OneSource Operating Results Show Continued Improvement in Third Quarter 2001
OneSource Technologies, Inc., (OTC BB: 'OSTK) today reported consolidated revenues of $713 thousand for the quarter ended September 30, 2001, a 13% increase from third quarter 2000 revenues of $631 thousand. Operating loss before extraordinary gain and loss from discontinued operations for the quarter was $44 thousand (less than $0.01 per share) compared to a loss of $310 thousand for the quarter ended September 30, 2000
OneSource Operating Results Show Continued Improvement in Third Quarter 2001
Scottsdale, Arizona -- 28 November 2001 - OneSource Technologies, Inc., (OTC BB: 'OSTK) today reported consolidated revenues of $713 thousand for the quarter ended September 30, 2001, a 13% increase from third quarter 2000 revenues of $631 thousand. Operating loss before extraordinary gain and loss from discontinued operations for the quarter was $44 thousand (less than $0.01 per share) compared to a loss of $310 thousand for the quarter ended September 30, 2000. Operating loss before extraordinary gain and loss from discontinued operations for the nine months ended September 30, 2001 were $418 thousand ($0.02) per share compared to a loss of $495 thousand ($0.03) per share in fiscal 2000 on revenues of $2,055,502 and $2,189,755 for the nine months ended September 30, 2001 and 2000 respectively.
The first nine months results of 2001 continued to show improvement from those of the prior year and reflect the positive effects of restructuring and realignment changes management has implemented to return the Company to profitable operations," said Jerry Washburn, CEO of the Company. Results for the three months ended September 30, 2001 are particularly relevant in this regard as the Company recorded improved results in every operating category in the third quarter of 2001 compared to the same three month period in fiscal 2000", continued Washburn. Operational problems encountered in the Companys maintenance and installation divisions during 2000 have been rectified and the Companys supplies distribution division continued to contribute positive cash flow and profits through the third quarter," added Washburn.
About OneSource
OneSource is engaged in three closely related and complimentary lines of IT and business equipment support products and services, 1) equipment maintenance services, (Maintenance") 2) equipment installation and integration services, (Installation") and 3) value added equipment supply sales, (Supplies") . Each segment also utilizes the Internet to facilitate distribution of its service and product offerings. OneSource is a leader in the technology equipment maintenance and service industry and is the inventor of the unique OneSource Flat-Rate Blanket Maintenance SystemÔ. This innovative program provides customers with a Single Source for all general office, computer and peripheral and industry specific equipment technology maintenance, installation and supplies products.
OneSources Cartridge Care division is a quality leader in remanufactured toner cartridge distribution in the southwest and is the supplier of choice for a number of Fortune 1000 companies in that region. OneSource has realigned this division and invested heavily in staging it for substantial expansion over the next two years to enable Cartridge Care to extend its high quality reputation beyond its southwestern regional roots.
Product and Company names mentioned herein are for identification purposes and may be trademarked or registered trademarks of their respective companies. This press release may contain forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 as amended, and is subject to the safe harbors created by those sections.
______________________________________________________________________________
Contact: Jerry Washburn, CEO
OneSource Technologies, Inc.
480.889.1177
jwashburn@1sourcetech.com
(Financial Information follows)
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
Restated Restated
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
3rd QTR 3rd QTR YTD YTD
2001 2000 2001 2000
REVENUE, net $ 712,556 $ 631,407 $ 2,055,502 $ 2,189,755
COST OF REVENUE 425,121 481,985 1,217,214 1,416,480
GROSS PROFIT 287,435 149,422 838,288 773,275
GENERAL AND ADMINISTRATIVE EXPENSES 253,577 421,321 897,254 1,103,485
SELLING AND MARKETING EXPENSES 46,599 27,912 140,682 129,670
Operating Income (Loss) (12,741) (299,811) (199,648) (459,880)
OTHER INCOME / (EXPENSE)
Interest expense (39,432) (5,045) (197,952) (23,769)
Other income / (expense) 7,692 (5,340) (20,221) (11,649)
Total other expense (31,740) (10,385) (218,173) (35,418)
LOSS BEFORE EXTRAORDINARY ITEM and LOSS
FROM DISCONTINUED OPERATIONS (44,481) (310,196) (417,821) (495,298)
EXTRAORDINARY ITEM - 63,375 - 63,375
NET LOSS FROM CONTINUING OPERATIONS (44,481) (246,821) (417,821) (431,923)
DISCONTINUED OPERATIONS -
Loss from operations of Net Express, Inc. (9,107) (47,385) (73,260) (107,412)
Estimated gain from disposal of net assets of Net
Express, Inc. - - 24,448 -
Total loss from discontinued operations - (47,385) (48,812) (107,412)
NET LOSS $ (53,588) $ (294,206) $ (466,633) $ (539,335)
Basic, before extraordinary item and loss from
discontinued operations $ * ($0.02) ($0.02) ($0.03)
Extraordinary gain $ * $ *
Loss from discontinued operations, net $ * $ *
Net loss $ * ($0.02) ($0.02) ($0.03)
Diluted, before extraordinary item and loss from
discontinued operations $ * ($0.02) ($0.02) ($0.03)
Extraordinary gain $ * $ *
Loss from discontinued operations, net $ * $ *
Net loss $ * ($0.02) ($0.02) ($0.03)
Weighted Average Shares Outstanding:
Basic 20,634,789 17,749,885 19,951,500 15,927,669
Diluted 20,634,789 17,749,885 19,951,500 15,927,669
ONESOURCE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 34,825
Accounts receivable 433,269
Inventories 350,682
Other current assets 8,747
Total current assets 827,523
PROPERTY AND EQUIPMENT, net of accumulated depreciation $152,998 223,922
GOODWILL, net of accumulated amortization of $35,012 239,652
DEFERRED INCOME TAXES 140,187
OTHER ASSETS 151,053
TOTAL ASSETS $ 1,582,337
LIABILITIES AND STOCKHOLDERS DEFICIT
CURRENT LIABILITIES:
Accounts payable 328,968
Accrued expenses and other liabilities 239,212
Deferred revenue 146,252
Bank lines of credit 100,913
Obligation for common stock to be issued 177,901
Current portion capital leases 10,427
Current portion of long-term debt 507,045
Total current liabilities 1,510,718
NOTES PAYABLE - LONG-TERM PORTION 293,389
Total liabilities 1,804,107
STOCKHOLDERS' DEFICIT
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued
Common Stock, $.001 par value, 50,000,000 shares authorized, 23,406,511 23,407
issued at September 30, 2001and 1,623,612 subscribed but not issued
at September 30, 2001
Paid in capital 2,696,123
Stock subscription (806,250)
Accumulated deficit (2,135,050)
(221,770)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,582,337
ONESOURCE TECHNOLOGIES, INC.
Management Comments
September 30, 2001
Introduction
While year to date results continue to show operational losses second and third quarter 2001 results showed marked improvement in most operational categories. This reflects the positive effects that a number of restructuring and realignment changes management has implemented have contributed toward returning the Company to profitable operations. In the latter half of fiscal 2000 management instituted changes to arrest the Companys eroding operational infrastructure as well as refocus the Companys strategic direction. Management is pleased to note that second and third quarter 2001 results show significant trending improvements.
Results of Operations
In April 2001 as part of managements refocused emphasis on its core business opportunities the Company discontinued the operations of its wholly owned subsidiary Net Express, Inc., (NEI) and implemented a plan to dispose of the net asset of that division. No significant operations were conducted by NEI in year to date 2001 and for comparative purposes the consolidated financial statements of the Company for the three months ended March 31, 2001 and the nine-months ended September 30, 2000 have been restated to show the net operating results of NEI separately as discontinued operations in the following Consolidated Summary of Operations as of September 30, 2001 and 2000.
Unaudited
1st QTR 2nd QTR 3rd QTR YTD YTD
2001 2001 2001 2001 2000
Restated Restated
REVENUE, net $ 662,729 $ 680,217 $ 712,556 $2,055,502 $ 2,189,755
COST OF REVENUE 421,637 370,456 425,121 1,217,214 1,416,480
GROSS MARGIN 241,092 309,761 287,435 838,288 773,275
SELLING, General and Administrative Costs 452,777 284,983 300,176 1,037,936 1,233,155
Operating Income (Loss) (211,685) 24,778 (12,474) (199,648) (459,880)
INTEREST and other (expenses) (76,708) (109,725) (31,740) (218,173) (35,418)
LOSS before Extraordinary gain and Discontinued (288,393) (84,947) (417,821) (495,298)
Operations (44,481)
EXTRAORDINARY gain - - - - 63,375
DISCONTINUED operations, net (27,687) (12,018) (9,107) (48,812) (107,412)
NET LOSS $(316,080) $ (96,965) $ (53,588) $ (466,633) $ (539,335)
Revenues and Cost of Revenues
The Companys rapid growth in 1999 and 2000 contributed to a number of operational problems that adversely impacted the Companys operating results in fiscal 2000 and year-to-date 2001. While they were not as evident early in 2000 they compounded and ballooned in the latter half of that year. The problems centered on a) contraction of core maintenance revenues and b) abnormally high operating costs stemming from disparate and competing agendas among the Companys operating divisions. Both of these situations have been fixed in fiscal 2001 and will not have a continuing adverse impact on the Company.
In January 2001 the Board of Directors installed a new Chairman to direct the restructuring of operations. Operating results for the first nine months of fiscal 2001 show the positive effects of a number of improvements that have been implemented, particularly in the quarters ended June and September 2001 which show decreasing net losses. The three percent (3%) increase in consolidated revenues in the second quarter of 2001 compared to the first three months is further enhanced by a twelve percent (12%) decrease in cost of revenues in the same period. This combination of higher revenues with lower costs resulted in the ten percent (10%) increase in gross margin percentage in the second quarter compared to the first three months of 2001 and resulted in the quarters positive operating income. Revenues continued to increase in the third quarter while margins slipped slightly to forty percent. Consolidated year to date margins through September 30, 2001 at forty-one percent (41%) were up six percentage points over the thirty-five percent margin for the same nine month period in 2000.
These improved operating trends, particularly in the latest two quarters are the result of managements focus on a) right sizing Company staff, b) realigning operating divisions, c) general cost cutting and d) streamlining and empowering management. Management has reduced total staff from 56 employees in 2000 to 34 at the end of September 2001, yet most of the staff reductions were made in administrative and support functions and not in the core maintenance and supply division operations. Line managers were also realigned to more effectively manage field service and manufacturing operations. As a result customer service levels have dramatically improved to the highest levels in the Companys history.
Management discontinued NEI operations because too much of its activities were concentrated in the highly competitive and low margin network hardware sales and integration industry which drained resources from the Companys core equipment maintenance and installation divisions. To the degree installation engagement opportunities arise in line with present geographic and staffing resources the Company will pursue and engage them but in the near-term management is concentrating on growing the Companys maintenance and supply division operations. To make this a reality management is focused on launching a new sales and marketing program that features an aggressive out bound direct sales effort for both divisions and an upgraded Internet distribution channel for the supplies division.
Most of the increase in consolidated revenues in the second and third quarters of 2001 occurred in the companys maintenance division with the start in April of a new banking equipment maintenance engagement and a significant addition to one of the divisions existing retail customers. On an annualized basis these two new agreements add approximately $375 thousand in new maintenance revenues. Off setting this maintenance increase in the second quarter was a small decline of three percent (3%) in the supply divisions revenues compared to the first three months of 2001. This decrease was picked in the thirty quarter of 2001. The supplies division has been showing consistently improving levels of operations in fiscal 2001 with an overall six percent (6%) increase in total revenues for the nine months ended September 30, 2001 compared to the prior year. Management is committed however to bring the supply divisions web-based distribution delivery system on-line in the fourth quarter of 2001 in order to significantly enhance division revenue expansion to existing as well as potential new accounts. A featured focus of this endeavor will be to more deeply cross-sell division products and services into the Companys maintenance and installation customer bases.
Both divisions contributed to the decrease in cost of revenues in the second and third quarters of 2001 compared to the first three months. Most of the decrease in the maintenance division resulted from improved parts buying practices and controls management has implemented in the procurement department, which yielded lower parts usage rates in the quarters. The supplies division also benefited from improved management controls as well as a greater proportion of higher margin toner shipments during the period. These improvements document that changes implemented earlier in fiscal 2001 are starting to reflect in reported results. There is no reason to believe that the Company will not continue to enjoy the benefits of these improvements going forward.
Selling, General and Administrative Costs
These costs declined in the six and three months ended June 30, 2001 six percent (6%) and nineteen percent (19%) respectively compared to the six and three months ended June 30, 2000 but the decrease of thirty-seven percent (37%) or approximately $168 thousand in the second quarter of 2001 compared to the first three months of 2001 is most significant and documents a number of management changes implemented to return the Company to profitability. These costs held relatively steady through the third quarter of 2001. Most of the reduction in the second and third quarters is from lower payroll and related benefit costs resulting from the staff reductions noted above. Similarly salary and benefit costs in the first quarter of 2001 included a $68 thousand charge for additional trust fund taxes related to periods prior to 2001. The present reduced administrative staff can support a higher level of operations and accordingly management has moved its attention to implementing a new sales and marketing program to significantly grow revenues over the next twelve months.
Interest and Other (Expenses)
These costs are up seven fold in fiscal 2001 compared to the nine months ended September 30, 2000 and account for almost half of the first nine-months loss in fiscal 2001. Substantially all the increase is due to interest expense related to short-term borrowings over the past nine months in support of funding needed to cover the Companys turnaround activities. About $100 thousand of 2001 interest expense represents financing costs" incurred as deal sweeteners (stock and/or warrants) offered to secure short-term debt capital, a portion of which was deferred at year-end 2000 and amortized in fiscal 2001 as a result of recent accounting profession and SEC pronouncements. While these costs didnt utilize corporate cash the value of the sweeteners was required to be charged to earnings under the new pronouncements. Because of the revised accounting for such debt sweeteners the Company has not entered into any similar deal structures in fiscal 2001 and accordingly should not have to absorb these costs in the future.
At September 30, 2001 the Company had accrued delinquent payroll taxes, penalties and interest of approximately $120 thousand. While the Company is current in payment of all its payroll tax liabilities and has been since April 2000 and has been making $11.5 thousand a month payments against the past accrual the IRS has been applying payments to penalty and interest first then to taxes. The Company therefore has submitted an Offer in Compromise to settle this issue. These liabilities relate to unpaid withholding taxes that were assumed as part of the LBO in 1997 and two additional tax periods in 1998 and 1999. Management believes the Company will be able to successfully liquidate this liability without incurring any adverse effects on the Companys financial condition by actions of the IRS.
Liquidity and Capital Resources
The following table sets forth certain financial condition information as of September 30, 2001 compared to December 31, 2000
Balance Sheet - 2001 2000
Restated
Working Capital ($683,195) ($280,570)
Total Assets $1,582,337 $1,497,702
Debt Obligations $901,347 $614,206
Shareholders (Deficit) Equity ($221,770) $285,095
Liquidity and sufficient capital continued to be a challenge during the first nine months of 2001. Costs continued to exceed revenues throughout the nine months and while a significant proportion of total costs were non-cash related the Company continued to operate in a negative cash flow position through the first nine months ended September 30, 2001 which necessitated funding the short falls with short-term borrowings. Further, the short-term lenders required equity sweeteners" as part of the deals, which further increased the cost of the short-term borrowings. This increase in short-term obligations is a primary reason for the sharp decline in working capital at September 30, 2001 and the negative current ratio at September 30, 2001 of .43% compared to .47% at December 31, 2000. The financing cost of these funding rounds is also a significant contributor to the Companys loss for the six months ended June 30, 2001.
In March 2001 the Company and holders of four of the Companys notes payable that were due in March and June of 2001 entered into Note Deferral and Extension Agreements wherein each note holder agreed to defer all principal payments until July 15, 2001, where upon the Company has agreed to make a twenty-five percent (25%) principal payment to each note holder and the notes due dates will extend to July 2002.
The Company is also engaged in negotiations with several investment banking firms and others with the intent of securing equity funding of $1 million. These negotiations were continuing as of June 30, 2001 and now that the Companys stock is elevated to listing on NASDAQs OTC BB management believes one or more of these endeavors will be consummated.
To improve the Companys financial position the Company and a group of investors executed an agreement in March 2000 with PF Holdings, Inc. (PF) to purchase the promissory note held by PF with a face value of $285,000 and accrued interest of $36,972 for $150,000 in cash provided by the investors and 175,000 shares of the Companys common stock with a fair market value of $93,438.00. The investor group exchanged the promissory note for 643,944 shares of OneSource stock. The investors are restricted from selling the combined 818,944 shares of stock for a period of one year. Completion of this transaction resulted in an extraordinary gain of $63 thousand.
Although the Company has not yet achieved break-even cash flow management believes increased revenues from its new sales program coupled with some additional cost reductions will result in very favorable trending through the balance of 2001.
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