U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-QSB
(Mark One
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 1998.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to ----
Commission File Number 1-12738
ONSITE ENERGY CORPORATION
(Name of small business issuer in its charter)
Delaware 33-0576371
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
701 Palomar Airport Road, Suite 200, Carlsbad, CA 92009
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (760) 931-2400
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes No X
The number of Class A common stock, $0.001 par value, outstanding as of
November 13, 1998 is 18,457,253.
<PAGE>2
Onsite Energy Corporation
Consolidated Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash $ 1,147,982
Cash-restricted 157,836
Accounts receivable, net of allowance for doubtful
accounts of $90,000 5,993,185
Inventory 161,429
Capitalized project costs 125,108
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,265,971
Other assets 237,486
-------------
TOTAL CURRENT ASSETS 9,088,997
Property and equipment, net of accumulated depreciation and amortization 1,831,698
Excess of purchase over net assets acquired, net of amortization of $1,739,859 3,438,120
Other 47,088
-------------
TOTAL ASSETS $ 14,405,903
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - related parties $ 324,535
Current portion of notes payable 2,216,570
Accounts payable 5,462,722
Billings in excess of costs and estimated earnings
on uncompleted contracts 3,414,170
Accrued expenses and other liabilities 1,363,397
-------------
TOTAL CURRENT LIABILITIES 12,781,394
Long-Term Liabilities:
Accrued future operation and maintenance costs
associated with energy services agreements 465,359
-------------
TOTAL LIABILITIES 13,246,753
-------------
Commitments and contingencies -
Shareholders' Equity:
Preferred Stock, Series C,842,500 shares authorized,
413,280 issued and outstanding (Aggregate $2,066,400
liquidation preference) 413
Preferred Stock, Series D, 157,500 shares authorized,
issued and outstanding and held in escrow -
Common Stock, $.001 par value, 24,000,000 shares authorized:
Class A common stock, 23,999,000 shares
authorized, 18,457,253 issued and outstanding 18,457
Class B common stock, 1,000 shares authorized
none issued and outstanding -
Additional paid-in capital 24,332,954
Notes receivable - shareholders (2,141,952)
Accumulated deficit (21,050,722)
-------------
TOTAL SHAREHOLDERS' EQUITY 1,159,150
-------------
TOTAL LIABILTIES AND SHAREHOLDERS' EQUITY $ 14,405,903
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>3
Onsite Energy Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1997
--------------- --------------
<S> <C> <C>
Revenues $ 9,318,550 $ 2,237,805
Cost of sales 7,893,029 1,586,794
--------------- --------------
Gross Margin 1,425,521 651,011
Selling, general,
and administrative expenses 2,691,458 490,270
Depreciation and amortization (expense) 290,622 105,777
--------------- --------------
Operating income (loss) (1,556,559) 54,964
--------------- --------------
Other income (expense):
Interest (expense) (91,871) (8,588)
Interest income 37,924 4,103
--------------- --------------
Total other income (expense) (53,947) (4,485)
--------------- --------------
Income (loss) from operations before provision
for income taxes (1,610,506) 50,479
Provision for income taxes - 6,738
--------------- --------------
Net income (loss) $ (1,610,506) $ 43,741
=============== =============
Net loss allocated to common shareholders $ (1,636,881) $ 43,741
=============== =============
Basic and diluted income (loss) per common share $ (0.09) $ *
=============== =============
Weighted average shares outstanding 18,295,536 10,944,172
=============== =============
</TABLE>
* Less than $0.01 per share
The accompanying notes are an integral part of the financial statements.
<PAGE>4
Onsite Energy Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,610,506) $ 43,741
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Amortization of goodwill 125,598 100,000
Provision for bad debts 74,970 6,772
Depreciation 165,024 5,777
Change in operating assets and liabilities:
Accounts receivable (2,544,304) (107,724)
Increase (decrease) in billings related to costs
and estimated earnings on uncompleted contracts 204,360 (262,728)
Inventory 16,786 -
Other assets 318,343 (5,346)
Cash-restricted - 43,152
Accounts payable 2,082,451 130,388
Accrued expenses and other liabilities (170,664) (113,301)
-------------- ------------
Net cash used in operating activities (1,337,942) (159,269)
-------------- ------------
Cash flows from investing activities:
Purchases of property and equipment (38,544) -
Loans to stockholders (806,735) -
-------------- ------------
Net cash used by investing activities (845,279)
-------------- ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,000,000 -
Proceeds from exercise of stock options 15,301 -
Repayment of notes payable - related party (143,794) -
Proceeds from borrowings, net 366,690 (51,299)
-------------- ------------
Net cash provided by (used in) financing activities 1,238,197 (51,299)
-------------- ------------
Net increase (decrease) in cash (945,024) (210,568)
Cash, beginning of period 2,093,006 526,894
-------------- ------------
Cash, end of period $ 1,147,982 $ 316,326
============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>5
ONSITE ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: As contemplated by the Securities and Exchange Commission under Item 310
of Regulation S-B, the accompanying financial statements and footnotes have been
condensed and do not contain all disclosures required by generally accepted
accounting principles and, therefore, should be read in conjunction with the
Form 10-KSB for Onsite Energy Corporation dba ONSITE SYCOM Energy Corporation
(the "Company") as of and for the year ended June 30, 1998. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly its financial position and results of its operations for the interim
period.
NOTE 2: The consolidated balance sheet as of September 30, 1998, and the
consolidated statements of operations and cash flows for the three months ended
September 30, 1998 and 1997, represent the financial position and results of
operations of the Company.
NOTE 3: Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995. With the exception of
historical facts stated herein, the matters discussed in this quarterly report
are "forward looking" statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. The "forward
looking" statements contained herein are cross-referenced to this paragraph.
Such "forward looking" statements include, but are not necessarily limited to,
statements regarding anticipated levels of future revenue and earnings from
operations of the Company, projected costs and expenses related to the Company's
energy services agreements, and the availability of future debt and equity
capital on commercially reasonable terms. Factors that could cause actual
results to differ materially include, in addition to the other factors
identified in this report, the cyclical and volatile price of energy, the
inability to continue to contract sufficient customers to replace contracts as
they become completed, unanticipated delays in the approval of proposed energy
efficiency measures by the Company's customers, delays in the receipt of, or
failure to receive necessary governmental or utility permits or approvals, or
the renewals thereof, risks and uncertainties relating general economic and
political conditions, both domestically and internationally, changes in the law
and regulations governing the Company's activities as an energy services company
and the activities of the nation's regulators and public utilities seeking
energy efficiency as a cost effective alternative to constructing new power
generation facilities, results of project specific and company working capital
and financing efforts and market conditions, and other risk factors detailed in
<PAGE>6
the Company's Securities and Exchange Commission filings including the risk
factors set forth in the Company's Form 10KSB for the fiscal year ended June 30,
1998. Readers of this report are cautioned not to put undue reliance on "forward
looking" statements which are, by their nature, uncertain as reliable indicators
of future performance. The Company disclaims any intent or obligation to
publicly update these "forward looking" statements, whether as a result of new
information, future events or otherwise.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Background
The Company is an energy efficiency services company (ESCO) that develops,
designs, constructs, owns and operates comprehensive energy efficiency projects
and assists customers in reducing the cost of purchased electricity and fuel.
The Company also offers professional consulting services in the areas of market
assessment, business strategies, public policy analysis, environmental studies
and utility deregulation. It is the Company's mission to save its customers
money and improve the quality of the environment through independent energy
solutions.
In October 1997, the Company acquired Westar Business Services, Inc., which was
renamed Onsite Business Services, Inc. ("OBS"). OBS provides utility services
and industrial water services primarily in the states of Kansas, Missouri and
Oklahoma.
In February 1998, OBS acquired the operating assets of Mid-States Armature
Works, Inc. through a newly-formed subsidiary, Onsite/Mid-States, Inc. ("OMS").
OMS provides specialized medium and high voltage electrical fabrication,
installation, maintenance and repair services to municipal utility customers and
others, primarily in the states of Kansas, Nebraska, Missouri, Iowa, and
Oklahoma.
In April 1998, the Company formed Onsite Energy de Panama, S.A., a Panamanian
corporation, to facilitate the development and acquisition of potential projects
in Panama and Latin America.
In June 1998, the Company acquired Lighting Technology Services, Inc. ("LTS").
LTS provides energy efficiency projects through retrofits of lighting and
controls either independently or as a subcontractor to other energy services
companies primarily in Southern California.
On June 30, 1998, the Company acquired the assets and certain liabilities of
SYCOM Enterprises, LLC, through a newly-formed subsidiary, SYCOM ONSITE
Corporation ("SO Corporation"). SO Corporation is also an ESCO with customers
primarily on the East Coast of the United States.
The Company also owns a general partnership interest in Onsite Partners, a
California general partnership, and a general partnership interest in American
Private Power II, a California general partnership, both of which are inactive.
Unless the context indicates otherwise, reference to the Company shall include
all of its wholly-owned subsidiaries.
<PAGE>7
Results of Operations.
Revenues for the three-month period ended September 30, 1998 were $9,318,550
compared to $2,237,805 for the same period in 1997, an increase of $7,080,745,
or approximately 316.4 percent. The increase in revenues was primarily due to
the inclusion of all of the newly acquired subsidiaries that were not included
in 1997. After elimination of revenues from the subsidiaries not included in the
previous year, revenues for the three month period ended September 30, 1998 were
$3,342,456 compared to $2,237,805, an increase in revenues of $1,104,651, or
49.4 percent. The increase in revenue was due primarily to the existence of one
major contract along with several smaller contracts in the current fiscal
quarter, whereas the prior year did not benefit from any single major contract.
Cost of sales for the quarter ended September 30, 1998 was $7,893,029, compared
to $1,586,794 for the quarter ended September 30, 1997, an increase of
$6,306,235, or approximately 397.4 percent. After elimination of cost of sales
from the subsidiaries not included in the previous year, cost of sales for the
three month period ended September 30, 1998 were $2,712,938, compared to
$1,586,794, an increase of $1,126,144, or 71 percent.
Gross margin for the three month period ended September 30, 1998 was $1,425,521
(15.3 percent of revenues), compared to $651,011 (29.1 percent of revenues). The
decrease in gross margin as a percentage of sales was the result of several
larger contracts in the current quarter with lower than historical margins.
After elimination of gross margin from the subsidiaries not included in the
previous year, gross margin for the three month period ended September 30, 1998
was $629,517 (18.8 percent of revenues), compared to $651,011 (29.1 percent of
revenues) for the three months ended September 30, 1997. The decrease in margin
as a percentage of sales was primarily the result of the reasons discussed
above.
Selling, general and administrative ("SG&A") expense for the quarter ended
September 30, 1998 was $2,982,080 compared to $596,047 for the quarter ended
September 30, 1997, an increase of $2,386,033, or approximately 400.3 percent.
After elimination of SG&A from the subsidiaries not included in the previous
year, SG&A for the three month period ended September 30, 1998 was $1,157,367,
compared to $596,047, an increase of $561,320, or 94.1 percent. The increase was
substantially due to an overall increase in salaries and benefits, a decline in
salaries and benefits reclassified from SG&A to cost of sales, an increase in
legal and accounting expenses as a result of the recent acquisitions and related
audits and the costs of a new office in Northern California.
Net other expense for the quarter ended September 30, 1998 was $53,947, compared
to $4,485 for the three month period ended September 30, 1997, an increase of
$49,462. The increase was due to an increase in interest expense that was
primarily due to newly acquired subsidiaries and their existing interest bearing
debts. After elimination of net other expense from the subsidiaries not included
in the previous year, net other income was $26,864 for the three month period
ended September 30, 1998 compared to $4,485 for the same three month period in
1997.
Net loss for the three months ended September 30, 1998 was $1,610,506, or $.09
loss per share, compared to net income of $43,741, or less than $0.01 earnings
per share for the same period in 1997. After elimination of net loss from the
subsidiaries not included in the previous year, net loss was $500,739, or $.03
loss per share for the three month period ended September 30, 1998, compared to
net income of $43,741, or less than $.01 earnings per share in 1997.
<PAGE>8
Liquidity and Capital Resources
The Company's cash and cash equivalents were $1,147,982 as of September 30,
1998, compared to $2,093,006 as of June 30, 1998, a decrease of $945,024.
Working capital was a negative $3,692,397 as of September 30, 1998, compared to
a negative $2,693,367 as of June 30, 1998.
Cash flows used by operating activities were $1,337,942 for the three month
period ended September 30, 1998 compared to cash flows used by operating
activities of $159,269 for the same three month period in 1997.
Cash flows used by investing activities in first three months of 1998 were
$845,279 for the three months ended September 30, 1998, compared to none in the
first fiscal quarter in the prior year. The increase was substantially
attributable to loans and advances to affiliates of the Company.
Cash flows provided by financing activities were $1,238,197 for the three months
ended September 30, 1998, compared to cash flows used from financing activities
of $51,299 for the three month period ended September 30, 1997. The principal
reason for the increase was due to the exercise of a right pursuant to a stock
subscription agreement with an affiliate for the sale of 200,000 shares of
Series C Convertible Preferred Stock for $1,000,000.
The Company has shown significant net losses for the year ended June 30, 1998 as
well as the three months ended September 30, 1998. During these periods, the
Company has taken steps to reduce the losses and enhance its future viability.
Management believes that it will be able generate additional revenues and
achieve operating efficiencies through its recent acquisitions as well as by
other means to ultimately achieve profitable operations. In addition, the
Company has exercised its right under a stock subscription agreement to require
the purchase of an additional 200,000 shares of Series C Convertible Preferred
Stock for $1,000,000. Management believes that all of the above actions will
allow the Company to continue as a going concern. Cash requirements beyond the
next 12 months depend upon the Company's profitability, its ability to manage
working capital requirements and its rate of growth. (See Note 3 Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995.)
Year 2000. The Company is developing plans to address issues related to the
impact on its computer systems of the year 2000. The Company believes that
substantially all software applications currently being used for the financial
and operational systems have adequately addressed any year 2000 issues. Most
hardware systems have been assessed and plans are being developed to address
systems modification requirements. The financial impact of making any required
systems changes is not expected to be material to the Company's consolidated
financial position, liquidity or results of operations. Any risks the Company
faces are expected to be external to ongoing operations. The Company has
numerous alternative vendors for critical supplies, materials and components and
thus current vendors and subcontractors who have not adequately prepared for the
year 2000 can be substituted in favor of those that have prepared. (See Note 3
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.)
Part II - Other Information
Item 1. Legal Proceedings. In October 1998, Energy Conservation Consultants,
Inc. ("ECCI"), a Louisiana-based company, filed a suit (United States District
County, Eastern District of Louisiana, Case No. 98-2914) against OBS alleging
breach of contract in connection with one of the Company's projects. The suit
seeks reimbursement for expenses allegedly incurred by ECCI in the preparation
of an audit and lost profits in the aggregate amount of $748,000. Management is
attempting to settle the matter; however, no agreement has been reached.
<PAGE>9
Management believes, based on current information, that any settlement would not
have a material impact on the Company.
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not Applicable
Item 5. Other - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
<PAGE>10
SIGNATURES
In accordance with the requirements of the Securities Exchange Act , the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ONSITE ENERGY CORPORATION
Date: November 25, 1998 By: \s\ Richard T. Sperberg
Richard T. Sperberg
Chief Executive Officer
By: \s\ J. Bradford Hanson
J. Bradford Hanson
Chief Financial Officer and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,147,982
<SECURITIES> 0
<RECEIVABLES> 6,083,185
<ALLOWANCES> 90,000
<INVENTORY> 161,429
<CURRENT-ASSETS> 9,088,997
<PP&E> 2,758,616
<DEPRECIATION> 926,918
<TOTAL-ASSETS> 14,405,903
<CURRENT-LIABILITIES> 12,781,394
<BONDS> 0
0
413
<COMMON> 18,457
<OTHER-SE> 1,140,280
<TOTAL-LIABILITY-AND-EQUITY> 14,405,903
<SALES> 9,318,550
<TOTAL-REVENUES> 9,318,550
<CGS> 7,893,029
<TOTAL-COSTS> 2,982,080
<OTHER-EXPENSES> (37,924)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,871
<INCOME-PRETAX> (1,610,506)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,610,506)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,610,506)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
