SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997
Commission File Number: 033-26344
HARVARD FINANCIAL SERVICES CORP.
(Name of small business issuer in its charter)
Delaware 75-2254748
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1400 Medford Plaza, Rt. 70 & Hartford Road
Medford, New Jersey 08055
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (609) 953-7985
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the issuer (1) has 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 X NO
Revenues for the most recent fiscal year were $121,715.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold as of April
13, 1998, was $1,112,489.
The number of shares outstanding of the issuer's class of common equity, as
of April 13,1998, was 14,805,806.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Harvard Financial Services Corp. (hereinafter referred to as "the
Registrant" or "the Company") is engaged in the business of purchasing
installment notes from vocational schools and colleges.
The Company became a public company on January 30, 1989 by filing
and registering with the Securities and Exchange Commission under Form
S-1.
The Company was incorporated in the State of Delaware under the
name Capital Advisors Acquisition Corp. and issued 500,000 shares of
its common stock , $.0001 par value, on December 1, 1988 for $1,000
cash. The Registrant was organized with the view towards the search
and location of a privately-held business with which to merge.
On August 22, 1994, the Company incorporated XCEL Financial
Services, Inc. in the State of New Jersey for the purpose of managing
the financial operations of its wholly owned subsidiaries. Due to
numerous companies in the industry having a similar name, the Board of
Directors approved a name change on April 24, 1997. An amended
Certificate of Incorporation was filed on May 2, 1997 with the new name
being Harvard Financial Services, Inc.
In July 1997, Harvard Financial Services, Inc. (formerly XCEL
Financial Services, Inc.) acquired all of the outstanding common stock
of Capital Advisors Acquisition Corp., a Delaware corporation. Harvard
became a wholly owned subsidiary of Capital in exchange for 10,250,000
shares of the Company's common stock. Pursuant to said agreement,
Capital Advisors Acquisition Corp. amended its Certificate of
Incorporation on December 11, 1997 to change its name to Harvard
Financial Services, Corp.
Harvard Financial Services, Corp. focuses primarily upon
vocational schools and two-year colleges. The Company has developed
funding programs that complement the various course lengths that exist
among training and educational institutions. Whether a program is job
related or leads to a certificate or an Associates Degree, the
Company's systems and methods allow students to achieve their goal of
higher education and job skills improvement and, in addition, improves
the cash flow and increases the enrollment of the participating
schools.
There are over two million students that enter postsecondary
occupational schools each year. These students attend approximately
ten thousand vocational schools operating in North America. This
segment of the student loan market totals six billion dollars per year
and is growing. By the year 2000, eighty percent of all jobs will
require technical education beyond high school. With the Federal
Government reducing the amount of dollars available through Pell Grants
and Stafford Loans and the "85-15" rule written under the Higher
Education Act, prohibiting a for-profit school from collecting more
than 85 percent of its revenue form federal student aid, the Company
provides the needed financing for the best schools and the most
qualified, creditworthy students.
Having personnel that comes from an educational, vocational school
or finance background, gives the Company a decided advantage over the
consumer finance-type competition that does not have a similar
background. This, coupled with the Company's outstanding collections
process and full-service capabilities, makes the Company unique among
its limited competition.
Employees
As of December 31, 1997, the Company had 1 employee and 6
consultants: The Company believes that the relationship with its
employee is satisfactory.
ITEM 2. PROPERTIES
The Company leases its administrative office. The aggregate
annual rental payments under lease is approximately $4,320. The
approximate square feet of office space located at 1400 Medford Plaza,
Medford, New Jersey is 360 square feet.
ITEM 3. LEGAL PROCEEDINGS
In September 1997, the Company instituted a claim against The
State of New York Department of Education in the amount of $324,887.
The claim calls for a refund of tuition monies advanced to a licensed
business school which went out of business on May 23, 1997 and for
consequential damages, interest and costs as a result of the failure by
the Department of Education to pay the claim. The Tuition
Reimbursement Fund, created under the Education Law, was created for
such instances.
In October of 1997, a judgement was entered against the Company in
favor of Drake College of Business in the amount of $33,000
representing secondary and tertiary disbursements due the school. At
this point, the Company is remitting payments on a regular basis to
liquidate the judgement rendered and is compliance with the court
order.
In November 1997, the Company instituted suit against Drake
alleging failure to comply with certain contractual obligations as well
as various forms of misrepresentation. Based on the foregoing, the
Company is attempting to recoup all monies subject of said agreement
and the judgement set forth above totaling $33,000 together with costs
and counsel fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None. The agreement with Harvard Financial Services, Inc. was
approved by the Board of Directors on July 23, 1997.
PART II
ITEM 5. MARKET FOR EQUITY AND RELATED STOCK HOLDER MATTERS
The Company trades on the Over-The-Counter (O-T-C) market on the
OTC Bulletin Board. Effective December 17, 1997, the Company stock
symbol changed from "CATV" to "HRVD". The low and high bid prices of
the Company's common stock from January 1, 1998 to April 13, 1998 was
$.312 to $1.875.
The approximate number of record holders of the Company's common
stock as of December 31, 1997 as determined from the Company's transfer
agent's list of record holders was 82. Such list does not include
beneficial owners of securities whose shares are held in the names of
various dealers and clearing agencies.
The Company has never declared a dividend on its common stock and
does not plan to do so in the near future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(A) LIQUIDITY AND CAPITAL RESOURCES
The Company is currently in the process of pursuing both equity
and debt financing. As of April 13, 1998, no such financing has been
secured. If the Company is not successful in the 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.
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.
There was no material commitment for capital expenditures as of
December 31, 1997. Inflation was not a significant factor in the
Company's financial statements.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Revenues
Although there was no material change in total revenue in fiscal
1997 over 1996, there was significant change in the components that are
worth noting.
The interest on loans increased by $74,571 (174%) due to the
maturation of the loan portfolio and the resulting increase in interest
earned.
The discount on loans decreased $36,339 or 57% in 1997 from 1996.
This reduction was due to a combination of a reduction in loan
origination in 1997 versus 1996, as well as a significant return of
loans to various schools during 1997 due to the Company's inability to
fund secondary and tertiary disbursements.
The Company incurred interest expense of $34,512 in 1997 compared
to zero in 1996. The expense is attributed to the $230,000 in notes
that originated in March of 1997.
Costs and Expenses
Selling expense in fiscal 1997 increased by $21,000 (93%). The
increase is attributable to the hiring of a full-time Chief Operating
Officer during the year.
There was no material change in general and administrative
expense.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See annexed financial statements under Item 13.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Beadle, McBride and Reeves, accountants for the Company, resigned
effective February 9, 1998. The SEC was notified of their resignation
and there were no disagreements relating to accounting principles or
financial statements disclosures.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The directors, executive officers and control persons of the
Company as of December 31, 1997 were as follows:
Name Age Position Held with Company(1)
- - --------------- --- -----------------------------
Louis Kassen 58 President, Treasurer, Director
William N. Levy 56 Secretary, Director(2)
Stanton M. Pikus 57 Chairman of the Board of Directors, Assistant
Secretary
Kevin J.
McAndrew, CPA 39 Executive Vice President
(1) All directors hold office until the next annual meeting of
stockholders of the Company and thereafter until their successors
are chosen and qualified. All officers hold office at the
selection and choice of the Board of Directors of the Company.
(2) William N. Levy resigned as Director and Secretary in February,
1998.
Louis Kassen, Esq. - President, Treasurer, Director: Obtained the
degree of Juris Doctor in 1966 from Temple University Law School in
Philadelphia, PA. and his Bachelor's degree from Temple University in
1963. Mr. Kassen is a member of the New Jersey and Pennsylvania Bars
and the New Jersey State Bar Association. Mr. Kassen and his firm,
Louis Kassen, P.A., have served as both general and independent counsel
for the Consumer Finance Divisions of several insurance companies.
While representing these insurance companies, he directed the mortgage
acquisition, documentation and closing departments. Mr. Kassen's firm
also was retained by the Liquidation Division of the Pennsylvania
Department of Insurance.
William N. Levy, Esq. - Secretary, Treasurer, Director. Has practiced
law in New Jersey since 1966. He is the principal of Levy & Levy,
P.A., a law firm with offices in Voorhees, New Jersey. Levy & Levy,
P.A. acts as general and securities counsel to Canterbury Information
Technology, Inc. and various other public companies. Mr. Levy limits
his practice to private placements, public offerings, securities
matters, corporate formations and mergers and acquisitions. Mr. Levy
received a B.A. in 1963 and a Juris Doctor degree in 1966, both from
the University of Pennsylvania.
Stanton M. Pikus - Chairman of the Board, Assistant Secretary.
Graduated from the Wharton School of the University of Pennsylvania
(B.S. Economics and Accounting) in 1962. From 1968 to 1984 Mr. Pikus
was President, Chief Executive Officer and majority stockholder of
Brown, Bailey and Pikus, Inc., a mergers and acquisitions consulting
firm. From 1984 to the present, Mr. Pikus has been President and
Chairman of Canterbury, a Nasdaq National Market public company, whose
core business from 1981 until 1996 was the operation of vocational
schools on a national basis. The Canterbury schools were licensed by
the Federal Department of Education, as well as the various State
Departments of Education and were approved by federally recognized
accreditation agencies.
Kevin J. McAndrew - Executive Vice President. He is a graduate of the
University of Delaware (B.S. Accounting, 1980) and has been a Certified
Public Accountant since 1982. From 1980 to 1983, Mr. McAndrew was an
Auditor with the public accounting firm of Coopers & Lybrand in
Philadelphia. From 1984 to 1986 he was employed as a Controller for a
New Jersey-based division of Allied Signal, Inc. In June of 1987, he
became Vice President and Chief Financial Officer of Canterbury. In
1991 he became Chief Operating Officer in charge of Canterbury's
vocational schools in California, Florida, Nevada, New York, New Jersey
and Pennsylvania.
ITEM 10. EXECUTIVE COMPENSATION
CASH COMPENSATION
The Company had 1 full-time employee as of December 31, 1997.
There were no directors' fees paid during this period.
COMPENSATION OF DIRECTORS
No additional compensation.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Not Applicable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(A) (B) The following table sets forth as of April 13, 1998
certain information with regard to the record and beneficial ownership
of the Company's common stock by (i) each shareholder owner of record
or beneficially 5% or more of the Company's common stock (ii) each
Director individually and (iii) all Officers and Directors of the
Company as a group:
Class Name of Beneficial Owner Shares Owned Percent of Class
Common Stanton M. Pikus 1,972,500 13.3%
Common Kevin J. McAndrew 450,000 3.0%
Common Louis Kassen 1,132,500 7.7%
Common William N. Levy 1,761,250 11.9%
Common Canterbury Information
Technology, Inc. 1,175,000 7.9%
Common BR Trust 1,875,000 12.7%
Common Dillon Trading Co. 998,886 6.8%
Common MSS Descendents Trust 937,500 6.3%
Common SBS Descendents Trust 937,500 6.3%
--------- ----
All Officers, Directors and 5%
Stockholders as a group (9 in number) 11,240,136 75.9%
- - ------------------------------------- ========== =====
CHANGE IN CONTROL
In December 1997, pursuant to the agreement, the officers and
directors of Capital Advisors Acquisition Corp. resigned and a
resolution appointing Harvard Financial Services, Inc.'s officers and
directors was approved.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases office space under a month to month operating
lease from Canterbury Information Technology, Inc., a company that owns
stock in Harvard Financial Services, Corp.
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The following are filed as a part of this Form 10-KSB on the
pages indicated.
Consolidated Financial Statements Page No.
----------
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . .F- 0
Consolidated Balance Sheets - December 31, 1997 and 1996 . . . . . . . .F- 1
Consolidated Statements of Operations - Years ended December 31,
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . .F- 3
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . .F- 4
Consolidated Statements of Cash Flows - Years ended December 31,
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . .F- 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . .F- 6
Financial Data Schedule
Reports on Form 8-K filed during the last quarter of the period covered
by this report are as follows:
October 1, 1997 -Amendment to 8-K dated July 23, 1998 - Stock Exchange
between Capital Advisors Acquisition Corp.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) of the Securities Exchange Act of 1934, Harvard
Financial Services Corp. has duly caused this report to
be signed on its behalf by the undersigned, thereunto
duly authorized.
HARVARD FINANCIAL SERVICES CORP.
Dated: April 14, 1998 By /s/ Louis Kassen
Louis Kassen, President,
Treasurer, Director
Dated: April 14, 1998 By /s/Kevin J. McAndrew
Kevin J. McAndrew
Executive Vice President
Pursuant to the requirements of Section 13 or 15
(d) of the Securities Exchange Act of 1934, this report
has been signed on behalf of Harvard Financial Services
Corp. and in the capacities and on the dates indicated.
Dated: April 14, 1998 By /s/ Louis Kassen
Louis Kassen, President,
Treasurer, Director
Dated: April 14, 1998 By /s/Stanton M. Pikus
Stanton M. Pikus
Director
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Harvard Financial Services Corp.
1400 Medford Plaza
Medford, New Jersey 08055
We have audited the accompanying balance sheet of
Harvard Financial Services Corp. and its subsidiary as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash
flows for the years then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Harvard Financial Services, Corp.
and its subsidiary as of December 31, 1997 and 1996, and
the results of its operations and its cash flow for the
years then ended in conformity with generally accepted
accounting principles.
Baratz & Associates,
P.A.
Marlton, New Jersey
March 11, 1998
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
Cash $ 4,166 $ 27,545
Receivables:
Loans receivable,
net of allowance for loan
losses of $15,000 for 1997
and 1996 320,572 682,526
Other 348,173 -
Shareholders 3,750 -
Due from related party 7,504 95,691
Deferred income taxes 9,192 3,398
Security deposit 400 400
Property and equipment, net 13,250 -
-------- --------
Total Assets $707,007 $809,560
======== ========
Continued
The accompanying notes are an integral part of these
financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
Continued
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---- ----
Liabilities:
Notes Payable $230,000 $ -
Accounts payable and accrued liabilities $74,860 34,823
Holdback to customers 148,270 413,775
Unearned discounts 31,272 72,730
Income taxes payable - 7,736
-------- -------
Total Liabilities 484,402 529,064
-------- -------
Stockholders' Equity:
Common stock, $.0001 par value,
60,000,000 shares authorized; '
issued and outstanding 14,806,000 and
14,770,000 at December 31, 1997
and 1996, respectively 1,481 1,477
Additional paid-in capital 421,598 414,385
Deficit (200,474) (135,366)
--------- --------
Total Stockholders' Equity 222,605 280,496
--------- --------
Total Liabilities and
Stockholders' Equity $707,007 $809,560
========= ========
The accompanying notes are an integral part of these
financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1997 and 1996
1997 1996
Revenues
Interest on loans $117,555 $42,984
Less interest expense 34,512 -
-------- --------
83,043 42,984
Discount on loans 27,876 64,215
Loan fees 10,796 5,381
Other interest income - 3,573
-------- -------
Net revenues 121,715 116,153
-------- -------
Expenses
Selling 44,441 23,060
General and administrative 132,753 140,368
Provision for credit losses - 10,500
-------- -------
Total expenses 177,194 173,928
-------- -------
Loss before income taxes (55,479) (57,775)
Income tax benefit (expense) 8,322 (4,338)
-------- -------
Net loss $ (47,157) $(62,113)
======== =======
Net loss per common share $ (.01) $ (.01)
======== =======
Weighted average common shares
outstanding:
Basic 14,791,740 11,873,886
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
Common Stock
Additional
Paid-In
Retained
Earnings
Total
Shareholders'
Shares
Amount
Capital
Deficit
Equity
Balance, January 1,
1996
as previously
reported
1,325,000
$
85
$
13,937
$
(14,022)
$
0
Pooling of interest
with Harvard
Financial Services,
Inc.
1,125,000,000
112,500
207,840
(23,330)
297,010
Balance, January 1
1996
as restated
1,126,325,000
112,585
221,777
(37,352)
297,010
Stock issued for legal
and consulting
services
150,000
15
1,485
- - -
1,500
Stock issued for cash
500,000
50
9,950
- - -
10,000
Stock reverse split
(1,115,705,223)
(111,523)
111,523
- - -
Stock issued for legal
and consulting
services
3,500,000
350
69,650
- - -
70,000
Dividend distributions
- - -
- - -
- - -
(35,901)
(35,901)
Net loss for the year
_____-___
_____-___
______-___
(62,113)
(62,113)
Balance, December 31,
1996
14,769,777
1,477
414,385
(135,366)
280,496
Stock issued for cash
40,250
4
2,246
- - -
2,250
Stock cancelled
(4,221)
- - -
- - -
- - -
- - -
Additional paid-in
capital
- - -
- - -
4,967
- - -
4,967
Dividend distributions
- - -
- - -
- - -
(17,951)
(17,951)
Net loss for the year
_______-___
_____-_ _
_____-___
(47,157)
(47,157)
Balance, December 31,
1997
14,805,806
$
1,481
$
421,598
$(200,474)
$222,605
The accompanying notes are an integral part of these financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
1997
1996
Cash flows from operating activities
Net loss
$(47,157)
$(62,113)
Adjustments to reconcile net income
to net cash used in operating
activities
Issuance of stock for services
- - -
71,500
Provision for credit losses
- - -
10,500
Depreciation
2,479
- - -
Changes in operating assets and
liabilities
Decrease (increase) in
receivable
10,031
(432,218)
Decrease (increase) in due from
related party
88,187
(48,470)
Increase in deferred income
taxes
(5,794)
(3,398)
Increase in security deposit
- - -
(400)
Increase in accounts payable
and accrued liabilities
40,037
25,798
(Decrease)/increase in holdback
to customers
(265,505)
325,014
(Decease)/increase in unearned
discounts
(41,458)
22,555
(Decrease)/increase in income
taxes payable
(7,736)
3,936
Net cash used in operating
activities
(226,916)
(87,296)
Net cash used in investing
activities
Purchase of property and
equipment
(15,729)
_____-___
Cash flow from financing activities
Proceeds from notes payable
230,000
- - -
Proceeds from issuance of stock
2,250
10,000
Increase in additional paid
capital
4,967
- - -
Dividend distributions
(17,951)
(35,901)
Net cash provided by (used in)
financing activities
219,266
(25,901)
Net decrease in cash
(23,379)
(113,197)
Cash, beginning
27,545
140,742
Cash, ending
$ 4,166
$ 27,545
Supplemental cash flow information (Note 7)
The accompanying notes are an integral part of these financial statements
<PAGE>
1. Summary of Significant Accounting Policies
Nature of Operations
Harvard Financial Services, Corp. (the Company), formerly known as
Capital Advisors Acquisition Corporation, purchases installment notes from
vocational schools and 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 throughout the United States.
Principle 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.
Loan Receivable
Loan receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances reduced by any chargeoffs.
Allowance for loan losses is increased by charges to income and
decreased by chargeoffs. Management's periodic evaluation of the adequacy
of the allowance is based on the Company's past loan loss experience, known
and inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, and current economic conditions.
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 year ended December 31, 1997 was
$2,479. 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 December 31,
1997:
Equipment $14, 788
Furniture 941
15,729
Less accumulated depreciation 2,479
Net property and equipment $13,250
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.
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 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, and as of December 31, 1997 and
December 31, 1996.
Net Loss Per Common Share
Net loss per common share is based upon the weighted average number of
common stock shares outstanding in each period.
Dividends
The Company paid dividends of $26,157 and $35,901 for the years ended
December 31, 1997 and 1996, respectively. The dividends were paid on the
Company's convertible preferred stock which was issued by the Company's
subsidiary. During 1997, all the preferred stock was converted into common
stock. As a result of the acquisition in 1997, the 1996 financial
statements were restated to account for the conversion of all preferred
stock into common stock.
Acquisitions
On December 11, 1997, the Company issued 11,250,000 shares of its
common stock in exchange for all of the outstanding common stock of Harvard
Financial Services, Inc. (HFSI). The transaction was accounted for as a
pooling of interest, and as a result, the Company's financial statements
for 1997 are based on the assumption that the companies were combined for
the full year. The financial statements for 1996 have been restated to
give effect to the combination.
The transactions between December 11, 1997 and December 31, 1997 were
immaterial. Summarized results of operations of the separate companies for
the year ended December 31, 1997 are as follows:
Harvard Financial
Services, Corp.
Harvard
Financial
Services, Inc.
Net revenues
$ 0
$121,715
Net income
(loss)
$1,725
$(48,882)
2. Other Receivables
Other receivables consist of claims due from the Tuition Reimbursement
Fund of New York. The Tuition Reimbursement Fund has been established to
reimburse students and/or lenders when a school, licensed by the State of
New York, ceases operations.
3. Notes Payable
Notes payable in the amount of $230,000, due to shareholders, had
matured in August 1997 and are currently past due. The notes are
uncollateralized and accrue interest at 20% per annum. Accounts payable
and accrued liabilities at December 31, 1997, include $34,500 of accrued
interest on the notes payable.
4. Holdback to Customers
Based on contracts with educational institutions, the Company is
entitled to holdback a percentage of the loans receivable until certain
requirements have been met. The amount held back is required to be
deposited in separate accounts on behalf of the educational institutions.
At December 31, 1997 and 1996, the Company did not maintain separate
accounts on behalf of the educational institutions and did not have
sufficient cash to fund these accounts.
5. Income Taxes
Income tax benefit (expense) for the years ended December 31, 1997 and
1996 are as follows:
1997
1996
Current
Federal
$1,313
$(4,622)
State
1,215
(3,074)
2,528
(7,736)
Deferred
Federal
4,152
2,048
State
1,642
1,350
5,794
3,398
$8,322
$(4,338)
At December 31, 1997, the Company had available federal and state net
operating loss carryforwards approximating $148,000 (federal) and $51,000
(state). The carryforwards expire between 2005 and 2013.<PAGE>
Components of deferred income taxes at December 31, 1997 and 1996 were
as follows:
1997
1996
Deferred Tax Asset
Allowance for loan
losses
$ 2,323
$
3,398
Net operating loss
carryforwards
32,795
32,000
Less valuation allowance
(25,778)
(32,000)
Total Deferred Tax Asset
9,340
3,398
Deferred Tax Liability
Accumulated depreciation
(148)
-
s
Net Deferred Tax Asset
$ 9,192
$ 3,398
In 1997 and 1996 a valuation allowance was provided for net operating
loss carryforwards which were estimated to expire before they were
utilized.
6. Related Party Transactions
Certain operating costs incurred by the Company were paid for by the
issuance of common stock. During 1996, 3,502,500 shares of common stock
had been issued in exchange for legal and consulting services in the amount
of $76,500.
The Company leases office space under a month to month operating lease
from a company that owns stock in Harvard Financial Services, Corp. Rent
expense was $4,320 and $8,640 for the years ended December 31, 1997 and
1996, respectively. These amounts are included in accrued expenses at
December 31, 1997 and 1996. The Company purchased several loans receivable
from a company that owns stock in Harvard Financial Services, Inc. The
amount of those receivables was $7,504 and $95,691 at December 31, 1997 and
1996, respectively.
During 1997, 1,170,000 shares of common stock in the Company's
subsidiary had been issued in exchange for professional fees in the
approximate amount of $1,200.
The amount due from shareholders at December 31, 1997, consists of
$3,750 advanced by the Company to purchase common stock from the Company's
subsidiary.
7. Supplemental Cash Flow Information
Cash paid during the years ended December 31, 1997 and 1996 for taxes
was $5,209 (1997) and $3,800 (1996). There was no interest paid in 1997
and 1996.<PAGE>
Noncash investing and financing activities for the year ended December
31, 1997 consisted of the acquisition of HFSI through the issuance of
stock. The transaction was recorded as follows:
Fair value of assets acquired $701,634
Liabilities assumed (463,402)
--------
$238,232
========
8. Litigation
On October 1997, the Company agreed to a settlement with a vocational
school relating to amounts due for the purchase of student loans. The
settlement in the amount of $33,000 is included in the financial statements
as a liability in the holdback to customers account. The difference
between the amount recorded in holdback to customers before the settlement
and $33,000 is recorded as litigation settlement expense.
The Company has filed a lawsuit against the vocational school to
recover the above settlement. At this time, however, no estimate can be
made as to the time or the amount, if any, of ultimate recovery.
