U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended October 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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)
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [ ] No [X]
The issuer's revenues for its most recent fiscal year ended October 31, 1999
were $5,597,524. The aggregate market value of the voting stock held by
non-affiliates of the issuer, based on the average high and low prices of such
stock on May 31, 2000, as reported on NASDAQ, was $5,029,468 As of May 31, 2000,
there were 2,011,787 shares of the issuer's common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically incorporated by
reference in the indicated part of this Annual Report on Form 10: None
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PART I
ITEM 1. BUSINESS
MBA Holdings, Inc. (the "Company"), through its wholly-owned subsidiary,
Mechanical Breakdown Administrators, Inc., markets and administers mechanical
breakdown insurance ("MBI") policies and sells and services vehicle service
contracts ("VSCs"). The MBI policies and VSCs relate to automobiles, light
trucks, recreational vehicles and automotive components.
On May 9, 1989, the principals of the Company organized under the name
Mechanical Breakdown Administrators, Inc. ("MBA"). During November 1995, MBA and
Brixen Enterprises, Inc. ("Brixen") merged in a stock exchange with the MBA
shareholders retaining control of the merged company. Brixen had been an
inactive publicly-held shell corporation prior to the November 1995 transaction.
Subsequent to the merger, Brixen changed its name to M.B.A. Holdings, Inc. and
its legal domicile from Utah to Nevada.
MECHANICAL BREAKDOWN INSURANCE
The Company contracts with insurance companies to act as an agent to sell MBI
policies issued by the insurance companies. The Company provides marketing
services, arranges for sub-agents to also sell the policies and subsequently
provides independent third-party administrative claims services (claims
adjudication, cancellation processing, call center services and technical
computer services) on MBI policies sold by the Company or its sub-agents. The
MBI policies are between the insurance companies and the consumer (purchaser).
The insurance company is responsible for the costs of claims submitted under the
terms of the insurance policy. The Company acts only as a sales agent and a
third party administrator. The Company currently has agency and servicing
agreements with American Bankers Insurance Group of Florida and American Modern
Home Insurance Company. In prior years, the Company also contracted with New
Hampshire Insurance Company and with other American International Group, Inc.
("AIG") members.
The sales of MBI policies are primarily accomplished through sub-agents, such as
financial institutions, and by the Company through direct mail solicitations,
magazine advertisements and phone solicitations. The terms of the MBI policies
range from twelve (12) to eighty-four (84) months and also may have mileage
limitations. Actual repairs or replacements covered by the policies are
performed by independent third party authorized repair facilities. The costs of
such repairs remain the responsibility of the insurance company that provided
the MBI policy.
For MBI policies, the policy premium has been established by the insurance
companies and agreed to by the Company and insurance regulators. In general,
when an MBI policy is sold, approximately 51% of the premium is retained by the
insurance company, approximately 20%-36% of the premium is paid to the sub-agent
(if applicable), and the remainder is paid to the Company as sales commission
and for providing administrative claims services.
For the three months ended January 31, 2000 and for the years ended October 31,
1999, 1998 and 1997, the net revenues related to sales and servicing of MBI
policies represented approximately 92%, 96%, 99% and 100%, respectively, of the
Company's net revenues less direct acquisition costs of vehicle service
contracts.
VEHICLE SERVICE CONTRACTS
The Company markets and administers VSC programs which enhance the profitability
of the sale of automobiles, light trucks, recreational vehicles and automotive
components. These products are sold principally through franchised and
independent automobile dealers. The VSC is a contract between the Company and
the consumer (purchaser) that offers coverages ranging from twelve (12) to
eighty-four (84) months and or mileage limitations ranging from 1,000 to
100,000. The coverage is for a broad range of possible failures of mechanical
components that may occur during the term of the VSC, exclusive of failures
covered by a manufacturers warranty. The Company is primarily responsible for
the administration of the contract and related claims during the life of the
contract.
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Before a VSC is issued, the Company has contracted with insurance companies to
assume the liability in return for the payment of the agreed-upon premium. This
coverage provides indemnification to the Company against loss resulting from
service contract claims. The insurance protection is provided by highly rated
independent insurance companies. This includes American Bankers Insurance Group
and American Modern Home Insurance Co which are rated A - (Excellent) by A.M.
Best Company. Other programs are insured by New Hampshire Insurance Company, and
other AIG member companies which is rated A++ (Superior) by the A.M. Best
Company.
For the three months ended January 31, 2000 and the years ended October 31,
1999, 1998 and 1997, the net revenues less direct acquisition costs of vehicle
service contracts related to sales and servicing of VSCs represented
approximately 8%, 4%, 1% and 0%, respectively, of the Company's net revenues
less direct acquisition costs of vehicle service contracts.
MBIs AND VSCs
The number of financial institutions, automobile dealers, and recreational
vehicle and travel trailer dealers offering the Company's MBI or VSC programs
has grown from 1997 through January 31, 2000 to approximately 600.
Essential to the success of the Company is its ability to capture, maintain,
track and analyze all relevant data regarding an MBI policy or VSC. To support
this function, the Company operates proprietary software developed internally
that consists of custom designed relational databases with interactive
capabilities. This system provides ample capacity and processing speed for
current requirements as well as the ability to support significant future growth
in this area.
SIGNIFICANT CUSTOMERS
The Company does not have any significant customers. The loss of any single
customer would not have a material impact on operating results.
COMPETITION
M.B.A. Holdings, Inc. competes with a number of independent administrators,
divisions of distributors and manufacturers, financial institutions and
insurance companies. While the Company believes that it occupies a strong
position among competitors in its field, it is not the largest marketer and
administrator of MBIs and VSCs. Some competitors have greater operating
experience, more employees and/or greater financial resources. Further, many
manufacturers of motor vehicles market and administer their own VSC programs for
and through their dealers.
SALES AND MARKETING
The Company maintains its own sales and marketing personnel. Sales training and
motivational programs are a primary form of specialized assistance provided by
the Company to retailers/dealers and financial institutions, to assist them in
increasing the effectiveness and profitability of their MBI and VSC program
sales efforts. The Company develops materials and conducts educational seminars.
These seminars are conducted either at the client's place of business or an
offsite facility.
The Company also direct markets to the consumer through direct mail campaigns.
The direct marketing campaigns generate sales by obtaining a list of recent car
sales through various list services. This list is uploaded into the Company's
state-of-the-art direct mailing computer system. This system generates different
policy and premium options for the car purchased. The potential customer can
send in the premium via the U.S. mail or call the MBA sales support staff on a
toll free number and pay by a major credit card.
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The MBI program is an insurance product between the insurance company and the
customer. The Company acts as an independent sales agent and administrator of
the MBI policies. From inception of the policy, the obligation to perform under
the policy is the obligation of the insurance company.
In accordance with the insurance arrangements with these insurers, a fixed
amount is remitted for each MBI or VSC sold. The amount is set by the insurance
companies and is based upon actuarial analysis of data collected and maintained
for each type of coverage and contract term. The insurer is obligated to pay all
the claims which fall under the policy even if the claims exceed the premium.
Some contracts between the Company and the insurer contain agreements that allow
the Company to share in the profits earned by the programs. The Company did not
accrue or receive any profit sharing amounts for the years ended October 31,
1999, 1998 and 1997 or for the first quarter ended January 31, 2000.
The number of policies and contracts sold for the periods indicated are noted
below:
Number of
Time Period Policies & Contracts
----------- --------------------
For the three months ended January 31, 2000 8,224
For the twelve months ended October 31, 1999 34,858
For the twelve months ended October 31, 1998 36,477
For the twelve months ended October 31, 1997 27,000
This increase from 1997 to 1998 is reflected in the increase in gross revenue
and net income. The majority of the increase was due to additional sales from
the Company's concerted effort to expand into the VSC and MBI policy credit
union niche. The Company will continue to look for ways to increase sales.
Currently, the Company is in the process of exploring strategic relations with
other highly rated insurance companies regarding different motorized machinery;
such as boats and motorcycles.
FEDERAL AND STATE REGULATION
The MBI and VSC programs developed and marketed by the Company, are regulated by
federal law and the statutes of a significant number of states. VSCs are
contracts sold from car dealerships and the like and are considered to be part
of the car buying process instead of an insurance product. MBIs are insurance
policies sold by independent agents through non-auto dealer entities, such as
credit unions or by direct mail through the Company. The Company continually
reviews all existing and proposed statutes and regulations to ascertain their
applicability to its existing operations, as well as new programs that are
developed by the Company. Generally speaking, these statutes concern the scope
of the MBI and VSC coverage and content of the MBI or VSC document. In such
instances, the state statute will require that specific wording be included in
the MBI or VSC expressly stating the consumer's rights in the event of a claim,
and how the service contract may be canceled. Also, on the MBI policy is the
name of the insurance company that issues the policy and on a VSC is the name of
the insurance company that underwrites the policy. This identification on the
policy and contract identifies the insurance company that indemnifies the
customer, dealers, financial institution, or the Company against loss for
performance under the terms of the contract.
Insurance departments in some states have sought to interpret the VSC or certain
items covered under the contract as a form of insurance, requiring that the
issuer be a duly licensed and chartered insurance company. These efforts to
interpret VSCs as a form of insurance have not been successful in any state at
this time. Currently, all MBI products are considered insurance and either the
Company or its principals are duly licensed in all states in which the Company
operates.
The Company or its principals are licensed in the following states: Alabama,
Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont,
Washington, West Virginia, Wisconsin, and Wyoming.
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Since all the MBI policies and VSCs are issued or assumed, respectively, by
highly rated insurance companies according to A.M. Best, the Company does not
believe that they are insurers and have no intention of filing the documents and
meeting the capital and surplus requirements that are necessary to obtain such a
license. There are instances where the applicability of statutes and regulations
to programs marketed and administered by the Company and compliance therewith,
involve issues of interpretation. The Company uses its best efforts to comply
with applicable statutes and regulations but it cannot assure that its
interpretations, if challenged, would be upheld by a court or regulatory body.
In any situation in which the Company has been specifically notified by any
regulatory bodies that its methods of doing business were not in compliance with
state regulation, the Company has taken the steps necessary to comply. If the
Company's right to operate in any state is challenged successfully, the Company
may be required to cease operations in the state and the state might also impose
financial sanctions against the Company. These actions, should they occur, could
have materially adverse consequences and could affect the Company's ability to
continue operating. However, within the framework of currently known statutes,
the Company does not believe that this is a present concern.
EMPLOYEES
The Company and its subsidiary employ approximately fifty individuals at January
31, 2000 and October 31, 1999, an increase of approximately ten over the year
ended October 31, 1998. The increase is due to the expansion of customer service
and claims representatives to meet the needs of the Company's expanding
business. Total number of external sales force equals three. These people train
the insurance agent or representative at the financial institution, dealership,
or other sales venue. Internally, there are approximately eight people who
handle product inquiries that may result in sales. The rest of the staff is
located in the following departments: claims, customer service, data entry,
information systems, finance, administration. None of the Company's employees
are covered by a collective bargaining agreement. The Company considers its
relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's executive offices are located in leased premises at 9419 E. San
Salvador, Suite 105, Scottsdale, Arizona. The premises, pursuant to a lease
agreement (the "Lease"), consist of approximately 16,750 square feet. The lease
expired on December 31, 1998. The Company has signed a new lease (the "New
Lease") in the same office space with total square footage equal to 19,750. The
New Lease, which commenced on January 1, 1999 and expires on December 31, 2003,
provides for annual base rent payments ranging from $212,000 to $276,000.
The premises are owned by an affiliated entity named Cactus Partnership. The
partners in Cactus Partnership are Gaylen Brotherson, the CEO of the Company,
and Judy Brotherson, the Vice-President of the Company. All lease negotiations
are made at fair market value between Cactus Partnership and the Company based
on leases with other occupants of the building (See Item 7 Certain Relationships
and Related Transactions).
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been reported in NASDAQ, and currently is
reported on NASDAQ's OTC: BB under the trading symbol "MBAI". The number of
shareholders of record of the Company's common stock as of October 31, 1999 was
186. As of October 31, 1999, there were 2,011,787 common shares outstanding. On
that date, the closing bid price for the Company's common stock, as reported by
NASDAQ was $2.75. The following is a summary of the price range of the Company's
common stock during its 1999 and 1998 fiscal years:
Common Stock High Low Bid
------------ ---- -------
Quarter of Fiscal 2000
First $ 5.00 $ 2.75
Quarter of Fiscal 1999
First 2.00 1.88
Second 2.75 1.75
Third 2.50 2.00
Fourth 3.50 2.50
Quarter of Fiscal 1998
First 5.00 3.00
Second 5.00 1.25
Third 3.25 1.25
Fourth 2.75 1.25
The Company has never paid cash dividends on any shares of its common stock, and
the Company's Board of Directors intends to continue this policy for the
foreseeable future. Earnings, if any, will be used to finance the development
and expansion of the Company's business. Future dividend policy will depend upon
the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Company's Board of Directors.
During the first quarter of 2000, the Company did not issue any unregistered
securities.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996
Fiscal Year Ended October 31, 1999(A) 1998(A) 1997(A) As Restated 1995
----------------------------- -------- ------- -------- ----------- ----
<S> <C> <C> <C> <C> <C>
Net revenues $ 5,597,524 $3,289,477 $1,623,561 $ 595,553 $338,982
Net income 148,016 13,771 46,386 1,752 348,673
Net income per common share .07 0.01 0.02 0.00 N/A
Total assets 14,735,278 6,717,801 2,346,943 1,588,897 693,373
Long-term obligation and redeemable
preferred stock -- -- -- -- 73,880
Cash dividends declared per common share -- -- -- -- --
Three Months Ended January 31, 2000 1999
------------------------------ ---- ----
Net revenues 1,911,844 1,113,536
Net income (loss) 111,631 (22,003)
Net income (loss) per common share .06 (.01)
Total assets 15,205,778 8,179,558
Long-term obligation and redeemable preferred stock -- --
Cash dividends declared per common share -- --
</TABLE>
----------
(A) Subsequent to the original issuance of the Company's consolidated financial
statements for the year ended October 31, 1998, management determined that
revenue from VSCs, and the portion of revenue from MBI policies associated
with administering future claims, should be deferred and recognized in
income on a straight-line basis over the estimated life of the contract or
policy; that costs directly related to the acquisition of the contract or
policy that would not have been incurred but for the acquisition of that
contract or policy (incremental direct acquisition costs) should be
deferred and charged to expense in proportion to the revenue recognized;
and that all other costs should be charged to expense as incurred.
Previously, the Company recognized revenue on MBI policies and VSCs at the
time of sale and accrued the estimated future costs associated with
administering claims. As a result, the Company's 1998 financial statements
were restated from amounts previously reported to correct the accounting
for these items. The effect on the 1997 financial statements was not
considered significant.
Subsequent to the issuance of the Company's consolidated financial statements
for the year ended October 31, 1999, management determined that the actual
contract life, rather than the average life, should be used for amortization of
deferred revenue and that the gross amount of revenue associated with
administering future claims, rather than the net amount, should be deferred and
recognized as income over the actual contract lives. In addition, management
determined that direct acquisition costs of VSCs should be presented as an
operating expense. Previously, these costs were included and presented as an
offset to revenues from VSCs. As a result, the Company's 1999, 1998 and 1997
financial statements have been restated from amounts previously reported to
correct the accounting for these items.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
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.
COMPARISON OF FISCAL YEAR 1999 AND FISCAL YEAR 1998
Net revenues for the year ended October 31, 1999 totaled $5,598,000, an increase
of $2,309,000 from net revenues of $3,289,000 for the year ended October 31,
1998. The number of contracts sold of 34,858 for the year ended October 31, 1999
decreased from the number of contracts sold of 36,477 for the year ended October
31, 1998. The increase in net revenues is due to an increase of approximately
30% in premiums charged by the insurance companies that occurred in April 1998.
Operating income increased by $98,000 to $92,000 for the year ended October 31,
1999, from a loss of $6,000 for the year ended October 31, 1998. The Company did
not start selling VSCs until fiscal 1998. Therefore, at October 31, 1999 there
were two years of previously deferred direct costs amortized to expense compared
to only one year of previously deferred direct costs being amortized to expense
in 1998. This increase is offset by additional mailings and postage associated
with the direct mail program performed by the Company. These costs totaled
$441,000, or 7.9 percent of net revenues, for the year ended October 31, 1999.
This is an increase from $282,000, or 8.6 percent of net revenues, for the
comparable period ended October 31, 1998. The Company purchased additional
printers which increased its capacity to produce direct mailing materials. The
new printers were not available for all of the year ended October 31, 1998 while
they were being used for the entire year ended October 31, 1999. In addition,
the increase in mailings and the increase in policies sold over the last couple
of years have increased telephone usage as policy holders and potential
customers use the Company's toll free line for inquiries.
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Total operating expenses including mailings and postage were $5,506,000 for the
year ended October 31, 1999, compared to $3,296,000 for the year ended October
31, 1998. As a percentage of net revenues, operating expenses were 98 percent
for the year ended October 31, 1999, compared to 100.2 percent for the year
ended October 31, 1998. The increase in expenses is due to an increase in the
direct costs associated with the increase in VSC sales and additional direct
mailing materials, as noted above. Also, the increase in policies sold over the
last three years has increased the number of phone calls received by the
Company. Telephone expense increased from $81,000 in 1998 to $149,000 in 1999.
These items have accounted for the increase in general and administrative
expense.
Net income for the year ended October 31, 1999 was $148,000, compared to net
income for the year ended October 31, 1998 of $14,000, which is a result of the
foregoing factors.
COMPARISON OF FISCAL YEAR 1998 AND FISCAL YEAR 1997
Net revenues for the fiscal year ended October 31, 1998 totaled $3,289,000, an
increase of $1,665,000 from net revenues of $1,624,000 for the fiscal year ended
October 31, 1997. This increase is consistent with the increase in the number of
policies sold in fiscal 1998 versus fiscal 1997. In 1998 and 1997, there were
36,477 and 27,000 policies sold, respectively. The increase is due to an
increase in the credit union and direct mail number of policies sold.
Operating loss decreased by $85,000 to a loss of $6,000 for the fiscal year
ended October 31, 1998, from a loss of $91,000 for the fiscal year ended October
31, 1997. This decrease in operating loss is due to additional sales in 1998 and
a higher percentage of a reversal of previously deferred revenue against the
current year deferral of revenue. In addition, there was a 10% rate increase
that occurred in 1998 that resulted in higher net revenues.
Mailings and postage associated with the direct mail product totaled $282,000,
or 8.6 percent of net revenue, for the fiscal year ended October 31, 1998, an
increase from $249,000, or 15.3 percent of net revenue, for the comparable
period ended October 31, 1997. This $33,000 increase was attributable primarily
to an increase in mailings during 1998 as the Company purchased additional
printers which increased its capacity to produce direct mailing materials.
Total operating expenses including selling expenses were $3,296,000 for the
fiscal year ended October 31, 1998, compared to $1,714,000 for the fiscal year
ended October 31, 1997. The increase in expenses is due to an increase in the
direct costs associated with the increase in VSC sales. As a percentage of net
revenues, operating expenses were 100.2 percent for the fiscal year ended
October 31, 1998, compared to 105.5 percent for the fiscal year ended October
31, 1997. The decrease in expenses as a percentage of revenues is due to an
increase in the recognition of deferred revenues in 1998 versus 1997. Also, the
increase in expenses is due to additional customer service and claims personnel.
This increase was considered necessary given the increase in sales.
In 1997, MBA pursued a lawsuit against a competitor for possible copyright
infringement on MBA's proprietary software. Ultimately, the Company settled the
lawsuit and received a cash settlement. The Company recorded $168,383 in other
income during 1997 which represented the cash received net of legal and other
fees associated with the lawsuit. The Company retained the copyrights to the
software and the competitor ceased using the software. There was no
corresponding lawsuit settlement in any other periods presented.
As a result of the foregoing factors, the net income for the fiscal year ended
October 31, 1998 was $14,000, compared to $46,000 for the fiscal year ended
October 31, 1997.
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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 ration 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.
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.
ITEM 7A. QUALITATIVE INFORMATION 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Index to Consolidated Financial Statements for the three months ended January
31, 2000 and 1999 (unaudited) and years ended October 31, 1999, 1998 and 1997:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
M.B.A. Holdings, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of M.B.A. Holdings,
Inc. and subsidiary (the "Company") as of October 31, 1999 and 1998, and the
related consolidated statements of income (loss), stockholders' equity, and cash
flows for each of the three years in the period ended October 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of October 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 1999 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 7, the accompanying consolidated financial statements have
been restated.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
January 5, 2000 (May 12, 2000 as to Note 7)
F-1
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 (UNAUDITED), OCTOBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31,
ASSETS January 31, ----------------------------
2000 1999 1998
(Unaudited) As Restated, As Restated,
See Note 8 See Note 7 See Note 7
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,567,757 $ 3,424,934 $ 1,914,001
Restricted cash 239,173 924,698 450,988
Receivables:
Accounts receivable, net of allowance
for doubtful accounts of $19,025
(2000 and 1999) and $10,000 (1998) 385,268 386,805 296,173
Receivable from affiliated entities (Note 2) 29,770
Prepaid expenses and other assets 97,286 109,888 136,752
Deferred direct costs 3,519,776 3,182,789 1,135,747
Deferred income tax asset (Note 3) 336,332 284,412 199,079
------------ ------------ ------------
Total current assets 8,145,592 8,313,526 4,162,510
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 179,608 174,381 148,493
Office equipment and furniture 154,533 149,309 136,929
Vehicle 16,400 16,400 16,400
Leasehold improvements 71,227 69,053 61,153
Capitalized software costs 21,865 17,500
------------ ------------ ------------
Total property and equipment 443,633 426,643 362,975
Accumulated depreciation and amortization (170,683) (154,267) (101,236)
------------ ------------ ------------
Property and equipment - net 272,950 272,376 261,739
Deferred direct costs 6,233,099 5,647,160 1,987,676
Deferred income tax asset (Note 3) 554,137 502,216 305,876
------------ ------------ ------------
TOTAL $ 15,205,778 $ 14,735,278 $ 6,717,801
============ ============ ============
</TABLE>
(Continued)
See notes to consolidated financial statements.
F-2
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2000 (UNAUDITED), OCTOBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY January 31, ---------------------------
2000 1999 1998
(Unaudited) As restated, As restated,
See Note 8 See Note 7 See Note 7
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 2,256,606 $ 2,893,591 $ 1,508,537
Accounts payable and accrued expenses 614,233 597,444 446,779
Accounts payable to affiliated entity (Note 2) 33,287
Deferred revenues 4,242,932 3,872,479 1,601,594
Income taxes payable (Note 3) 72,420 94,159 75,529
----------- ----------- -----------
Total current liabilities 7,186,191 7,457,673 3,665,726
DEFERRED RENT 34,462 32,104
DEFERRED REVENUES 7,460,706 6,832,713 2,807,304
----------- ----------- -----------
Total liabilities 14,681,359 14,322,490 6,473,030
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
STOCKHOLDERS' EQUITY (Note 4):
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) and 2,005,121 (1998)
shares issued and outstanding 2,012 2,012 2,005
Additional paid-in-capital 200,851 200,851 180,857
Retained earnings 321,556 209,925 61,909
----------- ----------- -----------
Total stockholders' equity 524,419 412,788 244,771
----------- ----------- -----------
TOTAL $15,205,778 $14,735,278 $ 6,717,801
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED) AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, October 31,
-------------------------- -----------------------------------------
2000 1999 1999 1998 1997
(Unaudited) As Restated, As Restated, As Restated,
See Note 8 See Note 7 See Note 7 See Note 7
-------------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Vehicle service contract gross income $ 1,179,430 $ 589,976 $ 2,729,999 $ 707,621
Net mechanical breakdown insurance income 570,357 396,265 2,322,217 2,196,569 $ 1,444,042
MBI administrative service revenue 162,057 127,295 545,308 385,287 179,519
----------- ----------- ----------- ----------- -----------
NET REVENUES 1,911,844 1,113,536 5,597,524 3,289,477 1,623,561
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Direct acquisition costs of vehicle service contracts 1,115,312 548,346 2,604,436 669,818
Salaries and employee benefits 375,409 357,861 1,544,793 1,552,347 877,031
Mailings and postage 82,193 69,769 441,332 282,018 249,105
Rent and lease expense 65,943 69,954 286,785 248,418 153,421
Professional fees 42,081 41,762 159,105 193,259 174,197
Telephone 24,623 23,064 149,282 80,905 64,530
Depreciation and amortization 16,416 14,468 57,873 52,770 42,190
Merchant and bank charges 5,219 5,099 18,111 22,992 15,503
Insurance 10,287 4,568 29,029 42,717 35,841
Supplies 10,486 7,117 46,353 30,676 34,701
License and fees 4,170 2,138 12,756 9,180 3,521
Other operating expenses 34,661 30,662 156,082 110,673 64,242
----------- ----------- ----------- ----------- -----------
Total operating expenses 1,786,800 1,174,808 5,505,937 3,295,773 1,714,282
----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 125,044 (61,272) 91,587 (6,296) (90,721)
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Proceeds from settlement of lawsuit 168,383
Finance fee income 15,707 8,353 50,567 14,210 10,937
Interest income 46,419 16,887 122,829 62,880 30,191
Interest expense (390) (5,996) (8,103) (13,313)
Other expense (729) (637) (531) (39,480) (28,123)
----------- ----------- ----------- ----------- -----------
Total other income 61,007 24,603 166,869 29,507 168,075
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 186,051 (36,669) 258,456 23,211 77,354
INCOME TAXES (Note 3) 74,420 (14,666) 110,440 9,440 30,968
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 111,631 $ (22,003) $ 148,016 $ 13,771 $ 46,386
=========== =========== =========== =========== ===========
BASIC NET INCOME (LOSS) PER SHARE $ 0.06 $ (0.01) $ 0.07 $ 0.01 $ 0.02
=========== =========== =========== =========== ===========
DILUTED NET INCOME PER SHARE $ 0.05 $ (0.01) $ 0.07 $ 0.01 $ 0.02
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 2,011,787 2,005,121 2,005,158 2,005,121 2,002,343
=========== =========== =========== =========== ===========
AVERAGE NUMBER OF COMMON AND
DILUTIVE SHARES OUTSTANDING 2,093,134 2,005,121 2,086,505 2,046,813 2,006,777
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED) AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Total
--------------------- Additional Retained Stockholders'
Shares Amount Paid-in-capital Earnings Equity
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 1, 1996 (As restated) 1,998,453 $ 1,998 $ 108,692 $ 1,752 $ 112,442
Stock compensation expense 6,668 7 21,665 21,672
Net income (As restated, see Note 7) 46,386 46,386
--------- --------- --------- --------- ---------
BALANCE, OCTOBER 31, 1997 2,005,121 2,005 130,357 48,138 180,500
Stock compensation expense 50,500 50,500
Net income (As restated, see Note 7) 13,771 13,771
--------- --------- --------- --------- ---------
BALANCE, OCTOBER 31, 1998 2,005,121 2,005 180,857 61,909 244,771
Stock compensation expense 6,666 7 19,994 20,001
Net income (As restated, see Note 7) 148,016 148,016
--------- --------- --------- --------- ---------
BALANCE, OCTOBER 31, 1999 2,011,787 2,012 200,851 209,925 412,788
Net income (unaudited) 111,631 111,631
--------- --------- --------- --------- ---------
BALANCE, JANUARY 31, 2000 (unaudited) 2,011,787 $ 2,012 $ 200,851 $ 321,556 $ 524,419
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED) AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, October 31,
-------------------------- ----------------------------------------
2000 1999 1999 1998 1997
(Unaudited) As Restated, As Restated, As Restated,
See Note 8 See Note 7 See Note 7 See Note 7
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 111,631 $ (22,003) $ 148,016 $ 13,771 $ 46,386
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 16,416 14,468 57,873 52,770 42,190
Gain on sale of equipment (4,342)
Deferred income taxes (103,841) (85,666) (281,673) (245,447) (201,915)
Stock-based compensation 20,001 50,500 21,672
Changes in assets and liabilities:
Restricted cash 685,525 (71,874) (473,710) (240,241) (210,747)
Accounts receivable 1,537 19,608 (90,632) (151,937) 41,353
Receivable from affiliated entities (10,720) 29,770 (3,876) (25,894)
Prepaid expenses and other assets 12,602 (29,388) 26,864 (135,465) 2,572
Deferred direct costs (922,926) (949,028) (5,706,526) (3,123,422)
Net premiums payable to insurance companies (636,985) 443,905 1,385,054 451,917 46,524
Accounts payable and accrued expenses 16,789 (130,854) 150,665 346,240 32,252
Accounts payable to affiliated entities 70,384 (33,287) 15,914 (85,375)
Income taxes payable (21,739) 11,000 18,630 (134,113) 180,682
Deferred rent 2,358 9,631 32,104
Deferred revenues 998,446 1,079,694 6,296,294 3,754,557 501,783
---------- ---------- ----------- ----------- ----------
Net cash provided by operating
activities 159,813 349,157 1,575,101 651,168 391,483
---------- ---------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,990) (9,445) (71,168) (167,148) (117,131)
Proceeds from sale of equipment 7,000
Net decrease in certificates of deposit 120,000 22,264
---------- ---------- ----------- ----------- ----------
Net cash used in investing activities (16,990) (9,445) (64,168) (47,148) (94,867)
---------- ---------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable to affiliated entity (73,189) (2,998)
Payments on payables to Company stockholder (54,740) (14,880)
Payment (issuance) of note receivable from
stockholder 115,586 (115,586)
---------- ---------- ----------- ----------- ----------
Net cash used in financing activities (12,343) (133,464)
---------- ---------- ----------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 142,823 339,712 1,510,933 591,677 163,152
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,424,934 1,914,001 1,914,001 1,322,324 1,159,172
---------- ---------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,567,757 $2,253,713 $ 3,424,934 $ 1,914,001 $1,322,324
========== ========== =========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 125 $ 159 $ 1,911 $ 8,100 $ 7,500
========== ========== =========== =========== ==========
Cash paid for income taxes $ 200,000 $ 60,000 $ 373,483 $ 389,000 $ 52,000
========== ========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED) AND
YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
--------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - M.B.A. Holdings, Inc. and subsidiary (the "Company")
are located in Scottsdale, Arizona and are principally engaged in selling
mechanical breakdown insurance policies ("MBIs") (as an agent for insurance
companies), selling vehicle service contracts ("VSCs") for new automobiles,
trucks, recreational vehicles, and travel trailers, and providing claims
administrative services for the mechanical breakdown insurance policies and VSCs
sold. The consolidated financial statements include the accounts of M.B.A.
Holdings, Inc. and its wholly-owned subsidiary, Mechanical Breakdown
Administrators, Inc. All significant intercompany balances and transactions have
been eliminated.
SIGNIFICANT ACCOUNTING POLICIES are as follows:
a. CASH AND CASH EQUIVALENTS - The Company considers all cash and highly
liquid investments with original maturities of three months or less
when purchased to be cash equivalents.
b. RESTRICTED CASH represents claims payment advances provided by the
insurance companies, to enable the Company to make claims payments on
behalf of the insurance companies.
c. PROPERTY AND EQUIPMENT - The historical cost of computer equipment,
office equipment and furniture is depreciated by accelerated and
straight-line methods over their estimated useful lives which range
from three to seven years. The accelerated depreciation method used
for computer equipment and office equipment is a double declining
balance method. The double declining balance method depreciates the
assets more quickly during the earlier years of their useful lives
whereas the straight-line method depreciates the assets evenly over
their lives. Leasehold improvements are amortized over the shorter of
the life of the asset or the related lease term.
The Company reviews its long-lived assets for possible impairment in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121 whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable, and has concluded
that no impairment charge is necessary during 1999, 1998, or 1997. If
the Company found an instance where impairment existed, the Company
would record the asset at the fair value of the asset based on
estimated discounted cash flows.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use ("SOP 98-1").
SOP 98-1 provides guidance on the accounting for the costs of computer
software developed or obtained for internal use and is effective for
financial statements for fiscal years beginning after December 15,
1998. Under the guidelines established in SOP 98-1, the Company has
capitalized $17,500 of such costs in the accompanying consolidated
balance sheet at October 31, 1999.
d. BENEFIT PLAN - The Company has a profit-sharing plan covering
substantially all employees who have attained the age of 21 and have
completed one year of service. Participation commences on the earliest
plan entry date after an employee meets eligibility requirements. The
only contributions made to the plan are discretionary employer
contributions. No discretionary contributions were made during the
years ended October 31, 1999, 1998 and 1997.
F-7
<PAGE>
e. NET PREMIUMS PAYABLE TO INSURANCE COMPANIES represent premiums
collected from the policyholders on behalf of the insurance companies.
Amounts collected are periodically remitted to the appropriate
insurance company.
f. REVENUE RECOGNITION - Net revenues includes the commissions earned on
sales of MBIs, fees for providing administrative claims services
related to the MBIs sold and revenues related to the sales and
servicing of VSCs.
The Company receives one fee (commission) related to the sale of MBIs
which covers both the revenue earned for selling the policy and the
fee for providing administrative claims services. The Company
apportions the revenue consistent with the values associated with each
service provided. The revenues for commissions earned on policy sales
are recorded when the policy information is received and approved by
the Company. The revenues for the fee related to providing
administrative claims services are deferred and recognized in income
on a straight-line basis over the actual life of the related policy.
Customers generally have the right to cancel their policy or vehicle
service contract at any time. When a customer cancels the policy or
contract, the unused portion of the policy or contract is returned to
the customer less a cancellation fee as described in the contract and
permitted by state law. The Company, insurance companies, and
sub-agents (if applicable) repay the remaining balance on the policy
in the same proportion as received at the time of the initial sale.
The cancellation fee is retained entirely by the Company. When a
policy is cancelled, the Company records the Company's portion of the
cancellation repayment (net of any cancellation fee received and net
of any related deferred revenue) as a reduction or increase (as
applicable) in total revenues. The amount of cancellation repayments,
net of cancellation fees received, historically has not been
significant.
All of the MBIs sold represent insurance policies between the
insurance companies and the purchaser. The insurance company retains
responsibility for the cost of any claims made in accordance with the
policies. The Company only acts as a sales agent and claims
administrator and does not assume the role of obligor at any time
during the life of the policies.
VSCs represents contracts between the Company and the purchaser for
which the Company obtains an insurance policy which guarantees the
Company's obligations under the contract. In accordance with Financial
Accounting Standards Board Technical Bulletin 90-1 ACCOUNTING FOR
SEPARATELY PRICED EXTENDED WARRANTY AND PRODUCT MAINTENANCE CONTRACTS,
revenues associated with the sales and servicing of these contracts
are deferred and recognized in income on a straight-line basis over
the actual life of the contracts.
The consolidated financial statements for the fiscal year ended
October 31, 1999, 1998 and 1997 have been restated to retroactively
reflect the adoption of changes in accounting for revenues associated
with MBIs and VSCs. (See Note 7.)
g. INCOME TAXES - Deferred income taxes are recorded based on differences
between the financial statement and tax basis of assets and
liabilities based on income tax rates currently in effect.
h. 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.
F-8
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES USED IN COMPUTING INCOME
PER SHARE YEAR ENDED OCTOBER 31, 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Average number of common shares
outstanding - Basic 2,005,158 2,005,121 2,002,343
Dilutive shares from common stock
options calculated using the treasury
stock method 81,347 41,692 4,434
---------- ---------- ----------
Average number of common and
dilutive shares outstanding 2,086,505 2,046,813 2,006,777
========== ========== ==========
</TABLE>
i. STOCK-BASED COMPENSATION - The Company adopted SFAS No. 123 during
1997. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages, but does not
require, compensation costs to be measured based on the fair value of
the equity instrument awarded. The Company has elected to measure its
stock-based compensation awards to employees based on the provisions
of APB Opinion No. 25. APB No. 25 allows recognition of compensation
cost based on the intrinsic value of the equity instrument awarded
rather than fair value.
j. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
k. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of the
Company's financial instruments approximate fair value as the rates in
effect approximate current rates obtainable in an open market.
l. NEW ACCOUNTING PRONOUNCEMENT - In June 1998, the FASB issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
SFAS No. 133 requires that an enterprise recognize all derivatives as
either assets or liabilities in the statement of financial position
and measure those instruments at fair value. The statement is
effective for the Company's fiscal year ending October 31, 2001. The
Company has not completed evaluating the impact of implementing the
provisions of SFAS No. 133.
m. RECLASSIFICATIONS - Certain reclassifications have been made to the
1998 and 1997 financial statements to conform to the 1999
presentation.
2. RELATED PARTY TRANSACTIONS
RECEIVABLE FROM AFFILIATED ENTITIES
This amount represents advances by the Company to other entities owned by the
Company's majority stockholder for certain salary expenses incurred by these
other entities. The amounts due from the affiliates at October 31, 1999 and 1998
equaled $0 and $29,770, respectively. During 1999, all the amounts were repaid.
NOTE RECEIVABLE FROM STOCKHOLDER
In 1997, the Company advanced $115,586 to the Company's majority stockholder.
The note had an interest rate of 8% and was repaid in fiscal 1998.
ACCOUNTS PAYABLE TO AFFILIATED ENTITY
The Company leases its office space from an affiliated entity. Total amounts
payable at October 31, 1999 and 1998 equaled $0 and $33,287, respectively. See
Note 5.
F-9
<PAGE>
NOTE PAYABLE TO AFFILIATED ENTITY
The Company's note payable to an affiliated entity at October 31, 1997 consisted
of $73,189 of borrowings at a variable interest rate (6% as of October 31,
1997). The interest rate was determined annually based on the Internal Revenue
Service imputed interest rate. The balance was repaid in full during 1998.
ACCOUNTS PAYABLE TO COMPANY STOCKHOLDER
The Company had a payable to the majority stockholder at October 31, 1997 which
was repaid in 1998.
3. INCOME TAXES
Income taxes were as follows for the years ended October 31:
1999 1998 1997
--------- --------- ---------
Current $ 392,114 $ 254,887 $ 232,883
Deferred (281,674) (245,447) (201,915)
--------- --------- ---------
Total income tax expense (benefit) $ 110,440 $ 9,440 $ 30,968
========= ========= =========
The tax effects of temporary differences that give rise to significant portions
of deferred income tax assets at October 31 were as follows:
1999 1998
--------- ---------
Deferred revenue $ 710,678 $ 517,467
Allowance for doubtful accounts (10,000) 4,100
Accrued compensation 120,258 8,886
Depreciation (48,619) (25,498)
Other 14,311
--------- ---------
Net deferred income tax assets $ 786,628 $ 504,955
========= =========
The effective income tax rate differs from the federal statutory income tax rate
in effect each year as a result of the following items:
1999 1998 1997
---- ---- ----
Federal statutory income tax rate 34% 34% 34%
State taxes 6 6 6
Other 3 1
---- ---- ----
Effective income tax rate 43% 41% 40%
==== ==== ====
4. STOCK OPTIONS AND STOCK AWARDS
During the year ended October 31, 1998, the Company issued stock options to
certain employees. The Company applies APB Opinion No. 25 and related
interpretations in measuring compensation expense for its stock options. During
the years ended October 31, 1999, 1998 and 1997, compensation expense of $0,
$50,500 and $0, respectively, was recognized for the difference between the
option exercise price and the estimated fair value of the common stock at the
date of grant. Had compensation cost for the Company's stock options been
determined based on the fair value of the options at the date of grant
consistent with SFAS No. 123, the Company's net income and net income per share
would have been adjusted as presented below. Using the Black-Scholes model for
common stock option valuation, the Company estimated volatility of 84.7%, risk
free interest rate at 6%, and a dividend yield of 0%. All stock options are
vested and exercisable when granted.
F-10
<PAGE>
A summary of the Company's outstanding options as of October 31, 1999 is
presented below along with pro-forma income statement information consistent
with SFAS No. 123.
Exercise Expiration
Options Price Date
-------- -------- ----------
33,334 $ 2.25 February 15, 2006
25,000 1.20 September 30, 2008
1,667 1.20 October 31, 2008
100,000 0.94 June 1, 2008
20,000 1.05 September 30, 2008
5,000 1.05 October 31, 2008
--------
185,001
========
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) As reported $148,016 $ 13,771 $ 46,386
Pro forma $148,016 $(184,824) $ 46,386
Basic net income (loss) per share As reported $ 0.07 $ 0.01 $ 0.02
Diluted net income (loss) per share $ 0.07 $ 0.01 $ 0.02
Basic net income (loss) per share Pro forma $ 0.07 $ (0.09) $ 0.02
Diluted net income (loss) per share $ 0.07 $ (0.09) $ 0.02
</TABLE>
A summary of the activity regarding the Company's outstanding options for the
years ended October 31 is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning of year 185,001 $1.23 39,834 $2.32 33,334 $2.25
Options granted -- -- 160,167 1.13 6,500 2.67
Options exercised -- -- -- -- -- --
Options cancelled -- -- (15,000) 3.06 -- --
-------- ----- -------- ----- -------- -----
Options outstanding at end of year 185,001 $1.23 185,001 $1.23 39,834 $2.32
======== ===== ======== ===== ======== =====
Fair value of options granted during
the year $ .79 $1.36
===== =====
</TABLE>
During 1999, the Company accrued for the issuance of 6,666 shares of common
stock to an employee. In connection therewith, the Company recorded $20,001 of
compensation expense. During 1997, the Company accrued for the issuance of 6,668
shares of common stock to an employee. In connection therewith, the Company
recorded $21,672 of compensation expense.
In addition to the options and shares issued during the years ended October 31,
1998 and 1997, discussed above, the Company also has reserved, for issuance,
F-11
<PAGE>
various options and shares to employees which are based on the occurrence of
future events including the Company reaching certain sales levels. Under an
arrangement approved by the Board of Directors, the CEO and President will be
granted options if sales growth goals are met. For every $5 million in sales
growth, the CEO will receive options to purchase 1,667 shares at an exercise
price of 80 percent of market price at the date sales goals are met. The
President will receive options to purchase 5,000 shares at an exercise price of
70 percent of the market price at the date sales goals are met, for every $5
million in sales growth.
5. OPERATING LEASES
The Company has operating leases for office space and equipment which expire on
various dates through the year ending October 31, 2004. Total rental expense was
approximately $293,000, $248,000 and $153,000 for the years ended October 31,
1999, 1998 and 1997, respectively. Future minimum lease payments under
noncancelable operating leases at October 31, 1999 are as follows:
2000 $ 293,359
2001 290,800
2002 277,332
2003 279,716
2004 46,828
-----------
Total $ 1,188,036
===========
The Company leases its office space from an affiliate of the Company's majority
stockholder. Rent expense for this office space was $206,500, $187,067 and
$114,000 for the years ended October 31, 1999, 1998 and 1997, respectively. A
new lease was signed with the affiliate on January 1, 1999 which expires on
December 31, 2003.
6. 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.
In 1997, MBA pursued a lawsuit against a competitor for possible copyright
infringement on MBA's proprietary software. Ultimately, the Company settled the
lawsuit and received a cash settlement. The Company recorded $168,383 in other
income which represented the cash received net of legal and other fees
associated with the lawsuit. The Company retained the copyrights to the software
and the competitor ceased using the software.
7. RESTATEMENTS
Subsequent to the original issuance of the Company's consolidated financial
statements for the year ended October 31, 1998, management determined that
revenue from VSCs, and the portion of revenue from MBI policies associated with
administering future claims, should be deferred and recognized in income on a
straight-line basis over the estimated life of the contract or policy; that
costs directly related to the acquisition of the contract or policy that would
not have been incurred but for the acquisition of the contract or policy
(incremental direct acquisition costs) should be deferred and charged to expense
in proportion to the revenue recognized; and that all other costs should be
charged to expense as incurred. Previously, the Company recognized revenue on
MBI policies and VSCs at the time of sale and accrued the estimated future costs
associated with administering claims. As a result, the Company's 1998 financial
statements were restated from amounts previously reported to record deferred
revenue from VSCs and amortize the deferred revenue based on the estimated
average life of the related contracts and to record deferred revenue associated
with administering future claims from MBI policies based on the estimated net
revenue (administrative fees less commissions and other costs expected to be
realized). The effect on the 1997 financial statements was not considered
significant.
Subsequent to the issuance of the Company's consolidated financial statements
for the year ended October 31, 1999, management determined that the actual
contract life, rather than the average life, should be used for amortization of
F-12
<PAGE>
deferred revenue and that the gross amount of revenue associated with
administering future claims, rather than the net amount, should be deferred and
recognized as income over the actual contract lives. In addition, management
determined that direct acquisition costs of VSCs should be presented as an
operating expense. Previously, these costs were included and presented as an
offset to revenues from VSCs. As a result, the Company's 1999, 1998, and 1997
financial statements have been restated from amounts previously reported to
correct the accounting for these items.
A summary of the significant effects of the restatements is as follows:
<TABLE>
<CAPTION>
AT OCTOBER 31: 1999 1998 1997
------------------------ ----------------------- -----------------------
As Previously As Previously As Previously
Reported As Restated Reported As Restated Reported As Restated
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred revenues $ 933,484 $10,705,192 $ 498,610 $4,408,898 -- --
Deferred direct costs -- 8,829,949 -- 3,123,423 -- --
Retained earnings 755,566 209,925 533,954 61,909 $ 313,129 $ 48,138
FOR THE YEAR ENDED OCTOBER 31:
Net revenues 3,147,982 5,597,524 2,971,464 3,289,477 1,978,621 1,623,561
Direct acquisition costs of vehicle
service contracts -- 2,604,436 -- 669,818 -- --
Income before income taxes 413,350 258,456 375,017 23,211 432,414 77,354
Net income 221,612 148,016 220,825 13,771 263,377 46,386
Net income per share - Basic 0.11 0.07 0.11 0.01 0.13 0.02
Net income per share - Diluted 0.11 0.07 0.11 0.01 0.13 0.02
</TABLE>
8. THREE MONTHS ENDED JANUARY 31, 2000 AND 1999 (UNAUDITED)
The accompanying interim financial statements have been prepared by the Company
in accordance with the rules and regulations of the Securities and Exchange
Commission for interim reporting and generally accepted accounting principles as
they relate to interim financial reporting. Accounting policies utilized in the
preparation of financial information herein presented are the same as set forth
in the Company's annual financial statements. Certain disclosures and
information normally included in financial statements have been condensed or
omitted. In the opinion of the management of the Company, these financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim financial
statements. Interim results of operations are not necessarily indicative of the
results of operations for the full year.
(a) STOCK OPTIONS - During the three months ended January 31, 2000, there
were no options granted by the Company's Board of Directors.
(b) OPERATING LEASES - The Company entered into a new operating lease
agreement for existing office space on January 1, 1999 from an
affiliate of the majority stockholder. Total rent expense for the
three months ended January 31, 2000 and 1999 was approximately $66,000
and $70,000, respectively including $53,000 and $50,000, respectively
paid to an affiliated company of the majority shareholder for rent
expense. Future minimum payments as of January 31, 2000 for the fiscal
years ending October 31 are as follows:
F-13
<PAGE>
2000 182,052
2001 250,826
2002 262,964
2003 278,318
2004 46,828
2005 and thereafter --
-----------
Total $ 1,020,988
===========
(c) 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. The calculation of dilutive shares in 1999 is considered to be
anti-dilutive due to the net loss incurred by the Company. Below is
the reconciliation required by SFAS No. 128.
NUMBER OF SHARES USED IN COMPUTING INCOME 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
========== ==========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not had disagreements with its accountants on any matter
regarding accounting principles or financial statement disclosures.
F-14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors consists of three people. All Directors hold
offices until the next annual meeting at which time there is an election for
their successors.
Name Age Position With Company
---- --- ---------------------
Gaylen M. Brotherson 60 President, CEO, Chairman of the Board, Director
Judy K. Brotherson 53 Vice-President, Director
Edward E. Wilczewski 59 Director
Gaylen and Judy Brotherson are husband and wife. No other family relationship
exists between the Directors or the executive officers.
THE BUSINESS EXPERIENCE OF EACH OF THE COMPANY'S DIRECTORS IS AS FOLLOWS:
Gaylen Brotherson, 60, became President, CEO, Chairman of the Board, and
Director of the Company in November 1995. He was the founder of Mechanical
Breakdown Administrators, Inc. Mr. Brotherson served in the United States Navy.
In 1960, he received his life, health and accident licenses as well as his
property and casualty license. Presently, he is licensed as an insurance agent
in 27 states. Since 1989 he has been actively involved in marketing and
administering Mechanical Breakdown insurance policies and VSCs under Mechanical
Breakdown Administrators, Inc.
Judy Brotherson, 53, has been Vice-President and Director of the Company since
November 1995. Mrs. Brotherson is a graduate of Creighton University. Since
1975, she has worked primarily in family owned businesses. She holds insurance
licenses in approximately 32 states. She was one of the chief designers of the
MBA software management system. She has been working at MBA since 1989 primarily
involved in overseeing the finance and data-entry departments.
Edward Wilczewski, 59, has been a Director of the Company since June 1998. Mr.
Wilczewski served in the Navy for six years. Mr. Wilczewski is a graduate of the
University of Omaha. Primarily for the past thirty years including the present
time, he has owned and operated The Charter Group of Arizona, a real estate
development company. His company has developed various real estate projects
ranging from single family homes to apartment complexes.
OTHER EXECUTIVE OFFICERS AND KEY EMPLOYEES
Michael Zimmerman, 29, is the Chief Financial Officer. He joined the Company in
September of 1999. Prior to joining the Company, Mr. Zimmerman worked at
PacifiCare, Inc. from November of 1997 to September of 1999 as the accounting
supervisor in charge of the day to day accounting for the Nevada HMO and the
Nevada and Arizona life insurance products. Prior to joining PacifiCare, Inc.,
Mr. Zimmerman was an employee from September 1993 to November 1997 at the
international accounting and consulting firm KPMG Peat Marwick LLP.
Shelly Beesley, 34, is the Corporate Secretary and Assistant to the President.
She has been employed by the Company since January 1993. She originally served
as the Executive Assistant for the President and Vice President. At the
beginning of 1996, Mrs. Beesley became the corporate secretary. Also, in 1996
Mrs. Beesley served as a Director to the company. Prior to joining the Company,
Mrs. Beesley worked in the automotive industry as a Systems Administrator,
Customer Service Manager and Assistant Sales Manager.
<PAGE>
Michael Gannon, 43, is the Information Systems Manager. He is a graduate of
Devry Technical Institute. Mr. Gannon has been employed by the Company since
January, 1995. He has helped develop MBA's integrated computer system to serve
all customer service, claims, data entry, and sales functions for all the
different products MBA offers.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides the annual and other compensation of the Chief
Executive Officer and any other employee who qualifies under Regulation S-K
section 229.402 for the years ended October 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- ----------------------
Restricted Stock
Stock Option
(Shares) (Shares)
Name of Principal Position Year Salary Bonus Other(1) Awards Awards
----------------- -------- ---- ------ ----- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Gaylen M. Brotherson Chairman of Board 1997 $ 47,885 $ 60,000 $17,248
Chief Executive Officer 1998 165,497 150,000 20,522 $ 26,667
1999 150,797 24,672
Judy K. Brotherson Vice-President 1997 47,885 40,000 12,145
1998 50,000 10,910 125,000
1999 50,000
Richard John, Jr.(2) Vice President - Sales 1997 290,431 $13,334
1998 303,732
1999 272,836 18,337
</TABLE>
----------
(1) Included in Other Annual Compensation are an auto lease paid for Gaylen
Brotherson in fiscal 1997, 1998 and 1999, an auto lease paid for Judy
Brotherson in fiscal 1997 and 1998, auto insurance for Gaylen Brotherson in
fiscal 1997, 1998 and 1999, auto insurance for Judy Brotherson in fiscal
1997, 1998 and 1999, and life insurance premiums for Gaylen Brotherson and
Judy Brotherson in years 1997, 1998 and 1999.
(2) Richard John's employment at the Company ended October of 1999.
OPTION GRANTS IN LAST FISCAL YEAR
None
OTHER INCENTIVES AND COMPENSATION
The Company does not have a formal stock option plan. Currently, stock options
are granted by the Board of Directors. At October 31, 1999, there were only two
employees, Gaylen Brotherson and Judy Brotherson, that had stock options. All
options are exercisable. Below is a summary of existing options.
Number of Strike Expiration
Name Shares Price Date
---- ------ ----- ----
Gaylen Brotherson 33,334 $2.25 2/15/06
25,000 $1.20 10/31/08
1,667 $1.20 10/31/08
Judy Brotherson 100,000 $0.94 6/1/08
20,000 $1.05 9/30/08
5,000 $1.05 10/31/08
<PAGE>
In addition per the Board of Directors resolution dated February 15, 1996,
Gaylen Brotherson receives an option to purchase 1,667 shares @ 80% of the
stock's fair market value for each $5,000,000 increase in sales after
$25,000,000 on the date the sales goals are reached. Per the Board of Directors
resolution dated June 1, 1998, Judy Brotherson receives an option to purchase
5,000 shares @ 70% of the stock's fair market value for each $5,000,000 increase
in sales after $25,000,000 on the date the sales goals are reached. These
options will expire ten years from the grant date.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of October 31, 1999 concerning
shares of Common Stock with $.001 par value, the Company's only voting
securities. This table includes all beneficial owners who own more than 5% of
the outstanding voting securities, each of the Company's directors by each
person who is known by the Company to own beneficially more than 5% of the
outstanding voting securities of the Company, and by the Company's executive
officers and directors as a group.
Name and Address Amount and Nature
Title of Class of Beneficial Owner of Beneficial Owner Percent of Class
-------------- ------------------- ------------------- ----------------
Common Stock Gaylen Brotherson 830,955 shares (1) 41.3%
9419 E. San Salvador
Suite 105
Scottsdale, AZ 85258
Common Stock Judy Brotherson 811,701 shares (1) 40.3%
9419 E. San Salvador
Suite 105
Scottsdale, AZ 85258
Common Stock CEDE & Co 171,062 shares 8.5%
Box 220
Bowling Green Station
New York, NY 10274
Common Stock Shelly Beesley 334 shares 0.0%
9419 E. San Salvador
Suite 105
Scottsdale, AZ 85258
Common Stock All Directors and 1,642,990 shares 81.7%
Executive Officers as
a Group (three people)
----------
(1) This amount represents shares owned and excludes the 60,001 options to
purchase common stock for Gaylen Brotherson and the 125,000 options to
purchase common stock for Judy Brotherson. If these options were exercised
by Gaylen Brotherson and Judy Brotherson, then their percentage of
ownership would change to 40.6% and 42.6%, respectively (see Item 6.
Executive Compensation).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had a note payable with Gaylen Brotherson, the Chief Executive
Officer. As of October 31, 1997 the unpaid balance equaled $73,189. The note was
unsecured and paid per annum with a variable interest rate. The variable
interest rate was equal to the imputed IRS rate for non-interest bearing loans.
During 1998, the Company repaid the note in full. At the time of repayment the
interest rate was 6%.
The Company leases its office space from Cactus Partnership. The managing
partner of Cactus Partnership is Gaylen Brotherson, the Chief Executive Officer.
Rent expense for this office space was $206,500, $187,067 and $114,000 for the
years ended October 31, 1999, 1998 and 1997, respectively. The Company signed a
new lease with the affiliated entity on January 1, 1999. This new lease expires
on December 31, 2003.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as part of this report under Part II Item 8:
Reference is made to the Index to Financial Statements and Financial Statement
Schedules included in Item 8 of Part II hereof, where such documents are listed.
Exhibits as required by Item 601 of Regulation S-K:
3(i) - Articles of Incorporation (incorporated by reference to Exhibit 3(i) to
the Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
3(ii) - Bylaws of the Company (incorporated by reference to Exhibit 3(ii) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
10(a) - General Agency Agreement between American International Group, Inc.
under its subsidiaries, National Union Fire Insurance Company and New Hampshire
Insurance Company, and Mechanical Breakdown Administrators, Inc. (incorporated
by reference to Exhibit 10(a) to the Registrant's Registration Statement on Form
10 (file number 000-28221) filed with the Commission on November 19, 1999).
(b) - Agency Agreement between American Bankers Insurance Company of Florida and
Mechanical Breakdown Administrators, Inc. (incorporated by reference to Exhibit
10(b) to the Registrant's Registration Statement on Form 10 (file number
000-28221) filed with the Commission on November 19, 1999).
(c) - Claims Service Agreement between American Bankers Insurance Company of
Florida and Mechanical Breakdown Administrators, Inc. (incorporated by reference
to Exhibit 10(c) to the Registrant's Registration Statement on Form 10 (file
number 000-28221) filed with the Commission on November 19, 1999).
(d) - Contractual Liability Insurance Policy for Extended Service Contract and
Administration/Agency Agreement between American Modern Home Insurance Company
and Mechanical Breakdown Administrators, Inc. (incorporated by reference to
Exhibit 10(d) to the Registrant's Registration Statement on Form 10 (file number
000-28221) filed with the Commission on November 19, 1999).
(e) - Board of Directors resolution dated February 15, 1996 regarding Gaylen M.
Brotherson's stock options (incorporated by reference to Exhibit 10(e) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
(f) - Board of Directors resolution dated June 1, 1998 regarding Judy K.
Brotherson's stock options (incorporated by reference to Exhibit 10(f) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
(g) - Office Lease (incorporated by reference to Exhibit 10(g) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
11 - Statement re computation of per share earnings
21 - Subsidiary of the Company
27.1 - Financial Data Schedule for the three months ended January 31, 2000.
27.2 - Restated Financial Data Schedule for the twelve months ended
October 31, 1999, 1998 and 1997.
<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.
Dated: June 13, 2000 By: /s/ Gaylen Brotherson
-------------------------------------------------
Gaylen Brotherson
Chairman of the Board and Chief Executive Officer
Dated: June 13, 2000 By: /s/ Michael J. Zimmerman
-------------------------------------------------
Michael J. Zimmerman,
Chief Financial Officer
