<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, 1998
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, 1998.
Common Stock 0.01 par value Number of Shares
No Class 4,819,669
Preferred Stock 0.01 par value
No Class None
<PAGE>
On-Site Sourcing,Inc.
Index
<TABLE>
<CAPTION>
Part I. Financial Information. Page No.
<S> <C>
Item 1. Financial Statements
Balance sheets -
March 31, 1998 and December 31, 1997 3
Statements of Operations -
Three months ended March 31, 1998 and 1997 4
Statements of Stockholders Equity
Three months ended March 31, 1998 and 1997 5
Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 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
</TABLE>
Page 2 of 14
<PAGE>
ON-SITE SOURCING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................ $ 596,472 $ 1,490,702
Accounts receivable, net ................................. 6,137,805 5,921,063
Prepaid supplies ......................................... 461,825 417,693
Prepaid expenses ......................................... 153,383 216,747
------------ ------------
Total current assets ................................ 7,349,485 8,046,205
Property and equipment, net .............................. 4,380,620 4,069,097
Note receivable - officer ................................ 25,000 25,000
Other assets, net ........................................ 94,015 98,781
------------ ------------
$ 11,849,120 $ 12,239,083
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade ................................. $ 1,879,532 $ 1,992,580
Line of Credit ........................................... 500,000 --
Accrued and other liabilities ............................ 770,437 924,487
Current portion of long-term debt ........................ 408,999 411,894
Provision for income taxes, current ...................... 139,798 139,798
Deferred taxes ........................................... -- --
------------ ------------
Total current liabilities ........................... 3,698,766 3,468,759
Long-term debt net of current portion ......................... 991,834 1,094,444
Deferred rent ................................................. 96,509 96,509
Provision for Income taxes, net of current portion ............ 234,338 419,395
Deferred taxes ................................................ 33,046 66,989
Commitments and contingencies ................................. -- --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 shares authorized
4,819,669 and 4,802,221 shares issued and outstanding .. 48,196 48,022
Preferred stock,$.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding ........... -- --
Subscription receivable .................................. (50,400) (50,400)
Additional paid in capital ............................... 6,427,191 6,367,379
Retained earnings ........................................ 369,640 727,986
------------ ------------
6,794,627 7,092,987
------------ ------------
$ 11,849,120 $ 12,239,083
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements
Page 3 of 14
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF EARNINGS
For the three months ended March 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenue ....................... $ 5,746,815 $ 3,613,374
Costs and expenses
Cost of sales .............. 4,985,664 2,777,854
----------- -----------
761,151 835,520
----------- -----------
Selling expense ............ 646,044 423,114
Administrative expense ..... 744,812 348,476
----------- -----------
1,390,856 771,590
----------- -----------
Earnings from operations ... (629,705) 63,930
Other income (expense)......
Other income ............... 81,811 12,256
Other expense .............. (29,452) (32,496)
----------- -----------
52,359 (20,240)
----------- -----------
Earnings before income taxes .... (577,346) 43,690
Income tax (benefit)expense ..... (219,000) 18,200
----------- -----------
Net (Loss) Earnings ............. $ (358,346) $ 25,490
----------- -----------
Basic earnings per common share.. $ (0.07) $ 0.01
Diluted earnings per share ...... $ -- $ 0.01
</TABLE>
See notes to financial statements
Page 4 of 14
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years end December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Common Common Paid in Subscriptions Retained
Shares Stock Capital Receivable Earnings Total
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 4,802,221 $ 48,022 $6,367,379 $ (50,400) $ 727,986 $7,092,987
--------- ---------- ---------- ---------- ---------- ----------
Sale of common stock .. 17,448 174 59,812 59,986
Net loss .............. (358,346) (358,346)
--------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 . 4,819,669 $ 48,196 $6,427,191 $ (50,400) $ 369,640 $6,794,627
--------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Additional
Common Common Paid in Subscriptions Retained
Shares Stock Capital Receivable Earnings Total
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,794,021 $ 47,940 $6,351,911 $ (50,400) $ 6,913 $6,372,864
Net earnings .............. 25,490 25,490
--------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1997 .. 4,794,021 $ 47,940 $6,351,911 $ (50,400) $ 32,403 $6,398,354
--------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to financial statements
Page 5 of 14
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
For the three months ended March 31,
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net earnings ........................................... $ (358,346) $ 25,490
----------- -----------
Adjustments to reconcile net earnings to net cash
(used in) provided by operations
Depreciation and amortization ............................... 226,175 165,761
Loss (gain) on disposition of equipment ..................... (782)
Changes in assets and liabilities
Increase in accounts receivable, net ................... (216,742) (965,150)
Increase in prepaid supplies ........................... (44,132) (84,610)
(Increase) decrease in prepaid expenses ................ 63,364 (64,407)
Increase in notes receivable officer ................... -- (25,000)
(Increase) decrease in other assets .................... 4,766 30,852
Increase in accounts payable - trade ................... (113,048) 191,979
Increase in accrued and other liabilities .............. (154,050) 72,792
Increase (decrease) in deferred rent ................... -- 1,866
Increase (decrease) in provison for income taxes ....... (185,057) --
Increase (decrease) in deferred taxes .................. (33,943) 18,200
----------- -----------
Total Adjustments ........................................... (452,667) (658,499)
----------- -----------
Net cash provided by (used in) operations ................... (811,013) (633,009)
----------- -----------
Cash flows from investing activities
Capital expenditures ................................... (537,698) (241,639)
----------- -----------
Net cash used in investing activities ....................... (537,698) (241,639)
----------- -----------
Cash flows from financing activities
Proceeds from sale of common stock and
exercise of warrants .............................. 59,986 --
Payments on subscription receivable .................... -- --
Proceeds of long-term debt agreements .................. -- --
Net borrowings short term debt agreement ............... -- --
Payments under long-term debt agreements ............... (105,505) (47,366)
Net borrowings (payments) under line of credit agreement 500,000 --
----------- -----------
Net cash provided by financing activities ................... 454,481 (47,366)
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS .............................. (894,230) (922,014)
Cash and cash equivalents, beginning ........................ 1,490,702 1,894,722
----------- -----------
Cash and cash equivalents, ending ........................... $ 596,472 $ 972,708
----------- -----------
----------- -----------
</TABLE>
See notes to financial statements
Page 6 of 14
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements
(unaudited)
- --------------------------------------------------------------------------------
March 31, 1998
- --------------------------------------------------------------------------------
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 10-KSB. The results of operations for the three months ended March 31,
1998 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 information technology services is billed on an hourly basis.
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.
Page 7 of 14
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements--Continued
(unaudited)
- --------------------------------------------------------------------------------
March 31, 1998
- --------------------------------------------------------------------------------
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
Basic earnings per share is calculated using the average number of shares
outstanding and excludes dilution. Diluted earnings per share is computed on
the basis of the average number of shares outstanding plus the effect of
outstanding options using the "treasury stock method". Prior year earnings
per share have been restated to conform this method.
NOTE B--CREDIT FACILITIES
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, 1999. The line of credit
is secured by certain assets of the Company, including accounts receivable
and certain fixed assets. As of March 31, 1998 there were advances made
under the line of credit of $500,000.
During 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 March 31, 1998 was $825,000.
Page 8 of 14
<PAGE>
At September 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.
During 1997, the Company has financed certain equipment purchases of
approximately $361,000 with notes with terms of 36 to 48 months and interest
rates of 5.0% to 9.7%. The balance of these notes at March 31, 1998 was
approximately $330,000.
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, 1998 and 1997, the Company recorded
the following transaction with an officer/shareholder:
During the three months ended March 31, 1998 and 1997, the Company
incurred approximately $21,000 and $15,000, respectively, for legal
services rendered by the officer/shareholder. During the nine months
ended March 31, 1998 and 1997, the Company recorded revenue of
approximately $6,400 and $13,400, respectively, for reprographic
services. Included in accounts receivable as of March 31, 1998, is
approximately $700 due from the officer/shareholder.
Transactions with Shareholders
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 9 of 14
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements--Continued
(unaudited)
- --------------------------------------------------------------------------------
March 31, 1998
- --------------------------------------------------------------------------------
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, 1999.
The balance of the note at March 31, 1998 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 1995 through 1998, the Company adopted incentive stock option plans,
under which pools of 510,000, 200,000, 500,000, and 700,000 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, 1998 was $50,400.
Page 10 of 14
<PAGE>
On-Site Sourcing, Inc.
Condensed Notes to Financial Statements--Continued
(unaudited)
- --------------------------------------------------------------------------------
March 31, 1998
- --------------------------------------------------------------------------------
At March 31, 1998, 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, 1998, the options are fully vested. The options
expire in December 2000.
The Company has outstanding employee stock options for 1,537,327 shares of
common stock at exercise prices ranging from $1.11 to $3.50 per share. As of
March 31, 1998, 504,208 of the shares are vested with the remainder
scheduled to vest through December 2003.
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, facilities management services and information
technology 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. The information technology group provides a
full range of technology services to professional service organizations,
including systems design and integration, training and network management
services.
The nature of the IT Group's value-added services is expected to produce
significant revenue and increased margins in future periods. The IT Group was
formed in response to the need of law firms for new client/server applications
and connectivity, requiring IT expertise that is difficult to acquire due the
competitive nature of the industry. The competitive law firm has the need for
E-mail, integrated billing and document management services and recurring
technology upgrades that are being demanded by their clients. These are problems
that the IT Group is beginning to address for these firms.
This Form 10-QSB contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, demand for services, market
acceptance of the new IT group, impact of competitive services and pricing,
commercialization and technical difficulties, capacity constraints or
difficulties, general business and economic conditions and other risks detailed
in the Company's Annual Report, Form 10-KSB and other filings with the
Securities and Exchange Commission.
Page 11 of 14
<PAGE>
Three months 1998 vs. 1997
Revenue for the three months ended March 31, 1998 increased 59% or $2,133,441 to
$5,745,815. This compared to $3,613,374 recorded for the three months ended
March 31, 1997. The principal reason for the increase is higher volume of work
orders fulfilled through increased sales volume in the Arlington, VA, Baltimore,
MD, Philadelphia, PA, Atlanta, GA, and New York City facilities. For the three
months ended March 31, 1998, facilities management revenue increased 50% from
$507,479 for the three months ended March 31, 1997 to $761,315. Because
facilities management contracts are performed on a contract basis, a substantial
amount of the revenues from such contracts recur on a monthly basis.
Cost of sales for the three months ended March 31, 1998 increased by 79% to
$4,985,664 or $2,207,810 as compared to $2,777,854 for the same period in 1997.
Operating margins were 13% and 23%, respectively for the three months ended
March 31, 1998 and 1997. The reduction in margins is due to the higher
production costs.
Selling expense increased by $222,930 to $646,044 over the same period last
year. As a percentage of sales, selling expense was 11% for the three months
ended March 31, 1998 and 1997, respectively.
Administrative expense for the three months ended March 31, 1998 increased
$396,336 to $744,812 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 13% for the three month period in 1998 as compared to 10% for the
same period last year.
Earnings (loss) from Operations
For the three months ended March 31, 1998, earnings from operations decreased
$693,635 from $63,930 to a loss of $629,705. The decrease is due to higher
operating costs, continued expansion into new markets and the start up of the
information technology group.
Other income and expenses
Other income increased $69,555 to $81,810, compared to the first three months of
1997. Other expense decreased $3,044 to 29,452 for the three month period ended
March 31, 1998 due to lower interest as a result of reductions in debt.
Net earnings (loss)
For the three months ended March 31, 1998 the Company incurred a loss of
$358,346 as compared to earnings of $25,490 for the same period last year.
The loss amounted to $ 0.07 basic compared to earnings of $ 0.01 for basic
and diluted for the same period last year. Shares outstanding for the three
months ended March 31, 1998 were 4,831,379, basic and 5,321,568, diluted. For
the three months ended march 31, 1997 shares outstanding were 4,794,021,
basic and 4,916,688, diluted. The Company had an income tax benefit of
$219,000 versus an income tax expense of $18,000 for the three months ended
March 31, 1998 and 1997, respectively.
Page 12 of 14
<PAGE>
Liquidity and Capital Resources at March 31, 1998 and Subsequent Activity
The Company has funded its expansion and growth by utilizing internally
generated cash flow and long term financing, where appropriate, for significant
capital outlays. The Company anticipates that 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 require more working capital than the Company has at its
disposal.
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 March 31, 1998 there were advances under the line totaled $500,000.
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 March 31, 1998 was $825,000.
During 1997, the Company has financed certain equipment purchases of
approximately $361,000 with notes with terms of 36 to 48 months and interest
rates of 5.0% to 9.7%. The balance of these notes at March 31, 1998 was
approximately $330,000.
During the three months ended March 31, 1998 and 1997, the Company's principal
uses of cash were to fund fixed asset purchases, pay off long-term debt, changes
in staffing requirements and relocations costs and expenses.
Page 13 of 14
<PAGE>
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 15, 1998
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
Page 14 of 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001012141
<NAME> ON-SITE SOURCING
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 596,472
<SECURITIES> 0
<RECEIVABLES> 6,137,805
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,349,485
<PP&E> 4,380,620
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,849,120
<CURRENT-LIABILITIES> 3,698,766
<BONDS> 0
0
0
<COMMON> 48,669
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,794,627
<SALES> 5,746,815
<TOTAL-REVENUES> 5,746,815
<CGS> 4,985,664
<TOTAL-COSTS> 6,376,520
<OTHER-EXPENSES> 29,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (577,346)
<INCOME-TAX> (219,000)
<INCOME-CONTINUING> 358,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 358,346
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
