Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 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 September 30, 1997, 68,032,000 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/A
Quarter Ended September 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements
Consolidated Balance Sheet
September 30, 1997 (Unaudited) and
December 31, 1996 (Audited) F-1,F-2
Consolidated Statements of Operations
for the Nine Months ended September 30, 1997 (Unaudited
and December 31, 1996 (Audited) F-3
Consolidated Statements of Cash Flow
for the Nine Months and Three Months ended
September 30, 1997 and September 1996 (Unaudited) F-5
Notes to Consolidated Financial Statements F-7
Item 2 - Management's Discussion
and Analysis of Financial Condition or Plan of Operation 3-4
PART II - OTHER INFORMATION
Item 6 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K 5
SIGNATURES 5
2
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
CURRENT ASSETS
Cash $ 855,060 $ 196,653
Accounts receivable -
Medical receivables, net of
allowance for doubtful accounts of
$397,677 in 1997 1,536,241 --
Trade accounts receivable, net of
allowance for doubtful accounts of
$33,487 and $33,487, respectively 379,059 311,965
Notes receivable - current portion 171,315 10,000
Prepaid expenses and other 39,390 19,883
---------- ----------
TOTAL CURRENT ASSETS 2,981,065 538,501
---------- ----------
PROPERTY AND EQUIPMENT, NET 430,566 63,349
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization 1,179,357 850,109
Software development costs, net of accumulated
amortization 434,845 394,240
Note receivable, net of current portion 208,658 --
Deposits and other assets 85,765 18,488
---------- ----------
TOTAL OTHER ASSETS 1,908,625 1,262,837
---------- ----------
$5,320,256 $1,864,687
========== ==========
(Continued)
F-1
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Notes payable $ 516,238 $ 209,123
Current maturities of long-term debt 1,397,550 32,906
Accounts payable 876,832 149,741
Accrued liabilities 304,899 101,382
Other liabilities - related party 79,000 179,000
Deferred revenues 79,500 159,026
----------- -----------
TOTAL CURRENT LIABILITIES 3,254,019 831,178
LONG-TERM LIABILITIES
Long-term debt, net of current maturities 594,433 1,283,808
Other liabilities 40,000 40,000
----------- -----------
TOTAL LIABILITIES 3,888,452 2,154,986
----------- -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES 1,826,452 --
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' DEFICIT
Common stock; $.001 par value; 100,000,000 shares
authorized; 68,032,000 and 67,885,000 shares
issued, respectively 68,032 67,885
Additional paid-in capital 825,047 810,322
Accumulated deficit (1,275,688) (1,156,467)
Treasury stock, at cost; 409,577 shares (12,039) (12,039)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (394,648) (290,299)
----------- -----------
$ 5,320,256 $ 1,864,687
=========== ===========
The accompanying notes are an integral part
of these condolidated financial statements
F-2
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
REVENUES
Medical income $ 1,195,781 $ -- $ 2,719,685 $ --
Service fee and broker income 71,906 119,190 71,906 404,026
Software & maintenance sales 344,058 558,344 1,154,722 1,845,042
Other income -- -- 31,713 1,008
----------- ----------- ----------- -----------
TOTAL REVENUES 1,611,745 677,534 3,978,026 2,250,076
----------- ----------- ----------- -----------
COST OF REVENUES
Cost of services and broker fees -- -- -- 2,548
Cost of software and maintenance 159,312 140,769 371,585 326,226
Cost of medical services 1,093,666 -- 2,168,113 --
----------- ----------- ----------- -----------
TOTAL COST OF REVENUES 1,252,978 140,769 2,539,698 328,774
----------- ----------- ----------- -----------
GROSS PROFIT 358,767 536,765 1,438,328 1,921,302
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 574,011 433,944 1,486,327 1,429,299
Depreciation and amortization 98,736 -- 273,708 10,262
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 672,747 433,944 1,760,035 1,439,561
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (313,980) 102,821 (321,707) 481,741
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Gain on sale of assets 269,724 -- 269,724 --
Interest expense (129,462) -- (272,446) --
Other 31,660 2,675 31,660 (21,724)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSE) 171,922 2,675 28,938 (21,724)
----------- ----------- ----------- -----------
NET (LOSS) INCOME
FROM CONTINUING
OPERATIONS BEFORE
MINORITY INTEREST $ (142,058) $ 105,496 $ (292,769) $ 460,017
(Continued)
The accompanying notes are an integral part
of these consolidated financial statements
F-3
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(CONTINUED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
MINORITY INTEREST IN (LOSS) $ 173,548 $ -- $ 173,548 $ --
------------ -------------- ------------ ------------
NET INCOME (LOSS) $ 31,490 $ 105,496 $ (119,221) $ 460,017
============ ============== ============ ============
INCOME PER WEIGHTED AVERAGE
COMMON SHARE $ .00 $ .00 $ (.00) $ .01
============ ============== ============ ============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 67,921,750 67,885,000 67,899,700 67,885,000
============ ============== ============ ============
The accompanying notes are an integral part
of these consolidated financial statements
F-4
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September30,
------------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (119,221) $ 460,017
Adjustments to reconcile net (loss) income to net
cash used by operating activities:
Depreciation and amortization 273,708 13,163
Change in allowance for doubtful accounts 397,677 --
Minority interest in loss (173,548) --
Gain on sale of assets (269,724) --
Changes in assets and liabilities:
Trade accounts receivable 138,921 (150,876)
Advances -- (44,652)
Notes receivable (23,162) --
Prepaid expenses and other (19,507) (16,064)
Deposits 1,159 (700)
Accounts payable and accrued liabilities 97,119 40,550
Other liabilities (100,000) 408,081
Deferred revenues (79,526) 28,103
----------- -----------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES 123,896 737,622
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (299,135) (20,466)
Software development costs capitalized (175,925) (177,042)
Organizational costs (72,832) --
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (547,892) (197,508)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable 1,545,840 790,949
Proceeds from notes payable (2,478,309) (350,446)
Minority investment in subsidiaries 2,000,000 --
Change in cash overdraft -- 29,616
Proceeds from common stock issuance 14,872 (17,400)
Paid-in capital -- 17,402
Purchase of treasury stock -- (45,000)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,082,403 425,121
----------- -----------
The accompanying notes are an integral part
of these financial statements
(Continued)
F-5
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Nine Months Ended September 30,
------------------------------
1997 1996
----------- -----------
INCREASE (DECREASE) IN CASH $ 658,407 $ 114,993
CASH AT BEGINNING OF PERIOD 196,653 36,535
----------- -----------
CASH AT END OF PERIOD $ 855,060 $ 151,529
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 153,580 $ --
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Purchase of medical clinics
Medical assets acquired $(2,260,028) $ --
Goodwill acquired (477,665) --
Accounts payable and accrued liabilities assumed 833,489 --
Note payable 1,894,204 --
Note receivable reduction 10,000 --
Note receivable (346,811) --
Proceeds from sale of assets 346,811 --
----------- -----------
$ -- $ --
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements
F-6
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulations S-X. They do not include all information and notes required by
generally accepted accounting principals for complete financial statements.
However, except as disclosed, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Annual Report on Form 10-KSB of MB Software Corporation for the year
ended December 31, 1996. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1997, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
NOTE 2: ACQUISITION
In February 1997, the Company acquired two medical clinics, one in Utah and one
in Florida. The Utah clinic, Color Country Health Express, Inc., has three (3)
locations; and the Florida clinic, North Florida Physical Medicine Associates,
has two (2) locations.
F-7
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
MB Software Corporation, through its wholly owned subsidiary, Santiago SDS,
Inc., ("Santiago"), remains a leader in the development of state-of-the-art
physician practice management software and provides incidental cash management
resources to physicians, chiropractors and medical billing centers. The Company
continues to maintain a leadership role in this industry with introduction of
innovative software products ahead of competitors and remains one of a limited
number of software developers with practice management conventions available in
a Windows 95 platform.
In order to leverage its existing market share and extend penetration into the
healthcare industry, the Company embarked in 1996 on a strategy which called for
expansion through mergers and acquisition of complementary healthcare entities.
This strategy allows for incremental rollout of its software products and
permits accelerated operational economies of scale in the acquired companies
through uniformity of a software platform and application of standardized
operational procedures of proven efficacy. In each acquired entity, application
of these operational disciplines forms a solid base from which to effect timely
positive operational realignment along with financial consistency that is
necessary for going forward profitability.
On August 5, 1997, the Company and Imagine Investments, Inc. announced formation
of Healthcare Innovations, LLC, a limited liability company, for the purposes of
acquiring and operating healthcare businesses. Imagine, Inc. is a subsidiary of
Stone Investments, which is a subsidiary of Stone Capital, a company with over
$3 billion in assets. The Company will own 51% equity interest in Healthcare
Innovations and contributed its existing healthcare operating businesses to the
new entity.
Additionally, Healthcare Innovations acquired all of the outstanding stock of
Sandy Home Health effective August 1, 1997. The Company previously owned another
healthcare company in St. George, Utah, Color Country Health Express, LLC, which
provides nurse-practitioner services at three clinic sites in southwest Utah.
The acquisition of Sandy Home Health brings the total complement of acquired
companies by Healthcare Innovations to four, situated at seven operational
sites.
The Company has successfully established an Internet Web Site in 1997. Through
Santiago, the Company utilizes Site to launch marketing initiatives, supply
customer information about existing and intended software releases, and provide
an interchange forum for current and prospective buyer information.
Strategic plans developed by Management call for continued refinement of its
operational focus and acquisition of additional targets to form a larger revenue
base that maximizes the potential for greater profit margins. Management
continues to discharge its strategic obligation through effectuation of actions
consistent with these short and long range initiatives.
In accord with its strategic intent, Management further refined the Company's
operational focus through divestiture of Santiago's dental customer install
base. Since this facet of the business represented a minority of users,
Management believed support and development efforts associated with its software
products should be based on its centerpiece medical product, OneClaim Plus.
3
Maximum improvement of products at an accelerated delivery pace should keep the
Company's products ahead of competitors, while allowing for reduced costs and
increased profit margins.
Passage by Congress of the Health Insurance Portability and Accountability Act
(H.I.P.A.A.) in 1996 requires, in part, development and ultimately the use of
electronic data interchange (EDI) for health claims or equivalent encounter
information. These federal mandates bode well for the Company, given its
on-going positioning which has remained consistent with these anticipated
developments. The Company's customer base is being migrated toward this
requirement and should achieve successful conversion long before anticipated
cut-off dates. Moreover, the strong national economy has kept inflation at its
lowest level in decades, thereby fostering both buyer confidence and robust
demand.
Results of Operations
This section discusses the results of operations of the Company and its
subsidiaries for the quarterly period ended September 30, 1997. Since January 1,
1997, the Company has been able to remain profitable, despite extraordinary
expense demands associated with the acquisition and assimilation of three
additional targets during the last 18 months.
In the quarter ended September 30, 1997, revenues improved to $1,611,745, a
137% increase from the $677,534 revenues reported for the same period, 1996.
Over the nine month period ended September 30, 1997, revenues improved to
$3,978,026, an increase of 77% compared with $2,250,076, in revenues posted for
the same period in 1996.
Net income remained profitable for the third quarter ended September 30, 1997,
and for the seventh consecutive quarter; although net income reflected a 700%
decrease from the same period in 1996. The Company demonstrated strong results
and exceeded profit targets in the first and second quarters of 1997, and while
still profitable, the margin of profitability narrowed in the third quarter
ended September 30, 1997. For the nine month period ended September 30, 1997,
the Company suffered a substantial downturn due to increased cost of revenues,
administrative expenses and interest expense over for the same period in 1996.
Cost of revenues and operating expenses for the quarter ended September 30, 1997
increased given the Company's comprehensive efforts to maximize profit margins
through on-going emphasis of its acquisitions programs. Actual costs of revenue
and operating expenses for the third quarter grew 235% to $1,925,725 and were
directly the result of migrating acquired companies into the Company's
operational and corporate culture. Operating expenses also included the
non-recurring costs associated with further enhancement and refinement 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 containment of
operating costs. For the nine month period ended September 30, 1997, costs of
revenue and operating expenses increased 143% to $4,299,733 from $1,768,335 for
the same period in 1996.
Total current liabilities for the quarter ended September 30, 1997 evidenced an
upswing of 256% to $3,254,019. Management maintains a core strategy to reduce
debt and current liabilities in order to grow the company with minimal debt
obligations. This strategy gave way to financial pressures associated with
operational consolidations and the need to maintain high levels of service,
which is reflected, in higher total current liabilities. While the Company moves
to minimize debt, management recognizes that its alliance with Healthcare
Innovations forms a strong base of stability, which long term outcomes should
prove mutually beneficial for each party.
4
Liquidity and Capital Resources
As of September 30, 1997, the Company recorded total assets of $5,320,256 with
current assets of $2,981,065 and property, equipment and other assets of
$2,339,191. Total current liabilities reported September 30, 1997 were
$3,254,019. Net working capital during the period ended September 30, 1997 was
($272,954).
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
Exhibits - All Exhibits were filed as exhibits to the reports on Form 8-K set
forth below.
ITEM 6. Exhibits and reports on form 8-K.
Reports of Form 8-K - Original 8-K was filed on February 6, 1997 and an
Amendment No.1 was filed April 4, 1997. An original 8-K was filed on August 7,
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
Dated: June 30, 1998 /s/ Scott A. Haire
---------------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
5