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, 1997
[ ] 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.
[ ] Yes [X] 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
Issuer's revenues for its most recent fiscal year: $5,289,854.
1
<PAGE>
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, 1997, 68,580,000 shares of the Issuer's $.001 par value
common stock were outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
2
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
Form 10-KSB
For the Year Ended December 31, 1997
Page of
Form 10-KSB
-----------
<S> <C>
ITEM 1. BUSINESS.............................................................. 4
ITEM 2. PROPERTIES............................................................ 6
ITEM 3. LEGAL PROCEEDINGS..................................................... 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................. 7
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................... 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................. 7
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................... 9
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...................................... 12
</TABLE>
3
<PAGE>
PART 1
Item 1. Business
Introduction
MB Software Corporation (the "Company") was incorporated in 1982.
Historically, the Company has provided practice and cash management services to
physicians, dentist, chiropractors and medical billing centers. In 1997, the
Company began to expand its scope of operations by acquiring and operating
healthcare businesses that use its practice and cash management services. Also
in 1997, the Company streamlined its practice and cash management business in an
attempt to focus solely upon the acquisition and management of Medical Clinics
through its software, technology and management skills.
Healthcare Businesses
In January 1997, the Company acquired a nurse-practitioner business
that operates three (3) clinic sites in Utah. In February 1997, the Company
acquired two physical medicine and rehabilitation facilities located in
Jacksonville, Florida. In August 1997, the Company and Imagine Investments, Inc.
announced formation of Healthcare Innovations L.L.C., a limited liability
company formed 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 owns 51% of the outstanding equity of Healthcare Innovations and
contributed its interests in the Jacksonville and Utah facilities to the new
venture. Healthcare Innovations also acquired, and subsequently divested itself
of, a Utah-based home health agency. Shortly after this business was acquired,
the home healthcare industry began receiving significant negative publicity and
the industry became more heavily regulated and subject to intensified
governmental scrutiny. As a result, the Company concluded that it was no longer
economically beneficial to operate its home healthcare business. Healthcare
Innovations also acquired two chiropractic clinics located in Arlington, Texas
and Las Vegas, Nevada in October 1997.
The Company's healthcare acquisition strategy is to focus primarily on
physical medicine, pain management, physical therapy and rehabilitation through
the use of MD's, DO's, Physical Therapist, Nurse Practitioners and
Chiropractors, although the Company may acquire other healthcare businesses.
Typically, the acquisition targets will be distressed businesses with strong
medical practice but also cash management (particularly collections) or practice
management problems. The Company believes that its experience in cash
management, especially its experience in collecting accounts receivable from
providers, as well as its practice management software that it uses in the
operation of these businesses, will allow it to operate these businesses
profitably. The Company expects that most of its revenue in the future will be
generated by operation of its healthcare businesses.
In April 1998, the Company acquired an Austin, Texas based primary care
facility and a sports medicine and rehabilitation facility located in Fort
Worth, Texas. These businesses give the Company a strong presence in both Austin
and Fort Worth. These acquisitions were made directly by the Company, not
through Healthcare Innovations L.L.C. Stone Capital loaned the Company $1.4
million pursuant to the terms of a promissory note which Healthcare Innovations
L.L.C. has the option to convert the Note and 49% ownership interest in
Healthcare Innovations L.L.C. to a Preferred Stock position with the Company.
Practice Management Business
In 1997, the Company took significant steps to focus on its core
competency in its practice management business. The Company divested itself of
all other products other than its OneClaim Plus Product, which is a 32 bit
Windows 95-98 application based, practice management software product.
Additionally, the Company sold its business opportunity-marketing program, which
used third parties to sell the OneClaim program. The Company now focuses instead
on direct sales of the OneClaim Plus program.
4
<PAGE>
The OneClaim Plus program is comprehensive practice management software that can
operate on either DOS-Based or Windows 95-98 environment. The software is
designed to facilitate nearly all aspect of practice management, including
patient management, billing, transaction management, and basic and customized
reporting, and information management. The Company not only markets OneClaim
Plus to third parties, but also uses the software in the conduct of its own
healthcare businesses, thus providing the Company with a common program that
offers stability, dependability and ease-of- use in the acquisition and
operation of the acquired businesses. It also allows management to determine the
collectibility of acquired account receivable in specific market areas plus
providing users the data needed for growth of the clinics.
Industry Overview
The United States healthcare industry is highly competitive, with many
of the Company's competitors having substantially greater resources than the
Company. The Health Care Financing Administration (HCFA) has estimated that
national health care spending increased to approximately $1.0 trillion, or
approximately 14% of Gross Domestic Product "GDP," in 1995 and $247 billion, or
approximately 9% of GDP, in 1980. HCFA projects that annual health care spending
will increase at a compounded annual growth rate of over 8% to $1.5 trillion and
approximately 16% of the GDP by the year 2000. HCFA also has estimated that
approximately $200 billion, or approximately 20%, of total health care
expenditures in 1995 were directly attributable to physician services and an
additional amount of approximately $515 billion or 52% of such expenditures were
under physician direction.
As a result of escalating health care expenditures, governmental and
other payors have adapted cost containment initiatives in an effort to control
spending. These initiatives have resulted in a shift from traditional
fee-for-service provider reimbursement to an evolving array of managed care
arrangements, varying from discounted fee-for-service to fully capitated plans
in which providers assume the financial risks related to service utilization for
a defined group of covered members and services. The industry has also
experienced a decrease in inpatient occupancies as payors have implemented
incentives for providing care in a more cost-effective setting, which is
ambulatory care in often an outpatient surgery center, in-office laboratory or
similar outpatient location.
Cost-containment initiatives, including reduced reimbursement, have
hindered physician practice profitability while demands for increased clinical
documentation; cost, quality and utilization data have increased physicians'
administrative duties. Small and mid-sized practices generally do not have the
market presence, expertise or sophisticated cost accounting and quality
management systems required, and may not have the time necessary to evaluate and
enter into informed capitated risk-sharing arrangements, or to continue
practicing profitably under reduced reimbursement. In addition, these practices
often lack the capital required to purchase new medical equipment and
information system to enhance the efficiency and quality of their practices. As
a result, individual physicians and small group practices are increasingly
consolidating, either by affiliating with larger group practices and PPM's or by
forming physician networks or independent practice associations. By
consolidating into larger organizations, physicians can achieve lower
administrative costs; gain leverage in negotiating with managed care
organizations and position themselves to attract needed capital resources.
Business Profile
Set forth below is a description of each of the Company's healthcare
facilities.
JACKSONVILLE, FLORIDA: The two clinic locations in Jacksonville
primarily provide state of the art pain management and physical therapy. The
clinic is equipped with physical rehabilitation equipment including a swimming
pool for added hydrotherapy. The clinic has a MD, DO, Physical Therapist and a
staff of 25.
5
<PAGE>
ST. GEORGE, UTAH: This group of clinics primarily sees patients who
cannot gain immediate access to see a MD. The Nurse Practitioners with a staff
of 5 treat patients for minor non-invasive illness and are equipped to perform
lab work ups.
LAS VEGAS, NEVADA: This clinic sees patients for manipulations,
diagnostic and physical therapy services. The staff consists of a Chiropractor
and 3 other employees.
AUSTIN, TEXAS: This is a seven-day-a-week clinic providing primary
care, diagnostic, pain management and physical rehabilitation with 18,000 square
feet of space. They staff 6 MD's - 2 physician assistants - 1 physical therapist
- - 1 Chiropractor - 4 message therapists - and an administrative staff of 35.
ARLINGTON, TEXAS: The Chiropractor sees patients for manipulations
and diagnostic services. The clinic has a small staff.
FORT WORTH, TEXAS: The Clinic sees patients for physical therapy and
work hardening programs with a Physical Therapist. The Company has a MD, part
time on staff to expand its overall patient care offering.
Products
Service Contract - On-line P.C. support is provided to OneClaim Plus
customers by the Company's technical support staff.
The Company is continually investigating the feasibility of enhancing
software platforms and developing new conventions to meet its clients' current
and prospective needs.
All electronic statement billing is by electronic transmission an are
invoiced to on-line customers.
The Company provides all its customers' with electronic media claims
capabilities and continues to expand this product offering.
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.
Employees
The Company currently employs approximately 140 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. MB Software Solutions, Inc.'s
principal office is leased and located in Newport Beach, California the lease
expires January 31, 1999. Victory Medical and Family Clinic is located at 4303
Victory Drive, Austin, Texas and the lease expires December 31, 1998. Multicare
Plus in Fort Worth, Texas is located at 6345 Winthrop Avenue. The lease expires
December 31, 1998. NFPM, LLC is located at 9143 Philips Highway- Suite 495,
Jacksonville, Florida, the second location is 1950 Miller Street, Orange Park,
Florida with the third facility leased and opening in June 1998 at 233 N. 10th
Street, Jacksonville Beach, Florida. The location in St. George, Utah are 595 S.
Buff- Suite #5, with lease expiring on May 31, 2000.
6
<PAGE>
Item 3. Legal Proceedings
On October 15, 1997, the Company filed a lawsuit in the 342nd Judicial
District Court of Tarrant County, Texas against a former stockholder and
employee of the Company for breach of a Severance Agreement entered into by the
Company of the stockholder in connection with the termination of that person's
employment by a subsidiary of the Company. On January 6, 1998, that stockholder
filed a lawsuit in the United States District Court for the Central District of
California against the Company and Scott A. Haire, Chairman of the Board and
President of the Company alleging violation of the Federal securities laws and
other causes of action in connection with the purchase of stockholder's shares
of Company common stock in connection with the termination of his employment.
The Company believes that the damages sought in this case exceed $1 million. The
Company believes that the allegations of the former stockholder in his lawsuit
are without merit. In fact, the stockholder's lawsuit has been abated until the
Company's lawsuit is resolved. The Company is of the opinion that both lawsuits
will be resolved within the next 18 to 24 months.
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 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
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 12/31/97
March, 1997 $ .19 $ .19
June, 1997 .36 .33
September, 1997 .49 .49
December, 1997 .34 .34
Year Ended 12/31/96
March, 1996 $ .27 $ .20
June, 1996 .32 .25
September, 1996 .29 .26
December, 1996 .12 .10
The Company had approximately 7722 holders of record of its common stock as of
December 31, 1997. 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, 1997 to December 31, 1997 as compared with the period
from January 1, 1996 to December 31, 1996. This Annual Report contains certain
forward-looking statements and information relating to the Company that is based
7
<PAGE>
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 1997 are described in "Item 1, Business."
-------------------
Total Revenues in 1997 totaled $5,289,854, a 77% increase over 1996
revenues of $2,986,908. Revenue sources centered on medical clinics, sales of
medical, dental and chiropractic software systems, electronic claims
transmissions, electronic statement generation and maintenance contracts.
Cost of Revenues in 1997 escalated with $3,406,555, a 317% increase
over 1996 totals of $816,026. Management believes Cost of Revenue margins are an
area where further improvement may be effected. In the medical clinics we will
be able to reduce the cost due to the fact that we will be using our medical
software and staff for 1998.
Operating Expenses were $2,624,893 in 1997, a 34% increase for the same
period in 1996, which totaled $1,947,488. Greater focus on every cost-center
operation arrested any upward cost and kept cost containment in the operational
forefront.
Net Income during 1997 declined to ($407,438), a 203% decrease over
1996, which was Net Income of $395,330. The deterioration in Net Income was
realized through implementation of strategic realignment, depreciation and asset
write-downs.
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.
Liquidity and Capital Resources
As of December 31, 1997, the Company had Current Assets of $2,868,614
and Other Assets of $1,937,184. Current Liabilities at December 31, 1997, were
$3,442,315 of which $1,298,808. were notes and advances loaned to the Company by
certain of its senior officers, directors and shareholders. Long Term
Liabilities at December 31, 1997 were $580,596.
The Company utilized net cash of $579,783 from investing activities in
1997 as compared to cash used by investing activities of $499,612 in 1996. In
1997 cash used in investing activities related primarily for purchases of
property and equipment of $313,790, software development costs of $193,160 and
organizational cost of $72,833.
During 1997 and 1996 cash provided by financing activities amounted to
$2,135,355 and $687,518, respectively. In 1997 payments on notes payable of
$1,330,812 was offset by proceeds from notes payable of $1,457,669 and
$2,000,000 from Minority Investments in subsidiaries
The Company anticipates that future operations will generate sufficient cash
flow 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 medical clinics. 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.
8
<PAGE>
<TABLE>
<CAPTION>
Item 7. Financial Statements
Filed as exhibits hereto are the following statements of the Company
and its subsidiaries:
Page
<S> <C>
Report of Independent Certified Public Accounts
Killman, Murrell & Company, P.C. F-2
King Griffin & Adamson P.C. F-3
Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996 F- 4
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 F- 6
Consolidated Statements of Shareholder's Deficit for the
years ended December 31, 1997 and 1996 F- 8
Consolidated Statements of Cash Flows for the
years ended December 31, 1997 and 1996 F- 9
Notes to Consolidated Financial Statements F- 11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. See 8-K dated December 4, 1997 and 8-K dated
March 23, 1998.
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 33 President, Director 1993
Gilbert A. Valdez 54 Chief Operating Officer 1996
Araldo A. Cossutta 73 Director 1994
Steven W. Evans 47 Director 1994
Robert E. Gross 53 Director 1994
Thomas J. Kirchhofer 57 Director 1994
Lucy J. Singleton 60 Secretary 1995
</TABLE>
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.
9
<PAGE>
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 accountant 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.
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 $100,00 during such period.
<TABLE>
- ----------------------------------------------------------------------------------------------------
Name and Long Term Compensation
----------------------
Principal Annual Compensation Restricted Options All
Position ------------------- Stock /SARS Other
Year Salary($) Bonus Other Awards #shares(2) Comp.($)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Scott A. Haire 1997 120,000 -0- -0- -0- -0- -0-
President 1996 120,000 -0- -0- -0- -0- -0-
1995 -0- -0- -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------
</TABLE>
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Options/SAR Values
The following table provides information concerning option exercises in fiscal
1997 and the value of unexercised options held by each of the named Executive
Officers at December 31, 1997.
10
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
Name Shares Acquired Value No. of unexercised Value of unexercised
on Exercise (#) Realized ($) options /SARs at in-the-money options/
at FY-End (#) SARs at FY-end($)
exercisable/unexercisable exercisable/unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Scott A. Haire -0- N/A 1,800,000 $180,000.00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 1997,
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 41,303,332 60.8%
as 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 -
None.
11
<PAGE>
Item 13. Exhibits Reports on Form 8-K
1. Reports on Form 8-K --None.
2. Exhibits - 10.1 - Promissory Note Dated April 1, 1998, by
and between MB Software Corporation and Imagine Investments, Inc. in the
principal amount of $1,400,000.
All other exhibits incorporated by reference from prior filings with the
Commission.
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: June 8, 1998
12
<PAGE>
Page
----
Reports of Independent Certified Public Accountants
Killman, Murrell & Company, P.C. F-2
King Griffin & Adamson P.C. F-3
Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Operations for the
years ended December 31, 1997 and 1996 F-6
Consolidated Statements of Shareholders' Deficit for the
years ended December 31, 1997 and 1996 F-8
Consolidated Statements of Cash Flows for the
years ended December 31, 1997 and 1996 F-9
Notes to Consolidated Financial Statements F-11
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
MB Software Corporation and Subsidiaries
2225 E. Randol Mill Road, Suite 305
Arlington, Texas 76011
We have audited the accompanying consolidated balance sheets of MB Software
Corporation and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' deficit, and cash flows for
the year then ended. These consolidated 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the consolidated financial position of MB
Software Corporation and Subsidiaries as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/Killman, Murrell & Company, P.C.
- -----------------------------------
KILLMAN, MURRELL & COMPANY, P.C.
Dallas, Texas
May 7, 1998
F-2
<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 sheet of MB Software
Corporation and subsidiaries (Formerly INAV Travel Corporation and Subsidiaries)
as of December 31, 1996 and the related consolidated statements of operations,
shareholders' deficit, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated 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 audit provides 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 the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/King Griffin & Adamson P.C.
------------------------------
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
February 21, 1997
F-3
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---------- ----------
CURRENT ASSETS
Cash $ 776,079 $ 196,653
Accounts Receivable -
Medical receivables, net of allowance
for doubtful accounts of $390,562 1,632,742 --
Trade accounts receivable, net of allowance
for doubtful accounts of $11,108 and
$33,487, respectively 330,634 311,965
Notes Receivable - Current Portion 108,178 10,000
Prepaid Expenses and Other 20,981 19,883
---------- ----------
TOTAL CURRENT ASSETS 2,868,614 538,501
---------- ----------
PROPERTY AND EQUIPMENT, NET - Note 2 500,215 63,349
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$312,654 and $209,255 1,244,022 850,109
Software Development Costs, net of accumulated
amortization of $282,808 and $101,374 405,966 394,240
Note Receivable, net of current portion 203,569 --
Deposits and Other Assets 83,627 18,488
---------- ----------
TOTAL OTHER ASSETS 1,937,184 1,262,837
---------- ----------
$5,306,013 $1,864,687
========== ==========
(Continued)
F-4
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
LIABILITIES AND SHAREHOLDERS' DEFICIT
1997 1996
----------- -----------
<S> <C>
CURRENT LIABILITIES
Notes payable - Note 3 $ 791,410 $ 209,123
Current maturities of long-term debt - Note 4 1,383,711 32,906
Accounts payable 710,446 149,741
Accrued liabilities 359,090 101,382
Other liabilities - Note 5 89,000 179,000
Deferred revenues 108,658 159,026
----------- -----------
TOTAL CURRENT LIABILITIES 3,442,315 831,178
LONG-TERM LIABILITIES
Long-term debt, net of current maturities - Note 4 580,596 1,283,808
Other liabilities - Note 5 -- 40,000
----------- -----------
TOTAL LIABILITIES 4,022,911 2,154,986
----------- -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES - Note 1,754,841 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
(NOTES 4, 5, 9, 10 and 11) -- --
SHAREHOLDERS' DEFICIT
Common stock; $.001 par value; 100,000,000 shares
authorized; 68,580,000 and 67,885,000 shares issued 68,580 67,885
Additional paid-in capital 1,035,625 810,322
Accumulated deficit (1,563,905) (1,156,467)
Treasury stock, at cost; 409,577 shares (12,039) (12,039)
----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (471,739) (290,299)
----------- -----------
$ 5,306,013 $ 1,864,687
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
<S> <C>
REVENUES
Medical clinic fees $ 3,597,864 $ --
Software and maintenance sales 1,502,445 2,461,562
Consulting fee income -- 299,000
Service fees and broker income 174,622 211,864
Other 14,923 14,482
----------- -----------
TOTAL REVENUES 5,289,854 2,986,908
----------- -----------
COST OF REVENUES
Cost of medical clinic fees 2,940,797 --
Cost of software and maintenance sales 465,758 813,477
Cost of service fees and broker income -- 2,549
----------- -----------
TOTAL COST OF REVENUES 3,406,555 816,026
----------- -----------
GROSS PROFIT 1,883,299 2,170,882
----------- -----------
OPERATING EXPENSES
Selling, general & administrative 2,226,810 1,733,810
Depreciation and amortization 398,083 213,678
----------- -----------
TOTAL OPERATING EXPENSES 2,624,893 1,947,488
----------- -----------
INCOME (LOSS) FROM OPERATIONS (741,594) 223,394
----------- -----------
OTHER INCOME (EXPENSE)
Gain on sale of assets 269,724 --
Interest expense (256,837) (72,817)
Gain from reduction of liabilities -- 140,000
Interest income and other, net 76,110 18,619
----------- -----------
TOTAL OTHER INCOME 88,997 85,802
----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
ITEM AND MINORITY INTEREST (652,597) 309,196
EXTRAORDINARY ITEM
Gain on debt extinguishment, net of income taxes -- 86,134
----------- -----------
INCOME (LOSS) BEFORE MINORITY
INTEREST (652,597) 395,330
MINORITY INTEREST IN (LOSS) 245,159 --
----------- -----------
NET INCOME (LOSS) $ (407,438) $ 395,330
=========== ===========
</TABLE>
(Continued)
F-6
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------- -----------
INCOME (LOSS) PER WEIGHTED-AVERAGE
COMMON SHARE $ (.01) $ .01
========== ===========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING 68,205,769 69,791,096
========== ===========
The accompanying notes are an
integral part of these consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1997 AND 1996
Retained
Common Stock Additional Earnings
------------------------ Paid In (Accumulated Treasury
Shares Amount Capital Deficit) Stock Total
---------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 49,485,000 $ 49,485 $ 518,722 $(1,551,797) $ (147,039) $(1,130,629)
Common stock issued for cash 1,600,000 1,600 398,400 -- -- 400,000
Treasury stock issued in
settlement of a note payable
(Note 4) -- -- (90,000) -- 135,000 45,000
Issuance of shares related to
acquisition of Santiago
(Note 6) 1,800,000 1,800 (1,800) -- -- --
Issuance of shares in connection
with 1993 merger (Note 6) 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)
Stock options exercised 70,000 70 3,428 -- -- 3,498
Stockholder contributions -- -- 5,000 -- -- 5,000
Issuance of shares related to acquisition
of Nevada Multicare 525,000 525 209,475 -- -- 210,000
Issuance of shares for legal fees 100,000 100 7,400 -- -- 7,500
Net (loss) -- -- -- (407,438) -- (407,438)
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1997 68,580,000 $ 68,580 $ 1,035,625 $(1,563,905) $ (12,039) $ (471,739)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements
F-8
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ -----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (407,438) $ 395,330
Adjustments to reconcile net income (loss) to net
cash used by operating activities
Depreciation and amortization 398,084 213,678
Gain on sale of assets (269,724) --
Common stock issued in payment of legal services 7,500 --
Minority interest in loss (245,159) --
Gain on debt extinguishment -- (86,134)
Gain from reduction of liabilities -- (140,000)
Change in allowance for doubtful accounts 368,183 33,487
Changes in assets and liabilities
Accounts receivable (585,071) (285,664)
Notes receivable 35,065 --
Prepaid expenses and other (1,098) (19,883)
Deposits (346) (700)
Accounts payable and accrued liabilities (95,773) (7,700)
Other liabilities (130,000) (128,350)
Deferred revenues (50,369) (1,852)
----------- -----------
NET CASH USED BY
OPERATING ACTIVITIES (976,146) (27,788)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (313,790) (49,748)
Software development costs capitalized (193,160) (439,864)
Organizational costs (72,833) --
Advances on notes receivable -- (10,000)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES (579,783) (499,612)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (1,330,812) (554,707)
Proceeds from notes payable 1,457,669 1,041,841
Minority investment in subsidiaries 2,000,000 --
Net payments on other liabilities -- (170,000)
Change in cash overdraft -- (29,616)
Proceeds from common stock issuance 8,498 400,000
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,135,355 687,518
----------- -----------
</TABLE>
(Continued)
The accompanying notes are an
integral part of these consolidated financial statements
F-9
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
<S> <C>
INCREASE IN CASH $ 579,426 $ 160,118
CASH AT BEGINNING OF PERIOD 196,653 36,535
----------- -----------
CASH AT END OF PERIOD $ 776,079 $ 196,653
=========== ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest $ 256,306 $ 74,166
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Note payable $ -- $ (45,000)
Issuance of treasury stock in settlement of note payable -- 45,000
Purchase of medical clinics
Medical assets acquired (2,558,962) --
Goodwill acquired (578,247) --
Common stock issued 210,000 --
Accounts payable and accrued liabilities assumed 914,185 --
Note payable 2,003,024 --
Note receivable reduction 10,000 --
Reduction in note payable (900,000) --
Reduction in accounts receivable 900,000 --
Note receivable (346,811) --
Proceeds from sale of assets 346,811 --
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these consolidated financial statements.
F-10
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
- -----------
MB Software Corporation (the "Company") was incorporated in 1982. Historically,
the Company has provided practice and cash management services to physicians,
dentists, chiropractors and medical billing centers. In 1997, the Company began
to expand its scope of operations by acquiring and operating healthcare
businesses that use its practice and cash management services. Also in 1997, the
Company streamlined its practice and cash management business in an attempt to
focus solely upon the provision of practice and cash managements services of
healthcare businesses operated directly by the Company.
In January 1997, the Company acquired a nurse-practitioner business that
operates three (3) clinic sites in Utah. In February 1997, the Company acquired
two (2) physical medicine and rehabilitation facilities located in Jacksonville,
Florida. In August 1997, the Company and Imagine Investments, Inc. announced
formation of Healthcare Innovations, LLC, a limited liability company formed for
the purposes of acquiring and operating healthcare businesses. Imagine
Investments, Inc. is a subsidiary of Stone Investments, which is a subsidiary of
Stone Capital, a company with over $3 billion in assets. The Company owns 51% of
the outstanding equity of Healthcare Innovations and contributed its interests
in the Jacksonville and Utah facilities to the new venture. Healthcare
Innovations acquired a home nursing operation located in Utah in August 1997 and
two (2) chiropractic clinics located in Arlington, Texas, and Las Vegas, Nevada,
in October 1997.
In 1997, the Company took significant steps to focus on its core competency in
its practice management business. The Company divested itself of all other
products other than its OneClaim Plus product, which is a Windows 95 based
practice management software product. Additionally, the Company sold its
business opportunity marketing program in January 1998, which used third parties
to sell the OneClaim Plus program. The Company now focuses instead on direct
sales of the OneClaim Plus program.
The OneClaim Plus program is comprehensive practice management software that can
operate on either a DOS-based or Windows 95 system. The software is designed to
cover nearly every aspect of practice management, including marketing, patient
management, billing, transaction management, basic and customized reporting, and
information management. The Company not only markets OneClaim Plus to third
parties, but also uses the software in the conduct of its own healthcare
businesses, thus providing the Company with a common program that offers
stability, dependability and ease of use in the acquisition and operation of the
acquired healthcare businesses.
Consolidation Policy
- --------------------
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries and Healthcare Innovations, LCC which is managed
by the Company. All material intercompany accounts and transactions have been
eliminated in consolidation.
(Continued)
F-11
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
Revenue Recognition
- -------------------
Revenue consists primarily of sales of the Company's healthcare services,
software products, maintenance and customer support and related consulting
services.
Medical Clinic Fees - Fees are recognized at the time medical services
are rendered.
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.
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 ten years. Maintenance
and repairs are expensed as incurred. Replacements and betterments are
capitalized.
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 the acquisition of subsidiaries. Goodwill amounted to $1,556,676 and
$1,059,364 in 1997 and 1996, respectively, and is being amortized using the
straight-line method over 10 years. Amortization expense for 1997 and 1996
amounted to $132,247 and $105,936, 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.
(Continued)
F-12
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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. In 1997, the common
stock equivalent shares were considered anti-dilutive due to the loss from
operations.
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 $660,042 of cash equivalents at December 31, 1997.
Business and Credit Risk Concentrations
- ---------------------------------------
The Company's medical clinics provide services to the patients located in
Florida, Texas, Nevada and Utah. These patients are billed at the time services
are performed. None of the patients are individually significant.
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.
Management evaluates accounts receivable balances on an ongoing basis and
provides allowances as necessary for amounts estimated to eventually become
uncollectible or amounts that are not subject to payment by third party payors
such as insurance companies and federal government payment programs. The
allowance for uncollectible accounts receivable at December 31, 1997 and 1996
was $401,670 and $33,487, 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, 1997, the Company exceeded the insured limit by
approximately $561,098.
(Continued)
F-13
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 he 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.
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.
Software development costs incurred in development of medical billing software
of $193,160 and $439,864 were capitalized in 1997 and 1996, respectively.
Amortization of these costs amounted to $181,434 and $97,503 during 1997 and
1996, respectively.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997 and 1996:
1997 1996
--------- ---------
Clinic and office equipment $ 474,456 $ --
Computer equipment 62,134 87,217
Furniture and fixtures 37,322 1,056
Vehicles and other 48,500 --
--------- ---------
622,412 88,273
Less accumulated depreciation and amortization (122,197) (24,924)
--------- ---------
$ 500,215 $ 63,349
========= =========
Depreciation expense was $76,364 and $10,239 for the years ended December 31,
1997 and 1996, respectively.
F-14
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 3: NOTE PAYABLE
Notes payable consist of the following as of December 31, 1997 and 1996:
1997 1996
---------- --------
8% Note payable to a shareholder, due on
December 31, 1997, unsecured $300,000 $ --
Non-interest bearing note payable to third parties
assumed in connection with the Santiago purchase,
due on demand 105,205 150,994
Non-interest bearing note payable to a shareholder of
Santiago assumed during purchase of Santiago,
due on demand -- 8,129
Prime plus 1% note payable to a bank, due June 30, 1998,
secured by accounts receivable 117,885 50,000
Non-interest bearing note payable to a corporation,
due on demand, unsecured 24,000 --
12% note payable to a bank, due October 1998,
secured by Company assets 200,000 --
10% note payable to an individual, due April 1, 1998,
unsecured 44,320 --
-------- --------
$791,410 $209,123
======== ========
F-15
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 4 - LONG-TERM DEBT
Long term debt consisted of the following at December 31, 1997 and 1996:
1997 1996
-------- --------
<S> <C> <C>
8% note payable to a shareholder ($455,000
due December 22, 1998 and $300,000 due
June 19, 1998), unsecured $755,000 $755,000
8% note payable to an employee, shareholder,
and officer, due December 31, 1998, unsecured 434,808 434,808
8% note payable to a shareholder, due on demand,
unsecured 2,000 12,000
8% note payable to a shareholder, due on demand,
unsecured 25,000 25,000
8% note payable to a shareholder, due in 1998, unsecured 45,000 45,000
8% note payable to a shareholder, due on demand,
unsecured -- 7,906
8% note payable to a shareholder due July 16, 1998,
unsecured 25,000 25,000
8% note payable to a shareholder, due December 31, 1998,
unsecured 12,000 12,000
10% note payable to an investor, due August 1, 2000 500,000 --
13.5% notes payable to a financing company, monthly principal and interest
payments of $654, due
June 20, 2000, secured by equipment 9,042 --
8.6%note payable to a financing company, monthly principal and interest
payments of $426, due
September 15, 1999, secured by equipment 17,039 --
Non-interest bearing note (imputed at 10%); note
payable to a company, monthly payments of
$2,481, due March 22, 1999, unsecured 33,477 --
9.5% note payable to an employee, due December 31, 1997,
unsecured 31,400 --
10.25% note payable to a bank, monthly payments of
$236, due June 2000, secured by vehicle 15,095 --
(Continued)
F-16
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 4 - LONG-TERM DEBT (CONTINUED)
1997 1996
----------- ----------
14% note payable to a financing company, monthly payments of $1,355, due
April 9, 2001, secured
by equipment 45,544 --
13.5% note payable to a bank, with monthly principal and interest payments of
$549, due
September 2000, secured by Company assets 13,902 --
----------- -----------
1,964,307 1,316,714
Less current portion (1,383,711) (32,906)
----------- -----------
$ 580,596 $ 1,283,808
=========== ===========
The following is a schedule of maturities of notes payable at December 31,1997:
1998 $ 1,383,711
1999 42,870
2000 525,816
2001 11,910
-----------
$ 1,964,307
===========
</TABLE>
NOTE 5 - 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 6 - SHAREHOLDERS' EQUITY (DEFICIT)
During 1996, the Company issued 4,500,000 common shares of treasury in
settlement of a note payable of $45,000.
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 form 50,000,000 to 100,000,000.
The shareholders approved this change on June 18, 1996.
F-17
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 7 - 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 1997
and 1996 is as follows:
1997 1996
----------- -----------
<S> <C> <C>
Expected federal income tax provision (benefit) $ (138,529) $ 134,412
State income taxes -- 17,790
Valuation allowance and other 138,529 (152,202)
----------- -----------
$ -- $ --
=========== ===========
Deferred tax assets and liabilities as of December 31, 1997 and 1996 are as
follows:
1997 1996
----------- -----------
Current deferred tax asset $ 155,779 $ 71,171
Current deferred tax liability -- --
Valuation allowance for current deferred tax asset 155,779 (71,171)
----------- -----------
Net current deferred tax asset $ -- $ --
=========== ===========
Non-current deferred tax asset $ 1,180,948 $ 1,101,361
Non-current deferred tax liability (148,506) (183,228)
Valuation allowance for non-current deferred tax asset (1,032,442) (918,133)
----------- -----------
Net non-current deferred tax asset $ -- $ --
=========== ===========
</TABLE>
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 an 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 generated net operating losses for financial reporting and Federal income tax
reporting prior to its reorganization in 1993. As of December 31, 1997, subject
to limitations under Internal Revenue Code ss.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, 1997 amounts to $3,267,000 and will begin to
expire in 2008 if not utilized.
NOTE 8 - RELATED PARTY TRANSACTIONS
Prior to and during the year ended December 31, 1996, the Company received and
repaid portions of advances from shareholders and officers.
F-18
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 9 - LEASE COMMITMENTS
The Company has non-cancelable leases for office space and equipment. Future
minimum payments under these leases and other equipment operating leases are
payable as follows:
Year Ended
December 31, Amount
------------ ------
1998 $ 295,003
1999 143,466
2000 82,041
2001 42,138
2002 9,000
---------
$ 571,648
=========
Lease and rent expense under non-cancelable operating leases for 1997 and 1996
are $222,579 and $109,859, respectively.
NOTE 10 - LEGAL PROCEEDINGS
On October 15, 1997, the Company filed a lawsuit in the 342nd Judicial District
Court of Tarrant County, Texas against a former stockholder and employee of the
Company for breach of a Severance Agreement entered into by the Company of the
stockholder in connection with the termination of that person's employment by a
subsidiary of the Company. On January 6, 1998, that stockholder filed a lawsuit
in the United States District Court for the Central District of California
against the Company and Scott A. Haire, Chairman of the Board and President of
the Company alleging violation of the Federal securities laws and other causes
of action in connection with the purchase of stockholder's shares of Company
common stock in connection with the termination of his employment. The Company
believes that the damages sought in this case exceed $1 million. The Company
believes that the allegations of the former stockholder in his lawsuit are
without merit and intends to vigorously defend itself in this lawsuit.
NOTE 11 - STOCK OPTIONS AND WARRANTS
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.
(Continued)
F-19
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of changes in the Company's incentive stock options issued under the
Plan and other compensatory options follows:
Other
Plan Options Compensatory Options Combined Total
----------------------- -------------------- --------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price Options
---------- -------- ---------- -------- ----------
<S> <C>
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
Granted -- -- 2,100,000 .22 2,100,000
Exercised (70,000) .05 -- -- (70,000)
Forfeited -- -- -- -- --
---------- ---- --------- ---- ---------
Outstanding at 12/31/97 795,000 $.05 4,500,000 $.13 5,295,000
========== ==== ========= ==== =========
</TABLE>
The fair value of plan options issued during 1996 was approximately $63,435.
There were no plan options issued during 1997.
The following table summarizes information about options outstanding at December
31, 1997 under the Plan:
<TABLE>
Options Outstanding Options Exercisable
------------------- ---------------------------------
Weighted Average
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ------------------- -------------- ----------- -----------------
<S> <C> <C>
$.02-$.65 795,000 2.9 $.05 795,000 $.05
</TABLE>
(Continued)
F-20
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
Stock Options (Continued)
- -------------------------
The following table summarized information about the other compensatory stock
options outstanding at December 31, 1997:
Options Outstanding Options Exercisable
------------------- ---------------------------------
Weighted Average
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ------------------- -------------- ----------- -----------------
<S> <C> <C>
$.03-$.65 4,500,000 4.1 $.13 2,700,000 $.07
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 1997 and 1996 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,
-------------------------------
1997 1996
---------- --------
Net Income (Loss) As reported $(407,438) $395,330
Pro forma $(407,438) $331,895
Net Income (Loss) per share As reported $(.01) $0.01
Pro forma $(.01) $0.01
</TABLE>
Of the 5,295,000 outstanding incentive stock options at December 31, 1997,
3,795,000 options are fully vested at December 31, 1997 and 1,500,000 options
vest in 1998.
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 1997 and 1996: 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.
F-21
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 11 - STOCK OPTIONS AND WARRANTS (CONTINUED)
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. No
warrants were issued in 1997.
NOTE 12: 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.
NOTE 13: 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, 1997 and 1996 is as follows:
1997 1996
----------- -----------
Revenues:
Medical fees $ 3,597,864 $ 211,864
Software and maintenance sales 1,502,445 2,461,562
Other 189,545 313,482
----------- -----------
$ 5,289,854 $ 2,986,908
=========== ===========
Operating income (loss):
Medical fees $ 183,385 $ 30,312
Software and maintenance sales (578,787) 194,458
Corporate (346,192) (1,376)
----------- -----------
$ (741,594) $ 223,394
=========== ===========
Total assets:
Medical fees $ 3,203,952 $ --
Software and maintenance sales 1,604,693 1,505,624
Corporate 497,368 359,063
----------- -----------
$ 5,306,013 $ 1,864,687
=========== ===========
(Continued)
F-22
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 13: BUSINESS SEGMENT INFORMATION (CONTINUED)
1997 1996
-------- --------
Depreciation and amortization:
Medical fees $ 93,786 $ --
Software and maintenance sales 295,089 205,768
Corporate 9,208 7,910
-------- --------
$398,083 $213,678
======== ========
Capital expenditures:
Medical fees $534,139 $ --
Software and maintenance sales 193,160 484,304
Corporate -- 5,308
-------- --------
$727,299 $489,612
======== ========
NOTE 14: SIGNIFICANT FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
Significant fourth quarter adjustments were recorded as follows:
Depreciation and amortization expense $112,000
Accounts receivable adjustment for bad debts 530,000
Reduction in gain or sale of assets 130,000
--------
772,000
Less: Income tax effect --
--------
Fourth quarter adjustments, net $772,000
========
NOTE 15: SUBSEQUENT EVENTS
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.
F-23
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 15: SUBSEQUENT EVENTS (CONTINUED)
On April 1, 1998, the Company purchased the assets and assumed certain
liabilities 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 will 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.
In April 1998, the Company borrowed $1.4 million from Stone Capital pursuant to
the terms of a promissory note which gives Healthcare Innovations, LLC the
option to convert the note and its 49% ownership interest to preferred stock.
NOTE 16: IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will not be
required to modify or replace significant portions of its software so that its
computer systems will function properly with respect to dates in the year 2000
and thereafter. The Company believes that the Year 2000 Issue will not pose
significant operational problems for its computer systems.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. However, there can be no guarantee that the systems
of other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems. The Company has
determined it has no exposure to contingencies related to the Year 2000 Issue
for the products it has sold.
The total cost of the Year 2000 project is not expected to be significant.
F-24
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 17: ACQUISITIONS
In 1997, the Company acquired several medical clinics, with multiple locations.
This summarizes the total proforma balance sheets of the clinics prior to the
purchases and the assets purchased, liabilities assumed and the purchase prices:
Proforma Balance Sheets
--------------------------------------------
Balance Sheets Summary of The Company
of Clinics Prior Net Assets December 31,
to Acquisitions Purchased 1996 Total
---------------- ----------- -------------- -----------
(Unaudited)
<S> <C> <C>
Assets:
Current assets $ 3,976,755 $ 2,334,523 $ 538,501 $ 2,873,024
Clinic equipment -- 434,439 -- 434,439
Property and equipment 508,256 -- 63,349 63,349
Other assets 1,322,561 -- 1,262,837 1,262,837
Goodwill -- 603,247 -- 603,247
----------- ----------- ----------- -----------
Total Assets $ 5,807,572 $ 3,372,209 $ 1,864,687 $ 5,236,896
=========== =========== =========== ===========
Liabilities and Stockholders' Deficit:
Accounts payable and assumed
liabilities $ 2,104,937 $ 789,185 $ 831,178 $ 1,620,363
Notes payable and other long-term
liabilities 1,284,240 1,958,024 1,323,808 3,281,832
----------- ----------- ----------- -----------
Total Liabilities 3,389,177 2,747,209 2,154,986 4,902,195
----------- ----------- ----------- -----------
Common stock 45,292 -- 67,885 67,885
Additional paid-in-capital 4,388,452 -- 810,322 810,322
Accumulated deficit (2,015,349) -- (1,156,467) (1,156,467)
Treasury stock -- -- (12,039) (12,039)
----------- ----------- ----------- -----------
Total Stockholders' Deficit 2,418,395 -- (290,299) (290,299)
Purchase Price
Cash -- 235,000 -- --
Purchase notes payable -- 180,000 -- --
Common stock issued -- 210,000 -- --
----------- ----------- ----------- -----------
Total Purchase Price -- 625,000 -- --
----------- ----------- ----------- -----------
Total Liabilities, Stockholders'
Deficit and Parent Company
Investment $ 5,807,572 $ 3,372,209 $ 1,864,687 $ 5,236,896
=========== =========== =========== ===========
</TABLE>
(Continued)
F-25
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1997 AND 1996
NOTE 17: ACQUISITIONS (CONTINUED)
The following schedule represents a proforma statement of operations for the
twelve months preceding the acquisitions as if they were made January 1, 1996:
The Company Acquisitions Total
----------- ------------ ------------
(Unaudited)
Statement of Operations
- -----------------------
Revenues $ 2,986,908 $ 8,091,823 $ 11,078,731
Cost of Revenues 816,026 2,198,627 3,014,653
------------ ------------ ------------
Gross Profit 2,170,882 5,893,196 8,064,078
Operating Expenses 1,947,488 4,882,285 6,829,773
------------ ------------ ------------
Income From Operations 223,394 1,010,911 1,234,305
Other Income (Expense) 85,802 8 85,810
Income Tax -- (374,918) (374,918)
------------ ------------ ------------
Income From Operations 309,196 636,001 945,197
Gain on Debt Extinguishment 86,134 170,298 256,432
------------ ------------ ------------
Net Income $ 395,330 $ 806,299 $ 1,201,629
============ ============ ============
F-26
EXHIBIT 10.1
PROMISSORY NOTE
$1,400,000.00 April 1, 1998
FOR VALUE RECEIVED, the undersigned, MB SOFTWARE CORPORATION, a
Colorado corporation, ("Maker"), promises to pay to IMAGINE INVESTMENTS, INC., a
Delaware corporation ("Payee"), the principal sum of ONE MILLION FOUR HUNDRED
THOUSAND AND NO/l00 DOLLARS ($1,400,000.00), or if less, all such sums as may
have been advanced and be outstanding hereunder, together with interest accrued
thereon (calculated on the basis of a 365-day year) at a rate of 10% per annum
from the date hereof until this Promissory Note (the "Note") is paid in full.
Interest on this Note shall only accrue on and after the date of any advancement
hereunder.
1. Payment. Unless otherwise provided herein the Maker shall on or
before October 1, 1998, shall repay this Note by: (a) paying cash equal to the
principal and all accrued and outstanding interest on this Note; or, (b) if
Maker has issued 200,000 shares of preferred stock as herein defined in
connection with its acquisition of Payee's membership interest in Healthcare
Innovations, LLC, and if no event of default exists, issuing 140,000 duly
authorized, fully paid, and nonassessable shares of Preferred Stock plus paying
cash equal to all accrued and outstanding interest due on the Note. Any payment
shall be made to Payee at Imagine Investments, 8150 N. Central Expressway, Ste.
190 1, Dallas, Texas 75206. All past due payments on this Note shall bear
interest at the Maximum Rate, as hereafter defined.
2. Prepayment. Maker may at its sole option prepay all of this Note
before maturity without penalty or premium.
3. Senior Debt. The obligation of Maker hereunder shall for all
purposes be considered senior indebtedness of Maker. All contractual obligations
or indebtedness of Maker any subsidiary thereof shall be subordinate to the
obligation of Maker hereunder. Without the written consent of Payee, in its sole
discretion, no payments may be made, directly or indirectly, by Maker or any of
its subsidiaries on any loans or indebtedness of Maker or its subsidiaries to
Maker's officers, directors or shareholders (other than payee or his successors
and assigns) or their respective affiliates while any portion of the principal
balance and/or accrued interest on this Note is outstanding.
4. Events of Default and Remedies. At the option of Payee, the entire
principal balance of, together with all accrued and unpaid interest on, this
Note shall at once become due and payable, without further notice or demand,
upon the occurrence at any time of any of the following events of default
("Events of Default"):
(i) Failure of Maker to make any payment of accumulated
interest and principal on this Note as and when the same becomes due and payable
in accordance with the terms hereof;
(ii) Breach of any of the representations or covenants of
Payee in the Loan Agreement or Stock Pledge Agreement;
(iii) Failure of Maker to perform any covenant, agreement, or
condition contained herein, and such failure continues for a period of ten (10)
days after the receipt by Maker of written notice from Payee of the occurrence
of such failure; or
1
<PAGE>
(iv) Maker shall (a) become insolvent, (b) voluntarily seek,
consent to, acquiesce in the benefit or benefits of any Debtor Relief Law (as
hereinafter defined) or (c) become party to (or be made the subject of) any
proceeding provided by any Debtor Relief Law, other than as a creditor or
claimant, that could suspend or otherwise adversely affect the rights of Payee
granted hereunder (unless in the event such proceeding is involuntary, the
petition instituting the same is dismissed within 90 days of the filing of the
same). As used herein, the term "Debtor Relief Law" means the Bankruptcy Code of
the United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally.
In the event any one or more of the Events of Default specified above
shall have occurred, the holder of this Note may proceed to protect and enforce
its rights either by suit in equity and/or by action at law, or by other
appropriate proceedings, whether for the specific performance of any covenant or
agreement contained in this Note, or to enforce any other legal and equitable
right of the holder of this Note.
5. Stock. The term "Preferred Stock" means Class A Senior Cumulative
Convertible Participating Preferred Stock, par value $10 per share, of Maker
which Preferred Stock has the following terms:
Priority: Senior to all other capital stock of Maker as to
- -------- payment of dividends, redemption, and (except as
described under the caption "Liquidation Preference")
liquidation preference
Dividends: Cumulative dividends at the rate of $1.00 per annum,
- --------- payable quarterly
Voting Rights: Generally non-voting except as required by law, as
- ------------- described under the captions "Consequences of Failure
to Redeem" and 'tCertain Restrictions on Maker"
Redemption Rights: Redeemable at option of holder at any time after
- ----------------- April 1, 2000, if not converted into common stock by
April 1, 2000.
Redemption Price: $10 per share plus accrued and unpaid dividends
- ----------------
Consequences
- ------------
of Failure to Redeem: Holders of Preferred Stock have right to elect
- -------------------- majority of the board of directors of Maker
Liquidation
- -----------
Preference: The sum of (a) $10 per share plus accrued and unpaid
- ---------- dividends plus (b) after $20 million has been paid to
holders of common stock, an amount equal to the
amount paid under clause (a) plus (c) 30% of all
liquidation proceeds remaining after the foregoing
payments
Conversion: At the time a Triggering Event occurs, the 340,000
- ---------- shares of Preferred Stock will be convertible, at the
option of the holder, into the Conversion Percentage
of the common stock outstanding after such conversion
(on a fully-diluted basis)
2
<PAGE>
Triggering Events: The first to occur of (a) the sale of all or
- ---------- substantially all of the assets of Maker (the "Sale
Triggering Event"), (b) a Change in Control of Maker
(as defined below) (the "Change in Control Triggering
Event"), (c) the voluntary or involuntary dissolution
of Maker (the "Dissolution Triggering Event"), or (d)
April 1, 2000 (the "Year 2000 Triggering Event")
Conversion
- ----------
Percentage: The "Conversion Percentage" will be (a) 30% in the
- ---------- case of the Year 2000 Triggering Event and (b) 30%,
as it may be adjusted pursuant to the following
calculations, in the case of any other Triggering
Event:
First, determine the Future Maker Value (as defined
below) at the time of the Triggering Event
Second, subtract the Redemption Price, as defined
above, at the date of the Triggering Event from $6
Million, which is the "Current Preferred Value" (the
result being called the "Excess Preferred Value")
Third, if the Excess Preferred Value is zero or less,
the Conversion Percentage is 30% and no further
calculations are necessary; if the Excess Preferred
Value is positive, divide the Excess Preferred Value
by the Future Maker Value (the result being called
the "Conversion Adjustment")
Fourth, subtract the Conversion Adjustment from 30%
and the result is the Conversion Percentage
The following hypothetical is included for
illustrative purposes:
Assumptions: Future Maker Value = $100 million
Redemption Price at date of Triggering Event=$4
million
Current Preferred Value = $6 million
Excess Preferred Value = $2 million (Current
Preferred Value-Redemption Price)
Conversion Adjustment = 2% ($2 million/S 100
million) Conversion Percentage = 28%(30% - 2%)
Future Maker Value: "Future Maker Value" is, with respect to (a) a Sale
- ------------ ----- Triggering Event, all amounts received or to be
received by Maker as a result of such transaction
(including the amount of obligations of Maker
assumed by the purchaser) plus, to the extent not
transferred in such transaction, the fair value of
all remaining assets of Maker plus all amounts to be
received from the purchaser or its affiliates by
officers, directors, and shareholders of Maker or
their affiliates pursuant to agreements entered into
in connection with or in anticipation of such sale,
regardless of whether characterized as being for
services, non-competition covenants, or otherwise, to
the extent the consideration therefor exceeds the
fair value thereof; (b) a Change in Control
Triggering Event, the sum of (i) the product of the
highest per share consideration received by a holder
of Common Stock in such transaction multiplied by the
number of shares (on a fully-diluted basis) of
3
<PAGE>
Common Stock outstanding at the date of such
Triggering Event plus (ii) all amounts to be
received from the purchaser or its affiliates by
officers, directors, and shareholders of Maker or
their affiliates pursuant to agreements entered into
in connection with or in anticipation of such sale,
regardless of whether characterized as being for
services, non-competition covenants, or otherwise, to
the extent the consideration therefor exceeds the
fair value thereof; and (c) a Dissolution Triggering
Event, all amounts available for distribution to
shareholders after paying all bona fide debts and
obligations of Maker, including amounts payable to
the holders of Preferred Stock
Certain Restrictions
- --------------------
on Maker: Maker does not have authority to (a) issue any
- -------- capital stock that is pari passu with or senior to
the Preferred Stock with respect to dividends,
redemption, or (except as described under the caption
"Liquidation Preference") liquidation preference, (b)
fail to have reserved sufficient shares to permit
full conversion of the Preferred Stock, (c) issue any
capital stock that would cause there to be
insufficient shares to permit full conversion of the
Preferred Stock
Change in Control: Each of the following events is a "Change in
- ----------------- Control": (a) a merger or consolidation of Maker
with any other entity as a result of which the
holders of Common Stock do not own (on a fully-
diluted basis) a majority of the outstanding
capital stock or other equity interests of the
surviving entity; (b) any event or series of events
that causes any person or entity, together with
its affiliates and associates, to be the beneficial
owner of a majority of the outstanding securities of
Maker that have the right to vote generally in the
election of directors of Maker (for purposes of this
definition, "voting securities") or that results in
any person or entity that currently owns a majority
of the outstanding voting securities of Maker
increasing its ownership percentage by 5% or more;
provided, however, that neither the issuance of
Preferred Stock nor the issuance of common stock upon
conversion of Preferred Stock shall be an issuance
or transfer of voting securities or securities
convertible into voting securities or purposes of
this clause the issuance or transfer by Maker (in one
transaction or a series of transactions) of; (c) any
reclassification of securities of Maker or any
recapitalization of Maker that, in either case, has
the effect of increasing the percentage of the
outstanding voting securities of Maker that is
beneficially owned by any shareholder of Maker by 5%
or more; or (d) any acquisition (pursuant to a tender
offer or otherwise) of securities of Maker that
results in any person or entity, together with its
affiliates and associates, being the beneficial owner
of a majority of the then outstanding voting
securities of Maker or that results in any person or
entity that currently owns a majority of the
outstanding voting securities of Maker increasing the
percentage of outstanding voting securities of Maker
by 5% or more The term "beneficial owner" means, with
respect to any security, a person or entity who has
an economic interest in such security, has the right
to acquire such security (including by virtue of
owning convertible securities, options, or warrants,
whether such right is immediately exercisable or
subject to certain conditions,
4
<PAGE>
including the lapse of time), has the right to vote
or direct the voting of such security, or has the
right to dispose or direct the disposition of such
security; the term "outstanding" includes securities
that, pursuant to the foregoing definition, are
deemed beneficially owned, regardless of whether
actually issued and outstanding; and the terms
"associate" and "affiliate" have the meaning given
them in regulations promulgated by the Securities and
Exchange Commission under the Securities Act of 1934,
as amended
Certain Notices: Maker will give holders of Preferred Stock advance
- --------------- written notice of any Sale Triggering Event or Change
in Control Triggering Event, any record date relating
to any such Triggering Event, any or event that
could give rise to either such Triggering Event in
order to permit the holders to convert their shares
of Preferred Stock prior to the occurrence of such
Triggering Event if they so desire
6. Waiver. Except as expressly provided herein, Maker, and each surety,
endorser, guarantor and other party ever liable for the payment of any sum of
money payable on this Note, jointly and severally, waive demand, presentment,
protest, notice of nonpayment, notice of intention to accelerate, notice of
protest and any and all lack of due diligence or delay in collection or the
filing of such hereon which may occur.
7. Cumulative Right. No delay on the part of the holder of this Note in
the exercise of any power or right under this Note shall operate as a waiver
thereof, nor shall a single or partial exercise of any other power or right.
Enforcement by the holder of this Note of any security for the payment hereof
shall not constitute any election by it of remedies so as to preclude the
exercise of any other remedy available to it.
8. Notices. Any notice or demand given hereunder by the holder hereof
shall be deemed to have been given and received (i) when actually received by
Maker, if delivered in person or by facsimile transmission, or (ii) if mailed,
on the earlier of the date actually received or (whether ever received or not)
three Business Days (as hereinafter defined) after a letter containing such
notice, certified or registered, with postage prepaid, addressed to Maker, is
deposited in the United States mail. The address of Maker is 2225 E. Randol Mill
Road, Ste. 305, Arlington, Texas 76011, or such other address as Maker shall
advise the holder hereof by certified or registered letter by this same
procedure. "Business Day" means every day which is not a Saturday or legal
holiday in Arlington, Texas.
9. Successors and Assigns. This Note and all covenants, promises and
agreements contained herein shall be binding upon and inure to the benefit of
the respective legal representatives, personal representative, devisees, heirs,
successors and assigns of Payee and Maker.
10. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. IN CASE ANY ONE OR MORE OF THE
PROVISIONS CONTAINED IN THIS NOTE SHALL FOR ANY REASON BE HELD TO BE INVALID,
ILLEGAL OR UNENFORCEABLE IN ANY RESPECT, SUCH INVALIDITY, ILLEGALITY OR UN
ENFORCEABILITY SHALL NOT AFFECT ANY OTHER PROVISION HEREOF.
5
<PAGE>
11. Attorneys' Fees and Costs. In the event an Event of Default shall
occur, and in the event that thereafter this Note is placed in the hands of any
attorney for collection, or in the event this Note is collected in whole or in
part through legal proceedings of any nature, then and in any such case, Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees incurred by the holder hereof on account of such
collection, whether or not suit is filed.
12. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
13. Maximum Rate. The term "Maximum Rate" as used herein means the
higher of the maximum interest rate allowed by applicable United States, Texas
law or any applicable law, as amended from time to time, in effect on the date
for which a determination of interest accrued hereunder is made. The
determination of the maximum rate permitted by applicable Texas law shall be
made pursuant to the indicated rate ceiling as defined in Tex. Rev. Civ. Stat.
Ann. art. 5069-1.04 or any successor statute.
14. Limitation on Agreements. All agreements between the Maker and the
Payee, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency or event, whether by
reason of acceleration of the maturity of this Note or otherwise, shall the
amount paid, or agreed to be paid to the Payee for the use, forbearance, or
detention of the money to be loaned under this Note or otherwise or for the
payment of performance of any covenant or obligation contained herein or in any
other document evidencing, securing or pertaining to this loan, exceed the
Maximum Rate. If from any circumstances whatsoever fulfillment of any provision
hereof or any of such other agreements shall cause the amount paid to exceed the
Maximum Rate, then ipso facto the amount to be paid to the Payee shall be
reduced to the Maximum Rate, and if from any such circumstances the Payee shall
ever receive interest or anything which might be deemed interest under
applicable law which exceeds the Maximum Rate, such amount which would be
excessive interest shall be applied to the reduction of the principal of this
Note and not to the payment of interest, or if such excessive interest exceeds
the unpaid balance of the principal of this Note such excess shall be refunded
to the Maker. All sums paid or agreed to be paid to the Payee for the use,
forbearance or detention of the indebtedness of the Maker to the Payee shall, to
the extent permitted by applicable law, (i) be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment in full
so that the actual rate of interest on account of such indebtedness does not
exceed the Maximum Rate throughout the term thereof, (ii) be characterized as a
fee, expense or other charge other than interest, and/or (iii) exclude any
voluntary prepayments and the effects thereof. The terms and provisions of this
paragraph shall control and supersede every other provision of all agreements
between the Payee and the Maker.
EXECUTED as of the day and year first above written.
MB SOFTWARE CORPORATION
By:___________________
Scott Haire, President
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000714256
<NAME> MB Software Corporation
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1
<CASH> 776,079
<SECURITIES> 0
<RECEIVABLES> 1,963,376
<ALLOWANCES> 401,670
<INVENTORY> 0
<CURRENT-ASSETS> 2,868,614
<PP&E> 500,215
<DEPRECIATION> 76,364
<TOTAL-ASSETS> 5,306,013
<CURRENT-LIABILITIES> 831,178
<BONDS> 0
0
0
<COMMON> 68,580
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,306,013
<SALES> 5,289,854
<TOTAL-REVENUES> 5,289,854
<CGS> 3,406,555
<TOTAL-COSTS> 6,031,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256,837
<INCOME-PRETAX> (652,597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (652,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (407,438)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
