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 April 30, 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 Identification No.)
Incorporation or organization)
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 [X] No [ ]
<PAGE>
MBA Holdings, Inc
Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of April 30, 2000
and October 31, 1999 3
Condensed Consolidated Statements of Income for the three
and six months ended April 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for the
six months ended April 30, 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 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
SIGNATURES 11
2
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M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
APRIL 30, 2000 AND OCTOBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,307,004 $ 3,424,934
Restricted cash 646,268 924,698
Investments (Note 4) 473,326
Receivables:
Accounts receivable, net of allowance for
doubtful accounts of $19,025 (2000 and 1999) 425,559 386,805
Prepaid expenses and other assets 98,241 109,888
Deferred direct costs 3,892,506 3,182,789
Deferred income tax asset 352,622 284,412
------------ ------------
Total current assets 8,195,526 8,313,526
------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 179,923 174,381
Office equipment and furniture 157,658 149,309
Vehicle 16,400 16,400
Leasehold improvements 71,227 69,053
Capitalized software costs 25,105 17,500
------------ ------------
Total property and equipment 450,313 426,643
Accumulated depreciation and amortization (192,979) (154,267)
------------ ------------
Property and equipment - net 257,334 272,376
Deferred direct costs 6,881,592 5,647,160
Deferred income tax asset 570,427 502,216
------------ ------------
TOTAL $ 15,904,879 $ 14,735,278
============ ============
</TABLE>
See notes to condensed consolidated financial statements. (Continued)
3
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
APRIL 30, 2000 AND OCTOBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 1,869,830 $ 2,893,591
Accounts payable and accrued expenses 570,142 597,444
Deferred revenues 4,654,113 3,872,479
Income taxes payable 35,750 94,159
----------- -----------
Total current liabilities 7,129,835 7,457,673
DEFERRED RENT 36,820 32,104
DEFERRED REVENUES 8,161,867 6,832,713
----------- -----------
Total liabilities 15,328,522 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 373,494 209,925
----------- -----------
Total stockholders' equity 576,357 412,788
----------- -----------
TOTAL $15,904,879 $14,735,278
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE AND SIX MONTHS ENDED APRIL 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30, SIX MONTHS ENDED APRIL 30,
---------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Vehicle service contract gross income $ 1,249,072 $ 373,194 $ 2,428,502 $ 963,170
Net mechanical breakdown insurance income 601,759 683,290 1,172,116 1,079,555
MBI administrative service revenue 164,250 140,305 326,307 267,600
----------- ----------- ----------- -----------
NET REVENUES 2,015,081 1,196,789 3,926,925 2,310,325
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Direct acquisition costs of vehicle
service contracts 1,185,335 472,570 2,300,647 1,020,916
Salaries and employee benefits 455,536 363,185 830,945 721,046
Mailings and postage 96,406 84,648 178,599 154,417
Rent and lease expense 73,738 61,022 139,681 130,976
Professional fees 43,748 30,029 85,829 71,791
Telephone 20,580 33,449 45,203 56,513
Depreciation and amortization 22,296 23,703 38,712 38,171
Merchant and bank charges 5,548 6,442 10,767 11,541
Insurance 8,430 3,550 18,717 8,118
Supplies 8,403 13,195 18,889 20,312
License and fees 6,080 2,160 10,250 4,298
Other operating expenses 50,934 52,769 85,595 83,431
----------- ----------- ----------- -----------
Total operating expenses 1,977,034 1,146,722 3,763,834 2,321,530
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 38,047 50,067 163,091 (11,205)
Finance fee income 15,162 10,152 30,869 18,505
Interest income 34,896 26,730 81,315 43,617
Interest expense (373) -- (763) --
Other expense (45) (1,605) (774) (2,242)
----------- ----------- ----------- -----------
Total other income 49,640 35,277 110,647 59,880
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 87,687 85,344 273,738 48,675
INCOME TAXES 35,750 34,136 110,170 19,470
----------- ----------- ----------- -----------
NET INCOME $ 51,937 $ 51,208 $ 163,568 $ 29,205
=========== =========== =========== ===========
BASIC NET INCOME PER SHARE $ 0.03 $ 0.03 $ 0.08 $ 0.01
=========== =========== =========== ===========
DILUTED NET INCOME PER SHARE $ 0.02 $ 0.02 $ 0.08 $ 0.01
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 2,011,787 2,005,121 2,011,787 2,005,121
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON AND DILUTIVE
SHARES OUTSTANDING 2,116,487 2,081,789 2,136,025 2,076,656
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED APRIL 30, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
-------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 163,568 $ 29,205
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 38,712 38,171
Gain on sale of equipment -- (4,342)
Deferred income taxes (136,421) (117,530)
Changes in assets and liabilities:
Restricted cash 278,430 (174,886)
Accounts receivable (38,754) 44,284
Receivable from affiliated entities -- (14,836)
Prepaid expenses and other assets 11,647 (7,123)
Deferred direct costs (1,944,149) (1,544,709)
Net premiums payable to insurance companies (1,023,761) 1,107,950
Accounts payable and accrued expenses (27,301) (72,353)
Accounts payable to affiliated entities -- 66,575
Income taxes payable (58,409) (49,000)
Deferred rent 4,716 9,631
Deferred revenues 2,110,788 1,763,637
----------- -----------
Net cash provided by (used in) operating activities (620,934) 1,074,674
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,670) (22,886)
Proceeds from sale or disposal of property and equipment -- 7,000
Purchase of marketable securities, net (473,326) --
----------- -----------
Net cash used in investing activities (496,996) (15,886)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,117,930) 1,058,788
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,424,934 1,914,001
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,307,004 $ 2,972,789
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,633 $ 1,888
=========== ===========
Cash paid for income taxes $ 305,000 $ 186,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED APRIL 30, 2000 AND 1999
--------------------------------------------------------------------------------
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 and six months ended April 30, 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 PER SHARE
Net income 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES USED IN COMPUTING INCOME PER SHARE
Three Months Ended April 30,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
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 104,700 76,668
--------- ---------
Average number of common and dilutive shares outstanding 2,116,487 2,081,789
========= =========
NUMBER OF SHARES USED IN COMPUTING INCOME PER SHARE
Six Months Ended April 30,
--------------------------
2000 1999
--------- ---------
Average number of common shares outstanding - Basic 2,011,787 2,005,121
Dilutive shares from common stock options calculatedU
using the treasury stock method 124,238 71,535
--------- ---------
Average number of common and dilutive shares outstanding 2,136,025 2,076,656
========= =========
</TABLE>
7
<PAGE>
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.
4. INVESTMENTS
All of the Company's investments are classified as available for sale. At April
30, 2000, cost approximates market value.
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 THE THREE MONTHS ENDED APRIL 30, 2000 AND 1999
Total revenues for the quarter ended April 30, 2000 totaled approximately
$2,015,000, an increase of $818,000 from net revenues of $1,197,000 for the
quarter ended April 30, 1999. The increase in revenues is primarily due to the
increase in vehicle service contracts sold. Vehicle service contracts are
contracts where the Company is the original obligor. Therefore, they are
required to be reported at the gross sales price. The direct acquisition costs
of vehicle service contracts, which would be premiums paid to the insurance
companies and agent commissions, are reported as operating expenses.
Operating income decreased by $12,000 to $38,000 for the quarter ended April 30,
2000, from $50,000 for the quarter ended April 30, 1999. The decrease is due to
an increase in salaries and wages from additional employees being employed by
the Company. This increase is offset by an increase in sales during the quarter
ended April 30, 2000 compared to the quarter ended April 30, 1999, partially
offset by an increase in direct costs of $712,000 from $473,000 to $1,185,000.
Total operating expenses including direct vehicle service contract costs were
$1,977,000 for the quarter ended April 30, 2000, compared to $1,147,000 for the
quarter ended April 30, 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.
Total other income increased by $15,000 from $35,000 for the quarter ended April
30, 1999 to $50,000 for the quarter ended April 30, 2000. The increase was
primarily from an $8,000 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 April 30, 2000 was $52,000 compared $51,000 for
the quarter ended April 30, 1999, which is a result of the foregoing factors.
COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 2000 AND 1999
Total revenues for the six months ended April 30, 2000 totaled approximately
$3,927,000, an increase of $1,617,000 from net revenues of $2,310,000 for the
six months ended April 30, 1999. The increase in revenues is primarily due to
the increase in vehicle service contracts sold.
Operating income increased by $174,000 to $163,000 for the six months ended
April 30, 2000, from an operating loss of $11,000 for the six months ended April
30, 1999. The increase is due to the increase in sales during the six months
ended April 30, 2000 compared to the six months ended April 30, 1999, partially
offset by an increase in direct costs of $1,280,000 from $1,021,000 to
$2,301,000. The Company did not start selling VSCs until fiscal 1998. Therefore,
at April 30, 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.
8
<PAGE>
Total operating expenses including direct vehicle service contract costs were
$3,764,000 for the six months ended April 30, 2000, compared to $2,322,000 for
the six months ended April 30, 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.
Total other income increased by $51,000 from $60,000 for the six months ended
April 30, 1999 to $111,000 for the six months ended April 30, 2000. The increase
is primarily due to an increase in interest income due to greater amounts of
cash and cash equivalents available for investment during the period.
Net income for the six months ended April 30, 2000 was $164,000 compared $29,000
for the six months ended April 30, 1999, which is a result of the foregoing
factors.
LIQUIDITY AND CAPITAL RESOURCES
COMPARISON OF APRIL 30, 2000 AND OCTOBER 31, 1999
Working capital at April 30, 2000 consisted of current assets of $8,196,000 and
current liabilities of $7,130,000, or a current ratio of 1.15:1. 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 April 30, 2000, the Company's cash position decreased to $2,953,000 from
$4,350,000 at October 31, 1999. Of the $2,953,000, $646,000 is classified as
restricted cash; there was $925,000 of restricted cash at October 31, 1999. The
largest component of the restricted cash represents 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. In addition, at April 30, 2000 $473,000 was invested by the
Company in US treasury bonds and certificates of deposit. There was no such
investments at October 31, 1999.
Deferred direct costs, including both the current and non-current portions,
increased by $1,994,000 to $10,774,000 at April 30, 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 April 30, 2000, the amount owed to the
insurance companies decreased to $1,870,000 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 $2,111,000 to $12,816,000 at April 30, 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 primarily 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.
9
<PAGE>
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.
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
<PAGE>
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 16, 2000
------------------------------- --------------------
Gaylen Brotherson
Chairman of the Board and Chief Executive Officer
By: /s/ Michael J. Zimmerman Dated: June 16, 2000
------------------------------- --------------------
Michael J. Zimmerman,
Chief Financial Officer
10
