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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 2004.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-28221
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 Identification No.)
incorporation or organization)
9419 E. San Salvador, Suite 105
Scottsdale, AZ 85258-5510
(Address of principal executive offices) (Zip Code)
(480) 860-2288
(Registrant's telephone number, including area code)
None (Former name, former address and former fiscal year,
if changed since last report)
[ ] 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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of Common Stock shares ($0.001 par value) outstanding at February 29,
2004: 2,030,187 shares.
MBA Holdings, Inc
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of January 31, 2004 and October 31, 2003 2
Condensed Consolidated Statements of Loss and Comprehensive Loss for the three months
ended January 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows for the three months ended
January 31, 2004 and 2003 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
ITEM 4. Controls and Procedures 11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 11
Signatures 13
Certifications 14
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2004 AND OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------
ASSETS January 31, October 31,
2004 2003
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 494,603 $ 448,240
Restricted cash 116,915 291,437
Investments 139,318 117,203
Accounts receivable 364,529 232,184
Prepaid expenses and other current assets 1,893 5,248
Deferred direct costs 3,448,629 3,730,410
----------- -----------
Total current assets 4,565,887 4,824,722
----------- -----------
PROPERTY AND EQUIPMENT:
Computer equipment 318,799 309,128
Office equipment and furniture 140,259 140,259
Vehicle 15,000 15,000
Leasehold improvements 80,182 80,182
----------- -----------
Total property and equipment 554,240 544,569
Accumulated depreciation and amortization (435,800) (426,661)
----------- -----------
Property and equipment - net 118,440 117,908
----------- -----------
Deferred direct costs 5,043,073 4,804,532
----------- -----------
TOTAL ASSETS $ 9,727,400 $ 9,747,162
=========== ===========
See notes to condensed consolidated financial statements.
2
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 31, 2004 AND OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT January 31, October 31,
2004 2003
(Unaudited)
CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 754,932 $ 736,442
Accounts payable and accrued expenses 632,008 622,756
Line of credit borrowings 199,009 196,897
Accounts payable to affiliated entity 665,758 516,309
Capital lease obligations - current portion 12,639 7,882
Deferred revenues 4,146,166 4,332,133
------------ ------------
Total current liabilities 6,410,512 6,412,419
Capital lease obligations - net of current portion 2,133 8,301
Other liabilities -- --
Deferred rent -- 4,809
Deferred income tax liability 16,511 4,666
Deferred revenues 5,708,605 5,548,214
------------ ------------
Total liabilities 12,137,761 11,978,409
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value; 20,000,000 shares
authorized; none issued and outstanding -- --
Common stock, $.001 par value; 80,000,000 shares
authorized; 2,061,787 (2004 and 2003) shares issued;
2,030,187 (2004 and 2003) shares outstanding 2,062 2,062
Additional paid-in-capital 280,801 280,801
Accumulated other comprehensive income 191 119
Accumulated deficit (2,637,915) (2,458,729)
Less: 31,600 shares of common stock in treasury, at cost (55,500) (55,500)
------------ ------------
Total stockholders' deficit (2,410,361) (2,231,247)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,727,400 $ 9,747,162
============ ============
See notes to condensed consolidated financial statements.
3
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS (UNAUDITIED)
THREE MONTHS ENDED JANUARY 31, 2004 AND 2003
- ---------------------------------------------------------------------------------------------------------
Three Months Ended January 31,
2004 2003
REVENUES:
Vehicle service contract gross income $ 1,227,881 $ 1,348,584
Net mechanical breakdown insurance income 39,495 24,200
MBI administrative service revenue 66,744 67,990
----------- -----------
Total net revenues 1,334,120 1,440,774
----------- -----------
OPERATING EXPENSES:
Direct acquisition costs of vehicle service contracts 1,151,858 1,266,436
Salaries and employee benefits 183,352 252,058
Mailings and postage 2,732 2,022
Rent and lease expense 75,674 71,620
Professional fees 30,070 35,120
Telephone 25,558 25,266
Depreciation and amortization 9,139 17,905
Merchant and bank charges 3,010 1,783
Insurance 4,026 2,162
Supplies 1,119 4,293
License and fees 3,876 4,551
Other operating expenses 19,093 20,896
----------- -----------
Total operating expenses 1,509,507 1,704,112
----------- -----------
OPERATING LOSS (175,387) (263,338)
----------- -----------
OTHER INCOME (EXPENSE):
Finance and other fee income 4,120 4,708
Interest income 3,923 2,288
Interest expense (14,109) (1,518)
Other income 14,084 5,450
----------- -----------
Other income - net 8,018 10,928
----------- -----------
LOSS BEFORE INCOME TAXES (167,369) (252,410)
INCOME TAXES 11,817 (39,867)
----------- -----------
NET LOSS $ (179,186) $ (212,543)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.09) $ (0.11)
=========== ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 2,030,187 1,980,187
=========== ===========
Net loss $ (179,186) $ (212,543)
Other comprehensive income net of tax:
Net unrealized gain on available-for-sale securities 72 851
----------- -----------
Comprehensive loss $ (179,114) $ (211,692)
=========== ===========
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JANUARY 31, 2004 AND 2003
- -----------------------------------------------------------------------------------------------------------------
JANUARY 31,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(179,186) $(212,543)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 9,139 17,906
Deferred income taxes 16,510 53,662
Changes in assets and liabilities:
Restricted cash 174,522 218,367
Accounts receivable (132,345) (233,294)
Prepaid expenses and other current assets 3,355 6,883
Deferred direct costs 43,240 477
Net premiums payable to insurance companies 18,490 (69,744)
Accounts payable and accrued expenses 9,252 50,552
Income taxes receivable -- 336,114
Deferred rent (4,809) --
Deferred income tax (4,666) (6,564)
Deferred revenues (25,575) (44,226)
--------- ---------
Net cash provided by (used in) operating activities (72,073) 117,590
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,671) (680)
Purchase of investments (22,043) --
Sale of investments -- 47,476
--------- ---------
Net cash provided by (used in) investing activities (31,714) 46,796
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Drawings on line of credit 2,112 185,288
Repayments of line of credit drawings -- (185,288)
Proceeds of borrowing from affiliated entity 149,449 --
Payments on capital lease obligation (1,411) (2,939)
--------- ---------
Net cash provided by (used in) financing activities 150,150 (2,939)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS 46,363 161,447
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 448,240 611,520
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 494,603 $ 772,967
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,752 $ 1,087
========= =========
Cash received from income tax refunds -- $ 431,186
========= =========
Non cash conversion of debt to equity $ 80,000 --
========= =========
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, 2004 AND 2003
- --------------------------------------------------------------------------------
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. Accounting principles
assume the continuation of the Company as a going concern. The Company's
auditors, in their opinion on the financial statements for the year ended
October 31, 2003, expressed concern about this uncertainty. The accompanying
financial statements do not include any adjustment that might arise from the
outcome of this assumption. 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, 2004 may not be indicative of the results that may be
expected for the year ending October 31, 2004. 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, 2003.
2. NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, Earnings Per
Share that requires dual presentation of basic and diluted EPS on the face of
the statements of loss and requires a reconciliation of the numerator and
denominator of basic and diluted EPS calculations. Basic loss per common share
is computed on the weighted average number of shares of common stock outstanding
during each period. Loss per common share assuming dilution is computed on the
weighted average number of shares of common stock outstanding during each
period. As the company has a net loss for the three months ended January 31,
2004 and 2003, the average number of outstanding shares for basic and dilutive
net loss per share at January 31, 2004 is 2,030,187 and at January 31, 2003 is
1,980,187.
3. OTHER COMPREHENSIVE GAIN (LOSS)
Other comprehensive gain (loss) resulted from unrealized gains on
available-for-sale investments of $72 and $851in the three months ended January
31, 2004 and 2003, respectively
4. INVESTMENTS
All of the Company's investments are classified as available-for-sale and are
stated at estimated fair value determined by the quoted market price.
5. INCOME TAXES
Provisions for income taxes in the periods ended January 31, 2004 and 2003
reflect the fact that the Company is no longer able to carry back current year
losses to recover federal income taxes paid in previous years. The Company has
received tax refunds totaling $431,186 during fiscal 2003 from the carry back of
these losses. No such recoveries are available in fiscal 2004.
Deferred income taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities using income tax rates
currently in effect. The Company has provided a Valuation Allowance of
approximately $586,000 to recognize the fact that all of the deferred tax assets
that may not be realized.
6
6. RELATED PARTY TRANSACTIONS
The Company leases its office space from Cactus Partnership. The managing
partner of Cactus Partnership is Gaylen Brotherson, the Chief Executive Officer.
Rent expense for this office space was $74,016 and $66,991 for the three months
ended January 31, 2004 and 2003, respectively. The current lease expired on
December 31, 2003. The parties are negotiating a new lease and have agreed to
renew the old lease on a month-to-month basis until the negotiations are
complete. Rent is currently being accrued at the final monthly rate contained in
the expiring lease.
Gaylen Brotherson, the Chief Executive Officer, through a controlled
corporation, has loaned the Company various amounts and has deferred the receipt
of other amounts. As of January 31, 2004 and 2003, the Company owed an
affiliated company controlled by Mr. Brotherson $665,758 and $516,309,
respectively. The loans mature on the anniversary date of the separate notes and
the bear interest at a rate of 6%. As security for the loan, the Company has
granted the affiliated company, Cactus Family Investments, LLC, a security
interest in all of its unencumbered assets.
7. 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 and of disputes over
outstanding accounts. The Company is currently involved in a dispute with one of
its associated insurance companies over alleged wrongdoing, an alleged breach of
its Administrative Agreement and over reimbursement for claims and cancellation
expenditures. The Company maintains a $40,000 reserve for claims arising in the
ordinary course of business and believes that this reserve is sufficient to
cover the costs of such claims. 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 had available a $200,000 working capital line of credit that expired
on January 31, 2004. 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 secured
by the Company's investments. There were borrowings of $199,009 outstanding at
January 31, 2004. These borrowings were repaid in February 2004 from the
proceeds of the sale of investments and no new credit line has been established.
9. NEW ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities ("FIN 46") that is an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. FIN 46 requires a variable interest
entity ("VIE") to be consolidated by a company that is considered to be the
primary beneficiary of that VIE. In December 2003, the FASB issued FIN No. 46
(revised December 2003), Consolidation of Variable Interest Entities ("FIN
46-R") to address certain FIN 46 implementation issues. The Company is currently
evaluating the application of FIN 46 as it relates to Cactus Family Investments,
LLC, an entity owned by the majority shareholders of the Company.
The Financial Accounting Standards Board (FASB) has issued FASB Statement No.
132 (revised 2003), Employers' Disclosures about Pensions and Other
Postretirement Benefit ("FAS 132") that improves financial statement disclosures
for defined benefit plans. The Company maintains a 401(k) Profit Sharing Plan
(the "Plan") but has made no contributions nor has it incurred any pension
expenses to the Plan in the fiscal years ended October 31, 2003 and 2002 or
through January 31, 2004. The Company has adopted this statement and it does not
have a materially affect the consolidated financial position or results of
operations.
10. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
period presentation.
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.
CRITICAL ACCOUNTING POLICIES
The Company has prepared the accompanying unaudited condensed financial
statements in conformity with accounting principles generally accepted in the
United States for interim financial information. The preparation of the
financial statements requires the use of judgement and estimates that affect the
reported amounts of revenues, expenses, assets and liabilities. The Company has
adopted accounting policies and practices that are generally accepted in the
industry in which it operates. The Company believes the following are its most
critical accounting policies that affect significant areas and involve
management's judgement and estimates. If these estimates differ significantly
from actual results, the impact to the consolidated financial statements may be
material.
Revenue Recognition
The Company receives a single commission for the sale of each
mechanical breakdown insurance policy ("MBI") that compensates it both for the
effort in selling the policy, and for providing administrative claims services
as required. The Company has no direct liability for claims losses on MBI. It
acts as the issuing insurance company's agent in these transactions. The Company
defers the commissions received and recognizes them in income on a straight-line
basis over the actual life of the policies.
A vehicle service contract ("VSC") is a contract for certain defined
services between the Company and the purchaser. The Company reinsures its
obligations by obtaining an insurance policy that guarantees its obligations
under the contract. In accordance with Financial Accounting Standards Board
Technical Bulletin 90-1, " Accounting for Separately Priced Extended Warranty
and Product Maintenance Contracts", revenues and costs associated with the sales
of these contracts are deferred and recognized in income on a straight-line
basis over the actual life of the contracts.
Income Taxes
Deferred income tax is recorded based upon differences between the financial
statement and tax basis of assets and liabilities using income tax rates
currently in effect less a Valuation Allowance of approximately $586,000 to
reflect potential realization.
8
Provision for recoverable income taxes and related income tax receivables are
not allowed in the year ended October 31, 2004 or 2003. Under the provisions of
current law, the Company may not carry back the current or prior year losses to
recover income taxes paid in previous years. The Company has received the
refunds ($431,186) relating to the carry back of losses incurred in the year
ended October 31, 2002.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JANUARY 31, 2004 AND 2003
NET REVENUES
Net revenues for the fiscal quarter ended January 31, 2004 totaled $1,334,000, a
decrease of $107,000 from the $1,441,000 of net revenues recorded in the first
quarter of 2003. The variation occurred because of a decrease in the number of
MBI polices sold in 2004 compared with 2003.While total policy/contract sales
increased by 72 policies in 2004, total MBI sales dropped by 36 policies. The
effects of changes in mix of policies/contracts sold is significant in that the
change in the product mix was a movement away from the more expensive MBI
product.
OPERATING EXPENSES
Operating costs decreased to $1,510,000 in the quarter ended January 31, 2004,
down $194,000 from the $1,704,000 expended in the quarter ended January 31,
2003. Thirty five percent of the decrease came in the area of personnel costs as
the Company continued to adjust staffing to meet sales levels. The balance of
the cost decreases came in professional services, supplies, advertising and
postage. The Company did experience some minor cost increases as it continued
its investment in web-based programming.
OTHER INCOME (EXPENSE)
Total other income declined in the quarter ended January 31, 2004 and was
approximately $3,000 under the comparable 2003 quarter. The Company used its
line of credit facility to its full capacity during the 1st quarter of 2004
thereby incurring interest expense that was not present in the 2003 quarter. The
line of credit was repaid shortly after the end of the quarter and a decline in
this expense will occur in the second quarter of 2004.
INCOME TAXES
The provisions for income taxes in the quarter ended January 31, 2004 and 2003
do not reflect the benefit from the carry back of that year's losses to recover
income taxes paid in prior years as no further prior period tax payments remain
available for recovery. The Company has provided a Valuation Allowance of
$586,000 to recognize the fact that all of the deferred tax assets that may not
be realized.
Deferred income taxes are recorded based on differences between the financial
statement and tax basis of assets and liabilities using income tax rates
currently in effect.
LIQUIDITY AND CAPITAL RESOURCES
COMPARISON OF JANUARY 31, 2004 AND OCTOBER 31, 2003
The Company incurred significant losses during the past fiscal year and has
experienced additional losses in prior years. A related party has advanced funds
on demand notes and through the deferral of rent payments in order to overcome
working capital deficiencies during the year. In January 2004, the Company
granted the related party, Cactus Family Investments, LLC, a security interest
in all of its unencumbered assets. There is no assurance that additional
advances will be made if additional working capital is required. The lack of
continuing working capital infusions could affect future operations.
Accordingly, the accompanying financial statements have been prepared assuming
the Company will continue as a going concern. The Company has incurred a loss in
the 1st quarter of 2004 and expects such losses to continue further into 2004.
The Company continues to pursue cost cutting measures, to
9
relieve it of obligations to provide uncompensated services and to seek
additional business to reduce working capital needs.
On November 14, 2003, the Company issued 50,000 restricted shares of its common
stock and used 48,000 of the new shares to convert $76,800.00 of the
indebtedness due to an affiliated company to equity by issuing those shares to
Gaylen M. Brotherson, CEO and Director and Judy K. Brotherson, Secretary and
Director. At the same time, the Company paid $1,600.00 in compensation to
Michael Brady, Director and to Edward E. Wilczewski, Director through the
issuance of the remaining 2,000 new shares.
Working capital at January 31, 2004 consisted of current assets of $4,566,000
and current liabilities of $6,411,000, or a current ratio of 0.71: 1. At October
31, 2003 the working capital ratio was 0.75: 1 with current assets of $4,825,000
and current liabilities of $6,412,000. The working capital decline occurred
primarily because the Company has accrued but not paid certain of its
obligations to an affiliated company.
Deferred Revenues decreased $26,000 and Deferred Direct Costs decreased $43,000
from balances at October 31, 2003. Deferred revenues consist of unearned VSC
gross sales and unamortized commissions related to MBI policies. Deferred direct
costs are costs that are directly related to the sale of VSCs. The change
results from the overall decline in policy sales, which the Company has
experienced over the last several quarters and from an increase in the average
policy term. The effect of the decline was partially mitigated by increased
policy prices.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Company does not underwrite its own policies, a change in the current
rate of inflation is not expected to have a material effect on the Company.
Nevertheless, the precise effect of inflation on operations cannot be
determined.
Under the terms of the VSC contracts, the Company is primarily responsible for
liability under these contracts. The Company reinsures its liability with highly
rated insurance companies such as Fireman's Fund Insurance Company and Heritage
Warranty Mutual Insurance Risk Retention Group, Inc. In the unlikely event that
the third party reinsuring companies were unable to meet their contractual
commitments to the Company, the Company itself would be required to perform
under the contracts. Such an event could have a material adverse effect on the
Company's operations.
The Company does not have any long-term receivables or liabilities and therefore
is not subject to significant interest rate risk.
ITEM 4. CONTROLS AND PROCEDURES
In the quarter ended January 31, 2004, we did not make any significant changes
in, nor take any corrective actions regarding our internal controls or other
factors that could significantly affect these controls. We periodically review
our internal controls for effectiveness and we have performed an evaluation of
disclosure controls and procedures during this quarter. We will conduct a
similar evaluation each quarter.
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 and of disputes over
outstanding accounts. The Company is currently involved in a dispute with one of
its associated insurance companies over alleged wrongdoing, an alleged breach of
its Administrative Agreement and over reimbursement for claims and cancellation
expenditures. The matter has been referred to arbitration by the court but the
complainant has not yet filed arbitration. The Company maintains a $40,000
reserve for claims arising in the ordinary course of business and believes that
this reserve is sufficient to cover the costs of such claims. 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.
10
Item 2 Changes in Securities and Use of Proceeds
a.) Securities sold - On November 14, 2003 the Company issued an additional
50,000 restricted shares of its Common Stock
b.) Underwriters and other purchasers - 48,000 of the new shares were
exchanged with two of the Company's Officers and Directors for
indebtedness due to an affiliated company. The remaining 2,000 of the
new shares were issued to two Directors as compensation for past
services to the Company
c.) Consideration - The shares were issued at a price of $1.60 per share,
which was the market price on the date of issuance. There was no
underwriting discount or commission paid.
d.) Exemption from registration claimed - The Securities Act of 1933
Section 4 (2). e.) Terms of conversion or exercise - Not applicable.
f.) Use of proceeds - The Company converted $76,800.00 of the
indebtedness due to an affiliated company by issuing 48,000 of the new
shares to Gaylen M. Brotherson, CEO and Director and Judy K.
Brotherson, Secretary and Director. The Company paid $1,600.00 in
compensation to Michael Brady, Director and Edward E. Wilczewski,
Director through the issuance of 2,000 new shares.
Item 3 Defaults upon Senior Securities
None
Item 4 Submissions of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on form 8-K
(a) Exhibit Index
Exhibit 31.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
11
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.
Dated: March 15, 2004 by: /s/ Gaylen M. Brotherson
- --------------------- ----------------------------
Gaylen Brotherson
Chairman of the Board and Chief
Executive Officer
Dated: March 15, 2004 by: /s/ Dennis M. O'Connor
- --------------------- --------------------------
Dennis M. O'Connor
Chief Financial Officer
12