U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended January 31, 2001.
M.B.A. HOLDINGS, INC.
(Exact name of business issuer as specified in its charter)
Nevada 87-0522680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9419 E. San Salvador, Suite 105
Scottsdale, AZ 85258-5510
(480)-860-2288
(Address of principal executive offices, including telephone number)
Number of Common Stock shares (.001 par value)
outstanding at March 1, 2001: 1,980,187
Indicate by check mark whether the registrant (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. Yes [X] No [ ]
MBA Holdings, Inc
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of January 31, 2001
and October 31, 2000 2
Condensed Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) for the three months ended
January 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the three
months ended January 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
SIGNATURE 11
1
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JANUARY 31, 2001 AND OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS JANUARY 31, OCTOBER 31,
2001 2000
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 913,029 $ 1,128,281
Restricted cash 206,267 487,015
Investments 475,712 442,278
Accounts receivable, net of allowance for
doubtful accounts of $19,025 (2001 and 2000) 323,915 404,370
Prepaid expenses and other assets 103,497 115,074
Deferred direct costs 5,221,374 5,048,367
Income tax receivable 155,437 155,437
Deferred income tax asset 550,333 387,787
------------ ------------
Total current assets 7,949,564 8,168,609
------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 241,303 226,777
Office equipment and furniture 166,290 165,919
Vehicle 16,400 16,400
Leasehold improvements 79,596 79,596
Capitalized software costs 27,289 26,959
------------ ------------
Total property and equipment 530,878 515,651
Accumulated depreciation and amortization (249,813) (229,020)
------------ ------------
Property and equipment - net 281,065 286,631
Other assets 46,169 46,170
Deferred direct costs 7,310,947 7,650,100
Deferred income tax asset 357,193 496,039
------------ ------------
TOTAL $ 15,944,938 $ 16,647,549
============ ============
(CONTINUED)
See notes to condensed consolidated financial statements.
2
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JANUARY 31, 2001 AND OCTOBER 31, 2000
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY JANUARY 31, OCTOBER 31,
2001 2000
----------- -----------
CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 36,287 $ 437,214
Accounts payable and accrued expenses 717,107 753,802
Capital lease obligation - current portion 9,672 9,333
Deferred revenues 6,430,563 5,878,696
----------- -----------
Total current liabilities 7,193,629 7,079,045
CAPITAL LEASE OBLIGATION - net of current portion 16,300 18,840
DEFERRED RENT 41,718 41,539
DEFERRED REVENUES 8,171,424 8,961,473
----------- -----------
Total liabilities 15,423,071 16,100,897
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 20,000,000 shares
authorized; none issued and outstanding
Common stock, $.001 par value; 80,000,000 shares
authorized; 2,011,787 (2001 and 2000) shares issued;
1,980,187 (2001 and 2000) shares outstanding 2,012 2,012
Additional paid-in-capital 200,851 200,851
Accumulated other comprehensive income 22,940 12,215
Retained earnings 351,564 387,074
Less: 31,600 shares of common stock in treasury,
at cost (55,500) (55,500)
----------- -----------
Total stockholders' equity 521,867 546,652
----------- -----------
TOTAL $15,944,938 $16,647,549
=========== ===========
See notes to condensed consolidated financial statements.
3
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
--------------------------------------------------------------------------------
JANUARY 31,
-----------------------------
2001 2000
----------- -----------
REVENUES:
Vehicle service contract gross income $ 1,687,361 $ 1,179,430
Net mechanical breakdown insurance income 277,181 570,357
MBI administrative service revenue 166,924 162,057
----------- -----------
Total net revenues 2,131,466 1,911,844
----------- -----------
OPERATING EXPENSES:
Direct acquisition costs of vehicle service contracts 1,609,238 1,115,312
Salaries and employee benefits 365,617 375,409
Mailings and postage 30,822 82,193
Rent and lease expense 90,263 65,943
Professional fees 23,064 42,081
Telephone 16,406 24,623
Depreciation and amortization 20,793 16,416
Merchant and bank charges 3,191 5,219
Insurance 11,058 10,287
Supplies 4,999 10,486
License and fees 3,302 4,170
Other operating expenses 30,912 34,661
----------- -----------
Total operating expenses 2,209,665 1,786,800
----------- -----------
OPERATING INCOME (LOSS) (78,199) 125,044
----------- -----------
OTHER INCOME (EXPENSE):
Finance and other fee income 5,081 15,708
Interest income 16,102 46,418
Interest expense and fees (2,194) (729)
Other expense (390)
----------- -----------
Other income - net 18,989 61,007
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (59,210) 186,051
INCOME TAXES (23,700) 74,420
----------- -----------
NET INCOME (LOSS) $ (35,510) $ 111,631
=========== ===========
BASIC NET INCOME (LOSS) PER SHARE $ (0.02) $ 0.06
=========== ===========
DILUTED NET INCOME (LOSS) PER SHARE $ (0.02) $ 0.05
=========== ===========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC 1,980,187 2,011,787
=========== ===========
AVERAGE NUMBER OF COMMON AND DILUTIVE SHARES OUTSTANDING 1,980,187 2,093,134
=========== ===========
Net income (loss) $ (35,510) $ 111,631
=========== ===========
Other comperhensive income net of tax:
Net unrealized gain on available-for-sale securities 10,725
----------- -----------
Comprehensive income (loss) $ (24,785) $ 111,631
=========== ===========
See notes to condensed consolidated financial statements.
4
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
--------------------------------------------------------------------------------
JANUARY 31,
----------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (35,510) $ 111,631
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 20,793 16,416
Deferred income taxes (23,700) (103,841)
Changes in assets and liabilities:
Restricted cash 280,748 685,525
Accounts receivable 80,455 1,537
Prepaid expenses and other assets 11,578 12,602
Deferred direct costs 166,146 (922,926)
Net premiums payable to insurance companies (400,927) (636,985)
Accounts payable and accrued expenses (36,695) 16,789
Income taxes payable (21,739)
Deferred rent 179 2,358
Deferred revenues (238,182) 998,446
----------- -----------
Net cash (used in) provided by operating activities (175,115) 159,813
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (15,227)
Purchases of short-term investments (22,709)
----------- -----------
Net cash used in investing activities (37,936)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligation (2,201)
----------- -----------
Net cash used in financing activities (2,201)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (215,252) 159,813
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,128,281 3,424,934
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 913,029 $ 3,584,747
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 5,147 $ 125
=========== ===========
Cash paid for income taxes $ $ 200,000
=========== ===========
See notes to condensed consolidated financial statements.
5
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
In accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X, the accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, not all
of the information and notes required by generally accepted accounting
principles for complete financial statements are included. The unaudited interim
financial statements furnished herein reflect all adjustments (which include
only normal, recurring adjustments), in the opinion of management, necessary for
a fair statement of the results for the interim periods presented. Operating
results for the three months ended January 31, 2001 may not be indicative of the
results that may be expected for the year ending October 31, 2001. For further
information , please refer to the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended October 31, 2000.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with SFAS No. 128,
EARNINGS PER SHARE which requires dual presentation of BASIC and DILUTED EPS on
the face of the statements of income (loss) and requires a reconciliation of the
numerator and denominator of basic and diluted EPS calculations. Basic income
(loss) per common share is computed on the weighted average number of shares of
common stock outstanding during each period. Income (loss) per common share
assuming dilution is computed on the weighted average number of shares of common
stock outstanding plus additional shares representing the exercise of
outstanding common stock options using the treasury stock method. Below is the
reconciliation required by SFAS No. 128.
NUMBER OF SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE
THREE MONTHS
ENDED JANUARY 31,
---------------------
2001 2000
--------- ---------
Average number of common shares outstanding - Basic 1,980,187 2,011,787
Dilutive shares from common stock options
calculated using the treasury stock method 81,347
--------- ---------
Average number of common and dilutive shares outstanding 1,980,187 2,093,134
========= =========
3. OTHER COMPREHENSIVE INCOME
Other comprehensive income (loss) for the three months ended January 31, 2001
resulted from unrealized gains of $10,725 on available-for-sale investments.
There was no other comprehensive income (loss) during the three months ended
January 31, 2000.
6
4. INVESTMENTS
All of the Company's investments (U.S. treasury bonds and certificates of
deposits) are classified as available-for-sale and are stated at estimated fair
value determined by the quoted market price.
5. TREASURY STOCK
As of January 31, 2001, the Company has purchased 31,600 shares of the Company's
common stock. These shares were purchased for the purpose of retirement and
bonuses to employees. Additional uses of the stock will be explored by
management.
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and lawsuits that arise in the ordinary course
of business, consisting principally of alleged errors and omissions in
connection with the sale of insurance and personnel matters. On the basis of
information presently available, management does not believe the settlement of
any such claims or lawsuits will have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
The Company has available a $300,000 working capital line of credit which was
renewed on February 28, 2001 and expires on February 28, 2002. Borrowings under
the line of credit bear interest at a variable rate per annum equal to the sum
of 3.15 % plus the thirty day dealer commercial paper rate, as published in The
Wall Street Journal and are collateralized by the Company's investments. There
were no borrowings outstanding at January 31, 2001.
7. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires that an enterprise
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The Company adopted SFAS No. 133
effective November 1, 2000, and the adoption did not have a material impact on
the Company.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and footnotes that appear elsewhere in this report.
FORWARD-LOOKING STATEMENTS:
This report on Form 10-Q contains forward-looking statements. Additional written
or oral forward-looking statements may be made by us from time to time in
filings with the Securities and Exchange Commission or otherwise. The words
"believe," "expect," "anticipate," and "project," and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are within the meaning of
that term in section 27A of the Securities and Exchange Act of 1934, as amended.
Such statements may include, but not be limited to, projections of revenues,
income or loss, capital expenditures, plans for future operations, financing
needs or plans, the impact of inflation, and plans relating to our products or
services, as well as assumptions relating to the foregoing. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this Report, including
the Notes to Condensed Consolidated Financial Statements (Unaudited) and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," describe factors, among others, that could contribute to or cause
such differences.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JANUARY 31, 2001 AND 2000
Total revenues for the quarter ended January 31, 2001 were approximately
$2,131,000, an increase of $219,000 from net revenues of $1,912,000 for the
quarter ended January 31, 2000. The increase in revenues is due to the
recognition of deferred revenues from prior years related to vehicle service
contract ("VSC") gross income.
Operating income (loss) decreased by $203,000 to an operating loss of $78,000
for the quarter ended January 31, 2001, from an operating income of $125,000 for
the quarter ended January 31, 2000. The decrease is primarily due to a decrease
in mechanical breakdown insurance ("MBI") sales during the quarter ended January
31, 2001 compared to the quarter ended January 31, 2000.
Total operating expenses including direct VSC costs were $2,210,000 for the
quarter ended January 31, 2001, compared to $1,787,000 for the quarter ended
January 31, 2000. The increase is due to an increase in direct VSC costs
recognized from deferred acquisition costs. This is partially offset by a
decrease in mailings and postage due to the phase out of the direct mail
operations. As a percentage of net revenues, operating expenses were 103.7
percent for the quarter ended January 31, 2001, compared to 93.5 percent for the
quarter ended January 31, 2000. The change in the margin was attributable to the
decrease in MBI sales.
8
Total other income decreased by $42,000 from $61,000 for the quarter ended
January 31, 2000 to $19,000 for the quarter ended January 31, 2001. The decrease
was primarily due to a decrease in cash which in turn decreased the interest
income earned. In addition, there was a decrease in finance fee income due to
the reduction in the amount of policies financed from the direct mail
operations.
Net loss for the quarter ended January 31, 2001 was $36,000 compared to net
income for the quarter ended January 31, 2000 of $112,000, which is a result of
the foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
COMPARISON OF JANUARY 31, 2001 AND OCTOBER 31, 2000
Working capital at January 31, 2001 consisted of current assets of $7,950,000
and current liabilities of $7,194,000, or a current ratio of 1.11:1. At October
31, 2000, the current ratio was 1.15:1 with current assets of $8,169,000 and
current liabilities of $7,079,000.
As of January 31, 2001, the Company's cash position decreased to $1,119,000 from
$1,615,000 at October 31, 2000. Of the $1,119,000, $206,000 is classified as
restricted cash; there was $487,000 of restricted cash at October 31, 2000. The
largest component of the restricted cash represented claims payment advances
provided by insurance companies. This enables the Company to make claims
payments on behalf of the insurance companies. The decrease in cash is due to
the timing of when the Company receives cash from the insurance companies for
claims payments.
Deferred direct costs, including both the current and non-current portions,
decreased by $166,000 to $12,532,000 at January 31, 2001 from $12,698,000 at
October 31, 2000. Direct costs are costs that are directly related to the sale
of VSCs. These costs are deferred in the same proportion as VSC revenue. The
decrease in these costs is due to more costs recognized as expense than deferred
onto the balance sheet from a decrease in sales.
The Company collects funds throughout the year and remits a portion of the funds
to the insurance companies. As of January 31, 2001, the amount owed to the
insurance companies decreased to $36,000 from $437,000 at October 31, 2000,
which is due to the timing of payments remitted to the insurance companies.
Deferred revenues, including both the current and non-current portions,
decreased by $238,000 to $14,602,000 at January 31, 2001 from $14,840,000 at
October 31, 2000. Deferred revenue consists of VSC gross sales and estimated
administrative service fees relating to the sales of MBI policies. The decrease
is primarily due to the decrease in sales in the current quarter.
The Company is operating with a working capital line of credit from Merrill
Lynch. This is the only debt utilized by the Company. The working capital line
of credit is used to make claims payment if there is a timing difference between
when the Company pays for the claims and when the claims are reimbursed by the
insurance companies. The Company's ability to fund its operations over the
short-term is not hindered by lack of short-term financing. The Company uses
premiums received to pay agent commissions and fund operations and claims
payment advances provided by insurance companies to administer and pay claims.
The Company believes its current working capital plus future anticipated cash
flows from operations will be sufficient to meet cash requirements for the
foreseeable future.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Company does not underwrite its own policies, a change in the current
rates of inflation or hyperinflation is not expected to have a material effect
on the Company. However, the precise effect of inflation on operations can not
be determined.
The Company does not have any outstanding debt or long-term receivables.
Therefore, it is not subject to significant interest rate risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to claims and lawsuits that arise in the ordinary course
of business, consisting principally of alleged errors and omissions in
connection with the sale of insurance and personnel matters. On the basis of
information presently available, management does not believe the settlement of
any such claims or lawsuits will have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
10
SIGNATURES
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 thereto duly authorized. MBA Holdings, Inc.
By: /s/ Gaylen Brotherson Dated: March 15, 2001
------------------------------------ ----------------------
Gaylen Brotherson
Chairman of the Board and Chief
Executive Officer
By: /s/ Michael J. Zimmerman Dated: March 15, 2001
------------------------------------ ----------------------
Michael J. Zimmerman,
Chief Financial Officer
11