revenues of the Colonial project operated by SC Wood to the contractor
for the sum of $1 plus forgiveness of certain amounts owed the contractor. The
settlement of accounts is as follows:
Assets sold:
Accounts receivable $ (27,977)
Projects in commercial operation, net (809,883)
Amounts received or forgiven:
Accounts payable 444,065
Accrued expenses 763,265
Amounts payable from agreement (181,564)
Cash received 1
---------
Gain on sale of SC Wood $ 187,906
=========
F-43
On June 30, 1998, Onsite Energy Corporation ("Onsite") acquired all of the
assets and assumed certain specific liabilities of Sycom LLC. As consideration
for this purchase, Onsite issued 1,750,000 shares of its Class A common stock to
Sycom LLC. As part of the purchase Onsite, Sycom and the Partnership executed an
employment and noncompete agreement with substantially all of the existing
officers and employees. In consideration for the right to retain the services of
these employees Onsite placed in escrow 157,500 shares of its Series D
Convertible Preferred Stock, convertible into 15,750,000 shares of Onsite common
stock. The convertible preferred stock will be released to Sycom when the PSCRC
debt has been liquidated (see Note 12), when any loans from Onsite to Sycom or
the Partnership have been liquidated and when the average closing market price
of Onsite's common stock over any period of 20 days is not less than $2.00 per
share and net income per share for four consecutive quarters is not less than
$.15.
As part of the employment agreement, Onsite agrees to lend Sycom and the
Partnership an amount equal to any remaining general and administrative expenses
and debt service to third parties which Sycom or the Partnership cannot pay. Any
amounts borrowed will bear interest at 9.75%. Sycom may repay any loans in cash
or with shares of the convertible preferred stock.
Also, Onsite agreed to loan the shareholders of Sycom and SSBKK up to
$1,000,000 to pay anticipated federal and state income taxes resulting from the
sale. Such loans will bear interest at 9.75%. The shareholders may repay any
amounts borrowed in cash or Onsite common stock obtained from the sale of the
assets of Sycom LLC.
F-44
SYCOM ENTERPRISES
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
MARCH 31, 1997 MARCH 31, 1998
------------------------ -----------------------
ASSETS
--------
CURRENT ASSETS:
Cash $ 535,843 $ 37,690
Cash - restricted 2,611,833 1,549,732
Trade receivables, net 8,238,232 4,096,511
Cost and estimated earnings in excess of billings - 429,716
Other assets 79,838 90,748
-------------------- -------------------
Total current assets 11,465,746 6,204,397
PROPERTY AND EQUIPMENT, net 247,551 454,883
OTHER ASSETS:
Projects in commercial operations, net 20,633,659 22,472,106
Projects being installed 3,352,540 82,276
Other 857,961 686,325
-------------------- -------------------
TOTAL ASSETS $ 36,557,457 $ 29,899,987
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 591,785 $ 2,886,353
Current portion of loan for project in commercial
operation 2,251,705 1,606,345
Current portion of loans for projects being installed 3,575,322 115,370
Accounts payable 3,047,707 4,313,038
Billings in excess of costs and estimated earnings on uncompleted
contracts - 176,625
Accrued liabilities 2,791,698 1,570,374
-------------------- -------------------
Total current liabilities 12,258,217 10,668,105
LONG-TERM LIABILITIES:
Deferred revenue 8,738,678 1,387,995
Long-term debt 5,531,517 16,198,404
Loan for project in commercial operation 17,301,577 17,342,552
-------------------- -------------------
Total liabilities 43,829,989 45,597,056
-------------------- -------------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 85 85
Accumulated deficit (7,272,617) (15,697,154)
--------------------- -------------------
Total stockholders' equity (deficit) (7,272,532) (15,697,069)
-------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
$ 36,557,457 $ 29,899,987
==================== ===================
The accompanying notes are an integral part of the financial statements.
F-45
SYCOM ENTERPRISES
CONDENSED COMBINED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT
(UNAUDITED)
FOR THE THREE MONTHS ENDED
----------------------------------------------------
MARCH 31, 1997 MARCH 31, 1998
------------------------ -----------------------
REVENUES $ 6,140,518 $ 3,752,955
COST OF GOODS SOLD 5,894,226 2,904,419
-------------------- -------------------
Gross margin 246,292 848,536
OPERATING EXPENSE:
Selling, general and administrative 645,665 1,138,642
-------------------- ---------------------
LOSS FROM OPERATIONS (399,373) (290,106)
-------------------- -------------------
OTHER INCOME (EXPENSE):
Interest expense (900,198) (1,025,926)
Other income 8,853 10,870
-------------------- -------------------
(891,345) (1,015,056)
-------------------- -------------------
NET LOSS (1,290,718) (1,305,162)
ACCUMULATED DEFICIT, beginning of period (5,981,899) (14,391,992)
-------------------- -------------------
ACCUMULATED DEFICIT, end of period $ (7,272,617) $ (15,697,154)
==================== ===================
The accompanying notes are an integral part of these financial statements.
F-46
SYCOM ENTERPRISES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
1997 1998
------------------------ -----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,290,718) $ (1,305,162)
Adjustments to reconcile net loss to cash used in operating
activities:
Write off of projects being installed 4,714,706 -
Depreciation and amortization 988,457 524,800
Loss on disposal of assets 3,347 -
Changes in operating assets and liabilities:
Trade receivables (2,301,525) (158,730)
Costs and estimated earnings in excess of
billings - (144,963)
Other current assets (51,829) (5,548)
Accounts payable (668,239) 167,107
Accrued liabilities (623,657) (323,458)
Billings in excess of costs and estimated earnings on
uncompleted contracts - (186,905)
Deferred revenue (3,258,713) 159,400
-------------------- -------------------
Net cash used in operating activities (2,488,171) (1,273,459)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets 1,600 -
Purchases of property and equipment (12,362) (10,391)
-------------------- -------------------
Net cash used in investing activities (10,762) (10,391)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under debt agreements 6,418,777 2,473,997
Principal payments on debt (3,431,209) (1,764,046)
-------------------- -------------------
Net cash provided by financing activities 2,987,568 709,951
-------------------- -------------------
NET INCREASE (DECREASE) IN CASH 488,635 (573,899)
CASH, at beginning of period 2,659,041 2,161,321
-------------------- -------------------
CASH, end of period $ 3,147,676 $ 1,587,422
==================== ===================
The accompanying notes are an integral part of these financial statements.
F-47
SYCOM ENTERPRISES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
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 audited financial statements of
SYCOM Enterprises as of and for the years ended December 31,
1996 and 1997. In the opinion of management, the
accompanying unaudited financial statements contained 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 combined balance sheets as of March 31, 1997 and 1998,
and the combined statements of operations and cash flows for
the three months ended March 31, 1997 and 1998, represent the
financial position and results of operations of the Company.
F-48
ONSITE ENERGY CORPORATION
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information is presented to reflect the
following acquisitions by Onsite Energy Corporation ("Onsite"):
o Effective June 13, 1998, Onsite acquired all of the outstanding
common shares of Lighting Technology Services, Inc. ("LTS") in
exchange for 690,000 shares of Onsite's Class A Common Stock plus
$500,000.
o Effective June 30, 1998, Onsite acquired all of the assets and
specific liabilities of SYCOM Enterprises, LLC from SYCOM
Enterprises, LLC (a wholly-owned subsidiary of SYCOM Enterprises)
through its newly created subsidiary, SYCOM ONSITE Corporation, in
exchange for 1,750,000 shares of Onsite's Class A Common Stock.
The accompanying pro forma financial information includes:
1. Pro forma Balance Sheet as of March 31, 1998, prepared as if the
transactions were effective as of that date.
2. Pro forma Statements of Operations for the year ended June 30,
1997 and the nine months ended march 31, 1998, prepared as if the
transactions occurred at the beginning of the periods presented.
The pro forma balance sheet was derived from the unaudited balance sheets of
Onsite, LTS, and SYCOM Enterprises as of March 31, 1998. The pro forma statement
of operations for the year ended June 30, 1997 was derived from the audited
financial statements of Onsite for the year then ended; the audited financial
statements of LTS for the year ended December 31, 1996 less the unaudited
financial statements for the six months ended June 30, 1996 plus the unaudited
financial statements for the six months ended June 30, 1997; and the audited
financial statements of SYCOM Enterprises for the year ended December 31, 1996
less the unaudited financial statements for the six months ended June 30, 1996
plus the unaudited financial statements for the six months ended June 30, 1997.
The pro forma statement of operations for the nine months ended March 31, 1998
was derived from the unaudited financial statements of Onsite for the nine
months then ended; the audited financial statements of LTS for the year ended
December 31, 1997 less the unaudited financial statements for the six months
ended June 30, 1997 plus the unaudited financial statements for the three months
ended March 31, 1998; and the audited financial statements of SYCOM Enterprises
for the year ended December 31, 1997 less the unaudited financial statements for
the six months ended June 30, 1997 plus the unaudited financial statements for
the three months ended March 31, 1998. Revenues and net income for LTS were
$1,902,000 and $46,000, respectively, for the six months ended June 30, 1997.
F-49
Revenues and net loss for LTS were $1,736,000 and $36,000, respectively, for the
six months ended June 30, 1996. Revenues and net loss for SYCOM Enterprises were
$7,397,000 and $3,355,000, respectively, for the six months ended June 30, 1997.
Revenues and net income for SYCOM Enterprises were $12,197,000 and $550,000,
respectively, for the six months ended June 30, 1996.
The assumptions used in preparing the pro forma adjustments are described in the
footnotes to the pro forma financial statements. However, due to the
uncertainties inherent in the assumption process, it is at least reasonably
possible that the assumptions might require further revision and that such
revision could be material.
The pro forma financial information should be read in conjunction with the
historical financial statements of Onsite, LTS, and SYCOM Enterprises which were
used to prepare the pro forma financial information. The historical financial
statements of LTS and SYCOM Enterprises are attached hereto, while the
historical financial statements of Onsite are contained in Onsite's Form 10-KSB.
The pro forma financial information presented is not necessarily indicative of
future operations or the actual results that would have occurred had the
transactions been consummated at the beginning of the period indicated.
F-50
ONSITE ENERGY CORPORATION
PRO FORMA BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
HISTORICAL
-------------
ONSITE LIGHTING
ENERGY TECHNOLOGY SYCOM PRO FORMA PRO FORMA
CORP. SERVICES, INC. ENTERPRISES ADJUSTMENTS COMBINED
------------ --------------- ------------ -------------- --------------
ASSETS
CURRENT ASSETS:
Cash $ 512,000 $ 21,000 $ 38,000 (a) $ (500,000) $ 215,000
(c) 144,000
Cash - restricted 153,000 - 1,550,000 (c) (1,550,000) 153,000
Trade receivables, net 4,596,000 437,000 4,096,000 (c) (3,467,000) 5,662,000
Cost and estimated earnings in
excess of billings
on uncompleted contracts 334,000 73,000 430,000 (c) 11,000 848,000
Other assets 905,000 196,000 91,000 (c) (91,000) 1,101,000
----------- --------- ----------- ------------ -----------
Total current assets 6,500,000 727,000 6,205,000 (5,453,000) 7,979,000
PROPERTY AND EQUIPMENT, net 1,167,000 42,000 455,000 (c) 356,000 2,020,000
OTHER ASSETS:
Cash - restricted 79,000 - - - 79,000
Projects in commercial
operation, net - - 22,472,000 (c) (22,472,000) -
Goodwill - - - (a) 1,446,000 3,578,000
(b) 2,132,000
Other 222,000 7,000 768,000 (c) (768,000) 229,000
----------- ---------- ----------- ------------ ----------
TOTAL ASSETS $ 7,968,000 $ 776,000 $29,900,000 $(24,759,000) $13,885,000
=========== ========== =========== ============= ===========
(continued)
F-51
ONSITE ENERGY CORPORATION
PRO FORMA BALANCE SHEET (continued)
MARCH 31, 1998
(UNAUDITED)
HISTORICAL
-----------------
ONSITE LIGHTING
ENERGY TECHNOLOGY SYCOM PRO FORMA PRO FORMA
CORP SERVICES, INC. ENTERPRISES ADJUSTMENTS COMBINED
----------- -------------- ------------ ------------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 76,000 $ 39,000 $ 2,886,000 (c) $ (2,886,000) $ 115,000
Current portion of loan for project
in commercial operation - - 1,722,000 (c) (1,722,000) $ -
Accounts payable 2,548,000 745,000 4,313,000 (c) (3,966,000) 3,640,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,181,000 90,000 177,000 (c) 10,000 1,458,000
Accrued liabilities 928,000 160,000 1,570,000 (c) (1,476,000) 1,182,000
----------- --------- ----------- ------------ ----------
Total current liabilities 4,733,000 1,034,000 10,668,000 (10,040,000) 6,395,000
LONG TERM LIABILITIES:
Deferred revenue - - 1,388,000 (c) (1,388,000) -
Long-term debt - 14,000 16,198,000 (c) (13,536,000) 2,676,000
Loan for project in commercial
operation - - 17,343,000 (c) (17,343,000) -
Accrued future operation and
maintenance costs
associated with energy service
agreements 421,000 - - - 421,000
---------- ---------- ---------- ------------ -----------
Total liabilities 5,154,000 1,048,000 45,597,000 (42,307,000) 9,492,000
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - - - -
Common stock 15,000 40,000 - (a) 1,000 18,000
(b) 2,000
(d) (40,000)
Additional paid in capital 20,710,000 35,000 - (a) 495,000 23,263,000
(b) 2,058,000
(d) (35,000)
Notes receivable - related parties - (168,000) - (c) (1,155,000) (1,323,000)
Accumulated deficit (17,911,000) (179,000) (15,697,000) (a) 450,000 (17,565,000)
(b) 72,000
(c) 15,625,000
(d) 75,000
------------- ------------ ------------ ----------- ------------
Total stockholders' equity (deficit) 2,814,000 (272,000) (15,697,000) 17,548,000 4,393,000
------------- ------------ ------------ ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 7,968,000 $ 776,000 $ 29,900,000 $(24,759,000) $ 13,885,000
============== ============= ============= ============= =============
F-52
ONSITE ENERGY CORPORATION
PRO FORMA BALANCE SHEET
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
HISTORICAL
---------------------------
ONSITE LIGHTING
ENERGY TECHNOLOGY SYCOM PRO FORMA PRO FORMA
CORP SERVICES, INC. ENTERPRISES ADJUSTMENTS COMBINED
------------- -------------- -------------- -------------- ------------
REVENUES $ 8,994,000 $ 3,568,000 $ 14,186,000 (c) $ (2,592,000) $ 22,954,000
(d) (1,202,000)
COST OF GOODS SOLD 6,820,000 3,089,000 13,596,000 (c) (1,627,000) 20,676,000
(d) (1,202,000)
------------ ------------ -------------- ------------- ------------
Gross margin 2,174,000 479,000 590,000 (965,000) 2,278,000
OPERATING EXPENSES:
Selling, general and
administrative 2,873,000 739,000 4,493,000 (c) (83,000) 8,559,000
(e) 537,000
------------ -------------- -------------- ------------ ------------
LOSS FROM OPERATIONS (699,000) (260,000) (3,903,000) (1,419,000) (6,281,000)
------------ -------------- --------------- ------------ ------------
OTHER INCOME (EXPENSES):
Interest expense (14,000) (15,000) (2,876,000) (c) 1,173,000 (1,732,000)
Other income (expense) (31,000) 8,000 (60,000) (c) (34,000) (117,000)
------------ -------------- --------------- ----------- -------------
(45,000) (7,000) (2,936,000) 1,139,000 (1,849,000)
------------ -------------- --------------- ----------- -------------
LOSS BEFORE INCOME TAX EXPENSE
(BENEFIT) (744,000) (267,000) (6,839,000) (280,000) (8,130,000)
Income tax expense (benefit) 17,000 (41,000) - (24,000)
----------- -------------- --------------- ----------- ------------
NET LOSS $ (761,000) $ (226,000) $ (6,839,000) $ (280,000) $(8,106,000)
=========== ================ ================ =========== ============
NET LOSS PER COMMON SHARE $ (0.06) $ (0.52)
=========== ============
(a) 690,000
WEIGHTED AVERAGE SHARES OUTSTANDING 13,061,167 (b) 1,750,000 15,501,167
=========== ========== ============
F-53
ONSITE ENERGY CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
HISTORICAL
------------
ONSITE LIGHTING
ENERGY TECHNOLOGY SYCOM PRO FORMA PRO FORMA
CORP SERVICES, INC. ENTERPRISES ADJUSTMENTS COMBINED
------------- --------------- -------------- -------------- -------------
REVENUES $ 9,561,000 $ 3,719,000 $ 30,522,000 (c) $(2,183,000) $ 41,159,000
(d) (460,000)
COST OF GOODS SOLD 6,692,000 2,963,000 24,152,000 (c) (1,945,000) 31,402,000
(d) (460,000)
-------------- ------------- --------------- --------------
Gross margin 2,869,000 756,000 6,370,000 (238,000) 9,757,000
------------- -------------- -------------- -------------- -------------
OPERATING EXPENSES:
Selling, general and
administrative 3,726,000 779,000 3,356,000 (c) (182,000) 8,394,000
(e) 715,000
Loss on disposal of
partnership interests 425,000 - - - 425,000
Gain on sale of assets (18,000) - - - (18,000)
------------ ------------- -------------- ----------- ----------
4,133,000 779,000 3,356,000 533,000 8,801,000
------------ ------------- -------------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (1,264,000) (23,000) 3,014,000 (771,000) 956,000
------------ -------------- -------------- ---------- -----------
OTHER INCOME (EXPENSES):
Interest expense (159,000) (12,000) (2,603,000) (c) 1,040,000 (1,734,000)
Other income (expense) 43,000 14,000 43,000 (c) (22,000) 78,000
------------ -------------- -------------- ----------- ------------
(116,000) 2,000 (2,560,000) 1,018,000 (1,656,000)
------------ -------------- -------------- ----------- ------------
INCOME (LOSS) BEFORE INCOME
TAX EXPENSE (1,380,000) (21,000) 454,000 247,000 (700,000)
Income tax expense 9,000 21,000 - 30,000
------------ -------------- ------------- ----------- ------------
NET INCOME (LOSS) $(1,389,000) $ (42,000) $ 454,000 $ 247,000 $ (730,000)
============= ============== ============== =========== =============
NET LOSS PER COMMON SHARE $ (0.13) $ (0.06)
============== =============
(a) 690,000
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,818,498 (b) 1,750,000 13,258,498
================ ========== =============
F-54
ONSITE ENERGY CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
a) To reflect the acquisition of LTS in a purchase transaction where
Onsite acquired 100% of the stock of LTS for 690,000 shares of Onsite's
Class A Common Stock and $500,000 cash. The acquisition was valued at
$996,000, resulting in goodwill of approximately $1,446,000 which will
be amortized over five years.
b) To reflect the acquisition of the assets and specific liabilities of
SYCOM Enterprises, LLC for 1,750,000 shares of Onsite's Class A Common
Stock. The acquisition was valued at $2,060,000, resulting in goodwill
of approximately $2,132,000 which will be amortized over 5 years.
c) To eliminate the effect of certain account balances and operating
activities not acquired.
d) To eliminate the effect of certain intercompany transactions.
e) To reflect the amortization of goodwill using the straight-line method
over a period of five years resulting from the value assigned in the
purchase price allocation.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Dated: March 12, 1999
ONSITE ENERGY CORPORATION
By: /S/ RICHARD T. SPERBERG
------------------------
Richard T. Sperberg,
President