<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 March 31,1997
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 March 31, 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
Condensed Balance sheets -
March 31, 1997 and December 31, 1996 3
Condensed Statements of Earnings -
three months ended March 31, 1997 and 1996 4
Condensed Statements of Stockholders Equity
three months ended March 31, 1997 and 1996 5
Condensed Statements of Cash Flows -
three months ended March 31, 1997 and 1996 6
Notes to condensed 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.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 972,708 $ 1,894,722
Accounts receivae, net 3,678,898 2,697,248
Prepaid supplies 273,380 188,770
Prepaid expenses 150,374 85,967
--------- ---------
Total current assets 5,075,360 4,866,707
Property and equipment, net 3,649,787 3,573,127
Note receivable - officer 25,000 25,000
Other assets 67,359 73,211
--------- ---------
$ 8,817,506 $ 8,538,045
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 743,996 $ 552,017
Accrued and other liabilities 361,991 289,199
Current portion of long-term debt 182,259 182,153
Deferred taxes 60,154 60,154
--------- ---------
Total current liabilities 1,348,400 1,083,523
Long-term debt net of current portion 943,211 990,683
Deferred rent 77,995 76,129
Deferred taxes 33,046 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 33,000 16,500
Retained earnings 32,403 6,913
--------- ---------
6,414,854 6,372,864
--------- ---------
$ 8,817,506 $ 8,538,045
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
ON-SITE SOURCING, INC.
CONDENSED STATEMENTS OF EARNINGS
For the three month period ended March 31,
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(Unaudited)
<S> <C> <C>
Revenue $ 3,613,374 $ 1,797,020
Costs and expenses
Cost of sales 2,777,854 1,358,602
Selling expense 423,114 148,355
Administrative expense 348,476 188,488
3,549,444 1,695,445
--------- ---------
Earnings from operations 63,930 101,575
Other income (expense)
Other income, primarily interest 12,256 21,473
Other expense, primarily interest (32,496) (31,682)
--------- ---------
(20,240) (10,209)
Earnings before income taxes 43,690 91,366
Income tax expense 18,200 -
--------- ---------
Net Earnings $ 25,490 $ 91,366
-------- ---------
Net earnings per common share $ 0.01 $ 0.03
Weighted number of common shares and
common share equivalents outstanding
during period 4,916,808 2,712,206
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
ON-SITE SOURCING, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common
Additional Stock
Common Common Paid in Options
Shares Stock Capital Outstanding
------- ------- --------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 4,794,021 $ 47,940 $ 6,351,911 $ 16,500
Stock options issued 16,500
Net earnings
--------- ------- ---------- --------
Balance at March 31, 1997 4,794,021 $ 47,940 $ 6,351,911 $ 33,000
--------- ------- ---------- --------
Subscriptions Retained
Subtotal Receivable Earnings Total
Balance at December 31, 1996 $ 6,416,351 $ (50,400) $ 6,913 $ 6,372,864
Stock options issued 16,500 16,500
Net earnings 25,490 25,490
--------- ------- ---------- ---------
Balance at March 31, 1997 $ 6,432,851 $ (50,400) $ 32,403 $ 6,414,854
--------- ------- ---------- ---------
</TABLE>
<TABLE>
Common
Additional Stock
Common Common Paid in Options
Shares Stock Capital Outstanding
------- ------- --------- -----------
<S> <C> <C> <C> <C>
Balance at December 31,1995 2,187,000 $ 21,870 $ 488,140 $ -
Sale of common stock 309,955 3,100 397,202
Warrants exercised 90,000 900 49,500
Stock options issued
Payments received
Net earnings
--------- ------- ---------- --------
Balance at March 31, 1996 2,586,955 $ 25,870 $ 934,842 $ -
--------- ------- ---------- --------
Subscriptions Retained
Subtotal Receivable Earnings Total
Balance at December 31,1995 $ 510,010 $ - $ (238,327) $ 271,683
Sale of common stock 400,302 (115,000) 285,302
Warrants exercised 50,400 50,400
Stock options issued - -
Payments received - -
Net earnings - 91,366 91,366
-------- ------- --------- --------
Balance at March 31, 1996 $ 960,712 $ (115,000) $ (146,961) $ 698,751
-------- ------- --------- --------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
<TABLE>
<CAPTION>
ON-SITE SOURCING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the three month period ended March 31,
(Unaudited)
1997 1996
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 25,490 $ 91,366
Adjustments to reconcile net earnings to net cash
(used in)provided by operations
Depreciation 165,761 37,003
Gain on disposal of equipment (782) -
Compensation expense - stock options 16,500 -
Changes in assets and liabilities
Increase in accounts receivable, net (981,650) (462,560)
Increase in prepaid supplies (84,610) (7,969)
Increase in prepaid expenses (64,407) -
(Decrease) increase in other assets 5,852 (22,516)
Increase in accounts payable - trade 191,979 100,482
Increase (decrease) in accrued liabilities 72,792 (76,921)
Increase (decrease) in deferred rent 1,866 (5,921)
Increase in deferred taxes 18,200 -
--------- ---------
Total Adjustments (658,499) (438,402)
--------- ---------
Net cash used in operations (633,009) (347,036)
--------- ---------
Cash flows from investing activities
Capital expenditures (241,639) (181,085)
--------- ---------
Net cash used in investing activities (241,639) (181,085)
Cash flows from financing activities
Proceeds from sale of common stock and
exercise of warrants - 335,702
Proceeds of long-term debt agreements - 32,000
Net borrowings short term debt agreement - 150,000
Payments under long-term debt agreements (47,366) (19,956)
Net borrowings under line of credit agreement - 115,000
Deferred offering costs - (102,381)
--------- ---------
Net cash (used in) provided by financing activities (47,366) 510,365
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (922,014) (17,756)
Cash and cash equivalents, beginning 1,894,722 38,116
--------- ---------
Cash and cash equivalents, ending $ 972,708 $ 20,360
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
On-Site Sourcing, Inc.
Notes to Condensed Financial Statements
(unaudited)
March 31, 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 three month period ended March 31, 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 held for resale
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.
Notes to Condensed Financial Statements-Continued
(unaudited)
March 31, 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 (4,916,808 in 1997 and 2,712,206 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 March 31, 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 term note was funded in April of 1997.
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.
<PAGE>
On-Site Sourcing, Inc.
Notes to Condensed Financial Statements-Continued
(unaudited)
March 31, 1997
At March 31, 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. There were no outstanding obligations under the working
capital line of credit at March 31, 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 three months ended March 31, 1997 and 1996, the Company recorded
the following transaction with an officer/shareholder:
During the three months ended March 31, 1997 and 1996, the Company incurred
approximately $15,000 and $69,000, respectively, for legal services
rendered by the officer/shareholder. During the three months ended March
31, 1997 and 1996, the Company recorded revenue of approximately $13,400
and $1,600, respectively, for reprographic services. Included in accounts
receivable as of March 31, 1997, is approximately $8,900 due from the
officer/shareholder.
Transactions with Shareholders
During the three months ended March 31, 1997 and 1996 the Company recorded
revenue of approximately $135,900 and $77,300, respectively, for services
provided to a shareholder under a facilities management agreement.
Included in accounts receivable as of March 31, 1997, is approximately
$170,000 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.
Notes to Condensed Financial Statements-Continued
(unaudited)
March 31, 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 March 31, 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 PLAN
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 March 31, 1997 was $50,400.
<PAGE>
On-Site Sourcing, Inc.
Notes to Condensed Financial Statements-Continued
(unaudited)
March 31, 1997
At March 31, 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 March 31, 1997, the options are fully vested. The options
expire in December 2000.
The Company has outstanding employee stock options for 711,863 shares of
common stock at exercise prices ranging from $1.11 to $3.00 per share. As of
March 31, 1997, 249,996 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 Discussion and Analysis of Financial Conditions and Results of
Operations
On-Site Sourcing, Inc. (On-Site or the "Company") provides reprographic, 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.
Three months 1997 vs. 1996
Revenue for the three months ended March 31, 1997 increased 101% or $1,816,354
to $3,613,374 as compared to $1,797,020, recorded for the three months ended
March 31, 1996. The principle reason for the increase is due to increased
volume of work orders fulfilled through increased capacity at the Arlington, VA
reprographic facility, increased sales volume at the Philadelphia, Atlanta and
New York facilities, and imaging services becoming fully operational.
<PAGE>
For the three months ended March 31, 1997 cost of sales increased $1,419,252 or
104% over the same period in 1996, as a result of initial costs incurred
associated with imaging services and the New York operation. Operating margins
increased 91% to $835,520, a $397,102 increase over the same period last year,
due to the increase in revenue.
Selling expense increased by $274,759 to $423,114 over the same period last
year. As a percent of sales, this represents an increase from 8% for the three
months ended March 31, 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 March 31, 1997 increased
$159,988 to $348,476 over the same period last year due primarily to
professional fees, increases in administrative staffing and associated costs
with the expansion into new markets. As a percent of sales, administrative
expense remained constant at 10% for the three month period.
Earnings from Operations
For the three months ended March 31, 1997, earnings from operations decreased
37% or $37,645 from $101,575 to $63,930. The decrease is due to increased
marketing efforts, and initial costs associated with imaging services and the
New York operations.
Other income and expenses
Other income decreased $9,217 compared to the first three months of 1996.
Other expense, primarily interest increased $814 to $32,496 for the three month
period ended March 31, 1997.
Net earnings
For the three months ended March 31, 1997 the Company generated net earnings of
$25,490 as compared to $91,366 for the same period last year. Earnings per share
for the three months ended March 31, 1997 were $.01 compared to $.03 for the
three months ended March 31, 1996. The Company has provided for income taxes of
$18,200 versus $0 for the three months ended March 31, 1997 and 1996,
respectively.
Liquidity and Capital Resources at March 31, 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.
During the first quarter of 1997, the Company has 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 March 31, 1997 there were no advances under
the line. The Company also secured 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 term note was funded in April 1997.
During the three months ended March 31, 1997 and 1996, the Company's principle
uses of cash were to fund fixed asset purchases and pay off long-term debt.
<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: May 9, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 972708
<SECURITIES> 0
<RECEIVABLES> 3678898
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5075360
<PP&E> 3649787
<DEPRECIATION> 0
<TOTAL-ASSETS> 8817506
<CURRENT-LIABILITIES> 1348400
<BONDS> 0
0
0
<COMMON> 47940
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8817506
<SALES> 3613374
<TOTAL-REVENUES> 3613374
<CGS> 2777854
<TOTAL-COSTS> 3549444
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32496
<INCOME-PRETAX> 25490
<INCOME-TAX> 18200
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<EPS-PRIMARY> .01
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</TABLE>
