U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended January 31, 2000.
M.B.A. HOLDINGS, INC.
(Exact name of business issuer as specified in its charter)
Nevada 87-0522680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9419 E. San Salvador, Suite 105
Scottsdale, AZ 85258-5510
(480)-860-2288
(Address of principal executive offices, including telephone number)
Number of Common Stock shares (.001 par value) outstanding at May 31, 2000:
2,011,787
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ] No [X]
<PAGE>
MBA Holdings, Inc
Index
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of January 31, 2000
and October 31, 1999 3
Condensed Consolidated Statements of Income (loss) for the three
months ended January 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for the three
months ended January 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
SIGNATURE 11
2
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M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JANUARY 31, 2000 AND OCTOBER 31, 1999
--------------------------------------------------------------------------------
ASSETS January 31, October 31,
2000 1999
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 3,567,757 $ 3,424,934
Restricted cash 239,173 924,698
Receivables:
Accounts receivable, net of allowance for
doubtful accounts of $19,025 (2000 and 1999) 385,268 386,805
Prepaid expenses and other assets 97,286 109,888
Deferred direct costs 3,519,776 3,182,789
Deferred income tax asset 336,332 284,412
----------- -----------
Total current assets 8,145,592 8,313,526
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PROPERTY AND EQUIPMENT:
Computer equipment 179,608 174,381
Office equipment and furniture 154,533 149,309
Vehicle 16,400 16,400
Leasehold improvements 71,227 69,053
Capitalized software costs 21,865 17,500
----------- -----------
Total property and equipment 443,633 426,643
Accumulated depreciation and amortization (170,683) (154,267)
----------- -----------
Property and equipment - net 272,950 272,376
Deferred direct costs 6,233,099 5,647,160
Deferred income tax asset 554,137 502,216
----------- -----------
TOTAL $15,205,778 $14,735,278
=========== ===========
(Continued)
See notes to condensed consolidated financial statements.
3
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M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JANUARY 31, 2000 AND OCTOBER 31, 1999
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY January 31, October 31,
2000 1999
----------- -----------
CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 2,256,606 $ 2,893,591
Accounts payable and accrued expenses 614,233 597,444
Deferred revenues 4,242,932 3,872,479
Income taxes payable 72,420 94,159
----------- -----------
Total current liabilities 7,186,191 7,457,673
DEFERRED RENT 34,462 32,104
DEFERRED REVENUES 7,460,706 6,832,713
----------- -----------
Total liabilities 14,681,359 14,322,490
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 20,000,000
shares authorized; none issued and outstanding
Common stock, $.001 par value; 80,000,000 shares
authorized; 2,011,787 (2000 and 1999)
shares issued and outstanding 2,012 2,012
Additional paid-in-capital 200,851 200,851
Retained earnings 321,556 209,925
----------- -----------
Total stockholders' equity 524,419 412,788
----------- -----------
TOTAL $15,205,778 $14,735,278
=========== ===========
See notes to condensed consolidated financial statements.
4
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M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
January 31,
-------------------------
2000 1999
----------- -----------
REVENUES:
Vehicle service contract gross income $1,179,430 $ 589,976
Net mechanical breakdown insurance income 570,357 396,265
MBI administrative service revenue 162,057 127,295
---------- ----------
NET REVENUES 1,911,844 1,113,536
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OPERATING EXPENSES:
Direct acquisition costs of vehicle service
contracts 1,115,312 548,346
Salaries and employee benefits 375,409 357,861
Mailings and postage 82,193 69,769
Rent and lease expense 65,943 69,954
Professional fees 42,081 41,762
Telephone 24,623 23,064
Depreciation and amortization 16,416 14,468
Merchant and bank charges 5,219 5,099
Insurance 10,287 4,568
Supplies 10,486 7,117
License and fees 4,170 2,138
Other operating expenses 34,661 30,662
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Total operating expenses 1,786,800 1,174,808
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OPERATING INCOME (LOSS) 125,044 (61,272)
OTHER INCOME - NET 61,007 24,603
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 186,051 (36,669)
INCOME TAXES 74,420 (14,666)
---------- ----------
NET INCOME (LOSS) $ 111,631 $ (22,003)
========== ==========
BASIC NET INCOME (LOSS) PER SHARE $ 0.06 $ (0.01)
========== ==========
DILUTED NET INCOME PER SHARE $ 0.05 $ (0.01)
========== ==========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 2,011,787 2,005,121
========== ==========
AVERAGE NUMBER OF COMMON AND DILUTIVE SHARES
OUTSTANDING 2,093,134 2,005,121
========== ==========
See notes to condensed consolidated financial statements.
5
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M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31,
-----------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 111,631 $ (22,003)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 16,416 14,468
Deferred income taxes (103,841) (85,666)
Changes in assets and liabilities:
Restricted cash 685,525 (71,874)
Accounts receivable 1,537 19,608
Receivable from affiliated entities (10,720)
Prepaid expenses and other assets 12,602 (29,388)
Deferred direct costs (922,926) (949,028)
Net premiums payable to insurance companies (636,985) 443,905
Accounts payable and accrued expenses 16,789 (130,854)
Accounts payable to affiliated entities 70,384
Income taxes payable (21,739) 11,000
Deferred rent 2,358 9,631
Deferred revenues 998,446 1,079,694
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Net cash provided by operating activities 159,813 349,157
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,990) (9,445)
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Net cash used in investing activities (16,990) (9,445)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 142,823 339,712
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,424,934 1,914,001
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,567,757 $ 2,253,713
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 125 $ 159
=========== ===========
Cash paid for income taxes $ 200,000 $ 60,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
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M.B.A. HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
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1. BASIS OF PRESENTATION
In accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X, the accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, not all of the information and notes
required by generally accepted accounting principles for complete financial
statements are included. The unaudited interim financial statements furnished
herein reflect all adjustments (which include only normal, recurring
adjustments), in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. Operating results for the three
months ended January 31, 2000 may not be indicative of the results that may be
expected for the year ending October 31, 2000. For further information , please
refer to the consolidated financial statements and notes thereto included in the
Company's Form 10K/A for the year ended October 31, 1999.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with SFAS No. 128,
EARNINGS PER SHARE which requires dual presentation of BASIC and DILUTED EPS on
the face of the statements of income and requires a reconciliation of the
numerator and denominator of basic and diluted EPS calculations. Basic income
per common share is computed on the weighted average number of shares of common
stock outstanding during each period. Income per common share assuming dilution
is computed on the weighted average number of shares of common stock outstanding
plus additional shares representing the exercise of outstanding common stock
options using the treasury stock method. Below is the reconciliation required by
SFAS No. 128.
NUMBER OF SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE
Three Months Ended
January 31,
2000 1999
--------- ---------
Average number of common shares outstanding - Basic 2,011,787 2,005,121
Dilutive shares from common stock options calculated
using the treasury stock method 81,347 --
--------- ---------
Average number of common and dilutive shares outstanding 2,093,134 2,005,121
========= =========
3. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits that arise in the ordinary course
of business, consisting principally of alleged errors and omissions in
connection with the sale of insurance and personnel matters. On the basis of
information presently available, management does not believe the settlement of
any such claims or lawsuits will have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and footnotes that appear elsewhere in this report.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
Total revenues for the quarter ended January 31, 2000 totaled approximately
$1,912,000, an increase of $798,000 from net revenues of $1,114,000 for the
quarter ended January 31, 1999. The increase in revenues is primarily due to the
number of contracts sold during the quarter ended January 31, 2000 of 8,224
which is an increase of 1,244 from 6,980 contracts sold during the quarter ended
January 31, 1999.
Operating income increased by $186,000 to $125,000 for the quarter ended January
31, 2000, from an operating loss of $61,000 for the quarter ended January 31,
1999. The increase is due to the increase in sales during the quarter ended
January 31, 2000 compared to the quarter ended January 31, 1999, partially
offset by an increase in direct costs of $567,000 from $548,000 to $1,115,000.
Direct costs are premiums to insurers and broker commissions relating to VSC
sales. The Company did not start selling VSCs until fiscal 1998. Therefore, at
January 31, 2000 there were two years of previously deferred direct costs being
amortized to expense compared to only one year of previously deferred direct
costs being amortized to expense in 1999.
Total operating expenses including direct vehicle service contract costs were
$1,787,000 for the quarter ended January 31, 2000, compared to $1,175,000 for
the quarter ended January 31, 1999. In addition to the increases in direct
vehicle service contract costs, there were increases in salaries and employee
benefits and mailings and postage, as a result of the increase in sales volume.
As a percentage of net revenues, operating expenses were 93.5 percent for the
quarter ended January 31, 2000, compared to 105.5 percent for the quarter ended
January 31, 1999. The improvement in the margin was attributable to the greater
increase in revenues relative to the corresponding increases in operating costs.
Total other income increased by $36,000 from $25,000 for the quarter ended
January 31, 1999 to $61,000 for the quarter ended January 31, 2000. The increase
was primarily from a $30,000 increase in interest income due to greater amounts
of cash and cash equivalents available for investment during the period.
Net income for the quarter ended January 31, 2000 was $112,000 compared to a net
loss for the quarter ended January 31, 1999 of $22,000, which is a result of the
foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
COMPARISON OF JANUARY 31, 2000 AND OCTOBER 31, 1999
Working capital at January 31, 2000 consisted of current assets of $8,146,000
and current liabilities of $7,186,000, or a current ratio of 1.13:1. At October
31, 1999, the current ratio was 1.11:1 with current assets of $8,314,000 and
current liabilities of $7,458,000.
As of January 31, 2000, the Company's cash position decreased to $3,807,000 from
$4,350,000 at October 31, 1999. Of the $3,807,000, $239,000 is classified as
restricted cash; there was $925,000 of restricted cash at October 31, 1999. The
largest component of the restricted cash represented claims payment advances
provided by insurance companies. This enables the Company to make claims
payments on behalf of the insurance companies. The decrease in cash is due to
the timing of when the Company receives cash from the insurance companies for
claims payments.
8
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Deferred direct costs, including both the current and non-current portions,
increased by $923,000 to $9,753,000 at January 31, 2000 from $8,830,000 at
October 31, 1999. Direct costs are costs that are directly related to the sale
of VSCs. These costs are deferred in the same proportion as VSC revenue. The
Company started selling VSCs in 1998. Therefore, the increase in the costs is
due to an increase in VSC sales over the last two years.
The Company collects funds throughout the year and remits a portion of the funds
to the insurance companies. As of January 31, 2000, the amount owed to the
insurance companies decreased to $2,257,000 from $2,894,000 at October 31, 1999,
which is due to the timing of payments remitted to the insurance companies.
Deferred revenues, including both the current and non-current portions,
increased by $999,000 to $11,704,000 at January 31, 2000 from $10,705,000 at
October 31, 1999. Deferred revenue consists of VSC gross sales and estimated
administrative service fees relating to the sales of MBI policies. The increase
is primarily due to the Company beginning to sell VSCs in 1998. Therefore, the
increase in the deferred revenue is due to an increase in VSC sales over the
last two years. Additionally, MBI sales have increased over the last five years.
The Company is not operating with a working capital line of credit from any
facility or using any other debt instrument. The Company's ability to fund its
operations over the short-term is not hindered by lack of short-term financing.
The Company uses premiums received to pay agent commissions and fund operations
and claims payment advances provided by insurance companies to administer and
pay claims. The Company believes its current working capital plus future cash
flows from operations will be sufficient to meet cash requirements for the
foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Company does not underwrite its own policies, a change in the current
rates of inflation or hyperinflation is not expected to have a material effect
on the Company. However, the precise effect of inflation on operations can not
be determined.
The Company does not have any outstanding debt or long-term receivables.
Therefore, it is not subject to significant interest rate risk.
9
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to claims and lawsuits that arise in the ordinary course
of business, consisting principally of alleged errors and omissions in
connection with the sale of insurance and personnel matters. On the basis of
information presently available, management does not believe the settlement of
any such claims or lawsuits will have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
10
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereto duly authorized.
MBA Holdings, Inc.
By: /s/ Gaylen Brotherson Dated: June 14, 2000
----------------------------- --------------
Gaylen Brotherson
Chairman of the Board and
Chief Executive Officer
By: /s/ Michael J. Zimmerman Dated: June 14, 2000
----------------------------- --------------
Michael J. Zimmerman,
Chief Financial Officer
11
