10QSB 1 mb10qsb063004.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File No. 0-11808 MB SOFTWARE CORPORATION Texas 59-2220004 (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 [ ] As of June 30, 2004, 5,822,810 of the Issuer's $.001 par value common stock were outstanding. Transitional Small Business Disclosure Format Yes [ ] No [X] MB SOFTWARE CORPORATION AND SUBSIDIARIES Form 10-QSB Quarter Ended June 30, 2004 PART I - FINANCIAL INFORMATION Item 1 - Financial Statements ................................................3 Consolidated Balance Sheet as of June 30, 2004 (Unaudited)....................3 Consolidated Statements of Operations for the three months ended June 30, 2004 and 2003 (Unaudited)....................................4 Consolidated Statements of Cash Flows for the three months ended June 30, 2004 and 2003 (Unaudited)............................................5 Notes to Condensed Consolidated Financial Statements..........................6 Item 2 - Management Discussion and Analysis or Plan of Operation .............9 Item 3 - Controls and Procedures ............................................10 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K....................................11 SIGNATURES ..................................................................11 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited financial statements included in this Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 2004 (unaudited) ASSETS Current Assets Cash $ 4,630 Due from related parties 286,515 ----------- Total current assets 291,145 Property and equipment, net 13,626 Software license, net 108,333 ----------- Total Assets $ 413,104 =========== LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Notes payable - unrelated party $ 527,500 Accounts payable and accrued liabilities 55,147 Accrued interest 57,102 ----------- Total current liabilities 639,749 ----------- Shareholders' Deficiency Preferred stock, $10 par value, 5,000,000 shares authorized Issued and outstanding - none -- Common stock, $0.001 par value, 20,000,000 shares authorized Issued and outstanding - 5,822,810 5,823 Additional paid-in capital 9,032,385 Accumulated deficit (9,252,814) ----------- (214,606) Less, treasury stock, at cost - 4,089 shares (12,039) ----------- Total shareholders' deficiency (226,645) ----------- Total Liabilities and Shareholders' Deficiency $ 413,104 =========== See notes to condensed consolidated financial statements. 3
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Revenues - Veriscrip testing $ 28,509 $ -- $ 39,226 $ -- Operating Expenses Amortization 5,000 5,000 10,000 10,000 Selling, General and Administrative 127,571 142,796 207,670 176,460 ----------- ----------- ----------- ----------- Total operating expenses 132,571 147,796 217,670 186,460 ----------- ----------- ----------- ----------- Operating loss (104,062) (147,796) (178,444) (186,460) ----------- ----------- ----------- ----------- Other Expense Interest expense (13,535) -- (25,301) -- ----------- ----------- ----------- ----------- Net loss before income taxes (117,597) (147,796) (203,745) (186,460) ----------- ----------- ----------- ----------- Provision for income taxes -- -- -- -- ----------- ----------- ----------- ----------- Net loss $ (117,597) $ (147,796) $ (203,745) $ (186,460) =========== =========== =========== =========== Basic and diluted per common share $ (0.02) $ (0.18) $ (0.03) $ (0.23) =========== =========== =========== =========== Weighted average common shares outstanding 5,822,810 822,810 5,822,810 822,810 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 4
MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2004 2003 --------- --------- Cash flows from operating activities Net loss $(203,745) $(186,460) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 10,000 10,000 Changes in assets and liabilities Increase (decrease) in accounts payable and accrued liabilities (1,575) 14,498 Increase (decrease) in accrued interest 11,947 -- --------- --------- Net cash flows used in operating activities (183,373) (161,962) Cash flows from investing activities Capital expenditures (13,626) -- Payment for software license (50,000) -- --------- --------- Net cash flows used in investing activities (63,626) -- Cash flows from financing activities Proceeds from unrelated party notes payable 70,000 452,500 Net change in due from related parties 181,244 (290,490) --------- --------- Net cash flows provided by financing activities 251,244 162,010 --------- --------- Increase in cash and cash equivalents 4,245 48 Cash and cash equivalents, beginning of period 385 168 --------- --------- Cash and cash equivalents, end of period $ 4,630 $ 216 ========= ========= Cash paid for interest: $ 13,354 -- ========= ========= Cash paid for income taxes: -- -- ========= =========
See notes to condensed consolidated financial statements. 5 MB SOFTWARE CORPORATION AND SUBSIDIARIES QUARTER ENDED - JUNE 30, 2004 NOTES TO FINANCIAL STATEMENTS NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles in the United States of America 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 (the Company) for the year ended December 31, 2003, as amended. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the operating results for the three and six month period ended June 30, 2004, and are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The Company's financial statements include the combined statements of financial position, results of operations and cash flows for the entities merged as a result of certain merger agreements completed during 2003. The Company remains as the reporting entity and its balance sheet and other financial information have been updated as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial statements and financial information presented for the prior period have been restated to furnish comparative information. All restated financial statements reflect the combined results of operations and cash flows of the previously separate entities. NOTE 2: GOING CONCERN 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 significant accumulated 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. It is the Company's belief that it will continue to incur losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. To meet these objectives, management's plans are to (i) raise capital by obtaining financing from debt financing and / or equity financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments, (iii) convert substantially all of its notes payable to equity, and (iv) obtain loans from shareholders as necessary. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has no revenues and the Company's need for capital may change dramatically if it is successful in expanding its current business or acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. Management believes that actions presently taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company's future ability to achieve these 6 objectives cannot be determined at this time. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 3: NOTES PAYABLE Notes payable consists of the following: Convertible promissory note payable [1] $200,000 Convertible promissory note payable [2] 100,000 Convertible promissory notes payable [3] 157,500 Convertible promissory notes payable [4] 70,000 -------- $457,500 ======== [1] Convertible promissory note payable represents one note with outstanding principal convertible (in denominations of $10,000 or integral multiples thereof) into shares of the Company's common stock at the conversion price of $1.00 per share; maturity date is December 26, 2003; interest rate is 10% per annum or in the event of default 15% per annum; personally guaranteed by the Company's president. The note is currently in default. [2] Convertible promissory note payable represents one note with outstanding principal convertible into shares of the Company's common stock at the conversion price of $0.50 per share equal to the total value of the note after the first quarterly interest payment, which is due on February 28, 2004; maturity date is also February 28, 2004; interest rate is 10% per annum. [3] Convertible promissory notes payable represents five different notes bearing interest at 10% per annum and originally convertible into shares of the Company's common stock at the conversion price of $0.50 to $1.00 per share; the notes mature at various dates through August 28, 2003, and which are currently in default. [4] Convertible promissory notes payable represents seven different notes bearing interest at 10% per annum and convertible into shares of the Company's common stock at the conversion price of $1.00 per share; the notes mature at various dates through September 30, 2004. Accrued interest on the above notes at June 30, 2004 was $57,102. The entire balance of notes payable outstanding is due in 2004. NOTE 4: RELATED PARTY TRANSACTIONS Amounts due from related parties Amounts due from related parties at June 30, 2004 totaling $286,515 consists of: (1) $191,115 of funds advanced, as necessary, from various other entities controlled by the president of this Company and (2) $95,400 representing the balance due from an entity controlled by the Company's President for the purchase of certain assets pursuant to an Asset Purchase Agreement dated July 24, 2003 between Envoii Healthcare, L.L.C. and Envoii Technologies, L.L.C., both related parties. The amounts due are interest-free, unsecured and repayable on demand. NOTE 5: EARNINGS PER SHARE Basic earnings per share ("EPS") are calculated using net earnings (numerator) divided by the weighted-average number of shares outstanding (denominator) during the reporting period. All per share amounts in these financial statements are basic earnings or loss per share. Convertible securities that could 7 potentially dilute basic earnings or loss per share in the future are not included in the computation of diluted earnings or loss per share because to do so would be antidilutive. All per share and per share information are adjusted retroactively to reflect stock splits and changes in par value. NOTE 6: MERGER AGREEMENT In January 2004, the Company, through its wholly-owned subsidiary MBH and its wholly-owned subsidiary Envoii, completed a merger agreement with VPS Holding, LLC, a Kentucky limited liability company, ("VPSH"), VP Acquisition, LLC, a Kentucky limited liability company and a wholly-owned subsidiary of Envoii, and James K. Millard, the sole member of VPSH, under a reorganization within the meaning of Internal Revenue Code Section 368(a). Subsequent to the merger, VPSH continues as the surviving entity and wholly-owned subsidiary of Envoii. The purpose of the merger was to obtain the rights to the intellectual property and know-how related to prescription drug monitoring databases for use in controlled substance prescription environments, as well as by third parties in non-controlled substance prescription environments. The original technologies were developed and pursued by Equity Technologies & Resources, Inc. ("ETCR"), a public company that trades on the Nasdaq Over-the-counter bulletin board on the "pink sheets", and its wholly-owned subsidiary, Verified Prescription Safeguards, Inc. ("VPS"). On April 23, 2003, ETCR, VPS, VPSH and Envoii had entered into a Joint Venture Agreement, which terminated upon the completion of this merger. VPSH was awarded a contract by the State of Kentucky for the development and deployment of a prescription drug monitoring pilot project utilizing the intellectual property. Pursuant to a "Patent and License Agreement and Release" dated January 2004, ETCR and VPS grant to VPSH an exclusive, world-wide, sub-licensable, right and license to all of the respective rights, title, and interest of ETCR and VPS in and to the technologies and the patent application, and all related intellectual properties claimed therein. In consideration of the rights granted to VPSH under the agreement, VPSH agreed to pay ETCR the following royalties: (a) an initial royalty of 2/3 of the first $150,000 in gross revenues received by VPSH from the State of Kentucky in connection with the Pilot Project. In the event the State of Kentucky extends or expands the Pilot Project, the parties agree that all revenues received in connection with such extension or expansion are the property of VPSH; (b) for all other projects incorporating or utilizing the intellectual property, VPSH agrees to pay a royalty of 25% of the net revenues if the project was undertaken VPSH as a direct result of an initial introduction to the customer by ETCR, or 5% of the net revenues if the project was undertaken by VPSH without an initial introduction to the customer by ETCR. Net revenues means the revenues actually received by VPSH from the applicable project less the direct costs incurred by VPSH in connection with performing the project. Other terms and conditions apply as more fully described in the agreement. 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Caution Concerning Forward-Looking Statements/Risk Factors ---------------------------------------------------------- The following discussion should be read in conjunction with the Company's financial statements and the notes thereto and the other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words "believes," "anticipates," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected due to a number of factors beyond our control. The Company does not undertake to publicly update or revise any of its forward-looking statements even if experience or future changes show that the indicated results or events will not be realized. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. You are also urged to carefully review and consider our discussions regarding the various factors, which affect our business, included in this section and elsewhere in this report. Factors that might cause actual results, performance or achievements to differ materially from those projected or implied in such forward-looking statements include, among other things: (i) the impact of competitive products; (ii) changes in law and regulations; (iii) adequacy and availability of insurance coverage; (iv) limitations on future financing; (v) increases in the cost of borrowings and unavailability of debt or equity capital; (vi) the effect of adverse publicity regarding our products; (vii) the inability of the Company to gain and/or hold market share; (viii) exposure to and expense of resolving and defending product liability claims and other litigation; (ix) consumer acceptance of the Company's products; (x) managing and maintaining growth; (xi) customer demands; (xii) market and industry conditions including pricing and demand for products, (xiii) the success of product development and new product introductions into the marketplace; (xiv) the departure of key members of management; (xv) the ability of the Company to efficiently market its products; as well as other risks and uncertainties that are described from time to time in the Company's filings with the Securities and Exchange Commission. Plan of Operation ----------------- The Company currently has limited business operations, maintaining leased offices in Arlington, Texas, and Lexington, Kentucky. Business activities currently focus on the Veriscrip offerings, and include sales and marketing activities to state organizations, and the implementation and management of the Kentucky pilot program. Veriscrip's services include electronic prescription writing services for physicians and other authorized prescribers, delivery and management services of electronic prescriptions for pharmacies, and real time electronic tracking of prescription writing and fulfillment for regulatory agencies. This set of services combines e-prescribing with the concept of now widely adopted prescription drug monitoring programs (PDMP's). These services are marketed to state agencies. During the first and second quarter of 2004, the Company conducted marketing activities within multiple states in an effort to generate awareness of the Veriscrip system's features and capabilities, and begin the sales process. The Company has closely monitored local and national media sources covering prescription drug related issues in several states. Management feels that market demand is significantly increasing with government initiatives such as President Bush's appointment of a subcabinet level position of National Health Information Technology Coordinator (within the Department of Health and Human Services), the introduction of "The Prescription Drug Elimination Act of 2004" (H.R. 3870) to the House of Representatives, and President Bush's immediate earmarking of $100 million for improving healthcare information systems as a first step to committing that every American have an electronic medical records within 10 years. Veriscrip's electronic prescription services and computerized physician order entry (CPOE) capabilities have the capability to satisfy a number of the outlined initiatives both at the Federal and State levels. 9 A number of system enhancements were made to the service offering, resulting in more comprehensive features being offered to Veriscrip users, and more rapid entry of electronic prescriptions. In addition, through its informal pre-marketing and marketing activities, and its pilot program, the Company continues to refine its strategy to secure a strong position in the online healthcare transactions market. Management has drafted its strategy into a formal business plan and has approached a number of funding sources with the intention of raising external funds to support its strategy. Pursuant to its strategy and existing contractual obligations, the Company completed phases I and II of its pilot project with the Commonwealth of Kentucky, and expects to complete phase III in the third quarter of 2004. The Company has also begun working with the University of Louisville to evaluate the overall project, as stipulated by the terms of its contract. The defined pilot phases require assessment, design, and implementation of electronic prescription writing and tracking services within several locations in Eastern Kentucky. These locations include physician clinics, where physicians and authorized staff utilize Veriscrip to electronically prescribe and transmit prescription orders to pharmacies participating in the pilot. The Company expects Phase III to be complete by the end of August 2004. Liquidity and Capital Resources ------------------------------- As of June 30, 2004, we did not have any significant assets other than advances from related parties. Our future funding requirements will depend on numerous factors, some of which are beyond the Company's control. These factors include our ability to operate profitably, recruit and train management and personnel, and to compete with other, better-capitalized and more established competitors. We believe that we can satisfy our cash requirements over the next twelve months as follows: (i) raise capital by obtaining financing from debt financing and / or equity financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments, (iii) convert substantially all of its notes payable to equity, and (iv) obtain loans from shareholders as necessary. There is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all. Furthermore, there is no assurance the net proceeds from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company's operations, once a suitable business opportunity has been identified. The Company does not anticipate incurring significant research and development costs, the purchase of any major equipment, or any significant changes in the number of its employees over the next twelve months, depending on the success of its future operations. ITEM 3. CONTROLS AND PROCEDURES The President, who is also the chief executive officer and the chief financial officer of the Company, has concluded based on his evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Registrant's management, including the president, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. 10 PART II - OTHER INFORMATION ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits 31 Certification pursuant to Rule 13a-14(a)/15d-14(a) 32 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 --------- (b) Reports on Form 8-K None SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MB SOFTWARE CORPORATION Date: August 12, 2004 /s/ Scott A. Haire -------------------------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 11