----

----

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**
|   | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE** |
|--------|--------------------------------------------------------------|
|   | **SECURITIES EXCHANGE  ACT OF 1934**                         |

**For the quarterly period ended June 30, 2001Commission File No. 0-20947**

| **ON-SITE SOURCING, INC.**                              |
|---------------------------------------------------------|
| ****                                                    |
| (Exact name of  registrant as specified in its charter) |

 

|                             |                                          |
|----------------------------------|-----------------------------------------------|
| **DELAWARE**                     | **54  -1648470**                              |
|                                  |                                               |
| (State or other  jurisdiction of | (I.R.S.  Employer Identification Number) |
| Incorporation or  organization)  |                                          |
|                             |                                          |
|                             |                                          |

 

| **1111  North 19th Street, Sixth Floor, Arlington, Virginia 22209**                 |
|-------------------------------------------------------------------------------------|
| ****                                                                                |
| (Address of principal  executive offices)                                           |
|                                                                                |
|                                                                                |
| **(703)  276-1123**                                                                 |
| ****                                                                                |
| (Registrant’s  telephone number)                                               |
|                                                                                |
| **NONE**                                                                            |
| ****                                                                                |
| (Former name, former  address and former fiscal year, if changed since last report) |
|                                                                                |

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.

                                                                                                           Yesý   No o .

Indicate the number of shares outstandingof each of the issuer’s classes of common stock, as of August 13, 2001:

| Common Stock, $.01 par  value | 5,061,075 shares |
|-------------------------------|------------------|

----

----

 

ON-SITESOURCING, INC.INDEX

| **Part  I.**  | **Financial  Information**                                                                            |
|---------------|-------------------------------------------------------------------------------------------------------|
|          |                                                                                                  |
| Item 1.       | Financial  Statements:                                                                                |
|          | Balance Sheets as  of June 30, 2001 (unaudited) and December 31, 2000                                 |
|          |                                                                                                  |
|          | Statements  of Operations for the Three and Six Months Ended June 30, 2001 and 2000  (unaudited)      |
|          |                                                                                                  |
|          | Statements  of Cash Flows for the Three and Six Months Ended June 30, 2001 and 2000  (unaudited)      |
|          |                                                                                                  |
|          | Notes to Financial Statements  – June 30, 2001 (unaudited)                                       |
|          |                                                                                                  |
| Item  2.      | Management's  Discussion and Analysis of Financial Condition and Results of Operations and  Liquidity |
|          |                                                                                                  |
| Item  3.      | Quantitative  and Qualitative Disclosures About Market Risk                                           |
|          |                                                                                                  |
|          |                                                                                                  |
| **Part  II.** | **Other  Information**                                                                                |
|          |                                                                                                  |
| Item 1.       | Legal Proceedings                                                                                     |
|          |                                                                                                  |
| Item 2.       | Changes in  Securities and Use of Proceeds                                                            |
|          |                                                                                                  |
| Item  4.      | Submission  of Matters to a Vote of Security Holders                                                  |
|          |                                                                                                  |
| Item 5.       | Other Information                                                                                     |
|          |                                                                                                  |
| Item 6.       | Exhibits  and Reports  on Form 8-K                                                                    |

 

 

ON-SITESOURCING, INC.BALANCE SHEETS

|                                  | Unaudited                                                      |          |              |          |
|---------------------------------------|----------------------------------------------------------------|---------------|-------------------|---------------|
|                                  | June  30,  2001                                                |     | December  31,2000 |     |
|                                  |                                                                |          |                   |          |
| ASSETS                                |                                                           |          |              |          |
|                                  |                                                           |          |              |          |
| CURRENT ASSETS                        |                                                           |          |              |          |
|                                  | Cash and cash equivalents                                      | $             | 3,881             |          | $ | 3,428 |   |
|                                  | Accounts receivable, net                                       | 9,446,213     |              | 9,762,093     |   |
|                                  | Prepaid supplies                                               | 672,775       |              | 677,771       |   |
|                                  | Prepaid expenses                                               | 539,131       |              | 471,764       |   |
|                                  | Prepaid income taxes                                           | 187,889       |              | 715,674       |   |
|                                  | Notes receivable, current portion                              | 157,390       |              | 131,355       |   |
|                                  |                                                                |          |                   |          |
|                                  | Total current assets                                           | 11,007,279    |              | 11,762,085    |   |
|                                  |                                                           |          |              |          |
|                                  | Property and equipment, net                                    | 14,583,699    |              | 15,024,026    |   |
|                                  |                                                           |          |              |          |
| OTHER ASSETS                          |                                                           |          |              |          |
|                                  | Notes receivable, net of current portion                       | 59,854        |              | 117,753       |   |
|                                  | Goodwill, net                                                  | 959,247       |              | 1,011,944     |   |
|                                  | Other assets, net                                              | 191,484       |              | 163,423       |   |
|                                  |                                                                |          |                   |          |
|                                  | $                                                              | 26,801,565    |              | $             | 28,079,231 |   |
|                                  |                                                                |          |                   |          |
|                                  |                                                           |          |              |          |
| LIABILITIES AND  STOCKHOLDERS' EQUITY |                                                           |          |              |          |
|                                  |                                                           |          |              |          |
| CURRENT LIABILITIES                   |                                                           |          |              |          |
|                                  | Accounts payable - trade                                       | $             | 2,003,940         |          | $ | 3,149,926 |   |
|                                  | Accrued and other liabilities                                  | 1,212,732     |              | 853,986       |   |
|                                  | Line of credit                                                 | 5,050,651     |              | 5,809,598     |   |
|                                  | Current portion of long-term debt                              | 1,313,618     |              | 1,401,184     |   |
|                                  | Provision for income taxes, current                            | 286,485       |              | 286,485       |   |
|                                  |                                                                |          |                   |          |
|                                  | Total current  liabilities                                     | 9,867,426     |              | 11,501,179    |   |
|                                  |                                                           |          |              |          |
| NONCURRENT LIABILITIES                |                                                           |          |              |          |
|                                  | Long-term debt net of current portion                          | 7,741,085     |              | 8,097,810     |   |
|                                  | Deferred rent                                                  | 189,177       |              | 189,177       |   |
|                                  | Deferred income taxes                                          | 438,076       |              | 438,076       |   |
|                                  |                                                                |          |                   |          |
|                                  | Total liabilities                                              | 18,235,764    |              | 20,226,242    |   |
|                                  |                                                           |          |              |          |
| Commitments and  contingencies        | -                                                              |          | -                 |          |
|                                  |                                                           |          |              |          |
| STOCKHOLDERS' EQUITY                  |                                                           |          |              |          |
|                                  | Common stock, $.01 par value, 20,000,000 shares  authorized    |          |              |          |   |
|                                  | 5,057,215 and 5,057,215 shares issued and outstanding          | 50,572        |              | 50,572        |   |
|                                  | Preferred stock,$.01 par value, 1,000,000 shares               |          |              |          |   |
|                                  | authorized, no shares  issued and outstanding                  | -             |              | -             |   |
|                                  | Subscription receivable                                        | -             |              | (50,400       | ) |
|                                  | Additional paid in capital                                     | 6,786,243     |              | 6,786,244     |   |
|                                  | Treasury stock   (113,590 shares of common stock at cost) | (396,152      | )                 | (396,152      | ) |
|                                  | Accumulated Earnings (Deficit)                                 | 2,125,138     |              | 1,462,725     |   |
|                                  |                                                                |          |                   |          |
|                                  | 8,565,801                                                      |          | 7,852,989         |          |
|                                  |                                                                |          |                   |          |
|                                  | $                                                              | 26,801,565    |              | $             | 28,079,231 |   |
|                                  |                                                                |          |                   |          |
|                                       |                                                                |               |                   |               |  |  |  |  |

Seenotes to financial statements

 

| ON-SITE  SOURCING, INC.                 |                          |
|-----------------------------------------|-------------------------------|
| STATEMENTS OF  OPERATIONS               |                          |
|                                    |                          |   |   |   |   |   |   |   |
|                                    | Unaudited  Three Months Ended |     | Unaudited  Six Months Ended |    |
|                                    | June  30,  2001               |   | June  30,  2000 |   | June  30,  2001 |   | June  30,  2000 |   |
|                                    |                               |   |  |   |  |   |  |   |
|                                    |                          |   |   |   |   |   |   |   |
|                                    |                          |   |   |   |   |   |   |   |
| Revenue                                 | $                             | 10,332,382 |   | $ | 8,681,120 |   | $ | 19,782,031 |   | $ | 18,453,485 |   |
| Costs and expenses                      |                          |   |   |   |   |   |   |   |
|                                    | Cost of sales                 | 6,653,651 |   | 5,793,342 |   | 13,016,616 |   | 11,642,254 |   |
|                                    |                               |   |  |   |  |   |  |   |
|                                    | 3,678,731                     |   | 2,887,778 |   | 6,765,415 |   | 6,811,231 |   |
|                                    |                               |   |  |   |  |   |  |   |
|                                    |                          |   |   |   |   |   |   |   |
|                                    | Selling expense               | 901,073 |   | 984,402 |   | 1,798,450 |   | 2,045,325 |   |
|                                    | Administrative expense        | 1,652,773 |   | 1,106,118 |   | 3,074,777 |   | 2,186,419 |   |
|                                    |                          |  |   |  |   |  |   |  |   |
|                                    |                          | 2,553,846 |   | 2,090,520 |   | 4,873,227 |   | 4,231,744 |   |
|                                    |                          |  |   |  |   |  |   |  |   |
|                                    |                          |   |   |   |   |   |   |   |   |
|                                    | Earnings from operations      | 1,124,885 |   | 797,258 |   | 1,892,188 |   | 2,579,487 |   |
|                                    | Other income (expense)        |   |   |   |   |   |   |   |   |
|                                    | Other income                  | 81,211 |   | 4,304 |   | 153,901 |   | 6,639 |   |
|                                    | Other expense                 | (441,763 | ) | (60,722 | ) | (839,576 | ) | (208,366 | ) |
|                                    |                               |   |  |   |  |   |  |   |
|                                    | (360,552                      | ) | (56,418 | ) | (685,675 | ) | (201,727 | ) |
|                                    |                               |   |  |   |  |   |  |   |
|                                    |                          |   |   |   |   |   |   |   |
| Earnings (Loss) before  income taxes    | 764,333                       |   | 740,840 |   | 1,206,513 |   | 2,377,760 |   |
| Income tax  (benefit)expense            | 344,100                       |   | 294,800 |   | 544,100 |   | 946,800 |   |
|                                    |                               |   |  |   |  |   |  |   |
|                                    |                          |   |   |   |   |   |   |   |
| Net (Loss) Earnings                     | $                             | 420,233 |   | $ | 446,040 |   | $ | 662,413 |   | $ | 1,430,960 |   |
|                                    |                               |   |  |   |  |   |  |   |
|                                    |                          |   |   |   |   |   |   |   |
| Basic earnings (loss)  per common share | $                             | 0.09 |   | $ | 0.09 |   | $ | 0.13 |   | $ | 0.30 |   |
|                                    | 4,943,625                     |   | 4,809,100 |   | 4,943,625 |   | 4,842,125 |   |
| Diluted earnings per  share             | $                             | 0.08 |   | $ | 0.08 |   | $ | 0.13 |   | $ | 0.26 |   |
|                                    | 4,990,532                     |   | 5,519,255 |   | 4,978,621 |   | 5,462,172 |   |
|                                    |                          |   |   |   |   |   |   |   |

Seenotes to financial statements

 

ON-SITESOURCING, INC.STATEMENTS OF CASH FLOWS

|                                                            | (Unaudited)                                             |         | (Unaudited)                      |       |
|-----------------------------------------------------------------|---------------------------------------------------------|--------------|----------------------------------|------------|
|                                                            | Three  Month Ended  June  30,                      |         | Six  Month Ended  June  30, |       |
|                                                            | 2001                                                    |         | 2000                             |       | 2001 |   | 2000 |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Cash flows from  operating activities                           |                                                    |         |                             |       |   |   |   |   |
|                                                            | Net earnings (loss)                                     | $            | 420,233                          |       | $ | 446,040 |   | $ | 662,413 |   | $ | 1,430,960 |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Adjustments to  reconcile net earnings (loss) to net cash       |                                                    |         |                             |       |   |   |   |   |
| (used in) provided by  operations                               |                                                    |         |                             |       |   |   |   |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Depreciation and  amortization                                  | 554,441                                                 |         | 344,241                          |       | 1,094,781 |   | 646,851 |   |
| Loss (gain) on  disposition of equipment                        | 27,506                                                  |         | -                                |       | 53,270 |   | - |   |
| Changes in assets and  liabilities                              |                                                    |         |                             |       |   |   |   |   |
|                                                            | (Increase) decrease in accounts receivable, net         | 109,869      |                             | (976,662   | ) | 315,880 |   | (4,096,833 | ) |
|                                                            | (Increase) decrease in prepaid supplies                 | 5,896        |                             | (65,530    | ) | 4,996 |   | (45,115 | ) |
|                                                            | (Increase) decrease in prepaid expenses                 | 318,006      |                             | (348,197   | ) | 460,418 |   | (440,275 | ) |
|                                                            | (Increase) decrease in notes receivables                | 10,692       |                             | 12,538     |   | 31,864 |   | 24,829 |   |
|                                                            | (Increase) decrease in other assets                     | 19,603       |                             | (332,975   | ) | (28,061 | ) | (313,567 | ) |
|                                                            | Increase (decrease) in accounts payable - trade         | (225,356     | )                                | (70,887    | ) | (1,145,986 | ) | 170,496 |   |
|                                                            | Increase in accrued and other liabilities               | 134,243      |                             | (195,689   | ) | 358,746 |   | 88,675 |   |
|                                                            | Increase (decrease) in deferred rent                    | -            |                             | -          |   | - |   | 15,000 |   |
|                                                            | Increase (decrease) in provison for income taxes        | -            |                             | (652,004   | ) | - |   | - |   |
|                                                            | Increase (decrease) in  deferred taxes                  | -            |                             | -          |   | - |   | - |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
| Total Adjustments                                               | 954,901                                                 |         | (2,285,166                       | )          | 1,145,906 |   | (3,949,939 | ) |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Net cash provided by  (used in) operations                      | 1,375,134                                               |         | (1,839,126                       | )          | 1,808,319 |   | (2,518,979 | ) |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Cash flows from  investing activities                           |                                                    |         |                             |       |   |   |   |   |
|                                                            | Acquisition of Property and equipment                   | (423,382     | )                                | (1,092,729 | ) | (670,028 | ) | (1,846,448 | ) |
|                                                            | Proceeds from disposition of equipment                  | 15,000       |                             |       |   | 15,000 |   |   |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Net cash used in  investing activities                          | (408,382                                                | )            | (1,092,729                       | )          | (655,028 | ) | (1,846,448 | ) |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Cash flows from  financing activities                           |                                                    |         |                             |       |   |   |   |   |
|                                                            | Proceeds from sale of  common stock                     | -            |                             | 52,798     |   | - |   | 179,994 |   |
|                                                            | Payments for reacquisition of common stock              | -            |                             | (351,821   | ) | - |   | (351,821 | ) |
|                                                            | Proceeds from collection of subscription receivable     | 50,400       |                             |       |   | 50,400 |   |   |   |
|                                                            | Proceeds of   long-term debt agreements            | -            |                             | 1,355,294  |   | - |   | 1,447,253 |   |
|                                                            | Payments under long-term debt agreements                | (98,608      | )                                | (240,477   | ) | (444,291 | ) | (383,923 | ) |
|                                                            | Net borrowing (payments) under line of credit agreement | (918,500     | )                                | 2,096,128  |   | (758,947 | ) | 3,454,141 |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Net cash provided by  financing activities                      | (966,707                                                | )            | 2,911,922                        |       | (1,152,838 | ) | 4,345,644 |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| NET INCREASE  (DECREASE) IN** **CASH  AND CASH EQUIVALENTS | 44                                                      |    | (19,933                          |  )    | 453 |    | (19,783 |  ) |
|                                                            |                                                    |         |                             |       |   |   |   |   |
| Cash and cash  equivalents, beginning                           | 3,837                                                   |         | 22,832                           |       | 3,428 |   | 22,682 |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
| Cash and cash  equivalents, ending                              | $                                                       | 3,881        |                             | $          | 2,899 |   | $ | 3,881 |   | $ | 2,899 |   |
|                                                            |                                                         |         |                                  |       |  |   |  |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |
|                                                            |                                                    |         |                             |       |   |   |   |   |

Seenotes to financial statements

 

**ON-SITESOURCING, INC.NOTES TO FINANCIAL STATEMENTSJUNE 30, 2000(unaudited)**

1.          ORGANIZATION

Natureof Business

On-SiteSourcing, Inc. (the “Company”) was incorporated in Virginia on December 1992and changed its state incorporation to Delaware in January 1996.  The Company provides digital imaging,document management, litigation reprographics, color & digital printingservices and facilities management to law firms, corporations, non-profitorganizations, accounting firms, financial institutions and other organizationsthroughout the East Coast of the United States. Services are performed in themetropolitan areas of Philadelphia, Pennsylvania; Washington, D.C.; Atlanta,Georgia; and New York, New York, and Gaithersburg, Maryland.

2.          SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

Useof Estimates

Inpreparing financial statements in conformity with generally accepted accountingprinciples, management is required to make estimates and assumptions thataffect the reported amounts of assets and liabilities, the disclosure ofcontingent assets and liabilities at the date of the financial statements, andthe reported amounts of revenue and expenses during the reporting period.  Management estimates include the allowancefor doubtful accounts on accounts receivable. Actual results could differ from those estimates.  Significant estimates are made whenaccounting for the allowance for uncollectible accounts in connection withaccounts receivable.

RevenueRecognition

Revenuefrom reprographic and imaging services is recognized on a per copy or documentbasis upon completion of the services. Facilities management revenue isrecognized based on monthly fixed fees and, in certain cases, on a variable percopy fee basis, as defined in facilities management agreements.  Printing revenues are recognized on ajob-by-job basis.

Depreciationand Amortization

Propertyand equipment are stated at cost. Depreciation on property and equipment is computed on a straight-linebasis over the estimated useful lives of the assets ranging from two to fifteenyears for financial reporting purposes. Accelerated methods are used for tax purposes.

EffectiveJanuary 1, 1999, management reevaluated the useful life of certain equipmentand, as a result, increased its estimate of the useful life of certainequipment from five to fifteen years. The change resulted in an increase of net earnings of $174,570 or $0.04per share for the year ended December 31, 1999.

Goodwill

Inconnection with the two acquisitions the company made in the first nine monthsof 2000, Goodwill in the amount of $1,050,739 was recorded and is being amortizedover a period of 10 years.

Earnings(Loss) Per Common Share

Basicearnings (loss) per share exclude dilution and are calculated using the averagenumber of shares outstanding.  Dilutedearnings (loss) per share is computed on the basis of the average number ofshares outstanding plus the effect of outstanding stock options using the“treasury stock” method.

|                                                      | Six  Months ended June 30, |
|-----------------------------------------------------------|----------------------------|
|                                                      | 2001                       |   | 2000 |   |
|                                                      |                            |   |  |   |
|                                                      | (Unaudited)                |   | (Unaudited) |   |
| Net earnings (loss) available for common shareholders (A) | $                          | 662,413 |   | $ | 1,430,960 |   |
|                                                      |                       |   |   |   |
| Average outstanding:                                      |                       |   |   |   |
| Common stock (B)                                          | 4,943,625                  |   | 4,842,125 |   |
| Employee stock options                                    | 34,996                     |   | 620,587 |   |
|                                                      |                       |   |   |   |
| Common stock and common stock equivalents (C)             | 4,978,621                  |   | 5,462,712 |   |
|                                                      |                       |   |   |   |
| Earnings (loss) per share:                                |                       |   |   |   |
| Basic (A/B)                                               | $                          | 0.13 |   | $ | 0.30 |   |
| Diluted (A/C)                                             | $                          | 0.13 |   | $ | 0.26 |   |

 

Unexercised employee stock options topurchase 1,197,640 and 87,000 shares of the Company’s common stock as of June30, 2001 and 2000, respectively, were not included in the computations ofdiluted earnings per share because the options’ exercise prices were greaterthan the average market price of the Company’s common stock during therespective period.

3.          SALEOF INFORMATION TECHNOLOGY DIVISION

OnSeptember 30, 1999, the Company entered into a purchase and sale agreement witha former stockholder and employee to sell the rights and contracts to providecertain information technology services to customers previously serviced by theCompany’s Information Technology Division. The sale price of $270,000 is financed by a note agreement between theCompany and the former shareholder.  Thenote accrues interest at 8% per annum, is payable in interest-only installmentsthrough October 2000 and in principal and interest installments until maturityin September 2002.  At Aug 13, 2001,$195,646 remains payable to the Company.

ACQUISITIONS

OnApril 12, 2000, the Company purchased certain assets and assumed certainliabilities of Legend Lithographics, Inc. and Pseudon Communications, Inc.(collectively, "Legend"), a digital printing and copying company, for$438,172 in cash. The purchase price has been allocated to the fair value ofthe assets acquired and liabilities assumed.

OnSeptember 6, 2000, the Company entered into a Stock Purchase Agreement withDuplicating and Design, Inc. ("D&D") a digital printing andgraphic design company. Under the agreement, the Company purchased the capitalstock of D&D for an aggregate purchase price of $741,078 in cash, payablein three installments through 2002. The Company has recognized the acquisitionas a purchase for accounting purposes. The purchase price has been allocated tothe fair value of the assets acquired and liabilities assumed. The operationsof D&D are included in the operations of the Company as of the acquisitiondate. In connection with the Legend and D&D acquisitions, the assetsacquired and liabilities assumed are as follows:

 

|   | Tangible assets acquired at fair value | 356,785   |   |
|--------|----------------------------------------|-----------|--------|
|   | Goodwill                               | 1,053,926 |   |
|   | Liabilities Assumed at fair value      | (231,461  | )      |
|   |                                   |           |   |
|   |                                   |      |   |
|   |                                   | 1,179,250 |   |

4. SEGMENT INFORMATION

The current services that we provideinclude the following segments: reprographics, imaging services, facilitiesmanagement, and printing services.

Reprographics involves the copying andmanagement of large amounts of documents extracted in their original format,from the offices and files of our customers. Our reprographic services includecopying, binding, drilling, "Bates" stamping, labeling, collating,assembling and quality review. Our reprographic centers, currently located inVirginia, New York, Pennsylvania, and Georgia, are open 24 hours a day, sevendays a week to handle the prompt turn around time often requested by ourcustomers. A typical job ranges in size from single documents with a small numberof pages to multiple sets of documents, which can exceed a million pages. A jobis typically picked up by our in-house dispatch service and brought back to ourproduction center. The jobs are then processed per the customer's instructionsand reviewed by our quality control staff. Documents are then returned to theclient via our dispatch service. Reprographic jobs are generally billed on ajob-by-job basis, based on the number of copies and the level of difficulty incopying the original documents. Each of our reprographic centers are staffedwith in-house technicians which service our copiers in event they need repairs.

Imaging services involves the conversionor transfer of traditional paper based and electronic based documents intoelectronic media or vice versa. Services provided in our Imaging ServicesDivision primarily cater to law firms and their clients. A typical job involvesa law firm that is representing a client in a litigation matter. In order forthe law firm to prepare for its case it often must review a large number ofdocuments, emails, and email attachments. As a result, the law firms often havea need to search and retrieve appropriate documents in a timely and efficientmatter. In order to help meet this need, our Imaging Services Division offerscase management consulting, electronic scanning of documents converting emailand attachments to images, indexing/coding, optical character recognition(OCR), electronic discovery, blowback printing, training, technical support andelectronic document search and retrieval services. Imaging services aretypically billed on a job-by-job basis, based on the number of images andcomplexity of the retrieval applications.

Facilities management services allowcompanies to out-source certain, non-core business, back-office functions. Ourtarget clients include companies that require a large amount of people,equipment and other resources to manage their back office requirements. Basedon an analysis of our client's needs, we place our employees and equipment atthe customer's premises. The particular customer's internal processes dictatethe services we provide. Services we currently provide include copy roommanagement, mailroom administration, facsimile management, supply roommanagement, and maintenance of office equipment. At each of our facilitiesmanagement locations we utilize SiteTrax, our proprietary software. SiteTraxtracks information related to copy, mail, fax, shipping and courier, materialsusage, and hours worked. It also provides integrated cost accounting andinvoicing information for our customers and helps them allocate expensesaccordingly. Facilities management contracts, which are billed on a monthlybasis, include a monthly base charge plus fees for any additional servicesprovided.

Printing services include both black andwhite and color digital production of catalogs, brochures, postcards,stationary, direct mail, newsletters, and exhibit materials. Our targetcustomers, for these services include our existing customers and other organizationsrequiring print media. In addition, we also provide ancillary services, whichinclude graphic design, mailing, special finishing, storage, fulfillment, anddelivery services. Printing jobs are typically billed on a job-by-job basisdepending on several factors, including quantity, number of colors, quality ofpaper, and graphic design time.

The Company evaluates performance basedon profit and loss from operations before income taxes and does not reviewinformation regarding the allocation of assets to each segment. In addition,corporate administrative costs are not allocated to each segment. There are nointersegment sales or transfers

Revenue and profit by reportable segmentfor the three and six months ended June 30, 2001, and 2000 are as follows:

|           | **Unaudited**                         |       |       |       |
|----------------|---------------------------------------|------------|------------|------------|
|           | **Three months ended  June 30, 2001** |       |       |
|           | Reprographics                         |       | Imaging    |       | FM |   | Digital Printing |   |
|           |                                       |       |            |       |  |   |  |   |
| Revenue        | $                                     | 6,230,166  |       | $          | 2,744,246 |   | $ | 690,797 |   | $ | 667,174 |   |
| Segment profit | $                                     | 1,528,137  |       | $          | 804,909 |   | $ | 70,355 |   | $ | (214,338 | ) |
|           |                                  |       |       |       |   |   |   |   |
|           | **Unaudited**                         | ** ** |       | ** ** |
|           | **Three months ended  June 30, 2000** |       | ** ** |
|           | Reprographics                         |       | Imaging    |       | FM |   | Digital Printing |   |
|           |                                       |       |            |       |  |   |  |   |
| Revenue        | $                                     | 4,932,948  |       | $          | 2,437,144 |   | $ | 788,000 |   | $ | 523,029 |   |
| Segment profit | $                                     | 42,362     |       | $          | 1,287,611 |   | $ | 99,357 |   | $ | 35,292 |   |
|           |                                  |       |       |       |   |   |   |   |
|           | **Unaudited**                         | ** ** |       | ** ** |
|           | **Six months ended  June 30, 2001**   |       | ** ** |
|           | Reprographics                         |       | Imaging    |       | FM |   | Digital Printing |   |
|           |                                       |       |            |       |  |   |  |   |
| Revenue        | $                                     | 11,553,035 |       | $          | 5,442,448 |   | $ | 1,376,115 |   | $ | 1,410,434 |   |
| Segment profit | $                                     | 2,328,903  |       | $          | 1,716,305 |   | $ | 178,606 |   | $ | (474,120 | ) |
|           |                                  |       |       |       |   |   |   |   |
|           | **Unaudited**                         | ** ** |       | ** ** |
|           | **Six months ended  June 30, 2000**   |       | ** ** |
|           | Reprographics                         |       | Imaging    |       | FM |   | Digital Printing |   |
|           |                                       |       |            |       |  |   |  |   |
| Revenue        | $                                     | 10,935,647 |       | $          | 5,411,880 |   | $ | 1,582,930 |   | $ | 523,029 |   |
| Segment profit | $                                     | 712,873    |       | $          | 3,033,348 |   | $ | 208,750 |   | $ | 35,292 |   |
|                |                                       |            |            |            |  |  |  |  |  |  |  |  |  |

 

**Item 2.  Management's Discussion andAnalysis of Financial Condition and Results of Operations**

**FORWARDLOOKING DISCLOSURE**

Certaininformation included herein contains statements that are forward-looking, suchas statements relating to plans for future expansion and other businessdevelopment activities as well as operating costs, capital spending, financialsources and the effects of competition. Such forward-looking information is subject to changes and variationswhich are not reasonably predictable and which could significantly affectfuture results.  Accordingly, suchresults may differ from those expressed in any forward-looking statements madeby or on behalf of the Company.  Thesechanges and variations which could significantly affect future results include,but are not limited to, those relating to the adequacy of operating andmanagement controls, operating in a competitive environment and a changingenvironment, including new technology and processes, existing and future vendorrelationships, the Company’s ability to access capital and meet its debtservice requirements, dependence on existing management, general economic conditions,and changes in federal or state laws or regulations.

**GENERAL**

On-Site Sourcing, Inc. (“On-Site”,“Company”, “We” or “Us”) provides digital imaging, document management,litigation reprographics, color & digital printing services and facilitiesmanagement to law firms, corporations, non-profit organizations, accountingfirms, financial institutions and other organizations throughout the East Coastof the United States.  In order to meetthe highly specialized requirements of each client, we offer a variety ofcustomized reprographic and facilities management services.  We provide reprographic and imaging services24 hours-per-day, seven days-per-week including copying, binding, labeling,collating and indexing in support of complex document-intensive litigation aswell as higher volume production of manuals, brochures and other materials forcorporations and non-profit organizations. We also provide on-premises management of customers’ support servicesincluding mailroom operations, facsimile transmission, records, and supply roommanagement and copying services**.**

On-Site Sourcing, Inc. was foundedin 1992 and currently has locations in Virginia, Maryland, Pennsylvania, NewYork and Georgia.

**RESULTS OF OPERATIONS**

**Threeand Six Months Ended June 30, 2001 Compared With Three and Six MonthsEnded June 30, 2000**

Revenue for the three months ended June30, 2001 increased by 19% or $1,651,262 to $10,332,382 over the comparableperiod in 2000.  The increase inrevenues for the three months ended June 30, 2001 is due to increased volume inthe Company’s reprographics and imaging divisions. Reprographic revenuesincreased by $1,297,217 and Imaging revenues increased by $307,103   for the three months ended June 30 2001.Revenue for the six months ended June 30, 2001 increased by 7% or $1,328,546over the comparable period in 2000.  The increase is due to revenues from our two acquisitions completed inthe second and third quarter of 2000 as discussed in Notes to FinancialsStatements in this quarterly report on Form 10-Q.  Revenues from the two acquisitions for the six months ended June30, 2001 were $1,410,434 compared to $523,029 in the comparable period in2000.  Reprographics revenue alsoincreased by $617,387 for the six months ended June 30, 2001 as compared to thesix months ended June 30, 2000.

 

Facilities Management (‘FM’) revenuesdecreased by $97,204 and $206,818, respectively over the comparable three sixmonth period in 2000, due to the non renewal of several FM contracts.  Revenues from the Company’s FM division areless than 9 % of the Company’s revenues. The Company does not expect the FM division to add significantly to theCompany’s revenues or net income in the future.

Detail Revenue by Company segment isincluded in the Notes to Financials Statements in this quarterly report on Form10Q.

As a percentage of sales, Cost of Salesfor the three months ended June 30, 2001 decreased from 67% to 64% over thecomparable period.  The decrease is dueto efficiencies derived from higher revenues, during the period, in our imagingand reprographics divisions.  As apercentage of sales, Cost of Sales for the six months ended June 30, 2001increased from 63% to 66% over the comparable period in 2000.  The increase is due to due to our digitalprinting operations not operating at full capacity.  Cost of Sales for our digital printing operation, were$1,738,080, compared to revenue of $1,410,434 for the six months ending 2001.

During the year 2000 the company investedheavily in both its Imaging and Digital Printing divisions The company hasexpanded its imaging operations to New York and Georgia.  The Company expects Cost of Sales margins toimprove as sufficient revenues are generated to absorb certain fixed costsassociated with Cost of Sales.  Cost ofsales includes expenses related to compensation and benefits to employees,occupancy costs, equipment costs, supplies, and other costs, which are directlyrelated to providing goods and services to our clients.

As a percentage of sales, Selling Expenses for both the three andsix months ended June 30, 2001 decreased to 9% from 11% over the comparableperiod in 2000.  The decrease is aresult of an increase in “house” account sales on which no commissions are paidand sales derived from accounts executives that were hired in 2000 and are nowon a commission only compensation arrangement.

AdministrativeExpense for the three months ended June 30, 2001 increased $546,655 to$1,652,773 from the comparable period in 2000. Administrative Expense for thesix months ended June 30, 2001 increased $888,358 to $3,074,777 from thecomparable period in 2000.  The increaseincludes approximately $240,000 related to a severance payment to Allen Outlaw,the Company’s former Director of Sales & Marketing.  Other key factors which contributed to theincrease for the three and six months ended June 30, 2001 include thefollowing:

Approximately $160,000 and $350,000 respectively, due to increasesin administrative salaries and wages related to the two acquisitions completedduring the second and third quarter of 2000, growth and the expansion of ourimaging services division to Georgia and New York, and increases in corporateadministrative expenses to handle the revenue growth experienced by thecompany,

Approximately $45,000 and $90,000 respectively due to increases indepreciation costs related to the purchase of computer and other informationtechnology equipment used to manage our computer network and processadministrative functions in our Imaging, Digital Printing, and Accounting/HRdepartments,

Approximately $90,000 and $162,000 respectively for bonusaccruals, used to reward and motivate employees for meeting certain goals andexpectations,

and approximately $20,000 and $45,000 respectively, due to theamortization of Goodwill related to the two acquisitions completed during thesecond and third quarter of 2000.

 

 

Other Incomefor the three months ended June 30, 2001 increased by $76,907 to $81,212 overthe comparable periods in 2000.  OtherIncome for the six months ended June 30, 2001 increased by $147,262 to $153,901over the comparable period in 2000. The increase is due to rental income in theamount of $81,212 and  $152,735, for thethree and six months ending June 30, 2001 as a result of subletting theproperty purchased in Alexandria, VA. The Company purchased the property in 2000 for its future headquartersand Virginia production center.  TheCompany anticipates moving into the building during the fourth quarter of 2001.

Other expense for the three months endedJune 30, 2001 increased by $381,041 to $441,763 over the comparable periods in2000.  Other expense for the six months ended June 30, 2001 increased by$631,210 to $839,576 over the comparable periods in 2000.  Other expenseis composed of interest expense, loss on disposal of assets, and expensesrelated to the Alexandria, VA property, purchased by the Company for its futureheadquarters.

Interestexpense for the three months ended June 30, 2001 increased by $129,448 to$190,220 over the comparable period in 2000.  Interest expense for the sixmonths ended June 30, 2001 increased by $286,488 to $385,740 over thecomparable period in 2000. The increase is due to higher utilization of theCompany’s line of credit and also additional financing arrangements enteredinto by the Company, due to the acquisition of substantial digital printingequipment. The Company’s line of credit balance as of June 30, 2000 was$3,923,616 compared to $5,050,651 as of June 30, 2001.

Losson disposal of assets totaled $27,506 for the three months ended June 30, 2001compared to $0.00 for the comparable period in 2000.  Loss on disposal of assets for the six months ended June 30, 2001totaled $53,269 compared to $87,003 for the comparable period in 2000.  The disposals related to the six monthsending June 30, 2000 were due to the company relocating its Atlanta, Georgiafacility to a less expensive facility within Atlanta, Georgia. As a result,certain leasehold improvements were written off.  Disposals for the sixmonths ending 2001 were the result of the Company writing off certainnon-performing fixed assets.

During the three and six months ended June 30, 2001 the Companyincurred $224,017 and $400,547 respectively in expenses related to theAlexandria, VA property. Of this amount, $140,303 and $278,679 respectively wasinterest expense incurred with the mortgage on the property.  Theremainder of expenses, $83,714 and $121,868 respectively, was expenses relatedto owning and maintaining the property.  The Company incurred a net lossin the amount of $247,813 ($137,488 after the effect of income taxes) inconnection with the Alexandria, Virginia property for the six months ended June30, 2001.  The Company expects a loss of approximately $45,000 (before theeffect of income taxes) per month, until the Company moves into the Alexandria,Virginia property.

 

**LIQUIDITY AND CAPITAL RESOURCES**

We have funded our expansion and growthby utilizing internally generated cash flow, long term financing, and acommercial line of credit.  We anticipate that the cash flow fromoperations and credit facilities will be sufficient to meet the expected cashrequirements for the next twelve months. There can be no assurances thatunforeseen events may not require more working capital than we have at ourdisposal.

In order to assure additional workingcapital is available to us to fund our growth and expansion, we had available a$7,000,000 working capital line of credit as of June 30, 2001. The line ofcredit is subject to eligible accounts receivable.  The Company hasavailable to borrow, at any given time, the lesser of the established line ofcredit or eligible accounts receivable.  Eligible accounts receivable are75% of accounts less than 120 days old.  The working capital line ofcredit bears interest at the lesser of the bank’s prime rate of interest or the30-day LIBOR rate plus 2.25%. The line of credit, which expires April 30, 2002,is subject to certain financial covenants; the most significant requires thecompany to maintain a minimum net worth of $6,000,000.  At June 30, 2001net advances totaling $5,050,651 were made under the agreement.  Networth, as defined under the agreement, as of June 30, 2001 was at$7,606,554.  In addition, we haveobtained financing for certain equipment and vehicles.  The notes aresecured by the equipment and vehicles, at rates ranging from 5% to 12% andmature at various times between 2000 and 2008.

**Item 3. Quantitative andQualitative Disclosures about Market Risk**

We believe our market risk exposure withregard to our financial instruments is limited to changes in interest rates.Based upon the composition of our variable rate debt outstanding at June 30,2001, we do not believe that a hypothetical increase in the bank’s prime rateof interest or the 30-day LIBOR rate would be material to net income.

 

**PartII.  Other Information**

**Item 1.**    **LegalProceedings**

                None.

**Item 2.**    **Changes inSecurities and Use of Proceeds**

**               **None.

**Item 3.**    **Defaults Upon Senior Securities**

                None.

**Item 4.**    **Submission of Matters to a Vote ofSecurity Holders**

**               **None.

**Item 5.**    **OtherInformation**

In July 2000, the Company signed adefinitive merger agreement with U.S. Technologies Inc. pursuant to which U.S.Technologies would acquire the Company. On April 2, 2001 the Company terminatedthe agreement with U.S. Technologies pursuant to its right to terminate theagreement if the average stock price of U.S. Technologies Common Stock during thetwenty trading-day period ending three full trading-days before the close ofthe merger is below $0.67.

In May 2001 Allen Outlaw, the Company’sdirector of sales & marketing, has left the Company to pursue other careerinterests.  Mr. Outlaw also resignedfrom the Company’s Board of Directors.

In May 2001  the Company appointed Michael D. Brant  it's Board of Directors. Mr. Brant is the CEO/President ofiDoxSolutions, Inc. a Digital Asset Management provider headquartered in ChevyChase, Maryland. Prior to iDoxSolutions, Brant was the CEO/President of DoxSys,Inc., a company he founded in 1993 to provide imaging and workflow products andservices. Before DoxSys, Brant spent 21 years at Xerox Corporation in variousSales and Marketing positions, concluding his tenure as Vice President of theCustom Systems Division.

In July 2001 the Company appointedClifford Kendall and Michael Meyer to its Board of Directors. Clifford Kendallreplaced Charles Millar as Chairman of the Board. Due to health concerns, Mr.Millar stepped down from his role as Chairman. Mr. Millar continues to serve on the Company's Board of Directors

CliffordKendall was the former Chairman and CEO of Computer Data Systems (CDSI), a $400million IT services company, before the company merged with Affiliated ComputerServices (NYSE: ACS ). Mr. Kendall currently serves on the Board ofDirectors of ACS. ACS, with annual revenues in excess of $2 Billion, provides afull range of information technology services to clients. In addition, Mr.Kendall serves on the Board of Directors of Washington Real Estate InvestmentTrust (NYSE: WRE ) and VSE Corporation (Nasdaq: VSEC ). Mr.Kendall's career included positions at Washington Gas Light Company, AmericanUniversity, Washington University in St. Louis, and Booz, Allen & Hamilton.

 

MichaelMeyer's most recent work experience includes serving as President and CEO ofCap Gemini America, a $750 million management and IT consulting firm. Prior toCap Gemini, Mr. Meyer co-founded Technology Solutions Company (TSC), aneBusiness consulting and systems integration firm. Mr. Meyer currently serveson the Boards of Directors of Cantilever Technologies, Fusive.com, and i360Technologies. Previously Mr. Meyers served on the Board of Directors forTechnology Solutions, Cap Gemini America, Cap Gemini Hagler- Bailly, andCollaborex. Mr. Meyer's career also included positions at Western Electric,Burroughs, Bussman Manufacturing, Jacobsen-Textron, and Woltz & Associates.

In July 2001, the Company's publicly traded Warrants(Symbol: ONSSW) expired in accordance with the original terms of issuance.

In July 2001, the Board of Directors approvedadoption and implementation of a broad based option plan under which 250,000shares have been reserved. The plan is administered and the terms of optiongrants are established by the Board of Directors. Under the terms of the plan,options may be granted to the Company's enployees to purchase shares of commonstock. The Company does not intend to grant options to officers or directors underthe plan. Options granted under the plan do not qualify as incentive stockoptions. Options become exercisable as determined by the Board of Directors,and expire over terms not exceeding ten years from the date of grant, threemonths after termination of employment, or one year after the death orpermanent disability of the employee. The Board of Directors determines theoption price (not less 85% of fair market value) at the date of grant.

**Item 6.**    **Exhibits andReports**

(A)          EXHIBITS

                10.41  2001 Broad Based Option Plan

(B)           REPORTS ONFORM 8-K                The Company filed Form 8-Kon April 4, 2001

 

**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|             |   | ON-SITE  SOURCING, INC.                                    |
|------------------|--------|------------------------------------------------------------|
|             |   |                                                            |
|             |   | (Registrant)                                               |
|             |   |                                                       |
|             |   |                                                       |
|             |   |                                                       |
| August  14, 2001 |   | /s/  Jason Parikh                                          |
|                  |   |                                                            |
| Date             |   | Jason  Parikh                                              |
|             |   | Chief  Financial Officer                                   |
|             |   |                                                       |
|             |   | (Duly  Authorized Officer and Principal Financial Officer) |