<PAGE>
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:
September 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: 11,056,805 shares.
<PAGE>
FORM 10-QSB
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- - -----------------------------
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
--------------------------------
ASSETS
- - ------
September 30, December 31,
1998 1997
(Unaudited)
----------- ----------
Cash $ 6,839 $ 4,166
Receivables:
Loans receivable, net 206,160 320,572
Other 348,173 348,173
Shareholders 3,750 3,750
Miscellaneous 15,000 -
Due from related party - 7,504
Deferred income taxes 27,453 9,192
Security deposit - 400
Property and equipment, net 10,891 13,250
-------- --------
Total Assets $618,266 $707,007
======== ========
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
September 30,
1998 December 31,
(Unaudited) 1997
----------- -----------
Liabilities:
Notes payable $273,000 $230,000
Accounts payable and accrued liabilities 117,272 74,860
Holdback to customers 88,607 148,270
Unearned discounts 20,260 31,272
------- --------
Total Liabilities 499,139 484,402
Stockholders' Equity:
Common stock, $.0001 par value, 60,000,000
shares authorized; issued and outstanding
11,056,805 1,106 1,481
Additional paid-in capital 421,973 421,598
Deficit (303,952) (200,474)
-------- --------
Total Stockholders' Equity 119,127 222,605
-------- --------
Total Liabilities and Stockholders' Equity $618,266 $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 nine-month
periods ended September 30, 1998 and September 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 Nine months ended
September 30, September 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Interest on loans $ 4,808 $19,401 $ 18,617 $106,840
Less interest expense 18,019 11,492 42,501 26,833
-------- ------- -------- --------
(13,211) 7,909 (23,884) 80,007
Discount on loans 1,292 8,597 4,801 24,013
Loan fees 284 1,482 1,296 7,949
-------- ------- -------- --------
Net revenues (11,635) 17,988 (17,787) 111,969
-------- ------- -------- --------
Expenses
Selling - 9,655 322 36,790
General and administrative 26,973 19,171 69,799 69,226
Provision for credit losses - - 33,830 -
-------- ------- -------- --------
Total expenses 26,973 28,826 103,951 106,016
-------- ------- -------- --------
Income (loss) before
income taxes (38,608) (10,838) (121,738) 5,953
Income tax (benefit) expense (5,791) (1,626) (18,261) 893
-------- ------- -------- --------
Net income (loss) (32,817) (9,212) $(103,477) $ 5,060
======== ======= ========= ========
Net income (loss) per
common share (.003) (.001) (.009) .001
======== ======= ========= ========
Weighted average common
shares outstanding:
Basic 11,056,805 11,019,777 11,056,805 11,019,777
========== ========== ========== ==========
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
September 30 September 30
1998 1997
------------ ------------
Cash flows from operating activities
Net income (loss) $(103,477) $ 5,060
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Provision for credit losses 33,830 -
Depreciation 2,359 1,690
Changes in operating assets and liabilities
Decrease/(increase) in receivables 73,086 (551,302)
Increase in deferred income taxes (18,261) -
Increase/(decrease) in accounts payable
and accrued liabilities 42,411 (22,584)
Increase/(decrease) in holdback to customers(59,663) 287,781
Increase/(decease) in unearned discounts (11,012) 43,960
Decrease in income taxes payable - (2,907)
Decrease in security deposits 400 -
----------- -----------
Net cash used in operating activities (40,327) (238,302)
----------- -----------
Net cash used in investing activities
Purchase of property and equipment - (15,729)
----------- -----------
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 2,673 (24,031)
Cash, beginning 4,166 27,545
----------- -----------
Cash, ending $ 6,839 $ 3,514
=========== ===========
See Accompanying Notes
<PAGE>
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
September 30, 1998 or September 30, 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 nine-month period ending September 30, 1998 was
$2,359. 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 September 30, 1998:
Equipment $14,788
Furniture 941
----------
15,729
Less accumulated depreciation 4,838
----------
Net property and equipment $10,891
==========
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 November 13, 1998, only limited amounts of such financing
had 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 of which there is no assurance. The Company's ability
to properly finance the purchase of additional 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 matured in August 1998
and are currently past due.
In the event the Company is successful in recovering any or all of the funds
that the Company believes it is owed by the State of New York Tuition
Reimbursement Fund (see Part II, Item 1, Legal Proceedings), the Company's
financial position will be correspondingly improved.
There was no material commitment for capital expenditures as of September 30,
1998. Inflation was not a significant factor in the Company's financial
statements.
Results of Operations
- - --------------------------
Revenues
- - --------
Revenue for the three months ended September 30, 1998 decreased $15,000 (76%)
over the comparable three-month period in fiscal 1997; and for the nine-month
period ended September 30, 1998, revenues were lower by $88,000 (83%). 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 September 30, 1998 decreased $10,000
(100%) over the same quarter in 1997. For the nine months ended September 30,
1998, selling expense decreased $36,000 (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 $21,000 (41%) over the previous
year's nine-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
The Company has settled the previously disclosed $33,000 judgement with Drake
College of Business with the payment of approximately $21,000 and signing of
mutual releases.
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 settled the Complaint it had filed in the Superior Court of New
Jersey, Burlington County, against certain trusts and their affiliates by
accepting the return of 3,750,000 shares of common stock as well as the
signing of mutual release that were issued to them in advance for the promise
to raise certain equity funds for the Company. The adjustment for this return
of common stock to the Company has been reflected throughout this Form 10-QSB.
The Company has filed a Motion for Summary Judgement 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.
Item 3 Defaults Upon Senior Securities
See Part I B Item 2. under "Liquidity and Capital Resources" for the
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>
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: November 16, 1998 By/s/Louis Kassen
Louis Kassen
President, Director
(Chief Executive Officer and duly
authorized signer)
Dated: November 16, 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> JUL-01-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<CASH> 6,839
<SECURITIES> 0
<RECEIVABLES> 573,083
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 607,375
<PP&E> 15,729
<DEPRECIATION> 4,838
<TOTAL-ASSETS> 618,266
<CURRENT-LIABILITIES> 499,139
<BONDS> 0
0
0
<COMMON> 1,106
<OTHER-SE> 118,021
<TOTAL-LIABILITY-AND-EQUITY> 119,127
<SALES> (17,787)
<TOTAL-REVENUES> (17,787)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 70,121
<LOSS-PROVISION> 33,830
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (121,738)
<INCOME-TAX> (18,261)
<INCOME-CONTINUING> (103,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,477)
<EPS-PRIMARY> (0.009)
<EPS-DILUTED> (0.009)
</TABLE>
