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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File Number:
March 31, 1998 033-26344
HARVARD FINANCIAL SERVICES CORP.
Formerly known as Capital Advisors Acquisition Corporation
(Exact name of registrant as specified in its charter)
Delaware 75-2254748
(State of Incorporation) (I.R.S.Employer Identification No.)
1400 Medford Plaza
Route 70 & Hartford Road
Medford, New Jersey 08055
(Address of principal executive office)
Telephone Number: (609) 953-7985
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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.
X Yes No
- ---- ----
The number of shares outstanding of the registrant's common stock as
of the date of the filing of this report: 14,806,805 shares.
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FORM 10-QSB
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- -----------------------------
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
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ASSETS
- ------ March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
Cash $ 1,492 $ 4,166
Receivables:
Loans receivable, net 235,002 320,572
Other 348,173 348,173
Shareholders 3,750 3,750
Due from related party 7,504 7,504
Deferred income taxes 17,408 9,192
Security deposit 400 400
Property and equipment, net 12,464 13,250
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Total Assets $626,193 $707,007
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See Accompanying Notes
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FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
Liabilities:
Notes payable $230,000 $230,000
Accounts payable and accrued
liabilities 79,423 74,860
Holdback to customers 104,791 148,270
Unearned discounts 24,433 31,272
Income taxes payable - -
-------- --------
Total Liabilities 438,647 484,402
Stockholders' Equity:
Common stock, $.0001 par value,
60,000,000 shares authorized;
issued and outstanding
14,806,805 1,481 1,481
Additional paid-in capital 421,598 421,598
Deficit (235,533) (200,474)
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Total Stockholders' Equity 187,546 222,605
-------- --------
Total Liabilities and
Stockholders' Equity $626,193 $707,007
======== ========
See Accompanying Notes
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FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for the three-month periods
ended March 31, 1998, and March 31, 1997, are unaudited, but the Company
believes that all adjustments (which consist only of normal recurring accruals)
necessary for a fair presentation of the results of operations for the
respective periods have been included. Quarterly results of operations are not
necessarily indicative of results for the full year.
Three-Months Ended
March 31,
(Unaudited)
1998 1997
---- ----
Revenues
Interest on loans $ 10,565 $40,514
Less interest expense 11,500 3,841
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(935) 36,673
Discount on loans 628 8,987
Loan fees 928 3,353
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Net revenues 621 49,013
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Expenses
Selling 141 10,689
General and administrative 21,496 23,557
Provision for credit losses 33,759 -
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Total expenses 55,396 34,246
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Loss before income taxes (54,775) 14,767
Income tax (benefit) expense (8,216) 2,215
Net income (loss) $(46,559) $12,552
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Net income (loss) per common share $ (.003) $ .001
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Weighted average common shares outstanding:
Basic 14,806,805 14,769,777
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See Accompanying Notes
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FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
March 31 March 31
1998 1997
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Cash flows from operating activities
Net income (loss) $(46,559) $12,552
Adjustments to reconcile net income
(loss) to net cash used in operating
activities
Provision for credit losses 33,759 -
Depreciation 786 287
Changes in operating assets and liabilities
Decrease/(increase) in receivable 51,810 (133,196)
Decrease/(increase) in deferred
income taxes (8,216) 2,215
Increase in accounts
payable and accrued liabilities 16,063 9,330
Decrease in holdback to
customers (43,477) -
(Decease)/increase in unearned
discounts (6,840) 42,219
Decrease in income taxes payable - (3,800)
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Net cash used in operating activities (2,674) (70,393)
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Net cash used in investing activities
Purchase of property and equipment - (10,350)
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Cash flow from financing activities
Proceeds from notes payable - 230,000
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Net cash provided by financing activities - 230,000
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Net increase/(decrease) in cash (2,674) 149,257
Cash, beginning 4,166 27,545
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Cash, ending $ 1,492 $176,802
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See Accompanying Notes
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HARVARD FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
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Harvard Financial Services, Corp. (the Company), formerly known as Capital
Advisors Acquisition Corporation, provides tuition funding to creditworthy
students by purchasing preapproved installment notes from vocational schools
and two year colleges. These notes were entered into between the schools and
their students. The terms and conditions of the purchase of these
installment notes are based on contracts with educational institutions in the
Northeastern United States.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. Intercompany transactions and balances have
been eliminated in consolidation.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and
the reported amounts of revenues and expenses during the period. Actual
results could differ from those estimates.
Revenue Recognition
- -------------------
The Company records interest income and loan discounts ratably over the term
of the loans which run for approximately twelve to eighty-four months.
Receivables for consumer loans are recorded when the contract is purchased.
Unearned discount income represents revenue to be recognized over the term
of the loans.
Statement of Cash Flows
- -----------------------
For purposes of the Statement of Cash Flows, cash refers solely to demand
deposits with banks and cash on hand.
Depreciation and Amortization
- -----------------------------
The Company depreciates and amortizes its property and equipment for
financial statement purposes using the straight-line method over the
estimated useful lives of the property and equipment (useful lives of leases
or lives of leasehold improvements and leased property under capital leases,
whichever is shorter). For income tax purposes, the Company uses accelerated
methods of depreciation.
Income Taxes
- ------------
The Company uses Statement of Financial Accounting Standards No. 109
"Accounting For Income Taxes" (SFAS No. 109) in reporting deferred income
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HARVARD FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
taxes. SFAS No. 109 requires a company to recognize deferred tax liabilities
and assets for the expected future income tax consequences of events that
have been recognized in the company's financial statement. Under this
method, deferred tax assets and liabilities are determined based on temporary
differences between the financial carrying amounts and the tax bases of
assets and liabilities using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse.
Earnings Per Share
- ------------------
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which required the
Company to change the method used to compute earnings per share ("EPS") and
to restate all prior periods presented. The presentation of primary and
fully diluted EPS has been replaced with basic and diluted EPS, respectively.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. The computation of diluted
earnings per share includes the diluted effect of securities that could be
exercised or converted into common stock. There were no dilutive securities
outstanding as of March 31, 1998 or March 31, 1997.
Recent Accounting Pronouncements
- --------------------------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") 123, "Accounting for Stock-Based Compensation." SFAS 123
provides companies with a choice to follow the provisions of SFAS 123 in
determining stock based compensation expense or to continue with the
provisions of the Accounting Principles Board Opinion ("APB") 25, "Accounting
for Stock Issued to Employees" and provide pro-forma disclosures of the
effects on net income and earnings per share. The Company has elected to
continue to utilize the provisions of APB 25 to account for stock-based
compensation. The effect of applying SFAS 123's fair value method to the
Company's stock-based awards results in net income and earnings per share
that are not materially different from amounts reported.
2. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight line method over the estimated useful lives of the assets.
Depreciation expense for the three-month period ending March 31, 1998 was
$786. Expenditures for maintenance and repairs are charged against income as
incurred. When assets are sold or retired, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is included
in income.
Property and equipment consisted of the following at March 31, 1998:
Equipment $14,788
Furniture 941
-------
15,729
Less accumulated depreciation 3,265
-------
Net property and equipment $12,464
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HARVARD FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company is currently in the process of pursuing both equity and debt
financing. As of May 15, 1998, only limited amounts of such financing has
been secured. If the Company is not successful in this endeavor, certain
liabilities and obligations will continue to be past due, and the Company
will need to seek alternative measures (i.e. debt restructuring) to allow it
to continue operations. The Company's ability to properly finance the
purchase of installment notes from its school customers is directly related
to results of the pursuit of external capital.
In March 1997, the Company issued six-month notes, paying interest of 20% per
annum, with a common stock kicker of one share of common stock for every
$2.00 loaned up to $250,000. The Company is encumbered for $230,000 from
this offering. The notes matured in August 1997 and are currently past due.
In April of 1998, the Company issued four-month senior promissory notes,
yielding 20% per annum in units of $5,000. Each unit also included 25,000
restricted common shares of Company stock. Investments that were not
divisible by 5,000 were given stock pro rata. As of May 7, 1998, the Company
has issued $43,000 in debt from this offering. The notes mature in August
of 1998.
There was no material commitment for capital expenditures as of March 31,
1998. Inflation was not a significant factor in the Company's financial
statements.
Results of Operations
- ---------------------
Revenues
- ---------
Revenue for the three months ended March 31, 1998 decreased $48,000 (99%)
over the comparable three-month period in fiscal 1997. This decrease was due
to the Company returning a large portion of its receivables back to the
respective schools because of the Company's inability to finance these loans,
as well as the fact that no new loans have been purchased during 1998, due
to the Company's inability to obtain proper financing.
Costs and Expenses
- ------------------
Selling expense for the quarter ended March 31, 1998 decreased $11,000 (100%)
over the same quarter in 1997. This decrease was due primarily to the
elimination of certain positions and the Company's marketing curtailment
while additional sources of funding are being pursued.
General and administrative costs increased $32,000 (143%) over the previous
year. The increase was attributable to the Company incurring one-time
charges related to write-offs of loan receivables.
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HARVARD FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
PART II - OTHER INFORMATION
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Item 1 Legal Proceedings
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In April of 1998, Suburban Technical School and Dover Technical School
instituted suit against the Company alleging failure to remit payments due
the schools. The schools contend that this failure constitutes a breach of
contract and request a reassignment of the installment contracts and/or
unspecified damages.
The Company is contesting the suit. At this time, however, no estimate can
be made as to the amount of the damages sought.
Item 2 Changes in Securities
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None
Item 3 Defaults Upon Senior Securities
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None
Item 4 Submission of Matters to a Vote of Security Holders
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None
Item 5 Other Information
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None
Item 6 Exhibits and Reports on Form 8-K
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(a) Exhibits: None
Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVARD FINANCIAL SERVICES CORP.
(Registrant)
By/s/ Louis Kassen
------------------
Louis Kassen
President, Director
(Chief Executive Officer and duly authorized signer)
By/s/ Kevin J. McAndrew
-----------------------
Kevin J. McAndrew, C.P.A.
Executive Vice President, Director
(Chief Financial Officer and duly authorized signer)
Dated: May 19, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000844893
<NAME> HARVARD FINANCIAL SERVICES CORP.
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<CASH> 1,492
<SECURITIES> 0
<RECEIVABLES> 594,429
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 626,193
<PP&E> 15,729
<DEPRECIATION> 3,265
<TOTAL-ASSETS> 626,193
<CURRENT-LIABILITIES> 438,647
<BONDS> 0
0
0
<COMMON> 1,481
<OTHER-SE> 186,065
<TOTAL-LIABILITY-AND-EQUITY> 626,193
<SALES> 621
<TOTAL-REVENUES> 621
<CGS> 0
<TOTAL-COSTS> 21,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,759
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,775)
<INCOME-TAX> (8,216)
<INCOME-CONTINUING> (46,559)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,559)
<EPS-PRIMARY> (0.003)
<EPS-DILUTED> (0.003)
</TABLE>
