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 December 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.
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(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
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(Address of principal executive offices) (Zip Code)
(214) 520-0100
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(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 February 5, 1999, 10,334,668 shares of Common Stock of the issuer
were outstanding.
<PAGE>
OXFORD CAPITAL CORP.
INDEX
Page
Number
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1998
and June 30, 1998........................................... 3
Consolidated Statements of Operations - For the
three months and six months ended December 31, 1998
and 1997...................................................... 5
Consolidated Statements of Cash Flows - For the six months
ended December 31, 1998 and 1997 ........................... 6
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 10
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities............................... 17
Item 6. Exhibits and Reports on Form 8-K.............................. 17
SIGNATURES............................................................... 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1998 1998
-------------- -------------
Assets
Current assets:
Cash $ 103,666 $ 47,488
Accrued payroll receivable 2,050,815 2,313,668
Accounts receivable, net 994,830 610,476
Prepaid expenses and other assets 92,858 64,194
Net assets of discontinued operations and
assets held for disposition 32,325 32,325
-------------- -------------
Total current assets 3,274,494 3,068,151
-------------- -------------
Furniture, fixtures and equipment, net 411,284 427,119
-------------- -------------
Other assets:
Goodwill, net 4,839,240 5,122,589
Covenant not to compete, net 1,991 31,991
Receivable from related party 5,000 124,388
-------------- -------------
Total other assets 4,846,231 5,278,968
-------------- -------------
Total assets $ 8,532,009 $ 8,774,238
============== =============
See Notes to Financial Statements
3
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Cont'd)
<TABLE>
December 31, June 30,
1998 1998
------------------- -----------------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities
Bank overdraft $ 243,478 $ 201,497
Accrued payroll payable 1,990,649 2,246,288
Accounts payable - trade 127,358 232,099
Accrued expenses 3,136,945 1,867,419
Payroll taxes payable 4,690,423 4,922,187
Payable to related parties 920,269 733,311
Current portion of capital lease 5,201 5,150
Current portion of long-term debt 52,938 23,215
Notes payable 4,637,113 4,696,836
----------------- -----------------
Total current liabilities 15,804,374 14,928,022
----------------- -----------------
Long-term debt
Capital lease 15,408 12,343
Other obligation 456,306 463,739
----------------- -----------------
Total liabilities 16,276,088 15,404,084
----------------- -----------------
Shareholders' Equity
Preferred stock 0 0
Common stock 10,335 10,335
Additional paid-in capital 1,393,204 1,393,204
Retained deficit (9,147,618) (8,033,385)
----------------- -----------------
Total shareholders' equity (7,744,079) (6,629,846)
----------------- -----------------
Total liabilities and shareholders'equity $ 8,532,009 $ 8,774,238
================= =================
</TABLE>
See Notes to Financial Statements
4
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------------- ----------------------------------------
1998 1997 1998 1997
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Management fees $ 90,000 $ 90,000 $ 180,000 $ 369,767
Employee leasing revenues 28,029,077 26,028,745 54,211,559 33,970,555
---------------- ------------------ ------------------- ------------------
Total revenues 28,119,077 26,118,745 54,391,559 34,340,322
Cost of revenues 26,871,982 24,540,723 51,824,454 32,231,559
---------------- ------------------ ------------------- ------------------
Gross profit 1,247,095 1,578,022 2,567,105 2,108,763
General and administrative 1,280,183 1,056,329 2,212,394 1,765,551
Sales and marketing 397,034 328,933 720,120 436,382
---------------- ------------------ ------------------- ------------------
(430,122) 192,760 (365,409) (93,170)
Amortization 158,137 163,279 313,358 199,893
Depreciation 34,110 39,085 73,733 50,128
IRS penalties and interest 79,098 158,536 154,098 317,073
Interest 103,403 97,971 207,635 129,003
---------------- ------------------ ------------------- ------------------
Loss from continuing operations (804,870) (266,110) (1,114,233) (789,267)
Income tax expense 0 0 0 0
Net loss from continuing operations (804,870) (266,110) (1,114,233) (789,267)
Loss from discontinued operations 0 ( 26,675) 0 (199,691)
---------------- ------------------ ------------------- ------------------
Net loss $ (804,870) $ (292,785) $ (1,114,233) $ (988,958)
================ ================== =================== ==================
Weighted average shares outstanding 10,334,668 12,939,059 10,334,668 23,007,641
================= ================== =================== ===================
Basic loss per share $ (0.08) $ (0.02) $ (0.11) $ (0.04)
================= =================== =================== ===================
</TABLE>
See Notes to Financial Statements
5
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six Months Ended December 31,
--------------------------------------------
1998 1997
--------------------- ----------------------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Loss $(1,114,233) $ (988,958)
Adjustments to reconcile net loss with net
cash provided by (used in) operating activities
Depreciation and amortization 387,091 250,021
Inventory write-down 0 53,495
(Increase) decrease in:
Accrued payroll receivable 262,853 415,860
Accounts receivable (384,354) (1,242,905)
Accounts receivable - related party 119,388 45,284
Prepaid expenses (28,664) (431,286)
Increase (decrease) in:
Accounts payable - trade (104,741) 335,359
Accrued payroll (255,639) 34,545
Accrued expenses 1,269,525 893,358
Payroll taxes payable (231,764) 459,525
Payable to related parties 186,958 134,339
----------------- -------------------
Net cash provided by (used in) operating activities 106,420 (41,363)
----------------- -------------------
Cash Flows From Investing Activities:
Purchases of furniture and equipment (57,905) (29,593)
Decrease in deferred acquisition costs 0 81,991
Decrease in accounts receivable - Crest 0 46,257
----------------- -------------------
Net cash provided by (used in) investing activities (57,905) 98,655
----------------- -------------------
Cash Flows From Financing Activities:
Increase (decrease) in bank overdraft 41,981 (159,643)
Reduction of debt (34,317) (17,115)
----------------- -------------------
Net cash provided by (used in) investing activities 7,664 (176,758)
----------------- -------------------
Increase in cash 56,178 (119,466)
Beginning cash 47,488 437,410
----------------- -------------------
Ending cash $ 103,666 $ 317,944
================= ===================
</TABLE>
See Notes to Financial Statements
6
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Cont'd)
<TABLE>
Six Months Ended December 31,
-----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Supplemental disclosures of cash flow information
Interest paid $ 24,086 $ 32,231
================== =================
Income tax paid $ 0 $ 0
================== =================
Non cash investing and financing activities
Purchase of goodwill by issuance
of short-term and long-term debt $ 0 $ 5,787,846
================== =================
Purchase of furniture and equipment by issuance of
long-term debt $ 0 $ 282,996
================== =================
</TABLE>
See Notes to Financial Statements
7
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. INTERIM PRESENTATION
The accompanying interim consolidated 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, 1998 balance sheet data was derived from
audited financial statements included in Form 10-KSB dated June 30, 1998.
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,
1998. 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. PRO FORMA INFORMATION
During fiscal 1998, Oxford expanded its employee leasing operations through
the acquisitions of (1) PRC Enterprises, Inc. ("PRC") effective September
1, 1997, (2) Crest Outsourcing, Inc. ("Crest") effective October 1, 1997,
and (3) Webster Leasing, Inc. ("Webster") effective December 1, 1997, and
through a management arrangement with United Staffing Corporation ("USC").
In addition to the aforementioned acquisitions during fiscal 1997,
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. ("ISN"), effective as of December 31, 1997.
Expenses incurred by SFCI and ISN are included in the statement of
operations for the three and six month periods ended December 31, 1997 as a
loss from discontinued operations.
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 six months ended December 31, 1997, and assumes
that the acquisitions had been effective as of the beginning of such
periods. 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.
Three Months Ended Six Months Ended
December 31, 1997 December 31, 1997
Revenue $ 27,089,512 $ 53,340,031
Net Loss $ (294,050) $ (880,254)
Loss Per Share $ (0.02) $ (0.04)
8
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Cont'd)
3. COMMITMENTS AND CONTINGENCIES
On February 25, 1998, suit was filed by the Company in the U.S. District
Court for the Northern District of Texas in a case styled, Oxford Capital
Corp. v. United States, (Docket No. 3-98CV0501-AH). In that suit, the
Company sought injunctive relief from an alleged wrongful levy against the
Company by the Internal Revenue Service ("IRS") relating to alleged payroll
tax obligations of the Company's subsidiary, Rx Staffing Corporation. The
IRS had, prior to the filing of the suit, levied bank accounts of Oxford
Capital Corp. alleging that it was the nominee, alter ego, agent and/or
holder of a beneficial interest of Rx Staffing. The alleged payroll tax
deficiency of Rx Staffing is in excess of $5 million.
The court issued a temporary restraining order on March 9, 1998, which was
then superceded after hearing, by the court's denial of a temporary
injunction on March 19, 1998. After a trial on the merits on August 7,
1998, the court denied the Company a permanent injunction and found that
the levy was appropriate. The Company filed a notice of appeal on October
5, 1998, and is appealing the judgment to the Fifth Circuit Court of
Appeals.
In February of 1998, suit was filed against the Company's subsidiaries, Rx
Staffing, PRC, and Webster, in the District Court of Dallas County, Texas,
191st Judicial District, in a case styled, Liberty Mutual Fire Insurance
Co. v. Rx Staffing Corporation, et al. (Cause No. DV 98-1321). In that
suit, the plaintiff is seeking $1.9 million based on claims for unpaid
workers' compensation and employers' liability insurance premiums.
Management believes that the Company has good defenses and offsets against
the claim and is vigorously contesting the matter.
At December 31, 1998, the Company was in default with respect to
obligations owed relating to its acquisitions of PRC and Crest. Notice of
intent to foreclose the PRC note has been given and negotiations are
presently ongoing with respect to curing the default.
In addition to the foregoing, the Company is subject to threatened and
pending litigation and disputes arising in the normal course of business.
Other than the foregoing, management believes that any such threatened or
pending actions will not materially affect the Company.
4. POTENTIAL SALE OF OPERATING SUBSIDIARIES
Among the various efforts being undertaken by the Company to address its
ongoing default on the PRC note and substantial debt burden, management has
initiated discussions with various entities with respect to the sale of one
or more of the Company's subsidiaries, including PRC. As a result of those
discussions, the Company has entered into preliminary agreements to sell
substantially all of the assets of each of its principal operating
subsidiaries.
9
<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. 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 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.
Results of Operations
The following table sets forth, for the periods indicated, certain selected
statement of operations' data expressed as a percentage of revenues. The
following discussion should be read in conjunction with the Company's annual
report on Form 10-KSB for the year ended June 30, 1998, as well as the unaudited
consolidated financial statements and notes thereto included in this quarterly
report on Form 10-QSB.
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
Employee leasing revenue.............. 99.7% 99.7% 99.7% 98.9%
Management fees....................... 0.3 0.3 0.3 1.1
------ ------ ------ ------
Total revenues........................ 100.0 100.0 100.0 100.0
Direct costs.......................... (95.6) (94.0) (95.3) (93.9)
------ ------ ------ ------
Gross profit.......................... 4.4 6.0 4.7 6.1
General and administrative expense.... (4.6) (4.0) (4.0) (5.1)
Sales and marketing expense........... (1.4) (1.3) (1.3) (1.3)
Other expenses (net).................. (1.3) (1.7) (1.4) (2.0)
Loss from discontinued operations..... (0.0) (0.1) (0.0) (0.6)
------ ------ ------ ------
Net loss.............................. (2.9) (1.1) (2.0) (2.9)
====== ====== ====== ======
10
<PAGE>
Three months ended December 31, 1998 compared to three months ended December 31,
1997
Revenues. Total revenues for the three months ended December 31, 1998 were
$28.1 million compared to $26.1 million for the three months ended December 31,
1997, an increase of $2.0 million, or 7.7%. Employee leasing revenues increased
by 7.7% from $26.0 million in the three months ended December 31, 1997 to $28.0
million in three months ended December 31, 1998. Management fees amounted to
$0.1 million for both the three months ended December 31, 1998 and 1997.
The increase in total revenues and employee leasing revenues was
principally attributable to the acquisition of Webster, which accounted for $1.6
million of employee leasing revenues for the three months of the fiscal 1999
period compared to $0.5 million of employee leasing revenues of Webster for one
month only included in the fiscal 1998 period, and a $4.7 million increase in
PRC's employee leasing revenues. Partially offsetting these increases was a $3.9
million decrease in Rx Staffing employee leasing revenues during the fiscal 1999
period, principally attributable to the termination during fiscal 1998 of a
major client which accounted for approximately 25% of Rx Staffing's business in
the fiscal 1998 period.
The average number of worksite employees paid per month during the three
months ended December 31, 1998 period was 4,513 as compared to 4,213 during the
three months ended December 31, 1997, while monthly revenue per worksite
employee was $2,070 during the fiscal 1999 period as compared to $2,059 during
the fiscal 1998 period.
On a pro forma basis, assuming the acquisitions of PRC, Crest and Webster
as of July 1, 1997, total revenues for the three months ended December 31, 1997
amounted to $27.1 million. Actual revenues for the current period were $0.9
million greater than the fiscal 1998 period pro forma revenue, principally
reflecting the aforementioned $4.1 million increase in PRC's employee leasing
revenues, partially offset by a $3.9 million decrease in Rx Staffing employee
leasing revenues.
Gross Profit. Gross profit amounted to $1.2 million for the three months
ended December 31, 1998 compared to $1.5 million for the three months ended
December 31, 1997, a decrease of $0.3 million, or 21.0%. This decrease in gross
profit was principally attributable to a $0.5 million decrease in Rx Staffing
gross profit resulting from its aforementioned decline in revenues, offset by an
increase in gross profit of $0.2 million for PRC. Gross margin was 4.4% of
revenues during the fiscal 1998 period compared to 6.0% during the fiscal 1997
period. The decrease in gross margin during fiscal 1998 was principally
attributable to lower gross margins generated by Rx Staffing and Webster as a
result of higher workers compensation insurance expense.
Monthly gross mark-up per worksite employee averaged $92 during the three
months ended December 31, 1998, as compared to $125 during the three months
ended December 31, 1997.
General and Administrative Expense. General and administrative expenses
("G&A") totaled $1.3 million for the three months ended December 31, 1998,
compared to $1.1 million for the three months ended December 31, 1997, an
increase of $0.2 million, or 21.2%. The increase in G&A was principally
attributable to a charge of $0.3 million by PRC for performance bonuses agreed
to in connection with the negotiations concerning the PRC note default and
forbearance of foreclosure thereon. Additionally, somewhat higher G&A costs
associated with supporting expanded operations were offset by a decrease in
certain unusual and non-recurring expenses incurred in the year ago period. As a
percentage of revenues, G&A increased to 4.6% from 4.0%, as efficiencies
attributable to changes in operating procedures instituted in fiscal 1998 were
offset by the charge by PRC described above.
11
<PAGE>
Sales and Marketing Expense. Sales and marketing expenses amounted to $0.4
million for the three months ended December 31, 1998, compared to $0.3 million
for the three months ended December 31, 1997, an increase of $0.1 million, or
20.7%. The increase is principally attributable to higher sales expenses at
Crest. As a percentage of revenues, sales and marketing expense increased from
1.3% to 1.4%.
Other Expense (Net). Other expenses were $0.4 million for the three months
ended December 31, 1998, compared to $0.5 million for the three months ended
December 31, 1997. The decrease is principally attributable to lower accruals
for IRS interest charges for the three months ended December 31, 1998, compared
to the year ago period which also reflected IRS penalty charges in addition to
interest charges.
Loss from Discontinued Operations. The Company recorded a loss from
discontinued operations of $26,675 for the three months ended December 31, 1997.
The loss from discontinued operations relates to the termination, during fiscal
1998, of the operations of SFCI.
Net Loss. The Company reported a net loss of $0.8 million for the three
months ended December 31, 1998, compared to $0.3 million for the three months
ended December 31, 1997.
On a pro forma basis, assuming the acquisitions of PRC, Crest and Webster
as of July 1, 1997, the net loss during the fiscal 1998 period amounted to $0.3
million, an amount equal to the actual net loss .
Six months ended December 31, 1998 compared to the six months ended December 31,
1997
Revenues. Total revenues for the six months ended December 31, 1998 were
$54.4 million compared to $34.3 million for the six months ended December 31,
1997, an increase of $20.1 million, or 58.4%. Employee leasing revenues
increased by $20.2 million, or 59.6%, from $34.0 million in the six months ended
December 31, 1997 to $54.2 million in six months ended December 31, 1998.
Management fees decreased from $0.4 million in the six months ended December 31,
1997 to $0.2 million for six months ended December 31, 1998.
The increase in total revenues and employee leasing revenues was
attributable to the acquisition of PRC, Crest and Webster, which accounted for
an aggregate of $51.8 million of employee leasing revenues during the fiscal
1999 period compared to $24.1 million of employee leasing revenues included in
the fiscal 1998 period. Partially offsetting the increase in employee leasing
revenues attributable to acquisitions was a $7.4 million decrease in employee
leasing revenues of Rx Staffing during the fiscal 1999 period which was
attributable to the termination during fiscal 1998 period of a major client
which accounted for approximately 25% of Rx Staffing's business in the fiscal
1998 period. The lower management fee total for the six months ended December
31, 1998 as compared to the six months ended December 31, 1997, is attributable
to the performance of management services for Crest in the year ago period only,
prior to the closing of its purchase by the Company effective October 1, 1997.
12
<PAGE>
The average number of worksite employees paid per month during the six
months ended December 31, 1998 period was 4,592 as compared to 2,908 during the
six months ended December 31, 1997, while monthly revenue per worksite employee
was $1,968 during the fiscal 1999 period as compared to $1,946 during the fiscal
1998 period.
On a pro forma basis, assuming the acquisitions of PRC, Crest and Webster
as of July 1, 1997, total revenues for the six months ended December 31, 1997
amounted to $53.3 million, or $0.9 million less than actual revenues for the
current period. The increase in actual as compared to pro forma revenues results
from an increase in PRC employee leasing revenue of $8.8 million, offset by a
decrease in Rx Staffing and Crest employee leasing revenue of $7.4 million and
$0.3 million, respectively.
Gross Profit. Gross profit amounted to $2.6 million for the six months
ended December 31, 1998 compared to $2.1 million for the six months ended
December 31, 1997, an increase of $0.5 million, or 21.7%. The increase in gross
profit was primarily attributable to the acquisition of PRC, Crest and Webster
during fiscal 1998, partially offset by a $0.8 million decrease resulting from
the aforementioned decline in Rx Staffing revenues. Gross margin was 4.7% of
revenues during the fiscal 1998 period compared to 6.1% during the fiscal 1997
period. The decrease in gross margin during fiscal 1998 was principally
attributable to the lower gross margin generated by Rx Staffing and Webster as a
result of higher workers compensation insurance expense.
Monthly gross mark-up per worksite employee averaged $93 during the six
months ended December 31, 1998, as compared to $118 during the six months ended
December 31, 1997.
General and Administrative Expense. General and administrative expenses
("G&A") totaled $2.2 million for the six months ended December 31, 1998,
compared to $1.8 million for the six months ended December 31, 1997, an increase
of $0.4 million, or 25.3%. The increase in G&A expense was principally
attributable to the aforementioned charge of $0.3 million by PRC for performance
bonuses, as well as the acquisitions of PRC, Crest and Webster and associated
costs of supporting such operations, offset by a decrease in certain unusual and
non-recurring expenses incurred in the year ago period. As a percentage of
revenues, G&A decreased from 5.1% to 4.1%, attributable to efficiencies
associated with operating on a larger scale, offset in part by the PRC charge.
Sales and Marketing Expense. Sales and marketing expenses amounted to $0.7
million for the six months ended December 31, 1998, compared to $0.4 million for
the six months ended December 31, 1997, an increase of $0.3 million, or 65.0%.
The increase in sales and marketing expense was attributable to the acquisition
of PRC, Crest and Webster and associated costs of supporting such operations. As
a percentage of revenues, sales and marketing expense remained essentially
unchanged at 1.3%.
Other Expense (Net). Other expenses were $0.7 million for the six month
period ended December 31, 1998 as well as for the six month period ended
December 31, 1997. Higher amortization expense ($0.1 million) for goodwill and
interest expense ($0.1 million) for debt arising in connection with the
aforementioned acquisitions was offset by lower IRS penalties and interest
charges.
13
<PAGE>
Loss from Discontinued Operations. The Company recorded a loss from
discontinued operations of $0.2 million for the six months ended December 31,
1997. The loss from discontinued operations relates to the termination, during
fiscal 1998, of the operations of SFCI.
Net Loss. The Company reported a net loss of $1.1 million for the six
months ended December 31, 1998, compared to $1.0 million for the six months
ended December 31, 1997.
On a pro forma basis, assuming the acquisitions of PRC, Crest and Webster
as of July 1, 1997, the net loss during the fiscal 1998 period amounted to $0.9
million. The $0.2 million increase in the actual net loss for the six month
period ended December 31, 1998 compared to the pro forma net loss is principally
attributable to the Company's efforts to terminate client contracts that do not
meet its profitability criteria, offset by greater levels of certain expenses
incurred in the 1998 period, such as professional fees and IRS penalties and
interest, and the aforementioned PRC charge.
Liquidity and Capital Resources
The Company had cash of $103,666 and a deficit in working capital of $12.5
million at December 31, 1998, compared to a cash balance of $47,488 and working
capital deficit of $11.9 million at June 30, 1998. The increase in the Company's
working capital deficit is principally attributable to the loss incurred during
the period, an increase in accrued expenses and a decrease in accrued payroll
receivable and accounts receivable-related parties, offset by decreases in
accounts payable, accrued payroll payable and payroll taxes payable, and an
increase in accounts receicable-clients.
Cash flows provided by (used in) operating activities were $106,420 for the
six months ended December 31, 1998 as compared to ($41,363) for the
corresponding period of the prior year. This improvement for the current period
resulted from a greater increase in accrued expenses, a lower increase in
accounts receivable-clients and a smaller increase in accrued payroll
receivable, offset by a greater net loss, and decreases in accounts payable,
accrued payroll payable and payroll taxes payable.
Cash provided by (used in) investing activities totaled ($57,905) for the
six months ended December 31, 1998 as compared to $93,656 for the six months
ended December 31, 1997. The change resulted principally from decreases in other
assets.
Cash provided by (used in) financing activities was $7,664 for the six
months ended December 31, 1998 compared to ($171,758) for the six months ended
December 31, 1997. The change resulted primarily from an increase in the
Company's bank overdraft position in the current period as compared to a
decrease in the earlier period.
At December 31, 1998, the Company's principal obligations, other than those
relating to meeting its ongoing working capital needs, consisted of (1) a
non-interest bearing note payable in connection with the Company's acquisition
of Rx Staffing, (2) a note payable in connection with the acquisition of PRC,
and (3) a note payable in connection with the acquisition of Crest.
14
<PAGE>
At December 31, 1998, the discounted balance of the note payable with
regard to the Rx Staffing acquisition was $456,000. As of February 5, 1999, the
Company was in default under the terms of the notes payable relating to the
acquisitions of both PRC and Crest. Notice of intent to foreclose the PRC note
has been given and negotiations are presently ongoing with respect to curing the
default.
Additionally, at December 31, 1998, the Company continued to be involved in
legal proceedings with the IRS in connection with the IRS's efforts to collect
approximately $5 million of delinquent payroll taxes and related penalties and
interest which it contends are owed by Oxford Capital. 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.
If the Company is unable to substantially improve operating results, secure
additional financing, negotiate more favorable payment terms with its creditors
or sell assets on favorable terms, the Company may be unable to continue its
present operations. The Company is presently negotiating with the IRS and the
former shareholders of PRC to secure more favorable terms with respect to
payment of amounts owed to such creditors. Absent an agreement in that regard,
the former shareholders of PRC may foreclose on their security interest and the
Company would lose its ownership interest in PRC and the IRS may levy against
assets of the Company to satisfy delinquent payroll tax obligations.
Known Risks and Uncertainties Regarding Future Operations
During the six months ended December 31, 1998, the Company's operations
continued to produce substantial losses. At December 31, 1998, the Company was
in default with respect to obligations owed relating to its acquisition of PRC
and Crest. Additionally, the Company owed approximately $5 million to the IRS.
Given the Company's continuing losses and substantial debt, management has
initiated discussions with various entities with respect to the sale of one or
more of the Company's subsidiaries. As a result of those discussions, the
Company has entered into preliminary agreements to sell substantially all of the
assets of each of its principal operating subsidiaries. Management presently
anticipates that the assets and operations of PRC will be sold during the
quarter ended March 31, 1999 and that the assets and operations of Rx, Webster
and Crest will be sold shortly after the closing on the sale of PRC, possibly
also closing during the quarter ended March 31, 1999.
In the event the Company is successful in its efforts to sell one or more
of its operating subsidiaries, or assets of those subsidiaries, the Company will
experience a potentially substantial decrease in revenues going forward. The net
effect of any such sale on the operating results of the Company cannot be
predicted. In the absence of such a sale, it is possible that the Company will
lose one or more of its operating subsidiaries through foreclosure or otherwise
without receiving consideration and that the Company will be unable to sustain
its operations given the recurring losses and substantial debts of the Company.
Even if the Company is successful in selling one or more of its operating
subsidiaries, it is possible that the Company will have inadequate financial
resources and operating cash flows to continue the operations of the Company.
15
<PAGE>
Year 2000 Issue
As the Company's operations rely on several internal computer systems and
third party vendor relationships, the Company believes that the Year 2000 issue
presents potentially significant operational issues if not properly addressed.
The Year 2000 issue generally describes the various problems that may result
from the failure of computer and other mechanical systems to properly process
certain dates and date sensitive information.
The Company has not incurred and does not expect to incur significant costs
related to Year 2000 issues other than the time of internal personnel to
complete the Company's Year 2000 plans.
The Company believes that the risks associated with Year 2000 issues would
primarily affect the areas of payroll processing, electronic funds transfers and
the dissemination of benefits appropriate planning and testing are: the
inability to transmit direct deposit payroll through banking systems to deposit
funds into worksite employees' bank accounts; the inability to collect funds
electronically in payment of the Company's service fees; the failure to properly
calculate payroll information; the untimely transmission of benefits enrollment
or claims data to and from benefit providers; and the inability to deliver
payroll checks to employees due to failure in transportation or courier systems.
As a result, the Company's plans, including the testing of its systems, vendor
assessment and contingency planning, will be focused in these areas.
The Company has previously developed a disaster recovery plan to be used in
the event of unexpected business interruptions. The Company is currently
developing specific contingency plans, to complement its disaster recovery plan,
for those processes that are considered crucial in preventing an interruption of
business operations as a result of Year 2000 issues.
The Company's Year 2000 plans, as discussed above, represent an ongoing
process which will continue throughout 1999. Although the Company believes it is
taking the appropriate courses of action to ensure that material interruptions
in business operations do not occur as a result of the Year 2000 conversion,
there can be no assurances that the action discussed herein will have the
anticipated results or that the Company's financial condition or results of
operations will not be adversely affected as a result of Year 2000 issues. Among
the factors which might affect the success of the Company's Year 2000 plans are:
(1) the Company's ability to properly identify deficient systems; (2) the
ability of third parties to adequately address Year 2000 issues or to notify the
Company of potential deficiencies; (3) the Company's ability to adequately
address any such internal or external deficiencies; (4) the Company's ability to
complete its Year 2000 plans in a timely manner; and (5) unforeseen expenses
related to the Company's Year 2000 plans.
16
<PAGE>
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.
PART II - OTHER INFORMATION
Item 3. Default Upon Senior Securities
A note payable in the amount of $4,500,000 issued as consideration in
connection with the acquisition of PRC is in default as of February 5, 1999. The
event of default is the Company's failure to make the initial annual principal
and interest payment of approximately $480,000 due September 30, 1998. The note
is collateralized by shares of PRC stock, bears interest at 8%, requires annual
payments of principal and interest in an amount equal to the greater of $450,000
or 30% of the gross profits of PRC, and requires payment of unpaid principal and
interest in September 2000. Notice has been given by the holders of their intent
to foreclose.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE>
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: February 22, 1999 By: /s/ Robert Cheney
------------------------------------
Robert Cheney, Chairman and
Principal Executive Officer
Date: February 22, 1999 By: /s/ Jerry Stovall
------------------------------------
Jerry Stovall, Treasurer and
Principal Financial Officer
18
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