<PAGE>
Form 10-Q SB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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 30,1997
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 0-20947
On-Site Sourcing, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1648470
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1111 N. 19th Street, Suite 600, Arlington, VA 22209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 276-1123
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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of June 30, 1997.
Common Stock 0.01 par value Number of Shares
No Class 4,794,021
Preferred Stock 0.01 par value
No Class None
<PAGE>
On-Site Sourcing,Inc.
Index
Part I. Financial Information. Page No.
Item 1. Financial Statements
Balance sheets -
June 30, 1997 and December 31, 1996 3
Statements of Earnings -
Six and three months ended June 30, 1997 and 1996 4
Statements of Stockholders Equity
Six months ended June 30, 1997 and 1996 5
Statements of Cash Flows -
Six and three months ended June 30, 1997 and 1996 6
Condensed notes to financial statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11-13
Part II. Other Information
Signatures 14
<PAGE>
ON-SITE SOURCING, INC.
BALANCE SHEETS
[CAPTION]
<TABLE> June 30, December 31,
1997 1996
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,013,695 $ 1,894,722
Accounts receivable, net 4,878,835 2,697,248
Prepaid supplies 484,610 188,770
Prepaid expenses 116,798 85,967
---------- ----------
Total current assets 6,493,938 4,866,707
Property and equipment, net 3,839,653 3,573,127
Note receivable - officer 25,000 25,000
Other assets 43,013 73,211
---------- ---------
$10,401,604 $ 8,538,045
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable trade $ 1,191,567 $ 552,017
Accrued and other liabilities 336,570 289,199
Current portion of long-term debt 382,355 182,153
Deferred taxes 231,900 60,154
---------- ---------
Total current liabilities 2,142,392 1,083,523
Long-term debt net of current portion 1,377,215 990,683
Deferred rent 77,995 76,129
Deferred taxes 76,200 14,846
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000
shares authorized 4,794,021, shares
issued and outstanding 47,940 47,940
Preferred stock,$.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding - -
Subscription receivable (50,400) (50,400)
Additional paid in capital 6,351,911 6,351,911
Common stock options outstanding 49,500 16,500
Retained earnings 328,851 6,913
---------- ---------
6,727,802 6,372,864
---------- ---------
$10,401,604 $8,538,045
See notes to financial statements
</TABLE>
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF EARNINGS
[CAPTION]
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
(Unaudited) (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Revenue $ 8,726,314 $ 3,726,561 $ 5,112,940 $ 1,929,541
Costs and expenses
Cost of sales 6,266,833 2,794,009 3,488,979 1,435,407
Selling expense 1,048,411 308,870 625,297 160,515
Administrative expense 808,134 386,585 459,658 198,097
---------- --------- ---------- ---------
8,123,378 3,489,464 4,573,934 1,794,019
---------- --------- ---------- ---------
Earnings from operations 602,936 237,097 539,006 135,522
Other income (expense)
Other income, primarily interest 24,823 21,473 12,567 -
Other expense, primarily interest (72,721) (49,542) (40,225) (17,860)
---------- --------- ---------- ---------
(47,898) (28,069) (27,658) (17,860)
---------- --------- ---------- ---------
Earnings before income taxes 555,038 209,028 511,348 117,662
Income tax expense 233,100 28,500 214,900 28,500
---------- --------- ---------- ---------
Net Earnings $ 321,938 $ 180,528 $ 296,448 $ 89,162
---------- --------- ---------- ---------
Net earnings per common share $ 0.07 $ 0.07 $ 0.06 $ 0.03
Weighted number of common shares
and common share equivalents
outstanding during the period 4,917,137 2,647,377 4,917,137 2,647,377
See notes to financial statements
</TABLE>
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
[CAPTION]
Common
Additional Stock
Common Common Paid in Options
Shares Stock Capital Outstanding Subtotal
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 4,794,021 $ 47,940 $6,351,911 $ 16,500 $6,416,351
Stock options issued 33,000 33,000
Net earnings
---------- -------- ---------- --------- ---------
Balance at
June 30, 1997 4,794,021 $ 47,940 $6,351,911 $ 49,500 $6,449,351
---------- -------- ---------- --------- ---------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Subscriptions Retained
Subtotal Receivable Earnings Total
Balance at
December 31, 1996 $6,416,351 $ (50,400) $ 6,913 $6,372,864
Stock options issued 33,000 33,000
Net earnings 321,938 321,938
---------- -------- ---------- ----------
Balance at
June 30, 1997 $6,449,351 $ (50,400) $ 328,851 $6,727,802
---------- -------- ---------- ----------
</TABLE>
<TABLE>
<S>
<CAPTION>
Common
Additional Stock
Common Common Paid in Options
Shares Stock Capital Outstanding Subtotal
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 2,187,000 $ 21,870 $ 488,140 $ $ 510,010
Sale of common stock 399,955 4,000 446,702 450,702
Receivable Shareholder -
Payments received -
Net earnings -
---------- -------- ---------- --------- ---------
Balance at
June 30, 1996 2,586,955 $ 25,870 $ 934,842 $ - $ 960,712
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Subscriptions Retained
Subtotal Receivable Earnings Total
Balance at
December 31, 1995 $ 510,010 $ $(238,327) $ 271,683
Sale of common stock 450,702 450,702
Receivable Shareholder - (115,000) (115,000)
Payments received - 64,600 64,600
Net earnings - 180,528 180,528
---------- ---------- --------- ---------
Balance at
June 30, 1996 $ 960,712 $ (50,400) $ (57,799) $ 852,513
---------- ---------- --------- ---------
</TABLE>
See notes to financial statements
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
[CAPTION]
Six months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
<TABLE>
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 321,938 $ 180,528 $ 296,448 $ 89,162
Adjustments to reconcile net
earnings to net cash (used in)
provided by operations
Depreciation 343,726 84,745 177,965 47,742
Gain on disposition of equipment (782) - - -
Compensation expense - stock options 33,000 - 16,500 -
Changes in assets and liabilities
Increase in accounts receivable, net (2,181,587) (599,339)(1,199,937)(136,779)
Increase in prepaid supplies (295,840) (67,004) (211,230) (59,035)
(Increase) decrease in
prepaid expenses (30,831) - 33,576 -
(Increase) decrease in other assets 30,198 (25,567) 24,346 (3,051)
Increase in accounts payable-trade 639,550 138,609 447,571 38,127
Increase (decrease) in
accrued liabilities 47,371 141,195 (25,421) 218,116
Increase (decrease) in deferred rent 1,866 11,962 - 17,883
Increase in deferred taxes 233,100 28,500 214,900 28,500
---------- --------- --------- --------
Total Adjustments (1,180,229) (286,899) (521,730) 151,503
---------- --------- --------- --------
Net cash (used in) provided by
operations (858,291) (106,371) (225,282) 240,665
---------- --------- --------- --------
Cash flows from investing activities
Capital expenditures (609,470) (527,841) (367,831)(346,756)
---------- --------- --------- --------
Net cash used in investing activities (609,470) (527,841) (367,831)(346,756)
---------- --------- --------- --------
Cash flows from financing activities
Proceeds from sale of common stock
and exercise of warrants - 400,302 64,600
Proceeds of long-term debt agreements 1,100,000 251,359 1,100,000 219,359
Net borrowings short term debt
agreements - 250,000 - 100,000
Payments under long-term debt
agreements (513,266) (42,325) (465,900) (22,369)
Net borrowings under line of
credit agreement - 130,000 - 15,000
Deferred offering costs - (341,084) - (238,703)
---------- --------- --------- --------
Net cash (used in) provided
by financing agreements 586,734 648,252 634,100 137,887
---------- --------- --------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (881,027) 14,040 40,987 31,796
Cash and cash equivalents, beginning 1,894,722 38,116 972,708 20,360
---------- --------- --------- --------
Cash and cash equivalents, ending $1,013,695 $ 52,156 $1,013,695 $ 52,156
---------- --------- --------- --------
See notes to financial statements
</TABLE>
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements
(unaudited)
June 30, 1997
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
the annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading.
In the opinion of management, the accompanying condensed financial statements
reflect all necessary adjustments and reclassifications that are necessary
for fair presentation for the periods presented. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes filed in the Company's Annual Report on Form 10K-SB.
The results of operations for the six and three month periods ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
Revenue Recognition
Revenue from facilities management is recognized based on monthly fixed fees
and, in certain cases, variable per copy fees, as contained in facilities
management agreements. Revenue from reprographic and imaging services is
recognized on a per copy or image basis upon completion of the services.
Revenue from the sale of refurbished copiers is recognized when the copiers
are shipped and transfer of title occurs.
Property and Equipment
Property and equipment consists of copy center equipment, office furniture
and fixtures, and delivery equipment. Depreciation is provided for in
sufficient amounts to relate the cost of depreciable assets to operations
over their estimated service lives, ranging from two to ten years. The straight
line method is followed for financial reporting purposes. Accelerated methods
are used for tax purposes.
Software development
The Company capitalizes certain computer software costs which are amortized
utilizing the straight-line method over the estimated economic lives of the
projects not to exceed one year. All other software development costs are
expensed as incurred.
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements-Continued
(unaudited)
June 30, 1997
Income Taxes
The provision for income taxes presented in the statements of earnings is based
upon the estimated effective tax rate for the year, and is largely determined
by management's estimate as of the interim date of projected taxable income
for the entire fiscal year.
Earnings per Common Share
The Company's common stock was split 100-for-one and 18-for-one in March 1995
and February 1996, respectively. All earnings per share amounts in the
financial statements have been restated to give effect to the stock splits.
Earnings per common share is based on the weighted average number of common
shares and, if dilutive, common equivalent shares outstanding during each year.
Such average shares include the weighted average number of common shares
outstanding (4,917,137 in 1997 and 2,647,377 in 1996) plus the shares issuable
upon exercise of stock options and warrants after the assumed repurchase of
common shares with the related proceeds (122,787 in 1997 and 99,584 in 1996).
Options and warrants granted, as well as certain shares issued during the
one-year period prior to the initial public offering, are treated as
outstanding in calculating earnings per share for both periods presented.
NOTE B-CREDIT FACILITIES
During the first quarter of 1997, the Company entered into an agreement for a
working capital line of credit with a financial institution for $2,500,000.
The line of credit bears interest at the financial institution's prime rate
or the 30 day LIBOR rate plus 2.25%, payable monthly. Any remaining principal
balance and accrued interest is due at the maturity date of April 30, 1998.
The line of credit is secured by certain assets of the Company, including
accounts receivable and certain fixed assets. As of June 30, 1997 there were
no advances made under the line of credit.
During the first quarter of 1997, the Company entered into a term note with a
financial institution to provide $1,100,000 to refinance certain capitalized
lease obligations. The note is payable in 48 monthly installments, bears
interest at the rate of 9.02%, and matures on April 30, 2001. The note is
collateralized by specific equipment and is subject to certain financial
covenants. The balance of the term note at June 30, 1997 was $1,031,250.
At various times in 1996 the Company had term notes with a commercial bank in
the aggregate principal of $323,500. The notes were paid in full and retired
in August 1996.
At June 30, 1996, the Company had available a $450,000 working capital line of
credit at the bank's prime rate plus 1%. The line of credit matured on April
1, 1997.
The Company has financed certain equipment purchases under capitalized leases,
with terms of sixty months.
NOTE C-RELATED PARTY TRANSACTIONS
Transactions with an Officer/Shareholder
During the six months ended June 30, 1997 and 1996, the Company recorded the
following transaction with an officer/shareholder:
During the six months ended June 30, 1997 and 1996, the Company incurred
approximately $30,000 and $157,600, respectively, for legal services rendered
by the officer/shareholder. During the six months ended June 30, 1997 and
1996, the Company recorded revenue of approximately $3,400 and $15,500,
respectively, for reprographic services. Included in accounts receivable as
of June 30, 1997, is approximately $3,400 due from the officer/shareholder.
Transactions with Shareholders
During the six months ended June 30, 1997 and 1996 the Company recorded revenue
of approximately $238,100 and $166,400, respectively, for services provided to
a shareholder under a facilities management agreement. Included in accounts
receivable as of June 30, 1997, is approximately $118,100 due from the
shareholder.
In March 1996, the Company entered into a two-year consulting agreement with
its underwriters/shareholder for financial and marketing services totaling
$60,000 which was paid from the proceeds of the initial public offering.
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements-Continued
(unaudited)
June 30, 1997
Subscription receivable -- Shareholder
The Company has a note receivable from an officer/director for $89,900 in
connection with the exercise of stock options. The note bears interest at 6%
per year with the remaining principal and interest due April 1, 1998. The
balance of the note at June 30, 1997 was $50,400.
Note receivable -Officer
During 1996, the Company entered into a note agreement with an officer/
shareholder in the amount of $25,000. The loan bears interest at the prime
rate of interest and is due in September 1998.
NOTE D-COMMITMENTS
The Company has annual rental and lease commitments with a term of one year or
more for its offices and production facilities that expire at various times
through 2006. The minimum annual rent is approximately $800,000.
NOTE E-INCENTIVE STOCK OPTION PLANS
In 1997, 1996 and in 1995, the Company adopted incentive stock option plans,
under which pools of 500,000, 200,000 and 510,000, shares respectively have
been reserved. The plans are administered and terms of option grants are
established by the Board of Directors. Under the terms of the plans, options
may be granted to the Company's employees and directors to purchase shares of
common stock. Options become exercisable ratably over a vesting period as
determined by the Board of Directors, and expire over terms not exceeding ten
years from the date of grant, three months after termination of employment, or
one year after the death or permanent disability of the employee. The Board
of Directors determines the option price (not less than fair market value) at
the date of grant.
Pursuant to an employment agreement, the Company had outstanding options to
sell 162,000 shares of common stock to an officer/director of the Company at
an exercise price of $.56 per share. The options, which were fully vested
during 1994, were exercised on March 29, 1996 for $90,000. In connection with
the exercise of the options, the Company loaned $89,900 to the officer/
director. The balance of the note on June 30, 1997 was $50,400.
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements-Continued
(unaudited)
June 30, 1997
At June 30, 1997, the Company had outstanding options to sell 126,000 shares
of common stock to an officer/director at an exercise price of $1.11 per
share. As of June 30, 1997, the options are fully vested. The options expire
in December 2000.
The Company has outstanding employee stock options for 697,881 shares of common
stock at exercise prices ranging from $1.11 to $3.00 per share. As of June 30,
1997, 279,858 of the shares are vested with the remainder scheduled to vest
through December 2001. The options expire at various times through December
2001. The Company granted a total of 60,000 options to its outside directors
which vest quarterly over one year. The fair value of options granted to
outside directors are charged to expense as they vest.
Management's Discussion and Analysis of Financial Conditions and Results
of Operations
On-Site Sourcing, Inc. (On-Site or the "Company") provides reprographic,
document management, imaging and facilities management services to law firms,
corporations, non-profit organizations, accounting firms, financial
institutions and other organizations throughout the East Coast of the United
States. In order to meet the highly specialized requirements of each client,
On-Site offers a variety of customized reprographic and facilities management
services. The Company provides reprographic and imaging services 24 hours-
per-day, seven days-per-week including copying, binding, labeling, collating
and indexing in support of complex document-intensive litigation as well as
higher volume production of manuals, brochures and other materials for
corporations and non-profit organizations. On-Site also provides on-premises
management of customers' support services including mailroom operations,
facsimile transmission, records and supply room management and copying services.
Six months 1997 vs. 1996
Revenue for the six months ended June 30, 1997 increased 134% or $4,999,753 to
$8,726,314 as compared to $3,726,561, recorded for the six months ended June
30, 1996. The principal reason for the increase is increased volume of work
orders fulfilled through increased sales volume in the Arlington, VA,
Philadelphia, PA, Atlanta, GA, and New York City facilities.
For the six months ended June 30, 1997, cost of sales increased $3,472,824 or
124% over the same period in 1996. Operating margins increased 164% to
$2,459,481, a $1,526,929 increase over the same period last year, due to the
increase in revenue. As a percentage of sales, operating margins improved to
28% versus 25% for the six months ended June 30, 1997 and 1996, respectively.
Selling expense increased by $739,541 to $1,048,411 over the same period last
year. As a percentage of sales, this represents an increase from 8% for the
six months ended June 30, 1996 to 12% in the same period in 1997, primarily
due to the addition of personnel, higher commissions associated with increased
revenue, and expansion into new markets.
Administrative expense for the three months ended June 30, 1997 increased
$421,549 to $808,134 over the same period last year due primarily to
professional fees, increases in administrative staffing and costs associated
with the expansion into new markets. As a percent of sales, administrative
expense was 9% for the six month period in 1997 as compared to 10% for the same
period last year.
Earnings from Operations
For the six months ended June 30, 1997, earnings from operations increased 154%
or $365,839 from $237,097 to $602,936. The increase is due to increased
revenue, growth in existing markets, and continued expansion into new
markets.
Other income and expenses
Other income increased $3,350 compared to the first six months of 1996.
Other expense, primarily interest increased $23,179 to $72,721 for the six
month period ended June 30, 1997 due to financing major equipment purchases.
Net earnings
For the six months ended June 30, 1997 the Company generated net earnings of
$321,938 as compared to $180,528 for the same period last year. Earnings per
share for the six months ended June 30, 1997 and 1996 were $.07 on 4,917,137
share versus 2,647,377 shares outstanding, respectively. The Company has
provided for income taxes of $233,100 versus $28,500 for the six months ended
June 30, 1997 and 1996, respectively.
Liquidity and Capital Resources at June30, 1997 and Subsequent Activity
The Company has funded its expansion and growth by utilizing the proceeds of its
initial public offering and long term financing, where appropriate, for
significant capital outlays. The Company anticipates that the net proceeds from
the initial public offering, proceeds from the overallotment options, cash flow
from operations and credit facilities will be sufficient to meet the Company's
expected cash requirements for the next twelve months. There can be no
assurances that unforeseen events may not require more working capital than the
Company has at its disposal.
<PAGE>
The Company has a secured a $2,500,000 line of credit with a financial
institution. The line of credit bears interest at the financial
institution's prime rate or the 30 day LIBOR rate plus 2.25%, payable monthly.
The line of credit will be utilized to finance accounts receivable and other
working capital needs. As of June 30, 1997 there were no advances under the
line. The Company also has a $1,100,000 term note to refinance certain
capital leases at more favorable interest rates. The note is payable in 48
monthly installments, bears interest at the rate of 9.02%, and matures on
April 30, 2001. The balance on the note at June 30, 1997 was $1,031,250.
During the six months ended June 30, 1997 and 1996, the Company's principal
uses of cash were to fund fixed asset purchases and pay off long-term debt.
Three Months 1997 vs. 1996
The principal reasons for the increase in revenue from operations and net
earnings for the three months ended June 30, 1997 versus 1996 are outlined
in the discussion of the six month results. There were no material items
adversely impacting the Company.
Revenue for the three months ended June 30, 1997 more than doubled, increasing
165% to $5,112,940 as compared to $1,929,541 for the three month period ended
June 30, 1996. Cost of sales and the related operating margin improved to
32% as compared to 26% for 1996, based in part on increased productivity per
labor hour and increased volume.
Earnings from operations were $539,006 as compared to $135,522 as a result of
increased revenue resulting from continued expansion into new and existing
markets.
The Company earned $12,567 from interest on overnight investments during the
three months ended June 30, 1997. The Company paid $40,255 in interest as
compared to $17,860 over the same period last year.
Net earnings for the three month period ended June 30, 1997 increased 232%
to $296,448 from $89,192 for the same period last year. Earnings per share
for the three month period ended June 30, 1997 were $.06 compared to $.03 for
the three month period ended June 30, 1996.
<PAGE>
Part II. Other Information
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
On-Site Sourcing, Inc.
Date: August 8, 1997 By: /s/ Christopher J.Weiler
Christopher J. Weiler
President and
Chief Executive Officer
By: /s/ Joseph Sciacca
Joseph Sciacca
Vice President of Finance
and Chief Financial Officer
1
1
Page 18 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1013695
<SECURITIES> 0
<RECEIVABLES> 4878835
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6493938
<PP&E> 3839653
<DEPRECIATION> 0
<TOTAL-ASSETS> 10401604
<CURRENT-LIABILITIES> 2142392
<BONDS> 0
0
0
<COMMON> 47940
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10401604
<SALES> 8726314
<TOTAL-REVENUES> 8726314
<CGS> 6266833
<TOTAL-COSTS> 8123378
<OTHER-EXPENSES> (24823)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72721
<INCOME-PRETAX> 555038
<INCOME-TAX> 233100
<INCOME-CONTINUING> 321938
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 321938
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>