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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File No. 0-20947
ON-SITE SOURCING, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 54 -1648470
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
1111 North 19th Street, Sixth Floor, Arlington, Virginia 22209
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(Address of principal executive offices)
(703) 276-1123
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(Registrant's telephone number)
NONE
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(Former name, former address and former fiscal year, if changed since
last report)
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 April 30, 2000:
Common Stock, $.01 par value 4,930,740 shares
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ON-SITE SOURCING, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999 3
Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 (unaudited) 4
Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (unaudited) 5
Notes to Financial Statements - March 31, 2000 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Liquidity 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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ON-SITE SOURCING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
2000 1999
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 22,832 $ 22,682
Accounts receivable, net 9,582,792 6,462,624
Prepaid supplies 481,946 502,361
Prepaid expenses 254,562 162,484
Notes receivable, current portion 41,941 41,941
------------ ------------
Total current assets 10,384,073 7,192,092
Property and equipment, net 4,555,218 4,104,106
OTHER ASSETS
Notes receivable, net of current portion 257,709 270,000
Other assets, net 63,525 82,931
------------ ------------
$ 15,260,525 $ 11,649,129
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 2,050,017 $ 1,808,633
Line of Credit 1,827,488 469,475
Accrued and other liabilities 1,091,222 806,858
Current portion of long-term debt 604,618 571,707
Provision for income taxes, current 690,577 38,573
------------ ------------
Total current liabilities 6,342,678 3,695,246
Long-term debt net of current portion 444,290 528,687
Deferred rent 148,568 133,568
Provision for Income taxes, net of current portion -- --
Deferred taxes 347,609 347,609
Commitments and contingencies -- --
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 20,000,000 shares authorized
4,900,740 and 4,851,669 shares issued and outstanding 49,007 48,517
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding -- --
Subscription receivable (50,400) (50,400)
Additional paid in capital 6,596,627 6,469,921
Treasury stock (19,300 shares of common stock at cost) (44,331) (44,331)
Accumulated Earnings (Deficit) 1,505,233 520,312
------------ ------------
8,056,136 6,944,019
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$ 15,260,525 $ 11,649,129
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ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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ON-SITE SOURCING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
March 31, March 31,
2000 1999
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<S> <C> <C>
Revenue $ 9,772,365 $ 6,330,596
Costs and expenses
Cost of sales 5,999,605 4,935,789
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----------- -----------
3,772,760 1,394,807
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Selling expense 910,230 495,272
Administrative expense 1,080,301 799,713
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1,990,531 1,294,985
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Earnings from operations 1,782,229 99,822
Other income 2,335 23,682
Other expense (147,644) (45,284)
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(145,309) (21,602)
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Earnings before income taxes 1,636,920 78,220
Income tax expense 652,000 --
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Net Earnings $ 984,920 $ 78,220
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Basic earnings per common share $ 0.20 $ 0.02
Diluted earnings per share $ 0.19 $ 0.02
Weighted average shares outstanding
Basic 4,881,440 4,819,669
Diluted 5,262,309 4,895,299
</TABLE>
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
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ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 984,920 $ 78,220
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Adjustments to reconcile net earnings to net cash
(used in) provided by operations
Depreciation and amortization 302,492 296,067
Loss (gain) on disposition of equipment -- --
Changes in assets and liabilities
(Increase) decrease in accounts receivable, net (3,120,168) 303,791
(Increase) decrease in prepaid supplies 20,415 (73,072)
(Increase) decrease in prepaid expenses (92,078) (60,053)
(Increase) decrease in other assets 19,406 27,673
Increase (decrease) in accounts payable - trade 241,384 (500,956)
Increase in accrued and other liabilities 284,364 (131,586)
Increase (decrease) in deferred rent 15,000 --
Increase (decrease) in provison for income taxes 652,004 --
Increase (decrease) in deferred taxes -- --
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Total Adjustments (1,677,181) (138,136)
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Net cash provided by (used in) operations (692,261) (59,916)
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Cash flows from investing activities
Capital expenditures (742,076) (200,218)
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Net cash used in investing activities (742,076) (200,218)
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Cash flows from financing activities
Proceeds from sale of common stock and 127,960
exercise of warrants
Proceeds of long-term debt agreements
Payments under long-term debt agreements (51,486) (133,883)
Net borrowings (payments) under line of credit agreement 1,358,013 394,017
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Net cash provided by financing activities 1,434,487 260,134
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NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 150 --
Cash and cash equivalents, beginning 22,682 --
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Cash and cash equivalents, ending $ 22,832 $ --
============ =============
</TABLE>
ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION
NATURE OF BUSINESS
On-Site Sourcing, Inc. (the "Company") was incorporated in Virginia on December
1992 and changed its state incorporation to Delaware in January 1996. The
Company provides digital imaging, document management, litigation reprographics,
color printing services and facilities management to law firms, corporations,
non-profit organizations, accounting firms, financial institutions and other
organizations throughout the East Coast of the United States. The facilities
management and litigation copying services are performed in the metropolitan
areas of Philadelphia, Pennsylvania; Washington, D.C.; Atlanta, Georgia; and New
York, New York.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Management estimates include the allowance for doubtful accounts on accounts
receivable. Actual results could differ from those estimates. Significant
estimates are made when accounting for the allowance for uncollectible accounts
in connection with accounts receivable.
REVENUE RECOGNITION
Revenue from reprographic services is recognized on a per copy basis upon
completion of the services. Facilities management revenue is recognized based on
monthly fixed fees and, in certain cases, on a variable per copy fee basis, as
defined in facilities management agreements.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation on property and
equipment is computed on a straight-line basis over the estimated useful lives
of the assets ranging from two to fifteen years for financial reporting
purposes. Accelerated methods are used for tax purposes.
Effective January 1, 1999, the Company increased its estimate of the useful life
of certain equipment from five to fifteen years. The change resulted in an
increase of net earnings of $174,570 or $0.04 per share for the year ended
December 31, 1999.
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ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share exclude dilution and are calculated using the
average number of shares outstanding. Diluted earnings (loss) per share is
computed on the basis of the average number of shares outstanding plus the
effect of outstanding stock options using the "treasury stock" method.
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
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<S> <C> <C>
Net earnings (loss) available for common shareholders (A) $ 984,920 $ 78,220
Average outstanding:
Common stock (B) 4,881,440 4,819,669
Employee stock options 380,869 75,630
Common stock and common stock equivalents (C) 5,262,309 4,895,299
Earnings (loss) per share:
Basic (A/B) $ .20 $ .02
Diluted (A/C) $ .19 $ .02
</TABLE>
Unexercised employee stock options to purchase 85,000 and 1,132,665 shares of
the Company's common stock as of March 31, 2000 and 1999, respectively, were not
included in the computations of diluted earnings per share because the options'
exercise prices were greater than the average market price of the Company's
common stock during the respective period.
3. SALE OF INFORMATION TECHNOLOGY DIVISION
On September 30, 1999, the Company entered into a purchase and sale agreement
with a former stockholder and employee to sell the rights and contracts to
provide certain information technology services to customers previously serviced
by the Company's Information Technology Division. The sale price of $270,000 is
financed by a note agreement between the Company and the former shareholder. The
note accrues interest at 8% per annum, is payable in interest-only installments
through September 2000 and in principal and interest installments until maturity
in September 2002. At March 31, 2000, $270,000 remains payable to the Company.
In connection with the sale, the Company entered into an additional note
agreement with the former shareholder in the amount of $50,000. The note accrues
interest at 8% per annum and
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is payable in monthly principal and interest installments until maturity in
September 2000. At March 31, 2000, $29,650 remains payable to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING DISCLOSURE
Certain information included herein contains statements that are
forward-looking, such as statements relating to plans for future expansion and
other business development activities as well as operating costs, capital
spending, financial sources and the effects of competition. Such forward-looking
information is subject to changes and variations which are not reasonably
predictable and which could significantly affect future results. Accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These changes and variations which could
significantly affect future results include, but are not limited to, those
relating to the adequacy of operating and management controls, operating in a
competitive environment and a changing environment, including new technology and
processes, existing and future vendor relationships, the Company's ability to
access capital and its debt service requirements, dependence on existing
management, general economic conditions, and changes in federal or state laws or
regulations.
GENERAL
On-Site Sourcing, Inc. ("On-Site", "Company", "We" or "Us") provides digital
imaging, document management, litigation reprographics, color printing services
and facilities management 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, we offer a variety of customized reprographic and
facilities management services. We provide 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. We also provide on-premises
management of customers' support services including mailroom operations,
facsimile transmission, records, and supply room management and copying
services.
On-Site Sourcing, Inc. was founded in 1992 and currently serves the greater
Washington, Baltimore, Philadelphia, New York City and Atlanta metropolitan
areas through outsourcing locations in Arlington, Virginia; Baltimore, Maryland;
Philadelphia, Pennsylvania; New York, New York; and Atlanta, Georgia.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared With Three Months Ended
March 31, 1999
Revenue for the three months ended March 31, 2000 increased by 54% or $3,441,769
to $9,772,365 over the comparable period in 1999. The increase in revenue was
primarily attributable to growth in the volume of services provided by our
Imaging Services Division. The
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increase in volume was primarily attributable to increased capacity permitted by
recent investments in imaging equipment and the hiring of specialized personnel.
As a percentage of sales, Cost of Sales for the three months ended March 31,
2000 decreased to 61% from 78% over the comparable period. The primary factors
that contributed to the decrease in Cost of Sales were the sale of the
Information Technology Division and the growth of the Imaging Services Division.
The Information Technology Division, for the three months ended March 1999,
recorded revenues and costs of $193,200 and $327,700 respectively. The
Information Technology Division was sold on September 30, 1999 and thus had
no impact on current earnings. The Imaging Services Division recorded
revenues of approximately $3,000,000 for the three months ended March 31,
1999. Gross margins associated with imaging revenue are generally higher
than that of our reprographics and facilities management division.
As a percentage of sales, Selling Expenses for the three months ended March 31,
2000 increased to 9% from 8% over the comparable period. The increase is a
result of expansion of our sales force.
Administrative Expense for the three months ended March 31, 2000 increased
$280,588 to $1,080,301. The increase was primarily the result of increased
employment costs resulting from the hiring of specialized personnel and
depreciation related to newly acquired computer networking equipment. Increases
in costs of business insurance and public relations fees also contributed to the
increase.
Other Expense for the three months ended March 31, 2000 increased $102,360 to
$147,644. During March 2000 the company relocated its Atlanta, Georgia facility
to a less expensive facility within Atlanta, Georgia. As a result, certain
leasehold improvements were written off.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our expansion and growth by utilizing internally generated cash
flow, long term financing, and a commercial line of credit. We anticipate that
the cash flow from operations and credit facilities will be sufficient to meet
the expected cash requirements for the next twelve months. There can be no
assurances that unforeseen events may not require more working capital than we
have at our disposal.
In order to assure additional working capital is available to us to fund our
growth and expansion, we had available a $2,500,000 working capital line of
credit as of March 31, 2000. During April 2000, the line was increased to
$5,000,000. The working capital line of credit bears interest at the bank's
prime rate of interest or the 30-day LIBOR rate plus 2.25%. The line of credit,
which expires April 30, 2001, is subject to certain financial covenants; the
most significant requires the company maintain a minimum net worth of $6,000,000
At March 31, 2000 net advances totaling $1,528,000 were made under this
agreement.
In addition, we have obtained financing for certain equipment and vehicles. The
notes are secured by the equipment and vehicles, at rates ranging from 5% to
9.7% and mature at various times between 2000 and 2003.
Current liabilities increased by $2,647,432 to $6,342,678 over the comparable
period in 1999.
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The principal increase was due to increase in advances under the line of credit
and an increase in current income taxes payable. The increase in line of credit
was due to increased capital expenditures related to computer equipment for our
Imaging Services Division and our Wide Area Network. Income tax payable
increased in relation to the increase in earnings. Estimated tax payments for
the first quarter of 2000, totaling $641,000 were made on April 15, 2000.
Accounts Receivable also increased by $3,120,168 to $9,582,792. This increase is
in direct relation to the increase in sales of $3,441,769 from the three months
ended 1999 to 2000.
On December 8, 1999 the Company announced that its Board of Directors has
authorized the Company to repurchase up to 500,000 shares of its common stock.
As of March 31, 2000 the Company repurchased 14,300 shares of our common stock
at a cost of $19,330. The shares were repurchased on the open market and will be
held for future initiatives.
On April 12, 2000, we purchased certain assets and assumed certain note and
lease obligations of an offset printing and pre-press services company. The
total purchase price was less than $1 million and will result in recording
goodwill in the amount of $309,000 to be amortized over a period of ten years.
The acquisition was funded through cash from current operations and our credit
facility.
YEAR 2000 ISSUE
We successfully completed our program to ensure Year 2000 readiness. As a
result, we had no Year 2000 problems that affected our business, results of
operations or financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe our market risk exposure with regard to our financial instruments is
limited to changes in interest rates. Based upon the composition of our variable
rate debt outstanding at December 31, 1999 which is primarily borrowings under
the working capital line of credit, we do 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS
(A) EXHIBITS
27. Financial Data Schedule
(Submitted electronically for SEC information only)
(B) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the three months
ended March 31, 2000.
Item 3 is not applicable and has been omitted.
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SIGNATURE
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 thereunto duly authorized.
ON-SITE SOURCING, INC.
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(Registrant)
May ___, 2000 /s/ Jason Parikh
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Date Jason Parikh
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001012141
<NAME> ON-SITE SOURCING INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,932
<SECURITIES> 0
<RECEIVABLES> 9,624,733
<ALLOWANCES> 0
<INVENTORY> 481,946
<CURRENT-ASSETS> 10,384,073
<PP&E> 4,555,218
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,260,525
<CURRENT-LIABILITIES> 6,342,678
<BONDS> 0
0
0
<COMMON> 49,0007
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,260,525
<SALES> 9,772,365
<TOTAL-REVENUES> 9,772,365
<CGS> 599,605
<TOTAL-COSTS> 7,990,136
<OTHER-EXPENSES> 145,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,636,920
<INCOME-TAX> 652,000
<INCOME-CONTINUING> 984,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 984,920
<EPS-BASIC> .20
<EPS-DILUTED> .19
</TABLE>
