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: September 30, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File No. 0-11808 MB SOFTWARE CORPORATION Colorado 59-2219994 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2225 E. Randol Mill Road - Suite 305 Arlington, Texas 76011-6306 (817) 633-9400 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for 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 [ ] Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ X ] No [ ] As of September 30, 1996, 66,850,000 shares of the Issuer's $.001 par value common stock were outstanding. Transitional Small Business Disclosure Format Yes [ ] No [ X ] MB SOFTWARE CORPORATION Form 10-QSB Quarter Ended September 30, 1996 INDEX PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1 - Financial Statements Consolidated Balance Sheet September 30, 1996 (Unaudited) and December 31, 1995 (Audited) 3-4 Consolidated Statements of Cash Flow for the Nine Months ended September 30, 1996 (Unaudited and December 31,1995 (Audited) 5 Consolidated Statements of Operations for the Nine Months and Three Months ended September 30, 1996) and September 1995 (Unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition or Plan of Operation 7-9 PART II - OTHER INFORMATION Item 4 - Submission of Matters to Vote by Security Holders 10 Item 6 - Exhibits, Financial Statement Schedules 10 and Reports on Form 8-K SIGNATURES 10 2 September 30, December 31, 1996 1996 ----------------- ----------------- CURRENT ASSETS Cash $ 151,529 $ 36,535 Trade accounts receivable 210,664 59,788 Notes receivable - - Advance 44,652 Prepaid Expenses 16,064 ------------------ ---------------- Total current assets 422,909 96,323 PROPERTY AND EQUIPMENT, NET 44,305 23,839 ------------------ ---------------- OTHER ASSETS Goodwill 942,882 956,045 Software Source Code - Software development costs 228,921 51,879 Deposits 18,488 17,788 Total other assets 1,234,596 1,025,712 ------------------ ---------------- 1,657,505 1,145,874 ================= ================ September 30, December 31, 1996 1995 ------------------ ----------------- CURRENT LIABILITIES Bank Overdraft $ - $ 29,616 Notes Payable, including $38,214 and $130,172 respectively,due to related parties 299,889 397,741 Accounts payable 169,086 177,266 Accrued liabilities 110,384 142,754 Other liabilities 119,269 527,350 Other - ------------------ ---------------- Total current liabilities 698,628 1,274,727 ------------------ ---------------- LONG TERM LIABILITIES Note Payable 1,321,715 710,900 Other liabilities 130,000 130,000 Deferred Revenue 132,775 160,878 ------------------ ---------------- Total long term liabilities 1,584,490 1,001,778 SHAREHOLDERS' EQUITY Common stock .001 par value; 100,000,000 shares authorized; 66,850,000 shares issued 66,885 49,485 Additional paid-in capital 501,320 518,720 Retained Earnings (deficit) (1,551,796) (1,551,797) Treasury stock, at cost; 57,518 shares (102,039) (147,039) ------------------ ---------------- Net Earnings 460,017 Total shareholders' equity (deficit) (625,613) (1,130,631) ------------------ ---------------- $ 1,657,505 1,145,874 =================== ================ September December 1996 1995 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income(Loss) for the period $ 460,017 $ (690,487) Adjustments to reconcile net income(loss)to net cash used by operating activities: Depreciation 13,163 129,467 Loss on write down of software 77,885 Loss on disposition and write down of assets held for sale and related notes receivable 168,972 Gain on disposition of PC3 assets and certain liabilities (17,944) Changes in assets and liabilities Trade accounts receivable (150,876) (3,420) Advances (44,652) 18,732 Prepaid expenses and other (16,064) 22,479 Deposits (700) 1,500 Accounts payable 8,180 (58,059) Accrued Liabilities 32,370 (113,384) Other Liabilities 408,081 12,456 Deferred revenues 28,103 160,878 Other - - ---------------- ----------------- Net cash used by operating activities 737,622 (290,925) CASH FLOWS FROM INVESTING ACTIVITIES Disposal (Purchase) of property and equipment (20,466) (3,227) Software development costs capitalized (177,042) (55,750) Cash paid in connection with sale of PC3 - (2,580) Proceeds from sale of Assets held for Sale and related notes receivable Collections on notes receivable - 75,000 Advances on notes receivable - - ---------------- ---------------- Net cash provided (used) by investing activities (197,508) 308,955 CASH FLOWS FROM FINANCING ACTIVITIES Receipts on notes payable 790,949 (556,854) Principle payments on notes payable (350,446) 561,538 Increase (decrease) in cash overdraft 29,616 7,593 Common Stock (17,400) Paid in Capital 17,402 Purchase of treasury stock (45,000) - --------------- ---------------- Net cash provided by financing activities 425,121 12,277 INCREASE / (DECREASE) IN CASH 114,993 30,307 --------------- ---------------- Cash at beginning of period 36,535 6,228 Cash at end of period $ 151,529 $ 36,535 =============== ================ SUPPLEMENTAL INFORMATION Cash paid during the period for interest $ $ 87,427 =============== ================ THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED 9-30/96 ENDED -9/30/95 ENDED 9/30/96 ENDED 9/30/95 REVENUES Service fee & broker income $ 119,190 $ 45,131 $ 404,026 $ 100,008 Smart card product sales 13,747 - - Software & maintenance sales 558,344 34,103 1,845,042 354,565 Other income - 41,241 1,008 79,380 ----------------------- --------------------- --------------------- --------------------- Total revenues 677,534 134,223 2,250,076 533,954 ----------------------- --------------------- --------------------- --------------------- COST OF REVENUES Cost of service & broker fees - 11,985 2,548 15,044 Cost of smart card product sales - 7,238 - - Cost of software & maintenance 140,769 23,241 326,226 174,890 ----------------------- --------------------- --------------------- --------------------- Total cost of revenues 140,769 42,465 328,774 189,934 ----------------------- --------------------- --------------------- --------------------- GROSS PROFIT 536,765 91,757 1,921,302 344,020 ----------------------- --------------------- --------------------- --------------------- OPERATING EXPENSES Selling, general & administrative 433,944 140,206 1,429,299 501,516 Depreciation and amortization - 10,042 10,262 15,227 Gain on disposition of assets held - - 261,552 for resale and related note receivable - ----------------------- --------------------- --------------------- --------------------- Total operating expenses 433,944 150,248 1,439,561 778,295 ----------------------- --------------------- --------------------- --------------------- INCOME FROM OPERATIONS 102,821 (58,489) 481,741 (434,275) ----------------------- --------------------- --------------------- --------------------- OTHER INCOME (EXPENSES) Interest income, net (792) 4,905 (797) 15,792 Other, net (1,883) 2,424 22,521 656 ----------------------- --------------------- --------------------- --------------------- Total other income, net (2,675) 7,329 21,724 16,448 ----------------------- --------------------- --------------------- --------------------- NET INCOME BEFORE TAXES 105,496 (65,819) 460,017 (450,723) ----------------------- --------------------- --------------------- --------------------- PROVISION FOR INCOME TAXES - NET INCOME 105,496 $ (65,819) $ 460,017 $ (450,723) ======================= ===================== ===================== ===================== Income per weighted-average common shares $ (0.00) $ (0.00) $ 0.01 $ (0.01) ======================= ===================== ===================== ===================== Weighted-average common shares outstanding 66,885,000 49,485,000 66,885,000 49,485,000 ======================= ===================== ===================== ==================== MB SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 (Unaudited) 1. BASIS OF PRESENTATION Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although management believes the disclosures herein are adequate to make the information presented not misleading. These interim financial statements should be read in conjunction with the more recent financial statements of MB Software Corporation included in the Company's report on Form 10-KSB for the year ended December 31, 1995. The interim financial information included herein is unaudited; however it reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair representation, results of operations and cash flows for the interim period. The results of operations for the nine months and three months ended September 30, 1996 are not necessarily indicative of the results to be expected for the full year. This Quarterly Report on Form 10-QSB contains forward looking statements about the business, operations and financial condition of the Company, including various statements contained in "Management's Discussions and Analysis of Financial Condition and Results of Operations." The actual results of the Company could differ materially from those forward looking statements, contingent upon market factors and economic volatility. Causal factors that could impact actual results of the Company to differ materially from those contained in the forward looking statements are discussed in connection with those statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company MB Software Corporation remains one of the leading providers of practice management software and cash management resources to physicians, dentists, chiropractors and medical billing centers. As of September 30, 1996, the Company maintained market share with business management services to approximately 3,500 physicians, dentists and chiropractors, with over 2,350 physical locations supporting these services. The Company's long term business plan focuses on increasing the number of physician customers using its practice management software products and, through the use of a common software convention, become a pivotal link in the electronic exchange of information between physician practices and connecting service providers. Currently over 250 clients enjoy fully-electronic, on-line capabilities and process financial information through the Company's OneClaim Plus(TM) practice management system. Prospectively, the Company also plans to establish Internet and World-Wide Web connectivity with customers via an Internet/WWW hub set up to be integral with the Company's practice management software. The Company's strategy for achieving this objective is to transition the Company's 3,500 existing practice management customers to the SDS Health Network Information System, acquire new practice management systems under the SDS Health Network Platform, and offer new and enhanced services along with related service products. The Company's near term outlook focuses on enhancement of its core business products developed by Santiago SDS, Inc. and corresponding announcement of its Windows 95 version of OneClaim Plus(TM). Additionally, the Company intends to seek and obtain certification as a Windows 95 approved vendor, a competitive strategy aligned with healthcare's market and technological direction. Accordingly, roll-out of the Windows 95 version of OneClaim Plus(TM) commenced late in September with initial market reception showing strong support for its expanded and enhanced value-added features. The Company remains positioned to maximize the opportunities that appear likely from pending federal healthcare legislation. Specifically, healthcare's transition toward electronic processing of billing and collections, and the potential that electronic submission of claims may be mandated in certain health care sectors, places the Company in good stead within the industry. Given the stability of annual inflation rates for 1996, near term inflation trends as a non-issue. Results of Operations This section discusses the results of operations of the Company and its subsidiaries for the quarterly period ended September 30, 1996. Since January 1, 1996, the Company has been able to exceed projections following the acquisition of Santiago SDS, Inc. In the quarter ending September 30, 1996, revenues improved to $677,534, a 404% increase from the $134,223 revenues for the same period in 1995. For the nine months ending September 30, 1996, revenues improved to $2,250,076, an increase of 321.4% compared with $533,954, in revenues for the same period in 1995. Net income trended upward for the third consecutive quarter ended September 30, 1996, a 260% increase from the same period in 1995. For the nine month period ending September 30, 1996, net income of $460,017 improved by 202% from ($450,723) for the same period in 1995. Operating expenses for the quarter ending September 30, 1996 increased at a decreasing rate given the Company's comprehensive efforts to maximize profit margins through effective cost containment programs. Actual operating expenses for the third quarter grew 188% from the third quarter of 1995 to $433,944. Operating expenses included the non-recurring costs associated with development of the Windows 95 product. The Company's ability to fund said development from operating revenues evidences management's commitment to a policy of fiscal prudence and incremental revenue growth financed primarily by operating expense outlays. For the nine month period ending September 30, 1996, operating expenses increased 84% from $788,295 to $1,439,561%, during the same period in 1995. Total current liabilities as of September 30, 1996 evidenced strong improvement by a decrease of 45% to $698,628 from $1,274,727 in December 31, 1995. Management maintains a core strategy to reduce debt and current liabilities in order to grow the company with minimal debt obligations. The Company demonstrated strong results and exceeded profit targets in the first, second and third quarters 1996. While the Company moves to minimize debt, management recognizes that limited outside capitalization may be necessary to properly underwrite the roll-out of its two new products. Initial market response to both products has been positive, yet management prioritized the flagship product, OneClaim Plus(TM) as the Company's focus in order to create a financing platform from which to launch its second product, KI.D. While the window of opportunity for launch of its second product remains open today, management believes that the new KI.D. product must be introduced through a national campaign within the next 120 to 150 days. The current status of the Windows 95 healthcare package is positive and market response strong. Moreover, an expanded sales force and increased promotional advertising form the basis for an improved sales revenue outlook. New promotional brochures and marketing strategies were developed to take aim at the optimization of the current install base revenue potential, contribute in large part to an improved outlook for sales. Additionally, the Company continues to consider offers from industry vendors that produce complimentary products who seek strategic alliances in order to capture greater market share. Although no major alliance has yet been formed, negotiations remain active and promising. Reaching accord with current vendor(s) represents minimal development costs and presents no major distraction, yet could significantly expand the Company's market presence and build positive critical mass. Liquidity and Capital Resources As of September 30, 1996, the Company recorded total assets of $1,657,505, with current assets of $422,909 and property, equipment and other assets of $1,234,596. Total current liabilities as of September 30, 1996 were $696,628. Net working capital at the end of the period was ($275,719), an improvement from ($1,265,095) or 358% from December 31, 1995. The KI.D., Kid Identity Defense Program remains positioned for national roll-out with an advertising and public relations firm that will orchestrate the elements for KI.D.'s success. To date, the unveiling of KI.D. has turned on a strategy that: Creates an infrastructure of local distributors; Incorporates a recognized-name sponsor company positively and closely identified with infants and children; Includes direct or tacit endorsement by law enforcement agencies; and Demonstrates public assurance of KI.D.'s integrity and ethics as a program is supported by the systems capabilities that safeguard customer privacy. Release of KI.D. currently has been limited to California and Texas as beta test markets. Initial response to promotional and live field test through local venues has been strong and positive. Over 70 distributorships have been contracted nationwide who will work with the national sponsor(s) in the actual enrollment of children. The Company believes that KI.D. represents a positive image and service for corporate America, while providing a proactive solution for a compelling special issue - child safety. Given the populace's sensitivity to child abduction, KI.D. allows parents, grandparents, educators, the medical community, and law enforcement at large to effectively utilize the information super highway as a child abduction deterrent. The Company's management is determined to foster KI.D. as a social positive akin to usage of 911 for emergency calls. Clearly, the initialization and roll-out of KI.D. forms the nucleus for incremental growth. The advent of KI.D., coupled with the solidarity of the core Windows 95 business, together represent the single focus for a strong outlook. Notwithstanding the positive potential evidenced by its new products and the subsequent revenue generation, there can be no guarantee that such revenues will be generated or that the revenues will be significant, given the competitive nature found in the health care practice management arena. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Exhibits - All other exhibits are incorporated by reference from prior filings with the Commission on Form 8-K during the period. Financial Statements - See Item 1 for financial statements filed with this report. Reports of Form 8-K - No reports were filed on Form 8-K during this period. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MB SOFTWARE CORPORATION Dated: October 23, 1996 /s/ Scott A. Haire --------------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer)