<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-28283
DEMARCO ENERGY SYSTEMS OF AMERICA, INC.
(Exact name of registrant as specified in charter)
UTAH 87-0392000
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12885 HWY 183, STE 108-A, AUSTIN, TEXAS 78750
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (512) 335-1494
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of December 31, 1999, the Company
had approximately 22,454,000 shares of its common stock outstanding.
<PAGE> 2
PART I FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
December 31, 1998 and 1999
ASSETS
<TABLE>
<CAPTION>
12/31/98 12/31/99
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents 3,394.23 $ 1,203.92
Accounts Receivable 284,542.21 20,850
Allowance for Doubtful Accounts 0.00 (20,000.00)
Prepaid Expense 0.00 10,000
------------- -------------
Total Current Assets 287,936.44 $ 12,053.92
CAPITAL ASSETS
Fixtures and Equipment 148,407.85 161,049.05
Accumulated Depreciation (61,069.76) (92,959.76)
------------- -------------
Total Fixed Assets 87,738.09 68,089.29
OTHER ASSETS
Deposits 1,000.00 11,000.00
------------- -------------
Total Other Assets 1,000.00 11,000.00
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TOTAL ASSETS $ 376,674.53 $ 91,143.21
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 44,801.88 $ 146,071.07
------------- -------------
Total Current Liabilities 44,801.88 $ 146,071.07
OTHER LIABILITIES
Long-Term Notes Payable 67,714.55 40,163.53
Notes Payable to Shareholders 66,380.00 65,269.88
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TOTAL LIABILITIES 134,094.55 105,430.41
SHAREHOLDERS' EQUITY
Common Stock $0.001 par value 100,000,000
shares authorized and 22,453,657 shares issued 56,620.64 81,493.77
Additional paid-in capital 2,104,764.60 2,223,892.76
Retained deficit (1,671,851.44) (2,164,378.82)
Subscriptions Receivable (204,880.00) (210,530.00)
Current Income (Loss) (86,875.70) (91,235.98)
------------- -------------
Total Shareholder's Equity 197,778.10 (160,758.27)
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 376,674.53 $ 91,143.21
============= =============
</TABLE>
2
<PAGE> 3
DeMarco Energy Systems of America, Inc.
Statement of Income and Retained Earnings
For the Three - Month Periods
ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
----------------- -----------------
<S> <C> <C>
Revenue
Material Sales 3,092.52
-------------
Total Revenue 3,092.52 0.00
Cost of Sales
Contract Labor 7,438.00 3,035.00
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Total Cost of Sales 7,438.00 3,035.00
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Gross Profit (4,345.48) (3,035.00)
Operating Expenses
Accounting 0.00 920.00
Advertising 663.61 86.58
Auto Expense 2,540.52 316.73
Bank Charges 367.23 162.95
Credit Card Fees 130.00 443.06
Entertainment 67.38 266.41
Freight 163.70 171.00
Interest Expense 4,442.12 4,757.45
Internet Carrier 111.57 0.00
Legal and Professional 4,000.00 2,461.80
Officers Salaries 4,900.00 11,400.00
Office Expense 1,321.51 844.46
Postage 618.34 346.75
Rent 8,970.00 3,037.50
Repairs and Maintenance 593.96 70.36
Salaries and Wages 0.00 4,671.00
Supplies 35.64 42.66
Taxes - Payroll 502.34 1,299.43
Telephone 2,201.91 2,524.55
Travel 1,222.38 2,335.54
Utilities 337.16 263.05
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Total Expense 37,428.00 36,351.28
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Operating Income (Loss) (41,773.83) (39,386.28)
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Interest Income 0.00 0.00
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Total Other Income 0.00 0.00
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Net Income (Loss) (41,773.83) (39,386.28)
============= =============
</TABLE>
3
<PAGE> 4
DeMarco Energy Systems of America, Inc.
Statement of Cash Flows
For the Three - Month Periods
ended December 31, 1998 and 1999
Increase (Decrease) in Cash or Cash Equivalents
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
----------------- -----------------
<S> <C> <C>
Cash Flow from Operating Activities $ $(39,386.28)
Net Income (Loss) (41,773.83)
Adjustments to Reconcile Cash Flow
Decrease (Increase) in Current Assets
Advances (130.00)
Due from Cyberlink Systems, Inc. (1,131.09)
Increase (Decrease) in Current Liabilities
Accounts Payable - AmEx Optima 111.52 874.54
Accounts Payable - AmEx Delta (404.94) 805.11
Accounts Payable - Diners Club 29.00 1,912.07
Accounts Payable 0.00 6,000.00
Depository - FIT & FICA 637.43 2,677.46
Line of Credit - Norwest Bank 0.00 2,544.14
Note Payable - Peter Des Camp 0.00 4,500.00
Federal Withholding Payable (262.57) 0.01
FICA Tax Payable (374.84) 51.98
State Unemployment Payable 0.00 102.77
Total Adjustments (1,525.49) 14,070.28
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Cash Provided (Used) by Operations (43,299.32) (25,316.00)
Cash Flow From Investing Activities
Sales (Purchases) of Assets
Deposits (1,000.00) (10,000.00)
Cash Provided (Used) by Investing (1,000.00) (10,000.00)
Cash Flow From Financing Activities
Cash Used or provided by:
Note Payable - Americorp (1,328.36) 1,554.22
Note Payable - Copelco Capital (1,411.06) 1,593.98
Note Payable - GE Capital (1,402.18) 1,607.20
Note Payable - Green Tree (1,305.55) 1,547.75
Note Payable - Lou DeMarco 19,500.00 0.00
Note Payable - Victor DeMarco 10,580.00 28,850.00
Common Stock - Par 13,050.00 4,663.77
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Cash Provided (Used) by Financing 37,682.85 27,210.62
Net Increase (Decrease) in Cash (6,616.47) (8,105.38)
Cash at Beginning of Period 10,010.70 9,309.30
Cash at End of Period 3,394.23 1,203.92
</TABLE>
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
REVENUES were flat for the second quarter of 1999 due to near completion of
organizational re-structuring, coupled with seasonality of the sales process for
Energy Miser systems and energy efficient lighting systems. The financial
information for 1999 no longer reflects income from dissolved Cyberlink company
in 1998.
Currently, the Company has more than $50 million in gross sales under bid, and
remarks that one sale has completed its processes during first quarter 2000.
During the final quarter of 1999, the US Government authorized the Marine Air
Station in Beaufort, South Carolina to purchase the DeMarco Energy Miser heating
and cooling system and employ the base's water main. The gross sale for the
system was $250,000.00, and during first quarter of 2000 the Company should
receive, as its royalty compensation, ten percent of the gross sale amount. The
Company and FHP Manufacturing have previously agreed to a standard royalty fee
of twenty percent, however, under certain circumstances, and with the prior
approval of the Company, this fee may be negotiated as part of the bidding
process. The Beaufort, South Carolina installation was subject to such
negotiation. The sales process for this installation site from bid notification
until contract award required approximately one year. The sales process for the
Energy Miser systems can range from as little as one month to as much as 2
years, where the heating and cooling system requires an average of 9-12 months
per system, where the lighting systems retrofits have no historical sales data
to base averages.
COSTS OF SALES (contract labor) were down 40% from the same quarter of 1998, due
to terminating previous contractor relationships, and new contractor agreeing to
accept DMES stock in lieu of cash for payment on services rendered.
RESULTS OF OPERATIONS
NET INCOME (LOSS) improved due to reducing exposure to liabilities, cutting
expenses and reducing costs for general operations.
No revenue was generated during 2nd fiscal quarter ending December 31, 1999,
resulting in a zero Cost of Goods sold. During the 2nd fiscal quarter ending
December 31, 1999 the Company won a Sub-Contractor Master Agreement with PG&E
Energy Services of San Francisco, California to perform lighting retrofit and
energy management services; a Strategic Partnership Agreement with Lighting
Management Consultants of Houston, Texas to perform lighting retrofit services
for the Company's lighting bids awarded; and a Strategic Partnership with Moore
and Associates which aligns the Company with a minority business that bids and
manages energy management service contracts.
Operating Expenses were down slightly by 3%, however changes internally to
implement a streamlined approach to operations shifted and adjusted expense
demands on revenues.
- - Dues and Subscriptions were eliminated for 1999.
- - Officers Salaries were down due to cash flow constraints during the quarter.
- - Rents were significantly reduced by almost a third when the company moved
locations effective January 1, 1999.
- - Travel expenses nearly doubled due to investigation of sales and contract
opportunities with PG&E Energy Services and other companies within the energy
services industry.
LIQUIDITY & CAPITAL RESOURCES
The Company remains financed by the President, Victor DeMarco, through a
cumulative convertible debenture and a private offering which ended during the
fourth quarter of 1999. An offering is expected to occur in March of 2000 to
assist towards capitalizing the strategic growth model under implementation.
Variations in shareholder/insider debt are attributed to the death of Louis
DeMarco in May of 1999 and the dissolution of Cyberlink Systems, Inc. The debt
of $70,670.65 owed from L.M. DeMarco had been reduced to $17,870.65 by canceling
the Note Payable of $52,800.00. And prior to his passing, L.M. DeMarco paid-in
the balance of the debt owed, creating a zero balance owed.
Under 1998 Current Assets, the debt due from V.M. DeMarco had been paid down
$13,580.00 leaving a balance due to the Company of $31,592.76; where this
balance was satisfied during the course of the first two quarters of 1999.
Consequently, V.M. DeMarco loaned the Company under the terms of a convertible
debenture an additional $65,269.88 through December 31, 1999. As of March 1,
2000, Mr. DeMarco has not converted this debt to stock.
Current Liabilities were increased $101,669.19 due to negotiating a bank debt as
a current payable of approximately $40,000.00, acquiring a loan from a
shareholder with a balance of $20,000.00 and attributing company credit card
debts previously itemized as debts owed from L.M. DeMarco and V.M. DeMarco to
Company liabilities. No additional debt outside the normal business operational
requirements had been accrued.
5
<PAGE> 6
INFLATION
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future because of the short time frame between reservation
bookings and the dates of travel.
FORWARD-LOOKING INFORMATION
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange Commission.
Words or phases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project or projected", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements, so as to maximize to the fullest extent possible the protections of
the safe harbor established in the Reform Act. Accordingly, such statements are
qualified in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward-looking statements.
Management is currently unaware of any trends or conditions other than those
previously mentioned in this management's discussion and analysis that could
have a material adverse effect on the Company's consolidated financial position,
future results of operations, or liquidity. However, investors should also be
aware of factors that could have a negative impact on the Company's prospects
and the consistency of progress in the areas of revenue generation, liquidity,
and generation of capital resources. These include: (i) variations in revenues,
(ii) possible inability to attract investors for its equity securities or
otherwise raise adequate funds from any source should the Company seek to do so,
(iii) increased governmental regulation, (iv) increased competition, (v)
unfavorable outcomes to litigation involving the Company or to which the Company
may become a party in the future and, (vi) a very competitive and rapidly
changing operating environment.
The risks identified here are not all inclusive. New risk factors emerge
from time to time and it is not possible for Management to predict all of such
risk factors, nor can it assess the impact of all such risk factors on the
Company's business or the extent to which any factor or combination of factors
may cause actual results to differ materially from those contained in any
forward-looking statements. Accordingly, forward-looking statements should not
be relied upon as a prediction of actual results.
6
<PAGE> 7
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b. Reports on Form 8-K
None
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) DeMARCO ENERGY SYSTEMS OF
AMERICA, INC.
By /s/ Victor M. DeMarco
--------------------------------------
Victor M. DeMarco, President/Chief
Operating Officer
Date March 3, 1998
-------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ Victor M. DeMarco
--------------------------------------
Victor M. DeMarco, Chief Financial
Officer, Sole Director
Date March 3, 1998
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7
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule (3 months)
27.2 Financial Data Schedule (6 months)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,203
<SECURITIES> 0
<RECEIVABLES> 20,850
<ALLOWANCES> (20,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,053
<PP&E> 161,049
<DEPRECIATION> 92,959
<TOTAL-ASSETS> 91,143
<CURRENT-LIABILITIES> 146,071
<BONDS> 105,430
0
0
<COMMON> 81,493
<OTHER-SE> (160,787)
<TOTAL-LIABILITY-AND-EQUITY> 91,143
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 7,438
<OTHER-EXPENSES> 31,593
<LOSS-PROVISION> (20,000)
<INTEREST-EXPENSE> 4,757
<INCOME-PRETAX> (39,386)
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,386)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39,386)
<EPS-BASIC> (.001)
<EPS-DILUTED> (.001)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,203
<SECURITIES> 0
<RECEIVABLES> 20,850
<ALLOWANCES> (20,000)
<INVENTORY> 0
<CURRENT-ASSETS> 12,053
<PP&E> 161,049
<DEPRECIATION> 92,959
<TOTAL-ASSETS> 91,143
<CURRENT-LIABILITIES> 146,071
<BONDS> 105,430
0
0
<COMMON> 81,493
<OTHER-SE> (160,787)
<TOTAL-LIABILITY-AND-EQUITY> 91,143
<SALES> 0
<TOTAL-REVENUES> 3,400
<CGS> 0
<TOTAL-COSTS> 9,004
<OTHER-EXPENSES> 80,963
<LOSS-PROVISION> (20,000)
<INTEREST-EXPENSE> 10,002
<INCOME-PRETAX> (91,235)
<INCOME-TAX> 0
<INCOME-CONTINUING> (94,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91,235)
<EPS-BASIC> (.004)
<EPS-DILUTED> (.004)
</TABLE>
