10KSB 1 0001.txt 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, 2000 ----------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15d OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ____________ Commission File Number 000-11808 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: $2,304,731. The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 2001 was approximately $2,038,401. 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. [X] Yes [ ] No As of December 31, 2000, 70,300,000 shares of the Issuer's $.001 par value common stock were outstanding. Transitional Small Business Disclosure Format: [ ] Yes [X] No MB SOFTWARE CORPORATION Form 10-KSB For the Year Ended December 31, 2000 Page of Form 10 KSB ----------- ITEM 1. BUSINESS ...........................................................3 ITEM 2. PROPERTIES...........................................................5 ITEM 3. LEGAL PROCEEDINGS....................................................5 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................5 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS..................................................6 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...........................................6 ITEM 7. FINANCIAL STATEMENTS ................................................8 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................................9 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.........9 ITEM 10. EXECUTIVE COMPENSATION..............................................9 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................................10 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................11 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................11 2 PART 1 Item 1. Business MB Software Corporation (the "Company") was incorporated in 1982. The current focus of the Company is to expand its scope of operations by acquiring and managing additional healthcare facilities and to sell, distribute and utilize PatientMed 2000(TM), an Internet appliance. This focus is a natural progression from past times during which the Company utilized its own software in its clinics and licensed the software to physician practices. Since 1998, the Company has continued to acquire medical clinics, expand the revenue base of existing clinics and divest itself of unprofitable operations, including the software division. The Company is now integrating PatientMed 2000(TM) with its existing clinics and marketing the Internet appliance nationwide to patients and physicians alike. Healthcare Business The Company's Florida operations, conducted under the N.F.P.M., LLC ("NFPM") subsidiary, are continuing to expand The Company now owns a total of three 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. 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 will enable the Company to operate target acquisitions more efficiently and therefore more profitably. 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. 3 PatientMed 2000 TM Effective July 20, 2000, the Company entered into an agreement with Screen.Phone.net Inc. whereby the Company acquired an exclusive license in connection with PatientMed 2000(TM). PatientMed 2000(TM) is a ScreenPhone - an Internet appliance incorporating a telephone, alphanumeric keyboard, modem and touch screen, to provide users with telephone-based Internet access. PatientMed 2000(TM) provides users with an expanded array of Internet and telephone services as well as extensive applications and service packages specifically tailored to each segment of the healthcare market. PatientMed 2000(TM) facilitates and features an improved two-way mode of communication and an information delivery system between the physician and patient. By touching one icon on the screen, the patient is immediately connected to the Internet. Once connected, the patient may "chat" on-line with the physician or access information via a secure e-mail address provided to each patient. In a real-time communication dynamic, clinical data may be transmitted and assessments and interventions made without the necessity of a patient office visit. Similarly, the patient may access the clinic e-mail address to schedule appointments, obtain certain lab results, order clinic nutritional products and obtain medical information and services directly related to the Company clinics. Significantly, PatientMed 2000(TM) affords the clinic direct access to insurance companies. The clinic may use PatientMed 2000(TM)to access and provide insurance information in two-way real-time communications with participating on-line insurance companies. There is a three-fold market for the PatientMed 2000(TM). Prototypes for the PatientMed 2000(TM) will be utilized in all operational venues in the Company's clinics. This will afford the Company the substantial benefit of evaluating and further enhancing PatientMed 2000(TM) in one of its intended environments. The second market for the PatientMed 2000(TM) includes medical clinics and ancillary healthcare facilities throughout North America. The third market is comprised of patient and other individual and entity users. The growth potential in the second and third markets appears to be substantial. According to IDC, a division of International Data Group, in their report The Worldwide Information Appliance Market 1999-2004, the author projects that worldwide Internet appliance shipments will grow from 11 million units in 1999 to over 89 million units in 2004. IDC predicts that U.S. unit shipments of lower-cost, transportable consumer information appliances will outnumber those of consumer PC's by 2002. The IDC anticipates that while the costs for Internet appliances are expected to begin to drop significantly as the market matures, the worldwide value of Internet appliance shipments will grow from $2.4 billion in 1999 to more than $17 billion in 2004. Employees The Company currently employs a total of approximately twenty-five 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. 4 Combined, the Florida clinics have one medical doctors, an osteopathic doctor, two physician assistants, physical therapists and a staff of approximately twenty-three. Item 2. Properties All premises occupied by the Company and subsidiaries are leased. The Company's principal executive office is located in 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. Item 3. Legal Proceedings NFPM entered into a settlement agreement dated October 21, 1999 to resolve litigation filed in 1997 by an equipment leasing/finance company. While the parties have entered into a settlement agreement, this matter is still pending. The Company and NFPM settled their claim against Danka Office Imaging Co. d/b/a Danka, Danka Financial Services and American Business Credit Corporation. The lawsuit was settled. 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. Item 4. Submission of Matters to a Vote of Security Holders For the year 2000, the Company did not conduct an annual shareholder's meeting. 5 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 12/31/00 March, 2000 $ .37 $ .12 June, 2000 .20 .10 September, 2000 .25 .15 December, 2000 .25 .15 Year Ended 12/31/99 March, 1999 $ .08 $ .07 June, 1999 .14 .14 September, 1999 .07 .06 December, 1999 .02 .02 The Company had approximately 7,582 holders of record of its common stock as of December 31, 2000. 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, 2000: Operating at Discontinued ----------------------------------------------- Name of Company/Subsidiary Location December 31, 2000 in 2000 -------------------------- ----------------- ----------------- ------- MB Software Corporation (Parent) Arlington, TX Yes No Healthcare Innovations, LLC Arlington, TX Yes No N.F.P.M., LLC Jacksonville, FL Yes No MB Practice Solutions, Inc. Arlington, TX Yes No The Company has elected to devote its resources to the healthcare division of the Company and the development of PatientMed 2000(TM). In furtherance of this decision, the Company focused primarily on operations of its existing healthcare businesses and sale of the Internet appliances. 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. 6 The Company's healthcare businesses consist of three clinics in and around Jacksonville, Florida. The Florida clinics account for 100% percent of gross medical revenues. The following summarizes the results of operations for the twelve months ended December 31, 2000 and December 31, 1999: ----------------------------- Medical Activities: 2000 1999 ----------------------------- Gross Revenue $ 3,628,238 $ 3,431,817 Contractual Allowance 1,338,059 1,327,170 ----------- ----------- Net Revenues 2,290,179 2,104,647 Cost of Revenue 1,512,986 1,422,464 ----------- ----------- Gross Profit $ 777,283 $ 682,183 Service Fees and Broker Income -- 105,278 Other 14,552 40,586 ----------- ----------- Gross Profit 14,552 145,864 Operating Expenses: Selling, General and Administrative 1,747,728 1,600,827 Depreciation and Amortization 57,995 65,411 Interest Expenses and other (Income) and Expenses 87,641 142,169 ----------- ----------- Loss before benefit income tax (1,101,619) (980,360) Benefit for income tax -- (495,701) Loss from Continuing Operations $(1,101,619) $ (484,859) =========== =========== Gross medical revenues increased 5.7% to $3,628,238 for the twelve months ended December 31, 2000, as compared to $3,431,817 for the twelve months ended December 31, 1999. This increase is due to expanded services added to the clinics in Florida. The contractual allowance as a percentage of gross medical revenue was 37% and 39% for the twelve months ending December 31, 2000 and 1999, respectively. The contractual allowance includes write-offs for insurance adjustments and uncollectible receivables. The consistency in the percentages from 1998 to 2000 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 14% to $777,193 for the twelve months ended December 31, 2000 as compared to a gross profit of $682,183 for the twelve months ended December 31, 1999. This increase of $95,010 is due to utilizing our staff more efficiently and reduced cost resulting from staff reductions. 7 The selling, general and administrative expenses increased 9% to $1,747,728 for the twelve months ended December 31, 2000 as compared to $1,600,827 for the twelve months ended December 31, 1999. The increase of $146,901 in general and administrative expenses is due to general overhead expenses such as increases in the annual real property lease agreements of the clinics and other increases including utilities. The net loss from continuing operations increased 27% to $1,101,619 for the twelve month period ended December 31,2000, as compared to $484,859 for the twelve months ended December 31, 1999 Liquidity and Capital Resources The Company's operations used cash of $569,359 during the twelve months ended December 31, 2000 and $627,856 during the twelve months ended December 31, 1999. In 2000, the net cash amount provided by financing activities was $588,241. At December 31, 2000 and December 31, 1999, the Company had working capital deficits of ($1,935,063) and ($902,852), respectively. At December 31, 2000, the Company had cash deposits of $29,910. The Independent Auditor's Report for the year ending December 31, 2000 ("Report"), states that the uncertainty of certain conditions raise 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 is of the position that it will generate resources sufficient to fund all costs associated with the development sales, and distribution of PatientMed2000(TM) the Internet appliance. It is anticipated that a consistent revenue stream will be in place during calendar year 2001. In the twelve months ended December 31, 2000, the Company did not make any capital equipment purchases. The Company does not anticipate any major equipment purchases for the twelve months of 2001. The Company did not have an annual stockholder' meeting for 2000. However, on October 20, 2000, the board of directors held the annual meeting. 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, 2000 and 1999 F-4 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999 F-5 Consolidated Statements of Changes in Shareholders' Deficit for the years ended December 31, 2000 and 1999 F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999 F-9 Notes to Consolidated Financial Statements F-11 8 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 36 President, Director 1993 Gilbert A. Valdez 57 Chief Operating Officer 1996 Araldo A. Cossutta 76 Director 1994 Steven W. Evans 50 Director 1994 Robert E. Gross 56 Director 1994 Thomas J. Kirchhoffer 60 Director 1994 Lucy J. Singleton 63 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. 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 MedEway.com Inc. 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 MedEway.com Inc. Thomas J. Kirchhoffer Director. Mr. Kirchhoffer 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. 9 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 2000 120,000 -0- -0- -0- -0- -0- President 1999 140,500 -0- -0- -0- -0- -0- 1998 141,000 -0- -0- -0- -0- -0- -------------------------------------------------------------------------------- Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information as of December 31, 2000, 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 26,921,297 42.0% Araldo A. Cossutta 2,982,025 4.0% Steven W. Evans 1,500,000 2.0% Gilbert Valdez 900,000 * Thomas J. Kirchhoffer 150,000 * 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) Consists of 900,000 shares subject to options that are presently exercisable by Mr. Valdez. (3) Consists of 150,000 shares subject to options that are presently exercisable by Mr. Kirchhoffer. 10 Item 12. Certain Relationships and Related Transactions None. 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: March 30,2001 11 MB SOFTWARE CORPORATION AND SUBSIDIARIES FINANCIAL REPORT DECEMBER 31, 2000 C O N T E N T S Page INDEPENDENT AUDITOR'S REPORT................................................F-2 FINANCIAL STATEMENTS Consolidated Balance Sheets............................................F-3 Consolidated Statements of Operations..................................F-5 Consolidated Statements of Changes in Shareholders' Deficit...................................F-7 Consolidated Statements of Cash Flows..................................F-8 Notes to Consolidated Financial Statements....... .....................F-10 INDEPENDENT AUDITOR'S REPORT Board of Directors and Shareholders MB Software Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of MB Software Corporation (a Colorado corporation) and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits provide 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, 2000 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. 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. WEAVER AND TIDWELL, L.L.P. Fort Worth, Texas March 16, 2001 3592 F-2 MB SOFTWARE CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 2000 1999 ------------- ------------- ASSETS CURRENT ASSETS Cash $ 29,910 $ 26,078 Medical receivables, net of allowance for doubtful accounts and contractual allowances of $1,118,630 and $822,692 in 2000 and 1999, respectively 525,265 713,625 Note receivable - 177,721 Prepaid expenses and other 25,049 4,131 ------------- ------------- Total current assets 580,224 921,555 PROPERTY AND EQUIPMENT, NET 116,127 178,525 OTHER ASSETS Note receivable - shareholder 350,000 350,000 Employee advances 90,000 - ------------- ------------- TOTAL ASSETS $ 1,136,351 $ 1,450,080 ============= ============= The Notes to Consolidated Financial Statements are an intergral part of these statements. F-3

MB SOFTWARE CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 2000 1999 ------------ ----------- LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Notes payable $ 1,658,870 $ 1,057,925 Current maturities of capital leases 1,494 17,434 Accounts payable 354,803 402,409 Accrued liabilities 500,120 346,639 ----------- ----------- Total current liabilities 2,515,287 1,824,407 LONG-TERM DEBT Capital leases -- 3,050 ----------- ----------- Total liabilities 2,515,287 1,827,457 SHAREHOLDERS' DEFICIT Series A senior cumulative convertible participating preferred stock; $10 par value; 340,000 shares issued and outstanding in 2000 and 1999; dividends in arrears 2000 $725,644, 1999 $385,644 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; 70,300,000 and 69,200,000 shares issued in 2000 and 1999, respectively 70,300 69,200 Additional paid-in capital 1,434,431 1,103,005 Accumulated deficit (6,039,162) (4,937,543) Deferred license and consulting cost, net (232,466) -- ----------- ----------- (1,366,897) (365,338) Treasury stock, at cost; 408,029 shares (12,039) (12,039) ----------- ----------- Total shareholders' deficit (1,378,936) (377,377) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,136,351 $ 1,450,080 =========== ===========

The Notes to Consolidated Financial Statements are an intergral part of these statements. F-4 MB SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- REVENUES Medical fees - net of contractual adjustments of $1,338,059 and $1,327,170, in 2000 and 1999, respectively $ 2,290,179 $ 2,104,647 Service fees and broker income -- 105,278 Other 14,552 40,586 ----------- ----------- Total revenues 2,304,731 2,250,511 COST OF REVENUES Cost of medical clinic fees 1,512,986 1,422,464 ----------- ----------- Gross profit 791,745 828,047 ----------- ----------- OPERATING EXPENSES Selling, general & administrative 1,747,728 1,600,827 Depreciation and amortization 57,995 65,411 ----------- ----------- Total operating expenses 1,805,723 1,666,238 ----------- ----------- Loss from operations (1,013,978) (838,191) OTHER INCOME (EXPENSE) Loss on sale of assets -- (5,171) Interest expense (131,998) (143,984) Interest income 44,357 6,986 ----------- ----------- Total other income (expense) (87,641) (142,169) Loss before benefit for income taxes (1,101,619) (980,360) BENEFIT FOR INCOME TAXES -- (495,701) ----------- ----------- Loss from continuing operations (1,101,619) (484,659) The Notes to Consolidated Financial Statements are an intergral part of these statements. F-5 MB SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 (continued) 2000 1999 ------------ ------------ DISCONTINUED OPERATIONS Income from operations, net of tax effect 1999 of $30,694 -- 59,581 Gain on disposal, net of tax effect 1999 of $465,007 -- 902,662 ------------ ------------ -- 962,243 ------------ ------------ Net income (loss) ($ 1,101,619) $ 477,584 ============ ============ Loss from continuing operations ($ 1,101,619) ($ 484,659) Plus cumulative preferred stock dividends (340,000) (340,000) ------------ ------------ Loss available to common shareholders ($ 1,441,619) ($ 824,659) ============ ============ BASIC AND DILUTED EARNINGS (LOSS) PER SHARE Continuing operations ($ 0.02) ($ 0.01) Discontinued operations -- 0.01 ------------ ------------ ($ 0.02) ($ 0.00) ============ ============ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 69,275,833 69,116,667 ============ ============ The Notes to Consolidated Financial Statements are an intergral part of these statements. F-6

MB SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 2000 AND 1999 Series A Preferred Stock Common Stock Additional ------------------------- ------------------------- Paid-in Accumulated Deferred Shares Amount Shares Amount Capital Deficit Service ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 340,000 $ 3,400,000 69,100,000 $ 69,100 $ 1,101,105 ($5,415,127) $ -- 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) -- Stock issued for license and con- sulting agreement -- -- 1,100,000 1,100 252,050 -- (253,150) Realization of deferred license and consulting cost -- -- -- -- -- -- 20,684 Capital contribution from sale of subsidiary -- -- -- -- 79,376 -- -- Net loss -- -- -- -- -- (1,101,619) -- ----------- ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 2000 340,000 $ 3,400,000 70,300,000 $ 70,300 $ 1,434,431 ($6,039,162) ($ 232,466) =========== =========== =========== =========== =========== =========== =========== Treasury Stock ----------- BALANCE, DECEMBER 31, 1998 ($ 12,039) Common stock issued -- Net income -- ----------- BALANCE, DECEMBER 31, 1999 (12,039) Stock issued for license and con- sulting agreement -- Realization of deferred license and consulting cost Capital contribution from sale of subsidiary Net loss -- ----------- BALANCE, DECEMBER 31, 2000 ($ 12,039) ===========

The Notes to Consolidated Financial Statements are an intergral part of these statements. F-7

MB SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Loss from continuing operations ($1,101,619) ($ 484,659) Adjustments to reconcile loss from continuing operations to net cash used in operating activities: Impairment allowance 192,771 -- Deferred taxes -- (495,701) Depreciation and amortization 57,995 65,411 Loss on sale of assets -- 5,171 Deferred license and consulting costs recognized 20,684 -- Changes in assets and liabilities: Accounts receivable 160,974 161,659 Prepaid expenses and other (21,850) (1,632) Accounts payable and accrued liabilities 211,686 90,944 Deposits and other assets -- 57,493 Employee advances (90,000) -- ----------- ----------- Net cash used in continuing operations (569,359) (601,314) Net cash used in discontinued operations -- (26,542) ----------- ----------- Net cash used in operating activities (569,359) (627,856) CASH FLOWS FROM INVESTING ACTIVITIES Loans made on notes receivable to related party (15,050) (126,433) Capital expenditures -- (29,627) Proceeds from sale of subsidiary -- 550,000 ----------- ----------- Net cash provided by (used in) investing activities (15,050) 393,940

The Notes to Consolidated Financial Statements are an intergral part of these statements. F-8 MB SOFTWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999 (continued) 2000 1999 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on borrowings (300,400) (92,254) Principal payments on capital leases (16,559) -- Proceeds from loans 905,200 146,271 Proceeds from issuance of common stock -- 2,000 --------- --------- Net cash provided by financing activities 588,241 56,017 --------- --------- Net decrease in cash 3,832 (177,899) CASH AND CASH EQUIVALENTS, beginning of year 26,078 203,977 --------- --------- CASH AND CASH EQUIVALENTS, end of year $ 29,910 $ 26,078 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid during the year for: Interest $ 58,998 $ 143,984 ========= ========= Taxes $ 472 $ -- ========= ========= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Note receivable from sale of subsidiary $ -- $ 350,000 Notes payable settled in sale of subsidiary -- (900,000) Assets disposed in settlement of debt 26,434 66,972 Debt settled by disposal of assets (105,811) (53,579) Stock issued for license agreement and consulting 253,150 -- Note receivable, impaired 177,721 -- The Notes to Consolidated Financial Statements are an intergral part of these statements. F-9 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 North Florida Physical Medicine, LLC (NFPM) and MB Practice Solutions, LLC. (MBPS). 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. In February 1999, the Company sold its Utah facilities. Income from discontinued operations and gain on sale of subsidiaries report the results of this sale. In June 1999, the Company discontinued and sold Nevada Multicare, LLC (NVMC), which operated healthcare facilities. In December 1999, the Company discontinued and sold MB Software Solutions, Inc. (MBSSI), which developed and sold practice management software. Effective September 1, 2000, the Company sold its South Florida Medical Center Clinic to a company wholly owned by two shareholders of the Company. The sale was accomplished by an assumption of net liabilities by the related company of approximately $79,000. The net gain on the transaction was recorded as a contribution to capital. The Company now focuses on operating its remaining healthcare facilities currently in the state of Florida and has entered into an exclusive license agreement for PatientMed 2000 to sell and distribute the internet appliance and utilize it in its own facilities. F-10 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 has engaged CyberStreet Capital, Inc. to provide the Company with various services, including business analysis, marketing strategies and assistance in raising capital for the Company. The Company intends to raise capital in 2001in order to meet its needs for the launch and commercialization of the Company's internet appliance PatientMed 2000. Use of Estimates and Assumptions Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. 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 F-11 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 charges. Management periodically analyzes these adjustments and adjusts the allowances for doubtful accounts and contractual allowances accordingly. 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 five to seven years. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. Earnings (Loss) Per Common Share and Common Share Equivalents Basic earnings (loss) 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 2000 and 1999, 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-12 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. The Company no longer produces these revenues after the sale of MBSSI in 1999. 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, 2000 and 1999 was $ 1,338,059 and $1,327,170, 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 F-13 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Software Development - continued 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. 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 during 1999. The Company disposed of capitalized software development costs in 1999 as part of the sale of MBSSI. 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-14

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, 2000 and 1999: 2000 1999 -------- -------- Clinic and office equipment $297,463 $297,663 Computer equipment 29,773 33,976 Furniture and fixtures 747 747 -------- -------- 327,983 332,386 Less accumulated depreciation and amortization 211,856 153,861 -------- -------- $116,127 $178,525 ======== ======== Depreciation expense was $57,995 and $65,411 for the years ended December 31, 2000 and 1999, respectively. NOTE 3. NOTES PAYABLE Notes payable consist of the following as of December 31: 2000 1999 ----------- ----------- Prime plus 1% line of credit with a bank, due on demand, secured by accounts receivable, see below $ 140,070 $ 140,070 8% note payable to a shareholder, due on demand, unsecured 2,000 2,000 10% note payable to a company related through common ownership, due on demand, unsecured 100,000 100,000 8% note payable to a shareholder, due July 1, 2001, unsecured - related party 300,000 300,000 8% note payable to a shareholder, due July 1, 2001, unsecured 12,000 12,000

F-15

MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. NOTES PAYABLE - continued 2000 1999 ---------- ---------- 10% note payable to an investor, due July 1, 2001 - related party 500,000 500,000 10% note payable to a shareholder, due December 31, 2001, unsecured - related party 454,800 -- 15% note payable to a financing entity, due December 15, 2000, unsecured 150,000 -- 7.15% note payable to a bank, retired -- 3,855 ---------- $1,658,870 $1,057,925 ========== ========== 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, 2000: Year Ending December 31, ------------ 2001 $ 1,585 ---------- Net minimum lease payments 1,585 Less amount representing interest 91 ---------- Present value of net minimum lease payments 1,494 Current maturities of capital lease obligations 1,494 ---------- Capital lease obligations, less current maturities $ -- ==========

F-16 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2000 and 1999, dividends in arrears on preferred stock was $725,644 and $385,644, respectively. In January 2001, the Company and the Series A stockholder entered into a Repurchase Option Agreement which provides the Company the option to redeem the shares of preferred stock for a purchase price of $3,400,000 plus accrued dividends until June 30, 2001. NOTE 6. INCOME TAXES The components of tax expense are as follows: 2000 1999 --------- --------- Current $ -- $ -- Deferred ( -- ) ( 495,701) --------- --------- $ -- ($495,701) ========= ========= A reconciliation of the expected federal income tax expense (benefit) based on the U.S. Corporate income tax rate of 34% to actual expense (benefit) for 2000 and 1999 is as follows: 2000 1999 ----------- ----------- Expected federal income tax provision (benefit) ($ 374,550) ($ 333,322) State income taxes - - Valuation allowance and other 374,550 - Utilization of net operating loss ( - ) ( 162,379) ----------- ----------- ($ - ) ($ 495,701) =========== =========== F-17 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. INCOME TAXES - continued Deferred tax assets and liabilities as of December 31, 2000 and 1999 are as follows: 2000 1999 ---------- ---------- Current deferred tax asset $ 380,334 $ 279,715 Valuation allowance for current deferred tax asset ( 380,334) ( 279,715) ---------- ---------- Net current deferred tax asset $ -- $ -- ========== ========== Non-current deferred tax asset $2,276,255 $1,509,316 Valuation allowance for non-current deferred tax asset ( 2,276,255) ( 1,509,316) ---------- ---------- Net non-current deferred tax asset $ -- $ -- ========== ========== At December 31, 2000, 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 net change in the valuation allowance for 2000 and 1999 was $867,558 and ($584,454), respectively. The beginning 1999 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, 2000, 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, 2000 is approximately $6,695,000 and will begin to expire in 2008, if not previously utilized. F-18 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. 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, ------------ 2001 $ 245,841 2002 228,119 2003 61,004 ----------- $ 534,964 =========== Lease and rent expense under non-cancelable operating leases for 2000 and 1999 were $394,449 and $423,923, respectively. Effective July 20, 2000, the Company entered into an Exclusive License Agreement with Screen PhoneNet, Inc. (ScreenPhone). Pursuant to the License Agreement, ScreenPhone granted the Company exclusive rights to sell, distribute, sublicense and use its Internet access screen phones system known as PatientMED 2000. As consideration for this agreement, the Company will be required to pay a licensing fee as defined in the agreement, subject to minimum purchase commitments. The purchase commitment calls for 6,100 units through calendar 2002 and 10,000 units per year through 2010 at the wholesale price, which is currently $420 per unit. NOTE 8. LEGAL PROCEEDINGS 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 was transferred in settlement of related liabilities. 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 F-19

MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8. LEGAL PROCEEDINGS - continued 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. 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 --------- -------- --------- -------- --------- 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 Granted - - - - - Exercised - - - - - Forfeited ( 500,000) .09 (3,450,000) .22 (3,550,000) --------- --------- --------- Outstanding at 12/31/00 1,050,000 $ .15 - $ - 1,050,000 ========= ========= =========

There were no options issued during 2000 or 1999. All of the 1,050,000 outstanding incentive stock options are fully vested at December 31, 2000, and the weighted average remaining contractual life is .70 years. F-20 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Operating results from discontinued operations are as follows: 1999 ------------ Revenues: Medical fees $ 80,284 Software and maintenance fees 230,407 ------------ 310,691 Cost of medical ( 53,755) Costs of software and maintenance fees ( 40,520) Selling, general and administrative ( 124,257) ------------ Income (loss) from operations 92,159 Other expense 1,884 ------------ Income from discontinued operations $ 90,275 ============ 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. 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 F-21 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. RELATED PARTY TRANSACTIONS - continued 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 years ended December 31, 2000 or 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%. Interest income for the years ended December 31, 2000 and 1999 was $28,000 and $2,333 of which at December 31, $19,513 and $-0- was accrued, respectively. Employee advance at December 31, 2000 for $90,000 accrued no interest and has no stated maturity. Included in notes receivable at December 31, 1999 is $177,721 due directly or indirectly from an employee of the Company. As of December 31, 2000, it became apparent these notes, including interest accrued during 2000 of $15,050, were impaired and, as a result, management has provided an impairment allowance of $192,771. 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, 2000 and 1999 were $109,444 and $122,777, respectively. Accrued interest at December 31, 2000 and 1999 was $248,813 and $175,816, respectively. The Company provides limited administrative services to companies affiliated through common ownership of Company shareholders. F-22