ALERT.OSRC.015x.018 shows profits of $37k on the filing today for Q ended September 2002.Small floater, was selling ten times this price when it was losing ass, and now profitable at .015? LOL.
Continuing Operations
While the Company again incurred a loss from continuing operations ($20 thousand) before taxes for the nine months ended September 30, 2002, operations for the three months ended September 30, 2002 generated net income of $37 thousand versus a loss for the same period of $31 thousand in 2001. This dramatic turn around is due to a) some improvement in division operating rates, and b) the substantial decrease in overhead costs for the nine months ended September 30, 2002 compared to 2001.
Fiscal 2002 results reflect management's changed focus and strategic emphasis for the Company. In January 2001 the Board of Directors installed a new Chairman to lead and direct a restructuring of operations to position the Company for profitable future results and granted him authority to make any changes he deemed warranted to accomplish this objective. Operations for the first nine months of 2002 show significantly improved results with a ninety five (95%) decrease in the 2002 Net Loss compared to September 30, 2001.
Supply division revenues decreased twelve percent (12%) in nine months ended September 30, 2002 compared to the same period in 2001, and significantly less than management had forecasted for the division. In addition to the distraction of the division's GM noted above, supply division revenues were also adversely affected by pricing errors of newly added products during the period. These cost and pricing problems have been corrected and additional controls put in place so results should improve in prospective quarters. By the end of June, the division's web-based distribution delivery system was completely on line and will significantly enhance division revenue expansion to existing as well as potential new accounts. In early September, the division acquired the business of a large company, which also entered into a service agreement with the company's maintenance division. Although it is too early to see the full impact of this new account, management believes it will contribute significant new volume and positive cash flow..
While consolidated revenues increase slightly by about five percent (5%) in 2002 compared to 2001, consolidated cost of revenues increased nineteen percent (19%) resulting in lower consolidated gross profit by fourteen percent (14%) for the nine months ended September 30, 2002 compared to the same period in 2001. This reflects the continuing high parts usage rates (including warranty expirations) that the Company continued to absorb in its maintenance services operations. While this cost concern continues through the third quarter, changes implemented early in the second quarter of 2002 were starting to show improvement by the end of the third quarter as gross margins of the maintenance division in the nine months ended September 30, 2002 increased significantly to 36% versus 23% for the first three months of 2002. Management will continue to focus on this aspect of the service operations in order to continue to bring down parts usage rates. Another factor in the decreased gross profit for third quarter is the addition of a Regional Service Manager and the addition of service technicians and technician training associated with an increase in an existing maintenance contract late in the quarter.
The most significant factor contributing to the improved overall operating results is the thirty-five percent (35%) decrease in Selling, General and Administrative costs in the nine months ended September 30, 2002 compared to 2001. While the approximate $360 thousand decrease is substantial the Company continues to absorb high General and Administrative costs as a percent of revenues and management continues to focus on implementing measures to bring the aggregate portion of G&A costs more in line with the Company's business model.
While operationally things have improved since year-end 2001 liquidity and sufficient capital resources continued to be a problem during the first half of 2002. Total costs continued to exceed revenues throughout the first six months but in the last month of the second quarter revenues exceeded costs and contributed a before tax profit in the second quarter of 2002. Total revenues continue to exceed cost in the three months of the third quarter ended September 30, 2002. Cash flows therefore are expected to continue to improve through the balance of the year. Short-term obligations remained largely at their year-end 2001 levels and is a primary reason for the continuing decline in the Company's current ratio at June 30, 2002 to 0.33% compared to 0.44% at December 31, 2001. The 0.33% however is an improvement over the 0.26% negative working capital ratio at March 31, 2002.
During the last quarter of 2001 cash flow short falls dropped significantly with the addition of new maintenance business coming on-line in the quarter. Monthly cash deficiency in the first quarter remained at about $25 thousand versus the $85 to $100 thousand a month negative cash flow throughout much of 2001, but by the end of June 2002 monthly cash flow was positive for the first time in two and half years. Management believes it can continue to manage this shortfall in the near-term with additional new business that is pending while it negotiates additional funding opportunities intended to recapitalize the Company.
The Company is engaged in this regard in negotiations with several investment-banking firms and others with the intent of securing equity funding of $1 million. These negotiations were continuing at September 30, 2002..
Also contributing to the decreased working capital position at September 30, 2002 compared to year-end 2001 was the overall increase in current liabilities versus current assets at December 31, 2001 primarily because of short-term debt. Current asset account balances remained at near December 31, 2001 levels but current liabilities, except short-tem debt levels were lower at September 30, 2002
In March 2001 the Company and holders of four of the Company's notes payable that were due in March and September of 2001 entered into Note Deferral and Extension Agreements wherein each note holder agreed to defer all principal payments until July 15, 2001. The Company agreed to make a twenty-five percent (25%) principal payment to each note holder on July 15, 2001. The notes' due dates were extend to July 15, 2002, but at July 15, 2002 the Company was unable to make the scheduled partial principle payment or commence making level monthly principal and interests payments over the remaining twelve-month period of the notes. As part of that agreement the Company also agreed to increase the interest rates of the notes from their stated twelve to fourteen percent (12% to 14%) to eighteen percent (18%). The Company has continued to make timely monthly interest payments to the holders. Further the Company is in communication with the holders and believes it will be able to negotiate an arrangement that will not adversely impact the Company's continuing operations.
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At September 30, 2002, the Company had accrued approximately $47 thousand of unpaid payroll taxes, interest and penalties. At the end of June, the Company submitted required documentation in support of its "Offer In Compromise" it filed in 2001 to the IRS. Management believes the Company will be able to successfully liquidate this liability without incurring any adverse effects on the Company's financial condition from actions of the IRS.
Employees
At June 30, 2002, the Company employed thirty-four (34) persons. None of these employees are represented by a labor union for purposes of collective bargaining. The Company considers its relation with its employees to be excellent. The Company plans to employ additional personnel as needed upon product rollout to accommodate fulfillment needs.
Research and Development Plans
The Company believes that research and development is an important factor in its future growth. The equipment service industry is closely linked to the technological advances of the products it services. Therefore, the Company must continually invest in learning the new technology to provide the best quality service to the public and to effectively compete with other companies in the industry. No assurance can be made that the Company will have sufficient funds to complete new training in the latest technological advances as they become available. Additionally, due to the rapid advance rate at which technology advances, the Company's equipment may be outdated quickly, preventing or impeding the Company from realizing its full potential profits |
