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, 1999
-----------------
[ ] 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 76011-6306
Arlington, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (817) 633-9400
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common NASDAQ - OTC BULLETIN BOARD
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $ .001 par value
-----------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
[X] Yes [ ] No
Indicate by check mark if 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: $2,250,511
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 10, 2000 was approximately $1,168,767.
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, 1999, 69,200,000 shares of the Issuer's $.001 par value
common stock were outstanding.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
2
<PAGE>
MB SOFTWARE CORPORATION
Form 10-KSB
For the Year Ended December 31, 1999
Page of
Form 10 KSB
-----------
ITEM 1. BUSINESS ...........................................................4
ITEM 2. PROPERTIES...........................................................6
ITEM 3. LEGAL PROCEEDINGS....................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................7
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS..................................................7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...........................................7
ITEM 7. FINANCIAL STATEMENTS ...............................................10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE............................................10
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS........10
ITEM 10. EXECUTIVE COMPENSATION.............................................11
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................12
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................13
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................13
3
<PAGE>
PART 1
Item 1. Business
MB Software Corporation (the "Company") was incorporated in 1982.
During the last five years, the focus of the Company has been twofold: First, to
provide practice and cash management services to physicians, dentists,
chiropractors and medical billing centers; and second, to develop and sell
medical software. In 1997, the Company began expanding its scope of operations
by acquiring and managing additional healthcare facilities and utilizing in
those facilities the software products developed by the Company. In 1998, the
Company continued to acquire medical clinics, expand the revenue base of
existing clinics, divest itself of unprofitable operations, advance its medical
software to comply with all regulations and industry standards and integrate the
software with new products and services. In 1999, the Company focused on the
process of restructuring its remaining entities in an effort to maximize profits
and reduce administrative expenses. Significantly, in 1999, the Company divested
itself of MB Software Solutions, Inc. ("MBSSI"), the software division.
Healthcare / Practice Management Business
Effective June 30, 1999, the Company sold Mr. Mulligan, LLC d/b/a
Nevada Multicare ("Nevada Multicare"), a wholly owned Company subsidiary
consisting of a chiropractic facility. The Company determined that the revenue
generated by Nevada Multicare was insufficient to justify the significant
administrative costs associated with operating the clinic.
The Company's Florida operations, conducted under the N.F.P.M., LLC
("NFPM") subsidiary, are continuing to expand. In July 1999, the Company opened
N.F.P.M., LLC d/b/a South Florida Medical Center ("SFMC"), a start-up clinic
located in Lauderhill, Florida.
The Company now owns a total of four clinics, all of which are located
in Florida. Florida law permits corporations to own medical clinics unlike
several other states in which a corporation cannot own a clinic that employs
medical doctors. Therefore, the Company continues to focus on the Florida market
where the Company has traditionally been successful. The Company believes that
growth and expansion of NFPM will likely continue in 2000.
The Company's healthcare acquisition strategy is to target for purchase
those clinics that specialize in physical medicine, pain management, physical
therapy and rehabilitation, and employ medical doctors, osteopathic doctors,
physical therapists and chiropractors. Acquisition targets are usually
distressed businesses having a strong medical practice with concurrent
difficulties in the areas of cash management (particularly collections) or
practice management. The Company believes that its experience in cash
management, particularly collecting receivables from providers, together with
utilization of certain software, will enable the Company to operate target
acquisitions more efficiently and therefore more profitably.
The Software Division
The software and internet businesses require a significant amount of
capital. The Company attempted to raise sufficient capital for the software and
internet businesses, but was not successful in doing so. As a result, the
Company determined that the most feasible plan was to divest itself of MBSSI and
focus on the medical clinics. Therefore, effective November 1, 1999, the Company
divested itself of its interest in MBSSI. The Company conveyed all outstanding
shares of MBSSI to MedEWay.com, Inc. ("MEW"). All issued and outstanding shares
of MEW were then sold to Consolidated National Corporation ("CNC") and Scott A.
Haire, Company shareholders. The divestment of MBSSI was approved at a meeting
of the board of directors of the Company.
4
<PAGE>
The terms of the transaction included payment of $250,000 to the
Company and the cancellation of Company debt in the total amount of $1,250,000
owed to CNC and Mr. Haire. In addition, the Company received a warrant to
purchase five percent of the stock of MEW. As part of the transaction, the
Company retained a license to use the OneClaim(R) Plus 32 bit Windows 95/98/NT
Medical Practice Management Software Package (the "Software"). The Company also
will receive related technical support and development services.
Historically, the medical clinics have generated approximately ninety
percent of the Company's revenue. Given the significant contribution from
medical revenue and relatively minimal software revenue contribution, the
Company believes that the divestment of the software division should not have a
significantly adverse impact upon Company revenue.
Healthcare Industry Overview
The Health Care Financing Administration has estimated that the
nation's total spending for healthcare is projected to increase from $1.0
trillion in 1996 to $2.1 trillion in 2007, averaging annual increases of 6.8
percent. Over this period, health spending as a share of gross domestic product
(GDP) is estimated to increase from 13.6 percent to 16.6 percent. In an attempt
to reduce healthcare expenditures, governmental and other payors have adopted
certain cost-containment initiatives. These encompass a shift from traditional
fee-for-service provider reimbursement to a variety of managed care
arrangements, including prospective payment systems, discounted
fees-for-services and fully capitated plans whereby providers assume the
financial risks related to service utilization for a defined group of covered
members and services.
The cost-containment initiatives have resulted in decreased physician
practice profitability while demands for clinical documentation, including cost,
quality and utilization data, have increased physicians administrative duties.
Over seven hundred thousand physicians are responsible for filing approximately
five billion insurance claims annually to more than two hundred different
payors. Payors require utilization of more than forty different claim-forms and
communication with more than ten thousand different locations. In response to
the reduction in reimbursements, individual physicians and small group practices
are consolidating, either by affiliating with physician practice managements or
by forming physician networks or independent practice associations. Despite this
industry consolidation, numerous physician practice management companies are
experiencing significant financial difficulties.
These distressed companies form the pool of target acquisitions for the
Company. The Company believes that its cash management expertise together with
utilization of the Software, will enable the Company to operate target
acquisitions more efficiently and therefore more profitably. While maintaining
and streamlining billing and accounting functions, the Software utilizes an
integrated approach to electronic claims filing and electronic statement
processing. This feature enables the user of the Software to effectively address
the demands of the payors concerning claim forms and communication issues.
Employees
The Company currently employs a total of approximately thirty-six full
and part time employees. The Company has no labor union contracts and believes
its relationship with its employees is good.
Healthcare Facilities
Following is a description of each of the Company's healthcare
facilities:
JACKSONVILLE, FLORIDA: The three clinics located in Jacksonville
provide state of the art pain management, physical therapy, and related medical
services. The clinics are equipped with physical rehabilitation equipment.
5
<PAGE>
LAUDERHILL, FLORIDA: This Clinic provides general family medical
services, primary care, wellness programs, medical rehabilitation and pain
management therapy.
Combined, the Florida clinics have two medical doctors, an osteopathic doctor,
physical therapists and a staff of approximately thirty-three.
Item 2. Properties
All premises occupied by the Company and subsidiaries are leased. The
Company's principal executive office is located at Arlington, Texas at 2225 E.
Randol Mill Road, Suite 305, Arlington, TX 76011. NFPM is located at 9143
Philips Highway, Suite 495, Jacksonville, Florida, with a second location at
1950 Miller Street, Orange Park, Florida, a third location at 233 N. 10th
Street, Jacksonville Beach, Florida, and a fourth location, SFPM, at: 2589 North
State Road 7, Lauderhill, Florida.
Item 3. Legal Proceedings
On November 6, 1998, the Company and one of its subsidiaries filed a
lawsuit in the District Court of Tarrant County, Texas against a former
employee. The lawsuit asserted a right to damages based upon the employee's
breach of a Confidentiality Agreement entered into between the former employee
and subsidiary. This matter is still pending. In January 1999, the former
employee filed an action against a Company subsidiary asserting a right to
unpaid wages. The action was filed with the Department of Industrial Relations,
Division of Labor Standards Enforcement in Santa Ana, California. After a
hearing on the action, an order was entered June 25, 1999 finding that the
employee was not entitled to any payment from either the Company or its
subsidiaries.
Effective July 28, 1999, the Company settled California and Texas
litigation involving a former Company stockholder and employee. The California
litigation was dismissed November 4, 1999 and the Texas litigation was dismissed
March 1, 2000.
NFPM entered into a settlement agreement dated October 21, 1999 to
resolve litigation filed in 1997 by an equipment leasing/finance company.
In November 1999, the Company and NFPM filed suit against Danka Office
Imaging Co. d/b/a Danka, Danka Financial Services and American Business Credit
Corporation. The lawsuit is pending in District Court, Tarrant County, Texas.
The Company and NFPM have asserted a right to monetary damages and other
remedies based upon the nonperformance of the various Danka entities.
On February 18, 2000, Southwestern Bell Yellow Pages, Inc. ("SWBYP")
filed suit against the Company, MB Practice Solutions, Inc. ("MBPS") a Company
subsidiary, and Scott A. Haire for damages in the approximate amount of $61,000.
The damages sought are based upon advertising services alleged by SWBYP to have
been provided to a company to which MBPS had provided management services. The
Company believes that the allegations against the Company, MBPS and Mr. Haire
are without merit. The Company further believes that the lawsuit will be
resolved within the next twelve months.
Effective April 2, 2000, the Company settled litigation pertaining to
MB Healthcare Management, Inc. ("MBHM"), a Company subsidiary, the Company and
Scott A. Haire. MBHM merged with a corporation, and in connection with the
transaction, MBHM filed suit against the corporation and related individuals.
The corporation and related individuals filed a counterclaim against MBHM, the
Company, and Scott A. Haire. As part of the settlement, all outstanding shares
of MBHM were conveyed to one of the related individuals. In exchange, the
Company received a cash payment and return of Company stock that had been issued
at the time the transaction was entered into.
6
<PAGE>
The Company is aggressively defending the claims asserted against it in
the various pending lawsuits. The Company believes it has adequate reserves in
connection with losses or settlements pertaining to any pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
For the year 1999, the Company did not conduct an annual shareholder's
meeting.
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 12/31/99
March, 1999 $.08 $.07
June, 1999 .14 .14
September, 1999 .07 .06
December, 1999 .02 .02
Year Ended 12/31/98
March, 1998 $.39 $.34
June, 1998 .24 .15
September, 1998 .17 .12
December, 1998 .09 .07
The Company had approximately 7,643 holders of record of its common stock as of
December 31, 1999. 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 of Financial Condition and Results
of Operations
The following is a listing of the Company and its operating and
discontinued subsidiaries as of December 31, 1999:
Operating at Discontinued
Name of Company/Subsidiary Location December 31, 1999 in 1999
- -------------------------- ---------------- ----------------- -------
MB Software Corporation Arlington, TX Yes No
(Parent)
MB Software Solutions, Inc. Arlington, TX No Yes
Healthcare Innovations, LLC Arlington, TX Yes No
N.F.P.M., LLC Jacksonville, FL Yes No
Nevada Multicare, Inc. Las Vegas, NV No Yes
MB Practice Solutions, Inc. Arlington, TX Yes No
7
<PAGE>
In the fourth quarter of 1999, the Company divested itself of its
interest in MBSSI. The Company attempted to raise sufficient capital but was
unable to do so and was therefore unable to continue financing the venture.
The Company has determined to devote its resources to the healthcare
division of the Company. In furtherance of this decision, the Company focused
primarily on operations of its existing healthcare businesses and to target
future acquisitions.
The Company continues in its belief that it is not profitable to operate
healthcare businesses pursuant to practice management agreements. Rather, the
Company must own the practice and thus the profits, and directly employ the
physicians and other necessary staff. However, many state corporate practice of
medicine laws, other than those in Florida, prohibit corporations such as the
Company from owning physician practices and employing physicians. As a result,
the Company will in the future focus on healthcare businesses in the state of
Florida such as rehabilitation clinics, chiropractic practices and healthcare
businesses. This will enable the Company to operate its businesses directly,
thereby retaining profits and employ physicians and staff.
In 1999, the Company discontinued the operations of Nevada Multicare
and MBSSI. The Company recognized income from discontinued operations of $59,581
for the 12 months ended December 31, 1999. From these discontinued operations,
the Company had a gain on disposal, net of a tax effect for the year ended
December 31, 1999, of $902,662.
The Company's remaining healthcare businesses consist of three clinics in
and around Jacksonville, Florida and a clinic in Lauderhill, Florida. The
Florida clinics account for approximately ninety-five percent of gross medical
revenues.
The following summarizes the results of operations for the twelve months ended
December 31, 1999 and December 31, 1998:
--------------------------
Medical Activities: 1999 1998
--------------------------
Gross Revenue $ 3,431,817 $ 4,007,662
Contractual Allowance 1,327,170 1,638,844
----------- -----------
Net Revenues 2,104,647 2,368,818
Cost of Revenue 1,422,464 1,933,707
----------- -----------
Gross Profit $ 682,183 $ 435,111
----------- -----------
Service Fees and Broker Income 105,278 455,661
Other 40,586 --
----------- -----------
Gross Profit 145,864 455,661
----------- -----------
Operating Expenses:
Selling, General and administrative 1,600,827 2,580,951
Depreciation and Amortization 65,411 1,014,941
Interest Expense and other Income and Expenses (142,169) (256,520)
Loss before benefit income tax (980,360) (2,961,640)
Benefit for income tax (495,701) --
Loss from Continuing Operations (484,659) (2,961,640)
Minority Interest in Loss -- 548,623
----------- -----------
$ (484,659) $(2,413,017)
=========== ===========
8
<PAGE>
Twelve Months Ended December 31, 1999 Compared to Twelve Months Ended December
31, 1998
Gross medical revenues decreased 14.37% to $3,431,817 for the twelve
months ended December 31, 1999, as compared to $4,007,662 for the twelve months
ended December 31, 1998. This decrease is primarily attributable to the sale of
the Nevada Multicare clinic and the divestment of certain healthcare clinics
acquired in 1998.
The contractual allowance as a percentage of gross medical revenue was
38.6% and 40.9% for the twelve months ending December 31, 1999 and 1998,
respectively. The contractual allowance includes write-offs for insurance
adjustments and uncollectible receivables. The consistency in the percentages
from 1998 to 1999 reflects the success of the Company's receivables plan that
includes systematic collection efforts in conjunction with writing off balances
where necessary.
The Company experienced an increase in gross profit from medical
activities of 56.8% to $682,183 for the twelve months ended December 31, 1999 as
compared to a gross profit of $435,111 for the twelve months ended December 31,
1998. The increase is primarily attributable to the divestment of Nevada
Multicare and a streamlining of the administrative divisions of the healthcare
clinics. Additionally, the administrative costs associated with Nevada Multicare
were significant in proportion to the clinic's amount of gross profit.
The selling, general and administrative expenses decreased 37.97% to
$1,600,827 for the twelve months ended December 31, 1999 as compared to
$2,580,951 for the twelve months ended December 31, 1998. The decrease is
primarily due to the discontinuation of Nevada Multicare and MBSSI.
The net loss from continuing operations decreased to $484,659 for the
twelve month period ended December 31,1999, as compared to $2,413,017 for the
twelve months ended December 31, 1998. The decrease in the net loss is directly
attributable to the divestment of the software division.
Liquidity and Capital Resources
The Company's operations used cash of $601,314 during the twelve months
ended December 31, 1999 and $1,210,670 during the twelve months ended December
31, 1998. In 1999, the net cash amount provided by financing activities was
$56,017.
At December 31, 1999 and December 31, 1998, the Company had working
capital deficits of $552,851 and $52,001, respectively. The Company is
concentrating its efforts to expand the Florida clinics in an attempt to
decrease the working capital deficit. At December 31, 1999, the Company had cash
deposits of $26,078. The net cash provided by investing activities for 1999 was
$393,940.
The Independent Auditor's Report for the year ending December 31, 1999
("Report"), states that the uncertainty of certain conditions raises substantial
doubt about the ability of the Company to continue as a going concern. In
raising the going concern issue, the Report cites past losses, the working
capital deficit and whether the Company will be able to achieve profitable
operations. The Company believes that it will achieve profitable operations
through private placement or the conversion of Series A preferred stock.
In the twelve months ended December 31, 1999, the Company expended cash
of $29,627 to purchase equipment. The Company does not anticipate any major
equipment purchases for the twelve months of 2000.
9
<PAGE>
The Company did not have an annual stockholder' meeting for 1999.
However, on November 11, 1999, the board of directors held the annual meeting
and approved the divestment of MBSSI (see Item One / The Software Division).
Item 7. Financial Statements
Filed as exhibits hereto are the following statements of the Company
and its subsidiaries:
Page
----
Report of Independent Certified Public Accounts
Weaver and Tidwell, L.L.P. F-2
Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4
Consolidated Statements of Operations for the years ended
December 31, 1999 and 1998 F-6
Consolidated Statements of Changes in Shareholders' Deficit
for the years ended December 31, 1999 and 1998 F-8
Consolidated Statements of Cash Flows for the
years ended December 31, 1999 and 1998 F-9
Notes to Consolidated Financial Statements F-11
Item 8. None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The following table sets forth certain information regarding the
directors and executive officers of the Company:
Year First
Name Age Position Elected
---- --- -------- -------
Scott A. Haire 35 President, Director 1993
Gilbert A. Valdez 56 Chief Operating Officer 1996
Araldo A. Cossutta 75 Director 1994
Steven W. Evans 49 Director 1994
Robert E. Gross 55 Director 1994
Thomas J. Kirchhofer 59 Director 1994
Lucy J. Singleton 62 Secretary 1995
Executive Officers of the Company are elected on an annual basis and
serve at the discretion of the Board of Directors. Directors of the Company are
elected on an annual basis.
10
<PAGE>
Scott A. Haire Chairman, President and Director. Mr. Haire is Chief Executive
Officer of MB Software Corporation and has been with the Company since 1992. Mr.
Haire is additionally the chairman of the board of MEW.
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.
Araldo A. Cossutta Director. Mr. Cossutta is president of Cossutta and
Associates, an architectural firm based in New York City. He is also a director
of Computer Integration Corporation of Boca Raton, Florida.
Steven W. Evans Director. Mr. Evans is a certified public account and president
of Evans, Mills & Warriner, PLLC, 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. Mr. Gross is president of MEW.
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. The Company has adopted no retirement, pension, profit sharing or
other similar program.
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 $100,00 during such period.
- --------------------------------------------------------------------------------
Long Term Compensation
Name and ----------------------
Principal Annual Compensation Restricted Options All
Position ------------------- Stock /SARS Other
Year Salary($) Bonus Other Awards # shares(2) Comp.($)
- --------------------------------------------------------------------------------
Scott A. Haire 1999 140,500 -0- -0- -0- -0- -0-
President 1998 141,000 -0- -0- -0- -0- -0-
1997 120,000 -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Options/SAR Values
The following table provides information concerning option exercises in
fiscal 1999 and the value of unexercised options held by each of the named
Executive Officers at December 31, 1999.
- ----------------------------------------------------------------------------------------------------
Name Shares Acquired Value No. of unexercised Value of unexercised
on Exercise (#) Realized ($) options /SARs at in-the-money options/
at FY-End (#) SARs at FY-end($)
exercisable/unexercisable exercisable/unexercisable
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scott A. Haire -0- N/A 2,400,000 $240,000
- ----------------------------------------------------------------------------------------------------
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of December 31, 1999,
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 29,321,297 (2) 42.0%
Araldo A. Cossutta 2,982,025 4.0%
Steven W. Evans 1,700,000 (3) 2.0%
Gilbert Valdez 900,000 (4) *
Robert E. Gross 200,000 (5) *
Thomas J. Kirchhofer 150,000 (6) *
R-M-S Investments, LTD. 11,000,000 16.0%
Cazenove 7,500,000 10.0%
All Directors and Executive
Officers as a group 41,303,332 60.8%
(six 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 2,400,000 shares and 600,000 shares subject to options and a
warrant, respectively, that are presently exercisable.
(3) Consists of 200,000 shares subject to options that are presently
exercisable by Mr. Evans.
(4) Consists of 900,000 shares subject to options that are presently
exercisable by Mr. Valdez.
(5) Consists of 200,000 shares subject to options that are presently
exercisable by Mr. Gross.
(6) Consists of 150,000 shares subject to options that are presently
exercisable by Mr. Kirchhofer.
12
<PAGE>
Item 12. Certain Relationships and Related Transactions
Effective November 1, 1999, the Company divested itself of its interest
in MBSSI. The Company conveyed all outstanding shares of MBSSI to MEW. All
issued and outstanding shares of MEW were then sold to CNC and Scott A. Haire,
Company shareholders. The divestment of MBSSI was approved at a meeting of the
board of directors of the Company. The terms of the transaction included payment
of $250,000 to the Company and the cancellation of Company debt in the total
amount of $1,250,000 owed to CNC and Mr. Haire. In addition, the Company
received a warrant to purchase five percent of the stock of MEW.
Effective June, 1999, SFMC commenced business in Lauderhill, Florida.
The premises leased by SFMC are owned by Pro-Act Management, L.L.C., of which
Scott A. Haire and Steven W. Evans are members.
Mr. Haire is the chairman of the board of MEW. Robert E. Gross, Steven
W. Evans and Araldo A. Cossutta, directors of the Company, hold the following
positions with MEW: President, Chief Financial Officer and shareholder,
respectively.
Item 13. Exhibits Reports on Form 8-K
1. Reports on Form 8-K - None.
2. Exhibits - None.
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: May 15, 2000
13
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MB SOFTWARE CORPORATION
AND SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITOR'S REPORT F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Shareholders' Deficit F-8
Consolidated Statements of Cash Flows F-9
Notes to Consolidated Financial Statements F-11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
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 sheet of MB Software
Corporation (a Colorado corporation) and Subsidiaries as of December 31, 1999,
and the related consolidated statements of operations, shareholders' deficit,
and cash flows for the years 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 present
fairly, in all material respects, the consolidated financial position of MB
Software Corporation and Subsidiaries as of December 31, 1999, and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has continuously incurred losses and has a
working capital deficit, all of which raise substantial doubt about the
company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Fort Worth, Texas
May 9, 2000
3434
F-2
<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 (a Colorado corporation) and Subsidiaries as of December 31, 1998,
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 present
fairly, in all material respects, the consolidated financial position of MB
Software Corporation and Subsidiaries as of December 31, 1998, and the results
of their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KILLMAN, MURRELL & COMPANY, P.C.
Dallas, Texas
April 9, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
--------------------- --------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 26,078 $ 203,977
Medical receivables, net of allowance
for doubtful accounts and contractual
allowances of $822,692 and $1,810,887 in
1999 and 1998, respectively 713,625 875,284
Note receivable 177,721 51,288
Prepaid expenses and other 4,131 2,500
--------------------- --------------------
Total current assets 921,555 1,133,049
--------------------- --------------------
PROPERTY AND EQUIPMENT, NET 178,525 286,056
NOTE RECEIVABLE - SHAREHOLDER 350,000 -
DEPOSITS AND OTHER ASSETS - 57,493
NET ASSETS OF DISCONTINUED OPERATIONS - 300,692
--------------------- --------------------
TOTAL ASSETS $ 1,450,080 $ 1,777,290
===================== ====================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
--------------------- --------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of notes payable $ 1,057,925 $ 17,735
Current maturities of capital leases 17,434 37,230
Accounts payable 402,409 346,790
Accrued liabilities 346,639 311,315
--------------------- --------------------
Total current liabilities 1,824,407 713,070
LONG-TERM DEBT
Notes payable - 1,887,734
Capital leases 3,050 33,447
--------------------- --------------------
Total liabilities 1,827,457 2,634,251
--------------------- --------------------
SHAREHOLDERS' DEFICIT
Series A senior cumulative convertible
participating preferred stock; $10 par value;
340,000 shares issued and outstanding in
1999 and 1998; dividends in arrears
1999 $385,644, 1998 $45,644 3,400,000 3,400,000
Undesignated preferred stock; $10 par value;
660,000 shares authorized; none issued - -
Common stock; $.001 par value; 150,000,000
shares authorized; 69,200,000 and 69,100,000
shares issued, in 1999 and 1998, respectively 69,200 69,100
Additional paid-in capital 1,103,005 1,101,105
Accumulated deficit ( 4,937,543) ( 5,415,127)
--------------------- --------------------
( 365,338) ( 844,922)
Treasury stock, at cost; 408,029 shares ( 12,039) ( 12,039)
--------------------- --------------------
Total shareholders' deficit ( 377,377) ( 856,961)
--------------------- --------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 1,450,080 $ 1,777,290
===================== ====================
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
-------------------- --------------------
<S> <C> <C>
REVENUES
Medical fees - net of contractual adjustments
of $1,327,170 and $1,638,844, in
1999 and 1998, respectively $ 2,104,647 $ 2,368,818
Service fees and broker income 105,278 455,661
Other 40,586 -
-------------------- --------------------
Total revenues 2,250,511 2,824,479
COST OF REVENUES
Cost of medical clinic fees 1,422,464 1,933,707
-------------------- --------------------
Gross profit 828,047 890,772
-------------------- --------------------
OPERATING EXPENSES
Selling, general & administrative 1,600,827 2,580,951
Depreciation and amortization 65,411 1,014,941
-------------------- --------------------
Total operating expenses 1,666,238 3,595,892
-------------------- --------------------
Loss from operations ( 838,191) ( 2,705,120)
OTHER INCOME (EXPENSE)
Loss on sale of assets ( 5,171) ( 25,409)
Interest expense ( 143,984) ( 299,201)
Interest income 6,986 68,090
-------------------- --------------------
Total other income (expense) ( 142,169) ( 256,520)
Loss before benefit for
income taxes ( 980,360) ( 2,961,640)
BENEFIT FOR INCOME TAXES ( 495,701) -
-------------------- --------------------
Loss from continuing operations
before minority interest ( 484,659) ( 2,961,640)
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(continued)
1999 1998
-------------------- --------------------
<S> <C> <C>
MINORITY INTEREST IN LOSS - 548,623
-------------------- --------------------
Loss from continuing operations ( 484,659) ( 2,413,017)
PREFERRED STOCK DIVIDENDS - ( 45,644)
-------------------- --------------------
( 484,659) ( 2,458,661)
DISCONTINUED OPERATIONS
Income (loss) from operations, net of tax
effect 1999 of $30,694 59,581 ( 1,173,705)
Gain (loss) on disposal, net of tax
effect 1999 of $465,007 902,662 ( 218,856)
-------------------- --------------------
962,243 ( 1,392,561)
-------------------- --------------------
Net income (loss) $ 477,584 ($3,851,222)
==================== ====================
Loss from continuing operations ($ 484,659) ($2,458,661)
Plus: Cumulative preferred stock dividends ( 340,000) -
-------------------- --------------------
Loss available to common shareholders ($ 824,659) ($2,458,661)
==================== ====================
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE
Continuing operations ($ 0.01) ($ 0.04)
Discontinued operations 0.01 ( 0.02)
-------------------- --------------------
$ 0.00 ($ 0.06)
==================== ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 69,116,667 68,470,433
==================== ====================
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
Series A Additional
Preferred Stock Common Stock Paid-in Accumulated Treasury
------------------------ ------------------------
Shares Amount Shares Amount Capital Deficit Stock
---------- ------------- ------------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 - $ - 68,580,000 $ 68,580 $ 1,035,625 ($ 1,563,905) ($ 12,039)
Stock options exercised - - 120,000 120 5,880 - -
Common stock issued for
services - - 400,000 400 59,600 - -
Conversion of $1,400,000
promissory note to
preferred stock 140,000 1,400,000 - - - - -
Issuance of preferred stock in
connection with acquisition
of minority interest in
Healthcare Innovations 200,000 2,000,000 - - - - -
Net loss - - - - - ( 3,851,222) -
---------- ------------- ------------- ---------- ------------- -------------- -----------
Balance, December 31, 1998 340,000 3,400,000 69,100,000 69,100 1,101,105 ( 5,415,127) ( 12,039)
Common stock issued - - 100,000 100 1,900 - -
Net income - - - - - 477,584 -
---------- ------------- ------------- ---------- ------------- -------------- -----------
Balance, December 31, 1999 340,000 $ 3,400,000 69,200,000 $ 69,200 $ 1,103,005 ($ 4,937,543) ($ 12,039)
========== ============= ============= ========== ============= ============== ===========
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Loss from continuing operations ($ 484,659) ($2,413,017)
Adjustments to reconcile loss from
continuing operations to net cash used
in operating activities:
Deferred taxes (495,701) -
Depreciation and amortization 65,411 1,014,941
Loss on sale of assets 5,171 25,409
Common stock issued for services - 60,000
Minority interest in loss - (548,623)
Changes in assets and liabilities:
Accounts receivable 161,659 471,703
Notes receivable - ( 51,288)
Prepaid expenses and other (1,632) 4,548
Accounts payable and
accrued liabilities 90,944 195,605
Deposits and other assets 57,493 30,052
------------------ ------------------
Net cash used in
continuing operations (601,314) ( 1,210,670)
Net cash used in discontinued
operations ( 26,542) ( 242,104)
------------------ ------------------
Net cash used in operating
activities ( 627,856) ( 1,452,774)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Loans made on notes receivable ( 126,433) -
Capital expenditures ( 29,627) ( 111,945)
Proceeds from sale of subsidiary 550,000 -
Proceeds from sale of equipment - 750
------------------ ------------------
Net cash provided by
(used in) investing activities 393,940 ( 111,195)
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
MB SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(continued)
1999 1998
----------------- ------------------
<S> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on borrowings ($ 92,254) ($1,062,930)
Proceeds from loans 146,271 2,138,826
Proceeds from issuance
of common stock 2,000 6,000
----------------- ------------------
Net cash provided by
financing activities 56,017 1,081,896
----------------- ------------------
Net decrease in cash ( 177,899) ( 482,073)
Cash and cash equivalents, beginning of year 203,977 686,050
----------------- ------------------
Cash and cash equivalents, end of year $ 26,078 $ 203,977
================= ==================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOWS INFORMATION:
Cash paid during the year for:
Interest $ 143,984 $ 299,201
================= ==================
Taxes $ - $ -
================= ==================
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Preferred stock issued for minority interest $ - $ 2,000,000
Minority interest acquired - ( 1,083,079)
Preferred stock issued to satisfy note payable - 1,400,000
Conversion of note payable to preferred
stock - related party - ( 1,400,000)
Goodwill on acquisition of minority interest - ( 916,921)
Sale of software for note receivable - 230,982
Note receivable from software sale - ( 230,982)
Note receivable from sale of subsidiary 350,000 -
Notes payable settled in sale of subsidiary ( 900,000) -
Assets disposed in settlement of debt 66,972 -
Debt settled by disposal of assets ( 53,579) -
</TABLE>
F-10
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Healthcare Innovations, LLC
(HI) and its subsidiary Nevada Multicare, LLC (NVMC), North Florida
Physical Medicine, LLC (NFPM), MB Practice Solutions, LLC. (MBPS), and
MB Software Solutions, Inc. (MBSSI).
All intercompany transactions and balances have been eliminated upon
consolidation.
Nature of Operations
MB Software Corporation (the "Company") was incorporated in 1982. The
focus of the Company has been to provide practice and cash management
services to physicians, dentists and chiropractors. The Company sold
its business opportunity marketing program in January 1998, which used
third parties to sell the OneClaim Plus program.
In April 1998 and February 1999, the Company sold both of its Utah
facilities. Net assets from discontinued operations, income (loss) from
discontinued operations, and loss on sale of subsidiaries report the
results of these two sales. The Company closed its chiropractic clinic
in Arlington, Texas, as well as the physical medicine and
rehabilitation facility located in Fort Worth. These closures were
immaterial to the financial statements taken as a whole and the net
assets and results of operations were absorbed by its parent company,
HI.
On November 12, 1998, the Company issued 200,000 shares of its Series A
Senior Cumulative Convertible Participating Preferred Stock in exchange
for the minority ownership interest in Healthcare Innovations
consisting of 49,000 Class A units and 151,000 Class B units. The
Company also issued 140,000 shares of the Series A Preferred Stock to
the minority interest owners as payment of the principal of a
$1,400,000 note payable.
In June 1999, the Company discontinued and sold NVMC which operated
healthcare facilities. In December 1999, the Company discontinued and
sold MBSSI which developed and sold practice management software. The
Company now focuses on operating healthcare facilities currently in the
state of Florida.
F-11
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES - continued
Going Concern Basis
The financial statements have been prepared on a going concern basis,
which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. The Company has continuously
incurred losses from operations and has a working capital deficit. The
appropriateness of using the going concern basis is dependent upon the
Company's ability to obtain additional financing or equity capital and,
ultimately, to achieve profitable operations. These conditions raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Management plans to raise capital by obtaining financing through debt
private placement or conversion of Series A preferred stock. The
company believes that these actions will enable the Company to continue
until its operations become profitable.
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, which are recognized at the time medical services are
rendered.
Contractual Adjustments and Contractual Allowances
Medical clinic fees are reported net of contractual adjustments.
Contractual adjustments are adjustments made to gross medical clinic
fees for the amounts contractually not billable to third party payors
and/or adjustments for uncollectible charges. Management periodically
analyzes these adjustments and adjusts the allowances for doubtful
accounts and contractual allowances accordingly.
F-12
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES - continued
Contractual Adjustments and Contractual Allowances - continued
Management's adjustments for allowance for doubtful accounts and
contractual adjustments require significant estimates and it is at
least reasonably possible that these estimates could "change in the
near term".
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.
Earnings (Loss) Per Common Share and Common Share Equivalents
Basic earnings per share is based on the weighted average number of
shares of common stock outstanding during the period. Potential common
stock consists of convertible preferred stock and stock options. In
1999 and 1998, the potential common stock was considered anti-dilutive
due to the loss from continuing operations.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, demand and time
deposits, and all other highly liquid investments purchased with
maturities of three months or less to be cash equivalents.
Stock Based Compensation
The Company has elected under the provisions of FASB No. 123,
Accounting for Stock Compensation to account for its compensatory stock
option plan using the intrinsic method as prescribed by APB Opinion No.
25, Accounting for Stock Issued to Employees.
F-13
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES - continued
Business and Credit Risk Concentrations
The Company's medical clinics provide services to patients located in
Florida. These patients are billed at the time services are performed.
None of the patients are individually significant.
The majority of service fee and broker income with respect to medical
receivables are received in cash at the time of completion of each
transaction. Clients are located throughout the United States.
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. The
allowance for uncollectible accounts receivable at December 31, 1999
and 1998 was $822,692 and $1,810,887, respectively.
The Company maintains its cash in bank deposit accounts at high quality
financial institutions. The balances at times, may exceed Federally
insured limits.
Income Taxes
The Company accounts for income taxes in accordance with the asset and
liability method. Deferred income tax assets and liabilities are
computed annually for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
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 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 time that a
particular product is completed.
F-14
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES - continued
Software Development - continued
Software development costs incurred in development of medical billing
software of $193,160 were capitalized in 1998. Amortization of these
costs amounted to $174,504 and $181,434 during 1999 and 1998,
respectively. Capitalized software development costs were disposed by
the Company in 1999 as part of the sale of MBSSI.
Reclassification
Certain prior year amounts have been reclassified to conform with the
1999 presentation.
New Accounting Standards
The Financial Accounting Standards Board (FASB) has issued Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income.
This statement requires an enterprise display total comprehensive
income (total nonowner changes in equity) in a full set of financial
statements. Currently the Company has no items to be reported as "other
comprehensive income".
In addition, FASB has issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This statement requires a
"management approach" as opposed to an industry approach in defining
operations to be shown as separate segments. The Company's continuing
operations are in one industry segment.
In February 1999, the FASB issued Statement of Financial Accounting
Standards No. 132 (Statement No. 132), Employers' Disclosures about
Pensions and Postretirement Benefits. Statement No. 132 revises
employers' disclosures about pensions and other postretirement benefit
plans. The adoption of Statement No. 132 did not have a material impact
on the Company's consolidated financial statements.
F-15
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Standards - continued
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 133 (Statement No. 133), Accounting for Derivative
Instruments and Hedging Activities. Statement No. 133 establishes
accounting and reporting standards for derivative instruments embedded
in other contracts, and for hedging activities. The adoption of
Statement No. 133 did not have a material impact on the Company's
consolidated financial statements.
In 1999, the FASB issued Emerging Issues Task Force Abstract No. 97-2
(EITF 97-2). EITF 97-2 addresses the application of FASB Statement No.
94, Consolidation of All Majority-Owned Subsidiaries and APB Opinion
No. 16, Business Conventions to Physician Practice Management Entities
and Certain Other Entities with Contractual Management Arrangements.
At December 31, 1999 and 1998, the Company did not have any contractual
management arrangements as defined by EITF 97-2; therefore, EITF 97-2
is not applicable to the Company.
Long-lived Assets
Long-lived assets and certain identifiable intangibles to be held and
used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company continuously evaluates the
recoverability of its long-lived assets based on estimated future cash
flows and the estimated liquidation value of such long-lived assets,
and provides for impairment if such undiscounted cash flows are
insufficient to recover the carrying amount of the long-lived assets.
Financial Instruments
Financial instruments of the Company consist of cash, accounts
receivable, notes receivable, accounts payable, notes payable, and
other liabilities. Recorded values of cash, receivables and payables
are carried at amounts that approximate fair values.
F-16
<PAGE>
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999 and
1998:
1999 1998
-------- --------
Clinic and office equipment $297,663 $354,761
Computer equipment 33,976 60,835
Furniture and fixtures 747 8,277
-------- --------
332,386 423,873
Less accumulated depreciation and amortization 153,861 137,817
-------- --------
$178,525 $286,056
======== ========
Depreciation expense was $65,411 and $108,698 for the years ended December
31, 1999 and 1998, respectively.
NOTE 3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following as of December
31:
1999 1998
-------- --------
Prime plus 1% line of credit with a bank, due on
demand, secured by accounts receivable, see below $140,070 $120,070
8% note payable to a shareholder, due on
demand, unsecured 2,000 2,000
7.6% note payable to a bank, due in monthly
installments of $11,000, including principal and
interest through June 25, 1999, retired - 75,945
10% note payable to an individual, due on
demand, unsecured 100,000 -
7.15% note payable due to a bank, due
October 10, 2000, unsecured 3,855 -
F-17
<PAGE>
NOTE 3. NOTES PAYABLE AND LONG-TERM DEBT - continued
1999 1998
----------- -----------
8% note payable to a shareholder, retired $ - $ 455,000
8% note payable to an employee, shareholder,
and officer, retired - 434,808
8% note payable to a shareholder, due
August 1, 2000, unsecured - related party 300,000 300,000
10.25% note payable to a bank, monthly
payments of $236 including interest, retired - 5,646
8% note payable to a shareholder, due
August 1, 2000, unsecured 12,000 12,000
10% note payable to an investor, due
August 1, 2000 - related party 500,000 500,000
----------- -----------
1,057,925 $ 1,905,469
Less current portion of long-term debt
and notes payable 1,057,925 17,735
----------- -----------
$ - $ 1,887,734
=========== ===========
The Company maintains a $140,000 revolving line-of-credit for which there
was an outstanding advance as of December 31,1999 of $140,070, bearing
interest at the bank's variable rate plus 1.00% (8.5% at December 31,1999)
due on demand, secured by accounts receivable.
F-18
<PAGE>
NOTE 4. CAPITAL LEASES
The following is a schedule by year of future minimum lease payments under
capital lease obligations together with the present value of the net
minimum lease payments as of December 31, 1999:
Year Ending
December 31,
2000 $18,421
2001 2,765
2002 376
----------
Net minimum lease payments 21,562
Less amount representing interest 1,078
----------
Present value of net minimum lease payments 20,484
Current maturities of capital lease obligations 17,434
----------
Capital lease obligations, less current maturities $ 3,050
==========
NOTE 5. PREFERRED STOCK
The Series A Senior Cumulative Convertible Participating Preferred Stock
("Series A Stock") is entitled to receive cash dividends of $1 per share
per annum accruing from the date of issuance. Such dividends are cumulative
and must be paid before any dividends can be paid on the common stock. The
Series A Stock is convertible into common stock, at the option of the
holders, into a maximum of 29,267,324 shares of common stock upon: (a) the
sale of substantially all of the assets of the Company; (b) a change in
control of the Company; (c) the dissolution of the Company; or (d) October
1, 2000. If the Series A Stock is not converted into common stock, it
becomes redeemable at the option of the holder any time after October 1,
2000 at a redemption price of $10 per share. Should the Company fail to
redeem any share of the Series A Stock after a redemption request, the
Series A stockholders shall have the right to elect a majority of the
Company's board of directors and the Company shall pay interest on the
redemption price at the rate of prime plus 5% until actually redeemed. At
December 31, 1999 and 1998, dividends in arrears on preferred stock was
$385,644 and $45,644, respectively.
F-19
<PAGE>
<TABLE>
<CAPTION>
NOTE 6. INCOME TAXES
The components of tax expense are as follows:
1999 1998
----------- -----------
<S> <C> <C>
Current $ - $ -
Deferred ( 495,701) -
----------- -----------
$ 495,701 $ -
=========== ===========
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 1999 and 1998 is as follows:
1999 1998
----------- -----------
Expected federal income tax provision (benefit) ($ 333,322) ($1,208,545)
State income taxes - -
Valuation allowance and other - 1,208,545
Utilization of net operating loss ( 162,379) -
----------- -----------
($ 495,701) $ -
=========== ===========
Deferred tax assets and liabilities as of December 31, 1999 and 1998 are as
follows:
1999 1998
----------- -----------
Current deferred tax asset $ 279,715 $ 635,225
Current deferred tax liability - -
Valuation allowance for current deferred tax asset ( 279,715) ( 635,225)
----------- -----------
Net current deferred tax asset $ - $ -
=========== ===========
Non-current deferred tax asset $ 1,509,316 $ 1,831,339
Non-current deferred tax liability - ( 93,079)
Valuation allowance for
non-current deferred tax asset ( 1,509,316) ( 1,738,260)
----------- -----------
Net non-current deferred tax asset $ - $ -
=========== ===========
</TABLE>
F-20
<PAGE>
NOTE 6. INCOME TAXES - Continued
At December 31, 1999, the current deferred tax asset results from reserve
for accounts receivable which is not deductible for tax purposes until
actually written off. The non-current deferred tax asset results from 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. The beginning valuation allowance was adjusted $162,379 for
the benefit of net operating losses utilized in 1999.
MB generated net operating losses for financial reporting and Federal
income tax reporting prior to its reorganization in 1993. As of December
31, 1999, 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
previously utilized. The net operating loss carry forward at December 31,
1999 in approximately $4,440,000 and will begin to expire in 2008 if not
previously utilized.
NOTE 7. 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,
------------
2000 $ 454,278
2001 463,375
2002 428,913
2003 258,428
2004 98,712
-----------
$ 1,703,706
===========
Lease and rent expense under non-cancelable operating leases for 1999 and
1998 are $423,923 and $349,550, respectively.
F-21
<PAGE>
NOTE 8. LEGAL PROCEEDINGS
On November 6, 1998, the Company and one of its subsidiaries filed a
lawsuit in the District Court of Tarrant County, Texas against a former
employee. The lawsuit asserted a right to damages based upon the employee's
breach of a Confidentiality Agreement entered into between the former
employee and subsidiary. This matter is still pending. In January 1999, the
former employee filed an action against a Company subsidiary asserting a
right to unpaid wages. The action was filed with the Department of
Industrial Relations, Division of Labor Standards Enforcement in Santa Ana,
California. After a hearing on the action, an order was entered June 25,
1999 finding that the employee was not entitled to any payment from either
the Company or its subsidiaries.
Effective April 2, 2000, the Company settled litigation pertaining to the
Company, Scott A. Haire and MB Healthcare Management, Inc. ("MBHM"), a
former Company subsidiary. MBHM merged with a corporation, and in
connection with the transaction, MBHM filed suit against the corporation
and related individuals. The corporation and related individuals filed a
counterclaim against MBHM, the Company, and Scott A. Haire. As part of the
settlement, all outstanding shares of MBHM were conveyed to one of the
related individuals. In exchange, the Company received a cash payment and
return of Company stock that had been issued at the time the transaction
was entered into.
In addition, the Company is involved in various lawsuits and claims arising
in the normal course of business. Management believes it has valid defenses
in these cases and is defending them vigorously. While the results of
litigation cannot be predicted with certainty, management believes adequate
reserves have been provided for claims that have at least a reasonable
possibility for loss and has not provided a reserve on those for which an
adverse outcome is remote.
NOTE 9. STOCK OPTIONS
Effective May 5, 1994, the Board of Directors approved an Incentive Stock
Option Plan ("Plan") for key executives and employees.
F-22
<PAGE>
<TABLE>
<CAPTION>
NOTE 9. STOCK OPTIONS - 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> <C> <C> <C> <C>
Outstanding at 12/31/97 795,000 $ .05 4,500,000 $ .24 5,295,000
Granted 1,075,000 .13 - - 1,075,000
Exercised ( 120,000) .05 - - ( 120,000)
Forfeited ( 200,000) .05 (1,050,000) .16 (1,250,000)
---------- ---------- ---------- ---------- ----------
Outstanding at 12/31/98 1,550,000 .09 3,450,000 .22 5,000,000
Granted - - - - -
Exercised - - - - -
Forfeited - - - - -
---------- ---------- ---------- ---------- ----------
Outstanding at 12/31/99 1,550,000 $ .09 3,450,000 $ .22 5,000,000
========== ========== ========== ========== ==========
</TABLE>
The fair value of plan options issued during 1998 was approximately
$137,750. There were no plan options issued during 1999.
<TABLE>
<CAPTION>
The following table summarizes information about options outstanding at
December 31, 1999 under the Plan:
Weighted
Average Weighted Weighted
Range 0f Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ---------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$.02 - $.19 1,550,000 .56 $.09 1,550,000 $.09
F-23
<PAGE>
NOTE 9. STOCK OPTIONS - continued
The following table summarizes information about the other compensatory
stock options outstanding at December 31, 1999:
Weighted
Average Weighted Weighted
Range 0f Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- --------------- ----------- ---------------- -------------- ----------- -----------------
$.03 - $.65 3,450,000 .56 $.22 3,450,000 $.22
</TABLE>
The options granted during 1998 have exercise prices which approximate fair
value, and accordingly, no compensation cost has been recognized for its
incentive or other compensatory stock options in the consolidated financial
statements. Had compensation cost for the Company's stock options been
determined consistent with FASB statement No. 123, Accounting for Stock
Based Compensation, the Company's net income (loss) and net income (loss)
per share would have been changed to the pro forma amounts indicated below:
Year Ended
December 31,
1998
------------
Net income (loss) As reported ($ 3,851,222)
Pro forma ($ 3,851,222)
Net income (loss) per share As reported ($ .06)
Pro forma ($ .06)
All of the 5,000,000 outstanding incentive stock options are fully vested
at December 31, 1999.
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 1999 and 1998: 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 .5 years.
F-24
<PAGE>
NOTE 10. DISCONTINUED OPERATIONS
On June 30, 1999 and October 31, 1999, the Company entered into agreements
to sell its ownerships in Nevada Multicare, LLC(NVMC) (a Nevada
corporation) and MB Software Solutions, Inc. (MBSSI) (a Nevada
corporation), respectively. Accordingly, the operating results of NVMC and
MBSSI have been segregated from continuing operations and reported as a
separate line item on the statement of operations.
The Company has restated its prior financial statements to present the
operating results of NVMC and MBSSI as discontinued operations. The assets
and liabilities of such operations at December 31, 1998, have been
reflected as a net non-current asset based substantially on the original
classification of such assets and liabilities.
Operating results from discontinued operations are as follows:
1999 1998
---------- ----------
Revenues:
Medical fees $ 80,284 $1,341,941
Software and maintenance fees 230,407 345,620
---------- ----------
310,691 1,687,561
Cost of medical ( 53,755) (1,568,916)
Costs of software and maintenance fees ( 40,520) ( 43,360)
Selling, general and administrative ( 124,257) (1,239,725)
---------- ----------
Income (loss) from operations 92,159 (1,164,440)
Other expense 1,884 9,265
---------- ----------
Income (loss) from discontinued operations $ 90,275 ($1,173,705)
========== ==========
Proceeds on the disposal NVMC and MBSSI were $300,000 and $1,500,000,
respectively.
NOTE 11. BUSINESS SEGMENT INFORMATION
As result of the discontinued operations of MB Nevada (NVMC) and MB
Software Solutions (MBSSI) the Company's continuing operations are in one
business segment.
F-25
<PAGE>
NOTE 12. RELATED PARTY TRANSACTIONS
In November 1999, the Company entered into an exchange agreement between
Scott A. Haire, chairman, president, and director of the Company and
Consolidated National Corp. (CNC). Pursuant to the agreement, the Company
transferred all of the common stock of its wholly owned subsidiary, MB
Software Solutions Inc. (MBSSI) in exchange for all of the outstanding
common stock of MedEWay.com, Inc. (MedEWay). Simultaneous with this
transfer, the Company transferred all of the common stock of MedEWay to Mr.
Haire and CNC in exchange for consideration of $1,500,000. Additionally,
MedEWay issued the Company warrants to purchase 5% of the outstanding
common stock of MedEWay for $0.001 per share exercisable only upon the
initial public offering or sale of MedEWay. No value has been assigned or
recorded by the Company for the MedEWay stock warrants. As part of the
exchange agreement, the Company has agreed to provide use of facilities and
other resources for which MedEWay and MBSSI will reimburse the Company at
cost. The Company provided no significant resources during the year ended
December 31, 1999.
Note receivable shareholder consists of a note from Scott A. Haire dated
November 1, 1999 for the original principal sum of $350,000. Interest
accrues at an annual rate of 8%.
The Company has various notes payable to shareholders and other related
parties. The notes and various terms are identified in Note 3-Notes
Payable. Interest expense incurred under related party notes payable for
the years ended December 31, 1999 and 1998 were $122,777 and $195,913,
respectively. Accrued interest at December 31, 1999 and 1998, was $175,816
and $165,164, respectively.
In addition, the Company leases a building for one of its Florida
facilities from a company related through common ownership. Included in
rent expense for 1999 is approximately $90,200 and included in accounts
payable is approximately $22,000 at December 31, 1999.
F-26
