U.S. SECURITIES AND EXCHANGE COMMISSION
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: June 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 June 30, 1997, 67,885,000 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 June 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1 - Financial Statements
Consolidated Balance Sheet
June 30, 1997 (Unaudited) 3-4
Consolidated Statements of Operations
for the Six Months and Three Months
ended June 30, 1997 and 1996 (Unaudited) 5
Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1997
(Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion
and Analysis of Financial Condition and
Results of Operations 7-9
PART II - OTHER INFORMATION
Item 5 - Other Information 9
Item 6 - Exhibits, Financial Statement
Schedules and Reports on Form 8-K 9-10
SIGNATURES 10
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1997
ASSETS
JUNE DECEMBER
1997 1996
CURRENT ASSETS
Cash $1,119,025 $196,653
Trade accounts receivable 3,136,549 345,452
Less allowance for bad debt ( 80,381) ( 33,487)
Notes receivable 129,542 10,000
Commissions receivable 61,452 -
Deposits 18,645 18,488
Prepaid expenses 22,155 19,883
----------- ---------
Total current assets 4,406,987 556,989
----------- ---------
PROPERTY AND EQUIPMENT, NET 303,336 63,349
----------- ---------
OTHER ASSETS
Goodwill 812,316 850,109
Software development costs 445,199 394,240
----------- ---------
Total other assets 1,257,515 1,244,349
----------- ---------
$5,967,838 $1,864,687
=========== =========
- Continued -
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
June 30, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE DECEMBER
1997 1996
CURRENT LIABILITIES
Notes payable $3,863,815 $ 242,029
Accounts payable 286,507 149,741
Accrued liabilities 122,864 101,382
Other liabilities 109,000 179,000
Other 2,452
Deferred revenue 93,472 159,026
----------- ----------
Total current liabilities 4,478,110 831,178
LONG TERM LIABILITIES
Note payable 1,347,866 1,283,808
Other liabilities 40,000 40,000
----------- ----------
Total long term liabilities 1,387,866 1,323,808
SHAREHOLDERS' EQUITY
Common stock .001 par value;100,000,000 shares
authorized; 67,885,000 shares issued 67,885 67,885
Additional paid-in capital 810,322 810,322
Retained earnings (deficit) (1,156,467) (1,156,467)
Treasury stock, at cost;409,577 (12,039) ( 12,039)
Net earnings 392,161
----------- ----------
Total shareholders' equity (deficit) 101,862 (290,299)
----------- ----------
$5,967,838 $1,864,687
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
June 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
REVENUES
Service fee & broker income $ 4,983 $ 34,027 $ 12,501 $ 35,843
Consulting fees 30,000 53,610
Software & maintenance sales 384,407 683,599 810,871 1,286,698
Medical Income 838,261 1,543,952
Other income 27 219,992 4,541 250,000
---------- --------- ---------- -----------
Total revenues 1,257,678 937,618 2,425,476 1,572,541
COST OF REVENUES
Cost of service & broker fees 2,548 2,548
Cost of software & maintenance 157,592 82,617 302,042 185,456
Cost of medical services 27,942 37,349
---------- --------- ---------- -----------
Total cost of revenues 185,534 85,165 339,390 188,004
---------- --------- ---------- -----------
GROSS PROFIT 1,072,144 852,453 2,086,086 1,384,537
OPERATING EXPENSES
Selling, general & administrative 831,334 565,515 1,557,369 995,354
Depreciation and amortization 80,701 4,646 139,928 10,262
---------- --------- ---------- -----------
Total operating expenses 912,035 570,161 1,697,297 1,005,616
---------- --------- ---------- -----------
INCOME FROM OPERATIONS 160,109 282,292 388,789 378,921
OTHER INCOME (EXPENSES)
Interest income, net ( 631) ( 7,409) ( 3,675) 8,445
Other, net ( 252) ( 13,743) 302 15,954
---------- --------- --------- -----------
Total other income, net ( 883) ( 21,150) ( 3,372) 24,399
---------- --------- --------- -----------
NET INCOME BEFORE TAXES 159,225 261,142 392,161 354,522
---------- --------- --------- -----------
PROVISION FOR INCOME TAXES
NET INCOME $ 159,225 261,142 392,161 354,522
========== ======== ========= ===========
Income per weighted-average common share $ 0.002 0.005 0.006 0.007
========== ======== ========== ===========
Weighted-average common shares outstanding 67,885,000 49,485,000 67,885,000 49,485,000
========== ======== ========== ===========
</TABLE>
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS SIX MONTHS
ENDED 06/30/97 ENDED 06/30/96
1997 1996
---------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) for the period $ 392,161 $ 354,522
Adjustments to reconcile net income(loss) to net
cash used by operating activities:
Depreciation 139,928 13,163
Amortization 37,793
Gain on debt extinguis (115,102)
Bad debt expense 26,267
Change in allowance for doubtful accounts 46,894
Changes in assets and liabilities:
Trade accounts receivable ( 2,824,584) ( 144,283)
Advances (1,125)
Commissions Receivable (61,452)
Prepaid expenses and other (2,273) (4,500)
Deposits (157) (700)
Accounts payable 136,766 73,086
Accrued liabilities 21,482 (55,371)
Other liabilities (70,000) 364,266
Deferred revenues (65,554) 79,283
Other 25,872 (6,812)
---------------- ------------------
Net cash used by operating activities (2,311,958) 671,529
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal (Purchase) of property and equipment (239,987) (8,565)
Software development costs capitalized (50,959) (71,032)
Advances on notes receivable (119,542) (21,052)
---------------- ------------------
Net cash uesd by investing activities (410,489) (100,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (76,134) 764,600
Increase in notes payable 3,720,953 (350,411)
Increase (decrease) in cash overdraft 29,616
Purchase of treasury stock 45,000
---------------- ------------------
Net cash provided by financing activities 3,644,819 488,805
INCREASE / (DECREASE) IN CASH 922,372 82,075
---------------- ------------------
Cash at beginning of period 196,653 36,535
Cash at end of period $ 1,119,025 $ 118,610
================ ==================
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 3,675 $ 8,451
================ ==================
</TABLE>
<PAGE>
MB SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
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 most 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 presentation of
financial position, results of operations and cash flows for the interim period.
The results of operations for the six months and three months ended June 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company
MB Software Corporation took a major step forward and unfolded the next phase of
its 1997 Strategic Plan by consolidating areas within its three operating
companies, thereby positioning them for long term benefits to derive greater
economies of scale and improved productivity.
The Company's primary focus continued to be the acquisition of companies that
provide reciprocal benefit and distribution channels for its software products
while currently increasing corporate asset value and developing greater market
share and critical mass for specific products and services.
Each operating company installed common practice management systems,
consolidated workflow processes and reporting mechanisms to facilitate
operational control and pinpoint areas where performance correction may be
indicated.
The Company continued to perform in accordance with it targets for the year;
however, for the quarter ended June 30, 1997, a steeper than anticipated expense
curve occurred from consolidation of Company functions which softened profit
margins, although the quarter still remained profitable. In each operating arm,
the Company realigned management, streamlined or downsized staff, reduced fixed
cost and explored expansion plans.
Santiago SDS, Inc. continued to sharpen its focus within the physician practice
management market through restructuring of marketing campaigns to offer a
more-defined, yet cost-competitive, state-of-the-art product. Santiago SDS,
Inc., in response to evolving market trends, continued to enhance product
capability and customer appeal, yet minimize product cost increases. In the
quarter ended June 30, 1997, Santiago SDS, Inc. maintained market share within
this highly competitive market segment through corporate extension of new
markets for its products and services. Strategies for 1997 remained on target
with financial and scheduling projections.
<PAGE>
Color Country Health Express, Inc. continued to exceed expectations and
continued to explore expansion of its satellite locations within its market by
maximization of existing, yet untapped, capacity without major demands for
capital or staff. Anticipated seasonal downturns in revenue were measured and
staffing levels adjusted to reduce controllable costs and protect profit
margins.
Intercoastal Rehabilitation, Inc. achieved positive results after
substantial realignment of staff and systems to position it for needed
efficiencies and improved productivity. The streamlined entity, with clearer
operational focus, continued to ramp up results, albeit after a longer period
than planned.
Results of Operations
This section discusses the results of operations of the Company and its
subsidiaries for the quarterly period ended June 30, 1997.
In the quarter ended June 30, 1997, revenues from the consolidated entities rose
to $1,257,678, an increase of 34% over the $937,618 reported for the same period
in 1996. The year to date revenue for 1997 of $2,425,476 represents an increase
of 54% over the revenue in the same period in 1996 of $1,572,541. This trend
continues to show strong revenue growth and it represents the sixth continued
quarter of increased revenues for the Company.
Cost of revenues and operating expenses for the quarter ended June 30, 1997 were
$185,514 and $912,035 respectively. This is an increase of 118% over the cost of
revenues of $85,165 and an increase of 60% over operating expenses of $570,161
for the same period in 1996. Year to date 1997 cost or revenues plus operating
expenses approximate 84% of total revenue. This 14% increase over the prior year
is primarily due to increased expenses incurred with the restructuring of
Santiago SDS, Inc.'s marketing plan, reduced sales while refocusing that
marketing campaign, and miscellaneous unanticipated additional expenses related
to the Florida acquisition and operational improvements.
Total assets increased to $5,967,838. This increase from December 31, 1996 is
largely attributable to the increase in receivables via increased revenue in
1997. The nature of revenues generated from the subsidiaries acquired during
1997 lends themselves to larger receivables balances. Additionally, an influx of
$1,000,000 of cash occurred near the end of the quarter. This represents a
short-term note payable.
Total liabilities increased to $5,865,976 from the December 31, 1996 balance of
$2,157,986. The escalation of liabilities was largely due to the $1,000,000
short-term note mentioned above, debt assumed with acquisitions, and debt
incurred through normal operations.
Liquidity and Capital Resources
As of June 30, 1997, the Company had total assets of $5,967,838 with current
assets of $4,406,987, property and equipment $303,336 and other assets totaling
$1,257,515. Total current liabilities at June 30, 1997 were $4,478,110 with
total long-term liabilities equaling $1,387,866. Loans to the Company by certain
of its officers, directors and shareholders totaled to $2,744,430. Net working
capital at the end of the period was ($71,123), an improvement from the quarter
ended March 31, 1997 which net working capital equaled ($104,849).
<PAGE>
The Company is actively engaging in acquisitions of complementary companies,
development of software products, and developing greater market share for
specific products and services. It is impossible to predict what impact, if any,
the above will have on the operating results of the Company. The Company will
attempt to enhance cash flows from operations through sales efforts and
operating efficiencies and in addition, may attempt to seek financing
opportunities to obtain funds in 1997 as necessary to continue the development
of the Company, its programs and strategic acquisitions. However, there can be
no assurance that the Company will produce additional revenue or profits from
these efforts. The Company intends to continue its growth by new acquisitions,
adding customers and catering to existing customers as well as aggressively
marketing new products and services.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company and Imagine, Inc. ("Imagine") announced on August 5, 1997, that they
had formed Healthcare Innovations, a limited liability company ("HI") for the
purposes of acquiring and operating healthcare businesses. Imagine is a
subsidiary of Stone Investments, which in turn is a subsidiary of Stone Capital,
a company with over $3 billion in assets. The Company will own a 51% common
equity interest in HI and Imagine will own a 49% common equity interest. In
addition, each of the Company and Imagine will own preferred interests in HI
designed to return their respective investments, plus a 10% return, over a three
year period.
For its interest, the Company contributed to HI its existing healthcare
businesses, consisting of two rehabilitation clinics in Jacksonville, Florida
and a Utah-based nurse practitioner business. The Company will also serve as
operator of HI, for which it will receive a management fee. For its interest,
Imagine contributed to HI the sum of $2,000,000, $900,000 of which was used to
repay debt assumed in connection with the purchase of the Jacksonville
facilities, and the remainder of which will be used to fund capital requirements
of the businesses and future acquisitions. The $900,000 loan repayment was
accomplished by a $1,000,000 loan from Imagine, through the Company, to Oak Tree
Receivables, Inc., which then repaid the loan with the cash and certain of its
receivables. The remaining $100,000 was used to repay obligations of the
Jacksonville facilities incurred in the ordinary course of business. Oak Tree
Receivables was contributed to HI by the Company, and the $1,000,000 note was
contributed to HI by Imagine as part of its $2,000,000 contribution.
Also in connection with the formation of HI, Imagine loaned the Company $500,000
for use in its Santiago operations. The loan bears interest at a rate of 10% and
is due on August 1, 2000. As security for the loan, the Company pledged all of
its stock of Santiago to Imagine and Robert T. Shaw, a shareholder of the
Company who had previously acquired a security interest in the Santiago stock,
consented to the pledge. In addition, a key part of the relationship between
Imagine and the Company is a funding arrangement whereby Imagine and its
affiliates will provide capital to HI through loan and equity arrangements in
order for HI to purchase healthcare businesses. The terms of such arrangements
are to be negotiated.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SHCEDULES AND REPORTS ON FORM 8-K
Exhibits
10.1 Operating Agreement dated as of August 1, 1997 for Healthcare
Innovations, LLC (*)
10.2 LLC Preorganizational Agreement dated as of August 1, 1997 among the
Company, HI and Imagine (*)
10.3 Services Agreement dated as of August 1, 1997 between HI and the
Company (*)
10.4 Promissory Note dated as of August 1, 1997 in the principal amount of
$500,000 executed by the Company as maker in favor of Imagine (*)
10.5 Amended and Restated Pledge Agreement dated as of August 1, 1997 among
the Company, Imagine and Robert T. Shaw (*)
(*) To be filed by amendment
Financial Statements - See Item 1 for financial statements filed with this
- -------------------- report.
Reports on Form 8-K - Original 8-K was filed on February 6, 1997 and an
- ------------------- Amendment No. 1 was filed April 4, 1997.
<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
Date: August 15, 1997 /s/ Scott A. Haire
----------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
<PAGE>
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