Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File No. 0-11808
MB SOFTWARE CORPORATION
Colorado 59-2219994
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2225 E. Randol Mill Road - Suite 305
Arlington, Texas 76011-6306
(817) 633-9400
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [X] No [ ]
As of September 30, 1997, 68,033,000 shares of the Issuer's $.001 par value
common stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE>
MB SOFTWARE CORPORATION
Form 10-QSB
Quarter Ended September 30, 1997
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Financial Statements
Consolidated Balance Sheet
September 30, 1997 (Unaudited) and December 31, 1996 (Audited) 3-4
Consolidated Statements of Cash Flow
for the Nine Months ended September 30, 1997 (Unaudited
and December 31,1996 (Audited) 5
Consolidated Statements of Operations
for the Nine Months and Three Months ended September 30, 1997)
and September 1996 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion
and Analysis of Financial Condition or Plan of Operation
7-9
PART II - OTHER INFORMATION
Item 6 - Exhibits, Financial Statement Schedules 9
and Reports on Form 8-K
SIGNATURES 10
</TABLE>
2
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1997
ASSETS
September 30, December 31,
1997 1996
----------- -----------
CURRENT ASSETS
Cash $ 855,307 $ 196,653
Trade accounts receivable 2,823,954 345,452
Less allowance for bad debt (54,999) (33,487)
Notes receivable 533,333 10,000
Commissions receivable 62,546 --
Deposits 29,413 18,488
Prepaid Expenses 164,575 19,883
----------- -----------
Total current assets 4,414,129 556,989
----------- -----------
PROPERTY AND EQUIPMENT, NET 627,690 63,349
----------- -----------
OTHER ASSETS
Goodwill 845,866 850,109
Software development costs 439,326 394,240
----------- -----------
Total other assets 1,285,192 1,244,349
----------- -----------
$ 6,327,011 $ 1,864,687
=========== ===========
Continued
3
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
September 30, 1997
LIABILITIES
<S> <C>
September 30, December 31,
1997 1996
----------- -----------
CURRENT LIABILITIES
Notes Payable 1,154,051 242,029
Accounts payable 704,590 149,741
Accrued liabilities 314,303 101,382
Other liabilities 246,297 179,000
Deferred revenues 73,500 159,026
----------- -----------
Total current liabilities 2,492,741 831,178
----------- -----------
LONG TERM LIABILITIES
Note Payable 1,830,249 1,283,808
Other liabilities 40,000 40,000
----------- -----------
Total long term liabilities 1,870,249 1,323,808
----------- -----------
TOTAL LIABILITIES 4,362,990 2,154,986
----------- -----------
MINORITY INTEREST IN SUBSIDIARY (5,016) --
----------- -----------
SHAREHOLDERS' EQUITY
Common stock .001 par value; 100,000,000 shares
authorized; 68,033,000 shares issued 68,033 67,885
Additional paid-in capital 2,825,047 810,322
Retained Earnings (deficit) (1,356,752) (1,156,467)
Treasury stock, at cost; and 409,577 shares (12,039) (12,039)
Net Earnings 444,748
----------- -----------
Total shareholders' equity (deficit) 1,969,037 (290,299)
----------- -----------
$ 6,327,011 $ 1,864,687
=========== ===========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
September 30, 1997
<S> <C> <C>
September 30, September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES ------------ ------------
Net Income(Loss) for the period $ 444,748 $ 460,017
Adjustments to reconcile net income(loss) to net
cash used by operating activities:
Depreciation 222,076 13,163
Gain on debt extinguishment (118,192)
Bad debt expense 28,040
Changes in assets and liabilities
Trade accounts receivable (2,478,502) (150,876)
Change in allowance for doubtfull accounts 21,512 --
Advances (44,652)
Commissions Receivable (62,546) --
Prepaid expenses and other (144,693) (16,064)
Deposits (10,925) (700)
Accounts payable 554,849 8,180
Accrued Liabilities 212,921 32,370
Other Liabilities 67,296 408,081
Deferred revenues (85,526) 28,103
Increase (decrease) in minority interest (5,016) --
Other (131,924) --
----------- -----------
Net cash used by operating activities (1,485,882) 737,622
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal (Purchase) of property and equipment (560,097) (20,466)
Software development costs capitalized (45,086) (177,042)
Advances on notes receivable (523,333) --
----------- -----------
Net cash provided (used) by investing activities (1,128,516) (197,508)
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable (2,012,104) 790,949
Increase in notes payable 3,470,567 (350,446)
Increase (decrease) in cash overdraft -- 29,616
Common Stock 148 (17,400)
Paid in Capital 2,014,726 17,402
(200,285)
Purchase of treasury stock -- (45,000)
----------- -----------
Net cash provided by financing activities 3,273,052 425,121
INCREASE / (DECREASE) IN CASH 658,654 114,993
----------- -----------
Cash at beginning of period 196,653 36,535
Cash at end of period $ 855,307 $ 151,529
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 153,580 $ --
=========== ===========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
September 30, 1997
<S> <C> <C> <C>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED 9-30-97 ENDED 9-30-96 ENDED 9-30-97 ENDED 9-30-96
------------- ------------- ------------- -------------
REVENUES
Service fee & broker income $- 119,190 - 404,026
Commission Income 2,421 - 68,533 -
Softwaree & maintenance sales 757,366 558,344 1,568,237 1,845,042
Other income 146,719 - 146,746 1,008
Medical income 1,183,405 - 2,727,518 -
------------ ------------- ------------- -------------
Total revenues 2,089,911 677,534 4,511,034 2,250,076
------------- ------------- ------------- -------------
COST OF REVENUES
Cost of service & broker fees 2,000 - 2,000 2,548
Cost of software & maintenance 192,990 140,769 495,032 326,226
Cost of services medical 37,181 - 74,530 -
------------- ------------- ------------- -------------
Total cost of revenues 232,171 140,769 571,562 328,774
GROSS PROFIT 1,857,740 536,765 3,939,472 1,921,302
------------- ------------- ------------- -------------
OPERATING EXPENSES
Selling, general & administrative 1,614,415 433,944 3,226,354 1,429,299
Depreciation and amortization 82,149 - 222,076 10,262
------------- ------------- ------------- -------------
Total operating expenses 1,696,564 433,944 3,448,430 1,439,561
------------- ------------- ------------- -------------
INCOME FROM OPERATIONS 161,176 102,821 491,042 481,741
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES)
Interest (income) expense, net 44,184 (792) 153,580 (797)
Other 66,222 (1,883) (102,270) 22,521
Fines and settlements 5,000 - - -
------------- ------------- ------------- -------------
Total other (income) expense, net 115,406 (2,675) 51,310 21,724
------------- ------------- ------------- -------------
MINORITY INTEREST (INCOME) 5,016 - 5,016 -
LOSS OF SUBSIDIARY
NET INCOME BEFORE TAXES 50,786 105,496 444,748 460,017
Penalties-Non Deductible
PROVISION FOR INCOME TAXES - - - -
NOET PROFIT (LOSS) 50,786 105,496 444,748 460,017
============= ============= ============= =============
Income per weighted-average common shares 0 0 0.01 0.01
============= ============= ============= =============
Weighted-average common shares outstanding 68,033,000 67,885,000 68,033,000 67,885,000
============= ============= ============= =============
</TABLE>
6
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, although management believes the disclosures
herein are adequate to make the information presented not misleading. These
interim financial statements should be read in conjunction with the more recent
financial statements of MB Software Corporation included in the Company's report
on Form 10-KSB for the year ended December 31, 1996.
The interim financial information included herein is unaudited; however it
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair representation,
results of operations and cash flows for the interim period. The results of
operations for the nine months and three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
This Quarterly Report on Form 10-QSB contains forward looking statements about
the business, operations and financial condition of the Company, including
various statements contained in "Management's Discussions and Analysis of
Financial Condition and Results of Operations." The actual results of the
Company could differ materially from those forward-looking statements,
contingent upon market factors and economic volatility. Causal factors that
could impact actual results of the Company to differ materially from those
contained in the forward-looking statements are discussed in connection with
those statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
MB Software Corporation, through its wholly owned subsidiary, Santiago SDS,
Inc., ("Santiago"), remains a leader in the development of state-of-the-art
physician practice management software and provides incidental cash management
resources to physicians, chiropractors and medical billing centers. The Company
continues to maintain a leadership role in this industry with introduction of
innovative software products ahead of competitors and remains one of a limited
number of software developers with practice management conventions available in
a Windows 95 platform.
In order to leverage its existing market share and extend penetration into the
healthcare industry, the Company embarked in 1996 on a strategy which called for
expansion through mergers and acquisition of complementary healthcare entities.
This strategy allows for incremental rollout of its software products and
permits accelerated operational economies of scale in the acquired companies
through uniformity of a software platform and application of standardized
operational procedures of proven efficacy. In each acquired entity, application
of these operational disciplines forms a solid base from which to effect timely
positive operational realignment along with financial consistency that is
necessary for going forward profitability.
7
<PAGE>
On August 5, 1997, the Company and Imagine Investments, Inc. announced formation
of Healthcare Innovations, LLC, a limited liability company, for the purposes of
acquiring and operating healthcare businesses. Imagine, Inc. is a subsidiary of
Stone Investments, which is a subsidiary of Stone Capital, a company with over
$3 billion in assets. The Company will own 51% equity interest in Healthcare
Innovations and contributed its existing healthcare operating businesses to the
new entity.
Additionally, Healthcare Innovations acquired all of the outstanding stock of
Sandy Home Health effective August 1, 1997. The Company previously owned another
healthcare company in St. George, Utah, Color Country Health Express, LLC, which
provides nurse-practitioner services at three clinic sites in southwest Utah.
The acquisition of Sandy Home Health brings the total complement of acquired
companies by Healthcare Innovations to four, situated at seven operational
sites.
The Company has successfully established an Internet Web Site in 1997. Through
Santiago, the Company utilizes Site to launch marketing initiatives, supply
customer information about existing and intended software releases, and provide
an interchange forum for current and prospective buyer information.
Strategic plans developed by Management call for continued refinement of its
operational focus and acquisition of additional targets to form a larger revenue
base that maximizes the potential for greater profit margins. Management
continues to discharge its strategic obligation through effectuation of actions
consistent with these short and long range initiatives.
In accord with its strategic intent, Management further refined the Company's
operational focus through divestiture of Santiago's dental customer install
base. Since this facet of the business represented a minority of users,
Management believed support and development efforts associated with its software
products should be based on its centerpiece medical product, OneClaim Plus.
Maximum improvement of products at an accelerated delivery pace should keep the
Company's products ahead of competitors, while allowing for reduced costs and
increased profit margins.
Passage by Congress of the Health Insurance Portability and Accountability Act
(H.I.P.A.A.) in 1996 requires, in part, development and ultimately the use of
electronic data interchange (EDI) for health claims or equivalent encounter
information. These federal mandates bode well for the Company, given its
on-going positioning which has remained consistent with these anticipated
developments. The Company's customer base is being migrated toward this
requirement and should achieve successful conversion long before anticipated
cut-off dates. Moreover, the strong national economy has kept inflation at its
lowest level in decades, thereby fostering both buyer confidence and robust
demand.
Results of Operations
This section discusses the results of operations of the Company and its
subsidiaries for the quarterly period ended September 30, 1997. Since January 1,
1997, the Company has been able to remain profitable, despite extraordinary
expense demands associated with the acquisition and assimilation of three
additional targets during the last 18 months.
In the quarter ended September 30, 1997, revenues improved to $2,089,911, a
200% increase from the $677,534 revenues reported for the same period, 1996.
Over the nine month period ended September 30, 1997, revenues improved to
$4,511,034, an increase of 100% compared with $2,250,076, in revenues posted for
the same period in 1996.
Net income remained profitable for the third quarter ended September 30, 1997,
and for the seventh consecutive quarter; although net income reflected a 52%
decrease from the same period in 1996. The Company demonstrated strong results
8
<PAGE>
and exceeded profit targets in the first and second quarters of 1997, and while
still profitable, the margin of profitability narrowed in the third quarter
ended September 30, 1997. For the nine month period ended September 30, 1997,
net income sustained profitability yet showed a slight downturn by .03% to
$444,748 from $460,017 for the same period in 1996.
Operating expenses for the quarter ended September 30, 1997 increased given the
Company's comprehensive efforts to maximize profit margins through on-going
emphasis of its acquisitions programs. Actual operating expenses for the third
quarter grew 290% to $1,696,564 and were directly the result of migrating
acquired companies into the Company's operational and corporate culture.
Operating expenses also included the non-recurring costs associated with further
enhancement and refinement of the Windows 95 product. The Company's ability to
fund said development from operating revenues evidences management's commitment
to a policy of fiscal prudence and incremental revenue growth financed primarily
by containment of operating costs. For the nine month period ended September 30,
1997, operating expenses increased 139% to $3,448,430 from $1,439,561 for the
same period in 1996.
Total current liabilities for the quarter ended September 30, 1997 evidenced an
upswing of 256% to $2,492,741. Management maintains a core strategy to reduce
debt and current liabilities in order to grow the company with minimal debt
obligations. This strategy gave way to financial pressures associated with
operational consolidations and the need to maintain high levels of service,
which is reflected, in higher total current liabilities. While the Company moves
to minimize debt, management recognizes that its alliance with Healthcare
Innovations forms a strong base of stability, which long term outcomes should
prove mutually beneficial for each party.
Liquidity and Capital Resources
As of September 30, 1997, the Company recorded total assets of $6,327,011 with
current assets of $4,414,129 and property, equipment and other assets of
$1,912,882. Total current liabilities reported September 30, 1997 were
$2,492,741. Net working capital during the period ended September 30, 1997 was
$1,921,388.
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
Exhibits - All Exhibits were filed as exhibits to the reports on Form 8-K set
forth below.
ITEM 6. Exhibits and reports on form 8-K.
Reports of Form 8-K - Original 8-K was filed on February 6, 1997 and an
Amendment No.1 was filed April 4, 1997. An original 8-K was
filed on August 7, 1997.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MB SOFTWARE CORPORATION
Dated: November 17, 1997 /s/ Scott A. Haire
---------------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714256
<NAME> MB SOFTWARE CORPORATION
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 855,307
<SECURITIES> 0
<RECEIVABLES> 2,823,954
<ALLOWANCES> (54,999)
<INVENTORY> 0
<CURRENT-ASSETS> 4,414,129
<PP&E> 627,690
<DEPRECIATION> 222,076
<TOTAL-ASSETS> 6,327,011
<CURRENT-LIABILITIES> 2,492,741
<BONDS> 0
0
0
<COMMON> 68,033
<OTHER-SE> 1,969,037
<TOTAL-LIABILITY-AND-EQUITY> 6,327,011
<SALES> 3,939,472
<TOTAL-REVENUES> 4,511,034
<CGS> 571,562
<TOTAL-COSTS> 571,562
<OTHER-EXPENSES> 3,448,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,580
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444,748
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
