Securities and Exchange Commission Washington D.C. 20549 Form 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 28, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from ________________ to__________________ Commission file number 000-18097 BERNARD HALDANE ASSOCIATES, INC. (Exact name of small business issuer as specified in its charter) Florida 59-2720407 ------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 192 Lexington Avenue, 15th Floor, New York, New ----------------------------------------------- York 10016 (address of principal executive offices) (212) 679-3360 -------------- (Issuer's telephone number) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: February 28, 1999 Class Outstanding at February 28, 1999 Common Stock, $.00001 Par Value 1,148,865 shares BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES INDEX PAGE ---- PART I. FINANCIAL INFORMATION Consolidated Balance Sheets as of February 28, 1999 (Unaudited) and May 31, 1998 3 - 4 Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended February 28, 1999 and 1998 5 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended February 28, 1999 and 1998 6 Notes to Consolidated Financial Statements (Unaudited) as of February 28, 1999 7 - 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION AND SIGNATURES Signatures 12 -2- BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS FEBRUARY 28, MAY 31, 1999 1998* -------------------- ------------- (Unaudited) (Restated) CURRENT ASSETS: Cash and cash equivalents $ 1,556,384 $ 1,693,220 Short-term investments 112,735 108,908 Accounts receivable - net of allowance for doubtful accounts of $279,000 and $180,000, respectively (includes receivables from related parties of $543,394 and $100,635, respectively) 718,226 315,436 Notes receivable - net of allowance for credit losses of $28,100 and $15,000, respectively, current portion 107,703 89,855 Due from related parties - 8,887 Prepaid expenses and miscellaneous receivables 195,726 185,957 Deferred taxes 192,000 126,000 ------------ ------------ Total current assets 2,882,774 2,528,263 ------------ ------------ OTHER ASSETS: Licenses - net of accumulated amortization of $1,971,847 and $1,870,372, respectively 686,151 787,626 Equipment, fixtures and leasehold improvements - net of accumulated depreciation of $56,689 and $46,165, respectively 41,797 48,374 Security deposits and other 76,347 115,820 Notes receivable - net of allowance for credit losses of $173,400 and $119,500, respectively (includes receivables from related parties of $54,819 and $44,060, respectively) 364,030 448,115 ------------ ------------ Total other assets 1,168,325 1,399,935 ------------ ------------ TOTAL ASSETS $ 4,051,099 $ 3,928,198 ============ ============ * The balance sheet at May 31, 1998 is derived from the audited consolidated financial statements of that date. -3- BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY FEBRUARY 28, MAY 31, 1999 1998* -------------------- ------------- (Unaudited) (Restated) CURRENT LIABILITIES: Current maturities of long-term debt $ 48,600 $ 42,437 Accounts payable 82,218 127,314 Accrued expenses and other current liabilities 44,006 32,135 Income taxes payable 32,969 62,313 Due to related parties 10,611 - ------------ ------------ Total current liabilities 218,404 264,199 ------------ ------------ OTHER LIABILITIES: Long-term debt 561,558 599,135 Deferred rent payable 23,437 23,437 ------------ ------------ 584,995 622,572 ------------ ------------ Total liabilities 803,399 886,771 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock ($.00001 par value; 950,000,000 shares authorized, 1,148,865 shares issued and outstanding) 12 12 Additional paid-in capital 2,738,015 2,738,015 Retained earnings 1,016,111 809,838 ------------ ------------ 3,754,138 3,547,865 Less: Treasury stock (199,500 shares at cost) 506,438 506,438 ------------ ------------ Total stockholders' equity 3,247,700 3,041,427 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,051,099 $ 3,928,198 ============ ============ * The balance sheet at May 31, 1998 is derived from the audited consolidated financial statements of that date. -4- BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) NINE MONTHS ENDED THREE MONTHS ENDED ----------------- ------------------ FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, 1999 1998 1999 1998 ---- ---- ---- ---- REVENUES: Royalty income (includes royalty income from related parties of $271,224, $190,886, $108,112 and $50,200, respectively) $ 1,998,080 $ 1,832,983 $ 659,041 $ 496,537 Consulting income 514,598 69,275 28,746 54,216 Interest, dividends and other income 37,992 76,226 21,136 22,948 Sub-license income (includes sub-license income from related parties of $18,419, $-0-, $-0-, and $-0-, respectively) 55,258 99,402 18,419 19,248 ------------ ------------ ---------- --------- Total revenues 2,605,928 2,077,886 727,342 592,949 ------------ ------------ ---------- --------- EXPENSES: Payroll and related costs 682,992 486,284 146,145 161,474 Other general and administrative 1,106,576 753,685 385,105 301,799 Amortization 101,475 148,156 33,825 49,385 Bad debt expense 179,740 206,929 61,740 136,929 Advertising 181,390 79,057 22,598 23,639 Interest 37,676 43,406 12,348 14,508 ------------ ------------ ---------- --------- Total expenses 2,289,849 1,717,517 661,761 687,734 ------------ ------------ ---------- --------- INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES 316,079 360,369 65,581 (94,785) PROVISION (CREDIT) FOR INCOME TAXES 109,806 143,524 9,006 (43,276) ------------ ------------ ---------- --------- NET INCOME (LOSS) $ 206,273 $ 216,845 $ 56,575 $ (51,509) ============ ============ ========== ========= EARNINGS (LOSS) PER SHARE: Basic $.22 $.23 $ .06 $(.05) ==== ==== ===== ===== Diluted $.20 $.21 $ .06 $(.05) ==== ==== ===== ===== -5- BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED --------------------------------- FEBRUARY 28,FEBRUARY 28, 1999 1998 --------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 206,273 $ 216,845 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Expenses (income) not requiring the use of cash: Provision for losses on accounts and notes receivable 179,740 206,929 Depreciation 10,524 12,336 Amortization of licenses 101,475 148,156 Loss on sale of offices 19,478 - Interest expense - imputed 37,676 31,320 Interest income - imputed (5,231) (28,690) Deferred income taxes (66,000) 32,000 Changes in assets and liabilities: Accounts receivable (501,790) (64,741) Prepaid expenses and miscellaneous receivables (10,009) (64,332) Accounts payable and other current liabilities (28,225) (37,196) Income taxes payable (29,344) (100,355) ------------- ------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (85,433) 352,272 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short-term investments (3,827) (51,800) Security deposits 14,995 (3,997) Decrease in due from related parties 19,498 34,796 Acquisition of fixed assets (3,947) (9,607) Additions to notes receivable (105,258) (104,465) Payments of notes receivable 96,226 117,426 ------------- ------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,687 (17,647) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of debt (69,090) (58,800) ------------- ------------- NET CASH USED IN FINANCING ACTIVITIES (69,090) (58,800) ------------- ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (136,836) 275,825 CASH AND CASH EQUIVALENTS - beginning 1,693,220 1,698,099 ------------- ------------- CASH AND CASH EQUIVALENTS - ending $ 1,556,384 $ 1,973,924 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 37,676 $ 45,406 Income taxes 172,506 207,302 -6- BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FEBRUARY 28, 1999 The accompanying interim consolidated financial statements are unaudited and include the accounts of Bernard Haldane Associates, Inc. ("Haldane") and its subsidiaries. NOTE 1 In the opinion of management, the accompanying interim consolidated financial statements contain all material and significant adjusting and eliminating entries consisting only of normal recurring adjustments and eliminations necessary to present fairly the financial condition as of February 28, 1999 and the results of operations and cash flows for the nine months then ended. The results of operations for the nine month period ended February 28, 1999 are not necessarily indicative of the results of operations for the year ending May 31, 1999. NOTE 2 Certain reclassifications have been made to the 1998 consolidated financial statements in order to conform to the current year's presentation. NOTE 3 The Company utilizes Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," to record income taxes. The components of the deferred tax asset are the allowances for doubtful accounts and credit losses. -7- BERNARD HALDANE ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FEBRUARY 28, 1999 NOTE 4 Earnings per share are based on the weighted average number of shares outstanding during each period presented. The Companies utilize Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share." Earnings (loss) per share for the nine and three months ended February 28, were calculated using the treasury stock method as follows: Nine Months Ended Nine Months Ended February 28, February 28, ------------ ------------ 1999 1998 1999 1998 ---- ---- ---- ---- Numerator Income (loss) from continuing operations $ 206,273 $ 216,845 $ 56,575 $ (51,509) Less: Preferred dividends - - - - ------------ ------------ ------------ ------------ Income (loss) available to common stockholders used in basic EPS 206,273 216,845 56,575 (51,509) Impact of potential common shares - - - - ------------ ------------ ------------ ------------ Income (loss) available to common stockholders after assumed conversion of dilutive securities $ 206,273 $ 216,845 $ 56,575 $ (51,509) ============ ============ ============ ============ Denominator Weighted average number of common shares outstanding used in basic EPS 949,365 949,365 949,365 949,365 Impact of potential common shares: Stock options 66,452 63,874 59,739 56,757 ------------ ------------ ------------ ------------ Weighted number of common shares and dilutive potential common shares used in dilutive EPS 1,015,817 1,013,239 1,009,104 1,006,122 ============ ============ ============ ============ Basic EPS $ .22 $ .23 $ .06 $ (.05) ===== ====== ===== ====== Diluted EPS $ .20 $ .21 $ .06 $ (.05) ===== ====== ===== ====== NOTE 5 In February 1998, the Companies filed an application with the Securities and Exchange Commission to withdraw its common shares from the public market. Such application has been approved. In April 1999, the transaction was voted on by the shareholders. NOTE 6 Additional paid-in capital and retained earnings at May 31, 1997 have been adjusted to record the cumulative equity of minority interests in losses for the period 1989 through February 1995, not previously recorded. On February 2, 1995 such interests were purchased through the issuance of 75,000 shares of common stock. The error had no effect on net income for years subsequent to May 31, 1995. -8- BERNARD HALDANE ASSOCIATES, INC. ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION NINE MONTHS ENDED FEBRUARY 28, 1999 VS. NINE MONTHS ENDED FEBRUARY 28, 1998 Royalty revenues from licensee offices for the nine month period ended February 28, 1999 as compared to February 28, 1998 increased from $1,832,983 to $1,998,080, an increase of approximately 9%. Revenues for the three month period ended February 28, 1999 as compared to February 28, 1998 increased from $496,537 to $659,041, an increase of approximately 32%. This increase in royalty revenues is primarily attributable to the growth of the Haldane organization through an increase in the number of Haldane offices, an increase in the number of clients handled by the Haldane offices and an increase in the fee for services. For the nine month period ended February 28, 1999, the Company recognized $514,598 in consulting revenues as compared to $69,275 in the prior period. This increase of approximately 640% from the prior period is attributable exclusively to Haldanes operation of four offices previously owned by a licensee. The Company has transferred three of these offices to licensees in the Haldane organization and as a result, consulting income for the three months ended February 28, 1999 declined from $54,216 to $28,746 for the three months ended February 28, 1999. The Company recognized a total of $55,258 and $18,419 in revenues from the sale of territorial licenses as compared to $99,402 and $19,248 in the prior periods. This overall decline of approximately 45% reflects the fact that the Haldane system has expanded into most major metropolitan areas throughout the United States and except for reopening offices in those areas occupied by former licensees, there are few metropolitan areas available for expansion in the continental United States. Total revenues for the nine and three month period ended February 28, 1998 as compared to the same periods in the prior year were $2,605,928 and $727,342 as compared to $2,077,886 and $592,949, an increase of approximately 25% and 22% respectively. -9- NET INCOME: Net income for the nine and three month period ended February 28, 1999 was $316,079 and $65,581 as compared to $360,369 and a loss of $94,785 for the same period in 1998. Although net pre-tax income for the nine month period declined by 13%, the Company was able to reverse the loss from the prior three month period. The decline in pre tax net income is attributable primarily to the significant costs incurred in operating company owned Haldnae offices and the additional oversight required. For example, payroll and related costs increased for the nine month period ended February 28, 1999 from $486,284 to $682,992, general and administrative expenses increased from $753,685 to $1,106,576 and advertising expense increased from $79,057 to $181,390. For the three months ended February 28, 1999 payroll, general and administrative and advertising totaled $553,848 as compared to $486,912 for the comparative period in 1998, an increase of approximately 14%. Total expenses for the nine month period increased from $1,717,517 to $2,289,849 an increase of approximately 33% while expenses for the three month period ended February 28, 1999 declined slightly from $687,734 to $661,761. The decrease in expenses is attributable to the fact that the Company was able to convey most of its Haldane owned and operated offices to existing licensees. Net after tax income for the nine month period declined approximately five percent (5%), declining from $216,845 to $206,273 and for the three month period the Company showed a net after tax profit of $56,575 as compared to a loss of $51,509 during the corresponding period last year. Earnings per share for the nine month period declined from $.23 to $.22 and for the three month period ended February 28, 1999 was $.06 per share as compared to a loss of $.05 per share. Management remains dissatisfied with the results of operations of First Career. Since inception, the Company has committed over $600,000 to launch a career consulting program directed at college students. Efforts to co market the product with Stanley Kaplan Education Centers has not been successful. Management hopes to completely revise the program and offer some type of Internet based delivery system. -10- LIQUIDITY AND CAPITAL RESOURCES FEBRUARY 28, 1999 AS COMPARED TO MAY 31, 1998 Total current assets as of February 28, 1999 were $2,882,774 as compared to $2,528,263; an increase of 14%. Cash holdings and short term investments decreased from $1,693,220 to $1,556,384, a decline of 9%. The Companys total assets increased by 2%, increasing from $3,984,088 to $4,059,697. Total current liabilities declined nearly 20%, declining from $264,199 to $218,404, while total liabilities declined from $886,771 to $803,399, a decline of approximately 10%. This decline in the liabilities is attributable primarily to a decline in the Companys accounts payable from $127,314 to $82,218 and a decline in long term debt from $599,135 to $561,558. Total stockholders equity increased from $3,041,427 to $3,247,700 an increase of 6.8%. Management believes that the Company has sufficient revenues to finance ongoing business activities and to finance the repurchase of the Companys common stock held by non management and non affiliated shareholders pursuant to an agreement of merger approved by the shareholders. -11- BERNARD HALDANE ASSOCIATES, INC. SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 or 15(d) OF THE SECURITIES ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THIS REGISTRANT IN THE CAPACITIES INDICATED. BERNARD HALDANE ASSOCIATES, INC. (Registrant) /s/ JEROLD WEINGER - --------------------------- DATED: April 16, 1999 JEROLD WEINGER, president/ treasurer/director /s/ Jeffrey G. Klein - --------------------------- DATED: April 16, 1999 Jeffrey G. Klein, secretary/ director -12-