U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended: September 30, 2000
Commission file no.: 000-30969
ONESOURCE TECHNOLOGIES, INC.
------------------------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 65-0691963
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7419 East Helm Drive
Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (800) 279-0859
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class to be registered
None None
------------------------------- -----------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------------------
(Title of class)
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696
Fax: (561) 659-5371
<PAGE>
Indicate by Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
As of September 30, 2000, there were 18,792,678 shares of voting stock
of the registrant issued and outstanding.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Balance Sheets.....................................................F-2
Statements of Operations...........................................F-4
Statements of Stockholders' Equity.................................F-5
Statements of Cash Flows...........................................F-6
Notes to Financial Statements......................................F-7
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000
------------------------------------------------------------------------
(Unaudited)
ASSETS 2000
<S> <C>
CURRENT ASSETS:
Cash $0
Accounts receivable 315,416
Inventories 280,774
Other current assets 166,793
Total current assets 762,983
PROPERTY AND EQUIPMENT, net of accumulated depreciation 267,113
GOODWILL, net of accumulated amortization of $13,530 249,858
OTHER ASSETS 197,303
TOTAL ASSETS $1,477,257
===========
LIABILITIES AND STOCKHOLDERS" EQUITY (DEFICIT):
CURRENT LIABILITIES:
Accounts payable $240,944
Accrued expenses and other liabilities 168,659
Deferred revenue 150,380
Bank overdraft 14,144
Bank lines of credit 142,176
Current portion capital leases 12,897
Current portion of long-term debt 314,353
Total current liabilities 1,043,553
CAPITAL LEASES -- LONG TERM PORTION 11,377
NOTES PAYABLE - LONG-TERM PORTION (Note 5) 157,677
Total liabilities $1,212,607
-----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued $0
Common Stock, $.001 par value, 50,000,000 shares authorized, 19,473,467 and
14,297,953 issued at September 30, 2000 and 1999 respectively, and 1,892,010
subscribed but not issued shares at September 30, 2000. 17,609
Paid in capital 2,152,921
Stock subscription (1,055,000)
Accumulated deficit (850,880)
Total stockholders' equity 264,650
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,477,257
===========
</TABLE>
See accompanying notes and accountants' report.
F-2
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
3rd QTR 3rd QTR YTD YTD
2000 1999 2000 1999
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUE, net $710,415 $648,142 $2,426,707 $1,699,768
COST OF REVENUE 562,186 349,100 1,642,946 982,017
------------ ------------ ----------- ------------
GROSS PROFIT 148,229 299,042 783,761 717,751
GENERAL AND ADMINISTRATIVE EXPENSES 450,204 210,439 1,190,347 580,653
SELLING AND MARKETING EXPENSES 43,798 80,920 153,668 159,419
------------ ------------ ----------- ------------
Operating income (345,773) 7,683 (560,254) (22,321)
------------ ------------ ----------- ------------
OTHER INCOME (EXPENSE)
Interest expense (7,067) (3,529) (31,346) (17,691)
Other income (4,741) 13,360 (11,110) 14,849
------------ ------------ ----------- ------------
Total other (expense) (11,808) 9,831 (42,456) (2,842)
Net Loss before ExtraOrdinary Item (357,581) 17,514 (602,710) (25,163)
Extraordinary item -- Gain on
extinguishments of debt 0 0 63,375 0
------------ ------------ ----------- ------------
NET ($357,581) $17,514 ($539,335) ($25,163)
============ ============ =========== ============
LOSS
</TABLE>
<TABLE>
<CAPTION>
NET Loss Per Share: 3mos 9mos
------------------------- -----------------------
2000 1999 2000 1999
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Basic, before extraordinary item ($0.02) * ($0.04) *
======= =======
Extraordinary item - - $0.01 -
After extraordinary item ($0.02) * ($0.03) *
======= =======
Diluted, before extraordinary item ($0.02) * ($0.04) *
======= =======
Extraordinary item - - $0.01 -
After extraordingary item ($0.02) * ($0.03) *
======= =======
Weighted Average Shares Outstanding:
Basic 17,749,885 13,363,306 15,927,669 13,327,436
Diluted 17,749,885 13,363,306 15,927,669 13,327,436
</TABLE>
Note *, Less than $0.01 per share.
See accompanying notes and accountants'report.
F-3
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
Unaudited) (Unaudited)
YTD YTD
2000 1999
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($539,335) ($25,163)
Adjustments to reconcile net loss to net cash
provided (used) by operations
Depreciation and amortization 36,180 5,309
Loss on retirement of debt (63,375) 0
Changes in assets and liabilities (net of acquisitions):
Accounts receivable 144,705 (138,473)
Inventory 88,124 (161,108)
Other current assets (132,732) (17,668)
Accounts payable (104,775) 3,901
Accrued expenses and other liabilities (169,934) 118,067
Deferred revenue (59,656) 31,556
------------ --------------
Net cash provided (used) by operating activities ($800,798) ($183,579)
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (155,740) (189,972)
Merger related expenses 0 3,506
------------ --------------
Net cash provided (used) by investing activities ($155,740) ($186,466)
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances on notes payable and capital leases 225,578 (100,159)
Net receipts on line of credit (8,979) 0
Bank overdraft 14,144 0
Funds received for stock subscriptions 220,000 471,653
Issuance of common stock (net of capital placement fees) 468,103 8,822
------------ --------------
Net cash provided (used) by financing activities $918,846 $380,316
INCREASE (DECREASE) IN CASH (37,692) 10,271
CASH, January 1 37,692 48,890
CASH, September 30 $0 $59,161
============ ==============
</TABLE>
See accompanying notes and accountants' report.
F-4
<PAGE>
<TABLE>
<CAPTION>
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
--------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited) (Unaudited)
2000 1999
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 31,594 $ 17,692
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Common stock subscribed in exchange for notes payable $ 278,438
===========
</TABLE>
See accompanying notes and accountants' report.
F-5
<PAGE>
ONESOURCE TECHNOLOGIES, INC.
NOTE TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared
by the Company without audit, pursuant to the rules and regulations for
financial information. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. These unaudited financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's audited financial statements as of December 31, 1999. In
the opinion of management, these unaudited financial statements reflect
all adjustments which are necessary to present fairly the financial
position and results of operations of the Company for such interim
period. Operating results for the interim period are not necessarily
indicative of the results that may be expected for the entire year.
******
F-6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
General
In July 2000, OneSource Technologies, Inc., a Delaware corporation, of
which OneSource Technologies, Inc., an Arizona corporation, Cartridge Care,
Inc., an Arizona corporation ("CC")and Net Express, Inc., an Arizona corporation
("NE") are all wholly-owned subsidiaries (collectively the "Company" or
"OneSource" or the "Issuer") issued 10,000 shares of its restricted Common Stock
to one (1) individual in exchange for a client list of computer service
customers, the remainder of the previously contracted for but unissued shares
(943,750) in connection with the acquisition of CC, 13,166 shares to one (1)
past employee for out-of-pocket expenses, 90,000 shares to one (1) investor for
$30,000, 8,319 shares to one (1) individual for past accounting services
rendered, 40,000 shares to one (1) individual who is an active employee as a
signing bonus, 58,333 shares to Maurice Mallette, the Company's current Interim
Vice President, President of CC and a Director in exchange for $17,500 and
75,000 shares to one (1) individual for his services as a headhunter who brought
potential employees to the Company. For such offering, the Company relied upon
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), Rule 506 of
Regulation D, promulgated thereunder ("Rule 506"), Section R14-4-140 of the
Arizona Code, Section 25102(f) of the California Code, Section 90.532 of the
Nevada Code and Section 211(b) of the Pennsylvania Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten (10) percent or more of any class of its equity
securities did not fall within the disqualification provisions.
For purposes of Section 25102(f) of the California Code, the facts upon
which the Company relied are: (i) shares were sold to not more than thirty-five
(35) persons, including persons not in California; (ii) all purchasers had a
preexisting relationship with the offeror or its officers, directors or by
reason of business or financial experience or by reason of their professional
advisors had the capacity to protect their own interests; (iii) each purchaser
represented that they were purchasing for their own account and with a view to
or for sale in connection with any distribution; and (iv) the offer and sale
were not accomplished by the publication of any advertisement.
For purposes of Section 90.530(11) of the Nevada Code, the facts upon
which the Company relied are: in each instance, such reliance is based on the
following: the following transactions are exempt from NRS 90.460 and 90.560,
except as otherwise provided in this subsection, a transaction pursuant to an
offer to sell securities of an issuer if: (a) the transaction is part of an
issue in which there are no more than 25 purchasers in this state, other than
those designated in subsection 10, during any
7
<PAGE>
12 consecutive months; (b) no general solicitation or general advertising is
used in connection with the offer to sell or sale of the securities; (c) no
commission or other similar compensation is paid or given, directly or
indirectly, to a person, other than a broker-dealer licensed or not required to
be licensed under this chapter, for soliciting a prospective purchaser in this
state; and (d) one of the following conditions is satisfied: (1) the seller
reasonably believes that all the purchasers in this state, other than those
designated in subsection 10, are purchasing for investment; or (2) immediately
before and immediately after the transaction, the issuer reasonably believes
that the securities of the issuer are held by 50 or fewer beneficial owners,
other than those designated in subsection 10, and the transaction is part of an
aggregate offering that does not exceed $500,000 during any 12 consecutive
months. The administrator may by rule or order as to a security or transaction
or a type of security or transaction, may withdraw or further condition the
exemption set forth in this subsection or waive one or more of the conditions of
the exemption.
The facts relied upon to make the Pennsylvania Exemption include the
following: (i) the Company filed a completed SEC Form D with the Pennsylvania
Securities Commission, Division of Corporate Finance; (ii) the Form was filed
not later than fifteen (15) days after the first sale; and (iii) the Company
paid an appropriate filing fee.
In November 2000, the Company issued 206,500 shares of its restricted
Common Stock to four (4) persons. Two (2) of the persons receiving a total of
200,000 shares, were given the shares as a hiring bonus. The other two (2)
persons receiving a total of 6,500 shares, were given the shares in lieu of
salary. For such offering the Company relied upon Section 4(2) of the Act, Rule
506, Section R14-4- 140 of the Arizona Code.
The facts upon which the Company relied upon for purposes of Section
14-4-140 of the Arizona Code are: (i) offers by the issuer were made only by the
Company's employees, officers and directors who were not retained for the
primary purpose of making offers; (ii) the sale of securities did not exceed
$1,000,000; (iii) the Company was not a development stage company with no
specific business plan or a development stage company that has indicated that
its business plan is to engage in a merger or acquisition with an unidentified
company or companies, or other entity or person; (iv) offers specified that they
would be made only to accredited investors and sales were made only to
accredited investors; (v) a legend was placed on all offering documents; and
(vi) the issuer, any of its predecessors, affiliates, directors, officers,
beneficial owners of ten (10) percent or more of any class of its equity
securities did not fall within the disqualification provisions.
Discussion and Analysis
Introduction
The interim financial results discussed herein include the financial
results of OneSource and its wholly owned subsidiaries NE and CC.
In 1999 the Company acquired all the outstanding stock of NE engaged in
the LAN and WAN (local and wide area network) integration and other information
technology ("IT") business. In
8
<PAGE>
September the Company acquired all the outstanding stock of CC, which was
engaged in the remanufacturing of printer/copier toner cartridges. While both
acquisitions were effected with issuance of stock, NE was accounted for as
pooling of interests and CC was accounted for as a purchase. Accordingly the
interim results of NE's operations are included in the Company's consolidated
results for the both interim nine-month periods ended September 30, 2000. The
interim results of operations and cash flows of CC are only included in the
consolidated results for the nine-month period ended September 30, 2000.
Overview
Both companies were acquired because they represent logical "fits" for
expanding the Company's historical equipment maintenance business into other
product and service categories that can be leveraged and expanded throughout the
Company's current and future customer base. NE adds an array of IT capabilities
to the Company that can be directed to existing customer situations as well as
new markets. The scope of NE's IT practice embraces a number of technologies and
services that are in great demand in corporate America that the Company intends
to exploit and substantially expand in future periods, including network (LAN
and WAN) implementation, remote network maintenance, web hosting, high speed and
broadband Internet connectivity and related services. All of these services
compliment the Company's maintenance service operations and represent
significant sources of potential new revenue streams for the Company.
CC's core business is remanufacturing of laser printer and copier/fax
toner cartridges for a number of popular and high demand printer and copier/fax
machines. This is a rapidly growing industry that has gained acceptance during
the past ten years as a viable alternative to OEM cartridges. The division's
cartridges are environmentally friendly, less costly and of equal to superior
quality compared to new OEM units. This product category can be readily added to
the Company's maintenance customer base that includes hundreds of printers,
copiers and faxes presently under contract.
These acquisitions contributed approximately thirty-five percent (35%)
of the Company's 2000 interim year-to-date revenues. CC and NE contributed
twenty-five percent (25%) and ten percent (10%) of 2000 interim year-to-date
consolidated revenues, respectively. In 1999, NE contributed eighteen percent
(18%) of consolidated revenues. The Company will continue to expand both
internally as well as through acquisitions and accordingly, timing of new
business and/or acquisitions can have a significant effect on the proportionate
relationship of each to total consolidated revenues.
Results of Operations
First nine months 2000 results were mixed. Revenue growth flattened in
the year-to-date September and net results were marked by a number of
unfavorable circumstances that contributed to operating losses in each of the
Company's three (3) operating divisions, Maintenance, Integration and Supplies.
Specifically, the doubling of contract maintenance services in the last quarter
of 1999 stressed the Company's service delivery systems that continued into
2000. Integration service operations were
9
<PAGE>
stunted by decreased new business commitments for integration equipment and
services during the first quarter of 2000 and problems in assimilating the
cartridge operations into the Company.
Late in the third quarter and early fourth quarter of 1999 the Company
added a number of new maintenance contract commitments that had the effect on an
annualized basis of doubling the volume of service operations and revenues. This
sudden influx of new business severely taxed field service's limited management
resources and procurement and delivery systems. While management had anticipated
a rapid ramp up of maintenance services, it wasn't until late fourth quarter
that the Company was able to put in place two (2) new senior managers to assist
in managing maintenance operations. Further the doubling of service demands also
brought to light certain problems in the parts procurement and logistics
department that contributed to higher than budgeted costs in the quarter. At
this time, significant remedial actions have been taken including the appointed
of Norman E. Clarke as the chief operations officer in early October, 2000.
Norman was serving the Company as an outside director and has significant sales
and marketing as well as operations experience.
Operational and financial reporting problems encountered in integrating
the cartridge division into combined operations continued into 2000. A number of
production scheduling, billing and personnel issues were encountered in late
1999 and the first half of 2000 related to the transfer of CC's accounting and
information systems into the Company's systems. Operational and invoicing
problems resulting from the changeover resulted in lower shipments in the
quarter and increased operational costs beyond those forecasted.
Further contributing to first and second quarters' and year-to-date
loss were increased administrative costs associated with the Company's expanded
maintenance supervisory staff and professional fees related to year-end
independent audit work and the Company's pending filings with the SEC.
The following table sets forth selected consolidated operating results
of the Company for the nine-months ended September 30, 2000 and 1999. The
consolidated results of both periods include the operations of OneSource and NE
that was acquired in 1999 and were accounted for as a pooling of interests. The
consolidated results also include the operations of CC for the nine-months ended
September 30, 2000.
<TABLE>
<S> <C> <C>
Income Statement 2000 1999
---- ----
Operating Revenues $2,426,707 $1,699,768
Cost of Revenues 1,642,946 982,017
Gross Margins 783,761 717,751
Selling, General and Administrative Expenses 1,344,015 740,072
Operating (Loss) Before Extraordinary Gain (560,254) (22,321)
Other (Expense) (42,456) 2,842
Extraordinary Gain 63,375 -0-
Net Income (Loss) Income $(539,335) $(25,163)
---------------------------------------------- ----------- ------------
</TABLE>
Operating Revenues
Total consolidated revenues increased $726,939 or 42.8% in the
nine-months ended September 2000 compared to the same period in 1999. Revenues
for the three months ended September 30, 2000 increased over the same period in
1999 by $62,273 or 9.6%. As noted above the 1999 year-to-date figures don?t
include the revenues of the cartridge division since CC was purchased October 1,
1999. Total revenues of the Maintenance division were up twenty-five percent
(25%) for the nine months but down thirteen percent (13%) for three months ended
September 30, 2000, respectively, compared to the same periods in 1999.
Going forward into the fourth quarter, the Company anticipates the
growth of maintenance revenues will increase slightly due to a) one of the
Company's major accounts electing to expand the scope of equipment maintained
effective October 2000, but partially offset by b) the decision by management to
discontinue an alliance effective September 2000 with a traditional service
provider wherein OneSource delivered subcontract service work. The total impact
of these two (2) circumstances expected to be an increase in monthly revenues of
approximately $5,000 per month from the third quarter level. Again, management
continues to address the need for sales momentum and will be rolling additional
programs out in the Fourth Quarter, 2000.
The following table shows the amounts each division contributed to
total revenues for the nine months ended September 30, 2000 and 1999.
<TABLE>
<S> <C> <C>
Business Line Revenue Contributions 2000 1999
---- ----
Maintenance Services $1,715,947 $1,376,935
Integration Services 95,496 291,336
Supplies 615,263 31,497
----------------------------------- ---------- ---------------
</TABLE>
Maintenance services continued to account for the lion's share of total
revenues in the quarter and the first nine months, accounting for sixty-six
percent (66%) and seventy-one percent (71%) of the year-to-date totals,
respectively. For the three months ended September 30, 2000, maintenance
services contributed $466,486 of total revenues versus $536,690 a decrease of
eighteen (18%) for the three months ended September 30, 2000 and 1999,
respectively.
Integration services accounted for only four percent (4%) of total
revenues in 2000 but seventeen percent (17%) for the nine months ended September
30, 1999. Similar percentages of Integration revenue contributions resulted in
the three months ended September 30, 2000.
The Supplies division accounted for twenty-five percent (25%) and two
percent (2%) of total revenues in both the three months and nine months ended
September 30, 2000 and 1999 respectively.
10
<PAGE>
Maintenance Revenues
Most of the increase in service volumes in the quarter ended and
year-to-date 2000 compared to the same periods in 1999 is the result of
internally generated new business from existing as well as new customer
accounts. Less than five percent (5%) of the increase in service revenues was
contributed by acquired operations. At September 30, 2000 retail customers
accounted for about eighty-one percent (81%) of equipment maintenance revenues
with about sixteen percent (16%) and three percent (3%) coming from banking and
other industry clients, respectively.
Roll out of the Company's in-house sales program was delayed in the
last quarter of 1999 due to demands placed on organization resources by the
cartridge division acquisition and the significant service volumes added in the
last four months of the year. Further, since some of these problems spilled over
into the first half of 2000, the in-house initiative started slowly in the third
quarter. Management hired a sales manager in late August and fully expects
improved maintenance sales growth as well as in the supplies product lines.
The new in-house sales program is designed to aggressively expand each
division's business on a backfill basis by focusing on local and regional
accounts, leaving the outsourced sales company to cover national account
selling. Management believes this new sales initiative will stem the pending
decline in service volumes as well as increase sales volumes of the other
divisions. Prospectively this new program will also emphasize expanding
maintenance revenues through the newly acquired network integration and
cartridge remanufacturing divisions' customer bases. The new divisions' present
Arizona only territory will also be expanded to include all the Company's
operating territories.
Integration Service Revenues
Integration revenues declined sixty-seven percent (67%) in for the nine
months ended September 30, 2000 compared to 1999 and occurred as a result of
fewer equipment sales at both OneSource and NE. This trend reflects the
historical incidental nature of equipment sales that has existed in the past at
OneSource. In 1999 as the Company focused its limited sales resources on
expanding servicing opportunities. Equipment sales were and still are deemed to
play an important role to the overall relationship of all divisions' current and
prospective customers. However, demand for equipment is considerably slower for
both the retailer and financial customers as the economy slowed down in 2000.
Equipment sales and integration services from NE decreased in the
quarter ended September 30, 2000 compared to the second quarter of 2000 by
$27,832 or almost fifty-three percent (53%). The decrease is a function of the
division completing fewer integration projects.
The in-house sales program should help in this regard as it will focus
on products and services that don't require significant forward capital
commitments. Doing so will mitigate the division's historical reliance on
network installation services and network equipment placement. The division will
continue to contribute additional sales of PCs/Servers and peripherals
prospectively, but this type of equipment generally yields very low margins, (5
to 10% on average). Accordingly management is emphasizing the network support,
Internet connectivity and remote network support services portion
11
<PAGE>
of this business with their attendant much higher profit margins and/or higher
volume opportunities.
Supplies Revenues
Historically the Company hasn't focused on supplies and parts sales but
prospectively management intends to significantly expand this portion of the
business. This in fact was the impetus for the cartridge remanufacturing
company's acquisition in September 1999. Supply sales increased $583,766 in for
the nine months ended September 30, 2000 compared to the same period in 1999.
The growth is substantially all due to the cartridge sales of this division.
Supply sales were up about $32,483 or eighteen percent (18%) in the third
quarter compared from the second quarter of 2000 as a reflection of the
Company's decision to channel the division's product offerings through the
Company's new Internet distribution channel, GOINK.com.
Management intends to substantially expand the product line because its
equipment contract maintenance customer base has thousands of laser printers
under contracts, all of which utilize toner cartridges. In this regard
management has incorporated a new e-commerce company, GOINK.com, Inc., to be the
cartridge divisions on-line Internet fulfillment delivery system. This site will
be available to anyone on the Internet in addition to the Company's customer
base. The GOINK.com site was launched in beta test mode in late March and went
live in August 2000. Apart from converting any of Cartridge Care customer,
GOINK.com signed up its 1,000th customer.
Therefore, between the two strategies of converting the cartridge
division to the internet distribution channel and the independent ability of
GOINK.com staff to sign-up new customers, this combined business is anticipated
to grow significantly in the fourth quarter.
Profit Margins
Gross profits and margins in each division were mixed for the nine
months ended September 30, 2000 compared to those of the same period in 1999 as
shown in the following table:
<TABLE>
<S> <C> <C> <C> <C>
Gross Profit And Margin 2000 % 1999 %
---- --- ---- ---
Maintenance Services $711,367 41.5 $688,264 50.0
Integration Services (63,834) (66.8) 53,030 18.2
Supplies 136,227 22.1 (23,543) (75)
------------------------- --------- ----------- ------------- ---------
</TABLE>
Maintenance gross margin percentage of 41.5% for the nine months ended
September 30, 2000 is down from the 50% rate for the same period in 1999 that
approximated the Company's 50% hurdle- rate target for Maintenance services.
This is a function of the Company's significant expansion in service volumes in
the second half of 1999 and parts procurement and logistics problems encountered
in the last few weeks of 1999 that persisted through the first half of 2000. To
support the higher service volumes the Company invested in additional
supervisory staff resources in the second half of 1999 and incurred higher than
anticipated new contract startup costs in connection with expanded work at a
12
<PAGE>
couple of the Company's largest customers which adversely impacted first half
2000 service margins.
Also contributing to the lower margin was a higher than budgeted parts
usage rate in the first half of almost 17%, which is substantially above the
Company's normal 6 to 8% rate. Appropriate process changes were identified and
implemented in the latter month of the first quarter to fix the parts usage
situation and management is confident Maintenance margins will elevate to the
higher historical rates in the future. Management is also looking for the new
in-house sales program backfill additional Maintenance volumes in areas where
the Company isn't fully utilizing field service professionals to further
increase Maintenance margins toward its target 50% rate.
Management believes service margins higher than the Company's 50%
hurdle rate can also be prospectively achieved as the business matures. As new
business is added, it's not always possible to sustain the 50% hurdle rate.
Timing of new business as well as the amount of required spares and parts to
support new contracts are variables that directly impact service gross margins.
The Company's Maintenance service model however is based on a 50% service gross
margin and management is committed to achieving this rate
The drop in equipment sales and delays in new Integration projects in
the first half discussed above account for the negative margin in Integration
division operations. Prospectively, management anticipates a gross margin rate
closer to the Company's historical 30% equipment gross profit for Integrations
operations as volumes pick up in succeeding quarters. Again, some of this
rebound will be a function of how quickly the economy grows over the next six
months.
General and Administrative Costs
G&A costs for the quarter and nine months ended September 30, 2000
compared to the same periods in 1999 continued to increase reaching their peak
at the end of July 2000. In light of the decrease in service revenues and the
problems encountered in the Integration division management embarked on a cost
control and cost cutting program to in the third quarter in order to arrest all
cost categories, particularly G&A costs. To this end, several seven (7)
positions were eliminated that will save approximately $27,000 per month. These
savings will be redeployed into direct sales efforts and sales support functions
that management believes increase revenue growth.
Most of the general and administrative cost increases for the first
three quarters of 2000 compared to 1999 were incurred at OneSource corporate.
G&A costs between periods from acquired operations only contributed about
twenty-eight percent (28%) of the 2000 increase compared to 1999 and most of
these costs were in the new cartridge supplies division, that is, twenty percent
(20%). Most of the dollar increases therefore in both periods is the result of
added costs in corporate operations incurred in anticipation of supporting the
expected higher level of consolidated operations. The following table shows
these costs for the nine months ended September 30 2000 and 1999.
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<TABLE>
<S> <C> <C>
Administrative Costs 2000 1999
---- ----
Officer and Administrative Payroll & Taxes $409,130 $266,608
Facilities 188,068 89,237
Employee Benefits and Medical and Casualty Insurance 101,932 51,005
Travel and Entertainment 75,219 47,266
Legal and Professional Fees 168,786 76,449
Other 247,212 50,088
-------
Total $1,190,347 $580,653
---------------------------------------------------- ------------- ------------
</TABLE>
The increase in administrative costs between years reflects the
Company's expanded infrastructure in support of the increase in Company
operations. For example, the supplies division contributed $244,029 of
administrative expenses that were not present in 1999. Excluding the supplies
division from the total in 2000 reduces total administrative expenses to
$946,318 and represents growth of 63%.
Administrative costs of $450,204 in the three-month period ended
September, 2000 represented about sixty-three percent (63%) of total revenues
versus thirty-two (32%) for the same period in 1999.
Substantially all the increase in facility costs is the result of the
relocation and consolidation of all Company operations into new facilities in
November 1999. The new location is larger and better able to accommodate present
as well as future space requirements. Total rents and related utility costs are
significantly higher than the combined smaller locations of the three divisions'
prior facilities. The larger facilities were required to permit consolidation of
all the Company's operations under one roof, a function that will save costs
prospectively. Further, the cartridge division?s facility costs for 1999 are not
included in the figures for the nine-months ended September 30, 1999 since
Cartridge Care wasn't acquired until September 30, 1999.
Employee benefits and insurance expense for the nine-months ended
September 30, 2000 increased compared to the same period in 1999. The Company
performed a detailed review of employee benefits and payroll taxes in the first
and second quarters of 2000. This resulted in the recognition of additional
payroll related expenses in the third quarter.
Legal and professional expenses increased $66,351 during the third
quarter of 2000 compared to the same period in 1999. These expenses were also up
from the second quarter 2000 by $27,596.
Much of the historical increase in administrative costs resulted from
the increased infrastructure of the Company in support of the planned future
level of operations. During the third quarter management continued reversing
this trend in light of the anticipated near term decline in revenues and the
delay encountered in initiating the Company's in-house sales program. Until
revenues are increased management is committed to reduce costs so they are more
in line with present revenues. Doing so will burn less capital and afford the
Company with sufficient capital to successfully roll out the sales plan.
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<PAGE>
It is also anticipated that new revenues will absorb administrative costs over
time and bring the percentage of G&A costs more in line with planned results.
Selling Expenses
Selling expenses of $43,798 for the three months ended September 30,
2000 are down about twelve percent (12%) from second quarter 2000 selling costs
of $49,542. This is a function of the delay that continued through the third
quarter of initiating the Company's in-house sales program. Substantially all
the cost increases in this category as of the three months ended September 30,
2000 compared to the same period in 1999 are the result of a) the newly acquired
cartridge division and b) commissions paid in connection with the increased new
business generated in the fourth quarter of 1999. The contract sales
organization is compensated on a commission only basis whereas employee
salespeople are compensated via salary plus commission arrangements. Management
anticipates this cost category will increase proportionally as the Company
builds its internal expansion momentum.
Operating Loss
The increase in operating loss for the three months and nine months
ended September 30, 2000 compared to the same period in 1999 is the result of a)
higher costs incurred in expanding the overall volume of business operations, b)
costs incurred in fully assimilating new acquisitions and c) higher than
anticipated Maintenance service delivery costs and parts usage rates.
Other Income and Expenses
Income and (Expenses) 2000 1999
---- ----
Interest Expense $ (31,346) $ (17,691)
Other Income (Expense) 52,265 14,849
------------------------- ----------- ----------
Interest expense increased in the quarter ended September 30, 2000
compared to June 30, 2000, because of an increase in outstanding interest
bearing debt of the two acquired subsidiaries. The extraordinary gain in the
Statement of Operations in the first quarter of 2000 was the result of the
extinguishments of the outstanding debt incurred in the leveraged buyout in July
1997.
Financial Condition
While financing initiatives initiated in 1999 helped the Company, it
continued to operate in a tight cash position as of September 30, 2000. The
Company is working with a number of investment professionals to secure
additional capital funding commitments in support of the Company's capital
requirements. Management is confidant suitable funding sources will be obtained
in 2000.
The following sets forth selected financial condition information at
September 30, 2000 compared to December 31, 1999:
15
<PAGE>
Balance Sheet - 2000 1999
---- ----
Working Capital $(280,570) $(157,963)
Total Assets 1,477,257 773,779
Debt Obligations 652,624 459,165
Shareholders' Equity 264,650 (301,393)
-------------------------- ----------- -----------
Operating account balances in a number of balance sheet accounts
decreased in the quarter ended September 30, 2000 compared to the corresponding
amounts at December 31, 1999. Receivables, Inventories, payables, and accrued
expenses decreased. The decrease in deferred revenue reflects the slow down of
expansion in maintenance service volumes and the decrease in accruals is largely
due to payments made for outstanding payroll taxes accrual. The size of decrease
in payables and inventories is not significant and also reflects the slowing
nature of the Company's service volumes, pending the ramp up of the new in-house
sales program. The Company's current ratio slipped at September 30, 2000 to 0.73
compared to 1.12 as of December 31. Total assets dropped slightly at September
30, 2000 compared to December 31, 1999 and stockholders equity remained a
positive balance as of September 30, 2000. .
To further improve the Company's financial position, the Company and a
group of investors executed an agreement on March 4, 2000 with PF Holdings, Inc.
("PF") to purchase the promissory note held by PF with a face value of $285,000
and accrued interest of $36,972 for $150,000 in cash provided by the investors
and 175,000 shares of the Company's Common Stock with a fair market value on
March 4 of $93,438.00. The investor group exchanged the promissory note for
643,944 shares of OneSource stock. The investor's are restricted from selling
the combined 818,944 shares of stock for a period of one (1) year. Completion of
this transaction enables the Company to now pursue traditional stand-by credit
facility financing arrangements with banking institutions. The Company realized
and recorded an extraordinary gain on this transaction of $63,375.
At September 30, 2000, the accrual for delinquent payroll taxes,
penalties and interest was paid down to approximately $116,000. In July 2000 the
Company successfully negotiated and memorialized an installment agreement with
the IRS wherein the Company agreed to make monthly payment of $10,000 until the
balance is satisfied.
During 1999 the Company successfully completed two acquisitions with
the issuances of shares of the Company's Common Stock. While both transactions
were completed with stock, the Company did incur significant non-operating costs
for facility relocation and other costs of integrating the operations into the
consolidated group. The Company intends to acquire additional companies in the
future and will attempt to do so with issuances of the Company's Common stock.
To the extent cash is required to finance acquisitions, the Company will seek
outside capital from investors rather than attempt to finance the cash component
from operations.
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<PAGE>
Employees
At September 30, 2000, the Company employed five (5) persons. None of
these employees are represented by a labor union for purposes of collective
bargaining. The Company considers its relations with its employees to be
excellent. The Company plans to employ additional personnel as needed upon
product rollout to accommodate fulfillment needs.
Research and Development Plans
The Company believes that research and development is an important
factor in its future growth. Although, the citrus growing and exportation
industry is not closely linked to technological advances, it occasionally
produces new ways to raise and harvest crops, resulting in disease and pest
resistant product, which stays fresh for a longer period of time. Therefore, the
Company must continually invest in the technology to provide the best quality
product to the public and to effectively compete with other companies in the
industry. No assurance can be made that the Company will have sufficient funds
to purchase technological advances as they become available. Additionally, due
to the rapid advance rate at which technology advances, the Company's equipment
may be outdated quickly, preventing or impeding the Company from realizing its
full potential profits.
In late Spring 2001, the Company is planning to begin construction of a
citrus packing and processing center to be located in Stuart, FL, the heart of
Indian River Region. This facility will act as a showpiece for Clements Citrus
products to the Company's Chinese and domestic customers. The center should
consist of a state of the art, completely computer controlled, fresh citrus
packing facility, a facility for the manufacture and production of frozen
concentrate orange juice, as well as other frozen juices, a freezer facility, a
research center and an office facility. By having these facilities located on
one site, the entire program can be closely managed and controlled. It would
also insure against supply interruption and a total dependence on outside
suppliers.
Impact of the Year 2000 Issue
The Company did not experience any material impact to its operations as
a result of the Year 2000 calendar change. The Company does not anticipate any
material disruption in its operations as a result of any failure by the Company
to be in compliance.
Forward-Looking Statements
This Form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
expansion and growth of the Company's business and operations, and other such
matters are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
17
<PAGE>
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results or developments will conform with
the Company's expectations and predictions is subject to a number of risks and
uncertainties, general economic market and business conditions; the business
opportunities (or lack thereof) that may be presented to and pursued by the
Company; changes in laws or regulation; and other factors, most of which are
beyond the control of the Company.
Consequently, all of the forward-looking statements made in this Form
10-QSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
PART II
Item 1. Legal Proceedings.
The Company knows of no legal proceedings to which it is a party or to
which any of its property is the subject which are pending, threatened or
contemplated or any unsatisfied judgments against the Company.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the quarter ending September 30, 2000,
covered by this report to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits required to be filed herewith by Item 601 of
Regulation S-B, as described in the following index of exhibits, are
incorporated herein by reference, as follows:
18
<PAGE>
Exhibit No. Description
----------------------------------------------------------------------
<TABLE>
<S> <C> <C>
3.(i).1 [1] Certificate of Incorporation of L W Global (U.S.A.), Inc. filed August 27, 1996.
3.(i).2 [1] Certificate of Amendment of Certificate of Incorporation filed January 16, 1997.
3.(i).3 [1] Certificate of Amendment of Certificate of Incorporation changing name to Micor
Technologies, Inc. dated July 28, 1997.
3.(i).4 [1] Certificate of Amendment of Certificate of Incorporation changing name to OneSource
Technologies, Inc. dated August 22, 1997.
3.(ii).1 [1] Bylaws of L W Global (U.S.A.), Inc.
4.1 [1] Form of Private Placement Offering of 1,200,000 common shares at $0.01 per share
dated September 10, 1996.
4.2 [1] Form of Private Placement Offering of 300,000 common shares at $0.01 per share dated
July 14, 1997.
4.3 [1] Form of Private Placement Offering of 575,000 common shares at $0.50 per share dated
September 17, 1997.
10.1 [1] Share Exchange Agreement between L W Global (U.S.A.), Inc. and Micor
Technologies, Inc. dated July 15, 1997.
10.2 [1] King Soopers Agreement dated September 1, 1998.
10.3 [1] Attachment B to King Soopers Agreement dated September 1, 1998.
10.4 [1] King Soopers Contract Renewal and Extension dated September 8, 1999.
10.5 [1] Promissory Note by Cossack Financial, LLC in favor of the Company dated March 31,
1999.
10.6 [1] Agreement to Extend Promissory Note by Cossack Financial, LLC in favor of the
Company dated January 3, 2000.
10.7 [1] Promissory Note by Titan Capital Partners, LLC in favor of the Company dated March
31, 1999.
10.8 [1] Agreement to Extend Promissory Note by Titan Capital Partners, LLC in favor of the
Company dated January 4, 2000.
</TABLE>
19
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<TABLE>
<S> <C> <C>
10.9 [1] Share Exchange Agreement with Net Express, Inc. dated April 15, 1999.
10.10 [1] Stock Redemption Agreement (Exhibit A to Net Express Share Exchange).
10.11 [1] Employment Agreement (Exhibit B to Net Express Share Exchange).
10.12 [1] Stock Purchase Agreement with Blackwater Capital Partners II, L.P. dated May 26,
1999.
10.13 [1] Investor Rights Agreement with Blackwater Capital Partners II, L.P. dated May 26,
1999.
10.14 [1] Share Exchange Agreement with Cartridge Care, Inc. dated September 1, 1999.
10.15 [1] Lease of Scottsdale, Arizona property dated September 20, 1999.
10.16 [2] Promissory Note by Micor Technologies, Inc. in favor of William Meger dated
November 28, 1995.
10.17 [2] Promissory Note by Jerry Washburn and others in favor of PF Holdings, Inc. dated July
31, 1997.
10.18 [2] Form of Note Modification Agreement dated February 2000.
10.19 [2] Installment Agreement between the Company and the Department of the Treasury of the
Internal Revenue Service dated July 2000.
10.20 [2] Option Agreement between the Company and XCEL ASSOCIATES, Inc. dated June
1, 2000.
10.21 [2] Agreement For A Finder's Fee between the Company and XCEL ASSOCIATES, Inc.
dated June 1, 2000.
10.22 [2] Business Consulting Agreement between the Company and XCEL ASSOCIATES, Inc.
dated June 1, 2000.
10.23 [2] Term Sheet for loan by the Company from Grace Holdings, Inc. dated June 29, 2000.
10.24 [2] Letter Agreement between the Company and Maurice Mallette,
Judith Mallette and Pasquale Rizzi to escrow shares of the
Company dated June 8, 2000.
27.1 * Financial Data Schedule.
-------------------------------
</TABLE>
20
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[1] Filed as an exhibit to the Company Registration Statement on Form 10SB
filed July 10, 2000.
[2] Filed as an exhibit to the Company's first amended Registration Statement
on Form 10SB filed October 13, 2000.
(* Filed herewith)
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONESOURCE TECHNOLOGIES, INC.
(Registrant)
Date: November 10, 2000 By: /s/ Jerry M. Washburn
---------------------------------
Jerry M. Washburn, Chairman, President and CEO
By: /s/ Ford L. Williams
---------------------------------
Ford L. Williams, Director, Secretary and Treasurer
By: /s/ Maurice E. Mallette
---------------------------------
Maurice E. Mallette, Director, Interim VP
By: /s/ Donald C. Gause
---------------------------------
Donald C. Gause, Director
By: /s/William B. Meger
---------------------------------
William B. Meger, Director
21
