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:
June 30, 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.
<PAGE>
FORM 10-QSB
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
Cash $ 5,943 $ 4,166
Receivables:
Loans receivable, net 219,015 320,572
Other 348,173 348,173
Shareholders 3,750 3,750
Miscellaneous 15,000 _
Due from related party 7,504 7,504
Deferred income taxes 21,662 9,192
Security deposit - 400
Property and equipment, net 11,677 13,250
------------ ------------
Total Assets $632,724 $707,007
============ ============
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
Liabilities:
Notes payable $273,000 $230,000
Accounts payable and accrued liabilities 98,166 74,860
Holdback to customers 88,062 148,270
Unearned discounts 21,552 31,272
-------- --------
Total Liabilities 480,780 484,402
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 (271,135) (200,474)
-------- --------
Total Stockholders' Equity 151,944 222,605
-------- --------
Total Liabilities and
Stockholders' Equity $632,724 $707,007
======== ========
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income for the three and six-month
periods ended June 30, 1998 and June 30, 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 Six months ended
June 30, June 30,
(Unaudited) (Unaudited)
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Interest on loans $ 3,244 $46,925 $ 13,809 $87,439
Less interest expense 12,982 11,500 24,482 15,341
-------- ------- ------- -------
(9,738) 35,425 (10,673) 72,098
Discount on loans 2,881 6,429 3,509 15,416
Loan fees 84 3,114 1,012 6,467
-------- ------- -------- -------
Net revenues (6,773) 44,968 (6,152) 93,981
-------- ------- -------- -------
Expenses
Selling 181 16,446 322 27,135
General and administrative 21,330 26,498 42,826 50,055
Provision for credit losses 71 - 33,830 -
-------- ------- -------- -------
Total expenses 21,582 42,944 76,978 77,190
-------- ------- -------- -------
Income (loss) before
income taxes (28,355) 2,024 (83,130) 16,791
Income tax (benefit)
expense (4,253) 304 (12,470) 2,519
-------- ------- -------- -------
Net income (loss) (24,102) 1,720 $(70,660) $14,272
======== ======= ======== =======
Net income (loss) per
common share $ (.002) $ .001 $ (.005) $ .001
======== ======= ======== =======
Weighted average common
shares outstanding:
Basic 14,806,805 14,769,777 14,806,805 14,769,777
========== ========== ========== ==========
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
June 30 June 30
1998 1997
------- -------
Cash flows from operating activities
Net income (loss) $(70,660) $14,272
Adjustments to reconcile net income
(loss) to net cash used in
operating activities
Provision for credit losses 33,830 -
Depreciation 1,573 904
Changes in operating assets and liabilities
Decrease/(increase) in receivables 52,727 (579,815)
Increase in deferred income taxes (12,470) -
Increase/(decrease) in accounts
payable and accrued liabilities 23,305 (1,810)
Increase/(decrease) in holdback to
customers (60,208) 284,983
Increase/(decease) in unearned discounts (9,720) 51,964
Decrease in income taxes payable - (1,281)
Decrease in security deposits 400 -
-------- -------
Net cash used in operating activities (41,223) (230,783)
-------- -------
Net cash used in investing activities
Purchase of property and equipment - (15,676)
-------- -------
Cash flow from financing activities
Proceeds from notes payable from lenders 43,000 230,000
-------- -------
Net cash provided by financing activities 43,000 230,000
-------- -------
Net increase/(decrease) in cash 1,777 (16,459)
Cash, beginning 4,166 27,545
-------- -------
Cash, ending $ 5,943 $11,086
======== =======
See Accompanying Notes
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Operations and Summary of Significant Accounting Policies
- -------------------------------------------------------------
Nature of Operations
--------------------
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
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 statements. 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 June
30, 1998 or June 30, 1997.
<PAGE>
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 six-month period ending June 30, 1998 was $904.
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 June 30, 1998:
Equipment $14,788
Furniture 941
--------
15,729
Less accumulated depreciation 4,052
--------
Net property and equipment $ 11,677
========
<PAGE>
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 August 14, 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
had issued $43,000 in debt from this offering. The notes mature in August of
1998. It is highly doubtful the Company will be able to meet this obligation.
There was no material commitment for capital expenditures as of June
30, 1998. Inflation was not a significant factor in the Company's financial
statements.
<PAGE>
Results of Operations
- ---------------------
Revenues
- --------
Revenue for the three months ended June 30, 1998 decreased $52,000
(116%) over the comparable three-month period in fiscal 1997; and for the
six-month period ended June 30, 1998, revenues were lower by $100,000 (107%).
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 June 30, 1998 decreased $17,000
(102%) over the same quarter in 1997. For the six months ended June 30, 1998,
selling expense decreased $27,000 (100%). 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 $27,000 (54%) over the
previous year's six-month period. The increase was attributable to the
Company incurring charges related to write-offs of certain loan receivables.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1 Legal Proceedings
- ------
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.
The Company is in the final stages of negotiation with Drake College
of business to settle the previously disclosed $33,000.00 judgment.
As a subsequent event, the Company filed a Complaint in the Superior
Court of New Jersey, Burlington County, against various entities for the
return of 3,750,000 shares of common stock that were issued to them in
advance for raising certain equity funds for the Company. The Company has
asked for the return of the stock since the equity funds were not raised,
but the request has been refused, thereby forcing the Company to file a
lawsuit for the return of the stock as well as unspecified damages.
As an additional subsequent event, the Company is in the process of
filing a Motion for Declaratory Judgment against the Tuition Reimbursement
Fund administered by the Department of Education of the State of New York.
Said Fund has refused to reimburse the Company approximately $340,000 that
according to the language of the Statute, is due and owing to the Company.
The Motion requests that the Court clarify the intent of the Statute to
reimburse lenders such as the Company. New York counsel believes that the
Company's claim has strong merit and that plain reading of the Statute
supports the Company's position, however, no prediction of the outcome can be
set forth at this time.
Item 2 Changes in Securities
- ------
None
<PAGE>
Item 3 Defaults Upon Senior Securities
- ------
See Part I - Item 2. under "Liquidity and Capital Resources" for this
information regarding past due obligations.
Item 4 Submission of Matters to a Vote of Security Holders
- ------
None
Item 5 Other Information
- ------
None
Item 6 Exhibits and Reports on Form 8-K
- ------
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
HARVARD FINANCIAL SERVICES CORP.
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)
Dated: August 18, 1999 By/s/Louis Kassen
---------------------------------
Louis Kassen
President, Director
(Chief Executive Officer and duly
authorized signer)
Dated: August 18, 1998 By/s/Kevin J. McAndrew
----------------------------------
Kevin J. McAndrew, C.P.A.
Executive Vice President, Director
(Chief Financial Officer and duly
authorized signer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000844893
<NAME> HARVARD FINANCIAL SERVICES CORP.
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<CASH> 5,943
<SECURITIES> 0
<RECEIVABLES> 593,442
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 632,724
<PP&E> 15,729
<DEPRECIATION> 4,052
<TOTAL-ASSETS> 632,724
<CURRENT-LIABILITIES> 480,780
<BONDS> 0
0
0
<COMMON> 1,481
<OTHER-SE> 150,463
<TOTAL-LIABILITY-AND-EQUITY> 632,724
<SALES> (6,152)
<TOTAL-REVENUES> (6,152)
<CGS> 0
<TOTAL-COSTS> 43,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,830
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (83,130)
<INCOME-TAX> (12,470)
<INCOME-CONTINUING> (70,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,660)
<EPS-PRIMARY> (0.005)
<EPS-DILUTED> (0.005)
</TABLE>
