U.S. 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: June 30, 1997 [ ] 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 June 30, 1997, 67,885,000 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 June 30, 1997 INDEX PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1 - Financial Statements Consolidated Balance Sheet June 30, 1997 (Unaudited) 3-4 Consolidated Statements of Operations for the Six Months and Three Months ended June 30, 1997 and 1996 (Unaudited) 5 Consolidated Statements of Cash Flows for the Six Months ended June 30, 1997 (Unaudited) 6 Notes to Consolidated Financial Statements 7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 PART II - OTHER INFORMATION Item 5 - Other Information 9 Item 6 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 9-10 SIGNATURES 10 MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, 1997 ASSETS JUNE DECEMBER 1997 1996 CURRENT ASSETS Cash $1,119,025 $196,653 Trade accounts receivable 3,136,549 345,452 Less allowance for bad debt ( 80,381) ( 33,487) Notes receivable 129,542 10,000 Commissions receivable 61,452 - Deposits 18,645 18,488 Prepaid expenses 22,155 19,883 ----------- --------- Total current assets 4,406,987 556,989 ----------- --------- PROPERTY AND EQUIPMENT, NET 303,336 63,349 ----------- --------- OTHER ASSETS Goodwill 812,316 850,109 Software development costs 445,199 394,240 ----------- --------- Total other assets 1,257,515 1,244,349 ----------- --------- $5,967,838 $1,864,687 =========== ========= - Continued - MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (continued) June 30, 1997 LIABILITIES AND SHAREHOLDERS' EQUITY JUNE DECEMBER 1997 1996 CURRENT LIABILITIES Notes payable $3,863,815 $ 242,029 Accounts payable 286,507 149,741 Accrued liabilities 122,864 101,382 Other liabilities 109,000 179,000 Other 2,452 Deferred revenue 93,472 159,026 ----------- ---------- Total current liabilities 4,478,110 831,178 LONG TERM LIABILITIES Note payable 1,347,866 1,283,808 Other liabilities 40,000 40,000 ----------- ---------- Total long term liabilities 1,387,866 1,323,808 SHAREHOLDERS' EQUITY Common stock .001 par value;100,000,000 shares authorized; 67,885,000 shares issued 67,885 67,885 Additional paid-in capital 810,322 810,322 Retained earnings (deficit) (1,156,467) (1,156,467) Treasury stock, at cost;409,577 (12,039) ( 12,039) Net earnings 392,161 ----------- ---------- Total shareholders' equity (deficit) 101,862 (290,299) ----------- ---------- $5,967,838 $1,864,687 MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS June 30, 1997 (UNAUDITED) REVENUES Service fee & broker income $ 4,983 $ 34,027 $ 12,501 $ 35,843 Consulting fees 30,000 53,610 Software & maintenance sales 384,407 683,599 810,871 1,286,698 Medical Income 838,261 1,543,952 Other income 27 219,992 4,541 250,000 ---------- --------- ---------- ----------- Total revenues 1,257,678 937,618 2,425,476 1,572,541 COST OF REVENUES Cost of service & broker fees 2,548 2,548 Cost of software & maintenance 157,592 82,617 302,042 185,456 Cost of medical services 27,942 37,349 ---------- --------- ---------- ----------- Total cost of revenues 185,534 85,165 339,390 188,004 ---------- --------- ---------- ----------- GROSS PROFIT 1,072,144 852,453 2,086,086 1,384,537 OPERATING EXPENSES Selling, general & administrative 831,334 565,515 1,557,369 995,354 Depreciation and amortization 80,701 4,646 139,928 10,262 ---------- --------- ---------- ----------- Total operating expenses 912,035 570,161 1,697,297 1,005,616 ---------- --------- ---------- ----------- INCOME FROM OPERATIONS 160,109 282,292 388,789 378,921 OTHER INCOME (EXPENSES) Interest income, net ( 631) ( 7,409) ( 3,675) 8,445 Other, net ( 252) ( 13,743) 302 15,954 ---------- --------- --------- ----------- Total other income, net ( 883) ( 21,150) ( 3,372) 24,399 ---------- --------- --------- ----------- NET INCOME BEFORE TAXES 159,225 261,142 392,161 354,522 ---------- --------- --------- ----------- PROVISION FOR INCOME TAXES NET INCOME $ 159,225 261,142 392,161 354,522 ========== ======== ========= =========== Income per weighted-average common share $ 0.002 0.005 0.006 0.007 ========== ======== ========== =========== Weighted-average common shares outstanding 67,885,000 49,485,000 67,885,000 49,485,000 ========== ======== ========== =========== MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS SIX MONTHS ENDED 06/30/97 ENDED 06/30/96 1997 1996 ---------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net Income(Loss) for the period $ 392,161 $ 354,522 Adjustments to reconcile net income(loss) to net cash used by operating activities: Depreciation 139,928 13,163 Amortization 37,793 Gain on debt extinguis (115,102) Bad debt expense 26,267 Change in allowance for doubtful accounts 46,894 Changes in assets and liabilities: Trade accounts receivable ( 2,824,584) ( 144,283) Advances (1,125) Commissions Receivable (61,452) Prepaid expenses and other (2,273) (4,500) Deposits (157) (700) Accounts payable 136,766 73,086 Accrued liabilities 21,482 (55,371) Other liabilities (70,000) 364,266 Deferred revenues (65,554) 79,283 Other 25,872 (6,812) ---------------- ------------------ Net cash used by operating activities (2,311,958) 671,529 CASH FLOWS FROM INVESTING ACTIVITIES Disposal (Purchase) of property and equipment (239,987) (8,565) Software development costs capitalized (50,959) (71,032) Advances on notes receivable (119,542) (21,052) ---------------- ------------------ Net cash uesd by investing activities (410,489) (100,649) CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable (76,134) 764,600 Increase in notes payable 3,720,953 (350,411) Increase (decrease) in cash overdraft 29,616 Purchase of treasury stock 45,000 ---------------- ------------------ Net cash provided by financing activities 3,644,819 488,805 INCREASE / (DECREASE) IN CASH 922,372 82,075 ---------------- ------------------ Cash at beginning of period 196,653 36,535 Cash at end of period $ 1,119,025 $ 118,610 ================ ================== SUPPLEMENTAL INFORMATION Cash paid during the period for interest $ 3,675 $ 8,451 ================ ================== MB SOFTWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 (Unaudited) 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 most recent financial statements of MB Software Corporation included in the Company's report on Form 10-KSB for the year ended December 31, 1996. 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 presentation of financial position, results of operations and cash flows for the interim period. The results of operations for the six months and three months ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company MB Software Corporation took a major step forward and unfolded the next phase of its 1997 Strategic Plan by consolidating areas within its three operating companies, thereby positioning them for long term benefits to derive greater economies of scale and improved productivity. The Company's primary focus continued to be the acquisition of companies that provide reciprocal benefit and distribution channels for its software products while currently increasing corporate asset value and developing greater market share and critical mass for specific products and services. Each operating company installed common practice management systems, consolidated workflow processes and reporting mechanisms to facilitate operational control and pinpoint areas where performance correction may be indicated. The Company continued to perform in accordance with it targets for the year; however, for the quarter ended June 30, 1997, a steeper than anticipated expense curve occurred from consolidation of Company functions which softened profit margins, although the quarter still remained profitable. In each operating arm, the Company realigned management, streamlined or downsized staff, reduced fixed cost and explored expansion plans. Santiago SDS, Inc. continued to sharpen its focus within the physician practice management market through restructuring of marketing campaigns to offer a more-defined, yet cost-competitive, state-of-the-art product. Santiago SDS, Inc., in response to evolving market trends, continued to enhance product capability and customer appeal, yet minimize product cost increases. In the quarter ended June 30, 1997, Santiago SDS, Inc. maintained market share within this highly competitive market segment through corporate extension of new markets for its products and services. Strategies for 1997 remained on target with financial and scheduling projections. Color Country Health Express, Inc. continued to exceed expectations and continued to explore expansion of its satellite locations within its market by maximization of existing, yet untapped, capacity without major demands for capital or staff. Anticipated seasonal downturns in revenue were measured and staffing levels adjusted to reduce controllable costs and protect profit margins. Intercoastal Rehabilitation, Inc. achieved positive results after substantial realignment of staff and systems to position it for needed efficiencies and improved productivity. The streamlined entity, with clearer operational focus, continued to ramp up results, albeit after a longer period than planned. Results of Operations This section discusses the results of operations of the Company and its subsidiaries for the quarterly period ended June 30, 1997. In the quarter ended June 30, 1997, revenues from the consolidated entities rose to $1,257,678, an increase of 34% over the $937,618 reported for the same period in 1996. The year to date revenue for 1997 of $2,425,476 represents an increase of 54% over the revenue in the same period in 1996 of $1,572,541. This trend continues to show strong revenue growth and it represents the sixth continued quarter of increased revenues for the Company. Cost of revenues and operating expenses for the quarter ended June 30, 1997 were $185,514 and $912,035 respectively. This is an increase of 118% over the cost of revenues of $85,165 and an increase of 60% over operating expenses of $570,161 for the same period in 1996. Year to date 1997 cost or revenues plus operating expenses approximate 84% of total revenue. This 14% increase over the prior year is primarily due to increased expenses incurred with the restructuring of Santiago SDS, Inc.'s marketing plan, reduced sales while refocusing that marketing campaign, and miscellaneous unanticipated additional expenses related to the Florida acquisition and operational improvements. Total assets increased to $5,967,838. This increase from December 31, 1996 is largely attributable to the increase in receivables via increased revenue in 1997. The nature of revenues generated from the subsidiaries acquired during 1997 lends themselves to larger receivables balances. Additionally, an influx of $1,000,000 of cash occurred near the end of the quarter. This represents a short-term note payable. Total liabilities increased to $5,865,976 from the December 31, 1996 balance of $2,157,986. The escalation of liabilities was largely due to the $1,000,000 short-term note mentioned above, debt assumed with acquisitions, and debt incurred through normal operations. Liquidity and Capital Resources As of June 30, 1997, the Company had total assets of $5,967,838 with current assets of $4,406,987, property and equipment $303,336 and other assets totaling $1,257,515. Total current liabilities at June 30, 1997 were $4,478,110 with total long-term liabilities equaling $1,387,866. Loans to the Company by certain of its officers, directors and shareholders totaled to $2,744,430. Net working capital at the end of the period was ($71,123), an improvement from the quarter ended March 31, 1997 which net working capital equaled ($104,849). The Company is actively engaging in acquisitions of complementary companies, development of software products, and developing greater market share for specific products and services. It is impossible to predict what impact, if any, the above will have on the operating results of the Company. The Company will attempt to enhance cash flows from operations through sales efforts and operating efficiencies and in addition, may attempt to seek financing opportunities to obtain funds in 1997 as necessary to continue the development of the Company, its programs and strategic acquisitions. However, there can be no assurance that the Company will produce additional revenue or profits from these efforts. The Company intends to continue its growth by new acquisitions, adding customers and catering to existing customers as well as aggressively marketing new products and services. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION The Company and Imagine, Inc. ("Imagine") announced on August 5, 1997, that they had formed Healthcare Innovations, a limited liability company ("HI") for the purposes of acquiring and operating healthcare businesses. Imagine is a subsidiary of Stone Investments, which in turn is a subsidiary of Stone Capital, a company with over $3 billion in assets. The Company will own a 51% common equity interest in HI and Imagine will own a 49% common equity interest. In addition, each of the Company and Imagine will own preferred interests in HI designed to return their respective investments, plus a 10% return, over a three year period. For its interest, the Company contributed to HI its existing healthcare businesses, consisting of two rehabilitation clinics in Jacksonville, Florida and a Utah-based nurse practitioner business. The Company will also serve as operator of HI, for which it will receive a management fee. For its interest, Imagine contributed to HI the sum of $2,000,000, $900,000 of which was used to repay debt assumed in connection with the purchase of the Jacksonville facilities, and the remainder of which will be used to fund capital requirements of the businesses and future acquisitions. The $900,000 loan repayment was accomplished by a $1,000,000 loan from Imagine, through the Company, to Oak Tree Receivables, Inc., which then repaid the loan with the cash and certain of its receivables. The remaining $100,000 was used to repay obligations of the Jacksonville facilities incurred in the ordinary course of business. Oak Tree Receivables was contributed to HI by the Company, and the $1,000,000 note was contributed to HI by Imagine as part of its $2,000,000 contribution. Also in connection with the formation of HI, Imagine loaned the Company $500,000 for use in its Santiago operations. The loan bears interest at a rate of 10% and is due on August 1, 2000. As security for the loan, the Company pledged all of its stock of Santiago to Imagine and Robert T. Shaw, a shareholder of the Company who had previously acquired a security interest in the Santiago stock, consented to the pledge. In addition, a key part of the relationship between Imagine and the Company is a funding arrangement whereby Imagine and its affiliates will provide capital to HI through loan and equity arrangements in order for HI to purchase healthcare businesses. The terms of such arrangements are to be negotiated. ITEM 6. EXHIBITS, FINANCIAL STATEMENT SHCEDULES AND REPORTS ON FORM 8-K Exhibits 10.1 Operating Agreement dated as of August 1, 1997 for Healthcare Innovations, LLC (*) 10.2 LLC Preorganizational Agreement dated as of August 1, 1997 among the Company, HI and Imagine (*) 10.3 Services Agreement dated as of August 1, 1997 between HI and the Company (*) 10.4 Promissory Note dated as of August 1, 1997 in the principal amount of $500,000 executed by the Company as maker in favor of Imagine (*) 10.5 Amended and Restated Pledge Agreement dated as of August 1, 1997 among the Company, Imagine and Robert T. Shaw (*) (*) To be filed by amendment Financial Statements - See Item 1 for financial statements filed with this - -------------------- report. Reports on Form 8-K - Original 8-K was filed on February 6, 1997 and an - ------------------- Amendment No. 1 was filed April 4, 1997. 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 Date: August 15, 1997 /s/ Scott A. Haire ---------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer)