10QSB 1 mb10qsb93001.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: September 30, 2001 ---- [ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File No. 0-11808 MB SOFTWARE CORPORATION Colorado 59-2220014 (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 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 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, 2001, 73,400,000 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, 2001 INDEX PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1 - Financial Statements Consolidated Balance Sheet September 30, 2001 (Unaudited) and December 31, 2000 (Audited) F-1 - F-2 Consolidated Statements of Operations - for the Three and Nine Months ended September 30, 2001 and 2000 (Unaudited) F-3 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2001and 2000(Unaudited) F-4 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 3-4 PART II - OTHER INFORMATION Item 5 - Other Information 5 Item 6 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 6 SIGNATURES 5 2

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS September 30, December 31, 2001 2000 ------------- ------------ (Unaudited) (Audited) ------------- ------------ CURRENT ASSETS Cash $ $ 29,910 Medical receivables, net allowance for doubtful accounts and contactual allowances of $1,118,630 and $972,689 in 2001 and 2000, respectively 582,014 525,265 Other receivable 33,423 -- Inventory 140,000 Prepaid expenses 8,377 25,049 ------------- ------------- Total current assets 763,814 580,224 ------------- ------------- PROPERTY AND EQUIPMENT, NET 77,786 116,127 ------------- ------------- OTHER ASSETS Note receivable - shareholder 350,000 350,000 Employee Advance 90,000 90,000 License rights and other intangibles 504,000 -- ------------- ------------- Total assets $ 1,785,600 $ 1,046,351 ============= =============

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MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' DEFICIT ------------------------------------- September 30, December 31, 2001 2000 ------------- ------------- (Unaudited) (Audited) CURRENT LIABILITIES Cash Overdraft $ 22,276 $ -- Notes Payable 2,194,520 1,658,870 Current maturities of capital leases -- 1,494 Accounts payable 602,846 354,803 Accrued liabilities 487,686 500,120 ------------- ------------- Total current liabilities 3,307,328 2,515,287 ------------- ------------- SHAREHOLDERS' DEFICIT Series A senior cumulative convertible particpating preferred stock; $10 par value; 340,000 shares issued and outstanding in 2001 and 2000; dividends in arrears 2001 $895,644, and 3,400,000 3,400,000 2000, $725,644 Undesignated preferred stock; $10 par value; 660,000 shares authorized; none issued -- -- Common stock .001 par value;150,000,000 shares authorized; 73,400,000 and 70,300,000 shares issued 73,400 70,300 in 2001 and 2000, respectively Additional paid-in capital 1,840,082 1,434,431 Accumulated deficit (6,823,171) (6,039,162) Deferred license and consulting costs, net -- (232,466) Treasury stock, at cost; 408,029 shares (12,039) (12,039) ------------- ------------- Total shareholders' deficit (1,521,728) (1,378,936) ------------- ------------- $ 1,785,600 $ 1,136,351 ============= =============

F-2

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED Three Months Ended Nine Months Ended ------------------------------ ------------------------------ September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Medical income - net of contractual Adjustments of $304,017 and $356,090 and $1,002,753 and $1,083,712 in 2001 and 2000, respectively $ 231,105 $ 523,502 $ 1,461,386 1,628,573 Sale of ScreenPhone 44,357 2,484 44,358 2,743 ------------- ------------- ------------- ------------- Total revenues 275,462 525,986 1,505,744 1,631,316 COST OF REVENUES Cost of medical services 186,181 398,244 805,713 1,193,118 ------------- ------------- ------------- ------------- Total cost of revenues 186,181 398,244 805,713 1,193,118 ------------- ------------- ------------- ------------- GROSS PROFIT 89,281 127,742 700,031 438,198 OPERATING EXPENSES Selling, general & administrative 353,347 302,680 1,044,428 902,331 Depreciation and amortization 14,650 13,553 43,950 42,178 ------------- ------------- ------------- ------------- Total operating expenses 367,997 316,233 1,088,378 944,509 ------------- ------------- ------------- ------------- LOSS FROM OPERATIONS (278,716) (188,491) (388,347) (506,311) OTHER INCOME (EXPENSE) Impairment Loss (232,466) -- (232,466) -- Interest income and other -- 9,676 14,101 28,964 Interest Expense (74,822) (39,227) (177,246) (99,476) Franchise Tax -- (900) (50) (900) ------------- ------------- ------------- ------------- Total other income (expense) (307,288) (30,451) (395,661) (71,412) ------------- ------------- ------------- ------------- NET LOSS $ (586,004) $ (218,942) $ (784,008) $ (577,723) ============= ============= ============= ============= Net Loss $ (586,004) $ (218,942) $ (784,008) $ (577,723) Plus: Cumulative preferred stock dividends (85,000) (85,000) (255,000) (255,000) ------------- ------------- ------------- ------------- Loss available to common shareholders $ (671,004) $ (303,942) $ (1,039,008) $ (832,723) BASIC AND DILUTED EARNINGS (L0SS) PER SHARE Continuing Operations $ (0.01) $ (0.01) $ (0.01) $ (0.01) Weighted-average common shares outstanding 70,726,087 69,200,000 70,400,000 69,200,000

F-3

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS NINE MONTHS ENDED ENDED September 30, September 30, 2001 2000 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Loss from continuing operations $ (784,008) $ (577,723) Adjustments to reconcile loss from continuing operations to cash used in operating activities: Depreciation 43,950 42,178 Deferred license and consulting costs recognized 251,216 -- Changes in assets and liabilities: Accounts receivable (90,172) (124,266) Prepaid expenses 16,672 14,936 Accounts payable (5,957) (98,862) Accrued liabilities (12,434) 112,937 ------------- ------------- Net cash used in continuing operations (580,733) (630,800) Net cash provided by discontinued operations -- 79,859 ------------- ------------- Net cash used in operating activities (580,733) (550,941) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (5,609) -- Payments on notes receivable -- (44,894) Issuance of notes receivable -- 90,000 ------------- ------------- Net cash provided by (used in) investing activities (5,609) 45,106 CASH FLOWS FROM FINANCING ACTIVITIES Payments on capital leases (1,494) (17,388) Payments on notes payable (40,000) (2,010) Proceeds from new borrowings 224,000 364,799 Proceeds from notes payable related parties 351,650 99,000 Bank overdraft 22,276 35,356 ------------- ------------- Net cash provided by financing activities 556,432 479,757 ------------- ------------- NET DECREASE IN CASH (29,910) (26,078) Cash at beginning of period 29,910 26,078 ------------- ------------- Cash at end of period $ -- $ -- ============= ============= SUPPLEMENTAL INFORMATION Cash paid during the period for interest $ 54,655 $ 41,673 ============= ============= NON CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued for assets $ 390,000 $ -- ============= ============= Liabilities assumed for purchase of assets $ 30,000 $ -- ============= ============= Payment to seller included in accounts payable $ 224,000 $ -- ============= =============

F-4 NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 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, 2000. 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, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. NOTE 2: STOCKHOLDERS' EQUITY During the second quarter of 2001, the Company issued 100,000 shares of common stock valued at $18,751 total consulting services. During the third quarter of 2001, the Company purchased assets from another company by issuing 3,000,000 shares of common stock valued at $390,000 total, issuing note for $224,000 and assuming a liability of $30,000. Purchase price was allocated to inventory $1409,000 and license rights and other intangibles $504,000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements -------------------------- Forward-looking statements in this Form 10-QSB are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. General ------- During the third quarter of 2001, MB Software Corporation (the "Company") continued operations of its Florida health care clinics and pursued development of online financial services for health care providers. The health care division of the Company continued to focus on Company-owned physician practices in Florida. Florida law permits the corporate management practice of medicine of the type engaged in by the Company. During the present quarter, the Company closed operations of one of its locations in Florida. The Company now owns two clinics, each located in Florida. The Company elected to close one of its facilities to address reduced patient volume resulting from the departure of one of the Company's physician employees. The following summarizes the results of operations for the three-month and the nine-month periods ended September 30, 2001 and 2000. Three Months Ended September 30, 2001 Compared to Three Months Ended September -------------------------------------------------------------------------------- 30, 2000 -------- Revenue less contractual adjustments resulting from medical activities decreased 56% from $523,5502 for the three-month period ended September 30, 2000 to $ 231,105 for the three-months ended September 30, 2001. 3 The cost of medical revenues decreased 53% to $ 186,181 for the three months ended September 30, 2001, compared to $398,244 for the three months ended September 30, 2000. This decrease is attributable, in part, to the closing of one of the Florida locations as well as continued adherence to the Company's overall strategy to reduce costs. The Company's gross profit for the third quarter decreased 30% to $ 89,281 for the third quarter ended September 30, 2001 from $ 127,742 for the third quarter ending September 2000. The decrease in gross profit is again directly related to the closing of one of the Company clinics together with the departure of one of the Company's physician employees. The Company's selling, general and administrative expenses increased 17% to $353,347 for the three months ended September 30, 2001 as compared to $302,680 for the third quarter ending September 30, 2000. Reductions in administrative expenses were made during the third quarter of 2001. Despite the reductions, the overall increase is partially attributable to the costs attendant to implementation of the development and sales associated with the Internet Appliance. It is anticipated that Internet Appliance sales will ultimately generate significant revenue for the Company. The net loss on operations increased 167% to $586,004 for the three-month period ended September 30, 2001 as compared to a loss of $218,942 for the three months ended September 30, 2000. $232,466 of the increase in the net loss is due to the write off of deferred license and consulting costs. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, -------------------------------------------------------------------------------- 2000 ---- The gross medical revenues decreased 10% to $1,461,386 for the nine-month period ended September 30, 2001, compared to $1,628,573 for the nine-month period ended September 30, 2000. The cost of medical revenue decreased 32% to $805,713 for the nine-month period ended September 30, 2001, as compared to $1,193,118 for the nine-month period ended September 30, 2000. This decrease results from the Company's decision to discontinue operations at one of its locations. The Company's gross profit for the nine-month period ended September 30, 2001 increased 60 % $700,031, compared to $436,198 for the period ended September 30, 2000. The Company's selling, general and administrative expenses increased 16% to $1,044,428 for the nine-month period ended September 30, 2001 as compared to $902,331 for the nine-month period ended September 30, 2000. As in the present quarter, the initial expenses associated with the Internet Appliance have resulted in an increase in overall expenses over the nine-month period ending September 30, 2000. Net operating loss increased 26 % to $784,008 for the nine-month period ended September 30, 2001, as compared to $577,723 for the nine month period ended September 30, 2000. This increase in the net operating loss reflects the impact of the three significant events that transpired in the present nine-month period: (1) The closing of one of the clinics, (2) the departure of one of the physician employees; and (3) the increased expenditures associated with the Internet Appliance. It is anticipated that in the coming fiscal year sales of the ScreenPhone(TM) will result in decreased losses and increased revenue. Liquidity and Capital Resources ------------------------------- The Company's operations used $580,733 of cash during the nine months ended September 30, 2001 compared to a use of cash of $630,800 for the quarter ended September 30, 2000. 4 As of September 30, 2001, the Company had a working capital deficit of $2,543,514 compared to the working capital of ($1,356,578) at September 30, 2000. At September 30, 2001, the Company had a cash overdraft of $22,278. PART II - OTHER INFORMATION Item 5. Other Information. On November 5, 2001, the Company entered into an agreement with Imagine Investments, Inc. to sell to a subsidiary of Imagine the Company's health care clinic business and shares of the Company's common stock in consideration for the cancellation of over $1.2 million in debt and the redemption of all of the issued and outstanding shares of the Company's Series A Preferred Stock. The issuance of the Company's common shares is dependent on certain conditions, with the number of shares to be issued ranging from approximately 2 million to 9 million shares. Consummation of the sale is subject to certain conditions, including approval of the transaction by the Company's shareholders. ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Exhibits - 10.1 Restructure and Settlement Agreement dated as of November 5, 2001 by and among MB Software Corporation, Healthcare Innovations, LLC, Imagine Investments, Inc., and XHI2, Inc. 10.2 Financial Statements - See Item 1 for financial statements filed with this report. 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: 18th November, 2001 /s/ Scott A. Haire ---------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 5 INDEX TO EXHIBITS Exhibit No. Description 10.1 Restructure and Settlement Agreement dated as of November 5, 2001 by and among MB Software Corporation, Healthcare Innovations, LLC, Imagine Investments, Inc., and XHI2, Inc. 10.2 Financial Statements - See Item 1 for financial statements filed with this report.