** **

** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

** **

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2001**

**CommissionFile No. 0-20947**

 

**ON-SITE SOURCING, INC.**

(Exact name of registrantas specified in its charter)

 

 

| **DELAWARE**                                                        |   | **54  -1648470**                              |
|---------------------------------------------------------------------|--------|-----------------------------------------------|
| (State or other  jurisdiction of Incorporation or organization)     |   | (I.R.S.  Employer Identification Number) |
|                                                                |   |                                          |
| **1111  North 19th Street, Sixth Floor, Arlington, Virginia 22209** |
| (Address of principal  executive offices)                           |

 

 

**(703)276-1123**

(Registrant’s telephonenumber)

 

**NONE**

(Former name, formeraddress and former fiscal year, if changed since last report)
|   |
|--------|
|   |
|   |

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes ý  No o.

 

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of November 7th, 2001:

 

Common Stock, $.01par value                                                                                           5,118,569shares

 

 

 

ON-SITE SOURCING,INC.

INDEX

 
|   | **Part  I.**  | **Financial  Information**                                                                            |   |
|--------|---------------|-------------------------------------------------------------------------------------------------------|--------|
|   |          |                                                                                                  |   |
|   | Item 1.       | Financial Statements:                                                                                 |   |
|   |          | Balance Sheets as of September 30, 2001  (unaudited) and December 31, 2000                            |   |
|   |          |                                                                                                  |   |
|   |          | Statements of Operations for  the Three and Nine Months Ended September 30, 2001 and 2000 (unaudited) |   |
|   |          |                                                                                                  |   |
|   |          | Statements of Cash Flows for  the Three and Nine Months Ended September 30, 2001 and 2000 (unaudited) |   |
|   |          |                                                                                                  |   |
|   |          | Notes to Financial  Statements – September 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-SITE SOURCING, INC

BALANCE SHEETS

 
|                                                                                                              |   | ** Unaudited**     |          |             |          |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------------|------------------|---------------|
|                                                                                                              |   | ** September 30,** |          | **December 31,** |          |
|                                                                                                              |   | **2001**                |          | **2000**         |          |
| ASSETS                                                                                                            |   |                    |          |             |          |
|                                                                                                              |   |                    |          |             |          |
| CURRENT ASSETS                                                                                                    |   |                    |          |             |          |
| Cash and cash equivalents                                                                                         |   | $                       | 4,235         |             | $             | 3,428 |   |
| Accounts receivable, net                                                                                          |   | 11,111,006              |          | 9,762,093        |          |
| Prepaid supplies                                                                                                  |   | 671,092                 |          | 677,771          |          |
| Prepaid expenses                                                                                                  |   | 378,306                 |          | 471,764          |          |
| Prepaid income taxes                                                                                              |   | 34,985                  |          | 715,674          |          |
| Notes receivable, current portion                                                                                 |   | 149,579                 |          | 131,355          |          |
| Total current assets                                                                                              |   | 12,349,203              |          | 11,762,085       |          |
|                                                                                                              |   |                    |          |             |          |
| Property and equipment, net                                                                                       |   | 14,606,872              |          | 15,024,026       |          |
|                                                                                                              |   |                    |          |             |          |
| OTHER ASSETS                                                                                                      |   |                    |          |             |          |
| Notes receivable, net of current portion                                                                          |   | 24,181                  |          | 117,753          |          |
| Goodwill, net                                                                                                     |   | 932,899                 |          | 1,011,944        |          |
| Other assets, net                                                                                                 |   | 206,381                 |          | 163,423          |          |
|                                                                                                              |   | $                       | 28,119,536    |             | $             | 28,079,231 |   |
|                                                                                                              |   |                    |          |             |          |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                              |   |                    |          |             |          |
|                                                                                                              |   |                    |          |             |          |
| CURRENT LIABILITIES                                                                                               |   |                    |          |             |          |
| Accounts payable - trade                                                                                          |   | $                       | 2,431,404     |             | $             | 3,149,926 |   |
| Accrued and other liabilities                                                                                     |   | 1,052,530               |          | 853,986          |          |
| Line of credit                                                                                                    |   | 6,239,277               |          | 5,809,598        |          |
| Current portion of long-term debt                                                                                 |   | 1,130,547               |          | 1,401,184        |          |
| Deferred income taxes                                                                                             |   | 58,735                  |          | 286,485          |          |
| Total current liabilities                                                                                         |   | 10,912,493              |          | 11,501,179       |          |
|                                                                                                              |   |                    |          |             |          |
| NONCURRENT LIABILITIES                                                                                            |   |                    |          |             |          |
| Long-term debt net of current portion                                                                             |   | 7,534,647               |          | 8,097,810        |          |
| Deferred rent                                                                                                     |   | 189,177                 |          | 189,177          |          |
| Deferred income taxes                                                                                             |   | 234,938                 |          | 438,076          |          |
| Total liabilities                                                                                                 |   | 18,871,255              |          | 20,226,242       |          |
|                                                                                                              |   |                    |          |             |          |
| Commitments and contingencies                                                                                     |   | -                       |          | -                |          |
|                                                                                                              |   |                    |          |             |          |
| STOCKHOLDERS' EQUITY                                                                                              |   |                    |          |             |          |
| Common stock, $.01 par value, 20,000,000  shares authorized 5,212,476 and 5,057,215 shares issued and outstanding |   | 52,125                  |     | 50,572           |          |
|                                                                                                              |
| Preferred stock,$.01 par value,  1,000,000 shares authorized, no shares issued and outstanding                    |   | -                       |     | -                |     |
| Subscription receivable                                                                                           |   | -                       |          | (50,400          | )             |
| Additional paid in capital                                                                                        |   | 7,056,962               |          | 6,786,244        |          |
| Treasury stock  (113,590 shares of common stock at cost)                                                     |   | (396,152                | )             | (396,152         | )             |
| Accumulated Earnings (Deficit)                                                                                    |   | 2,535,346               |          | 1,462,725        |          |
|                                                                                                              |   | 9,248,281               |          | 7,852,989        |          |
|                                                                                                              |   | $                       | 28,119,536    |             | $             | 28,079,231 |   |

 

 

 

ON-SITE SOURCING, INC.

STATEMENTS OFOPERATIONS

 
|                                   |   | **Unaudited**                 |       | **Unaudited**                |   |
|----------------------------------------|--------|-------------------------------|------------|------------------------------|--------|
|                                   |   | **Three Months Ended**        |       | **Nine   Months Ended** |   |
|                                   |   | ** September  30,** |       | **September   30,**     |   | **September   30,** |   | **September   30,** |   |
|                                   |   | **2001**                      |       | **2000**                     |   | **2001** |   | **2000** |   |
|                                   |   |                          |       |                         |   |   |   |   |   |
| Revenue                                |   | $                             | 10,609,923 |                         | $      | 7,967,584 |   | $ | 30,391,955 |   | $ | 26,421,069 |   |
| Costs and expenses                     |   |                          |       |                         |   |   |   |   |   |
| Cost of sales                          |   | 6,963,741                     |       | 6,030,322                    |   | 19,981,701 |   | 17,672,576 |   |
|                                   |   | 3,646,182                     |       | 1,937,262                    |   | 10,410,254 |   | 8,748,493 |   |
|                                   |   |                          |       |                         |   |   |   |   |   |
| Selling expense                        |   | 1,053,949                     |       | 625,892                      |   | 2,852,399 |   | 2,671,217 |   |
| Administrative expense                 |   | 1,522,702                     |       | 1,132,396                    |   | 4,596,138 |   | 3,318,815 |   |
|                                   |   | 2,576,651                     |       | 1,758,288                    |   | 7,448,537 |   | 5,990,032 |   |
|                                   |   |                          |       |                         |   |   |   |   |   |
| Earnings from operations               |   | 1,069,531                     |       | 178,974                      |   | 2,961,717 |   | 2,758,461 |   |
| Other income (expense)                 |   |                          |       |                         |   |   |   |   |   |
| Other income                           |   | 82,771                        |       | 9,503                        |   | 235,506 |   | 16,142 |   |
| Other expense                          |   | (461,545                      | )          | (122,871                     | )      | (1,299,928 | ) | (331,237 | ) |
|                                   |   | (378,774                      | )          | (113,368                     | )      | (1,064,422 | ) | (315,095 | )  |
|                                   |   |                          |       |                         |   |   |   |   |   |
| Earnings (Loss) before income taxes    |   | 690,757                       |       | 65,606                       |   | 1,897,295 |   | 2,443,366 |   |
| Income tax (benefit)expense            |   | 280,575                       |       | 25,198                       |   | 824,674 |   | 971,998 |   |
|                                   |   |                          |       |                         |   |   |   |   |   |
| Net (Loss) Earnings                    |   | $                             | 410,182    |                         | $      | 40,408 |   | $ | 1,072,621 |   | $ | 1,471,368 |   |
|                                   |   |                          |       |                         |   |   |   |   |   |
| Basic earnings (loss) per common share |   | $                             | 0.08       |                         | $      | 0.01 |   | $ | 0.21 |   | $ | 0.30 |   |
| Basic   shares Outstanding        |   | 5,098,886                     |       | 4,841,125                    |   | 4,995,379 |   | 4,846,558 |   |
| Diluted earnings per share             |   | $                             | 0.08       |                         | $      | 0.01 |   | $ | 0.21 |   | $ | 0.27 |   |
| Diluted shares Outstanding             |   | 5,340,788                     |       | 5,307,337                    |   | 5,099,343 |   | 5,381,585 |   |

 

 

ON-SITE SOURCING, INC.

STATEMENTS OFCASH FLOWS

 
|                                                                                       |   | **(Unaudited)**               |          |
|--------------------------------------------------------------------------------------------|--------|-------------------------------|---------------|
|                                                                                       |   | ** Three  Months Ended** |          | **Nine   Months Ended** |   |
|                                                                                       |   | **September 30,**             |          | **September 30,** |   |
|                                                                                       |   | **2001**                      |          | **2000** |   | **2001** |   | **2000** |   |
| Cash flows from operating activities                                                       |   |                          |          |   |   |   |   |   |   |
| Net earnings                                                                               |   | $                             | 410,182       |   | $ | 40,408 |   | $ | 1,072,621 |   | $ | 1,471,368 |   |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| Adjustments to reconcile net earnings  (loss) to net cash (used in) provided by operations |   |                          |     |   |     |   |     |   |     |
| Depreciation and amortization                                                              |   | 553,166                       |          | 415,307 |   | 1,647,947 |   | 1,054,346 |   |
| Loss (gain) on disposition of equipment                                                    |   | 33,560                        |          | - |   | 86,833 |   | - |   |
| Changes in assets and liabilities                                                          |   |                          |          |   |   |   |   |   |   |
| (Increase) decrease in accounts  receivable, net                                           |   | (1,664,793                    | )             | 1,359,698 |   | (1,348,913 | ) | (2,737,133 | ) |
| (Increase) decrease in prepaid supplies                                                    |   | 1,684                         |          | (83,635 | ) | 6,679 |   | (128,750 | ) |
| (Increase) decrease in prepaid expenses                                                    |   | 313,729                       |          | (149,497 | ) | 774,147 |   | (589,772 | ) |
| (Increase) decrease in notes receivables                                                   |   | 43,485                        |          | 12,793 |   | 75,348 |   | 37,621 |   |
| (Increase) decrease in other assets                                                        |   | (14,896                       | )             | (1,292,991 | ) | (42,958 | ) | (1,598,747 | ) |
| Increase (decrease) in accounts payable  - trade                                           |   | 427,465                       |          | (520 | ) | (718,522 | ) | 169,976 |   |
| Increase (decrease) in accrued and other  liabilities                                      |   | (160,202                      | )             | 68,049 |   | 198,544 |   | 156,724 |   |
| Increase (decrease) in deferred rent                                                       |   | -                             |          | - |   | - |   | 15,000 |   |
| Increase (decrease) in provison for  income taxes                                          |   | (227,750                      | )             | (38,573 | ) | (227,750 | ) | (38,573 | ) |
| Increase (decrease) in deferred taxes                                                      |   | (203,138                      | )             | - |   | (203,138 | ) | - |   |
| Total Adjustments                                                                          |   | (897,690                      | )             | 290,631 |   | 248,217 |   | (3,659,308 | ) |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| Net cash provided by (used in)  operations                                                 |   | (487,508                      | )             | 331,039 |   | 1,320,838 |   | (2,187,940 | ) |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| Cash flows from investing activities                                                       |   |                          |          |   |   |   |   |   |   |
| Acquisition of Property and equipment                                                      |   | (583,527                      | )             | (1,326,920 | ) | (1,253,581 | ) | (3,173,369 | ) |
| Proceeds from disposition of equipment                                                     |   |                          |          |   |   | 15,000 |   |   |   |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| Net cash used in investing activities                                                      |   | (583,527                      | )             | (1,326,920 | ) | (1,238,581 | ) | (3,173,369 | ) |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| Cash flows from financing activities                                                       |   |                          |          |   |   |   |   |   |   |
| Proceeds from sale of common stock                                                         |   | 272,272                       |          | 23,946 |   | 272,271 |   | 203,940 |   |
| Payments for reacquisition of common  stock                                                |   |                          |          |   |   | - |   | (351,821 | ) |
| Proceeds from collection of subscription  receivable                                       |   | -                             |          |   |   | 50,400 |   |   |   |
| Proceeds of  long-term debt agreements                                                |   | -                             |          | 862,266 |   |   |   | 2,242,663 |   |
| Payments under long-term debt agreements                                                   |   | (389,509                      | )             | (287,214 | ) | (833,800 | ) | (604,280 | ) |
| Net borrowing (payments) under line of  credit agreement                                   |   | 1,188,626                     |          | 396,896 |   | 429,679 |   | 3,851,037 |   |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| Net cash provided by (used in) financing  activities                                       |   | 1,071,389                     |          | 995,894 |   | (81,450 | ) | 5,341,539 |   |
|                                                                                       |   |                          |          |   |   |   |   |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                      |   | 354                           |     | 13 |     | 807 |     | (19,770 |   ) |
| Cash and cash equivalents, beginning                                                       |   | 3,881                         |          | 2,899 |   | 3,428 |   | 22,682 |   |
| Cash and cash equivalents, ending                                                          |   | $                             | 4,235         |   | $ | 2,912 |   | 4,235 |   | $ | 2,912 |   |
|                                                                                            |        |                               |               |  |  |  |  |  |  |  |  |  |  |

** **

 

**ON-SITE SOURCING, INC.**

**NOTESTO  FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2001**

** (unaudited)**

### ** **

The financial information presented should be read in conjunction withour consolidated financial statements and the related notes thereto in ourAnnual Report on Form 10-K filed with the Commission for the year endedDecember 31, 2000.  The results of operations for the three and nine monthperiods ended September 30, 2000 and 2001 may not be indicative of the resultsfor the full year.

 

 

### **1.     ORGANIZATION**

 

#### ***Nature of Business***

 

On-Site Sourcing, Inc.(the “Company”) was incorporated in Virginia on December 1992 and changed itsstate incorporation to Delaware in January 1996.  The Company 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 UnitedStates. Services are performed in the metropolitan areas of Philadelphia,Pennsylvania; Washington, D.C.; Atlanta, Georgia; New York, New York, andGaithersburg, Maryland. During October of 2001 the Company expanded its imagingoperations to Tempe, Arizona.

 

 

### **2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

#### ***Use of Estimates***

 

In preparing financial statements in conformity withgenerally accepted accounting principles, management is required to makeestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenue and expensesduring the reporting period.  Managementestimates include the allowance for doubtful accounts on accounts receivable.  Actual results could differ from thoseestimates.  Significant estimates aremade when accounting for the allowance for uncollectible accounts in connectionwith accounts receivable.

 

#### ***Revenue Recognition***

 

Revenue from reprographic and imaging services isrecognized on a per copy or document basis upon completion of the services.Facilities management revenue is recognized based on monthly fixed fees and, incertain cases, on a variable per copy fee basis, as defined in facilitiesmanagement agreements.  Printing revenuesare recognized on a job-by-job basis.

 

#### ***Depreciation and Amortization***

 

Property and equipment are stated at cost.  Depreciation on property and equipment iscomputed on a straight-line basis over the estimated useful lives of the assetsranging from two to fifteen years for financial reporting purposes.  Accelerated methods are used for taxpurposes.

 

Goodwill 

 

In connection with thetwo acquisitions the company made in the first nine months of 2000, Goodwill inthe amount of $1,050,739 was recorded and is being amortized over a period of10 years.Recent Accounting Pronouncements

 

In June 2001, the Financial Accounting Standards Board("FASB") issued Statement of Financial Accounting Standards("SFAS") No. 141, "Business Combinations" and SFAS No. 142,"Goodwill and Other Intangible Assets."  In August 2001, the FASB issued SFAS No. 144 “Accounting for theImpairment or Disposal of Long-lived Assets”. SFAS No. 141 requires the use ofthe purchase method of accounting for all business combinations initiated afterJune 30, 2001, thereby eliminating the pooling-of-interests method ofaccounting. SFAS No. 141 also addresses the recognition and measurement ofgoodwill and other intangible assets acquired in a business combination. Theadoption of SFAS No. 141 by the Company is not expected to have a significanteffect on the Company's financial statements.

 

Upon the adoption of SFAS No. 142, goodwill andintangible assets that have indefinite useful lives will not be amortized butrather will be tested at least annually for impairment. The Company will adoptthe provisions of SFAS No. 142 on January 1, 2002. The Company will completeits assessment of goodwill impairment by March 31, 2002. The impact of animpairment, if any determined during such assessment, would be recorded as acumulative effect of a change in accounting principle during the first quarterof fiscal 2002.

 

#### ***SFAS No. 144 addresses accounting and reporting for theimpairment or disposal of long-lived assets. The statement supercedes SFAS No. 121 “Accounting for the Impairment ofLong-lived Assets and for Long-lived Assets to be Disposed Of” and establishesan accounting model for long-lived assets to be disposed of by sale.  The statement also addresses implementationissues related to SFAS No. 121.  Thestatement is applicable for financial statements issued for fiscal yearsbeginning after December 15, 2001.  Theadoption of SFAS No. 144 by the Company on January 1, 2001, is not expected tohave a significant effect on the Company's financial statements.***

#### *** ***

#### *** ***

Earnings (Loss) perCommon Share

 

Basic earnings (loss) per share exclude dilution andare calculated using the average number of shares outstanding.  Diluted earnings (loss) per share iscomputed on the basis of the average number of shares outstanding plus theeffect of outstanding stock options using the “treasury stock” method.

 

 
|                                                       |   | **Nine Months ended September 30,** |      |
|------------------------------------------------------------|--------|-------------------------------------|-----------|
|                                                       |   | **2001**                            |      | **2000** |   |
|                                                       |   |                                |      |   |   |
| Net earnings  (loss) available for common shareholders (A) |   | $                                   | 1,072,621 |   | $ | 1,471,368 |   |
|                                                       |   |                                |      |   |   |
| Average  outstanding:                                      |   |                                |      |   |   |
| Common stock  (B)                                          |   | 4,995,379                           |      | 4,846,558 |   |
| Employee  stock options                                    |   | 103,964                             |      | 535,027 |   |
|                                                       |   |                                |      |   |   |
| Common stock  and common stock equivalents (C)             |   | 5,099,343                           |      | 5,381,585 |   |
|                                                       |   |                                |      |   |   |
| Earnings  (loss) per share:                                |   |                                |      |   |   |
| Basic (A/B)                                                |   | $                                   | 0.21      |   | $ | 0.30 |   |
| Diluted (A/C)                                              |   | $                                   | 0.21      |   | $ | 0.27 |   |

 

 

Unexercised employee stock options to purchase 805,807 and 204,750shares of the Company’s common stock as of September 30, 2001 and 2000,respectively, were not included in the computations of diluted earnings pershare because the options’ exercise prices were greater than the average marketprice of the Company’s common stock during the respective period.

 

### **3.     ACQUISITIONS**

 

On April 12, 2000, theCompany purchased certain assets and assumed certain liabilities of LegendLithographics, Inc. and Pseudon Communications, Inc. (collectively,"Legend"), a digital printing and copying company, for $438,172 incash. The purchase price has been allocated to the fair value of the assetsacquired and liabilities assumed.

 

On September 6, 2000, theCompany entered into a Stock Purchase Agreement with Duplicating and Design,Inc. ("D&D") a digital printing and graphic design company. Underthe agreement, the Company purchased the capital stock of D&D for anaggregate purchase price of $741,078 in cash, payable in three installmentsthrough 2002. The Company has recognized the acquisition as a purchase foraccounting purposes. The purchase price has been allocated to the fair value ofthe assets acquired and liabilities assumed. The operations of D&D are includedin the operations of the Company as of the acquisition date. In connection withthe Legend and D&D acquisitions, the assets acquired and liabilitiesassumed are as follows:

 

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

 

 

4. SEGMENT INFORMATION

 

The current services that we provide include the following segments:reprographics, imaging services, facilities management, and Digital Printingservices.

 

Reprographics involves the copying and management of large amounts ofdocuments extracted in their original format, from the offices and files of ourcustomers. Our reprographic services include copying, binding, drilling,"Bates" stamping, labeling, collating, assembling and quality review.Our reprographic centers, currently located in Virginia, New York,Pennsylvania, and Georgia, are open 24 hours a day, seven days a week to handlethe prompt turn around time often requested by our customers. A typical job rangesin size from single documents with a small number of pages to multiple sets ofdocuments, which can exceed a million pages. A job is typically picked up byour in-house dispatch service and brought back to our production center. Thejobs are then processed per the customer's instructions and reviewed by ourquality control staff. Documents are then returned to the client via ourdispatch service. Reprographic jobs are generally billed on a job-by-job basis,based on the number of copies and the level of difficulty in copying theoriginal documents. Each of our reprographic centers are staffed with in-housetechnicians which service our copiers in event they need repairs.

 

Imaging services involves the conversion or transfer of traditionalpaper based and electronic based documents into electronic media or vice versa.Services provided in our Imaging Services Division primarily cater to law firmsand their clients. A typical job involves a law firm that is representing aclient in a litigation matter. In order for the law firm to prepare for itscase it often must review a large number of documents, emails, and emailattachments. As a result, the law firms often have a need to search andretrieve appropriate documents in a timely and efficient matter. In order tohelp meet this need, our Imaging Services Division offers case managementconsulting, electronic scanning of documents converting email and attachmentsto images, indexing/coding, optical character recognition (OCR), electronicdiscovery, blowback printing, training, technical support and electronicdocument search and retrieval services. Imaging services are typically billedon a job-by-job basis, based on the number of images and complexity of theretrieval applications.

 

Facilities management services allow companies to out-source certain,non-core business, back-office functions. Our target clients include companiesthat require a large amount of people, equipment and other resources to managetheir back office requirements. Based on an analysis of our client's needs, weplace our employees and equipment at the customer's premises. The particularcustomer's internal processes dictate the services we provide. Services wecurrently provide include copy room management, mailroom administration, facsimilemanagement, supply room management, and maintenance of office equipment. Ateach of our facilities management locations we utilize SiteTrax, ourproprietary software. SiteTrax tracks information related to copy, mail, fax,shipping and courier, materials usage, and hours worked. It also providesintegrated cost accounting and invoicing information for our customers andhelps them allocate expenses accordingly. Facilities management contracts,which are billed on a monthly basis, include a monthly base charge plus feesfor any additional services provided.

 

Digital Printing services include both black and white and colordigital production of catalogs, brochures, postcards, stationary, direct mail,newsletters, and exhibit materials. Our target customers, for these servicesinclude our existing customers and other organizations requiring print media.In addition, we also provide ancillary services, which include graphic design,mailing, special finishing, storage, fulfillment, and delivery services. Printingjobs are typically billed on a job-by-job basis depending on several factors,including quantity, number of colors, quality of paper, and graphic designtime.

 

The Company evaluates performance based on profit and loss fromoperations before income taxes and does not review information regarding theallocation of assets to each segment. In addition, corporate administrativecosts are not allocated to each segment. There are no intersegment sales ortransfers.

 

 

Revenue and profit by reportable segment for the three and nine monthsended September 30, 2001, and 2000 are as follows:

 
|            |   | **Unaudited**                             |       |        |       |
|-----------------|--------|-------------------------------------------|------------|-------------|------------|
|            |   | **Three months ended September 30, 2001** |       |        |       |
|            |   | **Reprographics**                         |       | **Imaging** |       | **FM** |   | **Digital Printing** |   |
| Revenue         |   | $                                         | 5,938,953  |        | $          | 3,164,806 |   | $ | 617,018 |   | $ | 889,148 |   |
| Segment  profit |   | $                                         | 1,200,345  |        | $          | 921,021 |   | $ | 16,664 |   | $ | (89,114 | ) |
|            |   |                                      |       |        |       |   |   |   |   |
|            |   | **Unaudited**                             | ** ** |        | ** ** |
|            |   | **Three months ended September 30, 2000** | ** ** |        | ** ** |
|            |   | **Reprographics**                         |       | **Imaging** |       | **FM** |   | **Digital Printing** |   |
| Revenue         |   | $                                         | 4,957,559  |        | $          | 1,775,358 |   | $ | 715,590 |   | $ | 519,076 |   |
| Segment  profit |   | $                                         | 564,302    |        | $          | 468,602 |   | $ | 64,174 |   | $ | (244,474 | ) |
|            |   |                                      |       |        |       |   |   |   |   |
|            |   | **Unaudited**                             | ** ** |        | ** ** |
|            |   | **Nine months ended September 30, 2001**  | ** ** |        | ** ** |
|            |   | **Reprographics**                         |       | **Imaging** |       | **FM** |   | **Digital Printing** |   |
| Revenue         |   | $                                         | 17,491,988 |        | $          | 8,607,254 |   | $ | 1,993,133 |   | $ | 2,299,582 |   |
| Segment  profit |   | $                                         | 3,529,248  |        | $          | 2,637,326 |   | $ | 195,270 |   | $ | (563,234 | ) |
|            |   |                                      |       |        |       |   |   |   |   |
|            |   | **Unaudited**                             | ** ** |        | ** ** |
|            |   | **Nine months ended September 30, 2000**  | ** ** |        | ** ** |
|            |   | **Reprographics**                         |       | **Imaging** |       | **FM** |   | **Digital Printing** |   |
| Revenue         |   | $                                         | 15,893,206 |        | $          | 7,187,238 |   | $ | 2,298,520 |   | $ | 1,042,105 |   |
| Segment  profit |   | $                                         | 1,277,175  |        | $          | 3,501,950 |   | $ | 272,924 |   | $ | (209,182 | ) |

 

 

 

 

**Item 2.  Management'sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**FORWARD LOOKING DISCLOSURE**

 

Certain informationincluded herein contains statements that are forward-looking, such as statementsrelating to plans for future expansion and other business developmentactivities as well as operating costs, capital spending, financial sources andthe effects of competition.  Suchforward-looking information is subject to changes and variations which are notreasonably predictable and which could significantly affect futureresults.  Accordingly, such results maydiffer from those expressed in any forward-looking statements made by or onbehalf of the Company.  These changesand variations which could significantly affect future results include, but arenot limited to, those relating to the adequacy of operating and managementcontrols, operating in a competitive environment and a changing environment, includingnew technology and processes, existing and future vendor relationships, theCompany’s ability to access capital and meet its debt service requirements,dependence on existing management, general economic conditions, terroristattacks,  and changes in federal orstate laws or regulations.

 

 

**GENERAL**

 

On-Site Sourcing, Inc. (“On-Site”, “Company”, “We” or “Us”) providesdigital imaging, document management, litigation reprographics, color &digital printing services and facilities management to law firms, corporations,non-profit organizations, accounting firms, financial institutions and otherorganizations throughout the United States. In order to meet the highly specialized requirements of each client, weoffer a variety of customized reprographic and facilities managementservices.  We provide reprographic andimaging services 24 hours-per-day, seven days-per-week including copying,binding, labeling, collating and indexing in support of complex document-intensivelitigation as well as higher volume production of manuals, brochures and othermaterials for corporations and non-profit organizations.  We also provide on-premises management ofcustomers’ support services including mailroom operations, facsimile transmission,records, and supply room management and copying services**.**

 

On–SiteSourcing, Inc. was founded in 1992 and currently has locations inVirginia, Maryland, Pennsylvania, New York, Georgia and Arizona.

 

**RESULTS OF OPERATIONS**

 

**Threeand Nine Months Ended September 30, 2001 Compared With Three and Nine Months**

**EndedSeptember 30, 2000**

 

**REVENUE**

 

Revenue for the three months ended September 30, 2001increased by 33% or $2,642,339 to $10,609,923 over the comparable period in2000.  The increase in revenues for thethree months ended September 30, 2001 is due primarily to increased volume inthe Company’s reprographics and imaging divisions. Reprographic revenuesincreased by $981,392 and Imaging revenues increased by $1,389,448 for thethree months ended September 30, 2001.

 

Revenue for the nine months ended September 30, 2001increased by 15% or $3,970,886 over the comparable period in 2000.   The increase is due primarily to increasedvolume in our Reprographics, Imaging, and Digital Printing divisions.  Reprographic revenues increased by $1,598,780,while Imaging revenues increased by $1,420,016, and Digital Printing Revenuesincreased by $1,257,477.

 

 

Facilities Management(‘FM’) revenues decreased by $98,572 and $305,387, respectively over thecomparable three and nine month period in 2000, due to the non-renewal ofseveral FM contracts.  Revenues from theCompany’s FM division represent less than 8% of the Company’s revenues.  The Company does not expect the FM divisionto add significantly to the Company’s revenues or net income in the future.

 

Detail Revenue by Companysegment is included in the Notes to Financials Statements in this quarterlyreport on Form 10Q.

 

 

**COST OF SALES**

 

As a percentage of sales, Cost of Sales for the threemonths ended September 30, 2001 decreased from 76% to 66% over the comparableperiod. As a percentage of sales, Cost of Sales for the nine months endedSeptember 30, 2001 decreased from 67% to 66% over the comparable period in2000. The decrease is due to efficiencies derived from higher revenues duringthe period in our reprographics, imaging, and digital printing divisions. Costof sales 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.

 

 

During 2000 the companyinvested heavily in both its Imaging and Digital Printing divisions The Companyhas expanded 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.

 

During the third quarterof 2001, the Company implemented an internally developed application in itsImaging Services Division, which automatically formats and prints emails,attachments, and other file types.  Thisapplication has enabled the Company to replace certain labor-intensiveprocesses with faster more efficient automated processing.  The Company expects to realize savings inlabor costs in its Imaging Services Division, as this application is fullyimplemented in a full production mode.

 

**SELLING EXPENSE**

 

As a percentage of sales, Selling Expenses for the three monthsended September 30, 2001 increased to 10% from 8% over the comparable period in2000.  Selling expense, as a percentageof sales, for the nine months ended September 30, 2001 decreased to 9% from 10%in the comparable period in 2000. Selling Expense primarily consists of sales commissions, salaries and relatedcosts, travel and entertainment, and other costs related to our salesstaff.  Selling expense fluctuates withthe number of  “house” account sales, onwhich no commissions are paid, and “commissioned” accounts on which salescommissions are paid.

 

**ADMINISTRATIVE EXPENSE**

 

Administrative Expense for the three months ended September 30,2001 increased $390,306 to $1,522,702 from the comparable period in 2000.Administrative Expense for the nine months ended September 30, 2001 increased$1,277,323 to $4,596,138 from the comparable period in 2000.

 

Significant factors which contributed to the increase for thethree and nine months ended September 30, 2001 include the following:

 

Approximately $140,000 and $536,000 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 the company,

 

Approximately $96,000 and $258,000 respectively for bonusaccruals, used to reward and motivate employees for meeting certain goals andexpectations,

 

Approximately$36,000 and $127,000 respectively due to increases in depreciation costsrelated to the purchase of computer and other information technology equipmentused to manage our computer network and process administrative functions in ourImaging, Digital Printing, and Accounting/HR departments,

 

Approximately $240,000 during the nine months ended September 30,2001 related to a severance payment to the Company’s former Director of Sales& Marketing, and

 

Approximately $19,000 and $63,000 respectively, due to theamortization of Goodwill related to the two acquisitions completed during thesecond and third quarter of 2000.

 

 

Other Income for the three months ended September 30, 2001increased by $73,268 to $82,771 over the comparable periods in 2000.  Other Income for the nine months endedSeptember 30, 2001 increased by $219,364 to $235,506 over the comparable periodin 2000. The increase is due to rental income in the amount of $82,771 and  $235,506 for the three and nine monthsending September 30, 2001 as a result of subletting the property purchased inAlexandria, VA.  The Company purchased theproperty in 2000 for its future headquarters and Virginia productioncenter.  The Company anticipates movinginto the building during the fourth quarter of 2001.

 

Other expense for the three months ended September 30, 2001 increasedby $338,674 to $461,546 over the comparable periods in 2000.  Otherexpense for the nine months ended September 30, 2001 increased by $968,691 to$1,299,928 over the comparable periods in 2000.  Other expense is composedof interest expense, loss on disposal of assets, and expenses related to theAlexandria, VA property, purchased by the Company for its future headquarters.

 

Interest expense for the three months ended September30, 2001 increased by $35,129 to $320,528 over the comparable period in2000.  Interest expense for the nine months ended September 30, 2001increased by $286,488 to $385,740 over the comparable period in 2000. Theincrease is due to higher utilization of the Company’s line of credit and alsoadditional financing arrangements entered into by the Company, due to theacquisition of substantial digital printing equipment. The Company’s line ofcredit balance as of  September 30, 2001was $6,239,277 compared to $4,320,512 as of September 30, 2000.

 

Loss on disposal of assets totaled $79,541 for thethree months ended September 30, 2001 compared to $0 for the comparable periodin 2000.  Loss on disposal of assets forthe nine months ended September 30, 2001 totaled $132,810 compared to $86,185for the comparable period in 2000.  Thedisposals related to the nine months ending September 30, 2000 were due to thecompany relocating its Atlanta, Georgia facility to a less expensive facilitywithin Atlanta, Georgia. As a result, certain leasehold improvements werewritten off.  Disposals for the three and nine months ending 2001 were theresult of the Company writing off certain non-performing fixed assets.

 

During the three and nine months ended September 30, 2001 theCompany incurred $223,100 and $623,647 respectively in expenses related to theAlexandria, VA property. Of this amount, $142,229 and $420,908 respectively wasinterest expense incurred with the mortgage on the property.  Theremainder of expenses, $80,871 and $202,739 respectively, was expenses relatedto owning and maintaining the property.  The Company incurred expenses inexcess of rental revenue in the amount of $388,141($214,670 after the effect ofincome taxes) in connection with the Alexandria, Virginia property for the ninemonths ended September 30, 2001.  The Company expects a loss of approximately$45,000 (before the effect of income taxes) per month, until the Company movesinto the Alexandria, Virginia property. The Company plans to move in during the fourth quarter of 2001.

 

 

##### **LIQUIDITY AND CAPITALRESOURCES**

 

We have funded our expansion and growth by utilizing internallygenerated cash flow, long term financing, and a commercial line ofcredit.  We anticipate that the cash flow from operations and creditfacilities will be sufficient to meet the expected cash requirements for thenext twelve months. There can be no assurances that unforeseen events may notrequire more working capital than we have at our disposal.

 

In order to assure additional working capital is available to us tofund our growth and expansion, we had available a $7,000,000 working capitalline of credit as of September 30, 2001. The line of credit is subject toeligible accounts receivable.  The Company has available to borrow, at anygiven time, the lesser of the established line of credit or eligible accountsreceivable.  Eligible accounts receivable are 75% of accounts less than120 days old.  The working capital line of credit bears interest at thelesser of the bank’s prime rate of interest or the 30-day LIBOR rate plus2.25%. The line of credit, which expires April 30, 2002, is subject to certainfinancial covenants; the most significant requires the company to maintain aminimum net worth of $6,000,000.  At September 30, 2001 net advancestotaling $6,239,277 were made under the agreement.  Net worth, as definedunder the agreement, as of September 30, 2001 was at $8,315,381.

 

Due to the events of the September 11, 2001 TerroristAttacks, the Company experienced a significant reduction in collections forthree weeks following the Terrorist Attacks. As a result, the Company’s Accounts Receivable and Line of creditbalances significantly increased.  TheCompany’s Accounts Receivable (Net) balance as of September 30, 2001 was$11,111,006 compared to $9,446,213 as of June 30, 2001.  The Company’s line of credit balance as of September30, 2001 was $6,239,277 compared to a $5,050,651 as of June 30, 2001.   As of November 14, 2001, the Company’snormal cash collections have resumed and both Account Receivable and Line ofCredit balances have improved

 

In addition, we have obtained financing for certain equipment andvehicles.  The notes are secured by the equipment and vehicles, at ratesranging from 5% to 12% and mature at various times between 2000 and 2008.

 

 

## ***Item 3.    Quantitative and QualitativeDisclosures about Market Risk***

 

We believe our marketrisk exposure with regard to our financial instruments is limited to changes ininterest rates. Based upon the composition of our variable rate debtoutstanding at September 30, 2001, we do not believe that a hypotheticalincrease in the bank’s prime rate of interest or the 30-day LIBOR rate would bematerial to net income.

 

 

**Part II.  Other Information**

 

**Item 1.    Legal Proceedings**                None.

 

**Item 2.    Changes in Securitiesand Use of Proceeds**                None.

 

**Item 3.    Defaults Upon Senior Securities**                None.

 

**Item 4.    Submission of Mattersto a Vote of Security Holders**                None.

 

**Item 5.    Other Information**                None

 

**Item 6.    Exhibits and Reports**

 

(A)          EXHIBITS                None(B)           REPORTS ON FORM 8-K                None

**SIGNATURE**

 

 

                Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 

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