<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- ----------------
Commission file number 1-14313
-------
ENFINITY CORPORATION
--------------------
Delaware 59-3475197
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Lake Ridge Drive Smyrna, Georgia 30082
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (770) 431-1470
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [X] *
* Registrant has been subject to such filing requirements since August 4, 1998.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's Common Stock, par value
$.01 per share (which is the only outstanding class of the registrant's common
stock), was 1,101,481 shares at September 18, 1998.
<PAGE>
<PAGE>
ENFINITY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Statements
Item 1 Financial Statements
General Information...................................................... 1
Financial Statements
Enfinity Corporation
Balance Sheets as of December 31, 1997,
June 30, 1998 and Pro Forma as of
June 30, 1998....................................................... 2
Statements of Operations for the Three Months Ended June 30, 1998,
the Six Months Ended June 30, 1998, Pro Forma for the Three
Months Ended June 30, 1997 and 1998 and Pro Forma for the Six
Months Ended June 30, 1997 and June 30, 1998........................ 3
Statement of Cash Flows for the Six Months
Ended June 30, 1998................................................ 4
Notes to Financial Statements......................................... 5-7
Brandt Mechanical Services, Inc.
Balance Sheets as of December 31, 1997 and
June 30, 1998....................................................... 8
Statements of Operations for the Three Months
Ended June 30, 1997 and 1998 and for the Six
Months Ended June 30, 1997 and 1998................................. 9
Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998........................................ 10
Notes to Financial Statements......................................... 11
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 12-14
Item 3 Quantitative and Qualitative Disclosures About
Market Risk........................................................ 14
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
Signature..................................................................... 15
</TABLE>
(i)
<PAGE>
<PAGE>
ENFINITY CORPORATION
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
Enfinity Corporation, a Delaware corporation, ("Enfinity"), was founded in
1997 to become a national provider of energy and indoor environmental systems
and services to commercial, industrial and institutional clients. Enfinity
intends to provide a broad range of services throughout the life cycle of a
client's energy and indoor environmental systems, including: (i) maintenance,
repair and replacement; (ii) design, engineering and installation; and (iii)
on-site and off-site management of building systems, including control and
monitoring systems.
Effective May 14, 1998, Enfinity signed definitive agreements to acquire all
of the outstanding capital stock of eight companies (the "Founding Companies")
that specialize in providing environmental systems and services to a broad range
of clients. The Founding Companies consist of Brandt Mechanical Services, Inc.
("Brandt"), Air Systems, Inc.("Air Systems"), Energy Systems Industries, Inc.
("Energy Systems"), New England Mechanical Services, Inc. ("NEMSI"), Lee Company
("Lee"), Hill York Corporation and Hill York Service Corporation ("Hill York"),
Mechanical Services of Orlando, Inc. ("Mechanical Services"), and Aircond Corp.
("Aircond"). These acquisitions (the "Mergers") are intended to occur
simultaneously with the closing of an initial public offering of Enfinity's
Common Stock (the "Offering") and will be accounted for using the purchase
method of accounting. In accordance with the provisions of Staff Accounting
Bulletin No. 97, Brandt is deemed to be the accounting acquiror as its
stockholders will receive the largest portion of the voting rights in the
combined corporation. The pro forma allocations of purchase prices to assets to
be acquired and liabilities to be assumed of the Founding Companies have been
based on preliminary estimates of fair value and may be changed as additional
information becomes available.
Historical and pro forma operating results for interim periods are not
necessarily indicative of full year results. The financial statements in this
report should be read in conjunction with the following additional information
in Enfinity's Registration Statement on Form S-1 (Reg. No. 333-52671), as
amended (the "Registration Statement"), filed with the Securities and Exchange
Commission in connection with the Offering: (i) the pro forma combined financial
statements of Enfinity and related notes thereto; (ii) the financial statements
of Enfinity and the Founding Companies and related notes thereto; and (iii)
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE>
<PAGE>
ENFINITY CORPORATION
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Enfinity Corporation Pro Forma
----------------------------- Combined
December 31, June 30, June 30,
1997 1998 1998
------------ --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20 $ 73 $ 10,012
Accounts receivable, net - - 84,267
Cost and estimated earnings in excess
of billings on uncompleted contracts - - 12,759
Inventories - - 2,473
Due from related parties and
stockholders - - 674
Prepaid expenses and other current
assets - - 2,114
Deferred income taxes - - 2,326
------- ------- ---------
Total current assets 20 73 114,625
Property and equipment, net - - 17,934
Goodwill - - 115,767
Other assets - - 1,928
------- ------- ---------
Total assets $ 20 $ 73 $ 250,254
======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ - $ - $ 13,157
Accounts payable and accrued expenses - - 38,281
Billings in excess of costs and estimated
earnings on uncompleted contracts - - 26,067
Deferred revenue - - 1,824
Income taxes payable - - 1,833
Notes payable to stockholders' and related
parties 18 71 71
------- ------- ---------
Total current liabilities 18 71 81,233
Long-term debt, net of current portion - - 367
Obligations under capital lease, net of current
portion - - 4,016
Deferred income taxes - - 833
Other long-term liabilities - - 1,134
------- ------- ---------
Total liabilities 18 71 87,583
------- ------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 500,000
shares authorized, no shares outstanding - - -
Common stock, $.01 par value, 49,000,000
shares authorized, 552,074, 1,101,481
and 17,345,452 shares outstanding, respectively - - 173
Additional paid-in capital 2 5,558 195,361
Retained deficit - (5,556) (32,863)
------- ------- ---------
Total stockholders' equity 2 2 162,671
------- ------- ---------
Total liabilities and stockholders' equity $ 20 $ 73 $ 250,254
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENFINITY CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
Enfinity Corporation Pro Forma Combined
------------------------------- -----------------------------------------------------
Three Months Six Months
Three Months Six Months Ended June 30, Ended June 30,
Ended June 30, Ended June 30, ------------------------ -------------------------
1998 1998 1997 1998 1997 1998
-------------- -------------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - $ - $ 78,973 $ 106,599 $ 148,106 $ 210,249
Cost of revenues - - 62,498 86,710 115,594 170,666
------- ------- ----------- ----------- ----------- -----------
Gross profit - - 16,475 19,889 32,512 39,583
Selling, general and administrative
expenses - - 11,782 13,308 23,361 26,276
Employee stock compensation (non-
recurring) 4,756 5,556 - - - 1,816
Amortization of goodwill, net - - 566 566 1,133 1,133
------- ------- ----------- ----------- ----------- -----------
(Loss) income from operations (4,756) (5,556) 4,127 6,015 8,018 10,358
Other (income) expense:
Interest expense - - 372 450 683 956
Interest income - - (38) (68) (117) (158)
Other, net - - (60) (73) (256) (117)
------- ------- ----------- ----------- ----------- -----------
(Loss) income before provision for
income taxes (4,756) (5,556) 3,853 5,706 7,708 9,677
Provision for income taxes - - 1,768 2,509 3,536 4,324
------- ------- ----------- ----------- ----------- -----------
Net (loss) income $(4,756) $(5,556) $ 2,085 $ 3,197 $ 4,172 $ 5,353
======= ======= =========== =========== =========== ===========
Net income per share-basic $ 0.12 $ 0.19 $ 0.25 $ 0.31
=========== =========== =========== ===========
Net income per share-diluted $ 0.12 $ 0.19 $ 0.24 $ 0.31
=========== =========== =========== ===========
Shares used in computing
pro forma net income per share-basic 17,010,813 17,010,813 17,010,813 17,010,813
=========== =========== =========== ===========
Shares used in computing
pro forma net income per share-diluted 17,056,135 17,056,135 17,056,135 17,056,135
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<PAGE>
ENFINITY CORPORATION
STATEMENT OF CASH FLOWS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1998
---------
(Unaudited)
<S> <C>
Cash flows from operating activities:
Net loss $ (5,556)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Stock compensation 5,556
Changes in operating liability:
Payable to related parties 53
---------
Net cash provided by operating activities 53
Net increase in cash and cash equivalents 53
Cash and cash equivalents, beginning of period 20
---------
Cash and cash equivalents, end of period $ 73
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1- BUSINESS AND ORGANIZATION
Enfinity Corporation was founded in 1997 to provide energy and indoor
environmental systems and services to commercial, industrial and institutional
clients. Enfinity intends to acquire, in separate mergers (the "Mergers"), eight
companies (the "Founding Companies") upon the consummation of the initial public
offering (the "Offering") of its Common Stock. Unless otherwise indicated, all
references to the "Company" include the Founding Companies, and references to
"Enfinity" mean Enfinity Corporation prior to the consummation of the Mergers.
Unless otherwise indicated, all share totals for the Common Stock of Enfinity or
the Company herein, give effect to a 36,804.93-for-1 stock split effected in the
form of a stock dividend on July 9, 1998 and Charter amendment related thereto.
Enfinity has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. Enfinity's cash balances were generated
from the initial capitalization of Enfinity and advances made by certain of its
stockholders and the Founding Companies. There is no assurance that the pending
Mergers discussed will be completed or that Enfinity will be able to generate
future operating revenues.
NOTE 2-PRO FORMA FINANCIAL INFORMATION
For financial statement purposes, Brandt Mechanical Services, Inc. ("Brandt")
has been identified as the accounting acquiror. The Mergers will be accounted
for using the purchase method of accounting.
The pro forma financial information for the three months ended June 30, 1997
and 1998, includes the results of Enfinity Corporation combined with the
Founding Companies as if the Mergers had occurred on January 1 of each
respective period. This pro forma combined financial information includes the
effects of (a) the Mergers, (b) the Offering, (c) establishment of liabilities
for S Corporation and excess cash distributions in connection with the Mergers,
(d) certain reductions in salaries, bonuses and benefits to the former owners of
the Founding Companies which they agreed would take effect as of the Mergers,
(e) amortization of goodwill resulting from the mergers and (f) the reductions
in interest expense related to the repayment of debt in connection with the
Mergers.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not necessarily
representative of the Company's financial position or results of operations for
any future period. Since the Founding Companies are not under common control or
management, historical combined results of operations may not be comparable to,
or indicative of, future performance.
NOTE 3-UNAUDITED INTERIM FINANCIAL INFORMATION
The regulations for unaudited interim financial statements such as those in
this report allow certain information and footnotes required by generally
accepted accounting principles for year end financial statements to be excluded.
Enfinity believes all adjustments necessary for a fair presentation of these
interim financial statements have been included and are of a normal and
recurring nature. These interim statements should be read in conjunction with
Enfinity's Registration Statement on Form S-1 (Reg. No. 333-52671) (the
"Registration Statement").
NOTE 4-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of the Company
during the periods presented. For a description of these policies, refer to the
Notes to Financial Statements of Enfinity and each of the Founding Companies
included in Enfinity's Registration Statement.
NOTE 5-CREDIT FACILITY
The Company has received a bank commitment for a revolving credit facility of
up to $100 million. Although such revolving credit facility is expected to be
available after the consummation of the Offering, there can be no assurance that
the Company will be able to obtain such revolving credit facility or other
financing it may need on terms the Company deems acceptable. It is expected that
such facility, if obtained, will require the Company to comply with various loan
covenants, including: (i) maintenance of certain financial ratios, including
minimum tangible net worth; (ii) restrictions on additional indebtedness; and
(iii) restrictions on liens, guarantees, advances and dividends. Such facility
is intended to be used for acquisitions, capital expenditures and general
corporate purposes.
NOTE 6-MERGER OF THE FOUNDING COMPANIES
Concurrently with and as a condition to the closing of the Offering, Enfinity
will acquire all of the outstanding capital stock of the Founding Companies. The
Mergers will be accounted for using the purchase method of accounting with
Brandt being treated as the accounting acquiror in accordance with Staff
Accounting Bulletin No. 97 and APB 16. The consideration to be paid to Brandt of
$13.4 million in cash and $15.4 million in stock (valued at an assumed initial
public offering price of $13.50, less a 20% discount from the assumed offering
price due to restrictions on the transferability of the Common Stock issued to
Founding Company stockholders), will be recorded as a distribution.
The following table sets forth the consideration to be paid in (a) cash, (b)
shares of Common Stock and (c) options to purchase shares of Common Stock to the
stockholders of each of the Founding Companies. For purposes of computing the
estimated purchase price for accounting purposes, the value of shares is based
upon an assumed initial public offering price of $13.50, less a 20% discount
from the assumed offering price due to restrictions on the transferability of
the Common Stock to be acquired by the stockholders of the Founding Companies.
The purchase price has been allocated to the assets and liabilities acquired
based on their respective carrying values, as those are deemed to represent the
fair market value of such assets and liabilities. The allocation of the purchase
price is considered preliminary until such time as the closing of the Offering
and the consummation of the Mergers. The Company does not anticipate that the
final allocation of the purchase price will differ significantly from that
presented.
5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Value of Value of Total
Founding Company Cash(l) Shares Options Consideration
- ---------------- ------ ------ ------- -------------
<S> <C> <C> <C> <C>
Air Systems $18,932 $15,146 $1,103 $35,181
Energy Systems 5,638 7,782 - 13,420
NEMSI 8,085 9,086 - 17,171
Lee 11,664 14,000 - 25,664
Hill York 7,122 8,869 - 15,991
Mechanical Services 6,111 7,333 - 13,444
Aircond 8,641 10,369 - 19,010
------- ------- ------ --------
$66,193 $72,585 $1,103 $139,881
======= ======= ====== ========
</TABLE>
(1) The number of shares of Common Stock to be issued to the stockholders of
the Founding Companies is fixed. The cash amounts in the table above assume an
initial public offering price per share of $13.50. If the initial public
offering price per share is higher or lower than $13.50, the cash consideration
will vary proportionately. For example, a $1.00 increase over such $13.50
initial public offering price will result in a $5.9 million increase (out of the
$7.4 million of additional net proceeds) in the aggregate cash consideration
paid to the Founding Company stockholders. Pursuant to the Merger Agreements,
the aggregate cash consideration paid to such stockholders (including the
stockholders of Brandt) will in no event be less than $73.6 million.
NOTE 7-CAPITAL STOCK
In connection with its organization and initial capitalization, Enfinity
issued 552,074 shares of Common Stock for nominal consideration.
In February 1998, Enfinity issued 35,000 shares of Common Stock
to a consultant for nominal consideration.
Enfinity's compensation expense of $5.6 million for the six months ended June
30, 1998 resulted from the issuance of 514,407 shares of Common
Stock to certain employees.
On July 9, 1998, the Board of Directors approved several actions in
connection with the Offering. These actions included a 36,804.93-for-1 stock
split which occurred prior to the effectiveness of Enfinity's Registration
Statement. All Common Stock related information included in the financial
statements has been adjusted to reflect this split.
NOTE 8-EARNINGS PER SHARE
For historical periods through June 30, 1998, Enfinity's results of
operations compared to its Common Stock result in earnings per share amounts
that are not meaningful. As a result, historical earnings per share for these
periods have not been presented.
The shares used in computing pro forma basic net income per share include:
(i) 1,101,481 shares issued to consultants and to management of Enfinity; (ii)
8,243,971 shares to be issued to the stockholders of the Founding Companies in
connection with the Mergers; and (iii) 7,665,361 shares representing the number
of shares sold in the Offering necessary to pay the $79.6 million cash portion
of the consideration for the Mergers, repay $6.1 million in indebtedness of the
Founding Companies, pay distributions of $5.3 million to certain Founding
Company stockholders, pay $1.3 million of liquidation value of preferred stock
at Energy Systems and pay the underwriting discount and estimated expenses of
the Offering. In addition, the number of shares used to compute pro forma
diluted net income per share includes 45,321 shares (using the treasury stock
method) related to dilution attributable to options to purchase Common Stock of
the Company at an exercise price below the assumed initial public offering
price. The options will be issued by the Company in exchange for existing
options to purchase shares of Common Stock of one of the Founding Companies.
NOTE 9-INCOME TAXES
Certain stockholders of the Founding Companies are taxed under the provisions
of Subchapter S of the Internal Revenue Code of 1986, as amended. Under these
provisions, the stockholders pay income taxes on their proportionate share of
their companies' earnings. Because the stockholders were taxed directly, their
companies paid no federal income tax and only certain state income taxes. In
conjunction with the Mergers, these Founding Companies will pay federal
corporate and state corporate income taxes.
The Company intends to file a consolidated federal income tax return which
includes the operations of the Founding Companies for periods subsequent to the
merger date. The Founding Companies will each file a "short period" federal
income tax return through their respective merger dates.
The provision for income taxes included in the pro forma statements of
operations for the three months and six months ended June 30, 1997 and 1998 is
an estimate of the federal and state taxes that would have been applicable to
the Company had the Mergers occurred at the beginning of each respective period.
The tax rates indicated by these provisions differ from statutory federal and
state rates primarily because amortization of goodwill related to the Mergers is
not deductible for tax purposes.
6
<PAGE>
<PAGE>
NOTE 10-COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. The Company does not believe that any of these
proceedings will have a material adverse effect on the financial position or
results of operations of the Company.
NOTE 11-NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," allows entities to choose between a new fair value
based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25").
Entities electing to remain with the accounting in APB No. 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
method of accounting has been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. The Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Enfinity adopted SFAS No. 130 in 1998 and it
had no impact on its financial position or results of operations.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and in interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. In general, such information must be reported for
externally in the same manner used for internal management purposes. SFAS No.
131 is effective for financial statements issued for periods beginning after
December 15, 1997. In the initial year of adoption, comparative information for
earlier years must be restated. Since SFAS No. 131 only requires disclosure of
certain information, its adoption will not affect the Company's financial
position or results of operations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, but earlier
adoption is permitted. Upon initial application, all derivatives are required to
be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. Recognition of changes in fair value
depends on whether the derivative is designated and qualifies as a hedge, and
the type of hedging relationship that exists. The Company does not currently
hold any derivative instruments or participate in any hedging activities.
7
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,120 $ 1,047
Accounts receivable, net 11,448 10,673
Costs and earnings in excess of billings on uncompleted contracts 523 1,626
Inventories 49 7
Prepaid expenses and other current assets 1 399
------- -------
Total current assets 16,141 13,752
Property and equipment, net 49 357
Other assets 154 -
------- -------
Total assets $16,344 $14,109
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,854 $ 5,173
Billings in excess of costs and estimated earnings on uncompleted contracts 5,421 3,750
------- -------
Total current liabilities 10,275 8,923
Negative goodwill 1,521 1,203
------- -------
Total liabilities 11,796 10,126
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, Class A voting, 20,000 shares authorized,
738 shares issued and outstanding; Class B nonvoting,
20,000 shares authorized, 262 shares issued and outstanding 1 1
Additional paid-in capital - 1,455
Retained earnings 4,547 2,527
------- -------
Total stockholders' equity 4,548 3,983
------- -------
Total liabilities and stockholders' equity $16,344 $14,109
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1997 1998 1997 1998
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $12,532 $14,830 $20,079 $30,156
Cost of revenues 10,352 12,474 16,227 25,375
------- ------- ------- -------
Gross profit 2,180 2,356 3,852 4,781
Selling, general and administrative expenses 1,352 1,412 2,543 2,871
Employee stock compensation (non-recurring) - 1,455 - 1,455
Accretion of negative goodwill (159) (159) (318) (318)
------- ------- ------- -------
Income (loss) from operations 987 (352) 1,627 773
Other (income) expense:
Interest income, net (17) (32) (29) (83)
Other, net (1) 3 1 (16)
------- ------- ------- -------
Income (loss) before provision for income taxes 1,005 (323) 1,655 872
Provision for income taxes - - - -
------- ------- ------- -------
Net income (loss) $ 1,005 $ (323) $ 1,655 $ 872
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1997 1998
------- -------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,655 $ 872
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation expense 10 8
Accretion of negative goodwill (318) (318)
Employee stock compensation - 1,455
Changes in operating assets and liabilities:
Accounts receivable (1,065) 775
Inventories - 42
Costs and estimated earnings in excess of billings on uncompleted contracts 123 (1,103)
Prepaid expenses and other assets (31) (244)
Accounts payable and accrued expenses (1,528) 319
Billings in excess of costs and estimated earnings on uncompleted contracts 298 (1,671)
------- -------
Net cash (used in) provided by operating activities (856) 135
------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment 16 -
Additions of property and equipment - (316)
------- -------
Net cash provided by (used in) investing activities 16 (316)
Cash flows from financing activities:
Payments of long-term debt (43) -
Distributions to stockholders - (2,892)
------- -------
Net cash used in financing activities (43) (2,892)
Net decrease in cash and cash equivalents (883) (3,073)
Cash and cash equivalents, beginning of period 3,811 4,120
------- -------
Cash and cash equivalents, end of period $ 2,928 $ 1,047
======= =======
Supplemental disclosure of cash flow information:
Cash paid for interest $ 8 $ -
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-BUSINESS AND ORGANIZATION
Brandt Mechanical Services, Inc., ("Brandt"), founded in 1952, focuses on
performing large design and build construction projects and turnkey industrial
and special projects. Brandt primarily operates in Texas.
Brandt and its stockholders intend to enter into a definitive agreement
with Enfinity Corporation ("Enfinity"), pursuant to which all outstanding shares
of Brandt's Common Stock will be exchanged for cash and shares of Enfinity
Common Stock concurrently with the consummation of the initial public offering
(the "Offering") of the Common Stock of Enfinity.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There were no significant changes in the accounting policies of Brandt
during the periods presented. For a description of these policies, refer to the
Notes to Financial Statements of Brandt included in the Registration Statement.
NOTE 3-UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the three month periods ended June 30,
1997 and 1998 and six month periods ended June 30, 1997 and 1998 has been
prepared from the unaudited financial records of Brandt and in the opinion of
management reflects all adjustments, consisting only of normal recurring items,
necessary for a fair presentation of the financial position and results of
operations and of cash flows for the interim period.
NOTE 4-NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, Brandt adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Accordingly, in the event that facts and
circumstances indicate that property and equipment or other 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 are compared to the asset's carrying amount to determine if a write-down
to market value is necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of Brandt.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 establishes a new model for accounting for derivatives and hedging
activities and supercedes and amends a number of existing standards. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999, but earlier
adoption is permitted. Upon initial application, all derivatives are required to
be recognized in the statement of financial position as either assets or
liabilities and measured at fair value. Recognition of changes in fair value
depends on whether the derivative is designated and qualifies as a hedge, and
the type of hedging relationship that exists. Brandt does not currently hold any
derivative instruments or participate in any hedging activities.
11
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRO FORMA COMBINED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Revenues. Revenues increased $27.6 million, or 34.9%, from $79.0
million for three months ended June 30, 1997 to $106.6 million for three months
ended June 30, 1998. This increase was primarily attributable to an increase of
approximately $16.9 million in the design, engineering and installation business
at Air Systems, Brandt, Lee, and Hill York, and $11.4 million in maintenance,
repair and replacement services and on-site and off-site management of building
systems at Brandt, Air Systems, Energy Systems, Lee, Hill York, and Aircond.
These increases were partially offset by a $1.2 million decrease in the design,
engineering and installation business at Mechanical Services due to several very
large installation projects which were in process during three months ended June
30, 1997, as well as a slight decrease at NEMSI due to delays in the scheduled
start dates of certain new projects.
Gross Profit. Gross profit increased $3.4 million, or 20.7%, from $16.5
million for the three months ended June 30, 1997 to $19.9 million for the three
months ended June 30, 1998. As a percentage of revenues, gross profit decreased
from 20.8% for the three months ended June 30, 1997 to 18.7% for the three
months ended June 30, 1998, as a result of a significant increase in replacement
and design, engineering and installation projects, which generally have lower
margins than maintenance and repair services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.5 million, or 13.0%, from $11.8 million for
the three months ended June 30, 1997 to $13.3 million for the three months ended
June 30, 1998. This increase was primarily attributable to the hiring of
additional employees to support increased volume of transactions as well as
increases in general and administrative expenses associated with revenue growth.
As a percentage of revenues, selling, general and administrative expenses
decreased from 14.9% for the three months ended June 30, 1997 to 12.5% for the
three months ended June 30, 1998 as revenues increased without a commensurate
increase in infrastructure. In addition, a non-recurring employee stock
compensation expense of $1.8 million was recorded for the three months ended
June 30, 1998 due to a grant of stock to an executive at Energy Systems during
such quarter.
PRO FORMA COMBINED RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues increased $62.1 million, or 42.0%, from $148.1
million for six months ended June 30, 1997 to $210.2 million for six months
ended June 30, 1998. This increase was primarily attributable to an increase of
approximately $36.4 million in the design, engineering and installation business
at Air Systems, Brandt, Lee, and Hill York, and $28.7 million in maintenance,
repair and replacement services and on-site and off-site management of building
systems at Brandt, Air Systems, Energy Systems, Lee, Hill York, and Aircond.
These increases were partially offset by a $2.4 million decrease in the design,
engineering and installation business at Mechanical Services due to several very
large installation projects which were in process during six months ended June
30, 1997, as well as a slight decrease at NEMSI due to delays in the scheduled
start dates of certain new projects.
Gross Profit. Gross profit increased $7.1 million, or 21.7%, from $32.5
million for the six months ended June 30, 1997 to $39.6 million for the six
months ended June 30, 1998. As a percentage of revenues, gross profit decreased
from 22.0% for the six months ended June 30, 1997 to 18.8% for the six months
ended June 30, 1998, as a result of a significant increase in replacement and
design, engineering and installation projects, which generally have lower
margins than maintenance and repair services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.9 million, or 12.5%, from $23.4 million for
the six months ended June 30, 1997 to $26.3 million for the six months ended
June 30, 1998. This increase was primarily attributable to the hiring of
additional employees to support increased volume of transactions as well as
increases in general and administrative expenses associated with revenue growth.
As a percentage of revenues, selling, general and administrative expenses
decreased from 15.8% for the six months ended June 30, 1997 to 12.5% for the six
months ended June 30, 1998 as revenues increased without a commensurate increase
in infrastructure. In addition, a non-recurring employee stock compensation
expense of $1.8 million was recorded for the six months ended June 30, 1998 due
to a grant of stock to an executive at Energy Systems during such quarter.
12
<PAGE>
<PAGE>
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Founding Companies' principal sources of liquidity have
historically been cash flows from operating activities. After the consummation
of the Mergers and the Offering, the Company will have approximately $10.0
million of cash. It is expected that certain short-term and long-term debt of
the Founding Companies, totaling approximately $6.1 million as of June 30, 1998,
will be repaid from the net proceeds of the Offering and approximately $1.3
million will be repaid by a stockholder of one of the Founding Companies.
The Company has received a bank commitment for a revolving credit
facility of up to $100.0 million. Although such revolving credit facility is
expected to be available after the consummation of the Offering, there can be
no assurance that the Company will be able to obtain such revolving credit
facility or other financing it may need on terms the Company deems acceptable.
It is expected that such facility, if obtained, will require the Company to
comply with various loan covenants, including: (i) maintenance of certain
financial ratios, including minimum tangible net worth; (ii) restrictions on
additional indebtedness; and (iii) restrictions on liens, guarantees, advances
and dividends. Such facility is intended to be used for acquisitions, capital
expenditures and general corporate purposes.
The Founding Companies' capital expenditures were $2.6 million for the
six months ended June 30, 1998. Expenditures for the six months ended June 30,
1998 were primarily for the purchase of equipment. The Company believes that
cash flow from operations, borrowings under the proposed credit facilities and
the unallocated net proceeds of the Offering will be sufficient to fund the
Company's expected working capital needs, debt service requirements and planned
capital expenditures for at least the next 12 months.
The Company intends to pursue selected acquisition opportunities. The
timing or success of any acquisition efforts is unpredictable. Accordingly, the
Company is unable to accurately estimate its expected capital commitments.
Funding for future acquisitions will likely come from a combination of the net
proceeds of the Offering, cash flow from operations, borrowings under
anticipated revolving credit facilities and the issuance of additional equity.
The Company plans to register 5,000,000 shares of its Common Stock under the
Securities Act of 1933 after the completion of the Offering for use by the
Company as consideration for future acquisitions. The contemplated offering of
such 5,000,000 additional shares will be made only by means of a prospectus.
YEAR 2000 COMPLIANCE
Each of the Founding Companies has conducted a review of its computer
systems and devices with date-related functionality used in its business, and
has taken, or is in the process of taking, all steps that it believes are
necessary or appropriate to ensure that such systems and devices accurately
process all dates, including those before, on or after January 1, 2000, without
loss of functionality or performance.
The Company estimates that the aggregate cost of investigating and
remediating (where required) any Year 2000 issues relating to its businesses
will be less than $1 million, of which the Company already incurred
approximately $605,000. In most cases, the Company believes that the only
remediation measures required to address the Year 2000 issue are widely
available software upgrades for its purchase and accounting applications. The
Company does not currently have information concerning the Year 2000 compliance
of its clients and suppliers. Since the Company's computer systems interface
with those of certain clients, the failure of such clients to achieve Year 2000
compliance could have a material adverse effect on the Company's business,
financial condition or results of operations.
Currently, certain of the Founding Companies' computer programs are
partially Year 2000 non-compliant. The Company believes that it is taking all
appropriate steps to ensure Year 2000 compliance and that all Founding Companies
should be compliant by January 1999. The Company currently does not have a
contingency plan to deal with Year 2000 problems that may arise in the future.
The Company intends to create a contingency plan within the next six months. The
Company does not anticipate that the Year 2000 problem will have a material
adverse effect on its business, financial condition or results of operations.
13
<PAGE>
<PAGE>
BRANDT
RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS
ENDED JUNE 30, 1997
Revenues. Revenues increased $2.3 million, or 18.3%, from $12.5 million
for the three months ended June 30, 1997 to $14.8 million for the three months
ended June 30, 1998, primarily as a result of a higher level of service activity
and an increase in the number of new installation projects.
Gross Profit. Gross profit increased $176,000, or 8.1%, from $2.2
million for the three months ended June 30, 1997 to $2.4 million for the three
months ended June 30, 1998. As a percentage of revenues, gross profit decreased
from 17.4% for the three months ended June 30, 1997 to 15.9% for the three
months ended June 30, 1998, as a result of an increase in projects performed
under cost-plus contracts, which generally have lower margins than design and
build projects, and a significant increase in replacement and design,
engineering and installation projects, which also generally have lower margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $60,000, or 4.4%, from $1.3 million for the
three months ended June 30, 1997 to $1.4 million for the three months ended June
30, 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 10.8% for the three months ended June 30, 1997 to 9.5%
for the three months ended June 30, 1998. Non-recurring employee stock
compensation expense of $1.5 million was recorded in the three months ended June
30, 1998 related to stock options granted to certain employees.
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1997
Revenues. Revenues increased $10.1 million, or 50.2%, from $20.1
million for the six months ended June 30, 1997 to $30.2 million for the six
months ended June 30, 1998, primarily as a result of a higher level of service
activity and an increase in the number of new installation projects.
Gross Profit. Gross profit increased $929,000, or 24.1%, from $3.9
million for the six months ended June 30, 1997 to $4.8 million for the six
months ended June 30, 1998. As a percentage of revenues, gross profit decreased
from 19.2% for the six months ended June 30, 1997 to 15.9% for the six months
ended June 30, 1998, as a result of an increase in projects performed under
cost-plus contracts, which generally have lower margins than design and build
projects, and a significant increase in replacement and design, engineering and
installation projects, which also generally have lower margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $328,000, or 12.9%, from $2.5 million for the
six months ended June 30, 1997 to $2.9 million for the six months ended June 30,
1998. As a percentage of revenues, selling, general and administrative expenses
decreased from 12.7% for the six months ended June 30, 1997 to 9.5% for the six
months ended June 30, 1998. Excluding compensation differential of $181,000 for
the six months ended June 30, 1997 and $181,000 for the six months ended June
30, 1998, selling, general and administrative expenses as a percentage of
revenues decreased from 11.8% to 8.9%, as revenues increased without a
commensurate increase in infrastructure. In addition, non-recurring employee
stock compensation expense of $1.5 million was recorded in the six months ended
June 30, 1998 related to stock options granted to certain employees.
LIQUIDITY AND CAPITAL RESOURCES
Brandt generated approximately $135,000 in net cash from operating
activities for the six months ended June 30, 1998. The increase in costs in
excess of billings of $1.1 million and the decrease in billings in excess of
costs of $1.7 million were offset by a decrease in accounts receivable of
$775,000 and an increase in net income, as adjusted for non-cash income and
expense items. Brandt used $2.9 million in financing activities for the six
months ended June 30, 1998 for distributions to stockholders.
At June 30, 1998, Brandt had working capital of $4.8 million and no
long-term debt.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable.
14
<PAGE>
<PAGE>
ENFINITY CORPORATION
PART II FINANCIAL INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
None.
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, thereunto duly authorized.
ENFINITY CORPORATION
By: /s/ MARTY R. KITTRELL
-----------------
MARTY R. KITTRELL
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
(Principal Financial Officer)
Dated: September 18, 1998
15
