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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
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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
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(Issuer's telephone number)
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(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 June 30, 1999, 10,334,668 shares of Common Stock of the issuer were
outstanding.
<PAGE>
OXFORD CAPITAL CORP.
INDEX
Page
Number
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999
and June 30, 1998.......................................... 3
Consolidated Statements of Operations - For the three
and nine months ended March 31, 1999 and 1998............... 5
Consolidated Statements of Cash Flows - For the three and nine
months ended March 31, 1999 and 1998 ....................... 6
Notes to Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................ 17
Item 3. Defaults Upon Senior Securities.......................... 17
Item 6. Exhibits and Reports on Form 8-K......................... 17
SIGNATURES........................................................ 17
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, June 30,
1999 1998
-------------- --------------
Assets
Current assets:
Cash $ 267,982 $ 47,488
Accrued payroll receivable 133,692 2,313,668
Accounts receivable, net 588,400 610,476
Asset sale proceeds receivable 648,750
Notes receivable 429,967
Prepaid expenses and other assets 81,065 64,194
Net assets of discontinued operations and
assets held for disposition 32,325 32,325
---------------- --------------
Total current assets 2,191,181 3,068,151
---------------- --------------
Furniture, fixtures and equipment, net 409,134 427,119
---------------- --------------
Other assets:
Goodwill, net 4,651,498 5,122,589
Covenant not to compete, net 31,991
Notes receivable 1,506,750
Receivable from related party 144,937 124,388
---------------- --------------
Total other assets 6,303,185 5,278,968
---------------- --------------
Total assets $ 8,903,500 $ 8,774,238
================= ==============
See Notes to Financial Statements
3
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Cont'd)
March 31, June 30,
1999 1998
--------------- ---------------
Liabilities and Shareholders' Equity
Current liabilities
Bank overdraft $ 269,738 $ 201,497
Accrued payroll payable 247,796 2,246,288
Accounts payable - trade 75,228 232,099
Accrued expenses 3,406,545 1,867,419
Payroll taxes payable 4,868,783 4,922,187
Payable to related parties 1,085,713 733,311
Current portion of capital lease 5,480 5,150
Current portion of long-term debt 52,936 23,215
Notes payable 4,637,112 4,696,836
--------------- ---------------
Total current liabilities 14,649,331 14,928,022
--------------- ---------------
Long-term debt
Capital lease 16,188 12,343
Other obligation 452,497 463,739
--------------- ---------------
Total liabilities 15,118,017 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 (7,618,057) (8,033,385)
--------------- ---------------
Total shareholders' equity (6,214,518) (6,629,846)
--------------- ---------------
Total liabilities and shareholders' equity $ 8,903,500 $ 8,774,238
=============== ===============
See Notes to Financial Statements
4
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------------- ------------------------------
1999 1998 1999 1998
----------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Management fees $ 90,000 $ 90,000 $ 270,000 $ 429,767
Employee leasing revenues 19,395,882 21,308,873 73,607,441 55,309,428
---------- ---------- ---------- ---------------
Total revenues 19,485,882 21,398,873 73,877,441 55,739,195
Cost of revenues 18,692,260 20,067,509 70,516,714 52,299,068
------------- ------------- ------------- ---------------
Gross profit 793,622 1,331,364 3,360,727 3,440,127
General and administrative 1,020,470 1,240,674 3,232,865 3,006,225
Sales and marketing 349,341 310,660 1,069,461 747,042
------------- ------------- ------------- ---------------
(576,189) (219,970) (941,599) (313,140)
Amortization 142,981 38,883 456,340 240,500
Depreciation 27,994 31,714 101,727 81,842
Gain on sale of assets (2,435,635) (2,435,635)
IRS penalties and interest 96,556 158,536 250,653 475,609
Interest 62,354 95,780 269,990 224,783
------------- ------------- ------------- ---------------
Income (loss) from continuing
operations 1,529,561 (544,883) 415,326 (1,335,874)
Income tax expense 0 0 0 0
------------- ------------- ------------- ---------------
Net income (loss) from continuing
operations 1,529,561 (544,883) 415,326 (1,335,874)
Loss from discontinued operations 0 0 0 (197,967)
----------------- --------------- ------------- ---------------
Net income (loss) $ 1,529,561 $ (544,883) $ 415,326 $ (1,533,841)
================= =============== ============= ===============
Weighted average shares
outstanding 10,334,668 12,820,371 10,334,668 22,942,328
================= =============== ============= ===============
Basic loss per share $ 0.15 $ (0.04) $ 0.04 $ (0.07)
================= =============== ============= ===============
</TABLE>
See Notes to Financial Statements
5
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C>
Nine Months Ended March 31,
-----------------------------------
<S> <C> <C>
1999 1998
----------------- ----------------
Cash Flow From Operating Activities:
Net Income (loss) $ 415,326 $ (1,533,841)
Adjustments to reconcile net loss with net
cash provided by (used in) operating activities:
Depreciation and amortization 558,066 322,342
Gain on sale of assets (2,435,635)
Inventory write-down 0 53,495
(Increase) decrease in:
Accrued payroll receivable 2,179,976 415,860
Accounts receivable 22,076 (1,242,905)
Accounts receivable - related party 124,388 45,284
Prepaid expenses (161,806) (431,286)
Increase (decrease) in:
Accounts payable - trade (156,871) 335,359
Accrued payroll (1,998,492) 34,545
Accrued expenses 1,539,126 1,151,894
Payroll taxes payable (53,404) 459,525
Payable to related parties 352,402 134,339
Other (126,397) 214,025
----------------- ----------------
Net cash provided by (used in) operating activities 258,755 (41,364)
----------------- ----------------
Cash Flows From Investing Activities:
Purchases of furniture and equipment (60,434) (34,592)
Decrease in deferred acquisition costs 0 81,991
Decrease in accounts receivable - Crest 0 46,257
----------------- ----------------
Net cash provided by (used in) investing activities (60,434) 93,656
----------------- ----------------
Cash Flows From Financing Activities:
Increase (decrease) in bank overdraft 68,241 (159,643)
Reduction of debt (37,068) (12,115)
----------------- ----------------
Net cash provided by (used in) investing activities 31,173 (171,758)
----------------- ----------------
Increase in cash 229,494 (119,466)
Beginning cash 47,488 437,410
----------------- ----------------
Ending cash $ 276,982 $ 317,944
================= ================
</TABLE>
See Notes to Financial Statements
6
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Cont'd)
Nine Months Ended March 31,
----------------------------
1999 1998
------------ -------------
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
=========== =============
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. ACQUISITIONS AND SIGNIFICANT ASSET SALES
During fiscal 1998, Oxford expanded its employee leasing operations through a
series of acquisitions as described below. In the current fiscal year, as part
of an effort to address its substantial debt burden, including the default on a
note incurred in connection with the acquisition of PRC Enterprises, Inc.
("PRC"), the Company entered into agreements to sell substantially all of its
operating assets as described further below.
During fiscal 1998, the Company acquired (1) 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 (4) entered into a
management arrangement with United Staffing Corporation ("USC"). In addition to
the aforementioned transactions during fiscal 1998, 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 nine month periods
ended March 31, 1998 as a loss from discontinued operations.
On March 31, 1999, the Company completed the sale of the principal assets of
Crest and Webster to US Personnel V L.P. ("USP") and Brae Leasing LLC ("Brae"),
respectively. Oxford sold the customer list of each business and related
contracts and agreements, and retained substantially all other current and
non-current assets and liabilities. Under terms of the purchase agreement, the
acquired assets of Crest and Webster were purchased for $343,500 and$2,239,500,
respectively, with 25% to be paid in cash following closing and the resolution
of certain issues, and the balance in the form of a note to be paid over 54
months. The notes bear interest at the rate of 7.75% and are unsecured.
Through July 31, 1999, an aggregate of $807,147 of the cash portion of the
purchase price and payments on the notes has been received.
8
<PAGE>
USP effectively took over control and management of Crest and Webster on March
1, 1999, including the hiring of substantially all of the employees of these
businesses.
In addition, Oxford entered into an agreement for the sale of the assets and
assumption of certain liabilities of PRC to US Personnel VI L.P. ("USP VI")
effective April 30, 1999. As consideration, USP VI will assume the Company's
$4,500,000 obligation, plus accrued interest, to PRC that arose in connection
with the Company's acquisition of PRC in fiscal 1999. Such obligation is
currently in default due to the Company's failure to meet certain debt service
requirements. USP VI hired substantially all of the employees of PRC.
Also, the Company entered into an agreement for the sale of the principal assets
of Rx Staffing to Brae effective June 30, 1999. Rx Staffing entered into a
Subservice Agreement effective March 1, 1999, under which Brae will perform the
operations necessary to serve the clients of Rx Staffing until closing. Brae
will hire substantially all of the employees of Rx Staffing after final closing.
During this period, the Company will receive weekly payments of $750 as part of
the consideration for the assets sold. The sale is subject to the receipt of
Internal Revenue Service approval. Upon final closing, the Company will receive
an additional $267,000, which will be paid to the Internal Revenue Service under
a to-be- negotiated agreement. The closing date for this sale has been extended
until August 31, 1999, to afford additional time to reach agreement with the
Internal Revenue Service.
Oxford is actively seeking other businesses to acquire or to operate under
management agreement, and it is possible that in the future more asset sale such
as those described above may occur.
3. PRO FORMA INFORMATION
The following unaudited pro forma financial information gives effect to the
completed or pending sales of the assets of Crest, Webster, PRC and Rx Staffing
and assumes that the acquisitions, and sales, had been effective as of the
beginning of each period presented. 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 reflects adjustments to eliminate
revenue and expenses of the aforementioned businesses, certain corporate
expenses directly related to management thereof, non-recurring expenses,
amortization of goodwill, interest expense on acquisition debt and to reflect
interest income on notes received in connection with the sales of Crest and
Webster.
Nine Months Ended Nine Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
Revenue $ 270,000 $ 240,000
Net Loss $ (368,000) $ (605,000)
Loss Per Share $ (0.02) $ (0.05)
9
<PAGE>
OXFORD CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Cont'd)
4. 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. The Company settled
this matter for $300,000. On June 15, 1999, payments of $225,000 and $75,000
were paid by PRC and the Company, respectively.
At March 31, 1999, 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 were ongoing with respect to curing the
default. However, on April 30, 1999, USP VI completed the acquisition of the
principal assets of PRC and assumed the obligation in connection therewith.
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.
10
<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 Nine Months Ended
March 31, March 31,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Employee leasing revenue.............. 99.5% 99.6% 99.6% 99.2%
Management fees....................... 0.5 0.4 0.4 0.8
----- ----- ----- ------
Total revenues........................ 100.0 100.0 100.0 100.0
Direct costs.......................... (95.9) (93.8) (95.4) (93.8)
----- ----- ----- ------
Gross profit.......................... 4.1 6.2 4.6 6.2
General and administrative expense.... (5.2) (5.8) (4.4) (5.4)
Sales and marketing expense........... (1.8) (1.4) (1.4) (1.4)
Other income (expenses) (net)......... 10.8 (1.5) 1.8 (1.8)
Loss from discontinued operations..... (0.0) (0.1) (0.0) (0.4)
----- ----- ----- ------
Net income (loss)..................... 7.9 (2.6) 0.6 (2.8)
----- ----- ----- ------
----- ----- ----- ------
11
<PAGE>
Three months ended March 31, 1999 compared to three months ended March 31, 1998
Revenues. Total revenues for the three months ended March 31, 1999 were
$19.5 million compared to $21.4 million for the three months ended March 31,
1998, a decrease of $1.9 million, or 8.9%. Employee leasing revenues decreased
by 9.0% from $21.3 million in the three months ended March 31, 1998 to $19.4
million in three months ended March 31, 1999. Management fees amounted to $0.1
million for both the three months ended March 31, 1999 and 1998.
The decrease in total revenues and employee leasing revenues was
principally attributable to the sale of Crest and Webster, which accounted for
$5.2 million of employee leasing revenues for two months of the fiscal 1999
period compared to $9.7 million of employee leasing revenues for the three
months included in the fiscal 1998 period, or a decrease of $4.5 million, offset
by a $2.9 million increase in PRC's employee leasing revenues in the fiscal 1999
period compared to the year ago period.
Gross Profit. Gross profit amounted to $0.8 million for the three months
ended March 31, 1999 compared to $1.3 million for the three months ended March
31, 1998, a decrease of $0.5 million, or 40.4%. This decrease in gross profit
was principally attributable to a $0.2 million decrease in contribution from
Crest and Webster due to higher workers compensation insurance expense and since
only two months of results are included in the fiscal 1999 period compared to
three months in the fiscal 1998 period, a $0.5 million decrease in Rx Staffing
gross profit resulting from higher workers compensation insurance expense,
offset by an increase in gross profit of $0.2 million for PRC. Gross margin was
4.1% of revenues during the fiscal 1999 period compared to 6.2% during the
fiscal 1998 period. The decrease in gross margin during fiscal 1999 was
principally attributable to lower gross margins generated by Rx Staffing and
Webster as a result of higher workers compensation insurance expense.
General and Administrative Expense. General and administrative expenses
("G&A") totaled $1.0 million for the three months ended March 31, 1999, compared
to $1.2 million for the three months ended March 31, 1998, a decrease of $0.2
million, or 17.7%. The decrease in G&A was principally attributable to lower
corporate expenses. As a percentage of revenues, G&A decreased to 5.2% from
5.8%, due to efficiencies attributable to changes in operating procedures
instituted in fiscal 1998.
Sales and Marketing Expense. Sales and marketing expenses amounted to $0.3
million for the three months ended March 31, 1999, as well as for the three
months ended March 31, 1998. As a percentage of revenues, sales and marketing
expense increased from 1.5% to 1.8% as a result of the decrease in revenue.
Other Income (Expense) (Net). Other income (expenses) was $2.1 million for
the three months ended March 31, 1999, as compared to ($0.3) million for the
three months ended March 31, 1998. A gain of $2.4 million on the sale of assets
of Crest and Webster in the current fiscal quarter resulted in the favorable
change.
Loss from Discontinued Operations. The Company recorded a loss from
discontinued operations of $26,675 for the three months ended March 31, 1998.
The loss from discontinued operations relates to the termination, during fiscal
1998, of the operations of SFCI.
12
<PAGE>
Net Income (Loss). The Company reported net income of $1.5 million for the
three months ended March 31, 1999, compared to a net loss of $0.5 million for
the three months ended March 31, 1998, with the favorable change principally
attributable to the gain on sale of assets.
Nine months ended March 31, 1999 compared to the nine months ended March 31,
1998
Revenues. Total revenues for the nine months ended March 31, 1999 were
$73.9 million compared to $55.7 million for the nine months ended March 31,
1998, an increase of $18.1 million, or 32.5%. Employee leasing revenues
increased by $18.3 million, or 33.1%, from $55.3 million in the nine months
ended March 31, 1998 to $73.6 million in the nine months ended March 31, 1999.
Management fees decreased from $0.4 million in the nine months ended March 31,
1998 to $0.3 million for nine months ended March 31, 1999.
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 $70.4 million of employee leasing revenues during the fiscal
1999 period compared to $44.3 million of employee leasing revenues included in
the fiscal 1998 period. This increase is due to the inclusion of more months of
operations in the current fiscal year period. Partially offsetting this was an
$8.6 million decrease in employee leasing revenues of Rx Staffing during the
fiscal 1999 period which was attributable to the termination of a number of
clients in fiscal 1998 and early fiscal 1999. The lower management fee total for
the nine months ended March 31, 1999, as compared to the nine months ended March
31, 1998, 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.
On a pro forma basis, assuming the sales of the assets of PRC, Crest,
Webster and Rx Staffing as of the beginning of each period, revenues for the
nine months ended March 31, 1998 amounted to $270,000 of management fees, as
compared to $240,000 for the prior year period. The increase is attributable to
one additional month of management fees in the current period.
Gross Profit. Gross profit amounted to $3.4 million for the nine months
ended March 31, 1999, as well as for the nine months ended March 31, 1998. An
increase in gross profit attributable principally to the inclusion of additional
months of PRC, Crest and Webster during the fiscal 1999 period was offset by a
decrease resulting from the aforementioned decline in Rx Staffing revenues.
Gross margin was 4.6% of revenues during the fiscal 1999 period compared to 6.2%
during the fiscal 1998 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.
General and Administrative Expense. G&A totaled $3.2 million for the nine
months ended March 31, 1999, compared to $3.0 million for the nine months ended
March 31, 1998, an increase of $0.2 million, or 25.3%. The increase in G&A
expense was principally attributable to a charge of $0.3 million by PRC for
performance bonuses, as well as the inclusion of additional months of PRC, Crest
and Webster operations and the 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 5.4% to
4.4%, attributable to efficiencies associated with operating on a larger scale,
offset in part by the PRC charge.
13
<PAGE>
Sales and Marketing Expense. Sales and marketing expenses amounted to $1.1
million for the nine months ended March 31, 1999, compared to $0.7 million for
the nine months ended March 31, 1998, an increase of $0.3 million, or 43.2%. The
increase in sales and marketing expense was attributable to the inclusion of
additional months of PRC, Crest and Webster operations and associated costs of
supporting such operations. As a percentage of revenues, sales and marketing
expense remained essentially unchanged at 1.4%.
Other Income (Expense) (Net). Other income (expense) was $1.4 million for
the nine month period ended March 31, 1999 as compared to ($1.0) million for the
nine month period ended March 31, 1998. A gain of $2.4 million on the sale of
assets of Crest and Webster in the current fiscal quarter resulted in the
favorable change.
Loss from Discontinued Operations. The Company recorded a loss from
discontinued operations of $0.2 million for the nine months ended March 31,
1998. The loss from discontinued operations relates to the termination, during
fiscal 1998, of the operations of SFCI.
Net Income (Loss). The Company reported net income of $0.4 million for the
nine months ended March 31, 1999, compared to a net loss of ($1.5) million for
the nine months ended March 31, 1998, with the favorable change principally
attributable to the gain on sale of assets.
On a pro forma basis, assuming the sales of PRC, Crest, Webster and Rx
Staffing as of the beginning of each period, net loss for the nine months ended
March 31, 1998 amounted to ($368,000) as compared to ($605,000) for the prior
year period. The loss from discontinued operations in the earlier period
accounts for the period's higher net loss.
Liquidity and Capital Resources
The Company had cash of $276,982 and a deficit in working capital of $12.5
million at March 31, 1999, 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 operating loss
incurred during the period, offset by the gain on the sale of assets of Crest
and Webster.
Cash flows provided by (used in) operating activities were $258,755 for the
nine months ended March 31, 1999 as compared to ($41,364) for the corresponding
period of the prior year. The increase resulted from decreases in accrued
payroll receivable, accounts receivable and receivables from related parties and
increases in accrued expenses and payables to related parties, offset partially
by an increase in prepaid expenses and other assets, decreases in accounts
payable, accrued payroll payable and payroll taxes payable and a greater loss
from operations exclusive of the gain from sale of assets.
Cash provided by (used in) investing activities totaled ($60,434) for the
nine months ended March 31, 1999 as compared to $93,656 for the nine months
ended March 31, 1998. The decrease resulted from the favorable impact in the
earlier period of decreases in deferred acquisition costs and a receivable from
Crest.
14
<PAGE>
Cash provided by (used in) financing activities was $31,173 for the nine
months ended March 31, 1999 compared to ($171,758) for the nine months ended
March 31, 1998. 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, offset partially by an increase in debt repayments.
At March 31, 1999, the Company's principal obligations, other than those
relating to meeting its ongoing working capital needs, including payroll taxes
payable, consisted of (1) a non-interest bearing note payable in connection with
the Company's acquisition of Rx Staffing, (2) the note payable which arose in
connection with the acquisition of PRC, and assumed by USP VI as of April 30,
1999 in connection with the sale of PRC, and (3) a note payable in connection
with the acquisition of Crest.
At March 31, 1999, the discounted balance of the note payable with regard
to the Rx Staffing acquisition was $456,000. As of March 31, 1999, the Company
was in default under the terms of the notes payable relating to the acquisitions
of both PRC and Crest. Subsequent to March 31, 1999, in connection with its
purchase of the assets of PRC, USP VI assumed this obligation of the Company.
Additionally, at March 31, 1999, 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 other
creditors to secure more favorable terms with respect to payment of amounts
owed.
Known Risks and Uncertainties Regarding Future Operations
During the nine months ended March 31, 1999, excluding gains from the sale
of assets, the Company's operations continued to produce substantial losses. At
March 31, 1999, the Company was in default with respect to obligations owed
relating to its acquisition of PRC and Crest, although the former was assumed by
USP VI on April 30, 1999. Additionally, the Company owed approximately $5
million to the IRS.
As previously described, in an effort to address the Company's liquidity
problems and debt burden, the Company entered into several agreements to sell
substantially all of the principal assets of the operating subsidiaries for
consideration consisting of cash and notes and the assumption of the $4.5
million note arising in connection with the PRC acquisition.
15
<PAGE>
As a result of the sales of its operating subsidiaries, or the assets of
those subsidiaries, the Company will experience a substantial decrease in
revenues going forward. It is possible that the Company will be unable to
sustain its operations given overhead and substantial debts that remain after
the sales. Unless the Company acquires additional businesses or enters into
additional management agreements to operate other businesses, it is possible
that the Company will have inadequate financial resources and operating cash
flows to continue its operations.
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>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999, the Company entered into a settlement agreement with respect
to a suit filed against 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).
Pursuant to the settlement on June 15, 1999, payments of $225,000 and $75,000
were paid by PRC and the Company, respectively and all claims against the
Company were released.
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 was in default as of March 31, 1999. The
note was assumed by USP VI as of April 30, 1999, as part of the consideration
paid for the purchase of the assets of PRC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated March 31, 1999, was filed reporting under Item 2 the
sale of the assets of Crest and Webster.
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: August 6, 1999 By: /s/ Robert Cheney
--------------------------------
Robert Cheney, Chairman and
Principal Executive Officer
Date: August 6, 1999 By: /s/ Jerry Stovall
--------------------------------
Jerry Stovall, Treasurer and
Principal Financial Officer
17
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<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 267,982
<SECURITIES> 0
<RECEIVABLES> 588,400
<ALLOWANCES> 0
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<PP&E> 409,134
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0
0
<COMMON> 10,335
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