-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RcpIlVIe85kZAg/rfZfPCsR2b85ngbU6K+aOnjiUeh9YOLvap/H0esH5vZThjlfz hHNCEy5CuVg34LyHJ0BSDA== 0001010549-98-000332.txt : 19981123 0001010549-98-000332.hdr.sgml : 19981123 ACCESSION NUMBER: 0001010549-98-000332 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MB SOFTWARE CORP CENTRAL INDEX KEY: 0000714256 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 592219994 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-11808 FILM NUMBER: 98755662 BUSINESS ADDRESS: STREET 1: 2225 E RANDOL MILL RD STREET 2: STE 305 CITY: ARLINGTON STATE: TX ZIP: 76011 BUSINESS PHONE: 8177928872 MAIL ADDRESS: STREET 1: 2225 EAST RANDOL MILL RD STREET 2: SUITE 305 CITY: ARLINGTON STATE: TX ZIP: 76011 FORMER COMPANY: FORMER CONFORMED NAME: INAV TRAVEL CORPORATION DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: TWISTEE TREAT CORP DATE OF NAME CHANGE: 19910220 FORMER COMPANY: FORMER CONFORMED NAME: TWISTEE FREEZ CORP DATE OF NAME CHANGE: 19840917 10QSB 1 U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File No. 0-11808 MB SOFTWARE CORPORATION Colorado 59-2219994 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2225 E. Randol Mill Road - Suite 305 Arlington, Texas 76011-6306 (817) 633-9400 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] As of September 30, 1998, 68,700,000 shares of the Issuer's $.001 par value common stock were outstanding. Transitional Small Business Disclosure Format Yes [ ] No [X]
MB SOFTWARE CORPORATION Form 10-QSB Quarter Ended September 30, 1998 INDEX PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1 - Financial Statements Consolidated Balance Sheet September 30, 1998 (Unaudited) and December 31, 1997 (Audited) F-1,F-2 Consolidated Statements of Operations for the Nine Months and Three Months ended September 30, 1998) and September 1997 (Unaudited) F-3,F-4 Consolidated Statements of Cash Flow for the Nine Months ended September 30, 1998 (Unaudited and December 31,1997 (Audited) F-5,F-6 Notes to Consolidated Financial Statements F-7,F-8 Item 2 - Management's Discussion and Analysis of Financial Condition or Plan of Operation 3-6 PART II - OTHER INFORMATION Item 4 - Submission of Matters to Vote by Security Holders 8 Item 6 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 8 SIGNATURES 9
2
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) CURRENT ASSETS Cash $ 571,518 $ 710,335 Accounts receivable - Medical receivables, net of allowance for doubtful accounts and contractual allowances of $ 914,045 and $390,572 in 1998 and 1997, respectively 1,588,136 1,383,310 Trade accounts receivable, net of allowance for doubtful accounts of $ 221,222 $11,108 in 1998 and 1997, respectively 114,140 330,634 Notes receivable - current portion 163,835 108,178 Prepaid expenses and other 1,700 2,640 ---------- ---------- TOTAL CURRENT ASSETS 2,439,329 2,535,097 ---------- ---------- PROPERTY AND EQUIPMENT, NET 442,246 413,874 ---------- ---------- OTHER ASSETS Goodwill, net of accumulated amortization 359,439 799,462 Software development costs, net of accumulated amortization 213,331 405,966 Notes receivable, net of current portion 255,700 203,569 Deposits and other assets 74,453 80,493 ---------- ---------- TOTAL OTHER ASSETS 902,923 1,489,490 ---------- ---------- NET ASSETS OF DISCONTINUED OPERATIONS 32,592 238,138 ---------- ---------- $3,817,090 $4,676,599 ========== ==========
(Continued) F-1
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' DEFICIT September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) CURRENT LIABILITIES Notes payable Related parties $ 1,700,000 $ 300,000 Other 372,556 257,933 Current maturities of long-term debt Related parties 917,808 1,298,808 Other 49,659 50,438 Accounts payable 515,032 469,834 Accrued liabilities 224,099 250,261 Other liabilities - related party 59,000 89,000 Deferred revenues 39,145 108,657 ----------- ----------- TOTAL CURRENT LIABILITIES 3,877,299 2,824,931 LONG-TERM LIABILITIES Long-term debt, net of current maturities Related party 500,000 500,000 Other 65,566 68,566 ----------- ----------- TOTAL LIABILITIES 4,442,865 3,393,497 ----------- ----------- MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 1,445,622 1,754,841 ----------- ----------- COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' DEFICIT Common stock; $.001 par value; 100,000,000 shares authorized; 68,700,000 and 68,580,000 shares issued, respectively 68,700 68,580 Additional paid-in capital 1,041,505 1,035,625 Accumulated deficit (3,169,563) (1,563,905) Treasury stock, at cost; 409,577 shares (12,039) (12,039) ----------- ----------- TOTAL SHAREHOLDERS' DEFICIT (2,071,397) (471,739) ----------- ----------- $ 3,817,090 $ 4,676,599 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements F-2
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- REVENUES Medical income $ 1,231,213 $ 1,208,090 $ 3,532,648 $ 2,989,155 Service fee and broker income 112,994 71,906 455,661 71,906 Software & maintenance sales 35,849 344,058 296,053 1,154,722 Other income -- -- -- 31,713 ----------- ----------- ----------- ----------- 1,380,056 1,624,054 4,284,362 4,247,496 Less contractual adjustments (443,114) (547,674) (1,091,345) (804,835) ----------- ----------- ----------- ----------- NET REVENUES 936,942 1,076,380 3,193,017 3,442,661 ----------- ----------- ----------- ----------- COST OF REVENUES Cost of software and maintenance 7,440 159,312 21,867 371,585 Cost of medical services 546,769 614,211 1,857,200 1,688,658 ----------- ----------- ----------- ----------- TOTAL COST OF REVENUES 554,209 773,523 1,879,067 2,060,243 ----------- ----------- ----------- ----------- GROSS PROFIT 382,733 302,857 1,313,950 1,382,418 ----------- ----------- ----------- ----------- OPERATING EXPENSES Selling, general and administrative 1,363,271 573,901 2,309,550 1,486,217 Depreciation and amortization 306,048 88,796 488,305 263,768 ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 1,669,319 662,697 2,797,855 1,749,985 ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (1,286,586) (359,840) (1,483,905) (367,567) ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Gain on sale of assets -- 269,724 -- 269,724 Interest expense Related parties (93,740) (114,870) (225,815) (248,692) Other (2,860) (7,864) (9,480) (17,026) Other 5,091 30,250 87,350 30,250 ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE) (91,509) 177,240 (147,945) 34,256 ----------- ----------- ----------- ----------- NET (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST (1,378,095) (182,600) (1,631,850) (333,311)
(Continued) The accompanying notes are an integral part of these consolidated financial statements F-3
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (CONTINUED) Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------ ------------ MINORITY INTEREST IN (LOSS) $ 139,665 $ 173,548 $ 309,219 $ 173,548 ------------ ------------ ------------ ------------ NET INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (1,238,430) (9,052) (1,322,631) (159,763) ------------ ------------ ------------ ------------ DISCONTINUED OPERATIONS Income (loss) from discontinued operations (243,085) 40,542 (302,571) 40,542 Gain on disposal of subsidiary 19,544 -- 19,544 -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ (1,461,971) $ 31,490 $ (1,605,658) $ (119,221) ============ ============ ============ ============ INCOME (LOSS) PER SHARE Continuing operations $ (.02) $ (.00) $ (.02) $ (.00) Discontinued operations - Income (loss) on operations (.00) .00 (.00) .00 Gain on disposal .00 -- .00 -- ------------ ------------ ------------ ------------ TOTAL $ (.02) $ .00 $ (.02) $ (.00) ============ ============ ============ ============ WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 68,700,000 67,921,750 68,652,000 67,899,700 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements F-4
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, ------------------------------ 1998 1997 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) from continuing operations $(1,322,631) $ (159,763) Adjustments to reconcile net (loss) to net cash used by operating activities: Depreciation and amortization 488,305 273,708 Change in allowance for doubtful accounts and contractual allowances 733,587 397,677 Minority interest in loss (309,219) (173,548) Gain on sale of assets -- (269,724) Changes in assets and liabilities: Accounts receivable (721,919) 138,921 Notes receivable 125,417 (23,162) Prepaid expenses and other 940 (19,507) Deposits (4,886) 1,159 Accounts payable and accrued liabilities 19,036 97,119 Other liabilities (30,000) (100,000) Deferred revenues (69,512) (79,526) ----------- ----------- NET CASH (USED) PROVIDED BY CONTINUING OPERATIONS (1,090,882) 83,354 ----------- ----------- NET CASH (USED) PROVIDED BY DISCONTINUED OPERATIONS (77,481) 40,542 ----------- ----------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (1,168,363) 123,896 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (106,298) (299,135) Software development costs capitalized -- (175,925) Organizational costs -- (72,832) ----------- ----------- NET CASH (USED) BY INVESTING ACTIVITIES (106,298) (547,892) ----------- -----------
The accompanying notes are an integral part of these financial statements (Continued) F-5
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) Nine Months Ended September 30, ------------------------------- 1998 1997 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes payable Related parties $ (681,000) $(2,226,000) Other (348,563) (252,309) Proceeds from notes payable Related parties 1,700,000 1,017,906 Other 459,407 527,934 Minority investment in subsidiaries - related party -- 2,000,000 Issuance of common stock 6,000 14,872 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,135,844 1,082,403 ----------- ----------- INCREASE (DECREASE) IN CASH (138,817) 658,407 CASH AT BEGINNING OF PERIOD 710,335 196,653 ----------- ----------- CASH AT END OF PERIOD $ 571,518 $ 855,060 =========== =========== SUPPLEMENTAL INFORMATION Cash paid during the period for interest $ 174,834 $ 153,580 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Purchase of medical clinics Medical assets acquired $ -- $(2,260,028) Goodwill acquired -- (477,665) Accounts payable and accrued liabilities assumed -- 833,489 Note payable -- 1,894,204 Note receivable reduction -- 10,000 Note receivable -- (346,811) Proceeds from sale of assets -- 346,811 Sale of software assets 233,205 -- Increase in notes receivable (233,205) -- ----------- ----------- $ -- $ -- =========== ===========
The accompanying notes are an integral part of these consolidated financial statements F-6 MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principals for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulations S-X. They do not include all information and notes required by generally accepted accounting principals for complete financial statements. However, except as disclosed, there has been no material change in the information disclosed in the notes to consolidated financial statements included in the Annual Report on Form 10-KSB of MB Software Corporation for the year ended December 31, 1997. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. NOTE 2: DISCONTINUED OPERATIONS On April 30, 1998, the Company entered into an agreement to sell its ownership in Sandy Home Health, Inc. (a Utah Corporation). The total sales price was $200,000 payable pursuant to the terms of a promissory note dated May 1, 1998. The promissory note is due May 1, 2001 with monthly interest payments starting June 1, 1998. The interest rate is the prime rate as published in the Wall Street Journal, plus 2% per annum. In July 1998, the Company closed C.F.H.C., LLC located in Arlington, Texas. NOTE 3: ACQUISITIONS On April 1, 1998, the Company purchased the assets and assumed certain liability of Med-Sport Therapy & Rehabilitation Center, Inc. and compensated the previous owners as follows: Amount Due Date Previous Owners ------------- --------------- April 1, 1998 $ 38,000 May 1, 1998 33,000 July 1, 1998 167,000 --------- $ 238,000 ========= On April 1, 1998, the Company entered into a physician coverage and service agreement with Toth Enterprises II, P.A., a Texas professional association doing business as Victory Medical and Family Care and Dr. William G. Franklin. The Company through a subsidiary were to provide administrative and management services for the clinic. The assets of Victory Medical and Family Care were purchased by the Company with issuance of 400,000 shares of the Company's common stock. As of September 1998, the Company is involved in litigation with the previous owners of Victory. The investment in Victory and the unpaid fees earned have been fully reserved in the accompanying financial statements. F-7 MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4: RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the 1998 presentation as it relates to the discontinued operations. F-8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following is a summary of the Company and its operating subsidiaries as of December 31, 1997 and September 30, 1998, plus the subsidiary that was organized and subsequently discontinued in 1998: Organized and Operating at Discontinued Name of Company/Subsidiary Location December 31, 1997 September 30, 1998 in 1998 - -------------------------- ----------------- ----------------- ------------------ ------------- MB Software Corporation (Parent) Arlington, TX Yes Yes - MB Software Solutions, Inc. Arlington, TX Yes Yes - (formerly Sandiago SDS, Inc.) Multicare Plus, Inc. Ft. Worth, TX No Yes - MB Healthcare Management, Inc. Austin, TX No No Yes (Management company for Victory Medical) MB Healthcare Corp Arlington, TX Yes Yes - Healthcare Innovations, LLC (51% ownership) Arlington, TX Yes Yes - NFPM, LLC Jacksonville, FL Yes Yes - CFHC, LLC Arlington, TX Yes No - Oak Tree Receivables, LLC Arlington, TX Yes Yes - Color Country Health Express St. George, UT Yes Yes - Nevada Multicare, Inc. Las Vegas, NV Yes Yes - Sandy Home Health Care, LLC St. George, UT Yes No -
In the third quarter of 1998, MB Software Corporation (the "Company") focused primarily on operations of its existing healthcare businesses and further reorganization and development of its medical practice management software business. Part of the focus centered on the profit potential of its existing businesses. As a result of that analysis, the Company has taken significant steps regarding its healthcare businesses, which have had a material effect on third quarter results of operations. The Company has concluded that it cannot operate healthcare businesses profitably pursuant to practice management agreements. This means that the Company must own the practice (and the rights to all profits therefrom), and employ physicians and other professionals to staff the practice. However, most state corporate practice of medicine laws prohibit corporations such as the Company from owning physician practices and employing physicians to operate the practice. As a result, the Company will focus in the future on non-physicians healthcare businesses such as rehabilitation clinics, chiropractic practices and nurse practitioner operations, and to healthcare businesses in the state of Florida. As a result, the Company will operate its businesses directly and will not use any management contracts in its healthcare business, only employment agreements for those who provide services to those businesses. In August 1998, the Company moved its medical software business from California to its main offices in Arlington. The Company expects to realize some cost savings associated with this move. The Company did not have any material changes in its Year 2000 compliance status from that disclosed in the Form 10Q for the quarter ended June 30, 1998, except that the Company's One Claim PlusTM software has met the compliance standards for Medicare and as a result, will meet compliance standards for the industry as a whole. The Company has discontinued the operations of three clinics located in Austin and Arlington, Texas and St. George, Utah, and recognized a loss from discontinued operations of $223,541 for the three months ended September 30, 1998. 3 The third quarter results reflect a reversal of $116,000 for fees and a reserve of $199,289 of investment related to the previously disclosed litigation relating to the Company's attempted acquisition of Victory Medical & Family Care in Austin, Texas. As of the date of this filing, that litigation is still pending. The third quarter results also reflect a reserve and charge to operations of $127,000 that relates to the sale by the Company of the subsidiary's name and certain sales and marketing rights of its wholly owned subsidiary Santiago SDS, Inc. An additional reserve and charge to operations of $163,000 is applicable to the receivable related to the sale of the dental software in the same subsidiary. The reserve and charge to operations is a result of the lack of payments received by the Company from the purchasers. The Company is currently attempting to resolve these collection problems. The Company's remaining healthcare businesses consist of three clinics in Jacksonville, Florida, a nurse practitioner operation in St. George, Utah, and a chiropractic clinic in Las Vegas, Nevada. The Florida clinics account for approximately 82% of gross medical revenues. The following summarizes the results of operations for the three month and the nine month period ended September 30, 1998 and 1997: Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------ ------------------------------------------ 1998 % 1997 % 1998 % 1997 % ------------- ------- ------------ ------ ------------ ----- ------------ ------ Medical Activities: Gross Revenue $ 1,231,213 100.0 * $1,208,090 100.0 $ 3,532,648 100.0 $ 2,989,155 100.0 Contractual Allowance (443,114) 36.0 * (547,674) 45.3 (1,091,345) 30.9 (804,835) 26.9 ------------ ----- ----------- ----- ----------- ---- ------------ ----- Net Revenues 788,099 64.0 * 660,416 54.7 2,441,303 69.1 2,184,320 73.1 ===== ===== ==== ===== Cost of Revenue (546,769) 69.4** (614,211) 93.0 (1,857,200) 76.1 (1,688,658) 77.3 ------------ ----- ----------- ----- ----------- ---- ----------- ----- Gross Profit $ 241,330 30.6** 46,205 7.0 584,103 23.9 495,662 22.7 ------------ ====== ----------- ====== ------------ ==== ------------ ===== Service Fees 112,994 71,906 455,661 71,906 ------------ ----------- ------------ ------------- Software Activities: Gross Revenue 35,849 344,058 296,053 1,154,722 Cost of Revenue 7,440 159,312 21,867 371,585 ------------ ----------- ------------ ------------ Gross Profit 28,409 184,746 274,186 783,137 ------------ ----------- ------------ ------------ Other Revenue - - - 31,713 ------------ -------------- ------------ ------------- Gross Profit 382,733 302,857 1,313,950 1,382,418 Operating Expenses: Selling, General and Administrative -: Bad Debt Expense 513,300 - 687,342 28,560 Other General and Administrative 849,971 573,901 1,622,208 1,457,657 ------------ ----------- ----------- ------------ 1,363,271 573,901 2,309,550 1,486,217 Depreciation and Amortization 306,048 88,796 488,305 263,768 Interest Expense and Other Income and Expense 91,509 92,484 147,945 235,468 Gain on Sale of Dental Software - 269,724 - 269,724 ------------ ----------- ------------ ------------ Loss from Continuing Operations before Minority Interest $ (1,378,095) $ (182,600) $ (1,631,850) $ (333,311) ============ =========== ============ ============
Notes - ----- * Computed as percentage of Gross Medical Revenue ** Computed as percentage of Net Medical Revenue 4 Three Months Ended September 30, 1998 Compared to Three Months Ended September 30, 1997 - -------------------------------------------------------------------------------- Gross medical revenues for the three month periods remain relatively constant; however, the contractual allowance adjustment declined 19.1% to $443,114 for the three months ended September 30, 1998 compared with $547,674 for the three months ended September 30, 1997. In 1997, the Company was not as knowledgeable about the collection of medical receivables since the first medical clinic was purchased on February 1, 1997; therefore, the pattern of the contractual allowance was not recognized until the quarter ended September 30, 1997, thereby resulting in a greater than normal provision rate for the quarter to properly state the overall reserve for contractual allowance at September 30, 1997. The cost of medical revenues declined 11% to $546,769 for the three months ended September 30, 1998 compared to $614,211 for the three months ended September 30, 1997. This modest decline in expenses was the result of efficiencies gained in the operations of the clinics with the Company's increased operating experience. On July 31, 1997, the Company formed Healthcare Innovations, LLC (HILLC) which assumed control of all medical operations then owned by the Company and was used as the acquisition entity for all future medical clinic acquisitions. This entity was funded by a $2,000,000 infusion of cash by one of its member owners for a 49% ownership interest. By agreement with the funding member, the Company could charge the operations of HILLC for its cost of administration. The service fees for three months ended September 30, 1998 was $112,994 which represent cost allocation for a three (3) month period while the $71,906 of service fees for the three month period ended September 30, 1997 represents the cost allocation for only two months (July 31 to September 30). In the three month period ended September 30, 1998, the Company identified numerous slow paying receivables or receivables that due to changing conditions required reductions in their realizable amounts. Included in the bad debt provision was $163,000 applicable to the receivables related to the $269,724 gain on the sale of dental software in the three month period ended September 30, 1997. The other selling, general and administrative expenses increased by 48.1% to $849,971 for the three month period ended September 30, 1998 as compared to $573,901 for the three month period ended September 30, 1997. The increase is the result of legal fees relating to the discontinued operations and the litigation with Victory Family Medical (disclosed in Form 10Q for June 30, 1998) and additional administrative salaries. In the three month period ended September 30, 1998, the Company subsequently determined that the goodwill capitalized in its software development subsidiary exceed its future realizable value; therefore, in addition to the recurring amortization of goodwill, a one time charge against operations of $200,000 was recognized. The net loss from continuing operations increased 654% to $1,378,095 for the three month period ended September 30, 1998, as compared to $182,600 loss from continuing operations for the three month period ended September 30, 1997. The increase in the loss from continuing operations was the result of increased bad debt expense, increased amortization of goodwill and increased general operating costs. For the three month periods ended September 30, 1998 and 1997, the minority interest in the net loss of Healthcare Innovations, LLC was $139,665 and $173,548, respectively. Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30, 1997 - -------------------------------------------------------------------------------- Gross medical revenues increased 18.2% to $3,532,648 for the nine months ended September 30, 1998 as compared to $2,989,125 for the nine months ended September 30, 1997. This increase is attributable to patient increases in the Company's Florida clinics. The patient increase is due to the increase in clinic locations (3 in 1998, 2 in 1997) and the Company owned the Florida clinics for only eight (8) months in 1997. 5 The Company purchased its first clinics on February 1, 1997 and due to the Company's inexperience, the exact effect on net medical revenue of the contractual allowance was not determined until the last quarter of 1997 and the first quarter of 1998. Due to the Company's lack of experienced medical collection employees, the Company suffered very large contractual adjustments in 1997 and 1998. Contractual allowance as a percentage of gross medical revenue was 30.9% and 26.9% of gross revenue for the nine month periods ended September 30, 1998 and 1997, respectively. The 1998 increase in contractual allowance is the result of experienced medical collection employees servicing the medical claims to third parties on a timely basis in 1998. The Company expects the percentage of contractual allowance to decline in the last quarter of 1998 due to the timely collection efforts of its employees. The gross profit from medical activities increased 17.8% to $584,103 for the nine months ended September 30, 1998 as compared to $495,662 for the nine months ended September 30, 1998. The increase is due to the increase in net medical revenues. On July 31, 1997, the Company created Healthcare Innovations, LLC (HILLC) which assumed control of all medical operations then owned by the Company and was used as the acquisition entity for all future medical clinic acquisitions. This entity was funded by a $2,000,000 infusion of capital by one of its member owners for a 49% ownership interest. By agreement with this member owner, the Company could charge the operations of HILLC for its costs of administration. The service fees represent reimbursement for actual cost incurred and the $455,661 of service fees for the nine months ended September 30, 1998 represent reimbursement for the nine months of operation while the $71,906 for the nine month period ended September 30, 1997 represents reimbursement for only two months (July 31 to September 30, 1997). In the last quarter of 1997, the Company sold the rights to market its dental software and recognized a $269,724 gain on the transaction. In addition the Company reduced its emphasis on the selling of its medical software. These changes in operations resulted in 74.3% decline in software sales revenue in 1998 as compared to 1997. Due to the Company's reduction in its software sales effort, the Company assessed the carrying value of its goodwill and software development costs related to the software subsidiary and an additional one time $200,000 amortization of goodwill was recognized in September 1998. The selling, general and administrative expenses increased 55.4% to $2,309,550 for the nine months ended September 30, 1998 as compared to $1,486,217 for the nine months ended September 30, 1997. Approximately $659,000 of the increase is applicable to increased bad debt expense and the remaining increase is due to increased salaries and other operating expenses. Included in the bad debt expense is $290,000 which is applicable to a reduction in the receivables on the sale of dental software in 1997. The net loss from continuing operations increased 390% to $1,631,850 for the nine month period ended September 30, 1998, as compared to $333,311 loss for the nine months ended September 30, 1997. The increase in the loss is a result of increased bad debt expense, increased amortization of goodwill and increased general operating expenses. The 49% minority interest in the net loss of Healthcare Innovations, LLC for the nine month periods ended September 30, 1998 and 1997 was $309,219 and $173,548, respectively. Liquidity and Capital Resources - ------------------------------- The Company's operations used $1,090,882 of cash during the nine months ended September 30, 1998 and provided $83,354 of cash during the nine months ended September 30, 1997. The 1998 operating activities use of cash was financed by borrowing approximately $1,000,000 from a related party. 6 At September 30, 1998 and 1997, the Company had working capital deficits of $1,437,970 and $289,834, respectively. The working capital deficit at September 30, 1998 will be solved at such time as the $1,400,000 short term note payable to a related party is converted into preferred stock (November 12, 1998, debt converted to preferred stock). At September 30, 1998, the Company had cash deposits of $571,518 which should be sufficient to meet the Company's cash needs for the next twelve months since the Company anticipates that the operating losses will be substantially reduced or eliminated by personnel cuts, reduction of legal fees related to litigation, an overall general reduction in operating costs in future periods and the discontinuation of money losing subsidiaries. In the nine months ended September 30, 1998, the Company spent $106,298 cash for the purchase of equipment. The Company does not anticipate any major purchase of equipment for the remaining three (3) months of 1998 and for the twelve (12) months of 1999. In the annual stockholders' meeting held by the Company on November 12, 1998, the stockholders approved the following: o Amended the Company's Articles of Incorporation to add 1,000,000 shares of preferred stock, par value $10 per share. o Authorized the issuance of 340,000 shares of Series A Preferred Stock with a cumulative dividend rate of 10% payable quarterly. Terms of the preferred stock transaction include: o Series A Preferred Stock will be senior to all other shares of capital stock of the Company with respect to payment of dividends, redemption and liquidation preference. o Redeemable at the option of the holders at any time after October 1, 2000. If the Company is unable to redeem shares at a price of $10 per share, the holder has certain rights that in effect would change control of the Company. o Series A Preferred Stock is convertible into Common Stock in an amount equal to 30% of the total outstanding common stock on a fully diluted basis if certain triggering events occur. o Amended the Articles of Incorporation to increase the authorized shares of common stock of the Company from 100,000,000 to 150,000,000 shares. 7 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Exhibits - All other exhibits are incorporated by reference from prior filings with the Commission on Form 8-K during the period. Financial Statements - See Item 1 for financial statements filed with this report. Reports of Form 8-K - No reports were filed on Form 8-K during this period. 8 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MB SOFTWARE CORPORATION Dated: November 19, 1998 /s/ Scott A. Haire -------------------------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 9 EX-27 2 FDS --
5 0000714256 MB Software Corporation 1 US DOLLARS 9-MOS Dec-31-1998 Jul-01-1998 Sep-30-1998 1 571,518 0 1,702,276 1,135,267 0 3,817,090 442,246 488,305 3,817,090 3,877,299 0 0 0 68,700 0 3,817,090 3,193,017 3,193,017 1,879,067 4,676,922 0 0 235,295 (1,605,658) 0 (1,322,631) (283,027) 0 0 (1,605,658) (.02) (.02)
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