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, 2000 033-26344
e*machinery.net, inc.
____________________
Formerly known as 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: 16,423,196 shares.
FORM 10-QSB
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
E*MACHINERY.NET, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
Current Assets
Cash $ 92,612 $ 200,861
Inventory at cost 888,910 -
Employee advances 116,635 -
----------- -----------
Total current assets 1,098,157 200,861
Developed software 446,500 446,500
Deferred income taxes 106,985 13,785
Property and equipment, net 20,822 -
Other assets 140,583 -
------------ -----------
Total assets $1,813,047 $ 661,146
============ ===========
See Accompanying Notes
FORM 10-QSB
E*MACHINERY.NET, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
September 30,
2000 December 31,
(Unaudited) 1999
----------- ------------
Liabilities:
Accounts payable $281,140 $ 521,500
Accrued liabilities 55,869 -
---------- ----------
Total Liabilities 337,009 521,500
Stockholders' Equity:
Common stock, $.0001 par value, 50,000,000
shares authorized; issued and outstanding
16,071,000 and 8,800,000, respectively 1,607 880
Notes receivable for capital stock (2,487,746) -
Additional paid-in capital 5,657,818 200,120
Accumulated deficit (1,695,641) (61,354)
---------- ---------
Total Stockholders' Equity 1,476,038 139,646
Total Liabilities and Stockholders'
Equity $1,813,047 $661,146
========== =========
See Accompanying Notes
FORM 10-QSB
E*MACHINERY.NET, INC.
CONSOLIDATED STATEMENT OF INCOME
The following Consolidated Statement of Income for the three-month and
nine-month periods ended September 30, 2000, is 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 period have been included. Quarterly results of
operations are not necessarily indicative of results for the full year.
There is no comparison to previous year due to the fact that operations
commenced in fiscal 2000.
Three-Months Ended Nine-Months Ended
September 30, 2000 September 30, 2000
------------------ ------------------
(Unaudited) (Unaudited)
Revenues $ 367,000 $ 367,000
Cost of sales 333,278 333,278
----------- -----------
Gross profit 33,722 33,722
Expenses
Selling 15,990 16,250
General and administrative 434,278 1,818,583
----------- -----------
Total expenses 450,268 1,834,833
Other income/(expense)
Interest income 51,260 73,625
Other - -
----------- -----------
Total other income 51,260 73,625
Loss before income taxes (365,286) (1,727,486)
Income taxes (benefit) (20,000) (93,200)
----------- -----------
Net loss $ (345,286) $ (1,634,286)
=========== ===========
Basic net loss per common share $ (.021) $ (.126)
=========== ===========
Weighted average:
Average common shares outstanding
(Basic) 16,071,000 13,000,000
=========== ===========
See Accompanying Notes
FORM 10-QSB
E*MACHINERY.NET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 2000
September 30,
2000
-------------
Cash flows from operating activities
Net loss $(1,634,286)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services and compensation 1,646,499
Changes in operating assets and liabilities
Increase in employee advances (116,635)
Increase in inventory (888,910)
Increase in deferred income taxes (93,200)
Increase in other assets (140,583)
Decrease in accounts payable and accrued liabilities (184,491)
----------
Net cash used in operating activities (1,411,606)
----------
Investing activities
Capital expenditures (20,822)
----------
Net cash used in investing activities (20,822)
----------
Cash flows provided by financing activities
Proceeds from issuance of common stock, net 1,324,179
----------
Net cash provided by financing activities 1,324,179
----------
Net decrease in cash (108,249)
Cash, beginning 200,861
----------
Cash, ending $ 92,612
==========
See Accompanying Notes
10QSB
e*machinery.net, inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
--------------------
Subsequent to the year ended December 31, 1999, Harvard Financial
Services Corp. amended its Certificate of Incorporation to change its name to
e*machinery.net, inc. (The "Company"). The Company was formerly in the business
of purchasing installment loans from vocational schools and higher educational
institutions. During 1999, the Company ceased all operations in the area of
installment loan purchasing due to the inability to obtain new financing.
The Company was not actively involved in any business operations during 1999,
except for the collection of existing loans receivable.
On March 27, 2000, the Company acquired e*machinery, inc. through an
exchange of stock at a 1 for 10 ratio whereas e*machinery.net, inc. issued
stock to the shareholders of e*machinery, inc. in exchange for shares
representing 100% of the outstanding shares of e*machinery, inc.
e*machinery.net, inc. is currently traded on the Over-The-Counter Bulletin
Board under the stock symbol "EMAC". Pursuant to the transaction, the
directors and officers of e*machinery.net, inc. resigned in favor of the
directors and officers of e*machinery, inc.
Immediately after the transaction, the stock ownership of e*machinery.net,
inc. was as follows:
Shares Percent
------ -------
Original Shareholders
(including public owners) 1,200,000 9%
Former shareholders of e*machinery, inc. 11,935,000 91%
----------- ----
Total 13,135,000 100%
=========== ====
Because the former owners of the stock of e*machinery, inc. maintain
control of e*machinery.net, inc., the transaction would normally be considered
a purchase by e*machinery, inc. for accounting purposes. However,
e*machinery.net, inc. did not have any ongoing business operations at the
date of the transaction. Since e*machinery.net, inc. had no business, the
transaction is not being treated as a business combination. Instead, the
transaction is being treated for accounting purposes as a recapitalization
of e*machinery, inc. and as an issuance of stock by e*machinery, inc.
(represented by the outstanding shares of e*machinery.net, inc.) for the
assets and liabilities of e*machinery, inc. e*machinery.net, inc. had
liabilities of $200,000 with no assets based upon historical book value at
March 27, 2000. The recording of the liabilities resulted in a charge to
additional paid in capital.
The future business plan is focused on the continued development of
an internet based portal specializing in business to business e-commerce in
the construction and mining industries, as well as the purchase, rebuild and
sale of Caterpillar( used construction and mining machinery through
Caterpillar( dealers and end users around the world.
The Company is in the process of developing an internet based
distribution business for heavy machinery used primarily in the construction
and mining industries. Software development of a web site began in 1999 and
is ongoing. The intention is to develop a vertically integrated portal which
will provide interplay between buyers and sellers of used Caterpillar
(machinery, major manufacturers, distributors, and providers of supportive
goods and services to the heavy machinery industry. Anticipated sources of
revenue include fees related to access to the information maintained on the
web site along with revenues related to distribution of heavy machinery.
U.S. Machinery Corp. (USMC) is a wholly owned subsidiary of
e*machinery, inc. that is focused on the rebuilding and marketing of
construction and mining machinery. Utilizing relationships with Caterpillar
dealers, USMC offers like new machinery with a warranty at a fraction of the
cost of new. This is a tremendous advantage for contractors and mining
companies. They can upgrade their fleets at a lower cost without the risk
of buying used machines without a warranty.
U.S. Machinery Corp. has contracted with Darr Equipment Company to
rebuild the cores or preowned machines purchased by USMC and then USMC would
then sell the rebuilt machines at target average sales prices ranging from
$500,000 to $875,000 per machine. USMC also intends to purchase and sell
machines that do not have to be rebuilt, but merely cleaned and serviced.
USMC has successfully acquired and sold one D10R crawler tractor. In
addition, USMC has acquired at least four other machines which are presently
being rebuilt and refurbished by Darr Equipment Company.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany
accounts and transactions are 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
statements and the reported amounts of revenues and expenses during the
period. Actual results could differ from those estimates.
Software Development
--------------------
The Company accounts for software development costs related to
development of the web site in accordance with AICPA Statement of Position
(SOP) 98-1 which provides guidance on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 requires computer
software costs which are incurred in the preliminary project stage to be
expensed as incurred. The preliminary project stage relates to the planning
of the project through the formulation, evaluation, and final selection of
alternatives. SOP 98-1 requires capitalization of costs incurred during the
application development phase when the preliminary project stage is completed,
management commits to funding the project, and it is probable that the
project will be completed and the software will be used for the function
intended. The application development stage relates to the design, coding,
installation, and testing of the software. The Company incurred an expense
of $75,000 during the preliminary project stage (fiscal 1999) and capitalized
costs of $446,500 related to application development through the end of the
second quarter of Fiscal 2000. During the third quarter, the Company expensed
$275,000 in development costs.
Property and Equipment
----------------------
Property and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed by the straight line method over the
estimated useful lives of the respective assets. 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:
2000
----
Equipment $17,822
Furniture 3,000
-------
Less accumulated depreciation -
-------
Net property and equipment $20,822
=======
Income Taxes
------------
The Company accounts for income taxes under the provisions of SFAS
No 109, Accounting For Income Taxes, which requires an asset and liability
approach for financial accounting and reporting of income taxes. Under this
approach, deferred income taxes are recognized for the estimated taxes
ultimately payable or recoverable based on enacted tax law. Changes in
enacted tax law will be reflected in the tax provision as they occur.
Earnings Per Share
------------------
The earnings per share computation have been made in accordance with
Statement of Financial Accounting Standards No. 128. Basic earnings (loss)
per common share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per common share is
computed using the combination of dilutive common share equivalents and the
weighted average number of common shares outstanding during the period.
2. Income Taxes/(Benefit)
No income tax expense was incurred during the quarter ended September
30, 2000. An income tax benefit of $20,000 was recognized for the period
from a deferred tax asset described below.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b) net
operating loss carryforwards.
The Company did not have a net operating loss carryforward at
September 30, 2000.
3. Related Party Transactions
The Company contracted with Canterbury Information Technology, Inc.
("CITI") to obtain software development services for its web site. Total
costs incurred to date amounted to $796,500 which included capitalized costs
of $446,500 and an expense of $75,000 (fiscal 1999) as described in Footnote
1. Certain stockholders, officers, and directors of CITI own substantial
number of shares of the Company. During the quarter, the Company issued
278,133 shares of its common stock as payment for these services. During
the third quarter, the Company incurred $275,000 in costs for web site
development. During October, the Company issued 352,564 shares of its common
stock to CITI as payment for these services.
4. Supplemental Cash Flow Information
Software development costs of $275,000 are included in accounts
payable at September 30, 2000. During October 2000 the Company issued
352,564 shares of its common stock to CITI as payment for these services.
No cash payments were made during the period for interest or taxes.
5. Equity Transactions
During fiscal 2000, CITI also assisted in raising capital as part of
the initial seed capital for the Company. For these services, 250,000 shares
of e*machinery.net, inc. restricted common stock were issued to Canterbury
Information Technology, Inc. during the second quarter. The net value of
these shares was charged against shareholder's equity.
In June, 2000 the Board of Directors voted to allow officers,
directors, certain advisors and individuals valuable to e*machinery.net, inc.
the opportunity to increase their equity positions in the Company, as an
incentive to continue and increase their efforts on behalf of the Company.
A total of 2,375,000 shares of restricted common stock were purchased with an
interest bearing, non-recourse note to the Company. The notes and accrued
interest are collateralized by the shares being issued. Each recipient also
has granted a 15-day right of first refusal, in any sales of these shares.
1,500,000 of these shares were sold to certain officers at a price of $.75
per share, which represents a 50% discount from the current price. Interest
on these notes accrue at the Prime rate. Based on the discounted sale of
these shares, a non-cash charge to expense of $1,125,000 was made during the
second quarter. The remaining 875,000 shares were sold at market and the
notes for these purchases accrue interest at 6.6% per annum. No charge to
expense was made on these 875,000 shares.
ITEM 2. MANAGEMENT DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at September 30, 2000 was $761,000. This was an
increase of $1,082,000 over December 31, 1999. The Company finalized its
seed capital funding by raising an additional $1,324,000 in fiscal 2000.
The Company's wholly owned subsidiary, U.S. Machinery Corp. also
began operations during March, 2000 and as of September 30, 2000 had
purchased approximately $900,000 of Caterpillar used heavy equipment. It is
anticipated that these cores will be refurbished and sold during the fourth
quarter of this year. The first sale of used equipment occurred in early
August, 2000.
The Company is also in the process of searching for a revolving line
of credit against its inventory. This would allow for more rapid expansion
of the business, and would free up additional operating capital to allow for
increased hiring of sales and support personnel.
Results of Operations
Revenues
--------
The Company recorded its first revenues in the third quarter of
fiscal 2000. Two used Caterpillar trucks and various parts were sold
totaling $367,000. It is anticipated that several larger pieces of equipment
will be sold during the fourth quarter.
Costs and Expenses
------------------
Costs and expenses for the quarter ended September 30, 2000 decreased
significantly over the second quarter of fiscal 2000. The primary reason
was a non-recurring charge of $1,125,000 for the sale of stock to certain
officers at a discount against market during the second quarter.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
None
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
None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (in electronic format only)
(b) Reports on Form 8-K:
The Company filed Form 8-K on August 8, 2000 announcing the
sale of its first machine by its wholly owned subsidiary, U.S.
Machinery Corp., which signified the Company's emergence from
development stage status to that of an active operating company.
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.
e*machinery.net, inc.
(Registrant)
By/s/ Arthur A. O'Shea, III
-------------------------
Arthur A. O'Shea, III
President, Director
(Chief Executive Officer and duly
authorized signer)
By/s/ Kevin J. McAndrew
--------------------------
Kevin J. McAndrew, C.P.A.
Secretary, Director
(Chief Financial Officer and duly
authorized signer)
November 13, 2000
