U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-QSB/A-1
(Filed July 27, 2000)
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarterly period ended December 31, 1999.
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 X No ____
The number of Class A common stock, $0.001 par value, outstanding as of February
14, 2000, is 18,069,079.
<PAGE>2
Onsite Energy Corporation
Condensed Consolidated Balance Sheet
December 31, 1999
(Unaudited)
ASSETS
Current Assets:
Cash $ 464,157
Accounts receivable, net of allowance for doubtful
accounts of $31,370 2,863,618
Capitalized project costs 96,432
Costs and estimated earnings in excess of billings
on uncompleted contracts 611,458
Assets held for sale 977,935
Other current assets 68,102
-------------
TOTAL CURRENT ASSETS 5,081,702
Cash-restricted 74,565
Property and equipment, net of accumulated depreciation
and amortization $1,229,453 1,003,824
Other assets 62,319
-------------
TOTAL ASSETS $ 6,222,410
=============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 1,552,821
Accounts payable 8,248,738
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,441,321
Accrued expenses and other liabilities 545,456
-------------
TOTAL CURRENT LIABILITIES 11,788,336
Long-Term Liabilities:
Accrued future operation and maintenance costs
associated with energy service agreements 1,080,424
-------------
TOTAL LIABILITIES 12,868,760
-------------
Commitments and contingencies
Shareholders' Equity (Deficit):
Preferred Stock, Series C, 842,500 shares authorized,
649,120 issued and outstanding (Aggregate $3,245,600
liquidation preference) 649
Preferred Stock, Series D, 157,500 shares authorized,
issued and outstanding and held in escrow -
Preferred Stock, Series E, 50,000 shares authorized,
issued and outstanding 50
Common Stock, $.001 par value, 24,000,000 shares authorized:
Class A common stock, 23,999,000 shares authorized,
18,641,302 issued and outstanding 18,739
Class B common stock, 1,000 shares authorized, none
issued and outstanding -
Additional paid-in capital 27,246,955
Notes receivable - stockholders (3,940,850)
Accumulated deficit (29,971,893)
-------------
TOTAL SHAREHOLDERS' DEFICIT (6,646,350)
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 6,222,410
=============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>3
Onsite Energy Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 2,481,315 $ 9,314,702 $ 11,942,471 $ 18,627,461
Utility Revenues 586,029 141,668 902,346 283,336
------------ ------------ ------------ ------------
Total revenues 3,067,344 9,456,370 12,844,817 18,910,797
Cost of sales 1,917,008 7,767,131 9,360,966 15,669,954
------------ ------------ ------------ ------------
Gross margin 1,150,336 1,689,239 3,483,851 3,240,843
Selling, general, and administrative
expenses 2,167,620 2,756,837 5,146,972 5,448,297
Depreciation and amortization expense 131,248 265,002 274,873 555,623
Recovery of reserve provided for sale
or disposal of subsidiary - - (358,670) -
------------ ------------ ------------ ------------
Operating loss (1,148,532) (1,332,600) (1,579,324) (2,763,077)
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (74,485) (94,635) (184,968) (204,701)
Interest income 20,382 28,125 26,005 66,049
------------ ------------ ------------ ------------
Total other expense (54,103) (66,510) (158,963) (138,652)
------------ ------------ ------------ ------------
Loss before provision for income taxes (1,202,635) (1,399,110) (1,738,287) (2,901,729)
Provision for income taxes 200 - 3,800 -
------------ ------------ ------------ ------------
Net loss $ (1,202,835) $ (1,399,110) $ (1,742,087) $ (2,901,729)
============ ============ ============ ============
Net loss allocated to common shareholders $ (1,202,835) $ (1,449,478) $ (1,742,087) $ (2,927,304)
============ ============ ============ ============
Basic and diluted loss per common share: $ (0.06) $ (0.08) $ (0.09) $ (0.16)
============ ============ ============ ============
Weighted average number of shares
used in per common share calculation: 18,663,907 18,488,514 18,646,373 18,381,886
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>4
Onsite Energy Corporation
Condensed Consolidated Statement of Cashflows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,742,087) $ (2,901,729)
Adjustments to reconcile net loss to net cash
provided (used in) by operating activities:
Amortization of excess purchase price over
net assets acquired - 251,195
Amortization of acquired contract costs 50,590 121,643
Provision for bad debts (3,630) 90,000
Depreciation 274,873 304,428
Recovery of reserve provided for sale or
disposal of subsidiary (358,670) -
Compensation related to stock issuance 47,500 -
Stock issued to 401k 46,283 -
(Increase) decrease:
Accounts receivable 2,975,144 (2,323,397)
Costs and estimated earnings in excess of
billings on uncompleted contracts 493,271 -
Inventory 6,107 (9,123)
Other assets (299,351) (62,302)
Cash-restricted 70,334 -
Increase (decrease):
Accounts payable (639,328) 2,798,729
Billings in excess of costs and estimated
earnings on uncompleted contracts 74,952 1,293,554
Accrued expenses and other liabilities (603,355) (54,518)
Deferred income 7,877 (21,156)
------------ ------------
Net cash provided by (used in) operating activities 400,510 (512,676)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (28,185) (57,402)
Loan to shareholders (161,017) (1,147,537)
------------ ------------
Net cash provided by (used in) investing activities (189,202) (1,204,939)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,000,000 1,000,000
Proceeds from exercise of stock options - 20,227
Proceeds from borrowings 111,986 102,422
Repayment of notes payable - related party (211,914) (194,581)
Repayment of notes payable (1,547,631) (674,865)
------------ ------------
Net cash provided by (used in) financing activities (647,559) 253,203
------------ ------------
Net decrease in cash (436,251) (1,464,412)
Cash, beginning of year 900,408 2,093,006
------------ ------------
Cash, end of quarter $ 464,157 $ 628,594
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated 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, 1999 and all other subsequent filings.
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 December 31, 1999, and the
consolidated statements of operations and cash flows for the six
months ended December 31, 1999 and 1998, represents the financial
position and results of operations of the Company.
NOTE 3: Financial Statement Restatement. The Company had previously been
corresponding with the SEC regarding the Company's Form 10-KSB for the
year ended June 30, 1998. In response to information submitted by the
Company, on December 3, 1999, the SEC sent a comment letter directing
the Company to restate its financial statements for each of the last
three fiscal years ended June 30, 1999, 1998, and 1997 as well as for
the quarter ended September 30, 1999. The restatement is the result of
a review of the Company's accounting policies as it related to the
timing of the recognition of revenues and expenses.
The SEC took exception to certain applications of accounting
principles as applied by the Company in the areas of the timing of
revenue recognition where utility incentive payments are a part of the
Company's revenue stream, the timing of revenue recognition with
respect to the sale of future utility revenue payments and the timing
of revenue and expense recognition relative to contracts containing
future commitments of services following the implementation of certain
projects. As a result, the Company restated its previously filed
financial statements for each of the fiscal years ending June 30,
1997, 1998 and 1999, as well as the first (a second amendment) and
second fiscal quarters ended September 30, 1999 and December 31, 1999.
The Company implemented several projects in fiscal 1998 where the
price to the customer was less than the cost to implement the project,
creating a loss for accounting purposes. This "loss" was recovered and
profits were achieved through the Company's retaining a share of
<PAGE>6
utility incentive payments that resulted from energy savings from the
implemented project. In these instances, the Company estimated its
revenue from these utility incentive payments and recognized the
revenue as the project was being implemented using the percentage of
completion methodology. The SEC has required the Company to defer
recognition of the utility incentive payment component of revenue
until the point in time that the utility is billed for the incentive
payments. Generally, these billings occur on a quarterly basis over a
three year period.
Further, the Company sold other future utility incentive payment
streams to a third party on a non-recourse basis. At the time of the
sale, in fiscal 1997 and 1998, the Company recognized revenue to the
extent it received cash. The SEC has required the Company to record
these payments as a financing transaction (debt) and to recognize
revenue related to the utility incentive payments on an as billed
basis, again quarterly over a three year period.
In addition, the Company has a small number of contracts for which it
has a commitment to provide relamping and other ongoing services
several years after the initial implementation of the project. The
Company originally recognized all the revenue and an estimate of the
future cost as the project was being implemented. The SEC has required
the Company to defer a portion of the revenue and eliminate the
reserve for future cost until the relampings actually occur.
The following table presents the statements of operations as
originally filed and as amended for the three and six month periods
ended December 31, 1999:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1999 December 31, 1998
As Originally Filed As Restated As Originally Filed As Restated
<S> <C> <C> <C> <C>
Revenues $ 3,100,972 $ 3,067,344 $ 9,320,493 $ 9,456,370
============ ============ ============ ============
Net (loss) $ (1,179,756) $ (1,202,835) $ (1,506,998) $ (1,399,110)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.06) $ (0.06) $ (0.08) $ (0.08)
============ ============ ============ ============
Six Months Ended Six Months Ended
December 31, 1999 December 31, 1998
As Originally Filed As Restated As Originally Filed As Restated
Revenues $ 12,676,544 $ 12,844,817 $ 18,639,043 $ 18,910,797
============ ============ ============ ============
Net (loss) $ (1,918,711) $ (1,742,087) $ (3,117,505) $ (2,901,729)
============ ============ ============ ============
Net loss per share - basic and diluted $ (0.10) $ (0.09) $ (0.17) $ (0.16)
============ ============ ============ ============
</TABLE>
NOTE 4. For current disclosures, refer to Form 10-QSB for the period ended
March 31, 2000.
<PAGE>7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 to 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
the Company's Securities and Exchange Commission filings including the risk
factors set forth in the Company's Form 10-KSB for the fiscal year ended June
30, 1999 (as the same has been amended). 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.
Background
The Company is an energy services company ("ESCO") that assists energy customers
in lowering their energy costs by developing, engineering, installing, owning
and operating efficient, environmentally sound energy efficiency and power
supply projects, and advising customers on the purchasing of energy in
deregulating energy markets. The Company offers its services to industrial,
commercial and institutional customers. By combining development, engineering,
analysis, and project and financial management skills, the Company provides a
complete package of services, ranging from feasibility assessment through
construction and operation for projects incorporating energy efficient lighting,
energy management systems, heating, ventilation and air conditioning ("HVAC")
upgrades, cogeneration and other energy efficiency measures. In addition, the
Company offers bill auditing, tariff analysis, transmission and distribution
analysis and upgrade and aggregation services. The Company also provides
professional consulting services in the areas of direct access planning, market
assessment, business strategies, public policy analysis, and environmental
impact feasibility studies. The Company has been accredited by the National
Association of Energy Service Companies. It is the Company's mission to save its
customers money and improve the quality of the environment through independent
energy solutions.
As of June 30, 1999, the Company's auditors issued a qualified opinion subject
to the Company's ability to continue as a going concern. The going concern
issues are the result of continued operating losses, negative working capital
and a negative shareholders' equity. See the "Liquidity and Capital Resources"
<PAGE>8
discussion below for details of the Company's plan for dealing with these
issues.
In October 1997, the Company acquired Westar Business Services, Inc., which was
renamed Onsite Business Services, Inc., and recently renamed Onsite Energy
Services, Inc. ("OES"). OES provides utility services and industrial water
services primarily in the states of Kansas, Missouri and Oklahoma.
In February 1998, OES 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 February 2000, OES completed a transaction to sell substantially
all of the assets of OMS to a private buyer in exchange for $300,000 cash plus
uncollected earnings on existing projects that were transferred.
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. There has been no activity in this subsidiary since
its inception.
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. Effective September 30, 1999, the
Company sold 95 percent of its interest in LTS. In exchange for the shares of
LTS, ONSITE SYCOM received 690,000 shares of ONSITE SYCOM Common Stock
originally issued for the acquisition of LTS, as well as a ten year non-interest
bearing note for approximately $936,000, which may be repaid by LTS by providing
lighting services to ONSITE SYCOM. Onsite Sycom incurred a loss of approximately
$652,000 as a result of the sale. In addition, the note has been fully reserved
for due to doubt surrounding its recoverability.
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.
Effective April 1, 1999, the Company formed REEP Onsite, Inc. ("REEP") and ERSI
Onsite, Inc. ("ERSI") for the purpose of acquiring substantially all of the
assets and certain liabilities of REEP, Inc. REEP provides residential energy
services while ERSI is a commercial lighting contractor. In the fiscal first
quarter, the Company made a decision to explore the sale or disposition of its
lighting subsidiaries.
Unless the context indicates otherwise, reference to the Company shall include
all of its wholly-owned subsidiaries.
Results of Operations
In order to perform parallel six and three month comparisons, the activity from
certain subsidiaries had to be eliminated from each fiscal year. The after
elimination comparisons exclude the activity of LTS from the December 31, 1998
operations, and the activity of all of LTS, REEP and ERSI from consolidated
balances for the six and three months ended December 31, 1999.
Six months ended December 31, 1999 compared to the six months ended December 31,
1998
Revenues for the six month period ended December 31, 1999 were $12,844,817
<PAGE>9
compared to $18,910,797 for the same period in 1998, a decrease of $6,065,980,
or 32.08 percent. After the elimination of amounts related to the subsidiaries
identified above, revenues for the six month period ended December 31, 1999 were
$8,708,575, compared to $12,272,820 for the same period in 1998. The decrease of
$3,564,245, or 18.85 percent, was primarily due to the 90 percent decrease in
revenue recognized on long term construction contracts at SO Corporation.
Cost of sales for the six months ended December 31, 1999 was $9,360,966 compared
to $15,669,954 for the six months ended December 31, 1998, a decrease of
$6,308,988, or 40.26 percent. After eliminations of cost of sales from the
identified subsidiaries, cost of sales were $6,673,098 for the six months ended
December 31, 1999, compared to $9,823,691 for the comparable period in 1998. The
decrease of $3,150,592, or 20.11 percent, was due to the decrease in the long
term construction contracts SO Corporation as mentioned above.
Gross margin for the six month period ended December 31, 1999 was $3,483,851
(27.12 percent of revenues), compared to $3,240,843 (17.14 percent of revenues)
for the six month period ended December 31, 1998. The increase in gross margin
as a percentage of sales was the result of several contracts in the six months
ended December 31, 1998 with lower than historical margins as well as lower than
typical margins at LTS. After the elimination of subsidiaries not included in
both periods, the gross margin for the six month period ended December 31, 1999
was $2,035,477 (23.37 percent of revenues), compared to $2,449,130 (19.96
percent of revenues) for the six month period ended December 31, 1998.
Selling, general and administrative ("SG&A") expense for the six months ended
December 31, 1999 was $5,146,972 compared to $5,448,297 for the six months ended
December 31, 1998, a decrease of $301,325, or 5.53 percent. After the
elimination of SG&A expenses of the identified subsidiaries, SG&A expenses were
$3,953,459 for the six months ended December 31, 1999, compared to $4,883,713
for the same period on the previous year, a decrease of $930,253, or 17.07
percent. This decrease is primarily attributable to the ongoing attempt by
management to reduce SG&A costs, including reduction in personnel and locations,
among other things.
Goodwill amortization and depreciation expense for the six months ended December
31, 1999 was $274,873, compared to $555,623 for the comparable period in the
previous year, a decrease of $280,750, or 50.53 percent. After the elimination
of the identified subsidiaries, goodwill amortization and depreciation expenses
for the six months ended December 31, 1999 were $262,594, compared to $398,304
for the comparable period last year. The primary reason for the decrease was due
to the elimination of amortization of goodwill for SO Corporation resulting from
the write-off of the remaining goodwill at the fiscal year ended June 30, 1999.
Recovery of reserve provided for sale or disposal of subsidiary was a reduction
in operating loss (income) of $358,670 for the three months ended September 30,
1999 and is a non recurring item relating specifically to the sale of 95% of the
Company's interest in LTS. The Company had decided on exploring options for the
sale of LTS, and at that time established a reserve for possible loss of
$1,010,000 based upon estimates derived from the facts that existed prior to
entering into a definitive agreement for sale. The ultimate sale resulted in a
loss of approximately $651,000.
Net other expense for the six months ended December 31, 1999 was $158,963,
compared to a net other expense of $138,652 for the six month period ended
December 31, 1998, an increase of $20,311, or 14.65 percent. After the
<PAGE>10
elimination of the activity of the identified subsidiaries, net other expense
was $110,262, compared to $134,684 for the same period in 1998, a decrease of
$24,422, or 18.13 percent.
Net loss for the six months ended December 31, 1999 was $1,742,087, or $0.09
loss per share, compared to net loss of $2,927,304, or $0.16 loss per share for
the same period in 1998. After the elimination of revenues and expenses from the
identified subsidiaries, net loss for the six month period ended December 31,
1999 was $2,294,639, compared to $2,967,572 for the comparable period in 1998.
Three months ended December 31, 1999 compared to the three months ended December
31, 1998
Revenues for the three month period ended December 31, 1999 were $3,067,344,
compared to $9,456,370 for the three month period ended December 31, 1998, a
decrease of $6,389,026, or 67.56 percent. In order to perform a parallel
comparison, revenues and expenses of the identified subsidiaries were
eliminated. After eliminations of these subsidiaries, revenues for the three
month period ended December 31, 1999 were $2,474,968, compared to $9,456,370 for
the same period in 1998, a decrease of $6,981,402, or 73.83 percent. This
decrease is primarily attributable to the decrease in revenue on long term
construction contracts at SO Corporation.
Cost of sales for the three month period ended December 31, 1999 were
$1,917,008, compared to $7,767,131 for the same period ended December 31, 1998,
a decrease of $5,850,123, or 75.32 percent. After the elimination of the
activity from the identified subsidiaries, the cost of sales for the three month
period ended December 31, 1999 were $1,693,565, compared to $7,767,131 for the
comparable period in 1998, a decrease of $6,073,566, or 78.20 percent. This
decrease is primarily attributable to the decline in revenues on long term
construction contracts as mentioned above.
Gross Margin for the three months ended December 31, 1999 was $1,150,336 (37.50
percent of revenues), compared to $1,689,239 (17.86 percent of revenues) for the
three months ended December 31, 1998. After the elimination of revenues and cost
of sales of the identified subsidiaries, gross margin was $781,403 (31.57
percent of revenues) for the three months ended December 31, 1999, compared to
$1,689,239 (17.86 percent of revenues) for the comparable period in the previous
year. The increase in margin as a percentage of sales was a result of a
concentration on consulting projects in the quarter ended December 31, 1999,
which generally have higher gross margins.
SG&A was $2,167,620 for the three months ended December 31, 1999, compared to
$2,756,837 for the three months ended December 31, 1998, a decrease of $589,217,
or 21.37 percent. After the elimination of SG&A from the identified
subsidiaries, SG&A was $1,904,998 for the three month period ended December 31,
1999, compared to $2,756,837 for the comparable period in the previous year, a
decrease of $851,847, or 30.90 percent. The decrease was the result of efforts
to reduce SG&A through a reduction in personnel and locations, among other
things.
Goodwill amortization and depreciation expense for the quarter ended December
31, 1999 was $131,248, compared to $265,002 for the comparable quarter in the
previous year, a decrease of $133,754, or 50.47 percent. After the elimination
of the identified subsidiaries, goodwill amortization and depreciation expense
for the three months ended December 31, 1999 was $131,248, compared to $265,002
for the comparable period last year, a decrease of $133,754, or 50.47 percent.
The primary reason for the decrease was due to the elimination of amortization
of goodwill for SO Corporation resulting from the reduction of the remaining
goodwill at the fiscal year ended June 30, 1999.
Net other expense was $54,103 in the three months ended December 31, 1999,
compared to net other expense of $66,510 for the three month period ended
December 31, 1998, a decrease of $12,407, or 18.65 percent. After the
elimination of net other income and expense from the identified subsidiaries,
net other expense was $55,692 for the three months ended December 31, 1999,
compared to $66,510 for the same period in 1998, an increase of $10,818, or
16.27 percent.
<PAGE>11
Net loss for the three months ended December 31, 1999 was $1,202,835, or $0.06
loss per share, compared to net loss of $1,399,110, or $0.08 loss per share.
After the elimination of revenues and expenses of the identified subsidiaries,
net loss for the quarter ended December 31, 1999 was $1,310,734, compared to
$1,399,110 for same period in the previous fiscal year, a decrease of $88,376,
or 6.32 percent.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $464,157 as of December 31, 1999,
compared to $900,408 as of June 30, 1999, a decrease of $436,251. Working
capital was a negative $7,396,860 as of December 31, 1999, compared to a
negative $6,511,390 as of June 30, 1999.
Cash flows provided by operating activities were $400,510 for the six month
period ended December 31, 1999 compared to cash flows used in operating
activities of $512,676 for the same six month period in 1998. The change was
primarily due to the decline in net loss from $2,901,729 for the six months
ended December 31, 1998 to $1,742,087 for the six months ended December 31,
1999.
Cash flows used in investing activities in the six months ended December 31,
1999 were $189,202, compared to $1,204,939 used in investing activities in the
comparable period in the prior year. The change was primarily the result of a
reduction in loans for shareholders of $986,520.
Cash flows used in financing activities were $647,559 for the six months ended
December 31, 1999, compared to cash flows provided by financing activities of
$253,203 for the six month period ended December 31, 1998. The increase was due
to an increase in repayments on notes payable of $890,099.
The Company has shown significant net losses for the year ended June 30, 1999 as
well as the six months ended December 31, 1999. Management believes that the
Company will be able to generate additional revenues and operating efficiencies
through sales and/or financing of long term project revenue streams, sales of
assets or subsidiaries, as well as by other means to achieve profitable
operations. During the quarter ended December 31, 1999, the Company took steps
to mitigate the losses and enhance its future viability. Subsequent to its most
recent fiscal year end, the Company privately placed shares of newly created
Series E Convertible Preferred Stock ("Series E Stock") to existing shareholders
for $1,000,000. Concurrent with this private placement, members of senior
management of the Company agreed to receive shares of the Company's Class A
Common Stock in lieu of a portion of their salary in an effort to reduce cash
outflows related to compensation. During the first quarter, a decision was made
to explore the sale or disposition of the Company's lighting subsidiaries, which
could provide capital, reduce operating losses and will allow management to
better focus on its core ESCO business activities. Subsequent to September 30,
1999, the Company sold 95% of its interest in LTS. Subsequent to December 31,
1999, OES sold substantially all of the assets of OMS to a private party. As a
result of the sale, OES was able to reduce staff from six to one persons. In
addition, the Company is exploring strategic relationships with companies that
could involve an investment in the Company. The Company may also raise cash
through the sale of long term future revenue streams that it currently owns or
has rights to. The Company is also examining ways to further reduce overhead
including, but not limited to, the possibility of targeted staff reductions and
asset sales. Management believes that all of the above actions will allow the
Company to continue as a going concern. Future cash requirements depend on the
Company's profitability, its ability to manage working capital requirements and
its rate of growth. Additional financing through the sale of securities may have
an ownership dilution effect on existing shareholders.
Pursuant to the Certificate of Designations for the Series C Convertible
Preferred Stock (the "Series C Stock"), each holder of Series C Stock is
entitled, when and as declared by the Board of Directors of the Company and out
<PAGE>12
of any funds legally available therefore to an annual dividend at the rate of
9.75 percent of the liquidation preference ($5 per share), which dividend is
payable quarterly. All of the issued and outstanding shares of Series C Stock
are held by Westar Capital, Inc. ("Westar"). Dividends were declared and paid as
required for each of the quarters through April 15, 1999. While the Board has
authorized the payment of dividends to the extent such declaration and payment
is allowed under applicable Delaware corporate law, under Delaware law dividends
on the Series C Stock could not be declared and paid as required on July 15,
1999, October 15, 1999, or January 15, 2000.
Pursuant to the Certificate of Designations, if, at any time, four or more
quarterly dividends, whether or not consecutive, on the Series C Stock are in
default, in whole or in part, the holders of the Series C Stock are entitled to
elect the smallest number of directors as would constitute a majority of the
Board of Directors of the Company, and the holders of the Company's Class A
Common Stock as a class are entitled to elect the remaining directors. Such
voting rights continue until all dividends accrued on the Series C Stock shall
have been paid or set apart for payment, at which time such voting power shall
cease (until a similar default in payment recurs). While the Company currently
is not in default on four or more quarterly dividends, if the Company is unable
to declare the requisite quarterly dividend on April 15, 2000, Westar, as the
holder of the Series C Stock, shall be entitled to exercise the rights described
above. Furthermore, under the October 1997 Stock Subscription Agreement entered
into by Westar and the Company, Westar agreed for a period of five years to
limit its equity ownership of the Company to 45 percent of the outstanding
shares of the Class A Common Stock on a fully diluted basis and to not take
certain other actions related to controlling or attempting to control the
Company unless it receives the Company's permission via the majority vote of the
directors of the Company's Board of Directors who are not directors designated
by Westar or are affiliates of Westar. However, if, at any time, four or more
quarterly dividends, whether or not consecutive, on the Series C Stock are in
default, in whole or in part, if Westar has exercised its rights to elect the
majority of the Board of Directors, all directors are entitled to vote on such
ownership issue and not just the non-Westar designated directors.
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
Court, Eastern District of Louisiana, Case No. 98-2914) against OES alleging
breach of contract in connection with one of the Company's projects. The suit
sought reimbursement for expenses allegedly incurred by ECCI in the preparation
of an audit and lost profits. OES settled this matter in December 1999, and
execution of the final settlement agreement is pending.
In November 1999, Independent Energy Services, Inc. ("IES"), a subcontractor to
the Company, filed a suit (United States District Court, District of New Jersey,
Case No. 99-5159 (AET)) against the Company and three of its directors and
officers alleging breach of contract and related causes of action in connection
with one of the Company's projects. The suit seeks payment of monies ($434,234)
allegedly due under a subcontract, as well as consequential damages, interest
and costs of suit. The Company filed its answer, which included counterclaims
alleging, among other things, that IES breached the subcontract by failing to
comply with its terms. The Company is continuing its efforts to settle the
matter; however, no settlement agreement has been reached.
In January 2000, IES filed a second action (Superior Court of New Jersey, Morris
County, Docket No. L-214-00) against the Company and two of its directors and
officers alleging breach of contract and related causes of action in connection
with another of the Company's projects. The suit seeks payment of monies
($710,562) allegedly due under a subcontract, as well as consequential damages,
interest and costs of suit. The Company is in the process of evaluating this
matter and has not yet filed its responsive pleadings.
<PAGE>13
Additionally, in January 2000, EUA Cogenex Corporation ("Cogenex") filed a suit
(United States District Court, District of Massachusetts, Case No. 00-10128)
alleging, among other things, breach of contract in connection with a
Forbearance Agreement entered into by the Company and Cogenex. The Company
negotiated a standstill agreement with Cogenex to maintain the status quo and
allow for additional settlement discussions, and to prevent any action by
Cogenex against certain collateral that secures the debt under the Forbearance
Agreement without court action. The Company and Cogenex have negotiated a
settlement of this matter that involves the execution and filing of an amended
standstill order and a stipulated judgment if the Company fails to make certain
agreed-upon payments to Cogenex.
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
a) Reports on Form 8-K
Form 8-K filed November 16, 1999, regarding the Acquisition and
Release Agreement to sell 95 percent of the issued and outstanding
stock of Lighting Technology Services, Inc.
Exhibit 27 Financial Data Schedules
<PAGE>14
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: July 26, 2000 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
