<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, 1999
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 4,824,669
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> <C>
Item 1. Financial Statements
Balance sheets -
March 31, 1999 and December 31, 1999 3
Statements of Operations -
Three months ended March 31, 1999 and 1998 4
Statements of Stockholders Equity
Three months ended March 31, 1999 and 1998 5
Statements of Cash Flows -
Three months ended March 31, 1999 and 1998 6
Condensed notes to financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10-13
PART II. OTHER INFORMATION
SIGNATURES 13
</TABLE>
Page 2 of 12
<PAGE>
ON-SITE SOURCING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
1999 1998
ASSETS
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ - $ -
Accounts receivable, net 5,618,236 5,922,027
Prepaid supplies 522,438 449,366
Prepaid expenses 196,811 136,758
---------- ----------
Total current assets 6,337,485 6,508,151
Property and equipment, net 4,272,147 4,367,996
Other assets, net 47,389 75,062
---------- ----------
$ 10,657,021 $ 10,951,209
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 1,517,292 $ 2,018,248
Line of Credit 535,362 141,345
Accrued and other liabilities 562,748 694,334
Current portion of long-term debt 607,345 472,824
Provision for income taxes, current - -
---------- ----------
Total current liabilities 3,222,748 3,326,751
Long-term debt net of current portion 901,050 1,169,454
Deferred rent 121,911 121,911
Provision for Income taxes, net of current portion - -
Deferred taxes 197,182 197,182
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 shares authorized
4,824,669 and 4,824,669 shares issued and outstanding 48,247 48,247
Preferred stock,$.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding - -
Subscription receivable (50,400) (50,400)
Additional paid in capital 6,432,691 6,432,691
Treasury stock (5,000 shares of common stock at cost) (25,000) (25,000)
Accumulated Earnings (Deficit) (191,408) (269,627)
---------- ----------
6,214,130 6,135,911
---------- ----------
$ 10,657,021 $ 10,951,209
---------- ----------
</TABLE>
See notes to financial statements
Page 3 of 12
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Revenue $ 6,330,596 $ 5,746,815
Costs and expenses 4,935,789 4,985,664
--------- ---------
Cost of sales 1,394,807 761,151
--------- ---------
Selling expense 495,272 646,044
Administrative expense 799,713 744,812
--------- ---------
1,294,985 1,390,856
--------- ---------
Earnings from operations 99,822 (629,705)
Other income (expense)
Other income 23,682 81,811
Other expense (45,284) (29,452)
--------- ---------
(21,602) 52,359
--------- ---------
Earnings (Loss) before income taxes 78,220 (577,346)
Income tax (benefit)expense - (219,000)
--------- ---------
Net (Loss) Earnings $ 78,220 $ (358,346)
--------- ---------
Basic earnings (loss) per common share $ 0.02 $ (0.07)
Diluted earnings per share $ 0.02 $ N/A
</TABLE>
See notes to financial statements
Page 4 of 12
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
Additional Treasurey
Common Common Paid in Subscriptions Stock Retained
Shares Stock Capital Receivable (COMMON) Earnings Total
--------- ---------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 4,824,669 $ 48,247 $ 6,432,691 $ (50,400) $ (25,000) $ (269,627) $ 6,135,912
--------- ---------- ------------ ---------- ---------- ---------- ------------
Sale of common stock
Net Income - - - - 78,220 78,220
--------- ---------- ------------ ---------- ---------- ---------- ------------
Balance at
March 31, 1999 4,824,669 $ 48,247 $ 6,432,691 $ (50,400) $ (25,000) $ (191,407) $ 6,214,131
</TABLE>
<TABLE>
<CAPTION>
Additional Treasurey
Common Common Paid in Subscriptions Stock Retained
Shares Stock Capital Receivable (COMMON) Earnings Total
--------- ---------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at 4,802,221 $ 48,022 $ 6,367,379 $ (50,400) $ - $ 727,986 $ 7,092,987
December 31, 1998
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>
See notes to financial statements
Page 5 of 12
<PAGE>
ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 78,220 $ (358,346)
-------- --------
Adjustments to reconcile net earnings to net cash
(used in) provided by operations
Depreciation and amortization 296,067 226,175
Changes in assets and liabilities
(Increase) decrease in accounts receivable, net 303,791 (216,742)
(Increase) decrease in prepaid supplies (73,072) (44,132)
(Increase) decrease in prepaid expenses (60,053) 63,364
(Increase) decrease in other assets 27,673 4,766
Increase (decrease) in accounts payable - trade (500,956) (113,048)
Increase in accrued and other liabilities (131,586) (154,050)
Increase (decrease) in provison for income taxes -- (185,057)
Increase (decrease) in deferred taxes -- (33,943)
-------- --------
Total Adjustments (138,135) (452,667)
-------- --------
Net cash provided by (used in) operations (59,916) (811,013)
-------- --------
Cash flows from investing activities
Capital expenditures (200,218) (537,698)
-------- --------
Net cash used in investing activities (200,218) (537,698)
-------- --------
Cash flows from financing activities
Proceeds from sale of common stock and
exercise of warrants -- 59,986
Payments under long-term debt agreements
(133,883) (105,505)
Net borrowings (payments) under line of credit agreement 394,017 500,000
-------- --------
Net cash provided by financing activities 260,134 454,481
-------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 0 (894,230)
Cash and cash equivalents, beginning - 1,490,702
-------- --------
Cash and cash equivalents, ending $ 0 $ 596,472
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</TABLE>
See notes to financial statements
F-6
Page 6 of 12
<PAGE>
ON-SITE SOURCING, INC.
Condensed Notes to Financial Statements
(unaudited)
- --------------------------------------------------------------------------------
MARCH 31, 1999
- --------------------------------------------------------------------------------
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,
1999 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.
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.
Page 7 of 12
<PAGE>
ON-SITE SOURCING, INC.
Condensed Notes to Financial Statements--Continued
(unaudited)
- --------------------------------------------------------------------------------
MARCH 31, 1999
- --------------------------------------------------------------------------------
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 to 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, 1999 there were advances made
under the line of credit of $535,362
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, 1999 was $550,000
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%. During 1998 the Company financed additional equipment
purchases under similar terms. The balance of these notes at September 30,
1998 was approximately $505,287
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, 1999 and 1998, the Company
recorded the following transaction with an officer/shareholder:
Page 8 of 12
<PAGE>
During the three months ended March 31, 1998, the Company incurred
approximately $21,000, for legal services and recognized $6,400 in
revenue due to the officer/shareholder. There was no related
transactions for the three months ended March 31, 1999.
During the first quarter of 1999 the Company revalued options to its
original Underwriter, M.H. Meyerson & Co., Inc. The original
agreement included an option to purchase 96,000 Units (Units
consists of two shares of common stock and one common stock warrant)
at an exercise price of $10.00. The units are exercisable starting
July 9, 1997 for a period of four years. Under the new agreement the
options are exercisable at a price of $3.50. All other terms remain
unchanged.
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, 1999 was $50,400.
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 $1,400,000
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 September 30, was $50,400.
At September 30, 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 September 30, 1998 the options are fully vested.
The options expire in December 2000.
The Company has outstanding employee stock options for 1,449,465 shares of
common stock at exercise prices ranging from $1.11 to $3.50 per share. As of
March 31, 1999 772,271 of the shares are vested with the remainder scheduled
to vest through December 2003.
Page 9 of 12
<PAGE>
- --------------------------------------------------------------------------------
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.
THREE MONTHS ENDING MARCH 31, 1999 AND 1998
Revenue for the Three months ended March 31, 1999 increased 10% or $583,781 to
$6,330,596 over the comparable period in 1998. Principal reasons for the
increase are higher demand for the Company's reprographics, facilities
management, and imaging groups and revenue from the newly established
information technology group.
Cost of Sales for the three months ended March 31, 1999 decreased by 1% to
$4,935,789 or $49,875 from $4,985,664 for the same period in 1998. As a
percentage of sales, Cost of sales for the three months ended March 31, 1999
decreased by 9% to 78% compared to 87% for the same period in 1998. Operating
margins were 22% and 13%, respectively for the Nine months ended September 30,
1998 and 1997. The increase in margins was due to cost controls adopted by the
company.
Selling expense for the three months ended March 31, 1999 decreased by 23% to
$495,272 or $150,772 from $646,004 for the same period in 1998. As a percentage
of sales, Selling expense for the three months ended March 31, 1999 decreased by
3% to 8% compared to 11% for the same period in 1998. Selling expenses are
primarily commissions based on sales. The decrease was due to a change in
commission structures.
Page 10 of 12
<PAGE>
Administrative expense for the three months ended March 31, 1999 increased by
$54,901 to $799,713 over the same period last year due primarily to 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 periods in 1999 and 1998
NET EARNINGS (LOSS)
For the three months ended March 31, 1999 the Company incurred net earnings of
$78,220 as compared to a net loss of $358,346 for the same period last year. The
earnings amounted to $ 0.02 for basic and diluted earnings per share compared to
loss of ($ 0.07) for the same period last year. Weighted average shares
outstanding for the Three months ended March 31, 1999 were 4,824,669 and
4,794,021 for March 31, 1998. As of December 31, 1998 the company had a tax Net
Operating Loss Carryforward (NOL) in the amount of $300,000. As of March 31,
1999 the company used $78,220 of the NOL . The balance will be used against
subsequent earnings.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 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 September 30, 1998 there were advances under the line that totaled
$1,061,000. 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, 1999 was $535,362
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes its market risk exposure with regard to its financial
instruments is limited to changes in interest rates. Based upon the
composition of the Company's variable rate debt outstanding at December 31,
1997 which is primarily borrowings under the working capital line of credit,
the Company does not believe that a hypothetical increase in the bank's prime
rate of interest or the 30 day LIBOR rate would be material to net income.
YEAR 2000
The Company is aware of the issues associated with the programming code in
existing computer systems as the Year 2000 approaches. Management is in the
process of converting its computer systems. Maintenance or modification costs
will be expensed as incurred, while the costs associated with new computer
systems will be capitalized and amortized over the systems useful lives.
Management believes that with converting to new computer systems, the Year 2000
issue will not pose a significant operational problem.
Page 11 of 12
<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: April 15, 1999
By:
--------------------------------------
/s/ Christopher J. Weiler
President and
Chief Executive Officer
By:
--------------------------------------
/s/ Alfred Duncan
Vice President of Finance and
Chief Financial Officer
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 5,618,236
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,337,485
<PP&E> 4,272,147
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,657,021
<CURRENT-LIABILITIES> 3,222,748
<BONDS> 0
0
0
<COMMON> 48,247
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,657,021
<SALES> 6,330,596
<TOTAL-REVENUES> 6,330,569
<CGS> 1,394,807
<TOTAL-COSTS> 2,689,792
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,602
<INCOME-PRETAX> 78,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 78,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,220
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
