SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 2-98747-D
OXFORD CAPITAL CORP.
------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 87-0421454
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4245 North Central Expressway, Suite 300, Dallas, Texas 75205
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 520-0100
---------------------
(Issuer's telephone number)
-----------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
--- ----
As of May 14, 1998, 10,334,638 shares of Common Stock of the issuer were
outstanding.
<PAGE>
OXFORD CAPITAL CORP.
INDEX
Page
Number
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1998
and June 30, 1997......................................... 3
Condensed Consolidated Statements of Operations -
For the three and nine months ended March 31, 1998 and 1997. 5
Condensed Consolidated Statements of Cash Flows -
For the nine months ended March 31, 1998 and 1997 .......... 6
Notes to Unaudited Consolidated Financial Statements........ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................... 18
Item 6. Exhibits and Reports on Form 8-K............................ 18
SIGNATURES ............................................................. 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 June 30, 1997
---------------- --------------
Assets:
Current Assets:
Cash $ 221,868 $ 437,410
Accrued Payroll Receivable 0 415,860
Accounts Receivable, Net 684,097 141,210
Inventories 0 53,495
Notes Receivable 56,203 0
Employee Advances & Loans Receivable 297,554 0
Prepaid Expenses and Other Assets 348,434 13,900
------------------ -------------
Total Current Assets 1,608,156 1,061,875
------------------ -------------
Furniture, Fixtures & Equipment, Net 367,163 179,293
------------------ -------------
Other Assets:
Goodwill, Net 5,450,806 0
Covenant Not to Compete, Net 81,991 0
Accounts Receivable - Related Party 0 46,284
Accounts Receivable - Crest 0 45,140
Deferred Acquisition Costs - Webster 0 81,991
Other Assets 249,083 337
------------------ -------------
Total Other Assets 5,781,880 173,752
------------------ -------------
Total Assets $ 7,757,199 $ 1,414,920
================== =============
See Notes to Financial Statements
4
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Cont'd)
March 31, 1998 June 30, 1997
---------------- -----------------
Liabilities & Shareholders' Equity
Current Liabilities
Bank Overdraft $ 203,955 $ 159,643
Accrued Payroll Payable 40,446 287,056
Accounts Payable 330,949 90,749
Accrued Expenses 243,388 98,174
Payroll Taxes Payable 4,853,713 4,037,601
Current Portion of Long-Term Debt 67,685 77,563
----------------- ----------------
Total Current Liabilities 5,740,136 4,750,786
----------------- ----------------
Long-Term Debt 6,343,235 399,028
----------------- ----------------
Total Liabilities 12,083,371 5,149,814
----------------- ----------------
Shareholders' Equity
Preferred Stock 100 0
Common Stock 10,334 33,064
Additional Paid-In Capital 1,439,549 1,370,475
Retained Earnings (5,776,155) (5,138,433)
----------------- ----------------
Total Shareholders' Equity (4,326,172) (3,734,894)
----------------- ----------------
Total Liabilities & Shareholders'Equity $ 7,757,199 $ 1,414,920
================= ================
See Notes to Financial Statements
5
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
Three Months Nine Months
Ended March 31, Ended March 31,
---------------------------------------- ------------------------------------------
1998 1997 1998 1997
------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 22,430,719 $ 4,291,117 $ 55,781,752 $ 14,648,492
Direct Cost 21,324,430 4,151,912 53,368,304 13,684,915
------------------- ------------------- -------------------- -------------------
Gross Profit 1,106,289 139,205 2,413,448 963,577
------------------- ------------------- -------------------- -------------------
Expenses:
Selling, General &
Administrative 1,438,988 500,329 2,282,319 1,442,660
Development Expenses 0 303,954 221,727 720,668
Depreciation &
Amortization 150,566 49,475 322,342 137,410
------------------- ------------------- -------------------- -------------------
Total Expenses 1,589,554 853,758 2,826,388 2,300,738
------------------- ------------------- -------------------- -------------------
Operating Loss (483,265) (714,553) (412,940) (1,337,161)
------------------- ------------------- -------------------- -------------------
Other Income (Expense)
Interest (95,779) (33,607) (224,783) (64,903)
Minority Interest 0 26,873 0 55,530
Income Taxes 0 0 0 0
------------------- ------------------- -------------------- -------------------
Net Loss $(579,044) $ (721,287) $(637,723) $(1,346,534)
=================== =================== ==================== ===================
Weighted Average Shares
Outstanding 12,820,371 33,064,248 22,942,328 32,705,131
=================== =================== ==================== ===================
Basic Loss per share $ (0.05) $ (0.02) $ (0.03) $ (0.04)
=================== =================== ==================== ===================
</TABLE>
See Notes to Financial Statements
6
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months Ended March 31,
---------------------------------------------
1998 1997
------------------- --------------------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Loss $ (637,723) $ (1,346,534)
Depreciation and Amortization 322,342 137,410
Inventory Write-Down 53,495 0
Adjustments to Reconcile Net Loss with Net
Cash Provided By (Used in) Operating Activities
Decrease (Increase) in Accounts Receivable 26,306 260,132
Decrease (Increase) in Accrued Payroll Receivable 415,860 (178,393)
(Increase) in Inventory 0 (55,530)
Minority Interest 0 0
Decrease (Increase) in Notes Receivable (3,823) 0
(Increase) in Prepaid Expenses and Employee
Advances (627,694) (23,278)
Increase (Decrease) in Accounts Payable (383,432) 1,630,519
Increase (Decrease) in Accrued Payroll (278,217) 0
Increase (Decrease) in Accrued Expenses 145,214 0
Increase (Decrease) in Payroll Taxes Payable 151,721 0
Other 0 180
------------------- -------------------
Net Cash Provided By (Used In) Operating Activities (808,241) 424,506
------------------- -------------------
Cash Flows From Investing Activities:
Purchases of Property, Plant & Equipment (89,717) (228,706)
Cash Acquired Through Acquisitions 482,245 31,316
Decrease In Deferred Acquisition Costs 81,991 0
Decrease In Accounts Receivable - Crest 45,140 0
Decrease In Accounts Receivable - Related Party 46,284 0
Decrease (Increase) In Other Assets (7,678) 26,607
------------------- -------------------
Net Cash Provided By (Used In) Investing Activities 558,265 (170,783)
------------------- -------------------
Cash Flows From Financing Activities:
Bank Overdraft 44,312 0
Increase (Decrease) in Promissory Notes (9,878) (48,416)
------------------- -------------------
Net Cash Used In Investing Activities 34,434 (48,416)
------------------- -------------------
Increase In Cash (215,542) 205,307
Beginning Cash 437,410 2,963
------------------- -------------------
Ending Cash $ 221,868 $ 208,270
=================== ===================
</TABLE>
See Notes to Financial Statements
7
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Cont'd)
<TABLE>
Nine Months Ended March 31,
-------------------------------------
1998 1997
-------------- -----------------
<S> <C> <C>
Supplemental disclosures of cash flow information
Interest paid $ 0 $ 64,903
============== ================
Income tax paid $ 0 $ 0
============== ================
Non cash investing and financing activities
Purchase of goodwill by issuance
of short-term and long-term debt $ 6,032,979
==============
Debentures payable converted to shares of common
stock $ 169,789
===============
Accounts payable converted to warrants to acquire common stock $ 757,752
===============
</TABLE>
See Notes to Financial Statements
8
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
1. INTERIM PRESENTATION
The accompanying interim financial statements are prepared in accordance
with generally accepted accounting principles for interim financial
information and with instructions for Form 10-QSB and Rule 10-01 of
Regulation S-X. The June 30, 1997 balance sheet data was derived from
audited financial statements included in Form 10-KSB dated June 30, 1997.
The interim financial statements and notes thereto do not include all
information required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the
financial statements included in Form 10-KSB for the period ended June 30,
1997. The interim financial statements reflect all adjustments of a normal
recurring nature which are, in the opinion of management, necessary for a
fair presentation of the financial position, results of operations and of
cash flows for the interim periods presented.
2. DISCONTINUANCE OF OPERATIONS OF SFCI
Effective December 31, 1997, the Company discontinued operations of its
wholly-owned subsidiary, Safety and Fatigue Consultants International, Inc.
("SFCI") and SFCI's 60% owned subsidiary, The Institute of Sleep and
Neuroscience, Inc. As a result of the discontinuation of those operations,
the Company reported no minority interest and no development expenses for
the quarter ended March 31, 1998.
3. ACQUISITIONS
The following acquisitions were accounted for under the purchase method of
accounting.
(a) PRC Enterprises, Inc.
On September 2, 1997, but effective September 1, 1997, the Company
acquired 100% of the issued and outstanding shares of PRC Enterprises,
Inc. ("PRC"), headquartered in Houston, Texas. PRC provides
employee-leasing services for approximately 1,950 employees. In
exchange for the shares of PRC, the Company issued a note in the
amount of $4,500,000. The note, which is collateralized with the PRC
stock, bears interest of 8% and is due as follows:
(i) Principal and interest are due annually in an amount equal to the
greater of 30% of the gross profits of PRC, as defined, or
$450,000.
(ii) Any unpaid principal and interest is due three years from the
date of execution.
The PRC note is convertible into shares of Oxford as follows:
9
<PAGE>
(i) The payee is entitled to convert any unpaid principal at the then
market price of the Oxford stock in minimum amounts of $250,000 no more
frequently than once during any one six-month period.
(ii) After paying all accrued interest and principal except
$1,000,000, the outstanding $1,000,000 is convertible to shares of Oxford
at the then market price at the option of the Company.
(b) Crest Outsourcing, Inc.
On February 14, 1997, the Company agreed to acquire 100% of the issued
and outstanding shares of Crest Outsourcing Inc. ("Crest") in exchange
for 5,333,333 newly issued shares of Oxford common stock and 500,000
newly issued shares of Series A Redeemable Convertible Preferred
Stock. On March 1, 1997, Oxford guaranteed a Crest note payable to
Continental Casualty Company in the amount of $885,000. On September
30, 1997, the Company amended the purchase agreement. Under the
amended agreement, the Company issued 100,000 newly issued shares of a
Series A Redeemable Convertible Preferred Stock, a note in the amount
of $250,000 and warrants to purchase 250,000 common shares of Oxford.
Each preferred stock share is convertible into 1 share of common stock
and warrants to acquire 1 newly issued common share of Oxford at the
following prices: 25,000 at $1 per share; 25,000 at $1.50 per share;
and 50,000 at 80% of the then market price of Oxford common stock. The
$250,000 note payable bears 6% interest and is payable over a period
of 58 months. The warrants to acquire 250,000 common shares are
exercisable at $1 per share for a period of three years. On October 1,
1997, the acquisition of Crest was consummated.
(c) Webster Leasing, Inc.
On March 13, 1997, the Company agreed to acquire 100% of the issued
and outstanding shares of Webster Leasing, Inc. ("Webster"), in
exchange for 772,393 shares of Oxford common stock. The former owners
of Webster continued to operate Webster under a management contract
pending completion of an audit of Webster's books and records. The
acquisition of Webster was concluded on December 1, 1997.
4. MANAGEMENT AGREEMENT - UNITED STAFFING CORPORATION
Effective August 1, 1997, the Company entered into a management contract to
operate United Staffing Corporation ("USC"), an employee leasing firm
located in Beaverton, Oregon.
Previously, on July 31, 1997, the Company had entered into an agreement to
acquire substantially all of the assets of Insource America, Inc.
("Insource"), an employee leasing firm with operations in Portland, Oregon
and Missoula, Montana. USC is successor to the operations of Insource.
10
<PAGE>
A condition precedent to closing of the acquisition of Insource was the
successful completion of audits of the financial statements of Insource and
its subsidiary as of and for the years ended June 30, 1995 and 1996.
Subsequently, it was determined that audits could not be performed in
accordance with generally accepted auditing standards due the inadequacy of
accounting records. Accordingly, the agreement to acquire Insource was
terminated due to failure of Insource to satisfy conditions precedent to
closing. A promissory note issued in connection with the proposed
acquisition of Insource and guaranteed by Oxford in the amount of
$6,187,500 has been canceled. The Company entered into the management
agreement, retroactive to July 31, 1998, with USC for the duration of time
that must pass to enable it to meet the filing requirements of Rule 3-05 of
Regulation S-K of the Securities Exchange Act regarding audited financial
statements for businesses acquired.
5. PRO FORMA INFORMATION
The following unaudited pro forma financial information gives effect to the
combined historical results of operations of the Company, PRC, Crest and
Webster for the three and nine months ended March 31, 1998 and 1997, and
assumes that the acquisitions had been effective as of the beginning of
each such period. The pro forma information is not indicative of the actual
results, which would have occurred had the acquisitions been consummated at
the beginning of such periods, or of future operations of the Company. The
pro forma financial information is based on the purchase method of
accounting and reflects adjustments to eliminate non-recurring expenses, to
amortize the excess purchase price over the underlying value of net assets
and to reflect additional interest expense.
<TABLE>
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
-------------------------------------------- ----------------------------------------
1998 1997 1998 1997
------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Revenue $22,430,719 $23,508,008 $74,781,461 $76,641,835
Net Loss (579,045) (1,030,338) (495,023) (5,405,684)
Loss per share $ (0.05) $ (0.03) $ (0.02) $ (0.17)
</TABLE>
The decrease in revenue and net loss as reflected in the preceding pro
forma financial information for the three and nine periods ended March 31,
1998, as compared to the three and nine periods ended March 31, 1997, is
principally attributable to (a) the Company's efforts to terminate client
contracts that do not meet its profitability criteria, offset by the
addition of new, more profitable clients, and (b) unusual expenses in the
1997 periods such as workers compensation insurance, over staffing and
uncollectability of certain receivables.
6. NET INCOME (LOSS) PER SHARE
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share", was adopted in the fourth quarter of 1997 and supersedes the
Company's previous standards for computing net income (loss) per common
share under Accounting Principles Board No. 15. The new standard requires
dual presentation of net income per common share and net income per common
share assuming dilution, on the face of the income statement. Net income
per share data has been restated for fiscal 1997 in accordance with the new
standard. Dilutive net loss per share is not presented since all of the
dilutive shares are antidilutive for the periods presented.
11
<PAGE>
7. CONTINGENCIES
The Internal Revenue Service has pursued various collection efforts against
the Company and its subsidiary, RX Staffing, relating to payroll taxes
alleged to be owed in the amount of $3,721,504 plus statutory additions for
the quarterly periods ended September 30, 1996 through June 30, 1997. The
Company has filed suit in United States Federal District Court for the
Northern District of Texas seeking to enjoin, and was granted a temporary
restraining order enjoining, the collection of such payroll taxes. The
temporary restraining order has since been dissolved and the Company is
continuing to pursue permanent injunctive relief. In addition to its
injunctive action, the Company is engaged in ongoing discussions with the
United States Department of Justice regarding the possible establishment of
an installment schedule to pay any deficiency in payroll taxes which may be
determined to be owing.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain Factors Pertaining to Forward Looking Statements
The statements contained herein which are not historical facts are
forward-looking statements that involve various risks and uncertainties.
Therefore, the actual results of the future events described in such
forward-looking statements in this Form 10-QSB could differ materially from
those stated in such forward- looking statements. Among the factors which could
cause the actual results to differ materially are the risks and uncertainties
described both in this Form 10-QSB and the uncertainties set forth from time to
time in the Company's other public reports, filings and public statements. Many
of these factors are beyond the control of the Company, any of which, or a
combination of which, could materially affect the results of the Company's
operations and whether the forward-looking statements made by the Company
ultimately prove to be accurate.
Overview
The Company provides small and medium-sized businesses with an outsourcing
solution to the complexities and costs related to employment and human
resources. The Company's integrated employment related services consists of
human resource administration, employment regulatory compliance management,
workers' compensation coverage, health care and other employee benefits. The
Company establishes a co- employer relationship with its clients and
contractually assumes substantial employer responsibilities with respect to a
company's work site employees. In addition, the Company offers certain specialty
managed care services on a stand alone basis to health and workers' compensation
insurance companies, HMOs, managed care providers and large, self insured
employers.
Financial Presentation
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the foregoing and the Company's Consolidated
Financial Statements and Notes thereto.
The Company's revenues include amounts billed to clients for gross salaries
and wages, related employment taxes, and health care and workers' compensation
coverage of work site employees. The Company is obligated to pay the gross
salaries and wages, related employment taxes as well as health care and workers'
compensation costs of its work site employees whether or not the Company's
clients pay the Company on a timely basis, or at all. The Company believes that
including such amounts as revenues appropriately reflects the responsibility
which the Company bears for such amounts and is consistent with industry
practice. In addition, the Company's revenues are subject to fluctuations as the
result of (i) changes in the volume of work site employees serviced by the
Company, (ii) changes in the wage base and employment tax rates of work site
employees, and (iii) changes in the mark up charge by the Company for its
services.
13
<PAGE>
The Company's primary direct costs are (i) salaries, wages and the
employer's portion of social security taxes, Medicare premiums and federal
unemployment taxes, (ii) health care and workers' compensation costs, and (iii)
state unemployment taxes and other direct costs. The Company can significantly
impact its gross profit margin by actively managing the direct costs described
in item (ii) and (iii). The Company's health care costs consist of medical
insurance premiums, payments of and reserves for claims subject to deductibles
and the costs of vision care, disability, employee assistance and other similar
benefit plans. The Company's health care benefit plans consist of a mixture of
fully insured, minimum premium arrangements, partially self-insured plans and
guaranteed cost programs. Under minimum premium arrangements and partially
self-insured plans, liabilities for health care claims are recorded based on the
Company's health care loss history.
Workers' compensation costs include medical costs and indemnity payments
for lost wages, administrative costs and insurance premiums related to the
Company's workers' compensation coverage. Workers' compensation costs for fiscal
1998 also include reserves for claims, which have been incurred but not
reported, and for anticipated loss.
The Company's primary operating expenses are administrative personnel,
other general and administrative expenses and sales and marketing expenses.
Administrative personnel expenses include compensation, fringe benefits and
other personnel expenses related to internal administrative employees. Other
general and administrative expenses include rent, office supplies and expenses,
legal and accounting fees, insurance and other operation expenses. Sales and
marketing expenses include compensation of sales executives and the marketing
staff, as well as marketing and advertising expenses.
Material Changes in Operations
During the quarter ended December 31, 1997, the Company completed the
acquisitions of (i) the assets of Crest Outsourcing, Inc., ("Crest") and (ii)
Webster Leasing, Inc., ("Webster"). Crest provides staff leasing services from
offices in Albuquerque, New Mexico and Los Angeles, California, and Webster
provides staff leasing services from offices in Waco, Texas. Also during the
quarter, management discontinued the operations of Safety and Fatigue
Consultants International, Inc. ("SFCI") and SFCI's 60% owned subsidiary, The
Institute of Sleep and Neuroscience, Inc., effective as of December 31, 1997.
Expenses incurred by SFCI are included in the statement of operations for
periods ending on or before December 31, 1997 as development expenses with
operating results of SFCI's 60% owned subsidiary being reflected for such
periods in minority interest.
During the quarter ended September 30, 1997, the Company completed the
acquisition of 100% of the issued and outstanding shares of PRC Enterprises,
Inc. ("PRC"), which provides employee leasing services from an office in
Houston, Texas. Also, during the quarter, the Company terminated its pending
acquisition agreement with Insource America, Inc. ("Insource") as a result of
Insource's failure to satisfy certain conditions precedent to closing. The
Company entered into a Management Agreement, retroactive to August 1, 1997, to
manage the operations of United Staffing Corporation ("USC"), an employee
leasing firm with offices in Oregon and Utah and successor to the operations of
Insource. Under the Management Agreement with USC, the Company is entitled to
certain prescribed management fees for claims handling services provided to USC.
14
<PAGE>
Results of Operations
The following table sets forth, for the period's indicated, certain
selected income statement data expressed as a percentage of revenues:
<TABLE>
Three Months Ended March 31, Nine Months Ended March 31,
-------------------------------------- ------------------------------------------
1998 1997 1998 1997
-------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Direct cost 95.1 96.8 95.7 93.4
Gross profit 4.9 3.2 4.3 6.6
Expenses:
Selling, general and
administrative 6.4 11.6 4.1 9.8
Development - 7.1 0.4 4.9
Depreciation and 0.7 1.2 0.5 0.9
amortization
Total expenses 7.1 19.9 5.0 15.7
Operating Loss (2.2) (16.7) (0.7) (9.1)
Other income (expenses) (0.4) (0.7) (0.4) (0.4)
Minority Interest - 0.6 - 0.4
Provision for income taxes - - - -
Net loss (2.6)% (16.8)% (1.1)% (9.2)%
</TABLE>
Nine months ended March 31, 1998 compared to nine months ended March 31, 1997
- -----------------------------------------------------------------------------
Revenue. Gross revenues were $55,781,752 for the nine months ended March
31, 1998 compared to $14,648,492 for the nine months ended March 31, 1997, an
increase of $41,133,260, or 280.8%. The increase was attributable to the
aggregate contribution of gross revenues from the inclusion of Webster, PRC and
Crest, and partially offset by a decrease in Rx Staffing gross revenues. The
decrease in revenues of Rx Staffing during the current period was attributable
to the termination (because of excessive workers compensation losses and a high
incident of State unemployment claims) during the period of one client which
accounted for approximately 25% of RX's business in the 1997 period. Without the
inclusion of the acquired businesses, revenues for the nine months ended March
31, 1998 would have totaled $11,487,760, a decrease of $3,160,732, or 4.8%, from
the corresponding period of the prior year primarily attributable to the
decrease in Rx Staffing revenues. The average number of work site employees paid
per month during the nine months ended March 31, 1998 was 4,260 compared to
1,060 during the nine months ended March 31, 1997, while monthly revenue per
work site employee was $13,094 during the nine months ended March 31, 1998 as
compared to $13,819 during the nine months ended March 31, 1997.
15
<PAGE>
Gross Profit. Gross profit was $3,482,685 for the nine months ended March
31, 1998 compared to $963,577 for the nine months ended March 31, 1997, an
increase of $2,519,108, or 261.4%. The increase in gross profit was primarily
attributable to the aforementioned increase in gross revenue. Gross margin for
the two periods was 6.2% and 6.6%, respectively. The decrease in gross margin
was primarily attributable to the lower margin business acquired from Crest,
offset by higher margin business of Webster and PRC. Without the inclusion of
the acquired businesses, gross profit for the nine months ended March 31, 1998
would have totaled $1,349,626, and increase of $386,049, or 40.1%, from the
corresponding period of the prior year. Monthly gross mark-up per work site
employee totaled $818 during the nine months ended March 31, 1998 as compared to
$909 during the nine months ended March 31, 1997.
Operating Expenses. Selling, general and administrative expenses ("SG&A")
were $3,371,556 for the nine months ended March 31, 1998 compared to $1,442,660
for the nine months ended March 31, 1997, an increase of $1,928,896, or 133.7%.
The increase in SG&A was attributable to the inclusion of SG&A for Webster,
Crest and PRC, as well as an increase in corporate expenses. As a percentage of
sales, SG&A decreased from 9.8% to 4.1%. Without the inclusion of the acquired
businesses, SG&A for the nine months ended March 31, 1998 would have totaled
$1,534,072, an increase of $91,412, or 0.6%, from the corresponding period of
the prior year. The Company is attempting to reduce expenses by centralizing
operating functions and eliminating excess personnel and other general and
administrative costs.
Development expenses were $221,727 for the nine months ended March 31, 1998
compared to $720,668 for the nine months ended March 31, 1997, a decrease of
69%. Development expenses consist of the cost of developing safety programs by
SFCI and its subsidiary. The decrease in development expenses was attributable
to the discontinuation of operations of SFCI.
Depreciation and amortization expense totaled $302,342 for the nine months
ended March 31, 1998 compared to $137,410 for the nine months ended March 31,
1997, an increase of 120%. The increase in depreciation and amortization expense
was attributable to the acquisitions of Webster, Crest and PRC.
Other Income (Expense) and Minority Interest
Other expense, consisting of interest expense, totaled $224,783 during nine
months ended March 31, 1998 compared to $64,903 during the nine months ended
March 31, 1997. The increase in interest expense was principally attributable to
interest on the promissory note relating to the acquisition of PRC.
Minority interest totaled $55,530 during the nine months ended March 31,
1997. The Company reported no minority interest during the nine months ended
March 31, 1998 as a result of the termination of operations of SFCI and its 60%
owned subsidiary.
Seasonality, Inflation and Quarterly Fluctuations
Historically, the Company's earnings pattern has included losses in the
first calendar quarter (the Company's third quarter ended March 31), followed by
improved profitability in subsequent quarters throughout the calendar year. This
pattern is due to the effects of employment-related taxes which are based on
each employee's cumulative earnings up to specified wage levels, causing
employment-related taxes to be highest in the first quarter and then decline
over the course of the year. Since the Company's revenues related to an
individual employee are generally earned and collected at a relatively constant
rate throughout each year, payment of such employment-related tax obligations
has a substantial impact on the Company's financial condition and results of
operations during the first six months of each calendar year. Other factors that
affect direct costs could mitigate or enhance this trend.
16
<PAGE>
Liquidity and Capital Resources
The Company had cash of $221,868 and a deficit in working capital of
$5,148,430 at March 31, 1998, compared to a cash balance of $437,410 and working
capital deficit of $3,688,911 at June 30, 1997. The increase in the Company's
working capital deficit is principally attributable the loss from operations and
an increase in payroll taxes payable, which liability the Company substantially
inherited from the acquired companies.
Cash flows used in operating activities were ($808,241) for the nine months
ended March 31, 1998 period as compared to cash flows provided by operating
activities of $424,506 for the corresponding period of the prior year. This
decrease resulted from larger prepaid expenses and insurance deposits, a
decrease in accounts payable, payrolls payable and accrued expenses, which were
offset by an increase in payroll taxes payable.
Cash provided by investing activities totaled $558,265 for the nine months
ended March 31, 1998 as compared to ($170,390) of cash used in investing
activities for the corresponding period of the prior year. The change resulted
principally from fewer purchases of property, plant and equipment and cash
acquired through acquisition.
Cash flows provided by financing activities were $34,434 for the nine
months ended March 31, 1998 compared to cash used in financing activities of
($48,416) for the corresponding period of the prior year. Cash flows used for
financing activities during the nine months ended March 31, 1998 consisted
primarily of an increase in the Company's bank overdraft position, partially
offset by principal payments.
At March 31, 1998, the Company's primary obligations, other than those
relating to its ongoing working capital needs, consisted of a note in the
principal amount of $4,500,0000 in connection with the Company's acquisition of
PRC, a note in the amount of $250,000 in connection with the Company's
acquisition of Crest and a note of $1,068,000 incurred in connection with the
Company's acquisition of Rx Staffing. This note provides for monthly payments of
$6,700 until paid in full. The note was originally recorded at a discounted
value of $533,650, reflecting a 12% discount rate. The discounted balance of the
note payable at March 31, 1998 was $878,071.
Additionally, at March 31, 1998, the Company was involved in legal
proceedings with the United States government seeking to obtain injunctive
relief against, and/or a payment schedule with, the Internal Revenue Service
("IRS") in connection with the IRS's efforts to collect some $3,721,504 of
delinquent payroll taxes which it contends are owed by the Company. The alleged
payroll tax deficiency relates to operations of RX Staffing between September of
1996 and June of 1997. While the Company obtained a temporary restraining order
barring the IRS from pursuing certain collection remedies relating to such
amounts and is attempting to negotiate a payment schedule for amounts ultimately
determined to be owing, the restraining order has since been dissolved and there
is no assurance that the Company will be successful settling the alleged payroll
tax deficiencies on terms which are satisfactory to the Company. In the event
the Company is unsuccessful in its efforts to settle the alleged payroll tax
deficiencies, the Company does not have the financial resources to pay the
amounts allegedly owing and support its ongoing operations.
17
<PAGE>
At March 31, 1998, the Company was obligated under a lease covering its
principal offices and two leases for office equipment expiring December 31, 1999
and 2000. The Company's lease obligations at March 31, 1998 provided for current
minimum annual payments of $193,836, escalating to $222,180 for the fiscal year
ending June 30, 2001.
During the nine month period ended March 31, 1998, the Company requested
and received the return to the treasury of 22,730,000 common shares issued in
connection with the acquisition of SFCI. One shareholder and former officer of
SFCI has not to date returned his shares. The Company intends to diligently
pursue the return of those shares.
While management is working to reduce expenses, negotiate favorable terms
with creditors and raise additional equity capital, there can be no assurance
that the Company will be successful in its efforts to alleviate its liquidity
problems. There are no commitments at present from creditors or potential
investors. Without the success of one of these options and a satisfactory
resolution of the pending payroll tax dispute with the IRS, the Company does not
have sufficient cash to satisfy its working capital requirements for the next
twelve months.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q which are
not historical facts are forward looking statements that involve a number of
risks and uncertainties. In the normal course of business, Oxford Capital Corp.,
in an effort to help keep its stockholders and the public informed about the
Company's operations, may from time to time issue such forward looking
statements, either orally or in writing. Generally, these statements relate to
business plans or strategies, projected or anticipated benefits or other
consequences of such plans or strategies, or projections involving anticipated
revenues, earnings or other aspects of operating results. All phases of the
Company's operations are subject to a number of uncertainties, risks and other
influences. Therefore, the actual results of the future events described in such
forward looking statements could differ materially from those stated in such
forward looking statements. Among the factors that could cause actual results to
differ materially are: (i) regulatory and tax developments including the ongoing
audit of the Company's 401(k) Plan and related compliance issues, and possible
adverse application of various federal, state and local regulations; (ii)
changes in the Company's direct costs and operating expenses including increases
in health insurance premiums, workers' compensation rates and state unemployment
tax rates, liabilities for employee and client actions or payroll-related
claims, changes in the costs of expanding into new markets, and failure to
manage growth of the Company's operations; (iii) changes in the competitive
environment in the PEO industry or new market entrants. Any of these factors, or
a combination of such factors, could materially affect the results of the
Company's operations and whether forward looking statements made by the Company
ultimately prove to be accurate.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 25, 1998, suit was filed by the Company in the U.S. District
Court in Dallas, Texas in a case styled, Oxford Capital Corp. v. United States,
(Docket No. 3-98CV0501-X). In that suit, the Company is seeking injunctive
relief against the United States government and its efforts to collect
$3,721,504 of delinquent payroll taxes which are alleged to be owed by the
Company. The Company was granted a temporary restraining order which has since
been dissolved. The Company is continuing to pursue injunctive relief and is
involved in discussions with respect to a payment schedule for amounts
ultimately determined to be due.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Management Agreement re: United Staffing Corporation
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
OXFORD CAPITAL CORP.
Date: May 20, 1998 By: /s/ Robert Cheney
---------------------------------------
Robert Cheney, Chairman and
Principal Executive Officer
Date: May 20, 1998 By: /s/ Jerry Stovall
---------------------------------------
Jerry Stovall, Treasurer and
Principal Financial Officer
MANAGEMENT AGREEMENT
AGREEMENT made between Oxford Capital Corporation, a Nevada corporation
with its principal place of business 4245 North Central Expressway, Suite 300,
Dallas, Texas 75205 (herein called "Manager") and United Staffing Corporation
located at 3875 SW Hall Blvd., Beaverton, Oregon 97005 (herein called
"Subsidiary").
WHEREAS, Manager is a holding company, publicly held; and
WHEREAS, it is the desire of Manager to control the operation of its
subsidiary.
IT IS THEREFORE AGREED:
Subsidiary hereby grants to the Manager, the exclusive right to manage its
operation as may from time to time be necessary for the subsidiary to carry out
its business of staff leasing.
The term of this Agreement shall be for a period of five (5) years from the
date herein unless terminated as follows.
a. The Subsidiary is sold to a third party
b. The subsidiary becomes insolvent
c. By a 30 day written notice between the parties
Commencing on August 1, 1997 the Subsidiary shall pay the greater of .3496
as claims reserves, times workers compensation wages plus .7206/100 of workers
compensation wages plus a fee of $6,250.00 (Six Thousand Two Hundred and Fifty)
monthly for claim handling. The Subsidiary is to pay 1.3 times its incurred
losses plus expenses if the incurred plus expenses times 1.3 exceeds the total
claims reserve.
Manager will provide such services as requested by the Board of Directors
and/or officers of subsidiary from time to time during the period of this
agreement.
Governing Law: This Agreement shall be construed and interpreted under the
laws of the State of Texas.
IN WITNESS WHEREOF, the parties have signed and affixed their corporate
seals to this Agreement the day and year first above written.
ATTEST: OXFORD CAPITAL CORP.
- -------------------------- By:
----------------------------------
UNITED STAFFING CORP.
- -------------------------- By:
----------------------------------
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