U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended October 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K 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-K or any
amendment to this Form 10-K. Yes [ ] No [X]
The issuer's revenues for its most recent fiscal year ended October 31, 2001
were $16,468,434. The aggregate market value of the voting stock held by
non-affiliates of the issuer, based on the average high and low prices of such
stock on October 31, 2001, as reported on NASDAQ, was $555,501. As of October
31, 2001, there were 2,011,787 shares of the issuer's common stock issued and
1,980,187 outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, in whole or in part, are specifically incorporated by
reference in the indicated part of this Annual Report on Form 10-K: None
PART I
ITEM 1. BUSINESS
M.B.A. Holdings, Inc. (the "Company"), through its wholly owned subsidiary,
Mechanical Breakdown Administrators, Inc., markets and administers mechanical
breakdown insurance ("MBI") policies and sells and contracts for services for
vehicle service contracts ("VSCs"). The MBI policies and VSCs relate to
automobiles, light trucks, recreational vehicles and automotive components.
On May 9, 1989, the principals of the Company organized under the name
Mechanical Breakdown Administrators, Inc. ("M.B.A."). During November 1995,
M.B.A. and Brixen Enterprises, Inc. ("Brixen") merged in a stock exchange with
the M.B.A. shareholders retaining control of the merged company. Brixen had been
an inactive publicly held shell corporation prior to the November 1995
transaction. Subsequent to the merger, Brixen changed its name to M.B.A.
Holdings, Inc. and its legal domicile from Utah to Nevada.
MECHANICAL BREAKDOWN INSURANCE
The Company contracts with insurance companies to act as an agent to sell MBI
policies issued by the insurance companies. The Company provides marketing
services, arranges for sub-agents to also sell the policies and subsequently
provides independent third-party administrative claims services (claims
adjudication, cancellation processing, call center services and technical
computer services) on MBI policies sold by the Company or its sub-agents. The
MBI policies are between the insurance companies and the consumer (purchaser).
The insurance company is responsible for the costs of claims submitted under the
terms of the insurance policy. The Company acts only as a sales agent and a
third party administrator. The Company currently has agency and servicing
agreements with American Bankers Insurance Group of Florida, Kemper Cost
Management, Inc., and Heritage RRG, Inc. In prior years, the Company also
contracted with New Hampshire Insurance Company, with other American
International Group, Inc. ("AIG") members and with American Modern Home
Insurance Company. As of January 2002 the Company has contracted to sell MBI and
VSC policies for Fireman's Fund Insurance Company. This new contract enhances
the Company's ability to compete effectively.
The sales of MBI policies are primarily accomplished through sub-agents, such as
financial institutions, and by the Company through direct mail solicitations,
magazine advertisements and phone solicitations. The terms of the MBI policies
range from twelve (12) to eighty-four (84) months and also may have mileage
limitations. Actual repairs or replacements covered by the policies are
performed by independent third party authorized repair facilities. The costs of
such repairs remain the responsibility of the insurance company that provided
the MBI policy.
For MBI policies, the policy premium has been established by the insurance
companies and agreed to by the Company and insurance regulators. In general,
when an MBI policy is sold, approximately 51% - 60% of the premium is retained
by the insurance company, approximately 20%-36% of the premium is paid to the
sub-agent (if applicable), and the remainder is paid to the Company as sales
commission and for providing administrative claims services.
For the years ended October 31, 2001, 2000, and 1999, the net revenues related
to sales and servicing of MBI policies represented approximately 64%, 92%, and
96%, respectively, of the Company's net revenues less direct acquisition costs
of vehicle service contracts. The current year MBI revenue decline is primarily
due to changes in federal privacy laws which made necessary marketing data
unavailable to the Company. In addition the loss of one insurance company's
product and pricing changes by another insurance company contributed to this
decline.
VEHICLE SERVICE CONTRACTS
The Company markets and administers VSC programs that enhance the profitability
of the sale of automobiles, light trucks, recreational vehicles and automotive
components. These products are sold principally through franchised and
independent automobile dealers. The VSC is a contract between the Company and
the consumer (purchaser) that offers coverage for periods ranging from one (1)
to eighty-four (84) months and/or mileage limitations ranging from 1,000 to
100,000. The coverage is for a broad range of possible failures of mechanical
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components that may occur during the term of the VSC, exclusive of failures
covered by a manufacturers warranty. The Company is primarily responsible for
the administration of the contract and related claims during the life of the
contract.
Before a VSC is issued, the Company has contracted with insurance companies to
assume the liability in return for the payment of the agreed-upon premium. This
coverage provides indemnification to the Company against loss resulting from
service contract claims. The insurance protection is provided by highly rated
independent insurance companies. This includes American Bankers Insurance Group,
Kemper Cost Management and Heritage RRG, which are rated A - (Excellent) by A.M.
Best Company.
For the years ended October 31, 2001, 2000, and 1999, the net revenues less
direct acquisition costs of vehicle service contracts related to sales and
servicing of VSCs represented approximately 36%, 8% and 4%, respectively, of the
Company's net revenues less direct acquisition costs of vehicle service
contracts. The increase in VSC revenues is the result of the Company's
concentration on that business area as well as the decrease in MBI business as
discussed above.
MBIs AND VSCs
The number of financial institutions, automobile dealers, and recreational
vehicle and travel trailer dealers offering the Company's MBI or VSC programs
has grown to approximately 600 at October 31, 2001.
Essential to the success of the Company is its ability to capture, maintain,
track and analyze all relevant data regarding an MBI policy or VSC. To support
this function, the Company operates a policy management system developed
internally that consists of custom designed relational databases with
interactive capabilities. This system provides ample capacity and processing
speed for current requirements as well as the ability to support significant
future growth in this area.
VIRTUAL PRIVATE NETWORK
The Company has developed a virtual private network ("VPN") system that enables
financial institutions, dealerships and others to sell a policy or contract
directly using their computer system. The VPN is driven by the vehicle
identification number ("VIN") of the vehicle being insured. The VPN will give an
accurate premium to be paid by the customer based on the VIN and, if the
customer purchases the policy, the information is sent directly over the
Internet into the Company's policy management system.
The VPN system has the ability to eliminate many administrative problems between
the Company, the financial institutions and the dealerships. Since the VPN is
VIN driven, the errors made when rating a vehicle have been substantially
eliminated. For example, a customer may receive a quote for a two-wheel drive
vehicle when in fact it is a four-wheel drive vehicle. The difference in premium
due from the customer can be significant. Since the VIN number identifies the
vehicle as a four-wheel drive or two-wheel drive, the VPN system can identify
the proper specifications of the vehicle and quote the customer an accurate
price. Other benefits of the VPN system include a reduction in data entry time
and potential data entry errors due to the automatic upload of information upon
the sale of the policy.
SIGNIFICANT CUSTOMERS
In 2001, a single national brokerage firm accounted for $2,875,000 of VSC sales
up from $28,000 in 2000. This firm accounted for 19% of total VSC sales. The
Company estimates, based on historical experience, that should the brokerage
firm no longer place its business through the Company, approximately 67% of this
business would be retained by means of direct placement. The remaining 33% would
be lost to competitors.
COMPETITION
M.B.A. Holdings, Inc. competes with a number of independent administrators,
divisions of distributors, manufacturers, financial institutions and insurance
companies. While the Company believes that it occupies a strong position among
competitors in its field, it is not the largest marketer and administrator of
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MBIs and VSCs. Some competitors have greater operating experience, more
employees and/or greater financial resources. Further, many manufacturers of
motor vehicles market and administer their own VSC programs for and through
their dealers.
SALES AND MARKETING
The Company maintains its own sales and marketing personnel. Sales training and
motivational programs are a primary form of specialized assistance provided by
the Company to retailers/dealers and financial institutions to assist them in
increasing the effectiveness and profitability of their MBI and VSC program
sales efforts. In addition, the Company develops training materials and conducts
educational seminars. These seminars are conducted either at the client's place
of business or an offsite facility.
The Company also markets to the consumers through direct mail campaigns,
Internet and automobile magazine advertisements. Direct mailing campaigns ended
in February 2001 when sales lists were no longer available from states due to
changes in the Federal Privacy Act. The Company has redirected its marketing
efforts towards VSC contracts in order to offset the loss of the direct mail
business. This transition has taken some months to complete and it has adversely
impacted the 2001 results.
The MBI program is an insurance product between the insurance company and the
customer. The Company acts as an independent sales agent and administrator of
the MBI policies. From inception of the policy, the obligation to perform under
the policy is the obligation of the insurance company.
In accordance with the insurance arrangements with these insurers, a fixed
amount is remitted for each MBI or VSC sold. The amount is set by the insurance
companies and is based upon actuarial analysis of data collected and maintained
for each type of coverage and contract term. The insurer is obligated to pay all
the claims, which fall under the policy even if the claims exceed the premium.
Some contracts between the Company and the insurer contain agreements that allow
the Company to share in the profits earned by the programs. The Company did not
accrue or receive any profit sharing amounts for the years ended October 31,
2001, 2000 and 1999.
The number of policies and contracts sold for the periods indicated are noted
below:
Number of
Time Period Policies and Contracts
- ----------- ----------------------
For the twelve months ended October 31, 2001 15,847
For the twelve months ended October 31, 2000 33,209
For the twelve months ended October 31, 1999 34,858
The decline in the numbers of policies and contracts is the result of both the
loss of the direct mail program and the loss of one insurance company's product.
Additionally, many of the Company's clients faced severe competitive pressures
from the offerings by the vehicle manufacturers and as a result fewer insurance
contracts/policies were sold.
The Company will continue to look for ways to increase sales. Currently, the
Company is in the process of exploring strategic relations with other highly
rated insurance companies regarding different motorized machinery; such as boats
and motorcycles. Additionally, the Company has contracted with Fireman's Fund
Insurance Co to sell its MBI and VSC products.
FEDERAL AND STATE REGULATION
Federal law and the statutes of a significant number of states regulate the MBI
and VSC programs developed and marketed by the Company. VSCs are contracts sold
from car and recreational vehicle dealerships and are considered to be part of
the car buying process instead of an insurance product. MBIs are insurance
policies sold by independent agents through non-auto dealer entities, such as
credit unions or by direct mail through the Company. The Company continually
reviews all existing and proposed statutes and regulations to ascertain their
applicability to its existing operations, as well as to new programs that are
4
developed by the Company. Generally, these statutes concern the scope of the MBI
and VSC coverage and content of the MBI or VSC document. In such instances, the
state statute will require that specific wording be included in the MBI or VSC
expressly stating the consumer's rights in the event of a claim, and how the
service contract may be canceled. The MBI policy contains the name of the
insurance company that issues the policy and the VSC specifies the name of the
insurance company that underwrites the policy. This identification on the policy
and contract identifies the insurance company that indemnifies the customer,
dealers, financial institution, or the Company against loss for performance
under the terms of the contract.
Insurance departments in some states have sought to interpret the VSC or certain
items covered under the contract as a form of insurance, requiring that the
issuer be a duly licensed and chartered insurance company. These efforts to
interpret VSCs as a form of insurance have not been successful in any state at
this time. Currently, all MBI products are considered insurance and either the
Company or its principals are duly licensed in all states in which the Company
operates.
The Company or its principals are licensed in the following states: Alabama,
Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho,
Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont,
Washington, West Virginia, Wisconsin, and Wyoming.
All the MBI policies and VSCs are issued or assumed by highly rated insurance
companies. The Company does not believe that it is an insurer and has no
intention of filing the documents and meeting the capital and surplus
requirements that are necessary to obtain such a license. There are instances
where the applicability of statutes and regulations to programs marketed and
administered by the Company and compliance therewith, involve issues of
interpretation. The Company uses its best efforts to comply with applicable
statutes and regulations but it cannot assure that its interpretations, if
challenged, would be upheld by a court or regulatory body. In any situation in
which the Company has been specifically notified by any regulatory bodies that
its methods of doing business were not in compliance with state regulation, the
Company has taken the steps necessary to comply. If the Company's right to
operate in any state is challenged successfully, the Company may be required to
cease operations in that state and the state might also impose financial
sanctions against the Company. These actions, should they occur, could have
materially adverse consequences and could affect the Company's ability to
continue operating. However, within the framework of currently known statutes,
the Company does not believe that this is a present concern.
EMPLOYEES
The Company and its subsidiary employ approximately 40 individuals at October
31, 2001 and 50 at October 31, 2000. The total number of external sales force
equals two. These employees train the insurance agent or representative at the
financial institution, dealership or other sales venue. Internally, there are
approximately eight people who handle product inquiries that may result in
sales. The balance of the staff is assigned to the following departments: claims
adjudication, customer service, data entry, information systems, finance, and
administration. None of the Company's employees are covered by a collective
bargaining agreement.
ITEM 2. PROPERTIES
The Company's executive offices are located in leased premises at 9419 E. San
Salvador, Suite 105, Scottsdale, Arizona. The Company signed a lease with total
square footage equal to 19,750, which commenced on January 1, 1999 and expires
on December 31, 2003. The lease provides for annual base rent payments ranging
from $212,000 to $276,000.
The premises are owned by Cactus Partnership, an affiliated entity. The partners
in Cactus Partnership are Gaylen Brotherson, the CEO of the Company, and Judy
Brotherson, the Vice-President of the Company. All lease negotiations are made
at fair market value between Cactus Partnership and the Company based on leases
with other occupants of the building (See Item 14 Certain Relationships and
Related Transactions).
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ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year, through the solicitation of proxies or otherwise.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been reported in NASDAQ, and currently is
reported on NASDAQ's OTC: BB under the trading symbol "MBAI". As of October 31,
2001, there were 2,011,787 common shares issued and 1,980,187 outstanding. On
that date, the closing bid price for the Company's common stock, as reported by
NASDAQ was $1.85. The following is a summary of the price range of the Company's
common stock during its 2001 and 2000 fiscal years:
Common Stock Bid
--------------
High Low
---- ---
Quarter of Fiscal 2001
First $2.00 $1.06
Second 2.00 1.06
Third 4.70 1.45
Fourth 2.15 1.85
Quarter of Fiscal 2000
First 5.00 2.75
Second 5.00 2.00
Third 3.01 1.75
Fourth 1.75 1.50
The Company has never paid cash dividends on any shares of its common stock, and
the Company's Board of Directors intends to continue this policy for the
foreseeable future. Earnings, if any, will be used to finance the development
and expansion of the Company's business. Future dividend policy will depend upon
the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Company's Board of Directors.
During the fiscal year ended 2001, the Company did not issue any unregistered
securities.
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED OCTOBER 31, 2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
Net revenues $ 16,468,434 $ 8,323,876 $ 5,597,524 $ 3,289,477 $ 595,553
Net (loss) income (212,546) 177,149 148,016 13,771 46,386
Net (loss) income per common share (basic) (.11) .09 .07 0.01 0.02
Total assets 9,423,030 16,647,549 14,735,278 6,717,801 2,346,943
Long-term obligation and redeemable preferred stock 8,077 18,840 -- -- --
Cash dividends declared per common share -- -- -- -- --
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ITEM 7. 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.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR 2001 AND FISCAL YEAR 2000
NET REVENUES
Net revenues for the year ended October 31, 2001 totaled $16,468,000, an
increase of $8,144,000 over the year ended October 31, 2000 net revenues of
$8,324,000. The increase in net revenues is the result of the recognition of
$8,488,000 of deferred vehicle service contract ("VSC") revenues that were
derived from two underwriters that transferred the responsibility for the
administration of certain contracts and policies to an unrelated third party
relieving the Company of the majority of its continuing responsibilities. At the
same time, the Company also recognized $8,089,000 of deferred direct acquisition
costs associated with the same contracts and policies.
The Company continues to perform certain administrative duties relating to the
calculation and administration of policy and contract cancellation. The
remaining balance in deferred revenue and deferred direct acquisition costs
relating to these underwriters that is available to offset against future
cancellation administration equals $1,537,000 of deferred revenue and $1,455,000
of deferred direct acquisition costs. The Company will recognize this revenue
and expense over the remaining life of the policy or contract. If the policy or
contract is cancelled, then the company will recognize the remaining portion of
the unearned revenue and direct acquisition cost in the month the policy or
contract is cancelled.
The Company also wrote off a receivable from the underwriters for deferred
administrative costs. When a policy or contract is sold, the Company would remit
a portion of their commission to the underwriter for an administrative services
reserve. As these policies and contracts expire, the underwriters would return
that portion of the administrative services reserve to the Company. The
administrative release agreements contained provisions whereby the Company
agreed to forfeit all of the deferred administrative costs remitted to the
underwriters. The total amount written off equals $254,000. The net effect of
the above adjustments was to increase net operating income by $490,000.
The gross VSC revenue increase was offset by a decline in mechanical breakdown
insurance income and administrative service revenue ("MBI") of $1,539,000.
During 2001, many of the Company's clients faced severe competitive pressures
from the offerings by the vehicle manufacturers and as a result fewer insurance
contracts/policies were sold. Additionally, the discontinuation of the direct
mail program as well as the loss of one insurance company's product and adverse
pricing changes by another insurance company contributed to the decrease in MBI
income.
OPERATING EXPENSES
Operating expenses increased $8,484,000 to $16,726,000 in the year ended October
31, 2001 compared to the similar period ended October 31, 2000. As explained in
the net revenue discussion above, the Company recognized the deferred direct
acquisition costs of VSC that were associated with the contracts that were no
longer administered by the Company. Excluding VSC direct acquisition costs,
operating expenses declined $729,000 and were 14.1% of net revenues in 2001
compared to 36.7% in 2000. The Company reacted aggressively to the decrease in
net revenues by cutting costs and expenses in all expense categories except
licenses and fees, depreciation and amortization and other operating expenses.
The increase in license and fee costs is the result of the Company's efforts to
replace the lost underwriters' business. The increase in depreciation and
amortization is the result of new capital expenditures that were committed to
prior to the Company's net revenues declining significantly.
OTHER INCOME (EXPENSE)
Finance fee income declined in concert with the decline in MBI insurance income
as fewer purchasers of policies elected to finance premiums. Interest income
declined $96,000 from $147,000 in fiscal 2000 to $51,000 in fiscal 2001
7
primarily as a result of the nation-wide decline in interest rates. Realized
Gains increased substantially as a result of the liquidation of investments to
provide cash flow for operations.
INCOME TAXES
Provisions for income taxes in the period ended October 31, 2001 reflect the
Company's intent to carry back the current year losses to recover federal income
taxes paid in previous years. Similar provisions for recoverable state income
taxes were not provided as Arizona law does not allow for loss carryback. The
differences in the effective tax rates in fiscal 2001 compared to fiscal 2000 is
the result of the valuation allowance placed on the state net operating loss
carryforward and the recording of the federal income tax loss carryback.
COMPARISON OF FISCAL YEAR 2000 AND FISCAL YEAR 1999
NET REVENUES
Net revenues for the year ended October 31, 2000 totaled $8,324,000, an increase
of $2,726,000 from net revenues of $5,598,000 for the year ended October 31,
1999. The number of contracts sold of 33,209 for the year ended October 31, 2000
decreased from the number of contracts sold of 34,858 for the year ended October
31, 1999. The Company did not start selling VSCs until fiscal 1998. Therefore,
at October 31, 2000, there were three years of previously deferred VSC revenues
amortized to revenue compared to only two years of previously deferred VSC
revenue being amortized to revenue in 1999.
Operating income decreased by $10,000 to $82,000 for the year ended October 31,
2000, from $92,000 for the year ended October 31, 1999. The decrease is due to
the increase in salaries and expenses and officers' bonuses in fiscal 2000. This
is offset by the decrease in mailings and postage. The direct mail operations
have decreased because the Supreme Court ruled that it is illegal for state
governments to sell the information needed for direct mail; such as, addresses
and names.
OPERATING EXPENSES
Total operating expenses were $8,242,000 for the year ended October 31, 2000
compared to $5,506,000 for the year ended October 31, 1999. As a percentage of
net revenues, operating expenses were 99.0 percent for the year ended October
31, 2000, compared to 98.4 percent for the year ended October 31, 1999. The
increase in expenses is due to an increase in the direct costs associated with
the increase in VSC sales and salaries, as noted above.
NET INCOME
Net income for the year ended October 31, 2000 was $177,000, compared to net
income for the year ended October 31, 1999 of $148,000, which is a result of the
foregoing factors, the increase in interest income from better utilization of
cash available for investments and a reduction in income taxes as a percentage
of pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
COMPARISON OF OCTOBER 31, 2001 AND OCTOBER 31, 2000
Working capital at October 31, 2001 consisted of current assets of $5,726,000
and current liabilities of $4,865,000, or a current ratio of 1.18 :1. At October
31, 2000, the current ratio was 1.18:1 with current assets of $8,169,000 and
current liabilities of $6,943,000.
As of October 31, 2001, the Company's cash position decreased to $1,243,000 from
$1,723,000 at October 31, 2000. Of this amount, $160,000 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 restricted cash
8
is primarily due to the transfer of the administration for two of the Company's
insurance carriers. In addition, $161,000 of cash at October 31, 2001 was
invested in marketable debt and equity securities. This is a decrease of
$174,000 from the amount invested at October 31, 2000.
Deferred direct costs, including both the current and non-current portions,
decreased by $6,060,000 to $6,639,000 at October 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 is primarily due to the recognition of the deferred costs related to
the transfer of responsibility for administration of policies to a third party
for two of the company's underwriters. This decrease was partially offset by an
increase in the number of years of sales being deferred, as VSC sales did not
begin until 1998, as well as higher sales volume in recent years.
The Company collects funds throughout the year and remits a portion of the funds
to the insurance companies. As of October 31, 2001, the amount owed to the
insurance companies decreased by $52,000 to $385,000 from $437,000 at October
31, 2000. The change is due to the timing of payments remitted to the insurance
companies.
Deferred revenues, including both the current and non-current portions,
decreased by $6,897,000 to $7,943,000 at October 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 recognition of the deferred revenue related to the
transfer of responsibility for administration of policies to a third party for
two of the company's underwriters. This decrease was partially offset by an
increase in the number of years of sales being deferred, as VSC sales did not
begin until 1998, as well as higher sales volume in recent years.
The Company is operating with a working capital line of credit from Merrill
Lynch. This is the only debt instrument utilized by the Company. The working
capital line of credit is used to make claims payments if there is a timing
difference between when the Company pays for the claims and when the insurance
companies reimburse the claims. 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 cash flows from
operations will be sufficient to meet cash requirements for the foreseeable
future.
ITEM 7A. QUALITATIVE INFORMATION 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. The
precise effect of inflation on operations, however cannot be determined.
The Company does not have any outstanding debt or long-term receivables.
Therefore, it is not subject to significant interest rate risk.
The Company has a net loss of $213,000 for the twelve months ended October 31,
2001. As discussed in Note 2 to the financial statements, two of the Company's
underwriters transferred the responsibility to administer their contracts and
policies to a third party. The Company recognized a net credit to income of
$490,000 due to the recognition of previously deferred revenue and deferred
administrative service revenue offset by the recognition of deferred direct
acquisition costs and expensing the administrative service receivable. The
Company would have recognized this income and expense over the next six years,
the remaining life of the contracts and policies. This net loss is due to the
Company having a substantial decline in MBI market share from increased
competition. The future effect of this increased competition may have an adverse
effect on future earnings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Index to Consolidated Financial Statements for the years ended October 31, 2001,
2000, and 1999:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
M.B.A. Holdings, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of M.B.A. Holdings,
Inc. and subsidiary (the "Company") as of October 31, 2001 and 2000, and the
related consolidated statements of operations and comprehensive (loss) income,
stockholders' equity, and cash flows for each of the three years in the period
ended October 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of October 31, 2001
and 2000, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
January 10, 2002
10
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
ASSETS 2001 2000
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,083,024 $ 1,235,496
Restricted cash 160,402 487,015
Investments (Note 4) 160,853 335,063
Accounts receivable, net of allowance for doubtful accounts
of $0 and $19,025 (2001 and 2000) 146,310 404,370
Prepaid expenses and other assets (Note 3) 80,350 115,074
Deferred direct costs 3,441,998 5,048,367
Income tax receivable (Note 5) 395,487 155,437
Deferred income tax asset (Note 5) 257,839 387,787
------------ ------------
Total current assets 5,726,263 8,168,609
------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 268,517 253,736
Office equipment and furniture 140,043 165,919
Vehicle 16,400 16,400
Leasehold improvements 80,182 79,596
------------ ------------
Total property and equipment 505,142 515,651
Accumulated depreciation and amortization (288,199) (229,020)
------------ ------------
Property and equipment - net 216,943 286,631
OTHER ASSETS 46,170
DEFERRED DIRECT COSTS 3,196,954 7,650,100
DEFERRED INCOME TAX ASSET (Note 5) 282,870 496,039
------------ ------------
TOTAL ASSETS $ 9,423,030 $ 16,647,549
============ ============
See notes to consolidated financial statements.
11
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001 AND 2000
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------ ------------
CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 385,113 $ 437,214
Accounts payable and accrued expenses 489,208 617,268
Capital lease obligation - current portion (Note 7) 10,888 9,333
Deferred revenues 3,979,793 5,878,696
------------ ------------
Total current liabilities 4,865,002 6,942,511
Capital Lease Obligation - net of current portion (Note 7) 8,077 18,840
Other Liabilities 225,410 136,534
Deferred Rent 42,256 41,539
Deferred Revenues 3,963,543 8,961,473
------------ ------------
Total liabilities 9,104,288 16,100,897
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 8)
STOCKHOLDERS' EQUITY (Note 6):
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 shares issued; 1,980,187 outstanding 2,012 2,012
Additional paid-in-capital 200,851 200,851
Accumulated other comprehensive (loss) income, net of tax (3,149) 12,215
Retained earnings 174,528 387,074
Less: 31,600 shares of common stock in treasury, at cost (55,500) (55,500)
------------ ------------
Total stockholders' equity 318,742 546,652
------------ ------------
TOTAL $ 9,423,030 $ 16,647,549
============ ============
See notes to consolidated financial statements.
12
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
2001 2000 1999
------------ ------------ ------------
NET REVENUES:
Vehicle service contract gross income $ 15,136,581 $ 5,453,390 $ 2,729,999
Net mechanical breakdown insurance income 598,055 2,221,320 2,322,217
MBI administrative service revenue 733,798 649,166 545,308
------------ ------------ ------------
Total net revenues 16,468,434 8,323,876 5,597,524
------------ ------------ ------------
OPERATING EXPENSES:
Direct acquisition costs of vehicle service contracts 14,402,029 5,189,065 2,604,436
Salaries and employee benefits 1,399,267 1,825,772 1,544,793
Mailings and postage 121,416 261,602 441,332
Rent and lease expense 282,508 326,327 286,785
Professional fees 91,357 158,844 159,105
Telephone 96,896 142,709 149,282
Depreciation and amortization 78,833 74,753 57,873
Merchant and bank charges 20,783 24,831 18,111
Insurance 32,959 37,052 29,029
Supplies 28,709 41,023 46,353
License and fees 24,104 13,618 12,756
Other operating expenses 146,958 146,676 156,082
------------ ------------ ------------
Total operating expenses 16,725,819 8,242,272 5,505,937
------------ ------------ ------------
OPERATING (LOSS) INCOME (257,385) 81,604 91,587
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Finance fee income 20,120 51,820 50,567
Interest income 51,288 146,559 122,829
Interest expense (10,775) (12,993) (5,996)
Other expense (293) (763) (531)
Realized gains (losses) on investments 15,629 (3,362)
------------ ------------ ------------
Other income - net 75,969 181,261 166,869
------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (181,416) 262,865 258,456
INCOME TAXES (Note 5) 31,130 85,716 110,440
------------ ------------ ------------
NET (LOSS) INCOME $ (212,546) $ 177,149 $ 148,016
============ ============ ============
BASIC NET (LOSS) INCOME PER SHARE $ (0.11) $ 0.09 $ 0.07
============ ============ ============
DILUTED NET (LOSS) INCOME PER SHARE $ (0.11) $ 0.08 $ 0.07
============ ============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 1,980,187 2,002,064 2,005,158
============ ============ ============
AVERAGE NUMBER OF COMMON AND
DILUTIVE SHARES OUTSTANDING 1,980,187 2,111,426 2,086,505
============ ============ ============
Net (loss) income $ (212,546) $ 177,149 $ 148,016
Other comprehensive income net of tax:
Net unrealized (loss) gain on available-for-sale securities (15,364) 12,215
------------ ------------ ------------
Comprehensive (loss) income $ (227,910) $ 189,364 $ 148,016
============ ============ ============
See notes to consolidated financial statements.
13
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------------- PAID COMPREHENSIVE RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT IN-CAPITAL INCOME EARNINGS STOCK EQUITY
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, NOVEMBER 1, 1998 2,005,121 $ 2,005 $ 180,857 $ 61,909 $ 244,771
Stock compensation expense 6,666 7 19,994 20,001
Net income 148,016 148,016
----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 1999 2,011,787 2,012 200,851 209,925 412,788
Unrealized gain on
available-for-sale
securities $ 12,215 12,215
Treasury stock $ (55,500) (55,500)
Net income 177,149 177,149
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 2000 2,011,787 2,012 200,851 12,215 387,074 (55,500) 546,652
Unrealized loss on
available-for-sale
securities (15,364) (15,364)
Net loss (212,546) (212,546)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 2001 2,011,787 $ 2,012 $ 200,851 $ (3,149) $ 174,528 $ (55,500) $ 318,742
=========== =========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements.
14
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
OCTOBER 31,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (212,546) $ 177,149 $ 148,016
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 78,833 74,753 57,873
Loss (gain) on sale of equipment 22,237 (4,342)
Unrealized loss (gain) on available-for-sale securities 15,364 (12,215)
Deferred income taxes 343,117 (97,198) (281,673)
Stock-based compensation 20,001
Changes in assets and liabilities:
Restricted cash 326,613 437,683 (473,710)
Accounts receivable 258,060 (17,565) (90,632)
Prepaid expenses and other assets 80,894 (51,356) 26,864
Deferred direct costs 6,059,515 (3,868,518) (5,706,526)
Income tax receivable (240,050) (249,596) 18,630
Net premiums payable to insurance companies (52,101) (2,456,377) 1,385,054
Accounts payable and accrued expenses (128,060) 19,824 150,665
Accounts payable to affiliated entities, net (3,517)
Other liabilities 88,876 136,534
Deferred rent 717 9,435 32,104
Deferred revenues (6,896,833) 4,134,977 6,296,294
----------- ----------- -----------
Net cash (used in) provided by operating activities (255,364) (1,762,470) 1,575,101
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (55,382) (58,008) (71,168)
Proceeds from sale of equipment 24,000 7,000
Purchase of investments (144,845) (439,007)
Proceeds from sales and maturities of investments 288,327 128,374
----------- ----------- -----------
Net cash provided by (used in) investing activities 112,100 (368,641) (64,168)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (55,500)
Payments on capital lease obligation (9,208) (2,827)
----------- ----------- -----------
Net cash used in financing activities (9,208) (58,327)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (152,472) (2,189,438) 1,510,933
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,235,496 3,424,934 1,914,001
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,083,024 $ 1,235,496 $ 3,424,934
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 10,660 $ 13,820 $ 1,911
=========== =========== ===========
Cash paid for income taxes $ 334,157 $ 373,483
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIY:
Purchase of equipment through capital lease obligation $ 31,000
===========
See notes to consolidated financial statements.
15
M.B.A. HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - M.B.A. Holdings, Inc. and subsidiary (the "Company")
are located in Scottsdale, Arizona and are principally engaged in selling
mechanical breakdown insurance policies ("MBIs") (as an agent for insurance
companies), selling vehicle service contracts ("VSCs") for new automobiles,
trucks, recreational vehicles, and travel trailers, and providing claims
administrative services for MBIs and VSCs sold. The consolidated financial
statements include the accounts of M.B.A. Holdings, Inc. and its wholly owned
subsidiary, Mechanical Breakdown Administrators, Inc. All significant
intercompany balances and transactions have been eliminated.
The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States of America. Significant
accounting policies are as follows:
a. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with original maturities of three months or less when
purchased to be cash equivalents.
b. RESTRICTED CASH represents claims payment advances provided by the
insurance companies to enable the Company to make claims payments on
behalf of the insurance companies.
c. INVESTMENTS, which are primarily marketable debt and equity
securities, are classified as available-for-sale and are stated at
estimated fair value as of October 31, 2001 and 2000. Fair value is
estimated based on quoted market prices.
d. PROPERTY AND EQUIPMENT - The historical cost of computer equipment,
office equipment and furniture is depreciated by accelerated and
straight-line methods over their estimated useful lives, which range
from three to seven years. The accelerated depreciation method used
for computer equipment and office equipment is a double declining
balance method. The double declining balance method depreciates the
assets more quickly during the earlier years of their useful lives,
whereas the straight-line method depreciates the assets evenly over
their lives. Leasehold improvements are amortized over the shorter of
the life of the asset or the related lease term.
The Company reviews its long-lived assets for possible impairment in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121 whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable, and has concluded
that no impairment charge is necessary during 2001, 2000 or 1999.
Under guidelines established by the American Institute of Certified
Public Accountants in Statement of Position 98-1, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE
("SOP 98-1"), the Company has capitalized $26,959 of such costs in the
accompanying consolidated balance sheet at October 31, 2000, which are
included in computer equipment. The project was terminated and
therefore these costs were written off during 2001.
e. OTHER ASSETS include amounts recoverable from insurance companies for
claims fees relating to one of the underwriters for which the
administration of policies was transferred to a third party during
2001. These fees were recovered in conjunction with the transfer.
f. BENEFIT PLAN - The Company has a profit-sharing plan covering
substantially all employees who have attained the age of 21 and have
completed one year of service. Participation commences on the earliest
16
plan entry date after an employee meets eligibility requirements. The
only contributions made to the plan are discretionary employer
contributions. No discretionary contributions were made during the
years ended October 31, 2001, 2000 and 1999.
g. NET PREMIUMS PAYABLE TO INSURANCE COMPANIES represent premiums
collected from the policyholders on behalf of the insurance companies.
Amounts collected are periodically remitted to the appropriate
insurance company.
h. OTHER LIABILITIES include the amounts received from dealers as fees
for the Company's guarantee that there will be no commission
charge-backs for cancelled policies. The Company is accumulating loss
data for this guarantee and will be recognizing income in future years
from this program as policies expire.
i. REVENUE RECOGNITION - Net revenues includes the commissions earned on
sales of MBIs, fees for providing administrative claims services
related to the MBIs sold and revenues related to the sales and
servicing of VSCs.
The Company receives one fee (commission) related to the sale of MBIs,
which covers both the revenue earned for selling the policy, and the
fee for providing administrative claims services. The Company
apportions the revenue consistent with the values associated with each
service provided. The revenues for commissions earned on policy sales
are recorded when the policy information is received and approved by
the Company. The revenues for the fee related to providing
administrative claims services are deferred and recognized in income
on a straight-line basis over the actual life of the related policy.
Costs directly related to the acquisition of the contract or policy
that would not have been incurred but for the acquisition of the
contract or policy (incremental direct acquisition costs) are deferred
and charged to expense in proportion to the revenue recognized.
Customers generally have the right to cancel their policy or vehicle
service contract at any time. When a customer cancels the policy or
contract, the unused portion of the policy or contract is returned to
the customer less a cancellation fee as described in the contract and
permitted by state law. The Company, insurance companies, and
sub-agents (if applicable) repay the remaining balance on the policy
in the same proportion as received at the time of the initial sale.
The cancellation fee is retained entirely by the Company. When a
policy is cancelled, the Company records the Company's portion of the
cancellation repayment (net of any cancellation fee received and net
of any related deferred revenue) as a reduction or increase (as
applicable) in total revenues. The amount of cancellation repayments,
net of cancellation fees received, historically has not been
significant.
All of the MBIs sold represent insurance policies between the
insurance companies and the purchaser. The insurance company retains
responsibility for the cost of any claims made in accordance with the
policies. The Company only acts as a sales agent and claims
administrator and does not assume the role of obligor at any time
during the life of the policies.
VSCs represent contracts between the Company and the purchaser for
which the Company obtains an insurance policy, which guarantees the
Company's 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 associated with the sales and servicing of these contracts
are deferred and recognized in income on a straight-line basis over
the actual life of the contracts.
j. INCOME TAXES - Deferred income taxes are recorded based on differences
between the financial statement and tax basis of assets and
liabilities based on income tax rates currently in effect.
k. NET INCOME PER SHARE - Net income 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 and requires a reconciliation of the numerator and denominator
of basic and diluted EPS calculations. Basic income per common share
is computed on the weighted average number of shares of common stock
17
outstanding during each period. Income 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 PER SHARE
YEAR ENDED OCTOBER 31, 2001 2000 1999
--------- --------- ---------
Average number of common shares
outstanding - Basic 1,980,187 2,002,064 2,005,158
Dilutive shares from common stock options
calculated using the treasury stock method 109,362 81,347
--------- --------- ---------
Average number of common and dilutive
shares outstanding 1,980,187 2,111,426 2,086,505
========= ========= =========
l. STOCK-BASED COMPENSATION -The Company adopted SFAS No. 123 during
1997, which requires expanded disclosures of stock-based compensation
arrangements with employees and encourages, but does not require,
compensation costs to be measured based on the fair value of the
equity instrument awarded. The Company has elected to measure its
stock-based compensation awards to employees based on the provisions
of APB Opinion No. 25. APB No. 25 allows recognition of compensation
cost based on the intrinsic value of the equity instrument awarded
rather than fair value.
m. COMPREHENSIVE INCOME consists of net income and other gains and losses
affecting stockholders' equity that, under generally accepted
accounting principles, are excluded from net income. For the Company,
such items consist primarily of unrealized gains and losses on
marketable debt and equity investments.
n. USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
o. NEW ACCOUNTING PRONOUNCEMENTS - In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 141 prospectively
prohibits the pooling of interests method of accounting for business
combinations initiated after June 30, 2001. Under SFAS 142,
amortization of goodwill and intangibles without a finite life ceases
when the new standard is adopted. The new rule also requires
impairment tests on an annual or interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting
unit below its carrying value. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test six months from the
date of adoption. The Company will adopt the standard beginning
November 1, 2002. The Company does not believe the adoption of SFAS
142 will have a significant impact on its financial position or
results of operations as the Company currently has no goodwill or
intangible assets without finite lives.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs.
It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction,
development, and (or) the normal operation of a long-lived asset,
except for certain obligations of lessees. This Statement requires
that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived
asset. The Company will adopt the standard beginning November 1, 2002
and has not yet determined the financial statement impact that may
result from the adoption of this Statement.
18
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supercedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and amends Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The new rules apply to the classification and
impairment analysis conducted on long-lived assets other than certain
intangible assets, resolve existing conflicting treatment on the
impairment of long-lived assets and provide implementation guidance
regarding impairment calculations. SFAS No. 144 also expands the scope
to include all distinguishable components of an entity that will be
eliminated from ongoing operations in a disposal transaction. The
Company will adopt the standard beginning November 1, 2002 and has not
yet determined the financial statement impact that may result from the
adoption of this Statement.
p. RECLASSIFICATIONS - Certain reclassifications have been made to the
2000 and 1999 amounts to conform to the 2001 presentation.
2. SIGNIFICANT EVENTS
Two of the Company's underwriters transferred the administration of the
contracts and policies sold and administered by M.B.A. to a third party. If the
Company had retained administrative authority over those policies and contracts,
the deferred amounts would be recognized into income over the next six years.
Since M.B.A. is no longer the administrator of the contracts and policies, all
of the revenue and direct acquisition costs associated with them was recognized
except for the revenue and direct acquisition costs relating to future
cancellations, as discussed below. An additional $8,488,000 of deferred VSC
revenue, $8,089,000 of deferred direct acquisition costs and $345,000 of
deferred administrative service fee revenue related to these contracts and
policies was recognized as income and operating expenses in the third quarter of
2001.
The Company continues to perform certain administrative duties relating to the
calculation and administration of policy and contract cancellation. The
remaining balance in deferred revenue and deferred direct acquisition costs
relating to these underwriters to offset against future cancellation
administration equals $1,537,000 of deferred revenue and $1,455,000 of deferred
direct acquisition cost. The Company will recognize this revenue and expense
over the remaining life of the policy or contract. If the policy or contract is
cancelled, then the company will recognize the remaining portion of the unearned
revenue and direct acquisition cost in the month the policy or contract is
cancelled.
The Company also wrote off a receivable from the underwriters for deferred
administrative costs. When a policy or contract is sold, the Company would remit
a portion of their commission to the underwriter for administrative services. As
the policies and contracts expire, the underwriters would return the commission
submitted. Per the administrative release agreements, the Company agreed to
forfeit all of the deferred administrative costs remitted to the underwriters.
The total amount written off equals $254,000. The net effect of the above
adjustments was to increase net operating income by $490,000.
3. RELATED PARTY TRANSACTIONS
Included in Prepaid expenses and other assets at October 31, 2001 is $24,137
prepaid rent for office space paid to an entity owned by the Company's majority
stockholder. Rent expense for the years ending October 31, 2001, 2000 and 1999
was $248,000, $237,000 and $207,000, respectively. A new lease expiring December
31, 2003 was signed with an affiliate on January 1, 1999. The lease includes
escalating rent amounts that have been recorded as expense on a straight-line
basis over the lease term.
During August 2000, the Company loaned 1st Defense Industries $78,252. The owner
of 1st Defense Industries is Gaylen Brotherson, the Chief Executive Officer. The
loan is for five years and has an interest rate of 5% with interest only
payments for the first five years. During fiscal 2000, 1st Defense paid the
Company $647.31 which was recorded in interest income. In October 2000, Cactus
Partnership purchased the loan from the Company in lieu of rent. At October 31,
2001 and 2000, the loan due from 1st Defense Industries had a zero balance.
19
4. MARKETABLE SECURITIES
The following table summarizes the Company's available for sale securities as of
October 31, 2001 and October 31, 2000:
OCTOBER 31, 2001 GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
---------- ---------- ---------- ----------
Marketable Securities:
Corporate bonds $ 33,642 $ 4,508 $ 38,150
Mutual Funds 103,960 1,736 105,696
Equities 27,786 $ (10,779) 17,007
---------- ---------- ---------- ----------
Total Marketable Securities at October 31, 2001 $ 165,388 $ 6,244 $ (10,779) $ 160,853
========== ========== ========== ==========
OCTOBER 31, 2000 GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
---------- ---------- ---------- ----------
Marketable Securities:
Corporate bonds $ 195,065 $ 15,566 $ 210,631
Mutual Funds 99,997 $ (368) 99,629
Equities 27,786 (2,983) 24,803
---------- ---------- ---------- ----------
Total Marketable Securities at October 31, 2000 $ 322,848 $ 15,566 $ (3,351) $ 335,063
========== ========== ========== ==========
The corporate bonds have maturities in excess of ten years.
5. INCOME TAXES
Income taxes were as follows for the years ended October 31:
2001 2000 1999
--------- --------- ---------
Current $(311,987) $ 182,914 $ 392,113
Deferred 343,117 (97,198) (281,673)
--------- --------- ---------
Total income tax expense $ 31,130 $ 85,716 $ 110,440
========= ========= =========
At October 31, 2001, the Company's income tax receivable includes approximately
$83,000 that was applied to the current year estimated taxes from prior year
overpayments.
The tax effects of temporary differences that give rise to significant portions
of deferred income tax assets at October 31 were as follows:
20
2001 2000
--------- ---------
Deferred tax assets:
Deferred revenue $ 527,057 $ 878,098
State net operating loss carryforward 89,094
Allowance for doubtful accounts 7,800
Accrued compensation 39,318 39,552
Other 5,008
Deferred tax liability:
Depreciation (25,666) (46,632)
--------- ---------
Total $ 629,803 $ 883,826
Less Valuation Allowance (89,094)
--------- ---------
Net deferred income tax assets $ 540,709 $ 883,826
========= =========
The effective income tax rate differs from the federal statutory income tax rate
in effect each year as a result of the following items:
2001 2000 1999
----- ----- -----
Federal statutory income tax rate 34% 34% 34%
State taxes 6 6 6
Valuation Allowance (49)
Other (8) (7) 3
----- ----- -----
Effective income tax rate (17)% 33% 43%
===== ===== =====
At October 31, 2001, the Company had a state net operating loss carryforward of
$990,000, which expires in 2006.
6. STOCK OPTIONS AND STOCK AWARDS
During the year ended October 31, 1998, the Company issued stock options to
certain employees. The Company applies APB Opinion No. 25 and related
interpretations in measuring compensation expense for its stock options. During
the years ended October 31, 2001, 2000 and 1999, no compensation expense was
recognized. Had compensation cost for the Company's stock options been
determined based on the fair value of the options at the date of grant
consistent with SFAS No. 123, the Company's net income and net income per share
would have been adjusted as presented below. Using the Black-Scholes model for
common stock option valuation, the Company estimated volatility of 84.7%, risk
free interest rate at 6%, and a dividend yield of 0%. All stock options are
vested and exercisable when granted.
A summary of the Company's outstanding options as of October 31, 2001 is
presented below along with pro-forma income statement information consistent
with SFAS No. 123.
21
EXERCISE EXPIRATION
OPTIONS PRICE DATE
------- ------ ----
33,334 $ 2.25 February 15, 2006
25,000 1.20 September 30, 2008
1,667 1.20 October 31, 2008
100,000 0.94 June 1, 2008
20,000 1.05 September 30, 2008
5,000 1.05 October 31, 2008
-------
185,001
=======
2001 2000 1999
--------- --------- ---------
Net (loss) income As reported $(212,546) $ 177,149 $ 148,016
Pro forma $(212,546) $ 177,149 $ 148,016
Basic net (loss) income per share As reported $ (0.11) $ 0.09 $ 0.07
Diluted net (loss) income per share $ (0.11) $ 0.08 $ 0.07
Basic net (loss) income per share Pro forma $ (0.11) $ 0.09 $ 0.07
Diluted net (loss) income per share $ (0.11) $ 0.08 $ 0.07
A summary of the activity regarding the Company's outstanding options for the
years ended October 31 is presented below:
2001 2000 1999
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- ------- ------- ------- ------- -------
Options outstanding at beginning of year 185,001 $ 1.23 185,001 $ 1.23 185,001 $ 1.23
Options granted -- -- -- -- -- --
Options exercised -- -- -- -- -- --
Options cancelled -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Options outstanding at end of year 185,001 $ 1.23 185,001 $ 1.23 185,001 $ 1.23
======= ======= ======= ======= ======= =======
During 1999, the Company accrued for the issuance of 6,666 shares of common
stock to an employee. In connection therewith, the Company recorded $20,001 of
compensation expense.
In addition to the options and shares issued during the year ended October 31,
1998, discussed above, the Company also has reserved, for issuance, various
options and shares to employees, which are based on the occurrence of future
events including the Company reaching certain sales levels. Under an arrangement
approved by the Board of Directors, the CEO and Vice-President each will be
granted options if sales growth goals are met. For every $5 million in sales
growth, the CEO will receive options to purchase 1,667 shares at an exercise
price of 80 percent of market price at the date sales goals are met. The
President will receive options to purchase 5,000 shares at an exercise price of
70 percent of the market price at the date sales goals are met, for every $5
million in sales growth.
22
7. OPERATING AND CAPITAL LEASES
The Company has operating leases for office space and equipment and a capital
lease for equipment that expire on various dates through the year ending October
31, 2004. The equipment under capital lease is included in property and
equipment at October 31, 2001 with a value of $22,683, net of accumulated
amortization of $12,821. Total rental expense was approximately $283,000,
$326,000, and $287,000 for the years ended October 31, 2001, 2000 and 1999,
respectively. Future minimum lease payments under noncancelable lease agreements
at October 31, 2001 are as follows:
OPERATING CAPITAL
LEASES LEASE
--------- --------
2002 $ 272,318 $ 12,776
2003 274,378 8,517
2004 45,930
--------- --------
Total $ 592,626 21,293
=========
Less portion representing interest 2,328
--------
Total 18,965
Less current portion 10,888
--------
Long-term portion - net $ 8,077
========
8. 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
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 October 31, 2001.
23
9. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FOR THE YEAR ENDED OCTOBER 31, 2001
-------------------------------------------------------
1ST 2ND 3RD 4TH
QTR QTR QTR QTR
----------- ----------- ----------- -----------
Net revenues $ 2,131,466 $ 2,349,498 $10,813,767 $ 1,173,703
Gross profit 522,228 402,172 848,066 293,939
Net (loss) income (35,510) (99,361) 173,436 (251,111)
Net (loss) income per share (0.02) (0.05) 0.09 (0.13)
FOR THE YEAR ENDED OCTOBER 31, 2000
-------------------------------------------------------
1ST 2ND 3RD 4TH
QTR QTR QTR QTR
----------- ----------- ----------- -----------
Net revenues $ 1,911,844 $ 2,015,081 $ 2,245,294 $ 2,151,657
Gross profit 796,532 829,746 775,776 732,757
Net income (loss) 111,631 51,937 75,444 (61,863)
Net income (loss) per share 0.06 0.03 0.04 (0.04)
24
Item 9. Changes in and Disagreements with Accountants or Accounting and
Financial Disclosure.
The Company has not had disagreements with its accountants on any matter
regarding accounting principles or financial statement disclosures.
Part III
Item 10. Directors and Executive Officers of the Registrant
The Company's Board of Directors consists of five people. All Directors hold
offices until the next annual meeting at which time there is an election for
their successors.
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Gaylen M. Brotherson 62 President, CEO, Chairman of the Board, Director
Judy K. Brotherson 55 Vice-President, Director
Edward E. Wilczewski 61 Director
Keith A. Cannon 61 Director
Michael Brady 60 Director
Gaylen and Judy Brotherson are husband and wife. No other family relationship
exists between the Directors or the executive officers.
THE BUSINESS EXPERIENCE OF EACH OF THE COMPANY'S DIRECTORS IS AS FOLLOWS:
Gaylen Brotherson, 62, became President, CEO, Chairman of the Board, and
Director of the Company in November 1995. He was the founder of Mechanical
Breakdown Administrators, Inc. Mr. Brotherson served in the United States Navy.
In 1960, he received his life, health and accident licenses as well as his
property and casualty license. Presently, he is licensed as an insurance agent
in 27 states. He has been in the vehicle service contract business since 1974.
Since 1984 he has been actively involved in marketing and administering
mechanical breakdown insurance policies and VSCs under Mechanical Breakdown
Administrators, Inc. Also, Mr. Brotherson serves on the Board of Directors of
Bank USA, in Phoenix, AZ.
Judy Brotherson, 55, has been Vice-President and Director of the Company since
November 1995. Mrs. Brotherson is a graduate of Creighton University. Since
1975, she has worked primarily in family owned businesses. She holds insurance
licenses in approximately 32 states. She was one of the chief designers of the
M.B.A. software management system. She has been working at M.B.A. since 1989
primarily involved in overseeing the finance and data-entry departments.
Edward Wilczewski, 61, has been a Director of the Company since June 1998. Mr.
Wilczewski served in the Navy for six years. Mr. Wilczewski is a graduate of the
University of Omaha. Primarily for the past thirty years including the present
time, he has owned and operated The Charter Group of Arizona, a real estate
development company. His company has developed various real estate projects
ranging from single-family homes to apartment complexes.
Keith Cannon, 61, has been a Director of the Company since December 2000. Mr.
Cannon is a graduate of the University of Utah. Primarily for the past thirty
years including the present time, he has worked in the securities industries.
Currently, he is the Branch Manager at Wilson-Davis & Co. where he supervises
the trading with a variety of domestic and international clients. In addition,
Mr. Cannon is a Director of two other public companies, which are unrelated to
M.B.A. Holdings, Inc. or its subsidiaries. They are the Montgomery Realty Group,
Inc. and On-Point Technology Systems, Inc.
Michael Brady, 60, has been a Director of the Company since December 2000. Mr.
Brady is a graduate of Creighton University. For the last 35 years, he has been
a lawyer and business person operating domestically and internationally.
Specifically, for the last several years, he has been the Chairman of the
European Trade Link Company, which is an international distribution company.
Also, he is the President of Vandermaal/Brady International Inc., which is a US
based international consulting company. From July 1998 to December 1999, he
served as the Chairman of American Bantrust Mortgage Services Corp., which is a
US based mortgage-banking company. From 1997 to August 1999, he served on the
Board of Directors of Modis Training Technologies Inc., which was a US based
semiconductor training company. From 1990 to 1996, he started as the Chief Legal
Counsel and became the Chief Executive Officer of Metrol Security Services Inc.,
which was a US based multi-state full service burglar, fire alarm installation
and monitoring company.
25
OTHER EXECUTIVE OFFICERS AND KEY EMPLOYEES
Michael Zimmerman, 31, was the Chief Financial Officer. He joined the Company in
September of 1999 and departed in October 2001 but continues as a Company
consultant. Prior to joining the Company, Mr. Zimmerman worked at PacifiCare,
Inc. from November of 1997 to September of 1999 as the accounting supervisor in
charge of the day to day accounting for the Nevada HMO and the Nevada and
Arizona life insurance products. Prior to joining PacifiCare, Inc., Mr.
Zimmerman was an employee from September 1993 to November 1997 at the
international accounting and consulting firm KPMG Peat Marwick LLP.
Shelly Beesley, 36, is the Corporate Secretary and Assistant to the President.
She has been employed by the Company since January 1993. She originally served
as the Executive Assistant for the President and Vice President. At the
beginning of 1996, Mrs. Beesley became the corporate secretary. Also, in 1996
Mrs. Beesley served as a Director to the company. Prior to joining the Company,
Mrs. Beesley worked in the automotive industry as a Systems Administrator,
Customer Service Manager and Assistant Sales Manager.
Michael Gannon, 45, is the Information Systems Manager. He is a graduate of
Devry Technical Institute. Mr. Gannon has been employed by the Company since
January 1995. He has helped develop M.B.A.'s integrated computer system to serve
all customer service, claims, data entry, and sales functions for all the
different products M.B.A. offers.
Item 11. Executive Compensation
The following table provides the annual and other compensation of the Chief
Executive Officer and any other employee who qualifies under Regulation S-K
section 229.402 for the years ended October 31, 1999, 2000 and 2001.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------- ----------------------
Restricted Stock
Stock Option
(shares) (shares)
Name of Principal Position Year Salary Bonus Other(1) awards awards
- ----------------- -------- ---- -------- -------- ------- ------ ------
Gaylen M. Brotherson Chairman of Board 1999 $150,797 $24,672
President and 2000 50,000 $100,000 22,115
Chief Executive Officer 2001 50,000 21,894
Judy K. Brotherson Vice-President 1999 50,000
2000 50,000 100,000 6,551
2001 50,000
Richard John, Jr. (2) Vice President - Sales 1999 272,836 $18,337
2000 Terminated
26
(1) Included in Other Annual Compensation are an auto lease paid for Gaylen
Brotherson in fiscal 1999, 2000 and 2001, auto insurance for Gaylen
Brotherson in fiscal 1999, 2000, and 2001, auto insurance for Judy
Brotherson in fiscal 1999, 2000 and 2001, and life insurance premiums for
Gaylen Brotherson and Judy Brotherson in years 1999, 2000 and 2001.
(2) Richard John's employment at the Company ended October of 1999.
Option Grants In Last Fiscal Year
None
Other Incentives and Compensation
The Company does not have a formal stock option plan. Currently, stock options
are granted by the Board of Directors. At October 31, 2001, there were only two
employees, Gaylen Brotherson and Judy Brotherson, who had stock options. All
options are exercisable. Below is a summary of existing options.
Number of Strike Expiration
Name Shares Price Date
---- ------ ------ ----
Gaylen Brotherson 33,334 $ 2.25 2/15/06
25,000 1.20 10/31/08
1,667 1.20 10/31/08
Judy Brotherson 100,000 0.94 6/1/08
20,000 1.05 9/30/08
5,000 1.05 10/31/08
In addition, per the Board of Directors' resolution dated February 15, 1996,
Gaylen Brotherson receives an option to purchase 1,667 shares at 80% of the
stock's fair market value for each $5,000,000 increase in sales after
$25,000,000 on the date the sales goals are reached. Per the Board of Directors'
resolution dated June 1, 1998, Judy Brotherson receives an option to purchase
5,000 shares at 70% of the stock's fair market value for each $5,000,000
increase in sales after $25,000,000 on the date the sales goals are reached.
These options will expire ten years from the grant date.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of October 31, 2001 concerning
shares of Common Stock with $.001 par value, the Company's only voting
securities. This table includes all beneficial owners who own more than 5% of
the outstanding voting securities, each of the Company's directors by each
person who is known by the Company to own beneficially more than 5% of the
outstanding voting securities of the Company, and by the Company's executive
officers and directors as a group.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
- -------------- ------------------- ------------------- --------
Common Stock Gaylen Brotherson 878,615 shares(1) 44.4%
9419 E. San Salvador
Suite 105
Scottsdale, AZ 85258
Common Stock Judy Brotherson 801,301 shares(1) 40.5%
9419 E. San Salvador
Suite 105
Scottsdale, AZ 85258
Common Stock CEDE & Co 234,010 shares 11.8%
Box 220
Bowling Green Station
New York, NY 10274
Common Stock All Directors and 1,679,916 shares 84.9%
Executive Officers as
a Group (five people)
27
(1) This amount represents shares owned and excludes the 60,001 options to
purchase common stock for Gaylen Brotherson and the 125,000 options to purchase
common stock for Judy Brotherson. If these options were exercised by Gaylen
Brotherson and Judy Brotherson, then their percentage of ownership would change
to 43.4% and 42.8%, respectively (see Item 6. Executive Compensation).
Item 13. Certain Relationships and Related 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 $248,000, $237,000, and $207,000 for the
years ended October 31, 2001, 2000, and 1999, respectively. The Company signed a
new lease with the affiliated entity on January 1, 1999. This new lease expires
on December 31, 2003.
During August 2000, the Company loaned 1st Defense Industries $78,252. The owner
of 1st Defense Industries is Gaylen Brotherson, the Chief Executive Officer. The
loan is for five years and has an interest rate of 5% with interest only
payments for the first five years.. During fiscal 2000, 1st Defense paid the
Company $647.31 which was recorded in interest income. In October 2000, Cactus
Partnership purchased the loan from the Company in lieu of rent. At October 31,
2000 the loan due from 1st Defense Industries equaled $0.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and reports on Form 8-K.
The following documents are filed as part of this report under Part II Item 8:
Reference is made to the Index to Financial Statements and Financial Statement
Schedules included in Item 8 of Part II hereof, where such documents are listed.
Exhibits as required by Item 601 of Regulation S-K:
3(i) - Articles of Incorporation (incorporated by reference to Exhibit 3(i) to
the Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
3(ii) - Bylaws of the Company (incorporated by reference to Exhibit 3(ii) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
10(a) - General Agency Agreement between American International Group, Inc.
under its subsidiaries, National Union Fire Insurance Company and New Hampshire
Insurance Company, and Mechanical Breakdown Administrators, Inc. (incorporated
by reference to Exhibit 10(a) to the Registrant's Registration Statement on Form
10 (file number 000-28221) filed with the Commission on November 19, 1999).
(b) - Agency Agreement between American Bankers Insurance Company of Florida and
Mechanical Breakdown Administrators, Inc. (incorporated by reference to Exhibit
10(b) to the Registrant's Registration Statement on Form 10 (file number
000-28221) filed with the Commission on November 19, 1999).
(c) - Claims Service Agreement between American Bankers Insurance Company of
Florida and Mechanical Breakdown Administrators, Inc. (incorporated by reference
to Exhibit 10(c) to the Registrant's Registration Statement on Form 10 (file
number 000-28221) filed with the Commission on November 19, 1999).
(d) - Contractual Liability Insurance Policy for Extended Service Contract and
Administration/Agency Agreement between American Modern Home Insurance Company
and Mechanical Breakdown Administrators, Inc. (incorporated by reference to
Exhibit 10(d) to the Registrant's Registration Statement on Form 10 (file number
000-28221) filed with the Commission on November 19, 1999).
28
(e) - Board of Directors resolution dated February 15, 1996 regarding Gaylen M.
Brotherson's stock options (incorporated by reference to Exhibit 10(e) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
(f) - Board of Directors resolution dated June 1, 1998 regarding Judy K.
Brotherson's stock options (incorporated by reference to Exhibit 10(f) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
(g) - Office Lease (incorporated by reference to Exhibit 10(g) to the
Registrant's Registration Statement on Form 10 (file number 000-28221) filed
with the Commission on November 19, 1999).
(h) - Audit committee charter (incorporated by reference to Exhibit 10(h) to the
Registrant's annual report on Form 10-K filed with the Commission on January 26,
2001).
11. - Statement re computation of per share earnings
21. - Subsidiary of the Company (incorporated by reference to Exhibit 21 to the
Registrant's annual report on Form 10-K filed with the Commission on January 26,
2001).
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.
M.B.A. Holdings, Inc.
Dated: January 25, 2002 By: /s/ Gaylen Brotherson
------------------------------------
Gaylen Brotherson
Chairman of the Board and Chief
Executive Officer
Dated: January 25, 2002 By: /s/ Michael Zimmerman
------------------------------------
Michael Zimmerman, Acting Chief
Financial Officer
29