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, 1999 033-26344
HARVARD FINANCIAL SERVICES CORP.
(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: 11,295,806 shares.
FORM 10-QSB
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
Cash $ 2,692 $ 8,083
Receivables:
Loans receivable, net 58,495 151,662
Deferred income taxes 33,387 33,387
Prepaid expenses 15,500 15,500
Property and equipment, net 7,744 10,104
-------------- ------------
Total Assets $ 117,818 $218,736
============== ============
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1999 1998
(Unaudited)
------------- ------------
Liabilities:
Stockholders loans payable $273,000 $273,000
Accounts payable and
accrued liabilities 150,165 101,254
Holdback to customers 39,754 39,754
Unearned discounts 14,266 18,108
Due to related party 116,812 116,812
-------- --------
Total Liabilities 593,997 548,928
Stockholders' Equity:
Common stock, $.0001 par value,
60,000,000 shares authorized;
issued and outstanding
11,295,806 1,130 1,130
Additional paid-in capital 437,399 437,399
Deficit (914,708) (768,721)
Total Stockholders' Equity (476,179) (330,192)
-------- --------
Total Liabilities and
Stockholders' Equity $117,818 $218,736
======== ========
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, 1999 and September 30, 1998 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)
1999 1998 1999 1998
Revenues
Interest on loans $ 905 $ 4,808 $ 6,150 $ 18,617
Less interest expense 13,499 18,019 43,653 42,501
-------- -------- -------- --------
(12,594) (13,211) (37,503) (23,884)
Discount on loans 1,132 1,292 3,842 4,801
Loan fees 72 284 422 1,296
-------- -------- -------- --------
Net revenues (11,390) (11,635) (33,239) (17,787)
-------- -------- -------- --------
Expenses
Selling - - 209 322
General and
administrative 6,208 26,973 34,888 69,799
Provision for
credit losses 75,000 - 77,650 33,830
-------- -------- -------- --------
Total expenses 81,208 26,973 112,747 103,951
-------- -------- -------- --------
Loss before
income taxes (92,598) (38,608) (145,986) (121,738)
Income tax benefit - (5,791) - (18,261)
-------- -------- -------- --------
Net loss (92,598) (32,817) $(145,986) $(103,477)
======== ======== ======== =========
Net loss per
common share $ (.008) $ (.003) $ (.013) $ (.009)
======== ======== ======== =========
Weighted average common
shares outstanding:
Basic 11,295,806 11,056,805 11,295,806 11,056,805
=========== ========== ========== ==========
See Accompanying Notes
<PAGE>
FORM 10-QSB
HARVARD FINANCIAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
September 30, September 30,
1999 1998
------------- --------------
Cash flows from
operating activities
Net loss $(145,986) $(103,477)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Provision for credit losses 77,650 33,830
Depreciation 2,360 2,359
Changes in operating assets
and liabilities
Decrease in receivables 15,517 73,086
Increase in deferred
income taxes - (18,261)
Increase in accounts
payable and accrued
liabilities 48,910 42,411
Decrease in holdback
to customers - (59,663)
Decease in unearned discounts (3,842) (11,012)
Decrease in security deposits - 400
---------- ---------
Net cash used in operating
activities (5,391) (40,327)
---------- ---------
Net cash used in
investing activities
Purchase of property
and equipment - -
---------- ---------
Cash flow from financing
activities
Proceeds from notes payable
from lenders - 43,000
---------- ---------
Net cash provided by
financing activities - 43,000
---------- ---------
Net increase/(decrease) in cash (5,391) 2,673
Cash, beginning 8,083 4,166
---------- ---------
Cash, ending $ 2,692 $ 6,839
========== ========
See Accompanying Notes
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. Activities have been suspended pending funding, if
any.
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 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 September 30, 1999 or
September 30, 1998.
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 September 30, 1999
was $787. 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, 1999:
Equipment $14,788
Furniture 941
-------
15,729
Less accumulated depreciation (7,985)
-------
Net property and equipment $ 7,744
=======
Item 2. Management's Discussion of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Company has been pursuing both equity and debt
financing for the past two years. As of November, 1999, no
such financing has been secured. If the Company is not
successful in this endeavor, certain liabilities and
obligations will continue to be past due, such as the notes
payable of $273,000. Interest expense on these notes
continues to be accrued, but there is no guarantee that there
will be sufficient funds to meet either the principal or
accrued interest obligations. If the Company does not secure
additional financing, its ability to continue operations is in
question.
The Company has not purchased any new loans from its
school customers, based on the lack of external financing. In
the meantime, it will continue to service its existing
portfolio of loans.
There was no material commitment for capital expenditures
as of September 30, 1999. Inflation was not a significant
factor in the Company's financial statements.
Year 2000 Compliance
All research indicates that the Company's exposure to
this problem will be minimal. The Company's computers, local
area network servers, software and phone system have all been
purchased within the last three years. The manufacturers of
the Company's systems have provided, or are on track to
provide updates by the end of 1999, if needed.
Results of Operations
Revenues
Net revenues for the nine months ended September 30, 1999
decreased $15,000 over the comparable nine-month period in
fiscal 1998. This decrease was due to a decrease in interest
income of $13,000 in 1999 due to a reduced portfolio size.
Costs and Expenses
General and administrative costs for the three-month
period ending September 30, 1999 decreased $20,000 (77%) over
the previous year and for the nine-month period costs reduced
by $35,000 (50%). The decrease was attributable to the
Company reducing personnel-related costs in 1999. Also,
provision for credit losses was increased significantly
($43,000) in 1999 versus the nine-month period in 1998, based
on the recent performance of its loan portfolio.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
In 1997, the Company instituted claims against the New
York Department of Education in the amount of $348,000 for
refunds of tuition monies advanced to licensed business
schools that went out of business. The claims also called for
consequential damages, interest and costs as a result of the
failure by the New York Department of Education to pay the
claims. The Tuition Reimbursement Fund, created under the
Education law, was created for such instances.
In 1998 the claims were denied and the matter has been
appealed to the Supreme Court of the State, Appellate
Division. On November 10, 1999, the Company was notified that it had
been denied its appeal.
Item 2 Changes in Securities
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
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)
November 15, 1999
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<NAME> HARVARD FINANCIAL SERVICES CORP.
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<CASH> 2,692
<SECURITIES> 0
<RECEIVABLES> 58,495
<ALLOWANCES> 0
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<CURRENT-ASSETS> 110,074
<PP&E> 7,744
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<CURRENT-LIABILITIES> 593,997
<BONDS> 0
0
0
<COMMON> 1,130
<OTHER-SE> (477,309)
<TOTAL-LIABILITY-AND-EQUITY> 117,818
<SALES> 0
<TOTAL-REVENUES> (33,329)
<CGS> 0
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<OTHER-EXPENSES> 35,097
<LOSS-PROVISION> 77,650
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (145,986)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,986)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,986)
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<EPS-DILUTED> (0.013)
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