U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 1998
[ ] 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, 1998, 68,700,000 shares of the Issuer's $.001 par value
common stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
Form 10-QSB
Quarter Ended September 30, 1998
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheet
September 30, 1998 (Unaudited) and December 31, 1997 (Audited) F-1,F-2
Consolidated Statements of Operations
for the Nine Months and Three Months ended September 30, 1998)
and September 1997 (Unaudited) F-3,F-4
Consolidated Statements of Cash Flow
for the Nine Months ended September 30, 1998 (Unaudited
and December 31,1997 (Audited) F-5,F-6
Notes to Consolidated Financial Statements F-7,F-8
Item 2 - Management's Discussion
and Analysis of Financial Condition or Plan of Operation 3-6
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to Vote by Security Holders 8
Item 6 - Exhibits, Financial Statement Schedules
and Reports on Form 8-K
8
SIGNATURES 9
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 571,518 $ 710,335
Accounts receivable -
Medical receivables, net of
allowance for doubtful accounts and contractual
allowances of $ 914,045 and $390,572 in 1998
and 1997, respectively 1,588,136 1,383,310
Trade accounts receivable, net of
allowance for doubtful accounts of $ 221,222
$11,108 in 1998 and 1997, respectively 114,140 330,634
Notes receivable - current portion 163,835 108,178
Prepaid expenses and other 1,700 2,640
---------- ----------
TOTAL CURRENT ASSETS 2,439,329 2,535,097
---------- ----------
PROPERTY AND EQUIPMENT, NET 442,246 413,874
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization 359,439 799,462
Software development costs, net of accumulated
amortization 213,331 405,966
Notes receivable, net of current portion 255,700 203,569
Deposits and other assets 74,453 80,493
---------- ----------
TOTAL OTHER ASSETS 902,923 1,489,490
---------- ----------
NET ASSETS OF DISCONTINUED OPERATIONS 32,592 238,138
---------- ----------
$3,817,090 $4,676,599
========== ==========
</TABLE>
(Continued)
F-1
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Notes payable
Related parties $ 1,700,000 $ 300,000
Other 372,556 257,933
Current maturities of long-term debt
Related parties 917,808 1,298,808
Other 49,659 50,438
Accounts payable 515,032 469,834
Accrued liabilities 224,099 250,261
Other liabilities - related party 59,000 89,000
Deferred revenues 39,145 108,657
----------- -----------
TOTAL CURRENT LIABILITIES 3,877,299 2,824,931
LONG-TERM LIABILITIES
Long-term debt, net of current maturities
Related party 500,000 500,000
Other 65,566 68,566
----------- -----------
TOTAL LIABILITIES 4,442,865 3,393,497
----------- -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES 1,445,622 1,754,841
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' DEFICIT
Common stock; $.001 par value; 100,000,000 shares
authorized; 68,700,000 and 68,580,000 shares
issued, respectively 68,700 68,580
Additional paid-in capital 1,041,505 1,035,625
Accumulated deficit (3,169,563) (1,563,905)
Treasury stock, at cost; 409,577 shares (12,039) (12,039)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (2,071,397) (471,739)
----------- -----------
$ 3,817,090 $ 4,676,599
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Medical income $ 1,231,213 $ 1,208,090 $ 3,532,648 $ 2,989,155
Service fee and broker income 112,994 71,906 455,661 71,906
Software & maintenance sales 35,849 344,058 296,053 1,154,722
Other income -- -- -- 31,713
----------- ----------- ----------- -----------
1,380,056 1,624,054 4,284,362 4,247,496
Less contractual adjustments (443,114) (547,674) (1,091,345) (804,835)
----------- ----------- ----------- -----------
NET REVENUES 936,942 1,076,380 3,193,017 3,442,661
----------- ----------- ----------- -----------
COST OF REVENUES
Cost of software and maintenance 7,440 159,312 21,867 371,585
Cost of medical services 546,769 614,211 1,857,200 1,688,658
----------- ----------- ----------- -----------
TOTAL COST OF REVENUES 554,209 773,523 1,879,067 2,060,243
----------- ----------- ----------- -----------
GROSS PROFIT 382,733 302,857 1,313,950 1,382,418
----------- ----------- ----------- -----------
OPERATING EXPENSES
Selling, general and administrative 1,363,271 573,901 2,309,550 1,486,217
Depreciation and amortization 306,048 88,796 488,305 263,768
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,669,319 662,697 2,797,855 1,749,985
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (1,286,586) (359,840) (1,483,905) (367,567)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Gain on sale of assets -- 269,724 -- 269,724
Interest expense
Related parties (93,740) (114,870) (225,815) (248,692)
Other (2,860) (7,864) (9,480) (17,026)
Other 5,091 30,250 87,350 30,250
----------- ----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSE) (91,509) 177,240 (147,945) 34,256
----------- ----------- ----------- -----------
NET (LOSS) FROM
CONTINUING
OPERATIONS BEFORE
MINORITY INTEREST (1,378,095) (182,600) (1,631,850) (333,311)
</TABLE>
(Continued)
The accompanying notes are an integral part
of these consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(CONTINUED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
MINORITY INTEREST IN (LOSS) $ 139,665 $ 173,548 $ 309,219 $ 173,548
------------ ------------ ------------ ------------
NET INCOME (LOSS)
BEFORE DISCONTINUED
OPERATIONS (1,238,430) (9,052) (1,322,631) (159,763)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS
Income (loss) from discontinued
operations (243,085) 40,542 (302,571) 40,542
Gain on disposal of subsidiary 19,544 -- 19,544 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,461,971) $ 31,490 $ (1,605,658) $ (119,221)
============ ============ ============ ============
INCOME (LOSS) PER SHARE
Continuing operations $ (.02) $ (.00) $ (.02) $ (.00)
Discontinued operations -
Income (loss) on operations (.00) .00 (.00) .00
Gain on disposal .00 -- .00 --
------------ ------------ ------------ ------------
TOTAL $ (.02) $ .00 $ (.02) $ (.00)
============ ============ ============ ============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 68,700,000 67,921,750 68,652,000 67,899,700
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) from continuing operations $(1,322,631) $ (159,763)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Depreciation and amortization 488,305 273,708
Change in allowance for doubtful accounts and
contractual allowances 733,587 397,677
Minority interest in loss (309,219) (173,548)
Gain on sale of assets -- (269,724)
Changes in assets and liabilities:
Accounts receivable (721,919) 138,921
Notes receivable 125,417 (23,162)
Prepaid expenses and other 940 (19,507)
Deposits (4,886) 1,159
Accounts payable and accrued liabilities 19,036 97,119
Other liabilities (30,000) (100,000)
Deferred revenues (69,512) (79,526)
----------- -----------
NET CASH (USED) PROVIDED BY
CONTINUING OPERATIONS (1,090,882) 83,354
----------- -----------
NET CASH (USED) PROVIDED BY
DISCONTINUED OPERATIONS (77,481) 40,542
----------- -----------
NET CASH (USED) PROVIDED BY
OPERATING ACTIVITIES (1,168,363) 123,896
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (106,298) (299,135)
Software development costs capitalized -- (175,925)
Organizational costs -- (72,832)
----------- -----------
NET CASH (USED) BY
INVESTING ACTIVITIES (106,298) (547,892)
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these financial statements
(Continued)
F-5
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Nine Months Ended September 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable
Related parties $ (681,000) $(2,226,000)
Other (348,563) (252,309)
Proceeds from notes payable
Related parties 1,700,000 1,017,906
Other 459,407 527,934
Minority investment in subsidiaries - related party -- 2,000,000
Issuance of common stock 6,000 14,872
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,135,844 1,082,403
----------- -----------
INCREASE (DECREASE) IN CASH (138,817) 658,407
CASH AT BEGINNING OF PERIOD 710,335 196,653
----------- -----------
CASH AT END OF PERIOD $ 571,518 $ 855,060
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 174,834 $ 153,580
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Purchase of medical clinics
Medical assets acquired $ -- $(2,260,028)
Goodwill acquired -- (477,665)
Accounts payable and accrued liabilities assumed -- 833,489
Note payable -- 1,894,204
Note receivable reduction -- 10,000
Note receivable -- (346,811)
Proceeds from sale of assets -- 346,811
Sale of software assets 233,205 --
Increase in notes receivable (233,205) --
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements
F-6
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principals for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulations S-X. They do not include all information and notes required by
generally accepted accounting principals for complete financial statements.
However, except as disclosed, there has been no material change in the
information disclosed in the notes to consolidated financial statements included
in the Annual Report on Form 10-KSB of MB Software Corporation for the year
ended December 31, 1997. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1998, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1998.
NOTE 2: DISCONTINUED OPERATIONS
On April 30, 1998, the Company entered into an agreement to sell its ownership
in Sandy Home Health, Inc. (a Utah Corporation). The total sales price was
$200,000 payable pursuant to the terms of a promissory note dated May 1, 1998.
The promissory note is due May 1, 2001 with monthly interest payments starting
June 1, 1998. The interest rate is the prime rate as published in the Wall
Street Journal, plus 2% per annum.
In July 1998, the Company closed C.F.H.C., LLC located in Arlington, Texas.
NOTE 3: ACQUISITIONS
On April 1, 1998, the Company purchased the assets and assumed certain liability
of Med-Sport Therapy & Rehabilitation Center, Inc. and compensated the previous
owners as follows:
Amount Due
Date Previous Owners
------------- ---------------
April 1, 1998 $ 38,000
May 1, 1998 33,000
July 1, 1998 167,000
---------
$ 238,000
=========
On April 1, 1998, the Company entered into a physician coverage and service
agreement with Toth Enterprises II, P.A., a Texas professional association doing
business as Victory Medical and Family Care and Dr. William G. Franklin. The
Company through a subsidiary were to provide administrative and management
services for the clinic. The assets of Victory Medical and Family Care were
purchased by the Company with issuance of 400,000 shares of the Company's common
stock. As of September 1998, the Company is involved in litigation with the
previous owners of Victory. The investment in Victory and the unpaid fees earned
have been fully reserved in the accompanying financial statements.
F-7
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4: RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 1998
presentation as it relates to the discontinued operations.
F-8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following is a summary of the Company and its operating subsidiaries as of
December 31, 1997 and September 30, 1998, plus the subsidiary that was organized
and subsequently discontinued in 1998:
<TABLE>
Organized and
Operating at Discontinued
Name of Company/Subsidiary Location December 31, 1997 September 30, 1998 in 1998
- -------------------------- ----------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
MB Software Corporation (Parent) Arlington, TX Yes Yes -
MB Software Solutions, Inc. Arlington, TX Yes Yes -
(formerly Sandiago SDS, Inc.)
Multicare Plus, Inc. Ft. Worth, TX No Yes -
MB Healthcare Management, Inc. Austin, TX No No Yes
(Management company for
Victory Medical)
MB Healthcare Corp Arlington, TX Yes Yes -
Healthcare Innovations, LLC
(51% ownership) Arlington, TX Yes Yes -
NFPM, LLC Jacksonville, FL Yes Yes -
CFHC, LLC Arlington, TX Yes No -
Oak Tree Receivables, LLC Arlington, TX Yes Yes -
Color Country Health Express St. George, UT Yes Yes -
Nevada Multicare, Inc. Las Vegas, NV Yes Yes -
Sandy Home Health Care, LLC St. George, UT Yes No -
</TABLE>
In the third quarter of 1998, MB Software Corporation (the "Company") focused
primarily on operations of its existing healthcare businesses and further
reorganization and development of its medical practice management software
business. Part of the focus centered on the profit potential of its existing
businesses. As a result of that analysis, the Company has taken significant
steps regarding its healthcare businesses, which have had a material effect on
third quarter results of operations.
The Company has concluded that it cannot operate healthcare businesses
profitably pursuant to practice management agreements. This means that the
Company must own the practice (and the rights to all profits therefrom), and
employ physicians and other professionals to staff the practice. However, most
state corporate practice of medicine laws prohibit corporations such as the
Company from owning physician practices and employing physicians to operate the
practice. As a result, the Company will focus in the future on non-physicians
healthcare businesses such as rehabilitation clinics, chiropractic practices and
nurse practitioner operations, and to healthcare businesses in the state of
Florida. As a result, the Company will operate its businesses directly and will
not use any management contracts in its healthcare business, only employment
agreements for those who provide services to those businesses.
In August 1998, the Company moved its medical software business from California
to its main offices in Arlington. The Company expects to realize some cost
savings associated with this move.
The Company did not have any material changes in its Year 2000 compliance status
from that disclosed in the Form 10Q for the quarter ended June 30, 1998, except
that the Company's One Claim PlusTM software has met the compliance standards
for Medicare and as a result, will meet compliance standards for the industry as
a whole.
The Company has discontinued the operations of three clinics located in Austin
and Arlington, Texas and St. George, Utah, and recognized a loss from
discontinued operations of $223,541 for the three months ended September 30,
1998.
3
<PAGE>
The third quarter results reflect a reversal of $116,000 for fees and a reserve
of $199,289 of investment related to the previously disclosed litigation
relating to the Company's attempted acquisition of Victory Medical & Family Care
in Austin, Texas. As of the date of this filing, that litigation is still
pending.
The third quarter results also reflect a reserve and charge to operations of
$127,000 that relates to the sale by the Company of the subsidiary's name and
certain sales and marketing rights of its wholly owned subsidiary Santiago SDS,
Inc. An additional reserve and charge to operations of $163,000 is applicable to
the receivable related to the sale of the dental software in the same
subsidiary. The reserve and charge to operations is a result of the lack of
payments received by the Company from the purchasers. The Company is currently
attempting to resolve these collection problems.
The Company's remaining healthcare businesses consist of three clinics in
Jacksonville, Florida, a nurse practitioner operation in St. George, Utah, and a
chiropractic clinic in Las Vegas, Nevada. The Florida clinics account for
approximately 82% of gross medical revenues.
The following summarizes the results of operations for the three month and the
nine month period ended September 30, 1998 and 1997:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------ ------------------------------------------
1998 % 1997 % 1998 % 1997 %
------------- ------- ------------ ------ ------------ ----- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Medical Activities:
Gross Revenue $ 1,231,213 100.0 * $1,208,090 100.0 $ 3,532,648 100.0 $ 2,989,155 100.0
Contractual Allowance (443,114) 36.0 * (547,674) 45.3 (1,091,345) 30.9 (804,835) 26.9
------------ ----- ----------- ----- ----------- ---- ------------ -----
Net Revenues 788,099 64.0 * 660,416 54.7 2,441,303 69.1 2,184,320 73.1
===== ===== ==== =====
Cost of Revenue (546,769) 69.4** (614,211) 93.0 (1,857,200) 76.1 (1,688,658) 77.3
------------ ----- ----------- ----- ----------- ---- ----------- -----
Gross Profit $ 241,330 30.6** 46,205 7.0 584,103 23.9 495,662 22.7
------------ ====== ----------- ====== ------------ ==== ------------ =====
Service Fees 112,994 71,906 455,661 71,906
------------ ----------- ------------ -------------
Software Activities:
Gross Revenue 35,849 344,058 296,053 1,154,722
Cost of Revenue 7,440 159,312 21,867 371,585
------------ ----------- ------------ ------------
Gross Profit 28,409 184,746 274,186 783,137
------------ ----------- ------------ ------------
Other Revenue - - - 31,713
------------ -------------- ------------ -------------
Gross Profit 382,733 302,857 1,313,950 1,382,418
Operating Expenses:
Selling, General and
Administrative -:
Bad Debt Expense 513,300 - 687,342 28,560
Other General and
Administrative 849,971 573,901 1,622,208 1,457,657
------------ ----------- ----------- ------------
1,363,271 573,901 2,309,550 1,486,217
Depreciation and Amortization 306,048 88,796 488,305 263,768
Interest Expense and Other
Income and Expense 91,509 92,484 147,945 235,468
Gain on Sale of Dental Software - 269,724 - 269,724
------------ ----------- ------------ ------------
Loss from Continuing Operations
before Minority Interest $ (1,378,095) $ (182,600) $ (1,631,850) $ (333,311)
============ =========== ============ ============
</TABLE>
Notes
- -----
* Computed as percentage of Gross Medical Revenue
** Computed as percentage of Net Medical Revenue
4
<PAGE>
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
- --------------------------------------------------------------------------------
Gross medical revenues for the three month periods remain relatively constant;
however, the contractual allowance adjustment declined 19.1% to $443,114 for the
three months ended September 30, 1998 compared with $547,674 for the three
months ended September 30, 1997. In 1997, the Company was not as knowledgeable
about the collection of medical receivables since the first medical clinic was
purchased on February 1, 1997; therefore, the pattern of the contractual
allowance was not recognized until the quarter ended September 30, 1997, thereby
resulting in a greater than normal provision rate for the quarter to properly
state the overall reserve for contractual allowance at September 30, 1997. The
cost of medical revenues declined 11% to $546,769 for the three months ended
September 30, 1998 compared to $614,211 for the three months ended September 30,
1997. This modest decline in expenses was the result of efficiencies gained in
the operations of the clinics with the Company's increased operating experience.
On July 31, 1997, the Company formed Healthcare Innovations, LLC (HILLC) which
assumed control of all medical operations then owned by the Company and was used
as the acquisition entity for all future medical clinic acquisitions. This
entity was funded by a $2,000,000 infusion of cash by one of its member owners
for a 49% ownership interest. By agreement with the funding member, the Company
could charge the operations of HILLC for its cost of administration. The service
fees for three months ended September 30, 1998 was $112,994 which represent cost
allocation for a three (3) month period while the $71,906 of service fees for
the three month period ended September 30, 1997 represents the cost allocation
for only two months (July 31 to September 30).
In the three month period ended September 30, 1998, the Company identified
numerous slow paying receivables or receivables that due to changing conditions
required reductions in their realizable amounts. Included in the bad debt
provision was $163,000 applicable to the receivables related to the $269,724
gain on the sale of dental software in the three month period ended September
30, 1997.
The other selling, general and administrative expenses increased by 48.1% to
$849,971 for the three month period ended September 30, 1998 as compared to
$573,901 for the three month period ended September 30, 1997. The increase is
the result of legal fees relating to the discontinued operations and the
litigation with Victory Family Medical (disclosed in Form 10Q for June 30, 1998)
and additional administrative salaries.
In the three month period ended September 30, 1998, the Company subsequently
determined that the goodwill capitalized in its software development subsidiary
exceed its future realizable value; therefore, in addition to the recurring
amortization of goodwill, a one time charge against operations of $200,000 was
recognized.
The net loss from continuing operations increased 654% to $1,378,095 for the
three month period ended September 30, 1998, as compared to $182,600 loss from
continuing operations for the three month period ended September 30, 1997. The
increase in the loss from continuing operations was the result of increased bad
debt expense, increased amortization of goodwill and increased general operating
costs.
For the three month periods ended September 30, 1998 and 1997, the minority
interest in the net loss of Healthcare Innovations, LLC was $139,665 and
$173,548, respectively.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
- --------------------------------------------------------------------------------
Gross medical revenues increased 18.2% to $3,532,648 for the nine months ended
September 30, 1998 as compared to $2,989,125 for the nine months ended September
30, 1997. This increase is attributable to patient increases in the Company's
Florida clinics. The patient increase is due to the increase in clinic locations
(3 in 1998, 2 in 1997) and the Company owned the Florida clinics for only eight
(8) months in 1997.
5
<PAGE>
The Company purchased its first clinics on February 1, 1997 and due to the
Company's inexperience, the exact effect on net medical revenue of the
contractual allowance was not determined until the last quarter of 1997 and the
first quarter of 1998. Due to the Company's lack of experienced medical
collection employees, the Company suffered very large contractual adjustments in
1997 and 1998. Contractual allowance as a percentage of gross medical revenue
was 30.9% and 26.9% of gross revenue for the nine month periods ended September
30, 1998 and 1997, respectively. The 1998 increase in contractual allowance is
the result of experienced medical collection employees servicing the medical
claims to third parties on a timely basis in 1998. The Company expects the
percentage of contractual allowance to decline in the last quarter of 1998 due
to the timely collection efforts of its employees.
The gross profit from medical activities increased 17.8% to $584,103 for the
nine months ended September 30, 1998 as compared to $495,662 for the nine months
ended September 30, 1998. The increase is due to the increase in net medical
revenues.
On July 31, 1997, the Company created Healthcare Innovations, LLC (HILLC) which
assumed control of all medical operations then owned by the Company and was used
as the acquisition entity for all future medical clinic acquisitions. This
entity was funded by a $2,000,000 infusion of capital by one of its member
owners for a 49% ownership interest. By agreement with this member owner, the
Company could charge the operations of HILLC for its costs of administration.
The service fees represent reimbursement for actual cost incurred and the
$455,661 of service fees for the nine months ended September 30, 1998 represent
reimbursement for the nine months of operation while the $71,906 for the nine
month period ended September 30, 1997 represents reimbursement for only two
months (July 31 to September 30, 1997).
In the last quarter of 1997, the Company sold the rights to market its dental
software and recognized a $269,724 gain on the transaction. In addition the
Company reduced its emphasis on the selling of its medical software. These
changes in operations resulted in 74.3% decline in software sales revenue in
1998 as compared to 1997. Due to the Company's reduction in its software sales
effort, the Company assessed the carrying value of its goodwill and software
development costs related to the software subsidiary and an additional one time
$200,000 amortization of goodwill was recognized in September 1998.
The selling, general and administrative expenses increased 55.4% to $2,309,550
for the nine months ended September 30, 1998 as compared to $1,486,217 for the
nine months ended September 30, 1997. Approximately $659,000 of the increase is
applicable to increased bad debt expense and the remaining increase is due to
increased salaries and other operating expenses. Included in the bad debt
expense is $290,000 which is applicable to a reduction in the receivables on the
sale of dental software in 1997.
The net loss from continuing operations increased 390% to $1,631,850 for the
nine month period ended September 30, 1998, as compared to $333,311 loss for the
nine months ended September 30, 1997. The increase in the loss is a result of
increased bad debt expense, increased amortization of goodwill and increased
general operating expenses.
The 49% minority interest in the net loss of Healthcare Innovations, LLC for the
nine month periods ended September 30, 1998 and 1997 was $309,219 and $173,548,
respectively.
Liquidity and Capital Resources
- -------------------------------
The Company's operations used $1,090,882 of cash during the nine months ended
September 30, 1998 and provided $83,354 of cash during the nine months ended
September 30, 1997. The 1998 operating activities use of cash was financed by
borrowing approximately $1,000,000 from a related party.
6
<PAGE>
At September 30, 1998 and 1997, the Company had working capital deficits of
$1,437,970 and $289,834, respectively. The working capital deficit at September
30, 1998 will be solved at such time as the $1,400,000 short term note payable
to a related party is converted into preferred stock (November 12, 1998, debt
converted to preferred stock). At September 30, 1998, the Company had cash
deposits of $571,518 which should be sufficient to meet the Company's cash needs
for the next twelve months since the Company anticipates that the operating
losses will be substantially reduced or eliminated by personnel cuts, reduction
of legal fees related to litigation, an overall general reduction in operating
costs in future periods and the discontinuation of money losing subsidiaries.
In the nine months ended September 30, 1998, the Company spent $106,298 cash for
the purchase of equipment. The Company does not anticipate any major purchase of
equipment for the remaining three (3) months of 1998 and for the twelve (12)
months of 1999.
In the annual stockholders' meeting held by the Company on November 12, 1998,
the stockholders approved the following:
o Amended the Company's Articles of Incorporation to add 1,000,000
shares of preferred stock, par value $10 per share.
o Authorized the issuance of 340,000 shares of Series A Preferred Stock
with a cumulative dividend rate of 10% payable quarterly. Terms of
the preferred stock transaction include:
o Series A Preferred Stock will be senior to all other shares of
capital stock of the Company with respect to payment of
dividends, redemption and liquidation preference.
o Redeemable at the option of the holders at any time after
October 1, 2000. If the Company is unable to redeem shares at
a price of $10 per share, the holder has certain rights that
in effect would change control of the Company.
o Series A Preferred Stock is convertible into Common Stock in
an amount equal to 30% of the total outstanding common stock
on a fully diluted basis if certain triggering events occur.
o Amended the Articles of Incorporation to increase the authorized
shares of common stock of the Company from 100,000,000 to 150,000,000
shares.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Exhibits - All other exhibits are incorporated by reference from prior filings
with the Commission on Form 8-K during the period.
Financial Statements - See Item 1 for financial statements filed with this
report.
Reports of Form 8-K - No reports were filed on Form 8-K during this period.
8
<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 19, 1998 /s/ Scott A. Haire
--------------------------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
9
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