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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 September 30, 2000
Commission File No. 0-20947
ON-SITE SOURCING, INC.
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(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 November 14, 2000:
Common Stock, $.01 par value 4,954,715 shares
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ON-SITE SOURCING, INC.
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 3
Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 (unaudited) 4
Statements of Cash Flows for the Three and Nine
Months Ended September 30, 2000 and 1999 (unaudited) 5
Notes to Financial Statements - September 30, 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
</TABLE>
2
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ON-SITE SOURCING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
Sept 30, December 31,
2000 1999
ASSETS
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,912 $ 22,682
Accounts receivables, net 9,199,756 6,462,624
Prepaid supplies 631,111 502,361
Prepaid expenses 752,256 162,484
Notes recievable, current portion 140,445 41,941
------------ ------------
Total current assets 10,726,481 7,192,092
Property and equipment, net 6,230,950 4,104,106
OTHER ASSETS
Notes receivable, net of current portion 133,875 270,000
Goodwill, net 1,033,196 --
Other assets, net 640,660 82,931
------------ ------------
$ 18,765,162 $ 11,649,129
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 1,978,609 $ 1,808,633
Line of Credit 4,320,512 469,475
Accrued and other liabilities 963,582 806,858
Current portion of long-term debt 1,251,581 571,707
Provision for income taxes, current -- 38,573
------------ ------------
Total current liabilities 8,514,284 3,695,246
Long-term debt net of current portion 1,478,195 528,687
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
4,954,715 and 4,851,669 shares issued and outstanding 49,547 48,517
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares ssued and outstanding -- --
Subscription receivable (50,400) (50,400)
Additional paid in capital 6,672,831 6,469,921
Treasure stock (113,590 and 25,590 shares of common stock at cost) (396,152) (44,331)
Accounting Earnings (Deficit) 1,991,680 520,312
------------ ------------
8,267,506 6,944,019
------------ ------------
$ 18,765,162 $ 11,649,129
------------ ------------
</TABLE>
See notes to financial statements
3
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ON-SITE SOURCING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 7,967,584 $ 6,355,283 $ 26,421,069 $ 19,277,240
Costs and expenses
Cost of sales 6,030,322 4,709,173 17,672,576 14,601,679
------------ ------------ ------------ ------------
1,937,262 1,646, 110 8,748,493 4,675,561
------------ ------------ ------------ ------------
Selling expense 625,892 647,113 2,671,217 1,716,918
Administrative expense 1,132,396 1,074,960 3,318,815 2,786,324
------------ ------------ ------------ ------------
1,758,288 1,722,073 5,990,032 4,503,242
------------ ------------ ------------ ------------
Earnings from operations 178,974 (75,963) 2,758,461 172,319
Other income (expense)
Other income 9,503 690 16,142 67,872
Other expense (122,871) (84,271) (331,237) (176,298)
------------ ------------ ------------ ------------
(113,368) (83,581) (315,095) (108,526)
------------ ------------ ------------ ------------
Earnings (Loss) before income taxes 65,606 (159,544) 2,443,366 63,893
Income tax (benefit) expense 25,198 -- 971,998 --
------------ ------------ ------------ ------------
Net (Loss) Earnings $ 40,408 (159,544) $ 1,471,368 $ 63,893
------------ ------------ ------------ ------------
Basic earnings (loss) per common share $ 0.01 $ (0.03) $ 0.30 $ 0.01
Basic shares Outstanding 4,841,125 4,846,669 4,846,558 4,837,669
Diluted earnings per share $ 0.01 $ (0.03) $ 0.27 $ 0.01
Diluted Shares Outstanding 5,307,337 4,900,814 5,381,585 4,925,806
</TABLE>
See notes to financial statements
4
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STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
Sept 30, Sept 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows operating activities
Net earnings (loss) $ 1,471,368 $ 63,893 $ 40,408 $ (159,544)
----------- ----------- ----------- -----------
Adjustments to reconcile net earnigns to net chash
(used in) provided by operations
Depreciation and amortization 1,054,346 779,738 415,307 267,531
Loss (gain) on disposition of equipment
Charges in assets and liabilities
(Increase) decrease in accounts receivable, net (2,737,133) 332,507 1,359,698 598,639
(Increase) decrease in prepaid supplies (128,750) (81,229) (83,635) 9,555
(Increase) decrease in prepaid expenses (589,772) (204,977) (149,497) (60,980)
(Increase) decrease in notes receivable 37,621 45,194 12,793 27,631
(Increase) decrease in other assets (1,598,747) (432,715) (1,292,991) (277,284)
Increase (decrease) in accoutns payable - trade 169,976 1,067 (520) 266,850
Increase in accrued and other liabilities 156,724 -- 68,049 --
Increase (decrease) in deferred rent 15,000 -- -- --
Increase (decrease) in provisions for income taxes (38,573) -- (38,573) --
Increase (decrease) in deferred taxes -- -- -- --
----------- ----------- ----------- -----------
Total adjustments (3,659,308) 439,585 290,631 831,942
----------- ----------- ----------- -----------
Net cash provided by (used in) operations (2,187,940) 503,477 331,039 672,397
----------- ----------- ----------- -----------
Cash flows from investing activities
Capital expenditures (3,173,369) (413,438) (1,326,920) (27,520)
----------- ----------- ----------- -----------
Net cash used in investing activities (3,173,369) (413,438) (1,326,920) (27,520)
----------- ----------- ----------- -----------
Cash flows from financing activities
Proceeds from sale of common stock 203,940 37,500 23,946 --
Payments for reacquisition of common stock (351,821)
Proceeds of long-term debt agreements 2,242,663 -- 862,266 --
Payments of long-term debt agreements (604,280) (406,344) (287,214) (137,027)
Net borrowings (payments) under line of credit agreement 3,851,037 278,805 396,896 (507,850)
----------- ----------- ----------- -----------
Net cash provided by financing activities 5,341,539 (90,039) 995,894 (644,877)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (19,770) -- 13 --
Cash and cash equivalents, beginning 22,682 -- 2,899 --
----------- ----------- ----------- -----------
Cash and cash equivalents, ending $ 2,912 $ -- $ 2,912 $ --
----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements
5
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ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 & digital 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 and imaging services is recognized on a per copy
or document 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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GOODWILL
In connection with the two acquisitions the company made in the first nine
months of this year, Goodwill in the amount of $1,050,739 was recorded and
will be amortized over a period of 10 years.
7
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ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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>
Nine months ended September 30,
2000 1999
----------------------------------
<S> <C> <C>
Net earnings (loss) available for common shareholders (A) $1,471,368 $63,793
Average outstanding:
Common stock (B) 4,846,558 4,837,669
Employee stock options 535,027 88,137
Common stock and common stock equivalents (C) 5,381,585 4,925,806
Earnings (loss) per share:
Basic (A/B) $ 0.30 $ 0.01
Diluted (A/C) $ 0.27 $ 0.01
</TABLE>
Unexercised employee stock options to purchase 204,750 and 1,005,387 shares of
the Company's common stock as of September 30, 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 October 2000 and in principal
and interest installments until maturity in September 2002. At September
30, 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 is payable in monthly principal and
interest installments until maturity in October 2000. At September 30,
2000, $4,320 remains payable to the Company.
8
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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 meet 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 & digital 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 has locations in
Virginia, Maryland, Pennsylvania, New York and Georgia.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1999
Revenue for the three months ended September 30, 2000 increased by 25% or
$1,612,301 to $7,967,584 over the comparable period in 1999. Revenue for the
nine months ended September 30, 2000 increased by 37% or $7,143,829 to
$26,421,069 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 increase in volume was primarily attributable to
increased capacity permitted by recent investments in imaging equipment and the
hiring of specialized personnel.
9
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As a percentage of sales, Cost of Sales for the three months ended September 30,
2000 increased to 76% from 74% over the comparable period. This is due to an
increase in equipment and personal, primarily in our Imaging Services Division.
During the year 2000 the company has invested heavily in imaging technology and
personal. The company has also expanded its imaging operations to New York and
Georgia. Cost of Sales for the nine months ended September 30, 2000 decreased to
67% from 76% over the comparable period. The primary factors that contributed to
the decrease in Cost of Sales were the sale of the Information Technology
Division (which had high cost of sales relative to revenue) and the growth of
the Imaging Services Division (which has a lower cost of sales relative to
revenue).
The Information Technology Division, for the three months ended September 30
1999, recorded revenues and costs of $151,329 and $190,599 respectively.
Revenues and costs for the Information Technology Division for the nine months
ended September 30, 1999 were $952,748 and $1,139,698 respectively. The
Information Technology Division was sold on September 30, 1999 and thus had no
impact on earnings in the three and Nine months ended September 30, 2000.
The Imaging Services Division recorded revenues of $1,880,068 for the three
months ended September 30, 2000 compared to $373,247 for the three months ended
September 30, 1999. Revenues for the Nine months ended September 30, 2000 were
$7,291,947 compared to $1,178,861 for the comparable period in 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 September
30, 2000 decreased to 8% from 10% over the comparable period in 1999. The
decrease is a result of an increase in "house" account sales on which no
commissions are paid. Selling Expenses for the nine months ended September 30,
2000 increased to 10% from 9% over the comparable period in 1999. The increase
is a result of expansion of our sales force. Selling expense is primarily
commissions, entertainment, and marketing expenses.
Administrative Expense for the three months ended September 30, 2000 increased
$57,436 to $1,132,396. Administrative Expense for the nine months ended
September 30, 2000 increased $532,491 to $3,318,815. The increase was primarily
the result of increased employment costs resulting from the hiring of
specialized personnel and also depreciation related to newly acquired computer
networking equipment.
Other Income for the three months ended September 30, 2000 increased by $8,813
to $9,503 over the comparable periods in 1999. The increase is a result of
writing off certain miscellaneous accounts payable. Other income for the nine
months ended September 30, 2000 decreased by $51,370. The decrease is primarily
a result of a gain on a sale of an asset and the receipt of insurance proceeds
in 1999 on amounts previously written off.
Other expense for the three and nine months ended September 30, 2000
increased by $38,600 and $154,839 respectively, over the comparable periods
in 1999. Other expense normally consists primarily of interest expense. The
increase, reported over the three months ended September 30, 2000 is due to
interest costs associated with the increase in the line of credit. The
increase reported over the nine months ended September 30, 2000 is primarily
due to the company relocating its Atlanta, Georgia facility to a less
expensive facility within Atlanta, Georgia. As a result, certain leasehold
improvements were written off.
10
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Income tax expense increased for the three and nine months ended September
30, 2000, by $25,198 and $971,998 respectively, over the comparable periods
in 1999. The company did not record income tax expense for the three and nine
months ended September 30, 1999, due to a Net Operating Loss carry-forward.
There was no Net Operating Loss carry-forward applicable for fiscal year 2000.
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 $5,000,000 working capital line of
credit as of September 30, 2000. 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 to maintain a
minimum net worth of $6,000,000. At September 30, 2000 net advances totaling
$4,320,512 were made under this agreement and net worth was at 8,267,506.
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 12%
and mature at various times between 2000 and 2005. During the Nine months ended
September 30, 2000 the Company obtained additional financing at comparable
terms, for certain equipment and acquisitions in the amount of $2,42,662.
Current liabilities increased by $5,429,813 to $8,514,284 compared to December
31, 1999. The principal reason for the increase was an increase in advances
under the line of credit and an increase in the current portion of long term
debt. The increase in line of credit was due to: additional cash requirements
associated with revenue growth; stock repurchase program ($351,000); our April
acquisition of an offset printing and pre-press services company ($378,000); our
September Acquisition of a digital printing company ($275,000); and cost related
to due diligence on our pending acquisition with U.S. Technologies Inc.
($250,000). See Item 5
On September 5th, 2000, the company purchased certain assets and assumed certain
lease obligations of a digital printing company. The total purchase price was
less than $1 million and will result in recording goodwill in the amount of
$738,000 to be amortized over a period of ten years. The acquisition was funded
through cash from current operations and our credit facility.
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
11
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September 30, 2000 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.
12
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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
On September 27, 2000 the Company entered into an definitive merger agreement
to be acquired by US Technologies for US Technologies common stock and cash.
Under the terms of the agreement, On-Site stockholders can elect to receive
U.S. Technologies' stock, cash, or a combination of stock and cash subject to
pro-ration due to the cash limitation and adjustment formula. The maximum
cash available to shareholders is set at $12 million. On-Site's publicly
traded warrants to buy shares at $6.00 will be converted to U.S.
Technologies' warrants utilizing the same adjustment formula for common
stock. The expiration date of the warrants will be extended for a period of
one year.
The transaction is subject to completion usual conditions including shareholder
approvals and SEC registration of the securities to be issued in the merger, and
adoption of U.S. Technologies' already announced charter amendment to increase
the common shares it is authorized to issue. Additional information regarding
the transaction is set forth in our Report on Form 8-K filed October 2000.
ITEM 6. EXHIBITS AND REPORTS
(A) EXHIBITS
2 Agreement in Principle, dated July 28, 2000, between U.S. Technologies,
Inc. and On-Site Sourcing, Inc. (incorporated by reference to U.S.
Technologies report on Form 8-K filed August 2, 2000, file no. 000-15960)
27. Financial Data Schedule (Submitted electronically for SEC information only)
(B) REPORTS ON FORM 8-K
The Company filed Form 8-K on October 2, 2000.
13
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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.
-----------------------------------------
(Registrant)
November 14, 2000 /s/ Jason Parikh
---------------------------------- -----------------------------------------
Date Jason Parikh
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
14
