<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K\A1
-----------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
AUGUST 4, 1997
-----------------
HARBOUR CAPITAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 33-57982-D 84-1204841
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
GREENBRIER TOWER II
870 GREENBRIER CIRCLE, SUITE 400
CHESAPEAKE, VIRGINIA 23310
(Address of principal executive offices)
(757) 938-9863
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) In accordance with Item 7(a)(1), the Registrant is filing the
required financial statements of Benefits Administration, Inc.
("BAI") as an amendment to the Form 8-K.
(b) In accordance with Item 7(b)(2), the Registrant hereby files
the required pro forma financial statements as an amendment to
the Form 8-K.
(c) The following exhibits are furnished herewith in accordance
with the provisions of Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Reg. S-K
Exhibit No. Description Item No.
- ---------- ----------- --------
<S> <C> <C>
* 2.1 Agreement and Plan of Exchange among the Company, Benefits
Administration, Inc. and the shareholders of Benefits
Administration, Inc. 2
o 99.3 Financial Statements of BAI 99
o 99.4 Pro Forma Financial Statements 99
</TABLE>
- ----------------
* Previously filed.
o Filed herewith.
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 hereunto duly authorized.
HARBOUR CAPITAL CORP.
Date: October 17, 1997 By: /s/ R. THOMAS KIDD
---------------------------------------
R. Thomas Kidd, Chairman of the Board, Chief
Executive Officer and President
<PAGE> 3
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------- ----------- --------
<S> <C>
* 2.1 Agreement and Plan of Exchange among the Company,
Benefits Administration, Inc. and the shareholders
of Benefits Administration, Inc. 2
o 99.3 Financial Statements of BAI 99
o 99.4 Pro Forma Financial Statements
</TABLE>
<PAGE> 1
EXHIBIT 99.3
FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
BENEFITS ADMINISTRATION, INC.
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
BENEFITS ADMINISTRATION, INC.
Chesapeake, Virginia
We have audited the accompanying balance sheets of Benefits
Administration, Inc. (a Florida corporation) as of April 30, 1997 and 1996, and
the related statements of operations, accumulated deficit, 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 Benefits
Administration, Inc. as of April 30, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $561,760 during the year ended
April 30, 1997, and, as of that date, had a working capital deficiency of
$389,748, and a stockholders' equity deficit of $631,242. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. As described more fully in Note 7
to the financial statements, the Company's business plan contemplates the
merger of companies complementing its current service structure, the creation
of operating efficiencies through the consolidation of operations of the
related companies, and a resultant significant decrease in operating expenses
related to the acquired revenue streams. The Company's ability to achieve the
foregoing elements of its business plan, which may be necessary to permit the
realization of assets and satisfaction of liabilities in the ordinary course of
business, is uncertain.
/s/ Goodman & Company, L.L.P.
One Commercial Place
Norfolk, Virginia
October 16, 1997
- 1 -
<PAGE> 3
BENEFITS ADMINISTRATION, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
========================================================================================
APRIL 30, 1997 1996
- ----------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,942 $ 9,942
Accounts receivable - trade 17,201 --
Notes receivable - officer 8,161 7,676
--------- --------
TOTAL CURRENT ASSETS 27,304 17,618
--------- --------
FURNITURE AND EQUIPMENT
Office furniture, fixtures and improvements 68,602 1,094
Computer software 5,879 4,000
--------- --------
74,481 5,094
Less - accumulated depreciation and amortization 13,175 712
--------- --------
61,306 4,382
--------- --------
$ 88,610 $ 22,000
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIT
CURRENT LIABILITIES
Accounts payable - trade $ 107,094 $ 18,600
Accrued payroll and expenses 8,204 28,283
Income taxes payable -- 4,599
Notes payable 287,000 30,000
Current portion of capital lease obligations 14,754 --
--------- --------
TOTAL CURRENT LIABILITIES 417,052 81,482
--------- --------
CAPITAL LEASE OBLIGATIONS 17,800 --
SUBORDINATED CONVERTIBLE DEBT 150,000 --
INTERESTS IN FUTURE REVENUES 135,000 10,000
--------- --------
TOTAL OTHER LIABILITIES 302,800 10,000
--------- --------
STOCKHOLDERS' EQUITY DEFICIT
Common stock ($1 par value, 100 shares
authorized, issued and outstanding) 100 100
Accumulated deficit (631,342) (69,582)
--------- --------
TOTAL STOCKHOLDERS' EQUITY DEFICIT (631,242) (69,482)
--------- --------
$ 88,610 $ 22,000
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE> 4
BENEFITS ADMINISTRATION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
===============================================================================
YEARS ENDED APRIL 30, 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Revenue $ 298,338 $ 297,018
Less - returns (4,955) (6,475)
--------- ---------
293,383 290,543
--------- ---------
OPERATING EXPENSES
Salaries 245,415 154,753
Printing 240,229 31,413
Postage and shipping 82,939 4,664
Rent 65,876 19,837
Interest expense, net of interest income 36,475 --
Taxes and licenses 33,774 4,854
Travel 26,369 19,804
Provider benefits expense 24,767 12,975
Office supplies 24,065 5,826
Telephone 23,529 25,906
Legal and professional 19,074 25,620
Depreciation and amortization 12,463 712
Advertising 6,877 16,088
Penalties 5,117 --
Commissions 3,698 7,850
Repairs and maintenance 3,500 --
Miscellaneous 2,216 1,138
Equipment rental 1,939 2,359
Insurance 1,420 341
Employee training -- 20,012
--------- ---------
859,742 354,152
LOSS BEFORE INCOME TAXES (566,359) (63,609)
INCOME TAX BENEFIT (EXPENSE) 4,599 (4,599)
--------- ---------
NET LOSS (561,760) (68,208)
ACCUMULATED DEFECIT - BEGINNING OF PERIOD (69,582) (1,374)
--------- ---------
ACCUMULATED DEFECIT - END OF PERIOD $(631,342) $ (69,582)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 5
BENEFITS ADMINISTRATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
==============================================================================================
YEARS ENDED APRIL 30, 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(561,760) $(68,208)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 12,463 712
Changes in:
Accounts receivable - trade (17,201) --
Accounts payable - trade 88,494 18,600
Accrued payroll and expenses (20,079) 28,283
Income taxes payable (4,599) 4,599
--------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (502,682) (16,014)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (69,387) (4,000)
Increase in notes receivable - officer (485) (10,663)
--------- --------
Net cash used by investing activities (69,872) (14,663)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in notes payable 257,000 30,000
Net increase in capital lease obligations 32,554 --
Net increase in subordinated convertible debt 150,000
Net increase in interests in future revenue 125,000 10,000
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 564,554 40,000
--------- --------
NET INCREASE (DECREASE) IN CASH (8,000) 9,323
CASH AT BEGINNING OF YEAR 9,942 619
--------- --------
CASH AT END OF YEAR $ 1,942 $ 9,942
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 29,073 $ --
========= ========
Cash paid during the year for income taxes $ -- $ --
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE> 6
BENEFITS ADMINISTRATION, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997 AND 1996
================================================================================
NOTE 1 - ORGANIZATION AND BUSINESS
The Company was incorporated in Florida in January, 1992. The Company
provides and administers comprehensive benefit programs for clients such as
affinity groups, non-profit organizations and corporations, which in turn
provide the programs to their members, who are the end users. The membership
organization selects from among a variety of discounted products and services
to be included in the privately labeled benefit program offered to its members
(the "private label agreements"). The Company provides an information brochure
and membership card to each member of the membership organization, who in turn,
must activate the card to obtain the benefits. The membership organization and
the Company share revenue on the members' usage of the benefits program. The
Company currently has private label agreements with approximately 95 different
membership organizations. Of the 95 private label agreements, full benefits
packages and cards have been distributed to approximately 50 membership
organizations, including the Academy of Florida Trial Lawyers, Choice Federal
Credit Union, Florida Restaurant Association, Georgia State Employees Union
AFL-CIO, Georgia State Troopers Association, Moose International and the North
Carolina Republican Party.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
For purposes of balance sheet classification and the statement of cash
flows, the Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk as defined by FASB Statement No. 105, Disclosure
of Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, consist primarily of
temporary cash investments and trade accounts receivable. The Company places
its cash with high credit quality financial institutions. Concentrations of
credit risk with respect to trade receivables exists due to the limited number
of Companies utilized to perform billing and collection functions on behalf of
the Company. A mitigating factor, however, is the large number of customers
comprising the Company's customer base and their wide geographic dispersion. As
of April 30, 1997 and 1996, the Company had no significant concentrations of
credit risk.
ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and disclosure of contingent assets and
liabilities for the reported periods. Actual results could differ from those
estimates and assumptions.
(Notes continued on next page)
- 5 -
<PAGE> 7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE AND COST RECOGNITION
The Company uses the accrual method for reporting revenue earned from
usage of available benefits by members. Costs associated with developing and
implementing available benefits under the private label agreements are expensed
as incurred, as the recoverability of these costs in the near term is
uncertain. Such costs include information brochures, membership cards, postage,
and other mailing costs, and amounted to approximately $300,000 for the year
ended April 30, 1997.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using an
accelerated method over lives as follows:
<TABLE>
<CAPTION>
Assets Lives
------ --------------
<S> <C>
Office furniture and fixtures 5 to 7 years
Leasehold improvements 39 years
Computer software 3 years
</TABLE>
Maintenance and repairs of property and equipment are charged to
operations and major improvements are capitalized. Upon retirement, sale, or
other disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts and the related gain or loss is
included in operations.
BAD DEBTS
The Company evaluates each of its accounts receivable individually and
provides a charge to income, when appropriate in the opinion of management, to
absorb probable credit losses.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes. Deferred income taxes would be recognized for the future tax return
consequences of net operating loss carryforwards.
NOTE 3 - NOTES PAYABLE
The Company has a revolving line of credit with MBNA America for
$30,000 at an annual percentage rate of 6.9%. At April 30, 1997 and 1996, the
balance due was $30,000 and $0, respectively.
The Company also has a $227,000 promissory note payable to Hightec,
Inc. Interest is payable monthly at 7 1/2% per annum. The full principal
balance is due and payable on April 18, 1998
As of April 30, 1997 and 1996, the Company has a $30,000 non-interest
bearing promissory note payable to a minority stockholder.
(Notes continued on next page)
- 6 -
<PAGE> 8
NOTE 4 - CAPITAL LEASE OBLIGATIONS
CAPITAL LEASE OBLIGATIONS AT APRIL 30, 1997 AND 1996 CONSIST OF THE
FOLLOWING:
<TABLE>
<CAPTION>
1997 1996
-------------- -----------
<S> <C> <C>
Capital lease with Metrolease, monthly installments of
$603, including finance charges, final installment
due November, 2000, collateralized by equipment. $ 8,419 $ -
Capital lease with Metrolease, monthly installments of
$559, including finance charges, final installment due
January, 2001, collateralized by equipment. 16,556 -
Capital lease with Xerox Corporation, monthly installments
of $198, including finance charges, final installment 4,198 -
due July, 1999, collateralized by equipment.
Capital lease with Haynes Furniture Co., monthly installments
of $500, including interest at 18%, final installment
due October, 1997, collateralized by equipment. 3,381 -
---------- -------------
32,554 -
14,754 -
---------- -------------
$ 17,800 $ -
========== =============
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ending April 30, Amount
-------------------- ---------
<S> <C>
1998 $ 14,754
1999 8,819
2000 6,320
2001 2,661
2002 -
---------
$ 32,554
=========
</TABLE>
NOTE 5 - INTERESTS IN FUTURE REVENUES
Pursuant to certain exemptions from registering a securities offering
with the Securities and Exchange Commission, the Company sold interests in
future revenue, as an investment in an undivided interest in a designated
portfolio of agreements. The total offering was for $1,000,000, and expired on
February 10, 1997. As a result of the offering, the Company received $135,000.
Pursuant to the investment contracts, the portfolio of applicable agreements
shall have an aggregate number of plan members of no less than 250,000. The
investors participate proportionally (ratio of their investment to the total
offering) in the income received from the portfolio of agreements at fixed
rates ranging from 10% to 20% per annum. Amounts accrued pursuant to these
agreements amounted to $5,190 for the year ended April 30, 1997 and are
included in interest expense.
(Notes continued on next page)
- 7 -
<PAGE> 9
NOTE 6 - OTHER COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
The Company has entered into several compensation arrangements,
whereby certain employees and independent contractors are paid based on
percentages of revenues recognized on certain contracts with member
organizations. The percentages range to 20% of applicable related revenues.
During the years ended April 30, 1997 and 1996, compensation paid with respect
to these arrangements was $3,698, and $7,850, respectively.
On June 10, 1997, the Company entered into an agreement with Lawstar,
Inc. Lawstar is a service organization engaged in the profession of marketing
and providing certain legal plan products and services to groups and group
members. The Company agreed to pay Lawstar a monthly rate which varies from
$.20 to $.30 per month, based on the number of active members participating in
the legal plan offered. Lawstar also agreed to pay the Company five percent
(5%) of legal plan or product price for any "up-sale" of other legal plans to
members of plans participating in this benefit. The initial term of this
agreement began on August 1, 1997, and continues for two years unless
terminated, as provided in the agreement. As the number of active members and
the future access to related products and services cannot currently be
predicted with any reasonable degree of accuracy, Management cannot estimate
its rights and obligations under this agreement.
On August 25, 1997, the Company entered into a license agreement with
Hotel Express International (HEI). Pursuant to the terms of this license
agreement, HEI granted the Company an exclusive license, and conveyed all
rights, title, and interest to the Company of HEI's North American and South
American operations, including HEI's name, trademarks, copyrights, permits,
service marks, and any and all rights under any contract related thereto. The
Company agreed to assume all operational management, control and administration
of HEI's United States Program, and agreed to operate, administer, market,
manage and service this program as of the effective date, as defined in the
license agreement. The Company also agreed to pay all operational costs and
expenses associated with the United States Program, and pay a royalty fee of
thirty-six cents ($.36) per annum per active plan member. In addition, the
Company agreed to pay HEI one dollar ($1.00) per year for every HEI program
marketed by the Company to other members participating in other benefit
programs. HEI agreed that the Company is entitled to receive any and all
revenue generated by HEI operations as of the effective date, as defined in the
license agreement. The license agreement is valid for five years and renewable
for five additional years at future negotiated rates. As the number of active
members and the future access to related products and services cannot be
predicted with any reasonable degree of accuracy, Management cannot currently
estimate it rights and obligations under this agreement. However, the Company
agreed to make minimum royalty payments of $10,000 per month beginning December
1, 1997 through April 1, 1998. On May 1, 1998, the minimum royalty payment is
increased to $20,000 per month.
The Company is subject to claims and lawsuits which arise primarily in
the ordinary course of business. Based on information presently available and
advice received from legal counsel representing the Company in connection with
such claims and lawsuits, it is Management's opinion that the disposition of
such claims and lawsuits will not have a material adverse effect on the
financial position of the Company.
(Notes continued on next page)
- 8 -
<PAGE> 10
NOTE 7 - MANAGEMENT PLANS AND OTHER SUBSEQUENT EVENTS
Effective August 4, 1997 and pursuant to the terms and conditions of
an Agreement and Plan of Exchange, Harbour Capital Corp. (Harbour) issued
2,386,210 restricted shares of its common stock to the stockholders of the
Company, in exchange for all of the outstanding shares of the Company (the
Harbour Share Exchange). Harbour is a public reporting company incorporated in
Delaware, all of whose assets substantially consists of its investment in the
Company. Also, as a result of the Harbour Share Exchange, the majority
stockholder of the Company became the majority stockholder of Harbour, the
Company became a wholly-owned subsidiary of Harbour, and management of the
Company assumed managerial responsibilities with respect to Harbour
(collectively referred to as Management). This acquisition will be accounted
for the same as a reverse acquisition, except that no goodwill or other
intangible will be recorded. In connection with the Harbour Share Exchange, the
parties agreed that Harbour would, subject to shareholder approval, increase
its authorized capital stock to 50,000,000 shares of common stock and complete
a seven-for-one stock split. This stock split was effected on September 16,
1997. Also, in connection with the Harbour Share Exchange, Harbour entered into
a registration rights agreement covering certain common stock purchase warrants
owned by certain stockholders of Harbour (not stockholders of the Company). The
agreement provides for the registration of these common stock purchase
warrants, in connection with a public offering for cash proceeds payable in
whole or in part to Harbour prior to July 31, 2000. Additionally, prior to July
31, 2000, the holders of the common stock purchase warrants have the right to
demand that Harbour file a registration statement under the Securities Act of
1933 ( as amended) covering such warrants and underlying shares. According to
the terms of the Harbour Share Exchange, Harbour is required to bear the cost
of registration.
Management believes the consummation of the Harbour Share Exchange
provides the Company access to capital markets necessary to finance growth and
to seek out certain key acquisitions where synergies exist. In that regard, on
October 16, 1997, Management signed an Agreement and Plan of Exchange with
Metro Telecommunication Services, Inc. (the Metro Share Exchange). Pursuant to
the terms of the Metro Share Exchange, Harbour will issue shares valued, as
defined in the agreement, at $765,695, in exchange for all of the issued and
outstanding shares of capital stock of Metro Telecommunication Services, Inc.
(Metro). The Metro Share Exchange agreement also calls for the satisfaction of
certain Metro obligations prior to closing. The acquisition will be accounted
for by the purchase method of accounting, whereby the difference between the
fair value of net assets (assets less liabilities) acquired and the purchase
price will create goodwill. Management is also currently negotiating two other
share exchange transactions with companies that also complement its service
delivery structure. These two share exchange transactions are in various stages
of negotiations and, currently, a definitive acquisition agreement with respect
to these potential acquisitions is not yet executed. Including Metro, two of
the companies are telecommunication companies, and the third is a benefits card
manufacturer and distributor. As the Company realizes its revenue primarily
through telephone billings, Management believes the acquisition of the
telecommunication companies, including Metro, will assist in securing the
revenue stream provided by telephonic member access. As membership in client
organization benefit programs are facilitated by a membership card, Management
believes the acquisition of the third company should result in operating
efficiencies in securing the production of cards. As Management intends to
consolidate the operations of these companies, a significant decrease in
operating expenses associated with revenue streams acquired from these
companies is expected to result.
(Notes continued on next page)
- 9 -
<PAGE> 11
NOTE 7 - MANAGEMENT PLANS AND OTHER SUBSEQUENT EVENTS (Continued)
The Company has also received proceeds of $581,500 from several loans
made subsequent to April 30, 1997. On May 15, 1997, the Company received
$350,000 from its majority stockholder (currently the majority stockholder of
Harbour), and agreed to repay the debt on demand with interest, at the
applicable federal rate published from time to time by the Internal Revenue
Service, commencing June 15, 1997. On September 5, 1997, the Company received
$52,500 from Harbour, and agreed to repay the debt on demand with interest at
eight (8%) per annum commencing October 1, 1997. In August, September and
October of 1997, the Company received proceeds of $179,000 from several loans
from the majority stockholder of Harbour (previously the majority stockholder
of the Company), and agreed to repay the debt on demand with interest at eight
(8%) per annum commencing one month from the date of the notes evidencing the
debts (September 5, 1997 through November 1, 1997). Proceeds from these loans
were used for working capital to fund operations.
On June 12, 1997, the Company also received loan proceeds of $55,000
from Central Fidelity Bank, which were utilized to upgrade the Company's
electronic data processing capabilities. Beginning July 12, 1997, monthly
installments of $2,503, including interest at the Bank's prime rate, are due
through June 12, 1999. The remaining unpaid principal is due and payable on
June 12, 1999. The loan is collateralized by specific computer equipment.
NOTE 8 - INCOME TAXES
INCOME TAX BENEFIT (EXPENSE) CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Current - federal $ 3,242 $ (3,242)
Current - state 1,357 (1,357)
--------- --------
4,599 (4,599)
Deferred income tax expense on temporary
differences -- --
--------- --------
$ 4,599 $ (4,599)
========= ========
The net current tax asset included the following components:
1997 1996
--------- --------
Deferred tax asset $ 168,450 $ 16,000
Deferred tax liability (5,150) --
--------- --------
Net asset 163,300 16,000
Less - valuation allowance (163,300) (16,000)
--------- --------
$ -- $ --
========= ========
</TABLE>
(Notes continued on next page)
- 10 -
<PAGE> 12
NOTE 8 - INCOME TAXES (Continued)
The amount of federal income tax expense attributable to continuing
operations differs from the amount of expense that would result from applying
domestic statutory rates to pre-tax income from continuing operations primarily
due to non-deductible operating expenses.
A deferred income tax asset arises due to the future tax consequences
of available net operating loss carryforwards totalling approximately $508,000,
and deductible expenses which are included in accounts payable for financial
reporting purposes, but are not included in cash-basis income tax returns. A
deferred income tax liability is provided for temporary differences between the
basis of accounts receivable for financial reporting and income tax purposes.
NOTE 9 - LEASE COMMITMENTS
During 1996, the Company entered into a lease agreement to rent
commercial office space. In July, 1997, the Company amended the original
agreement and agreed to lease additional office space adjacent to the existing
premises. Office rent expense for succeeding fiscal years is as follows:
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------
<S> <C>
1998 $82,845
1999 $88,307
2000 $91,837
2001 $99,333
2002 $33,541
</TABLE>
NOTE 10 - SUBORDINATED CONVERTIBLE DEBT
On May 1, 1996, the Company issued $150,000 of subordinated
convertible debt to a stockholder. Payments of interest are due quarterly at an
annual rate of 13%. The entire principal balance is due on May 1, 1998, unless
the holder elects to convert the instrument into an undivided proportional
interest, as defined in the agreement; in future revenue from private label
agreements. Pursuant to the agreement, conversion may occur at the discretion
of the investor on May 1, 1997 or May 1, 1998. The election to convert the debt
to an interest in future revenues was not made on May 1, 1997.
* * * * *
- 11 -
<PAGE> 1
EXHIBIT 99.4
BENEFITS ADMINISTRATION, INC.
PRO FORMA BALANCE SHEETS
<TABLE>
<CAPTION>
=========================================================================================================================
BAI HARBOUR ELIMINATIONS TOTAL
APRIL 30, 1997 1997 (SEE FOOTNOTES BELOW.)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,942 $ 70,267 $ $ 72,209
Accounts receivable - trade 17,201 -- 17,201
Notes receivable - officer 8,161 -- 8,161
---------------------------------------------------------------
TOTAL CURRENT ASSETS 27,304 70,267 -- 97,571
---------------------------------------------------------------
FURNITURE AND EQUIPMENT
Office furniture, fixtures and improvements 68,602 -- 68,602
Computer software 5,879 -- 5,879
Other Assets -- 80,416 (2) 80,416 --
---------------------------------------------------------------
74,481 80,416 80,416 74,481
Less - accumulated depreciation and amortization 13,175 -- 13,175
---------------------------------------------------------------
61,306 80,416 80,416 61,306
---------------------------------------------------------------
$ 88,610 $ 150,683 $ 80,416 $ 158,877
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 107,094 $ 1,159 $ (1) 40,000 $ 148,253
Accrued payroll and expenses 8,204 -- 8,204
Notes payable 287,000 -- 287,000
Current portion of capital lease obligations 14,754 -- 14,754
---------------------------------------------------------------
TOTAL CURRENT LIABILITIES 417,052 1,159 40,000 458,211
---------------------------------------------------------------
CAPITAL LEASE OBLIGATIONS 17,800 -- 17,800
SUBORDINATED CONVERTIBLE DEBT 150,000 -- 150,000
INTERESTS IN FUTURE REVENUES 135,000 -- 35,000
---------------------------------------------------------------
TOTAL OTHER LIABILITIES 302,800 -- 302,800
---------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, $0.00001 par value: 50,000,000
shares authorized; 3,380,462 shares issued and
outstanding at April 30, 1997 and 1996 -- 1 (3) 176 177
Preferred stock, $0.00001 par value; 20,000 shares
authorized; no shares issued and outstanding -- -- -- --
Common stock ($1 par value, 100 shares
authorized, issued and outstanding) 100 -- (3) 100 --
Additional paid-in capital -- 165,612 (2)&(3) 96,581 69,031
Accumulated deficit (631,342) (16,089) (1)&(3) 23,911 (671,342)
---------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (631,242) 149,524 (120,416) (602,134)
---------------------------------------------------------------
$ 88,610 $ 150,683 $ (80,416) $ 158,877
===============================================================
</TABLE>
Footnotes: (1) Represents estimated direct and incremental costs of $40,000
associated with BAI's reverse acquisition of Harbour.
(2) Represents restricted cash distribution of $80,416 to
stockholders pursuant to Colorado securities law, which is
charged against additional paid-in capital.
(3) Represents the issuance of 2,386,210 shares issued in
connection with the reverse acquistion of Harbour, elimination
of BAI common stock and the accumulated deficit of Harbour,
and the seven-for- one stock split effected on September 16,
1997.
<PAGE> 2
BENEFITS ADMINISTRATION, INC.
PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
================================================================================================
BAI HARBOUR ELIMINATIONS TOTAL
YEARS ENDED APRIL 30, 1996 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Revenue $ 297,018 $ 7,481 $ $ 304,499
Less - returns (6,475) -- (6,475)
--------------------------------------------------------------
290,543 7,481 298,024
--------------------------------------------------------------
Operating expenses
Salaries 154,753 -- 154,753
Printing 31,413 -- 31,413
Postage and shipping 4,664 -- 4,664
Rent 19,837 600 20,437
Taxes and licenses 4,854 1,020 5,874
Travel 19,804 351 20,155
Provider benefits expense 12,975 -- 12,975
Office supplies 5,826 180 6,006
Telephone 25,906 -- 25,906
Legal and professional 25,620 5,026 30,646
Depreciation and amortization 712 150 862
Advertising 16,088 -- 16,088
Commissions 7,850 -- 7,850
Miscellaneous 1,138 -- 1,138
Equipment rental 2,359 -- 2,359
Insurance 341 -- 341
Employee training 20,012 -- 20,012
Filing fees -- 250
Transfer agent -- 102
--------------------------------------------------------------
354,152 7,679 361,831
Loss before income taxes (63,609) (198) (63,807)
Income tax benefit (expense) (4,599) -- (4,599)
--------------------------------------------------------------
Net loss (68,208) (198) (68,406)
Weigted average shares outstanding 100 142,036 $ 17,555,586 17,697,722
--------------------------------------------------------------
Loss per common share $($ 682.08) $ ($0.00) $ -- $ ($0.00)
==============================================================
</TABLE>
FOOTNOTE: Weighted average shares outstanding includes 2,386,210 shares
issued to stockholders of BAI in connection its reverse acquisition
of Harbour , and the seven-for-one stock split effected on
September 16, 1997.
<PAGE> 3
BENEFITS ADMINISTRATION, INC.
PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
===========================================================================================================
BAI HARBOUR ELIMINATIONS TOTAL
YEARS ENDED APRIL 30, 1997 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Revenue $ 298,338 $ 7,366 $ $ 305,704
Less - returns (4,955) -- (4,955)
------------------------------------------------------------
293,383 7,366 300,749
------------------------------------------------------------
Operating expenses
Salaries 245,415 -- 245,415
Printing 240,229 -- 240,229
Postage and shipping 82,939 -- 82,939
Rent 65,876 -- 65,876
Interest expense, net of interest income 36,475 600 37,075
Taxes and licenses 33,774 1,020 34,794
Travel 26,369 1,155 27,524
Provider benefits expense 24,767 -- 24,767
Office supplies 24,065 2,212 26,277
Telephone 23,529 -- 23,529
Legal and professional 19,074 2,559 21,633
Depreciation and amortization 12,463 150 12,613
Advertising 6,877 -- 6,877
Penalties 5,117 -- 5,117
Commissions 3,698 -- 3,698
Repairs and maintenance 3,500 -- 3,500
Miscellaneous 2,216 -- 2,216
Equipment rental 1,939 -- 1,939
Insurance 1,420 -- 1,420
Employee training -- -- --
Filing fees -- 250 250
Transfer agent -- 1,695 1,695
------------------------------------------------------------
859,742 9,641 869,383
Loss before income taxes (566,359) (2,275) (568,634)
Income tax benefit (expense) 4,599 -- 4,599
------------------------------------------------------------
Net loss (561,760) (2,275) (564,035)
Weighted average share outstanding 100 142,036 17,555,586 17,697,722
------------------------------------------------------------
Loss per common share $ (5,617.60) $ (0.02) $ -- $ (0.03)
============================================================
</TABLE>
FOOTNOTES: Weighted average shares outstanding includes 2,386,210 shares
issued to stockholders of BAI in connection with its reverse
acquisition of Harbour, and the seven-for-one stock split effected
on September 16, 1997.