<PAGE>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                      For the year ended December 31, 1998
                           Commission File No. 0-20947

                             ON-SITE SOURCING, INC.
                 (Name of Small Business Issuer in its Charter)

              Delaware                                  54-1648470

  (State of Other Jurisdiction of              (IRS Employer Identification No.)
  Incorporation or Organization)

            1111 North 19th Street, Sixth Floor, Arlington, VA 22209
        (Address of Principal Executive Offices)             (Zip Code)

                                  703-276-1123
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act:

<TABLE>
<CAPTION>
         TITLE OF EACH CLASS                                  NAME OF EACH EXCHANGE ON WHICH REGISTERED

<S>                                                           <C>
         Units comprised of two shares of Common              NASDAQ (since 7/11/96)
           Stock and one Common Stock Purchase Warrant

         Common Stock ($.01 par value)                        NASDAQ (since 8/19/96)

         Common Stock Purchase Warrants                       NASDAQ (since 8/19/96)
</TABLE>

Check whether the issuer (1) has 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 issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
                                                                  ---  ---

This report contains a total of 33 pages. The Exhibit Index appears on page 31.

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year were $ 25,965,719.

Aggregate market value of the Registrant's Common Stock held by non-affiliates
of the Registrant as of February 28, 1999 was approximately $4,680,797 based
upon the closing price reported for such date on the Nasdaq SmallCap Market. For
purposes of this disclosure, shares of common stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the Registrant have been excluded because such persons
may be deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.

The number of shares outstanding of the issuer's shares of common stock as of
February 28, 1999 was 4,824,669.

Transitional Small Business Disclosure Format             Yes        No   X  
                                                              ---        ---


<PAGE>


                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS
On-Site Sourcing, Inc. ("On-Site" or the "Company") provides reprographic,
document management, imaging, facilities management and information technology
services to law firms, corporations, non-profit organizations, accounting firms,
financial institutions and other organizations throughout the East Coast of the
United States. In order to meet the highly specialized requirements of each
client, On-Site offers a variety of customized reprographic and facilities
management services. The Company provides reprographic and imaging services 24
hours-per-day, seven days-per-week including copying, binding, labeling,
collating and indexing in support of complex document-intensive litigation as
well as higher volume production of manuals, brochures and other materials for
corporations and non-profit organizations. On-Site also provides on-premises
management of customers' support services including mailroom operations,
facsimile transmission, records and supply room management and copying services.

The information technology group (the "IT Group") provides a full range of
technology services to professional service organizations, including systems
design and integration, training and network management services. The IT Group
was formed in response to the need of law firms for new client/server
applications and connectivity, requiring information technology expertise that
is difficult to acquire due the competitive nature of the industry. The
competitive law firm has the need for E-mail, integrated billing and document
management services and recurring technology upgrades that are being demanded by
their clients.

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. The
Arlington, Virginia outsourcing location is one of the largest processing
centers in the metropolitan Washington area. Customers include a number of the
large law firms, corporations and non-profit entities operating in these cities.
The Company was originally incorporated in Virginia in December 1992 and changed
its state of incorporation to Delaware in January 1996.

         OUTSOURCING MARKET. Traditionally, most organizations have provided all
of the services required to support their own operations. Increasingly, however,
organizations are contracting out certain functions to specialized independent
business service companies. These services include reprographic, security,
secretarial, cafeteria, computer and communications facilities management.

         Outsourcing allows organizations to focus their management and
resources on their own business, while often improving support systems and more
effectively controlling costs. Users of facilities management services are
relieved of the responsibilities of selecting and maintaining equipment and
hiring, training, managing and motivating employees. Facilities management
operators generally achieve economies of scale in administration and the
purchasing of equipment and supplies.

         STRATEGY. The Company's strategy for continued growth in the premium
service sector of the reprographic and facilities management business is to
attract new customers, retain existing clients and expand the range of services
while maintaining high quality and efficient operations. The Company has
developed several management strategies in order to continue to compete
successfully with larger companies including:

          o  TRAINING PROGRAMS        On-Site has developed
                                      intensive training programs for all
                                      employees through the use of proprietary
                                      computer programs. Training is based on
                                      qualification requirements for each
                                      position and continues throughout the
                                      course of employment.

          o  QUALITY CONTROL          Strict quality control  standards are also
                                      maintained through the use of a Quality
                                      Assurance Team, Quality Assurance Diary,
                                      intensive training programs and client
                                      surveys. Because of the sensitivity of
                                      the materials produced, each document is
                                      hand checked in a separate room by a
                                      quality control team. Less than 1% of
                                      all documents are rejected by clients
                                      due to poor quality.

           o  EMPLOYEE RELATIONS      On-Site places a strong
                                      emphasis on employee relations through the
                                      use of employee empowerment practices,
                                      team building, close relations between
                                      employees and management and an employee
                                      incentive program that includes stock
                                      option plans.



<PAGE>


           o ECONOMIES OF SCALE       On-Site is able to provide efficient 
                                      services to its clients because it 
                                      achieves economies of scale in
                                      administration, training, acquisition of
                                      equipment and supplies, improved equipment
                                      utilization, servicing copiers and higher
                                      employee productivity.

           o  BROAD RANGE OF SERVICES On-Site  offers a broad range of services 
                                      in order to tailor its operations to the
                                      highly specialized requirements of each
                                      client. In addition to customized
                                      reprographic services, On-Site offers
                                      litigation support such as binding,
                                      labeling, collating and indexing.
                                      Facilities management services include
                                      copy and mailroom operations, facsimile
                                      transmission, records and supply room
                                      management, as well as copier repair and
                                      consulting services.


         The Company earns a significant portion of its revenue by providing
reprographic, imaging and litigation support services to law firms and
corporations. This accounts for approximately 79 percent of the Company's
revenue. Facilities management accounts for approximately 15 percent of the
revenue. Each service, while independent to the client, shares personnel and
resources in order to minimize costs and provide high quality services.

         The Company's goal is to expand business in the markets currently
serviced as well as in additional markets by taking advantage of opportunities
presented by the large number of organizations that still provide their own
facilities management and technology services internally.

         OPERATIONS. On-Site provides its services through regional offices in
metropolitan Washington, DC, Philadelphia, PA, New York, NY, Baltimore, MD, and
Atlanta, GA. These facilities maintain staff, equipment, supplies and training
facilities in order to provide reprographic, imaging, and litigation support
services to a variety of customers. The Company places professional management
at each regional office and provides employees with ongoing training in
equipment operation and maintenance, customer satisfaction, interpersonal
skills, and quality control. Equipment and supplies are provided by numerous
regional and national vendors.

         On-Site's facilities management services provide reprographic, mailroom
and facsimile and other services required on the premises of its customers. The
Company conducts a comprehensive analysis of each client's needs and tailors the
services provided to these needs based on volume, time, and quality
requirements. At facilities management locations, the Company provides on-site
management of the client's support services such as copy, mail, supply and
records rooms. Mailroom services include distributing all mail and interoffice
correspondence; processing, logging and billing outgoing mail, parcels and
special courier items; logging, billing, and tracking transmission of outgoing
facsimiles and distributing incoming facsimiles. In the supply room services,
On-Site provides all required materials through a "Just in Time" system designed
to minimize the costs of logging and tracking materials provided. Records room
services include utilization of bar code applications and state-of-the-art
imaging and scanning equipment to store documents and data base information for
quick retrieval and copying. Copy room management involves tracking, logging and
billing all copies, and providing repair services to copy machines. In addition,
specialized proprietary software generates operating data that allows the
Company to analyze vendor, copy and overtime costs, as well as copy volume, and
to prepare profit and loss statements that offer solutions to productivity
problems.

         The Company's reprographic and litigation support services to law firms
and corporations include copying, binding, drilling, "Bates" stamping, labeling,
collating, indexing, assembling and quality review. The Company currently has
technology which allows customers to "telecommute" by sending documents
instantaneously via the Internet to computers at On-Site. The documents are then
transferred into the memory of a copy machine and reproduced. On-Site also
provides a variety of imaging and scanning services which allow the transfer of
information from paper documents into electronic media.

         The Company's information technology group provides a full range of
technology services to professional service organizations, including systems
design and integration, training and network management services.

         CUSTOMERS. On-Site's customers include law firms, non-profit
organizations, corporations, accounting and consulting firms, financial
institutions and other organizations throughout the East Coast of the United
States. On-Site's customer base is the premium service segment of the market in
which speed, accuracy and quality are critical. The Company's clients include
many of the largest law firms and business entities in the markets served.

<PAGE>



         EMPLOYEES. The Company continuously recruits, trains and offers
benefits and other incentives to personnel in order to develop and retain a
qualified and reliable staff. Under the Company's training program, all
personnel receive training covering the use and maintenance of equipment,
interpersonal skills and operating procedures. The Company places a strong
emphasis on employee relations and engages in team building, and employee
empowerment practices, as well as providing incentives, including a stock option
plan, that are specifically designed to encourage and reward employee
performance. Additionally, all employees are bonded, sign confidentiality
agreements and agree to undergo drug tests. The Company believes these programs
result in higher employee productivity and professionalism. As of December 31,
1998, the Company had approximately 450 full-time employees, of which 7 are in
executive positions. None of the Company's employees are represented by a labor
union and the Company considers its employee relations to be satisfactory.

         COMPETITION. The reprographics and facilities management businesses are
highly competitive. The most significant competition is from prospective clients
themselves, which provide these services internally. The national competitors
providing facilities management services include Pitney Bowes Management
Services and Xerox Business Systems. IKON Corporation and Donnelley Enterprise
Solutions, Inc. are national competitors providing both reprographic and
facilities management services, while Copy America, Balmar and Reliable are
regional competitors providing both of these services in the markets served by
On-Site.

         TECHNOLOGY AND PROPRIETARY INFORMATION. The SiteTrax platform was
created as a solution to automate the highly complex document and facilities
management industry. Effective document management and reproduction, be it mail
or fax management, litigation copying, on-demand printing or document imaging
requires a tremendous monitoring, tracking and accountability solution. These
functions are mission critical, yet peripheral to the task of "putting paper to
machine". Even in the productive 90's, the document management industry
inefficiently uses expensive labor to dispatch these peripheral functions as
required to actually produce the product.

         With the genesis of SiteTrax, On-Site has effectively automated all
peripheral functions. SiteTrax manages every step of the production and
management process, from logging in projects, tracking them throughout the
production and quality control process through shipping and delivery. SiteTrax
tracks mail, fax courier, and box distribution, materials usage, operator
distribution/ workflow, productivity and quality control efficiency. It also
provides integrated cost accounting and invoicing, all at the click of a mouse.
These automated processes make the Company's production and management process
more efficient and productive. The resultant savings are passed on to our
clients in the form of greater investment in quality control, competitive
pricing, and superior tracking, reporting and accountability.

         The Company has also developed a proprietary automated cost recovery
system for copy machines. The system networks copy machines and tracks the
number of copies made, the client to be billed, the specific matter involved and
the employee making the copies. This system is designed to increase On-Site's
appeal to potential facilities management clients based on price and
performance. The Company has filed applications for patents on portions of this
system.

         The Company relies on confidentiality and non-competition agreements
with its employees in order to protect its proprietary know-how and employs
various methods to protect the software, concepts, ideas and documentation of
its proprietary technology. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to the Company's know-how or software,
concepts, ideas and documentation. Furthermore, although the Company has and
expects to have confidentiality and non-competition agreements with its
employees, consultants, and appropriate vendors, there can be no assurance that
such arrangements will adequately protect the Company's trade secrets.


<PAGE>



ITEM 2.   DESCRIPTION OF PROPERTIES

         The Company's executive offices and reprographic operations which
service the metropolitan Washington, DC area are located in approximately 31,000
square feet of leased space in Arlington, Virginia. The lease is on a
month-to-month basis. Rent for the premises is $60,000 per month.

         The Company leases approximately 8,000 square feet of office space in
Philadelphia, PA. The lease provides for a base annual rent of $110,500 and an
expiration date in October 2000.

         The Company also has offices located in approximately 2,500 square feet
of leased space in Frederick, MD. The lease provides for a base annual rent of
$15,000 with additional operating costs of $2,000 per year and an expiration
date in May 1999.

         The Company has offices located in approximately 12,000 square feet of
leased space in Atlanta, GA. The lease provides for a base annual rent of
$114,528. The lease expiration date is February 28, 2002.

         The Company has offices located in approximately 12,000 square feet of
leased space in New York, NY. The lease provides for a base annual rent of
$93,350 with an annual 3 % increase on November 1 of each subsequent year
through November 2005. The lease expiration date is October 31, 2006.

         The Company has offices located in approximately 8,000 square feet 
of leased space in Baltimore for a base rent of $127,756 with a 3% annual 
increase each subsequent year. The lease expires on February 14, 2007.

         The Company believes that its current facilities are adequate for its
current and reasonably foreseeable future needs for the markets that each
facility serves and that additional physical capacity at its current facilities
is available to accommodate expansion, if required.


ITEM 3.   LEGAL PROCEEDINGS

         In the opinion of the Company's management, there are no legal
proceedings pending to which the Company is a party or to which any of its
properties is subject, other than ordinary, routine litigation incidental to the
business which is not expected to have a material adverse effect on the results
of operations, financial condition or cash flows of the Company.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the fourth quarter of 1998, covered by this report, no matters
were submitted to a vote of the Company's security holders.


<PAGE>


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
                  STOCKHOLDERS' MATTERS

PRICE RANGE OF COMMON STOCK

         The following table shows the high and low closing bid prices for the
Common Stock in the over-the-counter market. The Common Stock, Warrants and
Units (comprised of two shares of common stock and one Common Stock Purchase
Warrant) of On-Site Sourcing, Inc. are listed on the Nasdaq SmallCap Market and
trade under the symbols "ONSS", "ONSSW" and "ONSSU", respectively. The table
below represents the quarterly high and low sales prices for each quarter in
1997 and 1998.(1)

         The quotations represent prices between dealers in securities, do not
include retail markup, markdowns or commissions and may not necessarily
represent the actual transactions.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
                                                 COMMON STOCK                 WARRANTS                    UNITS
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Quarter Ended:                                HIGH           LOW          HIGH     LOW             HIGH      LOW
                                              ----           ---          ----     ---             ----      ---
--------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>           <C>          <C>          <C>          <C>  
March  31, 1997                              2.625          2.000        0.563        0.313        5.875        4.250
--------------------------------------------------------------------------------------------------------------------------
June 30, 1997                                2.484         1.750         0.375        0.250        5.500        3.500
--------------------------------------------------------------------------------------------------------------------------
September 30, 1997                           3.750         2.125         0.563        0.281        8.125        4.500
--------------------------------------------------------------------------------------------------------------------------
December  31, 1997                           3.750         2.750         0.688        0.313        8.000        5.500
--------------------------------------------------------------------------------------------------------------------------
March  31, 1998                              3.630         2.810         .813         .344         7.875        5.625
--------------------------------------------------------------------------------------------------------------------------
June 30, 1998                                3.130         2.130         .594         .344         6.625         4.50
--------------------------------------------------------------------------------------------------------------------------
September 30, 1998                           2.310         1.060         .438         .156         5.250         2.50
--------------------------------------------------------------------------------------------------------------------------
December 31, 1998                            1.840         1.030         .406         .125         3.750        2.125
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) The Company issued units comprised of two shares of Common Stock and one
Common Stock Purchase Warrant in connection with the initial public offering.
The Units began trading on the Nasdaq SmallCap Market on July 11, 1996 and the
Common Stock and Warrants began trading separately on August 19, 1996 with the
Units also continuing to trade.

APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

         As of December 31, 1998, there were 60 holders of record and
approximately 1,477 beneficial owners of the Common Stock.

DIVIDENDS

         The Company has never paid cash dividends on its common stock. Payment
of dividends will be within the discretion of the Company's Board of Directors
and will depend on, among other factors, earnings, capital requirements, and the
operating and financial condition of the Company. At the present time, the
Company anticipates retaining future earnings, if any, in order to finance the
development of its business activities.


<PAGE>


RECENT ISSUANCES OF COMMON STOCK

On January 15, 1998 the Company issued 5,000 shares of its Common Stock 
pursuant to the exercise of employee stock options. On April 1, 1998 the 
Company issued 17,448 shares of its common stock to four employees pursuant 
to an employment agreement. The sales of securities described above were made 
in reliance upon Section 4(2) of the 1933 Act, which provides exemptions for 
transactions not involving a public offering, and the certificates for the 
securities bear a legend accordingly

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         The information in this section should be read in conjunction with 
the information contained in the financial statements and related notes in 
"Item 7. Financial Statements."

         This Annual Report on Form 10-K, including the documents 
Incorporated by reference, contains forward-looking statements within the 
meaning of Section 21B of the Securities Exchange Act of 1934, as amended. 
Such statement appear in a number of places in this Annual Report, 
including, without limitation, under "Item 6. Management's Discussion and 
Analysis" and information related to the impact of the year 2000. When the 
Company refers to forward-looking statements or information, sometimes the 
Company uses words such as "may," "will," "could," "should," "plans," 
"intends," "expects," "believes" or similar expressions. All subsequent 
written and oral forward-looking statements attributable to the Company and 
persons acting on its behalf are qualified by their entirety by the 
cautionary statements contained in this Annual Report. Actual events or 
results may differ materially from those discussed in forward-looking 
statements. The Company undertakes no duty to update any forward-looking 
statements, or to publicly release the results if it revises any of them. 
Factors which may cause the actual results of operations in future periods to 
differ materially from intended or expected results include, but are not 
limited to:

[the following are intended as examples only]

         *  the loss of any key employees could adversely impact its ability
            to secure and complete engagements because the Company's business
            involves the delivery of professional services and is labor-
            intensive;

         *  the availability and terms of additional capital or debt 
            financing to fund future acquisitions and for working capital 
            purposes;

         *  significant competition for business opportunities because of the 
            fragmented nature of companies offering similar services and the 
            low barrier on entry;

         *  fluctuations of revenue and operating income between quarters

GENERAL

         The Company began to provide reprographic and facilities management
services to the premium service segment of the Philadelphia, PA market in June
1993. The Company has subsequently expanded its geographic market to include
Washington, DC, Baltimore, MD, New York, NY and Atlanta, GA. In November 1996,
the Company expanded the scope of its reprographic services to include imaging
and scanning. In 1998 the Company also formed its information Technology
Division to provide a full range of technology services to law firms and other
professional service organizations. Revenues from reprographic, imaging services
and litigation support account for approximately 79% of total revenues while
facilities management accounts for 15% of total revenue as of December 31, 1998.

          The revenue provided by the reprographic and imaging services vary
depending on the volume of work orders received, with the months of August and
December historically being slow periods. Revenues are collected on a monthly
basis for facilities management contracts with payment due on the first of the
following month, while reprographic and service revenues are collected on a per
job basis.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

REVENUES

         The Company's revenues are primarily derived from reprographics,
imaging services, litigation support, facilities management and information
technology services. Overall revenues increased from $21,138,948 to $25,965,719,
an increase of $4,826,771 or 23% from 1997 to 1998. The increase is primarily
due to increased volume of work orders fulfilled at the Arlington, VA,
Philadelphia, PA, Atlanta, GA, New York, NY and Baltimore MD facilities and
revenues from the new information technology group.

COSTS AND EXPENSES

         COST OF SALES. Cost of sales increased by $6,419,830, or 42%, to
$21,713,447 in 1998 as compared to $15,293,617 for 1998. As a percentage of
revenue, cost of sales increased from 72% in 1997 to 84% in 1998. Operating
margins decreased to $4,252,272, a $1,593,059 decrease from 1997. As a percent
of revenue, operating margins declined from 28% in 1997 to 16 % in 1998. The
decreased operating margins were due primarily to high staffing levels and the
start up of the information technology group.

         SELLING AND SHIPPING. Costs of selling and shipping increased $244,085
or 10% in 1998. As a percentage of revenue, selling and shipping decreased from
11% in 1997 to 10% in 1998. Selling expenses are primarily commissions based on
sales.

         ADMINISTRATIVE. Administrative costs in 1998 increased $799,724 or 36%
over the 1997 period. As a percentage of revenues these costs increased from 11%
in 1997 to 12% in 1998. The increase in administrative costs can be attributed
to professional fees, increases in staffing and personnel costs, and travel
associated with the expansion into new markets during 1998.

EARNINGS (LOSS) FROM OPERATIONS. The Company incurred a loss from operations of
$1,419,331 in 1998 as compared to earnings of $1,217,537 in 1997. The loss
resulted from lower operating margins and higher expense levels due to high
staffing, start up of the information technology group, and costs associated
with expansion.


<PAGE>



         OTHER INCOME (EXPENSES), PRIMARILY INTEREST. Other expenses increased
from $141,938 to $236,574, an increase of $94,636 or 67% due mainly to an
increase in the amount of debt carried by the Company in order to meet the
Company's working capital and equipment needs. Other income, including interest
on short-term treasury obligations and sale of excess supplies increased by
$32,596 from $196,656 in 1997 to $229,292 in 1998.

         NET (LOSS) EARNINGS. The Company incurred a net loss of $997,613 in
1998 as compared to net earnings of $721,073 in 1997, and, as a result, the
Company has provided for an income tax benefit of $429,000 in 1998 as compared
to income tax expense of $551,182 in 1997.

LIQUIDITY AND CAPITAL RESOURCES AT DECEMBER 31, 1998

         The Company has funded its expansion and growth by utilizing internally
generated cash flow, long term financing, and a commercial line of credit. The
Company anticipates that the cash flow from operations and credit facilities
will be sufficient to meet the Company's expected cash requirements for the next
twelve months. There can be no assurances that unforeseen events may not require
more working capital than the Company has at its disposal.

         In order to assure additional working capital is available to the
Company to fund its growth and expansion, on February 3, 1997, the Company
entered into an agreement with a financial institution for a $2,500,000 working
capital line of credit. The working capital line of credit is collateralized by
the accounts receivable and certain other assets as described in the agreement.
The working capital line of credit is subject to certain financial covenants and
bears interest at the bank's prime rate of interest or the 30 day LIBOR rate
plus 2.25%. The underlying loan has a maturity date of April 30, 1999. At
December 31, 1998 net advances totaling $141,345 were made under this agreement.

         On February 27, 1997, the Company signed an agreement with a financial
institution to provide $1,100,000 to refinance certain capitalized lease
obligations under a 48 month term loan at rates deemed favorable to the Company.
The loan was funded in April 1997 and matures in March 2000. Under the terms of
the agreement, the loan is collateralized by specific equipment and certain
other assets. The term loan is subject to certain financial covenants and bears
interest at rates ranging from 8.75% to 9.02%.

         The Company believes its market risk exposure with regard to its 
financial instruments is limited to changes in interest rates. Based upon the 
composition of the Company's variable rate debt outstanding at December 31, 
1998 which is primarily borrowings under the working capital line of credit, 
the Company does not believe that a hypothetical increase in the bank's prime 
rate of interest or the 30 day LIBOR rate would be material to net income.

IMPACT OF THE YEAR 2000 ISSUE

The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year.
Software, hardware or firmware may recognize a date using "00" as the year 1900,
rather than the year 2000. Such an inability of computer programs to recognize a
year that begins with "20" could result in system failures, miscalculations or
errors causing disruptions of operations or other business problems, including,
among others, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

The Company has established a Year 2000 Program (the "Y2K Program") to address
the Year 2000 issue with respect to the following: (i) the Company's information
technology and operating systems; (ii) the Company's non-information technology
systems (such as buildings, plan, equipment and other infrastructure systems
that may contain embedded microcontroller technology); (iii) certain systems of
the Company's major vendors and material service providers (insofar as they
relate to the Company's business activities with such parties); and (iv) the
Company's material clients (insofar as the Year 2000issue relates to the
Company's ability to provide services to such clients). The Y2K Program is
divided into five major phases: a) Awareness, b) Inventory and Risk Assessment,
c) Repair and Renovation, d) Verification and Validation, and e) Implementation
and Monitoring.

The Awareness Phase is intended to ensure the establishment of the program and
the awareness of potential risks and Year 2000 issues. The phase, which involves
communicating the status and progress of the program within the Company and to
third parties, is an on-going activity and will continue as the Company proceeds
through the other phases.

The Inventory and Risk Assessment Phase involves the performance of an initial
inventory of all hardware, software and infrastructure, as well as material
vendors, to identify potential Year 2000 issues and to determine the action
required, if any, to mitigate the risk to the Company. The Company is the
process of contacting its third party service providers to determine the Year
2000 status of their systems, as well as their plans to bring them into
compliance. Material items are those believed by the Company to have significant
impact on the business from a customer service, financial or legal perspective.
The Company's internal Y2K team is performing this


<PAGE>

phase. The Company anticipates that this phase will be substantially complete by
the end of the second quarter in 1999.

The Repair, Replacement and Replacement and Renovation Phase is intended to
ensure that the appropriate items as identified in the final inventory and risk
assessment are upgraded to meet Year 2000 compliance criteria. This may include
software updates, hardware upgrades, development of new processes, new business
practices, training programs, etc. While completion of the various elements of
this phase is tied to corresponding elements within the assessment phase, the
Company anticipates that material repairs, replacements and renovations will be
substantially complete by mid-1999 for systems under the direct control of the
Company. No current assessment of the completion dates for material repairs,
replacements and renovations not under the Company's direct control, and for
which third parties such service providers are responsible, will be available
until completion of that portion of the Inventory and Risk Assessment phase.

The Verification and Validation Phase ensures that critical business processes,
systems and infrastructure are verified and tested to ensure Year 2000 issues
will not cause major disruption in the ongoing operation of the Company
business. Verification and testing of those systems under the Company's direct
control will be performed by the Company's internal Y2K team with the support of
its technicians and certain of the principal suppliers of those systems under
its direct control to be substantially complete in the third quarter of 1999.

Finally, during the Implementation and Monitoring Phase, the Year 2000 upgrades
will be installed into the Company's operating systems, as necessary. In
addition, the monitoring activity will be employed in an effort to ensure that
unforseen Year 2000 critical items are appropriately prioritized for correction.
While the implementation component of this phase is scheduled to be completed by
the end of the third quarter in 1999, the Company's monitoring activities will
be on going.

STATE OF READINESS

The Company's progress towards completing risk assessment within the Company is
on schedule to be completed in the first quarter 1999, however there is general
uncertainty involved in the attempt to evaluate the Year 2000 problem because of
the uncertainty of the readiness of this third party suppliers and vendors.

Although the remediation, testing and implementation phases have not yet
commenced, the Company anticipates that these phases will proceed along the
schedule as contemplated by its Y2K Program.

COSTS

The Company will utilize both internal and external resources to reprogram, or
replace, and test software for Year 2000 modifications. Total costs associated
with required modifications to become Year 2000 compliant is not expected to be
material to the Company's consolidated results of operations and financial
position in any given year.

RISKS

In a reasonably likely worst case scenario, the failure to correct a material
Year 2000 problem could result in an interruption in, or a failure of, certain
normal business activities or operations, including operations that are
essential to the provision of the Company's services. Such failures could
materially and adversely affect the Company's results of operations, liquidity
and financial condition. Due to the general uncertainty inherent in the Year
2000 problem, resulting in major part from the present state of the Company's
knowledge concerning the Year 2000 readiness of third-parties such as its
service providers, the Company is unable to determine at this time whether the
consequences of Year 2000 of failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The Y2K
Program is expected to significantly reduce the Company's level of uncertainty
about the Year 2000 problem and, in particular, about the Year 2000 compliance
and readiness of its material partners. The Company believes that, with the
completion of the Y2K Program as schedules, the potential of significant
interruptions of normal operations should be reduced.




CONTINGENCY PLANS


<PAGE>

After reviewing information gathered in the Inventory and Risk Assessment Phase,
and to prepare for the possibility that certain information systems or third
party partners and vendors will not be Year 2000 compliant, the Company intends
to develop contingency plans, as appropriate. These plans may include the
establishment of teams to monitor and correct disruptions, utilization of
back-up processes including data back up and storage, and the development of
manual "work-around" solutions.


<PAGE>



ITEM 7.   FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
                                                                   PAGE

<S>                                                                <C>
INDEPENDENT AUDITORS' REPORT                                        F-2

FINANCIAL STATEMENTS

         BALANCE SHEETS                                             F-3

         STATEMENTS OF OPERATIONS                                   F-4

         STATEMENTS OF STOCKHOLDERS' EQUITY                         F-5

         STATEMENTS OF CASH FLOWS                                   F-6

         NOTES TO FINANCIAL STATEMENTS                              F-8
</TABLE>





<PAGE>



                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors
On-Site Sourcing, Inc.

         We have audited the accompanying balance sheets of On-Site Sourcing,
Inc., as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of On-Site Sourcing,
Inc., as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.




/S/ REZNICK FEDDER & SILVERMAN, P.C.
------------------------------------

Bethesda, Maryland
February 12, 1999



<PAGE>


                             ON-SITE SOURCING, INC.

                                 BALANCE SHEETS

                                  December 31,


<TABLE>
<CAPTION>

                                   ASSETS
                                                                                           1998                       1997
                                                                                -------------------------    ----------------------

<S>                                                                             <C>                          <C>
CURRENT ASSETS                                                                  $                       -    $           1,490,702
Cash and cash equivalents                                                                       5,922,027                5,921,063
Accounts receivable, net                                                                          449,366                  417,693
Prepaid supplies                                                                                  136,758                  216,747
                                                                                -------------------------    ----------------------
Prepaid expenses

Total current assets                                                                            6,508,151                8,046,205

Property and equipment, net                                                                     4,367,996                4,069,097
Note receivable - officer                                                                               -                   25,000
Other assets                                                                                       75,062                   98,781
                                                                                $              10,951,209    $          12,239,083
                                                                                -------------------------    ----------------------
                                                                                -------------------------    ----------------------



                    LIABILITIES AND STOCKHOLDERS' EQUITY



CURRENT LIABILITIES
 Accounts payable - trade                                                       $               2,018,248    $           1,992,580
 Accrued and other liabilities                                                                    694,334                  924,487
 Line of credit                                                                                   141,345                        -
 Current portion of long-term debt                                                                472,824                  411,894
 Provision for income taxes, current                                                                    -                  139,798
                                                                                -------------------------    ----------------------
                                                                                                3,326,751                3,468,759
Long-term debt, net of current portion                                                          1,169,454                1,094,444
Deferred rent                                                                                     121,911                   96,509
Provision for income taxes, net of current portion                                                      -                  419,395
Deferred taxes                                                                                    197,182                   66,989
                                                                                -------------------------    ----------------------
                                                                                                4,815,298                5,146,096
                                                                                -------------------------    ----------------------
Commitments and contingencies                                                                           -                        -

STOCKHOLDERS' EQUITY
 Common stock, $.01 par value, 20,000,000 shares
  authorized; 4,824,669 and 4,802,221 shares issued and outstanding                                48,247                   48,022
 Preferred stock, $.01 par value, 1,000,000 shares
  authorized, no shares issued and outstanding                                                          -                        -
 Subscription receivable                                                                          (50,400)                 (50,400)
 Additional paid-in capital                                                                     6,432,691                6,367,379
 Treasury stock (5,000 shares of common stock at cost)                                            (25,000)                       -
 Accumulated earnings (deficit)                                                                  (269,627)                 727,986
                                                                                -------------------------    ----------------------
                                                                                                6,135,911                7,092,987
                                                                                -------------------------    ----------------------
                                                                                $              10,951,209  $            12,239,083
                                                                                -------------------------    ----------------------
                                                                                -------------------------    ----------------------
</TABLE>



<PAGE>


                             ON-SITE SOURCING, INC.

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                              1998                    1997
                                                                       --------------------    --------------------
  
<S>                                                                    <C>                     <C>                
Revenue                                                                $        25,965,719     $        21,138,948

Costs and expenses
Cost of sales                                                                   21,713,447              15,293,617
                                                                       --------------------    --------------------

                                                                                 4,252,272               5,845,331
                                                                       --------------------    --------------------

Selling and shipping                                                             2,645,776               2,401,691
Administrative                                                                   3,025,827               2,226,103
                                                                       --------------------    --------------------

                                                                                 5,671,603               4,627,794
                                                                       --------------------    --------------------

Earnings (loss) from operations                                                 (1,419,331)              1,217,537
                                                                       --------------------    --------------------

Other income (expense)
Other income                                                                       229,292                 196,656
Other expense, primarily interest                                                 (236,574)               (141,938)
                                                                       --------------------    --------------------

                                                                                    (7,282)                 54,718
                                                                       --------------------    --------------------

Earnings (loss) before income taxes                                             (1,426,613)              1,272,255
Income tax expense (benefit)                                                      (429,000)                551,182
                                                                       --------------------    --------------------

Net Earnings (loss)                                                  $            (997,613)  $             721,073
                                                                       --------------------    --------------------
                                                                       --------------------    --------------------

Basic earnings (loss) per common share                               $               (0.21)  $                0.15
Diluted earnings (loss) per share                                    $               (0.21)  $                0.15
</TABLE>









<PAGE>



                             ON-SITE SOURCING, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                                                            
                                                                Common              Additional           Subscriptions      
                                            Common shares        stock            paid-in capital          Receivable       
                                         ----------------    ---------------    ------------------    --------------------  
<S>                                      <C>                 <C>                <C>                  <C>                    
Balance at
December 31, 1996                        $     4,794,021     $       47,940      $      6,351,911     $           (50,400)  

Sale of common stock                               8,200                 82                15,468                       -   

Net earnings                                           -                  -                     -                       -   
                                         ----------------    ---------------    ------------------    --------------------  

Balance at
December 31, 1997                              4,802,721             48,022             6,367,379                 (50,400)  

Sale of common stock                              22,448                225                65,312                       -   

Common stock reacquired                                -                  -                     -                       -   

Net loss                                               -                  -                     -                       -   
                                         ----------------    ---------------    ------------------    --------------------  

Balance at
December 31, 1998                        $     4,824,669     $        48,247   $         6,432,691  $              (50,400) 
                                         ----------------    ---------------    ------------------    --------------------  
                                         ----------------    ---------------    ------------------    --------------------  
</TABLE>




<TABLE>                        
<CAPTION>                      
                               
                                      Treasury             Retained                           
                                        Stock             (deficit)                           
                                       (Common)             earning               Total       
                                ------------------    -----------------    ------------------ 
<S>                            <C>                    <C>                  <C>
Balance at                                                                                    
December 31, 1996               $               -     $          6,913     $       6,356,364  
                                                                                              
Sale of common stock                            -                    -                15,550  
                                                                                              
Net earnings                                    -              721,073               721,073  
                                ------------------    -----------------    ------------------ 
                                                                                              
Balance at                                                                                    
December 31, 1997                               -              727,986             7,092,987  
                                                                                              
Sale of common stock                            -                    -                65,537  
                                                                                              
Common stock reacquired                   (25,000)                   -               (25,000) 
                                                                                              
Net loss                                        -             (997,613)             (997,613) 
                                ------------------    -----------------    ------------------ 
                                                                                              
Balance at                                                                                    
December 31, 1998              $           (25,000)  $         (269,627)  $         6,135,911 
                                ------------------    -----------------    ------------------ 
                                ------------------    -----------------    ------------------ 
</TABLE>









<PAGE>


                             ON-SITE SOURCING, INC.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,


<TABLE>
<CAPTION>
                                                                                      1998                 1997
                                                                                -----------------    -----------------
<S>                                                                             <C>                  <C>   
Cash flows from operating activities
 Net earnings (loss)                                                            $       (997,613)    $        721,073
                                                                                -----------------    -----------------

Adjustments to reconcile net earnings
to net cash used in operating activities
  Depreciation                                                                         1,037,175              769,918
  (Gain) loss on disposition of equipment                                                (29,524)               8,460
  Changes in assets and liabilities
  Decrease (increase) in accounts receivable, net                                         64,036           (3,240,315)
  Increase in prepaid supplies                                                           (31,673)            (228,923)
  Decrease (increase) in prepaid expenses                                                 79,989             (130,780)
  Decrease (increase) in other assets                                                     23,719              (62,874)
  Increase in accounts payable - trade                                                    25,668            1,468,812
  (Decrease) increase in accrued  and other liabilities                                 (230,153)             635,288
  Increase (decrease) in deferred rent                                                    25,402               20,380
  (Decrease) increase in provision for income taxes                                     (559,193)             559,193
  Increase (decrease) in deferred taxes                                                  130,193               (8,011)
                                                                                -----------------    -----------------

    Total adjustments                                                                    535,639             (208,852)
                                                                                -----------------    -----------------

    Net cash provided by (used in) operating activities                                 (461,974)             512,221
                                                                                -----------------    -----------------

Cash flows from investing activities
 Capital expenditures                                                                 (1,090,034)          (1,265,293)
 Proceeds from disposition of equipment                                                    9,501                    -
                                                                                -----------------    -----------------

    Net cash used in investing activities                                             (1,080,533)          (1,265,293)
                                                                                -----------------    -----------------

Cash flows from financing activities
Proceeds from sale of common stock and exercise of warrants                               65,537               15,550
Proceeds of long-term debt agreements                                                    316,000              361,643
Net borrowings short term debt agreement                                                 141,345                    -
Payments under long-term debt agreements                                                (471,077)             (28,141)
                                                                                -----------------    -----------------

Net cash provided by financing activities                                                 51,805              349,052
                                                                                -----------------    -----------------

NET DECREASE IN CASH                                                                  (1,490,702)            (404,020)
AND CASH EQUIVALENTS

Cash and cash equivalents, beginning                                                   1,490,702            1,894,722
                                                                                -----------------    -----------------
Cash and cash equivalents, end                                                $                -     $      1,490,702
                                                                                -----------------    -----------------
                                                                                -----------------    -----------------
</TABLE>


<PAGE>



                             ON-SITE SOURCING, INC.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                            Years ended December 31,






<TABLE>
<CAPTION>
                                                                                      1998                1997
                                                                                ----------------     -----------------
<S>                                                                           <C>                  <C>   
Supplemental disclosure of cash flow activities

Interest paid                                                                 $          194,585    $         133,470
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------

Income taxes paid                                                             $                -   $                -
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------

Non cash investing and financing activities:

Fixed assets acquired under capital lease obligations                         $          269,508   $                -
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------

Refinancing of capital lease obligations under an equipment note              $                -   $         1,100,000
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------

Fixed assets acquired through long-term debt                                  $           21,509   $                -
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------

Purchase of treasury stock offset against note receivable                     $           25,000   $                -
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------

Proceeds from sale of equipment included in accounts receivable               $           65,000   $                -
                                                                                ----------------     -----------------
                                                                                ----------------     -----------------
</TABLE>







<PAGE>


                             ON-SITE SOURCING, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1998 and 1997

1.       ORGANIZATION

         NATURE OF BUSINESS

         On-Site Sourcing, Inc. (the "Company") was incorporated in the
         Commonwealth of Virginia on December 1992 and changed its state
         incorporation to Delaware in January 1996. The Company performs various
         services, including facilities management, litigation copying, and
         related services at customer and company locations, and the purchase,
         and the purchase, refurbishment, lease, sale and servicing of copy
         machines. 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.

         RECLASSIFICATIONS

         Certain accounts in 1997 financial statements have been reclassified to
         conform with the December 31, 1998 presentation.

         REVENUE RECOGNITION

         Revenue from reprographic services is recognized on a per copy basis
         upon completion of the services. Facilities management revenue is
         recognized based on monthly fixed fees and, in certain cases, on a
         variable per copy fee basis, as defined in facilities management
         agreements.

         SEGMENT DISCLOSURES

         Effective for the year ended December 31, 1998, the Company adopted
         SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
         Information." SFAS No. 131 establishes standards for reporting
         information about operating segments and related disclosures about
         products and services, geographic areas and major customers.

         INCOME TAXES

         Deferred taxes are recognized based on the estimated future tax effects
         of temporary differences between the carrying amounts of assets and
         liabilities for financial reporting purposes and the amount used for
         income tax purposes. Income tax expense (benefit) represents the
         current tax provision for the period and the change during the period
         in deferred and current tax assets and liabilities. Deferred taxes for
         temporary differences relate to depreciation, deferred rent and net
         operating loss carryforwards.



<PAGE>


                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         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 ten years for financial
         reporting purposes. Accelerated methods are used for tax purposes.

         EARNINGS PER (LOSS) COMMON SHARE

         Basic earnings (loss) per share excludes dilution and is 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>
   
                                                                                Year ended December 31,
                                                                               1998                 1997
                                                                       ------------------   -------------------
   
   <S>                                                                 <C>                  <C>              
   Net earnings (loss) available for common shareholders (A)           $        (997,613)   $         721,073
                                                                       ------------------   -------------------
                                                                                              
   Average Outstanding:
   
    Common stock (B)                                                           4,818,220            4,794,705
    Employee stock options                                                                      
                                                                                       -              152,498
                                                                       ------------------   -------------------
   Common stock and common stock equivalents (C)                                               
                                                                               4,818,220            4,947,203
                                                                       ------------------   -------------------
   
    Earnings (loss) per share:
    Basic (A/B)                                                        $           (0.21)   $            0.15
                                                                       ------------------   -------------------
   Diluted (A/C)                                                       $           (0.21)   $            0.15
                                                                       ------------------   -------------------
</TABLE>


         Unexercised employee stock options to purchase 1,675,360 and 814,257
         shares of the Company's common stock as of December 31, 1998 and 1997,
         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. In addition, since the Company had a net loss for
         the year ended December 31, 1998, no potential common shares to be
         issued are included in the computation of the diluted per share amount
         as they would be antidilutive. Accordingly, for the year ended December
         31, 1998 common stock equivalents totaling 130,285 are not included in
         the weighted average shares of common stock outstanding.

         DEFERRED RENT

         Deferred rent is recorded and amortized to the extent the total minimum
         rental payments allocated to the current period on a straight-line
         basis exceed or are less than the cash payments required.

         CASH AND CASH EQUIVALENTS

         The Company considers all highly liquid investments with an original
         maturity of three months or less at the date of acquisition to be cash
         equivalents.


<PAGE>


                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         The following disclosure of the estimated fair value of financial
         instruments is made in accordance with the requirements of SFAS No.
         107, "Disclosure about Fair Value of Financial Instruments". The
         estimated fair value amounts have been determined using available
         market information, assumptions and valuation methodologies.

         SUBSCRIPTION RECEIVABLE AND NOTE RECEIVABLE-OFFICER

         Management believes that it is not practicable to estimate the fair
         value of notes because notes with similar characteristics are not
         available from the Company.

         LINE OF CREDIT AND LONG-TERM DEBT

         The carrying amounts approximate fair value.

         IMPAIRMENT OF LONG-LIVED ASSETS

         The Company complies with Statement of Financial Accounting Standards
         ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
         to be Disposed Of." SFAS No. 121 requires that long-lived assets and
         certain identifiable intangibles held and used by an entity be reviewed
         for impairment whenever of changes in circumstances indicate that the
         carrying amount of an asset may not be recoverable. To determine
         recoverability of its long-lived assets, the Company evaluates the
         probability that future undiscounted net cash flows will be less than
         the carrying amounts of net assets. Impairment, if any, is measured at
         fair value.

         CONCENTRATION OF CREDIT RISK

         Financial instruments, which potentially subject the Company to a
         concentration of credit risk, principally consist of trade accounts
         receivable and cash. The Company places its cash with credit worthy,
         high quality financial institutions. Credit risk with respect to trade
         receivables is also limited because the Company deals with a large
         number of customers in a wide geographic area. At December 31, 1998,
         two such customers accounted for approximately 25% of trade accounts
         receivable.

     3.  COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

         ACCOUNTS RECEIVABLE

        Accounts receivable consist of the following at December 31,:

<TABLE>
<CAPTION>

                                                                              1998                           1997
                                                                    -------------------------       ------------------------

<S>                                                               <C>                             <C>                      
Trade receivables                                                 $                6,306,209      $               6,341,063
Other receivables                                                                    220,151                              -
Allowance for uncollectible accounts                                               (604,333)                      (420,000)
                                                                    -------------------------       ------------------------

                                                                  $                5,922,027      $               5,921,063
                                                                    -------------------------       ------------------------
                                                                    -------------------------       ------------------------
</TABLE>







<PAGE>


                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

3.       COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)

        OTHER ASSETS

        Other assets consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                                   1998                     1997
                                                                             ------------------   --------------------------
    <S>                                                                    <C>                    <C>                      
    Deposits                                                               $            47,389    $                  30,240
                                                                                        
    Employee advances                                                                   27,673                       25,208
                                                                                        
    Acquisition of facilities management contracts,
    net of accumulated amortization of $8,667                                                -                       43,333
                                                                             ------------------   --------------------------
    
                                                                           $            75,062    $                  98,781
                                                                                        
                                                                             ------------------   --------------------------
                                                                             ------------------   --------------------------
</TABLE>



        PROPERTY AND EQUIPMENT

        Property and equipment consist of the following at December 31,:

<TABLE>
    
                                                                                   1998                 1997
                                                                             ------------------   -----------------
    
    <S>                                                                    <C>                   <C>              
    Copiers                                                                $         3,560,647   $       3,391,926
    Computers, equipment and other                                                   2,683,792           1,580,340
    Vehicles                                                                           332,551             282,106
                                                                             ------------------   -----------------
    
                                                                                     6,576,990           5,254,372
    Accumulated depreciation                                                        (2,208,995)         (1,185,275)
                                                                             ------------------   -----------------
    
                                                                           $        4,367,995    $      4,069,097
                                                                             ------------------   -----------------
                                                                             ------------------   -----------------
</TABLE>



         Depreciation expense charged to operations was $1,037,175 and $761,251
         for the years ended 1998 and 1997, respectively.


<PAGE>


                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

3.       COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS (CONTINUED)

         ACCRUED AND OTHER LIABILITIES

         Accrued and other liabilities consist of the following at December 31,:

<TABLE>
<CAPTION>
    
                                                                              1998                 1997
                                                                        -----------------    -----------------
    <S>                                                               <C>                   <C>              
    Accrued salaries, commissions, taxes and
     fringe benefits                                                  $          484,732    $         831,197
    Accrued sales tax payable                                                    109,581               72,496
    Other accrued liabilities                                                    100,021               20,794
                                                                        -----------------    -----------------
    
                                                                      $          694,334    $         924,487
                                                                        -----------------    -----------------
                                                                        -----------------    -----------------
</TABLE>



4.      SEGMENT INFORMATION

        The Company's reportable segments are strategic business units that
        offer different products and services. The Company has two reportable
        segments: reprographics and facilities management services. Reprographic
        services include copying, binding, labeling, collating and indexing
        materials. Facilities management services include on-premises management
        of the customer's support services including mailroom operations,
        facsimile transmission, records and supply room management and copying
        services. Other operating segments include information technology and
        imaging services.

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies (note 2). The Company
         evaluates performance based on profit and loss from operations before
         income taxes and does not review information regarding the allocation
         of assets to each segment. In addition, corporate administrative costs
         are not allocated to each segment. There are no intersegment sales or
         transfers.

         Revenue and profit by reportable segment for the years ended December
         31, 1998 and 1997 is as follows:


<TABLE>
<CAPTION>
    
                                                 Reprographic services          Facilities management services
                                            ----------------------------       ---------------------------------
                                                1998              1997              1998              1997
                                            ------------    ------------       -----------       ---------------
    
    <S>                                     <C>             <C>                <C>               <C>        
    Revenue                                 $ 20,447,165    $ 18,111,040       $ 4,002,208       $ 2,635,202
    Segment profit                             1,264,860       2,073,828           459,702           635,426
</TABLE>



<PAGE>



                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

4.       SEGMENT INFORMATION (CONTINUED)

         A reconciliation of segment revenue and profit to total revenue and
earnings (loss) from operations is as follows:

<TABLE>
<CAPTION>
    
                                                                                1998                 1997
                                                                          -----------------    -----------------
    <S>                                                                 <C>                  <C>               
    REVENUE
     Total revenue for reportable segments                              $       24,449,373   $       20,746,242
     Other revenue                                                               1,516,346              392,706
                                                                          -----------------    -----------------
    
    Total revenue                                                       $       25,965,719   $       21,138,948
                                                                          -----------------    -----------------
                                                                          -----------------    -----------------
    
    PROFIT OR LOSS
     Total profit for reportable segments                                $       1,724,562   $        2,709,254
     Other profit (loss)                                                        (3,143,893)          (1,491,717)
                                                                          -----------------    -----------------
    Income (loss) before interest and income taxes                      $       (1,419,331)  $        1,217,537
                                                                          -----------------    -----------------
                                                                          -----------------    -----------------
</TABLE>



5.      LINE OF CREDIT

        In February 1997, the Company entered into a working capital line of
        credit agreement with a financial institution for $2,500,000, which
        expires April 30, 1999. The working capital line of credit is
        collateralized by accounts receivable and certain equipment as described
        in the agreement. The working capital line of credit is subject to
        certain financial covenants, including minimum tangible net worth
        requirements. The line of credit bears interest at the bank's prime rate
        or the 30-day LIBOR rate plus 2.25% (7.29% at December 31, 1998). As of
        December 31, 1998 and 1997 there were $141,345 and $-0- advances made
        under this agreement, respectively.

<PAGE>


        ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

6.      LONG-TERM DEBT

        Long term debt is as follows:

<TABLE>
<CAPTION>
                                                                                       1998                 1997
                                                                                 -----------------    -----------------
     <S>                                                                         <C>                <C>               
     Equipment note of $1,100,000 at 9.02% collateralized by certain assets                            
     of the Company payable in equal monthly installments of $22,916 plus         
     interest, maturing in March 2000.                                           $        618,750   $          893,750
     
     Equipment note at 8.75%, collateralized by the equipment, payable in equal                        
     aggregate monthly installments of $5,594 plus interest, maturing in         
     December 2000.                                                                       203,919              268,500
     
     Vehicle notes at 5.0%, collateralized by the vehicles, payable in equal                           
     aggregate monthly installments of principal and interest of approximately   
     $983, maturing in October 2001.                                                       31,954               41,882
     
     Vehicle notes at 9.7%, collateralized by the vehicles, payable in equal                           
     aggregate monthly installments of principal and interest of approximately   
     $1,272, maturing in August 2000.                                                      35,752               46,955
     
     Equipment note at 8.75% collateralized by the equipment, payable in equal   
     aggregate monthly installments of principal and interest of approximately            
     $7,380, maturing in July 2002.                                                       282,235                    -
     
     Vehicle note at 6.88%, collateralized by the vehicle, payable in equal      
     aggregate monthly installments of principal and interest of approximately             
     $425, maturing in November 2003.                                                      21,208                    -
     
     Capital leases obligations (see note 7)                                              448,460              255,251
                                                                                 -----------------    -----------------
     
     
                                                                                        1,642,278            1,506,338
     Less current maturities included in current
     liabilities                                                                         (472,824)            (411,894)
                                                                                 -----------------    -----------------
     
                                                                                 $      1,169,454     $      1,094,444
                                                                                 -----------------    -----------------
                                                                                 -----------------    -----------------
</TABLE>




<PAGE>


                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

6.      LONG-TERM DEBT (CONTINUED)

        Aggregate maturities for long-term debt are as follows:


<TABLE>
<CAPTION>
             <S>                                      <C>               
             Year ending December 31, 1999            $          472,824
                                      2000                       565,138
                                      2001                       365,063
                                      2002                       165,805
                                Thereafter                        73,448
                                                        -----------------

                                                      $        1,642,278
                                                        -----------------
                                                        -----------------
</TABLE>



7.      LEASES

        The Company leases its office facilities, copiers and office equipment
        under various operating and capital leases. Lease terms range from one
        to approximately six years.

        Minimum annual rental and lease commitments for leases with a remaining
        term of one year or more at December 31, 1998, are as follows:

<TABLE>
<CAPTION>
    
    Year ending December 31,                                                  Capital leases        Operating
                                                                                                     lease
    --------------------------------------------------------------------   -----------------    -----------------
    
    <S>                                                                    <C>                  <C>             
    1999                                                                   $        152,609     $        772,167
    
    2000                                                                            152,540              696,480
    
    2001                                                                            143,250              504,819
    
    2002                                                                             81,996              386,200
    
    2003                                                                             23,906              246,364
    
    Thereafter                                                                            -              832,289
                                                                           -----------------    -----------------
    
    Total minimum lease payments                                                    554,301     $      3,438,319
                                                                                    
                                                                                                -----------------
                                                                                                -----------------
    
    Less: interest                                                                  105,841
                                                                           -----------------
    
    Present value of net minimum lease payments                          $  
                                                                                    448,460
                                                                           -----------------
                                                                           -----------------
</TABLE>



        Fixed assets recorded under capital leases as of December 31, 1998 and
        1997, total approximately $659,000 and $390,000, respectively,
        representing reprographic machines, and computer equipment. Interest
        expense on the outstanding obligations under capital leases was
        approximately $15,400, and $30,000 for the years ended December 31, 1998
        and 1997, respectively.

        Rent expense was $1,488,294 and $979,000 for the years ended December
        31, 1998 and 1997, respectively.

<PAGE>


        ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

8.      RELATED PARTY TRANSACTIONS

        TRANSACTIONS WITH AN OFFICER/SHAREHOLDER

        During the years ended December 31, 1998 and 1997, the Company recorded
        the following transactions with a shareholder and former officers.

         o    During 1998 and 1997, the Company billed a shareholder  and former
              officer  approximately  $16,500 and $22,000, respectively, for 
              reprographic services.

         o    During 1998 and 1997, the Company incurred approximately $40,000
              and $74,000, respectively, for legal services rendered by a
              shareholder and former officer. Included in the amounts payable as
              of December 31, 1997, is approximately $13,000 in legal fees due
              to the officer/shareholder.

         o    During 1996, the Company entered into a note agreement with a
              former officer/shareholder in the amount of $25,000. The loan bore
              interest at the prime rate of interest at the date of the loan
              (8.25%). All unpaid principal and accrued interest was repayable
              in September 1998. In November 1998, the Company repurchased
              shares of common stock in satisfaction for the note receivable.

         o    During 1997, the Company recorded revenue of approximately
              $275,000 for services provided to a former shareholder under a
              facilities management agreement. Included in accounts receivable
              as of December 31, 1997 is approximately $65,000 from the former
              shareholder.

9.      COMMITMENTS AND CONTINGENCIES

        EMPLOYMENT AGREEMENTS

        The Company has entered into employment agreements with its officers and
        certain employees. The agreements provide for base salaries, contingent
        incentive compensation based on achievement of certain sales and other
        goals, noncompete and nondisclosure restrictions and, in certain cases,
        stock options which vest over a period of time.
        The agreements are terminable at the discretion of the Company.

        LETTER OF CREDIT

        The Company has an undrawn bank letter of credit, in the approximate
        amount of $30,000, in connection with an operating lease. The letter of
        credit expires October 31, 1999.

10.     INCENTIVE STOCK OPTION PLAN

        The Company adopted an incentive stock option plan, for 1998, 1997, 1996
        and 1995 under which a pool of 700,000, 500,000, 242,000 and 510,000
        shares, respectively, has been reserved. The plan is administered and
        terms of option grants are established by the Board of Directors. Under
        the terms of the plan, options may be granted to the Company's employees
        to purchase shares of common stock. Options become exercisable ratably
        over a vesting period as determined by the Board of Directors, and
        expire over terms not exceeding 10 years from the date of grant, three
        months after termination of employment, or one year after the death or
        permanent disability of the employee. The Board of Directors determine
        the option price (not less than fair market value) at the date of grant.


<PAGE>



                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

10.     INCENTIVE STOCK OPTION PLAN (CONTINUED)

        The Company applied APB Opinion No. 25 and related Interpretations in
        accounting for its plans. Had compensation cost been determined in
        accordance with FASB Statement No. 123, the Company's net income (loss)
        and net income (loss) per share would have been the pro forma amounts
        indicated below.

<TABLE>
<CAPTION>

                                                                                          Year ended
                                                                           ----------------------------------------
                                                                                   1998                 1997
                                                                           -------------------    -----------------
    <S>                                                                    <C>                     <C>          
    Net income (loss):
     As reported                                                           $      (997,613)        $     721,073
     Pro forma                                                                  (1,225,712)              626,288
    
    Net income (loss) per common share - Basic:
     As reported                                                                     (0.21)                 0.15
     Pro forma                                                                       (0.25)                 0.13
    
    Net income (loss) per common share - Diluted:
     As reported                                                                     (0.21)                 0.15
     Pro forma                                                                       (0.25)                 0.13
</TABLE>

        All options granted during the year ended December 31, 1998 and 1997
        were issued pursuant to the incentive stock option plans. The fair value
        of each option grant under the plan is estimated on the date of grant
        using the Black-Scholes option-pricing model. The following 
        weighted-average assumptions for 1998 and 1997, respectively, were used:
        expected dividend yields of 0.0% and 0.0%, expected volatility rates of
        48% and 44.5%, risk-free rates of 5.5% and 5.4% and expected lives of 1
        to 4 years.

        At December 31, 1998 and 1997, the Company had outstanding options to
        sell 434,937 and 126,000, respectively, shares of common stock to
        officers and directors at exercise prices ranging from $1.11 to $3 per
        share. The options expire through 2001.

        During 1998 and 1997, the Company granted options for 1,182,225 and
        383,509 shares of common stock, respectively, at exercise prices ranging
        from $2.12 to $3.25 per share, respectively. The grant price per share
        was equal or greater than the market price at the date of grant. During
        1997, options for 144,000 of common stock expired and 5,000 were
        exercised. As of December 31, 1997, options for 193,000 of the shares
        are vested and outstanding. As of December 31, 1998, options for 781,885
        of the shares are vested with the remainder scheduled to vest through
        October 2002. The options expire through October 2006.

<PAGE>


        ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997

10.     INCENTIVE STOCK OPTION PLAN (CONTINUED)

        The following depicts activity in the plan for two years ended December
31, 1998:


<TABLE>
<CAPTION>
                                                         Options outstanding
                                                   -------------------------------------
                                                                          Per share
                                                     Shares            exercise prices
                                                   -------------     -------------------
    <S>                                            <C>               <C> 
    Outstanding, January 1, 1997                         755,000     $      1.10-3.25
     Options granted                                     383,509            2.12-3.25
     Options exercised                                    (5,000)                1.10
     Options expired                                    (166,754)           2.12-3.25
                                                   -------------     -------------------
    
    Outstanding, December 31, 1997                       966,755            1.10-3.25
     Options granted                                   1,182,225            1.13-3.44
     Options exercised                                    (5,000)                1.11
     Options expired                                    (468,620)           2.13-3.00
                                                   -------------     -------------------
    Outstanding, December 31, 1998                     1,675,360     $      1.10-3.00
                                                   -------------     -------------------
                                                   -------------     -------------------
</TABLE>


11.     INCOME TAXES

        The amounts and sources of the provision for deferred income tax expense
        (benefit) were as follows for the year ended December 31,:

<TABLE>
<CAPTION>

                                             1998                 1997
                                       ------------------   -----------------
  <S>                                <C>                    <C>                            
  Current
   Federal                           $         (447,424)    $        447,401               
   State                                       (111,769)             111,792
                                       ------------------   -----------------
                                               (559,193)             559,193
  Deferred
   Federal                                      103,731              (10,681)
   State                                         26,462                2,670
                                       ------------------   -----------------
                                     $         (429,000)    $        551,182
                                       ------------------   -----------------
                                       ------------------   -----------------
</TABLE>



<PAGE>


                             ON-SITE SOURCING, INC.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1998 and 1997




11.     INCOME TAXES (CONTINUED)

        Deferred income taxes reflect the net tax effects of temporary
        differences between carrying amounts of assets and liabilities for
        financial reporting purposes. Components of the Company's deferred tax
        liability (benefit) are as follows:

<TABLE>
<CAPTION>
                                                                                  1998                1997
                                                                            -----------------   ------------------
    
    <S>                                                                     <C>                  <C>
    Excess of tax over financial accounting depreciation                    $       365,477      $        75,334
    Loss carryforwards                                                             (138,315)                   -
    Other                                                                           (29,980)              (8,345)
                                                                            -----------------   ------------------
    Deferred tax liability                                                  $       197,182      $        66,989
                                                                            -----------------   ------------------
                                                                            -----------------   ------------------
</TABLE>



        Beginning in 1998, the Company is required to report on the accrual
        basis for federal and state income tax purposes. In accordance with
        Internal Revenue Service Code, the amount of income tax due resulting
        from the conversion from cash to accrual is payable during 1998. The
        income tax payable was offset by current year losses and net operating
        loss carryforwards. At December 31, 1998, the Company had approximately
        $337,000 of operating loss carryforwards which expire in 2013.

<PAGE>




ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

         None

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS

       The following individuals are the Directors and Officers of the Company.
       All Directors are elected annually by the shareholders to serve until the
       next annual meeting of shareholders and until their successors are duly
       elected and qualified. Officers are elected annually by the Board of
       Directors to serve at the pleasure of the Board.

<TABLE>
<CAPTION>
        NAME                   AGE                              POSITION
-------------------------     ------          ----------------------------------------------------
<S>                           <C>          <C>
Christopher J. Weiler          36          President, Chief Executive Officer and Chairman of
                                           the Board
Allen C. Outlaw                33          Vice President-Marketing and Director
Anthony A. Kopsidas            28          Vice President-Operations and Director
Alfred Duncan                  54          Vice President-Finance and Chief Financial Officer
Edward Hook                    44          Vice President-Reprographics
Charles B. Millar              38          Director
Jorge R. Forgues               43          Director


     CHRISTOPHER J. WEILER founded the Company with in December 1992 and has
     been President, Chief Executive Officer and a director of the Company since
     that time. Mr. Weiler graduated from the United States Naval Academy in
     1985 and served in the United States Navy as a surface warfare officer and
     as a Navy Senate Liaison Officer on Capitol Hill, Washington, D.C. before
     joining Pitney Bowes Management Services in 1991. During 1998, Mr. Weiler
     was elected as Chairman of the Board.

     ALFRED DUNCAN joined the Company as Executive Vice President and Chief
     Financial Officer in July 1998. From June 1997 until July 1998, Mr Duncan
     served as Vice President and Chief Financial Officer of Meadowlanders,
     Inc., owners of the New Jersey Devils, a National Hockey League team. From
     1992 until June 1997, Mr Duncan was an independent management consultant to
     the computer, software and consumer electronics industries. Mr. Duncan
     holds a BSCE from Duke University and an MBA from Harvard University.

     ALLEN C. OUTLAW has been Vice President of Marketing since September 1997.
     Prior thereto Mr. Outlaw served as Vice President of Sales and Marketing
     since joining the Company in March 1994. Mr. Outlaw has also served on the
     Board of Directors since March 1994. Prior to joining the Company, he held
     various positions in the investment industry, including owner and Director
     of Marketing of Justin Asset Management, a successful investment management
     firm from January 1991 until joining the Company.

     ANTHONY A. KOPSIDAS has been the Vice President of Operations since
     December 1994. Prior thereto, Mr. Kopsidas served as a supervisor since
     joining the Company in March 1994. Mr. Kopsidas served as president of
     Corporate Lawn and Landscaping, a Maryland corporation, for three years
     before joining the Company. Mr. Kopsidas has also served on the Board of
     Directors since December 1994.



<PAGE>


     EDWARD HOOK joined the Company as Executive Vice President, Reprographics
     Services in July 1998, having served the Company as a consultant since
     April 1998. From February 1997 until April 1998, Mr. Hook served as an
     independent consultant for ASE Associates, involving strategic planning and
     corporate development. From 1984 to February 1997, Mr. Hook served as
     Senior Vice President of Shields Business Solutions, a Company engaged in
     the sales and service of office products to the financial and legal
     industries.

     CHARLES B. MILLAR has served as a Senior Vice President of the Washington
     D.C. investment banking firm of Johnston, Lemon & Co., Inc. since 1991. Mr.
     Millar joined the Board of Directors, Compensation and Audit Committees in
     August 1996.

     JORGE R. FORGUES has the positions of Senior Vice President of Finance and
     Administration, Chief Financial Officer and Treasurer of Network Imaging
     Corporation since April 1996, a Herndon-based publicly traded software
     developer. From October 1993 until assuming his current position, Mr.
     Forgues was Vice President of Finance and Administration, Chief Financial
     Officer and Treasurer of Globalink, a Fairfax-based, publicly-traded,
     machine translation software company. From 1992 to 1993, Mr. Forgues was
     the Director of Accounting for Spirit Cruises, a harbor cruise line with
     operations in nine states. Prior thereto, from 1987 to 1992, Mr. Forgues
     was Vice President of Finance at Best Software, Inc., a computer software
     developer. Mr. Forgues joined the Board of Directors, Compensation and
     Audit Committees in July 1996.

     Messrs. Charles Millar and Jorge Forgues are the members of the Audit
     Committee of the Board of Directors. Messrs. Christopher Weiler, Charles
     Millar and Jorge Forgues are the members of the Compensation Committee of
     the Board of Directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     To the best of the Company's knowledge, in 1998, all Officers, Directors
     and 10% shareholders have filed, on a timely basis, all forms required by
     Section 16(a) of the Exchange Act of 1934, with the exception that three
     outside directors did not timely file Form 4 reporting grants of stock
     options in September 1997. Such reports have subsequently been filed.

ITEM 10.  EXECUTIVE COMPENSATION

     The following table sets forth certain information regarding the
     compensation of the Company's Chief Executive Officer and the other most
     highly compensated executive officers (collectively, the "Named Executive
     Officers") whose annual compensation (salary and bonus) for services
     rendered in all capacities to the Company exceeded $100,000 for the years
     ended December 31, 1998 and 1997.


<PAGE>




--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
                                  Annual Compensation                                            Long Term Compensation
--------------------------------------------------------------------------------------------------------------------------------
                                                                           Other                                 All
                                                                           Annual                             Other
Name and Principal                                                       Compensation        Options/      Compensation
Position                                        Salary          Bonus          $               SAR's            $
                                   Year           $              $                            Shares
<S>                              <C>         <C>            <C>          <C>              <C>              <C>
--------------------------------------------------------------------------------------------------------------------------------
Christopher Weiler               1998           125,145          -              -               4,225               -
President and CEO                1997           118,917       20,000            -                -                  -
--------------------------------------------------------------------------------------------------------------------------------
Lance Waagner                    1998           148,754          -              -              77,500               -
Vice President, Information      1997              -             -              -                -                  -
Technology
--------------------------------------------------------------------------------------------------------------------------------
Allen Outlaw                     1998           299,708                         -             107,800               -
Vice President, Marketing        1997            99,028          -              -                -                  -
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


DIRECTOR COMPENSATION

     Directors currently receive no cash compensation for serving on the Board
     of Directors other than reimbursement of reasonable expenses incurred in
     attending meetings. For 1997, three outside directors each received options
     to purchase 20,000 shares of Common Stock vesting over a period of three
     years in equal portions at the end of each quarter. The options were
     granted at the market price at the time of grant. For 1998, three outside
     directors each received options to purchase 40,000 shares of Common Stock
     vesting over a period of three years in equal portions at the end of each
     quarter. The options were granted at the market price at the time of grant.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table enumerates, as of February 28, 1999, the name and
     ownership, both by numerical holding and percentage interest, of the
     Company's common stock by (1) each person or group, known to the Company,
     who beneficially owns more than 5 percent of the Company's outstanding
     common stock; (2) the Directors and Executive Officers of the Company,
     individually, and (3) the Directors and Executive Officers as a group.

     In preparing the following tables, the Company has relied upon statements
     filed with the Securities and Exchange Commission by beneficial owners of
     more than 5 percent of the Company's outstanding common stock pursuant to
     Section 13(d) or 13(g) of the Securities Act of 1934, unless the Company
     knew or had reason to believe that the information contained in such
     statements was not complete or accurate, in which case the Company relied
     upon information which it considered to be accurate and complete.


<PAGE>

<TABLE>
<CAPTION>
                                                   
                                                               # OF SHARES                   APPROXIMATE % OF 
    NAME                                                     BENEFICIALLY OWNED          BENEFICIAL OWNERSHIP (1)
    ----                                                     ------------------          ------------------------
    <S>                                                  <C>                         <C>  
    The Estate of John S. Stoppelman (2)                            639,583                          11.4%
    10900 Equestrian Court
    Reston, VA 20190
    
    Denis A. Seynhaeve (1.A)                                        537,000                           9.6%
    220 Wardour Drive
    Annapolis, MD 21401
    
    Christopher J. Weiler (3)                                       364,225                           6.5%
    c/o the Company
    
    Allen C. Outlaw (4)                                             231,467                           4.1%
    c/o the Company
    
    Anthony A. Kopsidas (5)                                         129,412                           2.3%
    c/o the Company
    
    Alfred Duncan  (6)                                               44,225                              *
    c/o the Company
    
    Lance Waagner (7)                                                33,725                              *
    c/o the Company
    
    Jorge R. Forgues (8)                                             45,516                              *
    500 Huntmar Park Drive
    Herndon, VA 20170
    
    Charles B. Millar (9)                                            49,016                              *
    1101 Vermont Ave., N.W.
    Washington, D.C. 20005
    
    Edward Hook  (10)                                                35,369                              *
    c/o the Company
    
    
    All Officers and Directors as a group                         2,109,537                          37.6%
</TABLE>

-----------
 *       Less than 1%

(1)      Based on 4,824,669 shares of Common Stock outstanding as of December
         31, 1998 and 780,732 shares of vested excercisable options.

(1.A)    Includes 88,000 shares purchased between March 1 and March 4, 1999

(2)      Includes 9,583 shares subject to options that are exercisable currently
         or exercisable within 60 days.

(3)      Includes 4,225 shares subject to options that are exercisable currently
         or exercisable within 60 days.

(4)      162,000 shares are held by escrow agent pursuant to the Promissory Note
         and Escrow Agreement. See "Interest of Management and others in Certain
         Transactions - Loans and Guarantees". Includes 24,467 shares subject to
         options that are exercisable currently or exercisable within 60 days.

(5)      Includes 129,412 shares subject to options that are exercisable
         currently or exercisable within 60 days.

(6)      Includes 44,225 shares subject to options that are exercisable
         currently or exercisable within 60 days.

(7)      Includes 25,000 shares subject to options that are exercisable
         currently or exercisable within 60 days.

(8)      Includes 45,516 shares subject to options that are exercisable
         currently or exercisable within 60 days.

<PAGE>

(9)      Includes 45,516 shares subject to options that are exercisable
         currently or exercisable within 60 days.

(10)     Includes 16,269 shares subject to options that are exercisable
         currently or exercisable within 60 days.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     In September 1996, the Company granted options to purchase 75,000 shares of
     the Company's common stock at $2.125 per share to an officer of the
     Company. The options vest in equal quarterly installments over a four year
     period. At the date of grant, these options were granted on terms no less
     favorable to the Company than those available to unaffiliated parties
     purchasing shares of the Company's common stock.

     In September 1997, the Company granted options to purchase 20,000 shares of
     the Company's common stock at $3.00 per share to each of the Company's
     three outside directors. The options vest in equal quarterly installments
     over a period of three year. At the date of the grant, these options were
     granted on terms no less favorable to the Company than those available to
     unaffiliated parties purchasing Shares of the Company's common stock.

     During 1998, the Company granted options to purchase 40,000 shares of the
     Company's common stock at $3.00 per share to each of the Company's three
     outside directors. The options vest in equal quarterly installments over a
     period of one year. At the date of the grant, these options were granted on
     terms no less favorable to the Company than those available to unaffiliated
     parties purchasing Shares of the Company's common stock.

LOANS AND GUARANTEES

     The President of the Company, his wife, and a former Director of the
     Company personally guaranteed a revolving line of credit with a commercial
     bank with a principal amount of $450,000 and interest at 1% over the prime
     rate per year. The line was executed by the Company for business purposes
     including the financing of receivables. On April 1, 1997 the line expired.

     In March 1996, the Company loaned $89,900 to an officer/director. The loan
     bears interest at 6%. The balance due at December 31, 1998 was $52,668.

     In September 1996, the Company loaned $25,000 to an officer, pursuant to an
     employment agreement. The loan bears interest at the prime rate at the date
     of the loan and was due September 26, 1998. In November 1998, the Company
     repurchased shares of common stock in satisfaction for the note.

REVENUES AND EXPENSES

     During 1998 and 1997, the Company billed a shareholder and former officer
     approximately $16,500 and $22,000, respectively, for reprographic services
     and the sale of a photocopier. These transactions occurred at the same
     prices available to non-related third parties.

     During 1998 and 1997, the Company was billed approximately $40,000 and
     $74,000, respectively, for legal services rendered by the Stoppelman Law
     Firm, P.C., of which a shareholder and former officer, is a principal. The
     Company believes that the fees charged were at least as favorable as those
     obtainable from an uninterested third party. In October 1996, the Company
     entered into an arrangement with The Stoppelman Law Firm whereby the
     Company pays a retainer of $5,000 per month for legal services which was
     subsequently increased to $7,000 per month in July 1997. The arrangement 
     ended in July of 1998.

     Future transactions with interested parties will continue to be handled on
     an arms' length basis, upon terms no less favorable to the Company than
     those available from unaffiliated third parties.




<PAGE>



ITEM 13.  EXHIBITS, REPORTS ON FORM 8-K

(a)       EXHIBITS

EXHIBIT #         DESCRIPTION OF DOCUMENT

3.01(1)           Certificate of Incorporation: Delaware

3.02(1)           Restated By-Laws: Delaware

4.01(1)           Form of Common Stock Certificate

4.02(1)           Form of Warrant Certificate

4.03(1)           Form of Warrant Agreement between On-Site Sourcing, Inc. and 
                  the Continental Stock Transfer and Trust Company

4.04(1)           Registrant's Articles of Incorporation are incorporated by 
                  reference to exhibit 3.01

4.05(1)           Registrant's Restated Bylaws pages 1-5 are incorporated by 
                  reference to exhibit 3.02

10.01(1)          Employment Agreement between the Company and Christopher 
                  Weiler

10.02(1)          Employment Agreement between the Company and Allen Outlaw

10.03(1)          Employment Agreement between the Company and Anthony Kopsidas

10.04(1)          Employment Agreement between the Company and Jack Krutsick

10.05(2)          Employment Agreement between the Company and Larry F. Morris

10.05(3)          Employment Agreement between the Company and Joseph Sciacca

10.06(1)          Lease with Rubin Strouse Realty for Philadelphia, PA

10.07(1)          Amendment 1 to Lease with Rubin Strouse Realty

10.08(1)          Amendment 2 to Lease with Rubin Strouse Realty

10.09(1)          Amendment 3 to Lease with Rubin Strouse Realty

10.10(1)          Lease with JRG/Lynn Associates, 9/12/95, for Arlington, VA

10.11(1)          First Addendum to Lease with JRG/Lynn Associates, 3/30/94

10.12(1)          Second Addendum to Lease with JRG/Lynn Associates, 7/6/94

10.13(1)          Third Addendum to Lease with JRG/Lynn Associates, 6/29/95

10.14(1)          Fourth Addendum to Lease with JRG/Lynn Associates, 1/25/96

10.15(1)          Lease Agreement between Oak Crest Ltd. and SWR 1/31/92 for 
                  Frederick, MD assumed by On-Site

10.16(1)          Assumption of Lease Agreement between the Company and Oak 
                  Crest Ltd.

10.17(1)          Lease with Kingston Atlanta Partners, L.P. - 12/15/95 for 
                  Atlanta, GA

10.18(1)          Form of Management Services Contract

10.19(5)          Lease with 443 Company/William Real Estate Co., Inc. for New 
                  York, NY office

10.20(5)          Lease with JRG/Lynn Associates 10/18/96


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10.21(5)          Lease with Frederick Park Limited Partnership

10.22(5)          Fifth Amendment to Lease with Suburban Station Associates

10.23(2)          Revised 1996 Stock Option Plan

10.24(2)          1997 Stock Option Plan

10.25 (5)         First Amendment to lease with Kingston Atlanta Partners, L.P.

10.26             Lease with Miller Properties.

10.27             Lease modification with Williams Real Estate

10.28             1998 Stock Option Plan

10.29             Employment agreement with Arne Christensen

10.30             Employment agreement with Allen Outlaw

10.31             Employment agreement with Alfred Duncan

10.32             Employment agreement with Edward Hook

10.33             Employment agreement with Jack Sabanush

16.01(4)          Letter on change in certifying accountant

27.01             Financial Data Schedule


(1)      Incorporated by reference to the Company's Registration Statement on
         Form SB-2 file No. 333-3544.

(2)      Incorporated by reference to the Company's Post Effective Amendment to
         the Company's Registration Statement on Form SB-2 file No. 333-3544.

(3)      Incorporated by reference to the Company's Quarterly Report on Form
         10-QSB for the period ended September 30, 1996.

(4)      Incorporated by reference to the Company's Current Report on Form 8-K
         dated November 29, 1996 and amended December 9, 1996.

(5)      Incorporated by reference to the Company's Annual Report on Form 10-KSB
         for the period ended December 31, 1996

(b)      REPORTS ON FORM 8-K

         None


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                                   SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on this 30th day of March 1998.


                                    ON-SITE SOURCING, INC.


                                    BY:       /s/ Christopher J. Weiler         
                                           -----------------------------------
                                            Christopher J. Weiler, President



In accordance with the Exchange, this Report has been signed below by the
following persons on behalf of the Registrant, and in the capacities and on the
date indicated.

<TABLE>
<CAPTION>

SIGNATURE                                            TITLE                                       DATE


<S>                                         <C>
/s/ Christopher J. Weiler                   President, Chief Executive
----------------------------                Officer and Director                                 March 30, 1999
Christopher J. Weiler                       


 /s/ Alfred Duncan                  
----------------------------                Chief Financial Officer and                             March 30, 1999
Alfred Duncan                               Chief Accounting Officer


</TABLE>