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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 June 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
(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 issuers classes of
common stock, as of August 14, 2000:
Common Stock, $.01 par value 4,936,990 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 June 30, 2000 (unaudited)
and December 31, 1999 3
Statements of Operations for the Three and Six
Months Ended June 30, 2000 and 1999 (unaudited) 4
Statements of Cash Flows for the Three and Six Months Ended June
30, 2000 and 1999 (unaudited) 5
Notes to Financial Statements June 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>
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ON-SITE SOURCING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,899 $ 22,682
Accounts receivable, net 10,559,453 6,462,624
Prepaid supplies 547,476 502,361
Prepaid expenses 602,759 162,484
Notes receivable, current portion 102,372 41,941
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Total current assets 11,814,960 7,192,092
Property and equipment, net 5,311,516 4,104,106
OTHER ASSETS
Notes receivable, net of current portion 184,740 270,000
Goodwill, net 305,036 -
Other assets, net 83,650 82,931
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$ 17,699,902 $ 11,649,129
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 1,979,129 $ 1,808,633
Line of Credit 3,923,616 469,475
Accrued and other liabilities 895,533 806,858
Current portion of long-term debt 1,041,856 571,707
Provision for income taxes, current 38,573 38,573
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Total current liabilities 7,878,707 3,695,246
Long-term debt net of current portion 1,121,868 528,687
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, $.01 par value, 20,000,000 shares authorized
4,936,990 and 4,851,669 shares issued and outstanding 49,370 48,517
Preferred stock,$.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding - -
Subscription receivable (50,400) (50,400)
Additional paid in capital 6,649,062 6,469,921
Treasury stock (113,590 and 25,590 shares of common stock at
cost (396,152) (44,331)
Accumulated Earnings (Deficit) 1,951,270 520,312
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8,203,150 6,944,019
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$ 17,699,902 $ 11,649,129
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</TABLE>
Accompanying notes are an integral part of these financial statements
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ON-SITE SOURCING, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Six Months Ended
------------------------------------ -------------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 8,681,120 $ 6,591,361 $ 18,453,485 $ 12,921,957
Costs and expenses
Cost of sales 5,793,342 4,956,717 11,642,254 9,892,506
------------ ----------- ------------ ------------
2,887,778 1,634,644 6,811,231 3,029,451
------------ ----------- ------------ ------------
Selling expense 984,402 574,533 2,045,325 1,069,805
Administrative expense 1,106,118 911,651 2,186,419 1,711,364
------------ ----------- ------------ ------------
2,090,520 1,486,183 4,231,744 2,781,168
------------ ----------- ------------ ------------
Earnings from operations 797,258 148,461 2,579,487 248,283
Other income (expense)
Other income 4,304 43,500 6,639 67,182
Other expense (60,722) (46,743) (208,366) (92,027)
------------ ----------- ------------ ------------
(56,418) (3,243) (201,727) (24,845)
------------ ----------- ------------ ------------
Earnings (Loss) before income taxes 740,840 145,218 2,377,760 223,438
Income tax (benefit)expense 294,800 946,800 -
------------ ----------- ------------ ------------
Net (Loss) Earnings $ 446,040 $ 145,218 $ 1,430,960 $ 223,438
------------ ----------- ------------ ------------
Basic earnings (loss) per common share $ 0.09 $ 0.03 $ 0.30 $ 0.05
Diluted earnings per share $ 0.08 $ 0.03 $ 0.26 $ 0.05
</TABLE>
Accompanying notes are an integral part of these financial statements
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ON-SITE SOURCING, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 446,040 $ 145,218 $ 1,430,960 $ 223,438
------------ ----------- ------------ ------------
Adjustments to reconcile net earnings to net cash
(used in) provided by operations
Depreciation and amortization 344,241 216,140 646,851 512,207
Loss (gain) on disposition of equipment - -
Changes in assets and liabilities
(Increase) decrease in accounts receivable, net (976,662) (707,124) (4,096,833) (266,130)
(Increase) decrease in prepaid supplies (65,530) (17,712) (45,115) (90,785)
(Increase) decrease in prepaid expenses (348,197) (83,944) (440,275) (143,997)
(Increase) decrease in notes receivable 12,538 24,829 -
(Increase) decrease in other assets (332,975) 127,090 (313,567) 17,563
Increase (decrease) in accounts payable - trade (70,887) 345,526 170,496 (155,431)
Increase in accrued and other liabilities (195,689) (134,197) 88,675 (265,783)
Increase (decrease) in deferred rent - - 15,000 -
Increase (decrease) in provison for income taxes (652,004) - - -
Increase (decrease) in deferred taxes - - - -
------------ ----------- ------------ ------------
Total Adjustments (2,285,166) (254,221) (3,949,939) (392,356)
------------ ----------- ------------ ------------
Net cash provided by (used in) operations (1,839,126) (109,004) (2,518,979) (168,919)
------------ ----------- ------------ ------------
Cash flows from investing activities
Capital expenditures (1,092,729) (185,700) (1,846,448) (385,919)
------------ ----------- ------------ ------------
Net cash used in investing activities (1,092,729) (185,700) (1,846,448) (385,919)
------------ ----------- ------------ ------------
Cash flows from financing activities
Proceeds from sale of common stock 52,798 37,500 179,994 37,500
Payments for reacquisition of common stock (351,821) (351,821)
Proceeds of long-term debt agreements 1,355,294 1,447,253
Payments under long-term debt agreements (240,477) (135,434) (383,923) (269,317)
Net borrowings (payments) under line of
credit agreement 2,096,128 392,638 3,454,141 786,655
------------ ----------- ------------ ------------
Net cash provided by financing activities 2,911,922 294,704 4,345,644 554,838
------------ ----------- ------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (19,933) - (19,783) 0
Cash and cash equivalents, beginning 22,832 - 22,682 -
------------ ----------- ------------ ------------
Cash and cash equivalents, ending $ 2,899 $ - $ 2,899 $ 0
------------ ----------- ------------ ------------
</TABLE>
Accompanying notes are an integral part of these financial statements
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ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 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 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.
GOODWILL
In connection with the acquisition of an offset printing and prepress
company, the company recorded Goodwill in the amount of $309,000 which
is to be amortized over a period of 10 years.
6
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ON-SITE SOURCING, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 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>
Six months ended June 30,
2000 1999
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<S> <C> <C>
Net earnings (loss) available for common shareholders $1,430,960 $ 223,438
Average outstanding:
Common Stock (B) 4,842,125 4,833,169
Employee stock options 620,047 105,133
Common stock and common stock equivalents (C) 5,462,172 4,938,302
Earnings (loss) per share:
Basic (A/B) $ 0.30 $ 0.05
Diluted (A/C) $ 0.26 $ 0.05
</TABLE>
Unexercised employee stock options to purchase 87,000 and 731,837 shares of the
Company's common stock as of June 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 September 2000 and in
principal and interest installments until maturity in September 2002. At
June 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 September 2000. At June 30, 2000,
$17,111 remains payable to the Company.
7
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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 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 and Six Months Ended June 30, 2000 Compared With Three and Six Months
Ended June 30, 1999
Revenue for the three months ended June 30, 2000 increased by 32% or $2,089,759
to $8,681,120 over the comparable period in 1999. Revenue for the six months
ended June 30, 2000 increased by 43% or $5,531,528 to $18,453,485 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.
8
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As a percentage of sales, Cost of Sales for the three months ended June 30, 2000
decreased to 65% from 75% over the comparable period. Cost of Sales for the six
months ended June 30, 2000 decreased to 63% from 77% 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 June 30 1999,
recorded revenues and costs of $608,215 and $621,353 respectively. Revenues and
costs for the Information Technology Division for the six months ended June 30,
2000 were $801,418 and $949,099 respectively. The Information Technology
Division was sold on September 30, 1999 and thus had no impact on earnings in
the three and six months ended June 30, 2000.
The Imaging Services Division recorded revenues of $2,434,142 for the three
months ended June 30, 2000 compared to $505,228 for the three months ended June
30, 1999. Revenues for the six months ended June 30, 2000 were $5,411,879
compared to $805,613 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 June 30,
2000 increased to 11% from 9% over the comparable period in 1999. Selling
Expenses for the six months ended June 30, 2000 increased to 11% from 8% 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 June 30, 2000 increased
$194,467 to $1,106,118. Administrative Expense for the six months ended June 30,
2000 increased $475,055 to $2,186,419. 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 Income for the three and six months ended June 30, 2000 decreased by
$39,196 and $60,543 respectively, over the comparable periods in 1999. The
decrease is primarily a result of a gain on a sale of an asset and the receipt
of insurance proceeds on amounts previously written off during 1999.
Other expense for the three and six months ended June 30, 2000 increased by
$13,979 and $116,339 respectively, over the comparable periods in 1999. Other
expense normally consists primarily of interest expense. The increase,
reported over the three months ended June 30, 2000 is due to interest costs
associated with the increase in the line of credit. The increase reported
over the six months ended June 30, 2000 is primarly 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.
Income tax expense increased for the three and six months ended June 30, 2000,
increased by $294,800 and $946,800 respectively, over the comparable periods in
1999. The company did not record income tax expense for the three and six months
ended June 30, 1999, due to a Net Operating Loss carry-forward. There was no Net
Operating Loss carry-forward applicable for fiscal year 2000.
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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 June 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 June 30, 2000 net advances totaling $3,923,616 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 12%
and mature at various times between 2000 and 2004. In May of 2000 the company
obtained additional financing at comparable terms, for certain equipment in the
amount of $1,125,000.
Current liabilities increased by $4,183,461 to $7,878,707 over the comparable
period in 1999. The principal increase was due to an increase in advances under
the line of credit and an increase in current portion of long term debt. The
increase in line of credit was due to: outstanding balances by certain customers
(Approximately $2,000,000), which were subsequently paid in July of 2000; stock
repurchase program ($351,821); and our April acquisition of an offset printing
and pre-press services company ($378,539).
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
On July 31, 2000 the Company entered into an agreement in principal to be
acquired by US Technologies for approximatly $35 million in US Technologies
common stock and cash. Under the terms of the agreement, On-Site Sourcing
shareholders would receive, in the aggregate, approximately 26.25 million U.S.
Technologies shares and $8.75 million in cash. This assumes that the maximum
cash election is made by holders of On-Site shares that would be outstanding if
all outstanding options and non-public warrants were exercised before closing.
On-Site's publicly traded warrants to buy shares at $6.00 are expected to be
converted to U.S. Technologies' warrants.
The transaction is subject to completion of due diligence, negotiations and
execution of definitive agreements, which the companies believe will be
completed by September. Closing will be subject to usual conditions including
shareholder approvals and SEC registration of the securities to be issued in the
merger, as will adoption of U.S. Technologies' already announced charter
amendment to increase the common shares it is authorized to issue.
ITEM 6. EXHIBITS AND REPORTS
(A) EXHIBITS
2 2Agreement 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 no reports on Form 8-K during the three months ended
June 30, 2000.
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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)
August 14, 2000 /s/ Jason Parikh
------------------------------- ---------------------------------------
Date Jason Parikh
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
12
