UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
-----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to ____________
Commission File Number 0-11808
MB SOFTWARE CORPORATION
(Exact name of Registrant as specified in its charter)
COLORADO 59-2219994
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2225 E. Randol Mill Road Suite 305
Arlington, Texas 76011
(817) 633-9400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- --------------------
Common NASDAQ - OTC BULLETIN BOARD
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $ .001 par value
-----------------------------
(Title of Class)
Check whether the issuer (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.
[X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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-KSB
or any amendment to this Form 10-KSB.
[X] Yes [ ] No
1
<PAGE>
Issuer's revenues for its most recent fiscal year: $2,986,908.
----------
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked price of such stock, as of a specified date within the past 60 days. The
Company's common stock based on the average selling price on a date within the
past 60 days is $0.20.
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of Securities under a plan confirmed by a court.
Yes [X ] No [ ]
As of December 31, 1996, 67,885,000 shares of the Issuer's $.001 par value
common stock were outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
2
<PAGE>
MB SOFTWARE CORPORATION
Form 10-KSB
For the Year Ended December 31, 1996
Page of
Form 10-KSB
ITEM 1. BUSINESS............................................................4
ITEM 2. PROPERTIES..........................................................6
ITEM 3. LEGAL PROCEEDINGS...................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................6
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.............................................................6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................7
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................................9
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.........9
ITEM 10. EXECUTIVE COMPENSATION..............................................10
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................11
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................11
3
<PAGE>
PART 1
Item 1. Business
MB Software Corporation (the "Company") was incorporated in 1982. The
Company is a leading provider of practice management services and cash
management resources to physicians, dentists, chiropractors and medical billing
centers. As of December 31, 1996, the Company provided practice management
services to approximately 3,500 physicians, dentists, chiropractors and 700
billing centers. The Company has an established base of over 2,500 physical
locations with at least one installation in all 50 states. The business
management services offered by the Company include (i) general management
services, (ii) strategic management services, (iii) financial management
services and (iv) billing and accounts receivable management services. (For a
History of the Company, see Notes to Consolidated Financial Statements, Note A
"The Company").
The Company's core business strategy centers on structured growth
through expansion of its software products and acquisition of emerging or
struggling entities which evidence opportunity for reciprocal benefit in terms
of product distribution and optimization of operations. Management believes a
nucleus of revitalized companies, properly managed and equipped, can provide
more valuable and cost effective services to its client base. Moreover,
healthcare's continuing challenge of how to address the demands placed upon
healthcare delivery represent strong opportunities through consolidation of
operation, thereby promoting a cost benefit unavailable with stand-alone
companies.
While the Company historically marketed its product in physician,
dental, chiropractic, HMO and PPO structures, more recently the focus has been
narrowed to reflect greater concentration upon services and products aligned
with healthcare's directional shift. More specifically, products evaluated and
deemed to lack long-term or strong margins have been identified for divestiture,
allowing for more focus upon bottom-line results, improved performance in
operations and maximum economies of scale. Traditionally, the Company engaged in
medical receivable servicing, consulting business, development of smart card
technology and software development. However, through reassessment of corporate
strategic direction and a redistribution of skillsets necessary for the emerging
migration in healthcare, new narrow-focused directions were activated based on
analysis of:
o shifts away from in-patient care;
o high-dollar, labor-intensive services;
o greater opportunity in home-oriented healthcare; and
o leverage its developed software products through industry
alliances.
Accordingly, Santiago SDS, Inc., acquired in 1995, has undergone
virtually a total revitalization and repositioning which resulted in improved
services and profits. Santiago SDS, Inc. now enjoys profitability after a period
of retrofitting and reassessment of priorities. Moreover, in 1996, Santiago's
OneClaim Plus software was redesigned to be Windows 95 compliant, thereby
offering users greater ease of use and beating competitors to this prerequisite
positioning. Additionally, the creation of Client-Server technology as an
application protocol engendered upside potential not available in healthcare.
The Client-Server product represents a break-through in capacity, cost and
allows for a full practice management capability, total portability at a nominal
price.
Acquisitions
The Company opted to defer acquisitions during 1996 and instead
strengthen its product line and bottom line margins. Monies targeted for
acquisitions were used to underwrite the upgrade and total redesign of the
Windows 95 and Client-Server products. Development of said products was
performed without outside capitalization and financed with operating revenues
which prevented incursion of additional debt service.
4
<PAGE>
Indusrty Overview
The U.S. healthcare industry continues to await congressional mandated
restructuring, yet given the political imbroglio surrounding special interest
groups within healthcare, changes are likely to emerge piecemeal and at a more
defined pace. While everyone generally agrees and accepts the need for wholesale
healthcare reform, there is little political appetite for massive change,
particularly with entitlement programs and their volatile social overtones.
Clearly, healthcare's burdensome costs represent a significant portion
of the national debt and absent material cutbacks in entitlements, there becomes
increasing demand for economies in every aspect of healthcare delivery.
Retrospectively, DRG's, HMO's, PPO's, Risk contracts and other less prominent
healthcare initiatives, represent cost containment efforts enacted to arrest
spiraling healthcare costs. However, these efforts proved to be stop-gap
measures of unquantifiable impact. Conversely, healthcare's continued outcry and
expectation for improved performance, economies, and lower operating costs has
fostered fresh opportunities. Healthcare users, providers, supplies and vendors
can likely expert to see mandatory electronic billing, increased emphasis on
cost containment in every sector, greater stimulation of competition,
outsourcing of traditionally in-house services, improved cost-to-performance
ratios for software demanded by buyers, more integratability of products, and
faster, more-capacity, easy-to-use technology.
Consistent with these divergent healthcare directions, the Company
recognized that its positioning of products and services as critical strategies
for providing tomorrow's healthcare solutions ahead of competitors and at
improved cost margins.
Products
OneClaim Plus consistent with market place feedback, is available to
handle and facilitate a physician's practice, regardless of size. Offered in
single or multi-user versions, one-site or multi-site configuration, OneClaim
Plus performs complex tasks with "mouse click" speed and ease. Versions in MS
DOS, Windows 95 and Client-Server provide users with virtually unlimited
flexibility in application. The software affords users with a high degree of
customization from table-driven options selected by the user, to a
report-generator feature which gives requesters total control over how stored
data is arrayed, displayed or printed.
Electronic Statements Through communication links established with
users, physician offices are able to down-load their accounts receivable files,
that are in turn, electronically formatted, printed, folded and mailed at 5% of
the cost associated with non-automated processes. An electronic data interchange
vehicle capable of electronic transmission/receipt, formatting, editing and
routing of physician claims to the appropriate payor for adjudication.
Electronic links are established with all payors capable of receiving claims
electronically.
Electronic Claims Processing Electronic data interchange whereby the
Company's computer system reformats a paper insurance claim into an electronic
document and transmits said electronic document to major insurance companies
including Medicare, Medicaid, Blue Shield, Aetna, Travelers and Metropolitan.
CodeReview A comprehensive report, prepared by Santiago, which contains
the status and a current short description of each CPT Code (Current Procedural
Terminology) submitted by a physician's office. The report provides the
physician with a quick and easy interpretation of the codes used along with
their monthly frequency and associated fees.
Service Contract - On-line support is provided to OneClaim Plus
customers by the Company's technical support staff.
5
<PAGE>
The Company is continually investigating the feasibility of enhancing
software platforms and developing new conventions to meet its clients' needs.
All product is shipped C.O.D. and/or payment is received by credit card, thereby
eliminating a large accounts receivable. All electronic billing is received in
the Company's office by electronic transmission and invoiced to on-line
customers.
The practice management service industry is highly competitive. The Company
considers itself to be one of the leading providers of practice management
services to physicians, dentist, chiropractors and billing centers. With 17
years of specialized experience in practice automation, the Company offers its
customers efficient and effective ways of providing medical management services
at a very favorable price. The Company believes that its excellent service gives
it an edge over its competitors.
OneClaim Plus and Procedure Code Review are trademarks of Santiago.
The Company has spent approximately $100,000 to $150,000 in each of the past
three years in research and development of new product which the Company
released late in 1996.
Employees
The Company currently employs approximately 30 full and part time
employees. The Company has no labor union contracts and believes its
relationship with its employees is good.
Item 2. Properties
The Company's principal executive office is leased and located in
Arlington, Texas. The lease expires in March, 1999. Santiago's principal office
is leased and located in Newport Beach, California. The lease expires on June
30, 1999.
Item 3. Legal Proceedings None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders for a vote during the
fourth quarter of 1996.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
At the Company's Annual Meeting on June 18, 1996, a name change was
approved. The approved name is MB Software Corporation and the Company's common
stock is traded under the symbol "MBSC" on NASDAQ's OTC Electronic Bulletin
Board. The following table sets forth the range of high and low bid prices of
the Company's common stock:
BID PRICE
BY QUARTER ENDED: HIGH LOW
- ---------------- ---- ---
Year Ended 12/31/96
March, 1996 $ .27 $ .20
June, 1996 .32 .25
September, 1996 .29 .26
December, 1996 .12 .10
6
<PAGE>
Year Ended 12/31/95
March, 1995 $ .05 $ .03
June, 1995 .03 .01
September, 1995 .03 .01
December, 1995 .08 .03
The Company had approximately 7830 holders of record of its common stock as of
December 31, 1996. No dividends have been paid on common stock and none are
anticipated in the foreseeable future. The Company has determined that it will
utilize any earnings in the expansion of its business.
Item 6. Management's Discussion and Analysis or Plan of Operation:
This section discusses the financial condition, changes of financial
condition and results of operations of the Company and its subsidiaries for the
period from January 1, 1996 to December 31, 1996 as compared with the period
from January 1, 1995 to December 31, 1995. (See Notes to Consolidated Financial
Statements, Note A "The Company".) This Annual Report contains certain
forward-looking statements and information relating to the Company that are
based on the beliefs of the Company's management. When used in this document,
the words "anticipate," "believe," "estimate" and "expect" and similar
expressions as they relate to the Company or management of the Company are
intended to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject to
certain risks, uncertainties and assumptions, including the risk factors
described in the Annual Report. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward-looking statements. The nature of business and various business
development activities of the Company during 1996 are described in "Item 1,
-------
Business."
- ---------
Total Revenues in 1996 totaled $2,986,908, a 296% increase over 1995
revenues of $754,152. Revenue sources centered on sales of medical, dental and
chiropractic software systems, electronic claims transmissions, electronic
statement generation and maintenance contracts. Said increases were a direct
result of new marketing strategies for medical systems sales, plus greater
emphasis on electronic claims and statements.
Cost of Revenues in 1996 remained proportionate with $2,170,882, a 278%
increase over 1995 totals of $573,552. Management believes Cost of Revenue
margins are an area where further improvement may be effected. New programs in
marketing and sales were actuated and expensed, thereby precluding additional
ramp-up costs or new major development costs.
Operating Expenses were $1,947,488 in 1996, a 42% increase for the same
period in 1995, which totaled $1,367,196. Greater focus on every cost-center
operation arrested any upward cost and kept cost containment in the operational
forefront.
Net Income during 1996 improved to $395,330, a 157% increase over 1995
which was Net Loss of ($690,487). The profit margins were realized through
implementation of new marketing, budgetary, results-planning and cost
containment disciplines.
The Company is unable to predict the positive or negative impact of
prospective healthcare insurance legislation on its core business. Conversely,
management believes that product and service flexibility and adaptability must
be designed into their delivery in order to protect clients from legislated
changes in healthcare.
The Company recorded gains of $86,134 and $140,000 based on debt
extinguishment.
7
<PAGE>
Liquidity and Capital Resources
As of December 31, 1996, the Company had Current Assets of $538,501 and
Other Assets of $1,262,837. Current Liabilities at December 31, 1996, were
$831,178 of which $41,035 were notes and advances loaned to the Company by
certain of its senior officers, directors and shareholders. Included in Long
Term Liabilities at December 31, 1996 were $1,283,808 of notes and cash advances
loaned to the Company by certain of its senior officers, directors and
shareholders.
The Company utilized net cash of $499,612 from investing activities
in 1996 as compared to cash generated from investing activities of $308,955
in 1995.
In 1995 cash used in investing activities related primarily for
purchases of property and equipment of $3,227 and software development costs of
$55,750. Cash provided from investing activities results from collections in
notes receivable of $75,000 and proceeds from sale of assets of $295,512.
During 1996 and 1995 cash provided by financing activities amounted to
$687,518 and $12,277, respectively. In 1996 payments on notes payable of
$554,707 was offset by proceeds from notes payable of $1,041,842. In 1995
payments and proceeds on notes payable amounted to $556,854 and $561,538
respectively. The Company issued 4,500,000 shares of treasury stock in 1996 to
pay off a $45,000 note payable.
The Company generates sufficient cash flow from operations to fund its
normal ongoing development operations and administrative costs. The Company
remains absolute in its resolve to increase profitability through its medical
software business and long term strategies. The Company may attempt to sell
capital stock through a private placement and/or obtain loans as necessary to
fund the expansion needs of the Company. There can be no assurance that the
Company will be successful in these endeavors.
The Company introduced two new products late in 1996. The Company
anticipates that these products will receive favorable response in the market
and will generate appreciable revenues. There can be no assurances to that
effect or that the introduction of the two new products will be successful.
Item 7. Financial Statements
Filed as exhibits hereto are the following statements of the Company
and its subsidiaries:
<TABLE>
<CAPTION>
<S> <C>
Page
Report of Independent Certified Public Accounts F- 3
Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1995 F- 4
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 F- 5
Consolidated Statements of Shareholder's Deficit for the
years ended December 31, 1996 and 1995 F- 6
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995 F- 7
Notes to Consolidated Financial Statements F- 9
</TABLE>
8
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following table sets forth certain information regarding the
directors and executive officers of the Company:
Year First
Name Age Position Elected
- ---- --- -------- -------
Scott A. Haire 32 President, Director 1993
Gilbert A. Valdez 52 Chief Operating Officer 1996
Araldo A. Cossutta 72 Director 1994
Steven W. Evans 45 Director 1994
Robert E. Gross 51 Director 1994
Thomas J. Kirchhofer 55 Director 1994
Lucy J. Singleton 59 Secretary 1995
Executive Officers of the Company are elected on an annual basis and
serve at the discretion of the Board of Directors. Directors of the Company are
elected on an annual basis.
Scott A. Haire Chairman, President and Director. Mr. Haire is Chief Executive
- --------------
Officer of MB Software Corporation and has been with the Company since its
inception in 1992.
Gilbert A. Valdez Chief Operating Officer and Director. Mr. Valdez is a former
- -----------------
president and Chief Executive Officer of the National Electronic Information
Corporation, Medaphis Corporation, Datix Corporation and Hospital Billing and
Collection Services Corporation and has been with the Company for one year.
Araldo A. Cossutta Director. Mr. Cossutta is president of Cossutta and
- --------------------
Associates, an architectural firm based in New York City. He is also a director
of Computer Integration Corporation of Boca Raton, Florida.
Steven W. Evans Director. Mr. Evans is a certified public account and president
- ---------------
of Evans Phillips & Co., PSC, an accounting firm. He is a founder and active in
PTRL which operates contract research laboratories in Kentucky, North Carolina,
California and Germany. He is active in environmental management and financial
and hotel corporations in Kentucky and Tennessee.
Robert E. Gross Director. Mr. Gross is president of R. E. Gross & Associates,
- ---------------
which provides consulting and system projects for clients in the multi-location
service, banking and healthcare industries.
9
<PAGE>
Thomas J. Kirchhofer Director. Mr. Kirchhofer is president of Synergy Wellness
- --------------------
Centers of Georgia, Inc., and a past president of the Georgia Chiropractic
Association.
Lucy Singleton Secretary. Ms. Singleton has been secretary since 1995.
- --------------
Item 10. Executive Compensation
The Company provides health benefits to its employees and may provide
additional benefits in the future, as may be authorized by the Board of
Directors. No retirement, pension, profit sharing or other similar program has
been adopted by the Company.
The Company may offer stock bonuses, stock options, profit sharing or
pension plans to key employees or executive officers of the Company in such
amounts and upon such conditions as the Board of Directors may, in its sole
discretion, determine.
Summary Compensation Table
The following sets forth information concerning the compensation of the
Company's Chief Executive Officer for the fiscal years shown No other Executive
Officer was paid a salary in excess of $100,00 during such period.
<TABLE>
<CAPTION>
Name and Long Term Compensation
Principal Annual Compensation Restricted Options All
------------------- -----------------------------------
<S> <C> <C>
Position Stock /SARS Other
Year Salary($) Bonus Other Awards # shares(2) Comp.($)
Scott A. Haire 1996 120,000 -0- -0- -0- -0- -0-
President 1995 -0- -0- -0- -0- -0- -0-
1994 58,750 -0- -0- -0- -0- -0-
</TABLE>
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Options/SAR Values
The following table provides information concerning option exercises in fiscal
1996 and the value of unexercised options held by each of the named Executive
Officers at December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Shares Acquired Value No. of unexercised Value of unexercised
on Exercise (#) Realized ($) options /SARs at in-the-money options/
at FY-End (#) SARs at FY-end($)
exercisable/unexercisable exercisable/unexercisable
Scott A. Haire -0- N/A 1,800,000 $180,000.00
</TABLE>
10
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 1996,
regarding the beneficial ownership of capital stock of the Company by; (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock; (ii) each director of the Company; (iii) the Company's
Chief Executive Officer; and (iv) the directors and executive officers of the
Company as a group. The persons named in the table have sole voting and
investment power with respect to all shares of capital stock owned by them,
unless otherwise noted.
Amount and Nature
Name of Beneficial of Beneficial Percent
Owner of Group(1) Ownership of Class
- ------------------ ----------------- ---------
Scott A. Haire 29,121,297 (2) 42.0%
Araldo A. Cossutta 2,982,025 4.0%
Steven W. Evans 1,500,000 2.0%
Thomas J. Kirchhofer - *
Robert E. Gross 200,000 (3) *
R-M-S Investments, LTD. 11,000,000 16.0%
Cazenove 7,500,000 10.0%
All Directors and Executive Officers as 41,303,332 60.8%
a group(five in number)
- ----------
* Less than 1%.
(1) The address for each person or entity listed above is 2225 E. Randol Mill
Road, Suite 305, Arlington, Texas, 76011.
(2) Includes 1,800,000 shares and 600,000 shares subject to options and a
warrant, respectively, that are presently exercisable.
(3) Consists of shares subject to options that are presently exercisable by Mr.
Gross.
Item 12. Certain Relationships and Related Transactions
Loans have been made to the Company by certain of its senior officers,
directors, and shareholders. See "Item 6. Management's Discussion and Analysis
or Plan of Operation - Liquidity and Capital Resources." Scott A. Haire has made
loans to the Company in the amount of $434,808.08 at 8 percent interest.
Item 13. Exhibits Reports on Form 8-K
1. Reports on Form 8-K --None.
2. Exhibits -- All exhibits incorporated by reference from
prior filings with the Commission.
11
<PAGE>
SIGNATURE
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, thereunto duly authorized.
MB SOFTWARE CORPORATION
By: /s/ Scott A. Haire
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
Date: March 31, 1997
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MB SOFTWARE CORPORATION
AND SUBSIDIARIES
(FORMERLY INAV TRAVEL CORPORATION AND SUBSIDIARIES)
DECEMBER 31, 1996 AND 1995
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
CONTENTS
Page
----
Report of Independent Certified Public Accountants F-3
Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-4
Consolidated Statements of Operations for the
years ended December 31, 1996 and 1995 F-5
Consolidated Statements of Shareholders' Deficit for the
years ended December 31, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995 F-7
Notes to Consolidated Financial Statements F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
MB Software Corporation (formerly INAV Travel Corporation and Subsidiaries)
We have audited the accompanying consolidated balance sheets of MB Software
Corporation and subsidiaries (Formerly INAV Travel Corporation and Subsidiaries)
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MB
Software Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
February 21, 1997
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
------
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---------- ---------
CURRENT ASSETS
Cash $ 196,653 $ 36,535
Trade accounts receivable, net of allowance for doubtful
accounts of $33,487 and $0 311,965 59,788
Note receivable 10,000 -
Prepaid expenses and other 19,883 -
---------- ---------
Total current assets 538,501 96,323
---------- ---------
PROPERTY AND EQUIPMENT, NET 63,349 23,839
---------- ---------
OTHER ASSETS
Goodwill, net of accumulated amortization of $209,255 and $103,319 850,109 956,045
Software development costs, net of accumulated amortization of $101,374
and $3,871 394,240 51,879
Deposits 18,488 17,788
---------- ---------
Total other assets 1,262,837 1,025,712
---------- ---------
$ 1,864,687 $1,145,874
========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES
Cash overdraft $ - $ 29,616
Notes payable, including $41,035 and $130,172
due to related parties 242,029 397,741
Accounts payable 149,741 177,266
Accrued liabilities 101,382 142,754
Other liabilities - related party 179,000 527,350
Deferred revenues 159,026 160,878
---------- ---------
Total current liabilities 831,178 1,435,605
---------- ---------
LONG-TERM LIABILITIES
Notes payable less current maturities, all to related parties 1,283,808 710,898
Other liabilities - related party 40,000 130,000
---------- ---------
Total liabilities 2,154,986 2,276,503
---------- ---------
COMMITMENTS AND CONTINGENCIES (Notes D, E, I, J, K and O)
SHAREHOLDERS' DEFICIT
Common stock; $.001 par value; 100,000,000 shares
authorized; 67,885,000 and 49,485,000 shares issued 67,885 49,485
Additional paid-in capital 810,322 518,722
Accumulated deficit (1,156,467) (1,551,797)
Treasury stock, at cost; 409,577 and 4,909,577 shares, respectively (12,039) (147,039)
---------- ---------
Total shareholders' deficit (290,299) (1,130,629)
---------- ---------
$ 1,864,687 $1,145,874
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------- ----------
REVENUES
Service fee and broker income $ 211,864 $ 100,064
Software and maintenance sales 2,461,562 639,644
Consulting fee income 299,000 -
Other 14,482 14,444
---------- ----------
Total revenues 2,986,908 754,152
---------- ----------
COST OF REVENUES
Cost of service fees and broker income 2,549 13,583
Cost of software and maintenance sales 813,477 167,017
---------- ----------
Total cost of revenues 816,026 180,600
---------- ----------
GROSS PROFIT 2,170,882 573,552
---------- ----------
OPERATING EXPENSES
Selling, general & administrative 1,733,810 990,872
Depreciation and amortization 213,678 129,467
Loss on write down of assets held for sale - 135,000
Loss on disposition of fixed assets and assets
held for sale and related notes receivable - 111,857
---------- ----------
Total operating expenses 1,947,488 1,367,196
---------- ----------
INCOME (LOSS) FROM OPERATIONS 223,394 (793,644)
---------- ----------
OTHER INCOME (EXPENSE)
Interest expense (72,817) (83,104)
Gain from reduction of liabilities 140,000 153,856
Other, net 18,619 1,978
---------- ----------
Total other income (expense) 85,802 72,730
---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM 309,196 (720,914)
DISCONTINUED OPERATIONS
Loss from operations of discontinued smart card products segment - (61,911)
Gain on sale of discontinued segment - 17,944
---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 309,196 (764,881)
Gain on debt extinguishment, net of income taxes of $0 86,134 74,394
---------- ----------
NET INCOME (LOSS) $ 395,330 $ (690,487)
========== ==========
Loss per weighted-average common share:
Income (loss) from continuing operations before extraordinary item $ .00 $ (0.01)
========== ==========
Extraordinary item $ 0.00 $ 0.00
========== ==========
Net income (loss) $ .01 $ (0.01)
========== ==========
Weighted-average common shares outstanding 69,791,096 49,485,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
------ ------ ------- ----------- -------- --------
Balances at December 31, 1994 49,485,000 $49,485 $518,722 $ (861,310) $(147,039) $ (440,142)
Net loss - - - (690,487) - (690,487)
---------- -------- --------- ---------- --------- --------
Balances at December 31, 1995 49,485,000 49,485 518,722 (1,551,797) (147,039) (1,130,629)
Common stock issued for ca 1,600,000 1,600 398,400 - - 400,000
Treasury stock issued in settlement
of a note payable (Note F) - - (90,000) - 135,000 45,000
Issuance of shares related to
acquisition of Santiago (Note F) 1,800,000 1,800 (1,800) - - -
Issuance of shares in connection
with 1993 merger (Note F) 15,000,000 15,000 (15,000) - - -
Net income - - - 395,330 - 395,330
---------- -------- -------- ---------- --------- -----------
Balances at
December 31, 1996 67,885,000 $67,885 $810,322 $(1,156,467) $ (12,039) $ (290,299)
========== ====== ======= ========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the year $ 395,330 $(690,487)
Adjustments to reconcile net income (loss) to net cash
used by operating activities
Depreciation and amortization 213,678 129,467
Loss on disposal of fixed assets - 77,885
Loss on disposition and write down of assets held for
sale and related notes receivable - 168,972
Gain on disposition of PC3 assets and certain liabilities - (17,944)
Gain on debt extinguishment (86,134) (74,394)
Gain from reduction of liabilities (140,000) (153,856)
Change in allowance for doubtful accounts 33,487 -
Changes in assets and liabilities, net of effects of
acquisition and disposition
Trade accounts receivable (285,664) (3,420)
Inventories - 18,732
Prepaid expenses and other (19,883) 22,479
Deposits (700) 1,500
Accounts payable and accrued liabilities (7,700) 56,807
Other liabilities - related party (128,350) 12,456
Deferred revenues (1,852) 160,878
---------- ---------
Net cash used by operating activities (27,788) (290,925)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (49,748) (3,227)
Software development costs capitalized (439,864) (55,750)
Cash paid in connection with sale of PC3 - (2,580)
Proceeds from sale of asset held for sale
and related notes receivable - 295,512
Collections on notes receivable - 75,000
Advances on notes receivable (10,000) -
----------- --------
Net cash provided (used) by investing activities (499,612) 308,955
---------- --------
</TABLE>
- Continued -
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Years ended December 31,1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable $ (554,707) $(556,854)
Proceeds from notes payable 1,041,841 561,538
Net payments on other liabilities - related party (170,000) -
Change in cash overdraft (29,616) 7,593
Proceeds from common stock issuance 400,000 -
---------- ---------
Net cash provided by financing activities 687,518 12,277
---------- ---------
INCREASE IN CASH 160,118 30,307
Cash at beginning of period 36,535 6,228
---------- ---------
Cash at end of period $ 196,653 $ 36,535
========== =========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 74,166 $ 87,427
========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of note payable for acquisition of assets and certain
liabilities of Santiago $ - $ 529,000
========== =========
Issuance of treasury stock in settlement of note payable $ 45,000 $ -
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. The Company
-----------
MB Software Corporation ("MB" or the "Company") (formerly INAV Travel
Corporation) was incorporated in 1982 and is a provider of practice
management services and cash management resources. The Company's primary
markets are physicians, dentists, chiropractic groups, select HMO and PPO
organizations throughout the United States. The Company's revenue
consists of sales of software and related maintenance contracts and
related consulting services, and service fee and broker income.
During 1994 and 1995, the Company engaged in the medical receivables
servicing and consulting business and the development and marketing of
smart card hardware and software products including computer security
systems. During 1994, the Company developed a frequent shopper product
that utilized a central computer host to record retail customer
transactions for Company clients. On-site testing of the product at a
retail site was completed in 1994, but further investment in aggressive
marketing and full scale electronic host infrastructure was not
undertaken due to the decline in Company revenues in 1994. In October
1995, this smart card product business was sold and the entity through
which the Company conducted this business, Personal Computer Card
Corporation ("PC3") was dissolved.
On May 18, 1994, Santiago SDS, Inc. ("SDS") was formed as a Nevada
Corporation for the purpose of selling software and maintenance
contracts. Through this subsidiary, in 1995 the Company acquired all of
the assets and certain related liabilities of Santiago Data Systems, Inc.
("Santiago") for $529,000 and 1,800,000 common shares (issued in 1996 -
see Note F). Santiago develops, supports and licenses medical and dental
software through the comprehensive nationwide program called OneClaim
Plus. Procedure Code Review ensures accurate procedure coding for a well
managed practice. STAT Access provides physicians and hospitals with
immediate access to vital information regarding patients' medical and
health history (Note B).
2. Consolidation Policy
--------------------
The consolidated financial statements include the accounts of MB and its
wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
3. Use of Estimates and Assumptions
--------------------------------
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Actual results could vary from the estimates that were used.
4. Revenue Recognition
-------------------
Revenue consists primarily of sales of the Company's software products,
maintenance and customer support and related consulting services.
Software Sales - Sales of software are recognized at shipment of
the product and fulfillment of acceptance terms,
if any.
Consulting Fees - Consulting fees are recognized as the service is
delivered.
Services Revenue - Maintenance revenue is deferred and
recognized ratably over the term of the
maintenance agreement, which is typically
twelve months.
F-9
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
5. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation for financial
statement purposes is computed principally on the straight-line method
over the estimated useful lives of the related assets ranging from three
to seven years. Maintenance and repairs are expensed as incurred.
Replacements and betterments are capitalized.
6. Goodwill
--------
Goodwill is the difference between the purchase price paid and
liabilities assumed over the estimated fair market value of assets
acquired in connection with Santiago. Goodwill amounted to $1,059,364 and
is being amortized using the straight-line method over 10 years.
Effective January 1, 1996, the Company revised the estimated life used to
compute amortization for goodwill from 4 years to 10 years. This revision
was made to more properly reflect management's current expectation of the
true period of future benefit of the acquired goodwill. The change had
the effect of increasing net income for the year ended December 31, 1996
by $158,905 and increasing net income per share by $0. Amortization
expense for 1996 and 1995 amounted to $105,936 and $103,319,
respectively. On an on-going basis management reviews recoverability, the
valuation and amortization of goodwill. As a part of this review, the
Company considers the undiscounted projected future net earnings in
evaluating the value of goodwill. If the undiscounted future net earnings
is less than the stated value, the goodwill would be written down to fair
value.
7. Earnings Per Common Share and Common Share Equivalents
------------------------------------------------------
Earnings per share is based on the weighted average number of shares of
common stock and common equivalent shares outstanding during the period.
Common equivalent shares are comprised of dilutive stock options.
8. Cash and Cash Equivalents
-------------------------
The Company considers all cash on hand and in banks, demand and time
deposits, certificates of deposit, and all other highly liquid debt
investments with maturities of three months or less when purchased, to be
cash and cash equivalents. There were no cash equivalents at December 31,
1996 and 1995.
9. Business and Credit Risk Concentrations
---------------------------------------
The Company extends unsecured credit to some of its customers in the
normal course of the software sales and consulting business. A
significant portion of the customers pay for the software in cash.
Service maintenance contracts are paid for in advance and amortized over
the period of the contract. Consulting fees are billed as the services
are provided. Customers are located throughout the United States and none
of these customers are individually significant.
The majority of service fee and broker income with respect to medical
receivables are received in cash at time of completion of each
transaction. Clients are located throughout the United States.
During the year ended December 31, 1996, one customer accounted for 14%
of total revenues, or approximately $420,000. No one customer
accounted for greater than 10% of revenues during 1995.
F-10
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
9. Business and Credit Risk Concentrations - Continued
---------------------------------------
Management evaluates accounts receivable balances on an ongoing basis and
provides allowances as necessary for amounts estimated to eventually
become uncollectible. The allowance for uncollectible accounts receivable
at December 31, 1996 and 1995 was $33,487 and $0, respectively. In the
event of complete non-performance of accounts receivable, the maximum
exposure to the Company is the recorded amount on the financial
statements at the date of non-performance.
The Company maintains its cash in bank deposit accounts at high quality
financial institutions. The balances at times, may exceed Federally
insured limits. At December 31, 1996, the Company exceeded the insured
limit by approximately $76,125.
10. Income Taxes
------------
The Company accounts for income taxes in accordance with the asset and
liability method. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
11. Software Development
--------------------
The Company was previously involved in developing frequency software and
hardware to be sold as an integrated system. After the acquisition of
Santiago assets and liabilities in 1995, the Company became involved in
developing software related to the medical profession as described
previously. The Company capitalizes software development costs after
technological feasibility has been established in accordance with
Financial Accounting Standards Board Statement Number 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed".
Software costs are amortized over the estimated economic life of the
software from the time that a particular product is completed.
No amortization on frequency related software has been recorded during
1996 and 1995 as the asset was being held for sale and was written off
in 1995.
Software development costs incurred in development of medical billing
software of $439,864 and $55,750 were capitalized in 1996 and 1995,
respectively. Amortization of these costs amounted to $97,503 and
$3,871 during 1996 and 1995, respectively.
12. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
F-11
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE B - ACQUISITION AND DISPOSITION
Acquisition
- -----------
As discussed in Note A1, MB acquired the assets and certain liabilities of
Santiago in August 1995 for $529,000 and the issuance of 1,800,000 common
shares (issued in 1996).
A summary of the fair value of assets acquired and liabilities assumed is as
follows:
Accounts receivable $ 40,567
Property and equipment 17,788
Goodwill 1,059,364
Amount due by Santiago to MB (183,486)
Current liabilities (54,763)
Other liabilities (350,470)
----------
$ 529,000
==========
Unaudited pro forma financial information for the year ended December 31, 1995
as though the acquisition had occurred on January 1, 1994 is as follows:
Revenues $1,573,000
Loss from continuing operations before
extraordinary item $(927,000)
Net loss $(1,001,000)
Net loss per share $(0.02)
Disposition
- -----------
Effective in October 1995, the Company disposed of substantially all of the
assets and liabilities of PC3 (Note A1), and dissolved this entity. The Company
recorded a gain on disposition of $17,944 in 1995. Revenues for PC3 for the year
ended December 31, 1995 amounted to $42,896.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996 and 1995:
1996 1995
--------- -------
Computer equipment $ 87,217 $ 37,468
Furniture and fixtures 1,056 1,056
------- -------
88,273 38,524
Less accumulated depreciation and amortization (24,924) (14,685)
------- -------
$ 63,349 $ 23,839
======= =======
F-12
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE D - NOTES PAYABLE
Notes payable consist of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---------- -------
Unsecured note to a shareholder due on
December 31, 1997, settled in 1996. $ - $ 276,090
Unsecured note to an employee, officer and shareholder
due December 31, 1998, bearing interest at 8%. 434,808 434,808
Note to a shareholder due on demand, bearing interest at 9%. - 40,000
Note payable to an individual settled in 1996 through the
issuance of 4,500,000 shares of common stock held
in treasury. - 45,000
Note payable to shareholder of Santiago assumed during
purchase of Santiago assets and assumption of certain
liabilities, due on demand, bearing no interest. 8,129 62,741
Note payable to third parties assumed in connection with
Santiago purchase, due on demand, bearing no interest. 150,994 222,569
Note payable to shareholder of Santiago assumed during Santiago
purchase, due on demand bearing no interest. - 27,431
Unsecured notes payable to a shareholder ($455,000 due
December 22, 1998 and $300,000 due June 19, 1998), bearing
interest at 8%. 755,000 -
Unsecured note to a shareholder due on demand, bearing interest at 8%. 25,000 -
Unsecured note to a shareholder due in 1998, bearing interest at 8%. 45,000 -
Unsecured note to a shareholder due on demand, bearing interest at 8%. 7,906 -
Unsecured note to a shareholder due December 31, 1998, bearing
interest at 8%. 12,000 -
Unsecured note to a shareholder due July 16, 1998, bearing
interest at 8%. 25,000 -
Unsecured note to a shareholder due December 31, 1998, bearing
interest at 8%. 12,000 -
Note payable to a bank due February 23, 1997, bearing interest
at prime (8.5% at December 31, 1996). 50,000 -
---------- ----------
1,525,837 1,108,639
Less current portion (242,029) (397,741)
---------- ----------
Long-term portion $ 1,283,808 $ 710,898
========== ==========
</TABLE>
F-14
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE D - NOTES PAYABLE - Continued
The following is a schedule of maturities of notes payable at December 31, 1996:
1997 $ 242,029
1998 1,283,808
---------
$1,525,837
NOTE E - OTHER LIABILITIES
Other current and long-term liabilities at December 31, 1995 include the
liability of $529,000 in connection with the acquisition of assets and certain
liabilities of Santiago. In early 1996, the amount due was discounted to
$389,000 to reflect revised terms and an accelerated payment plan. Under this
revised agreement, $100,000 was paid immediately. Of the remaining amount,
$230,000 was due in 23 monthly installments of $10,000 beginning in March 1996.
Seven payments were made during 1996, totaling $70,000, leaving a balance of
$160,000 due in monthly installments at December 31, 1996 of the balance due,
$59,000 will be paid on behalf of Santiago to the State of California upon
settlement of a tax dispute with the State; provided that if the amount of such
settlement is less than $59,000, the amount to be paid by the Company will be
reduced accordingly. In accordance with its payment terms, $40,000 of the
$219,000 is classified as long term. All amounts due are non-interest bearing.
NOTE F - SHAREHOLDERS' EQUITY (DEFICIT)
During 1996, the Company issued 4,500,000 common shares out of treasury in
settlement of a note payable of $45,000. (Note D)
During 1996, the Company recorded the issuance of 15,000,000 shares of common
stock relating to the 1993 merger with Medbanc Data Corporation ("Medbanc"). In
addition, the Company recorded the issuance of 1,800,000 shares of common stock
relating to the 1995 acquisition of Santiago. As a result of this merger and
acquisition, the Company was obligated to issue these additional shares as soon
as the Company's shareholders approved the filing of amended articles of
incorporation increasing the authorized shares from 50,000,000 to 100,000,000.
The shareholders approved this change on June 18, 1996.
NOTE G - INCOME TAXES
A reconciliation of the expected federal income tax expense (benefit) based
on the U.S. Corporate income tax rate of 34% to actual expense (benefit) for
1996 and 1995 is as follows:
1996 1995
--------- ------
Expected federal income tax provision (benefit) $ 134,412 $(234,889)
State income taxes 17,790 -
Valuation allowance and other (152,202) 234,889
-------- --------
$ - $ -
======== ========
Deferred tax assets and liabilities as of December 31, 1996 and 1995 are as
follows:
1996 1995
-------- -------
Current deferred tax asset 71,171 $ -
Current deferred tax liability - -
Valuation allowance for current deferred tax asset (71,171) -
------- ----------
Net current deferred tax asset $ - $ -
======= ==========
F-14
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE G - INCOME TAXES - Continued
1996 1995
---------- -------
Non-current deferred tax asset $1,101,361 $ 703,799
Non-current deferred tax liability (183,228) (17,639)
Valuation allowance for non-current
deferred tax asset (918,133) (686,160)
--------- --------
Net non-current deferred tax asset $ - $ -
========= ========
The current deferred tax asset results from reserve for accounts receivable
which is not deductible for tax purposes until actually written off, and
deferred revenues on service contracts which are recognized for tax purposes
upon receipt. The non-current deferred tax liability results from software
development charges capitalized for financial reporting purposes and deducted
for federal income tax purposes. The non-current deferred tax asset results from
differences in amortization of goodwill for financial and federal income tax
reporting purposes and the deferred tax benefit of net operating losses. The net
current and non-current deferred tax assets have a 100% valuation allowance, as
the ability of the Company to generate sufficient taxable income in the future
is not certain.
MB and PC3 generated net operating losses for financial reporting and Federal
income tax reporting prior to their reorganization in 1993. (see Note A1). As of
December 31, 1996, subject to limitations under Internal Revenue Code '382,
approximately $469,000 of these net operating losses are available for use after
the reorganization. These net operating losses expire in 2008 if not utilized.
The net operating loss carry forward at December 31, 1996 amounts to $2,700,000
and will begin to expire in 2008 if not utilized.
NOTE H - RELATED PARTY TRANSACTIONS
Prior to and during the years ended December 31, 1996 and 1995, the Company
received and repaid portions of advances from shareholders and officers. (Note
D)
During 1995, in order raise cash, notes receivable amounting to $104,484 were
sold to a shareholder at a discount of approximately $29,000.
NOTE I - LEASE COMMITMENTS
The Company has two non-cancelable leases for office space. Future minimum
payments under these leases and other equipment operating leases are payable as
follows:
Year Ended
December 31, Amount
1997 $121,973
1998 125,441
1999 56,672
-------
$304,086
Lease and rent expense under non-cancelable operating leases for 1996 and 1995
was $109,859 and $85,066, respectively.
F-15
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company does not carry general liability or workman's compensation liability
insurance for the corporate office in Arlington, Texas.
A claim has been made against SDS relating to alleged sexual harassment and
unpaid overtime pay. As of the date of these financial statements, the potential
amount of exposure to the Company should the claim have an unfavorable outcome
cannot be estimated. If the outcome is unfavorable, the effect could be
significant to the financial condition, operations and cash flows of the
Company. The Company intends to vigorously defend itself in this matter.
NOTE K - STOCK OPTIONS AND WARRANTS
Non-qualified Stock Options
- ---------------------------
In March 1991, MB granted non-qualified stock options to purchase 515,000 shares
of common stock to an officer, director, and shareholder of the Company. The
options were exercisable at any time up to March, 1997. In October 1992, the
Board of Directors of MB repriced these options to $.05 per share to reflect the
current market value of the shares. Subsequent to December 31, 1996, options to
purchase the 515,000 shares lapsed.
Other Stock Options
- -------------------
Effective May 5, 1994, the Board of Directors approved an Incentive Stock Option
Plan ("Plan") for key executives and employees. The Plan provides for 1,045,000
shares.
A summary of changes in the Company's incentive stock options issued under the
Plan and other compensatory options follows:
Other
Plan Options Compensatory Option Combined Total
------------ ------------------- --------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
------- ----- ------- ------ -----------
Outstanding at 12/31/94 370,000 $.04 1,800,000 $.03 2,170,000
------- --------- ---------
Granted 20,000 $.05 - - 20,000
Exercised - - - - -
Forfeited - - - - -
------- ---------- --- ---------
Outstanding at 12/31/95 390,000 $.04 1,800,000 $.03 2,190,000
Granted 475,000 $.06 600,000 $.15 1,075,000
Exercised - - - - -
Forfeited - - - - -
------- --- ---------- --- ---------
Outstanding
at 12/31/96 865,000 $.05 2,400,000 $.06 3,265,000
======= === ========== === =========
F-16
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE K - STOCK OPTIONS AND WARRANTS - Continued
Other Stock Options - Continued
The fair value of options issued during 1996 and 1995 was $63,435 and $37,
respectively.
The following table summarizes information about options outstanding at December
31, 1996 under the Plan:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
<S> <C> <C>
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ---------------- -------------- ----------- -----------------
$.02 - $.10 865,000 3.9 $.05 697,500 $.05
</TABLE>
The following table summarized information about the other compensatory stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
<S> <C> <C>
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
$.03 - $.15 2,400,000 3.7 $.06 1,800,000 $.03
</TABLE>
A summary of changes in the Company's non-compensatory options follows:
Non-Compensatory Weighted Average
Options Exercise Price
Outstanding at 12/31/94 - $ -
------------- ----------
Granted - $ -
Exercised - $ -
Forfeited - $ -
------------- ----------
Outstanding at 12/31/95 - $ -
Granted 600,000 $ .42
Exercised - $ -
Forfeited - $ -
------------- ----------
Outstanding at 12/31/96 600,000 $ .42
============ ==========
F-17
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE K - STOCK OPTIONS AND WARRANTS - Continued
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB25"), in accounting for its compensatory stock options plans.
The options granted during 1996 and 1995 have exercise prices which approximate
fair value, and accordingly, no compensation cost has been recognized for its
incentive or other compensatory stock options in the consolidated financial
statements. Had compensation cost for the Company's stock options been
determined consistent with FASB statement No. 123, "Accounting for Stock Based
Compensation", the Company's net income (loss) and net income (loss) per share
would have been changed to the pro forma amounts indicated below:
Years ended December 31,
-----------------------
1996 1995
---- ----
Net Income (Loss) As reported $395,330 $(690,487)
Pro forma $331,895 $(690,524)
Net Income (Loss) per share As reported $ 0.01 $ (0.01)
Pro forma $ 0.01 $ (0.01)
Of the 3,265,000 outstanding incentive stock options at December 31, 1996,
2,497,500 options are fully vested at December 31, 1996 and 767,500 options vest
in 1997.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in both 1996 and 1995; dividend yield of 0%, expected volatility of
29.55%, risk free interest rates ranging from 5.77% to 6.41% over a 5 year
period, and an expected life of 3 years.
Stock Warrants
In connection with issuance of common shares for cash during 1996, 1,000,000
warrants to purchase common shares were issued. The warrants have an exercise
price of $.35 per share and expire December 31, 2001 if not exercised.
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments", requires disclosure about the fair value of all
financial assets and liabilities for which it is practicable to estimate. Cash,
accounts receivable, notes receivable, accounts payable, notes payable and other
liabilities are carried at amounts that reasonably approximate their fair
values.
F-18
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE M - BUSINESS SEGMENT INFORMATION
The Company's operations have been classified into two principal business
segments: medical receivables and software and maintenance sales. Summarized
financial information by significant business segments as of and for the years
ended December 31, 1996 and 1995 is as follows:
1996 1995
---------- --------
Revenues:
Medical receivables 211,864 $ 100,064
Software and maintenance sales 2,461,562 639,644
Other 313,482 14,444
--------- ------------
$2,986,908 $ 754,152
========= ===========
Operating income (loss):
Medical receivables $ 30,312 $ (531,262)
Software and maintenance sales 194,458 (262,382)
Corporate (1,376) -
--------- -----------
$ 223,394 $ (793,644)
========= ===========
Total assets:
Software and maintenance sales $ 1,505,624 $ 1,098,732
Corporate 359,063 47,142
---------- -----------
$ 1,864,687 $ 1,145,874
========== ===========
Depreciation and amortization:
Software and maintenance sales $ 205,768 $ 107,191
Corporate 7,910 22,276
----------- -----------
$ 213,678 $ 129,467
=========== ===========
Capital expenditures:
Software and maintenance sales $ 484,304 $ 55,750
Corporate 5,308 3,227
----------- -----------
$ 489,612 $ 58,977
=========== ===========
F-19
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
(Formerly INAV Travel Corporation and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued
NOTE N - SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
Significant fourth quarter adjustments amounting to $16,480 (net of income taxes
of $0) were recorded as follows:
Depreciation expense $ 80,688
Amortization expense 105,936
Capitalized software development costs (203,104)
--------
(16,480)
Less: Income tax effect -
Fourth quarter adjustments, net $ (16,480)
========
NOTE O - SUBSEQUENT EVENTS
Effective February 1, the Company acquired substantially all of the assets and
assumed certain liabilities of Color Country Express, Inc. for a total purchase
price of $25,000 plus liabilities assumed.
Effective February 6, 1997, the Company acquired all of the outstanding stock of
Oak Tree Receivables, Inc., a Florida corporation, and certain assets of Acorn
CORF I, Inc. ("Acorn") and Riverside CORF, Inc. ("Riverside"). The Company also
assumed certain liabilities of Acorn and Riverside. The total purchase price for
the stock and assets was $200,000 plus liabilities assumed.
The Company issued 600,000 warrants to purchase common shares in connection with
financing obtained from a third party in 1997. The warrants have an exercise
price of $.20 and expire January 28, 1999 if not exercised.
<PAGE>
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