Sanara MedTech Inc. — Annual Report 2004

Apr 8, 2004

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 ------------------------------------------- [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- --------- Commission File Number 0-11808 MB SOFTWARE CORPORATION (Exact name of Registrant as specified in its charter) Texas 59-2220004 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2225 E. Randol Mill Road Suite 305, Arlington, Texas 76011-6306 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (817) 633-9400 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ------------------- ----------------------------------------- Common OTC BULLETIN BOARD Securities registered pursuant to Section 12(g) of the Act: Common Stock $ .001 par value (Title of Class) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [X] No Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenues for its most recent fiscal year: $0. The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2003 was approximately $ 2,453.01. As of December 31, 2003 5,822,810 shares of the Issuer's $.001 par value common stock were outstanding. Transitional Small Business Disclosure Format: Yes [ ] No [X] MB SOFTWARE CORPORATION Form 10-KSB For the Year Ended December 31, 2003 Page ---- ITEM 1. BUSINESS ..........................................................1 ITEM 2. PROPERTIES..........................................................6 ITEM 3. LEGAL PROCEEDINGS...................................................6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................6 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS..........................................6 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........7 ITEM 7. FINANCIAL STATEMENTS ...............................................8 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................................8 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS................................................9 ITEM 10. EXECUTIVE COMPENSATION............................................10 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................10 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................11 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................................12 ITEM 14. CONTROLS AND PROCEDURES............................................13 PART 1 ITEM 1. BUSINESS MB Software Corporation (the "Company") was incorporated in 1982 as a Colorado corporation and was reincorporated in the State of Texas in 2002. The Company is positioned and seeks to be the leading provider of real time prescription drug monitoring services to healthcare professionals and regulatory agencies. We seek to establish ourselves as the leader for emerging electronic healthcare transactions. Historically, little more than billing and eligibility information have been transmitted electronically among healthcare providers and administrators. However, with the increased prevalence of Internet connectivity and adoption, the emergence of new standards and HIPAA legislation, and the growing financial crisis facing the healthcare industry, a new breed of electronic transactions, applications and online services are emerging. To secure our position in this new market, we believe that we are meeting a critical market demand for prescription drug tracking with the offering of our Veriscriptm services through the Company's wholly owned, indirect subsidiary, VPS Holding, LLC. Veriscrip is currently the Company's only product offering. Our first customer for Veriscrip is the Commonwealth of Kentucky, where a pilot project will go live in April which we believe will be the first real time tracking system of its kind in the United States. Veriscrip allows physicians to electronically write scripts via any Windows(R) or Palm(R) compatible device, complete with payor-specific drug formulary information, and electronically send prescriptions to any pharmacy. In addition, Veriscrip provides a tracking mechanism to allow regulators to see when and where scripts were filled. These services are being marketed to state agencies to as a method to help them manage the abuse of prescription drugs and reduce their Medicaid expenses related to abuse of pharmacy benefits. Our primary objective is to successfully complete the Kentucky pilot and secure contracts with other states to provide real time drug diversion tracking solutions tailored to each state. Beyond what we believe to be a compelling case for curbing abuse from a humanitarian perspective, state agencies who enforce compliance using Veriscrip should enjoy Medicaid savings from a reduction in pharmacy benefit fraud. Given the fragile financial position of most state Medicaid programs, we believe this will be of huge benefit to them. Our Veriscrip business model is based on providing electronic prescription writing and tracking services. We believe that the largest portion of our revenue will come from government agencies who will pay for these services through a variety of mechanisms including, but not limited to license fees, transaction fees, and cost savings sharing. Industry Overview Historically, the healthcare transactions market has been almost exclusively comprised of companies offering healthcare providers with "EDI" (Electronic Data Interchange) solutions for submitting medical claims electronically, and acquiring patient eligibility status from insurance companies. Dominating this market are large companies such as WebMD, ProxyMed, NDCHealth, and Per Se' Technologies. These companies have large user bases which consistently transmit their medical billings through the respective networks. These transactions have existed since the 1980's and margins from these transactions are increasingly declining. However, with the increased prevalence of Internet connectivity and adoption, the emergence of new standards and HIPAA legislation, and the growing financial crisis facing the healthcare , a new breed of electronic transactions, applications and online services are emerging. These services will begin to provide transactions that further connect "trading partners" in healthcare much the same way other industries connect throughout supply chains. Fueling the growth of a particular set of transactions is the rising abuse of prescription drugs. The high profile cases featuring celebrities who abuse prescription drugs, combined with increased prevalence of statistics in the media of prescription drug related deaths have increased the pressure on state and federal legislators to pass regulations and implement controls on the systems which administer prescription drugs. This industry has emerged as "Drug Diversion Tracking," and is currently addressed or is being considered for legislation in most states. To address this problem, a number of states have implemented tracking systems that are retrospective and involve heavy amounts of manual intervention. Federal endorsement has come from a number of areas including the DEA's Hal Rogers fund, which provides grants to state agencies to either initiate or enhance their drug monitoring programs. We expect to meet an existing need with an enhanced product offering, which will bring monitoring to a real time basis, and significantly reduce financial and human loss associated with drug abuse. Although not directly competitive, there are a number of companies offering prescription writing software similar to Veriscrip. These offerings are often installed at physician locations on a variety of hardware platforms and allow physicians to write scripts electronically. Few of these offerings have the means to transmit those scripts to pharmacies, and to the knowledge of our management, none are packaging their solution for drug diversion tracking. The landscape for electronic scripts includes both the applications used to create scripts as well as the networks involved in handling both the script orders and the financial side of these transactions. We believe that we have a solution that provides both the application to create electronic prescriptions, and the network that can deliver a script to any pharmacy in the US. In addition, we offer services to state agencies that allows them to track the prescribing and dispensing of prescription drugs in real time. Risk Factors of the Business We have sought to identify what we believe to be the most significant risks to our business. However, we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock. We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could affect us. Lack of Operating History - ------------------------- We entered into the electronic healthcare transactions in November of 2003 with our acquisition of VPS Holding, LLC. Thus, we have only a limited operating history with which you can evaluate our current business model and our prospects and the historical financial data may be of limited value in evaluating our future revenue and operating expenses. Further, you may lose your investment if we are unable to successfully market our services and implement our business plan. We have not been profitable to date. Even if we become profitable in the future, we cannot accurately predict the level of, or our ability to sustain profitability. Because we have not yet been profitable and cannot predict any level of future profitability, you bear the risk of a complete loss of your investment in the event our business plan is unsuccessful. Inability to Obtain Funding - --------------------------- We may not be able to obtain additional funding when needed, which could limit future expansion and marketing opportunities, as well as result in lower than anticipated revenues. We may require additional financing to pursue relationships with other business opportunities. If the market price of the common stock declines, some potential financiers may either refuse to offer us any financing or will offer financing at unacceptable rates or unfavorable terms. If we are unable to obtain financing on favorable terms, or at all, this unavailability could prevent us from expanding our business, which could materially impact our future potential revenues. 2 Continued Control by Existing Management - ---------------------------------------- You may lack an effective vote on corporate matters and management may be able to act contrary to your objectives. Our officers and board members own approximately 92% of the 5,822,810 shares of our outstanding common stock. If management votes together, it will influence the outcome of corporate actions requiring shareholder approval, including the election of directors, mergers and asset sales. As a result, new stockholders may lack an effective vote with respect to the election of directors and other corporate matters. Therefore, it is possible that management may take actions with respect to its ownership interest, which may not be consistent with your objectives or desires. Unproven Business Model - ----------------------- We believe there is a strong market demand for prescription drug tracking services, as highlighted by recent, well publicized cases of celebrities who abuse controlled substances. However, these services are new and have never been offered before in this form, and therefore lack a proven business model. We expect to inure strong revenue from the services we will offer to state agencies but the soundness of our pricing has not yet been tested. Lack of State Budgets (Funding for programs such as Veriscrip) - -------------------------------------------------------------- In the event that State agencies are unable to find the appropriate funds to pay for services or provide internal staff to manage their implementations, we may fail to secure state contracts and revenue and ultimately be forced to discontinue operations. User resistance - --------------- In the event that state legislation does not strongly support the adoption of real time monitoring, our implementations could fail, resulting in loss of revenue or inability to garner revenue secured by existing contracts. In the event that resistance is organized, it could even overturn legislation which will enforce adoption of services such as Veriscrip. Regulations - ----------- HIPAA and other healthcare legislation remains in a period of maturing, during which time a number of unforeseen changes related to privacy or healthcare transaction standards could impact our business. Although not expected to preclude use from offering our services, such changes could cause us to incur additional expenses in order to make changes to our product and service offerings. Competition - ----------- There are currently a number of companies offering solutions for electronic prescription services. Any or several of these companies may seek to enter our market and focus on regulatory tracking. Given their larger existing install bases, we may have difficulty competing for contracts if put out for bid. In addition, large companies in related industries (such as medical claims processing or financial transaction processing for scripts) may elect to enter our market space and leverage their existing relationships with large pharmacy chains, pharmacy benefits managers, or even physician software providers. A move like this by any number of large companies would present a number of challenges to our ability to capture customers required to either fill or bid on contracts. Dividends - --------- We have not paid and do not currently intend to pay dividends, which may limit the current return you may receive on your investment in our common stock. Future dividends on our common stock, if any, will depend on our future earnings, capital requirements, financial condition and other factors. We currently intend to retain earnings, if any, to increase our net worth and 3 reserves. Therefore, we do not anticipate that any holder of common stock will receive any cash, stock or other dividends on his shares of common stock at any time in the near future. You should not expect or rely on the potential payment of dividends as a source of current income. Applicable SEC rules governing the trading of "Penny Stocks" limits the trading - -------------------------------------------------------------------------------- and liquidity of our common stock, which may affect the trading price of our - -------------------------------------------------------------------------------- common stock. - ------------- Our common stock currently trades on the OTC Bulletin Board. Since our common stock continues to trade below $5.00 per share, our common stock is considered a "penny stock" and is subject to SEC rules and regulations, which impose limitations upon the manner in which our shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser's written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock. Stockholders should be aware that, according to the Securities and Exchange Commission Release No. 34- 29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These patterns include: - Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; - Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; - "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons; - Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and - The wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. Furthermore, the "penny stock" designation may adversely affect the development of any public market for the Company's shares of common stock or, if such a market develops, its continuation. Broker-dealers are required to personally determine whether an investment in "penny stock" is suitable for customers. Penny stocks are securities (i) with a price of less than five dollars per share; (ii) that are not traded on a "recognized" national exchange; (iii) whose prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an issuer with net tangible assets less than $2,000,000 (if the issuer has been in continuous operation for at least three years) or $5,000,000 (if in continuous operation for less than three years), or with average annual revenues of less than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Potential investors in the Company's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock." Rule 15g-9 of the Commission requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, 4 investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for the Company's stockholders to resell their shares to third parties or to otherwise dispose of them. Future sales of large amounts of common stock could adversely effect the market - -------------------------------------------------------------------------------- price of our common stock and our ability to raise capital. - ----------------------------------------------------------- Future sales of our common stock by existing stockholders pursuant to Rule 144 under the Securities Act of 1933, or following the exercise of future option grants, could adversely affect the market price of our common stock. Our directors and executive officers and their family members are not under lockup letters or other forms of restriction on the sale of their common stock. The issuance of any or all of these additional shares upon exercise of options will dilute the voting power of our current stockholders on corporate matters and, as a result, may cause the market price of our common stock to decrease. Further, sales of a large number of shares of common stock in the public market could adversely affect the market price of the common stock and could materially impair our future ability to generate funds through sales of common stock or other equity securities. Dependence on Executive Officers and Technical Personnel - -------------------------------------------------------- The success of our business plan depends on attracting qualified personnel, and failure to retain the necessary personnel could adversely affect our business. Competition for qualified personnel is intense, and we may need to pay premium wages to attract and retain personnel. Attracting and retaining qualified personnel is critical to our business. Inability to attract and retain the qualified personnel necessary would limit our ability to implement our business plan successfully. Adverse Effect of Shares Eligible for Future Sale - ------------------------------------------------- Future sales of large amounts of common stock could adversely affect the market price of our common stock and our ability to raise capital. Future sales of our common stock by existing stockholders pursuant to Rule 144 under the Securities Act, or following the exercise of outstanding options, could adversely affect the market price of our common stock. Substantially all of the outstanding shares of our common stock are freely tradable, without restriction or registration under the Securities Act, other than the sales volume restrictions of Rule 144 applicable to shares held beneficially by persons who may be deemed to be affiliates. Our directors and executive officers and their family members are not under lockup letters or other forms of restriction on the sale of their common stock. The issuance of any or all of these additional shares upon exercise of options will dilute the voting power of our current stockholders on corporate matters and, as a result, may cause the market price of our common stock to decrease. Further, sales of a large number of shares of common stock in the public market could adversely affect the market price of the common stock and could materially impair our future ability to generate funds through sales of common stock or other equity securities. Potential Fluctuations in Quarterly Results - ------------------------------------------- Significant variations in our quarterly operating results may adversely affect the market price of our common stock. Our operating results have varied on a quarterly basis during our operating history, and we expect to experience significant fluctuations in future quarterly operating results. These fluctuations have been and may in the future be caused by numerous factors, many of which are outside of our control. We believe that period-to-period comparisons of our results of operations will not necessarily be meaningful and that you should not rely upon them as an indication of future performance. Also, 5 it is likely that our operating results could be below the expectations of public market analysts and investors. This could adversely affect the market price of our common stock. Employees - --------- The Company does not currently have any employees. However, it does utilize the administrative services of an employee of an entity controlled by the President of the Company and intends to hire full time employees in the first quarter of 2004. Reports to Security Holders - --------------------------- The Company is required to deliver period and other reports to the Securities and Exchange Commission ("Commission"). The public may read and copy any materials that are filed by the Company with the Commission at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by the Company with the Commission have been filed electronically and are available for viewing or copy on the Commission maintained Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the Commission. The Internet address for this site can be found at: http://www.sec.gov. ITEM 2. PROERTIES The Company's principal executive office is located at 2225 E. Randol Mill Road, Suite 305, Arlington, TX 76011. These premises are leased by an entity controlled by the President of the Company. At present, the Company pays no rent and the Company does not anticipate requiring any additional office space in the next twelve months. ITEM 3. LEGAL PROCEEDINGS None. On March 8, 2004, VPS Holdings, LLC., received a letter from attorneys representing Nevoca.com. The letter implies that the Company's Veriscrip technology may violate a patent held by Nevoca. We do not believe that our technology violates the Nevoca patent and have not entertained any discussions regarding licensing the Nevoca patent. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the security holders, through the solicitation of proxies or otherwise, during the fourth quarter ended December 31, 2003. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is quoted on the Over the Counter Bulletin Board, a service maintained by the National Association of Securities Dealer, Inc. under the symbol "MBSB". Trading in the common stock in the over-the-counter market has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. Further, these prices reflect inter-dealer prices without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions. 6 The high and low sales prices are as follows for the periods indicated: -------- ----------------------- --------- --------- YEAR QUARTER ENDING HIGH LOW -------- ----------------------- --------- --------- 2002 March 31, 2002 $0.05 $0.02 -------- ----------------------- --------- --------- June 30, 2002 $0.01 $0.01 -------- ----------------------- --------- --------- September 30, 2002 $0.01 $0.01 -------- ----------------------- --------- --------- December 31, 2002 $0.01 $0.01 -------- ----------------------- --------- --------- 2003 March 31, 2003 $0.01 $0.01 -------- ----------------------- --------- --------- June 30, 2003 $0.01 $0.01 -------- ----------------------- --------- --------- September 30, 2003 $0.01 $0.01 -------- ----------------------- --------- --------- December 31, 2003 $0.01 $0.01 -------- ----------------------- --------- --------- *does not reflect split adjusted price resulting from 100:1 reverse stock split effective June 24, 2002. Record Holders - -------------- As of December 31, 2003, there were approximately 2000 shareholders of record holding a total of 5,822,810 shares of common stock. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock. Dividends - --------- The Company has not declared any cash dividends since inception and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the board of directors and will depend on the Company's earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Company's ability to pay dividends on its common stock other than those generally imposed by applicable state law. The Company has determined that it will utilize any earnings in the expansion of its business. ITEM 6. MANAGEMENT'S PLAN OF OPERATION Plan of Operation - ----------------- The Company currently has limited business operations, maintaining leased offices in Arlington, TX, and Lexington, KY. Business activities currently include sales and marketing activities to state organizations, and the implementation and management of the KY pilot program. Through its informal pre-marketing and marketing activities, and its pilot program, the Company continues to refine its strategy to secure a strong position in the online healthcare transactions market. Management intends to draft this strategy into a formal business plan, internally fund operations, and may consider raising external funds upon successful implementation of the KY pilot. Pursuant to its strategy, the Company secured a license for an additional prescription transaction system that it will incorporate into its Veriscrip offering. The company's primary expenses are expected to be marketing and development/customization for state by state projects. During 2004, the Company anticipates hiring a number of management, marketing, and technical staff to secure contracts and further increase our product offering. 7 Liquidity and Capital Resources As of December 31, 2003, the Company had no significant assets other than it's contract for the Kentucky pilot project. The Company anticipates that its major shareholders will contribute sufficient funds to satisfy the cash needs of the Company through calendar year ending December 31, 2004. However, there can be no assurances to that effect, as the Company has minimal revenues and the Company's need for capital may change dramatically if it acquires an interest in a business opportunity during that period, or secures a contract with a state agency. Going Concern - ------------- The independent auditors' report contains language indicating that the financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company has continuously incurred losses from operations and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is the Company's belief that it will continue to incur nominal losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its officers and shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has no revenues and the Company's need for capital may change dramatically if it is successful in acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. To meet these objectives, management's plans are to (i) raise capital by obtaining financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from officers and shareholders as necessary. The Company's future ability to achieve these objectives cannot be determined at this time. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty and should not be regarded as typical for normal operating periods. ITEM 7. FINANCIAL STATEMENTS The financial statements of the Company are filed as an exhibit hereto. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 8A. CONTROLS AND PROCEDURES The chief executive officer and the principal financial officer of the Company have concluded based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Commission in such reports is accumulated and communicated to the Company's management, including the president, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. 8 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE The following table sets forth certain information regarding the directors and executive officers of the Company: Year First Name Age Position Elected - ---- ----- -------- ------- Scott A. Haire 39 Chairman, Chief Executive Officer, President and Director 1993 Gilbert A. Valdez 60 Director 1996 Araldo A. Cossutta 79 Director 1994 Steven W. Evans 53 Director 1994 Robert E. Gross 59 Director 1994 Thomas J. Kirchhofer 63 Director 1994 Executive Officers of the Compa ny are elected on an annual basis and serve at the discretion of the Board of Directors. Directors of the Company are elected on an annual basis. All directors agreed to remain until the 2004 annual meeting. Scott A. Haire is Chairman of the Board, Chief Executive Officer and President of the Company. Prior to founding MedBanc Data Corporation, he was an employee of the Company from November 1993 to June 1994. Previously, Mr. Haire was president of Preferred Payment Systems, a company specializing in electronic claims and insurance system related projects. Gilbert A. Valdez is Chief Operating Officer of the Company and past President and CEO of four major financial and healthcare corporations. Most recently, he served as CEO of Hospital Billing and Collection Services, Inc., a $550 million healthcare receivables financing entity located in Wilmington, Delaware; Datix Corporation, an Atlanta-based corporate divestiture from Harris-Lanier; Medaphis Corporation, an interstate, multi-dimensional healthcare service agency based in Atlanta; and NEIC, a national consortium of 40 major insurance companies formed for development of electronic claim billing standards. Mr. Valdez has 30 years of senior healthcare receivables financing experience. Araldo A. Cossutta is President of Cossutta and Associates, an architectural firm based in New York City, with major projects throughout the world. Previously, he was a partner with I.M. Pei & Partners and is a graduate of the Harvard Graduate School of Design and the Ecole des Beaux Arts in Paris. Mr. Cossutta was a significant shareholder in Personal Computer Card Corporation ("PC3") and was chairman of PC3 at the time of its acquisition by the Company in November 1993. He is also was a large shareholder and director of Computer Integration Corporation of Boca Raton, Florida from 1993 to 2000. Steven W. Evans is a Certified Public Accountant and President of Evans Phillips & Co., PSC, an accounting firm which he established in 1976 in Barbourville and Middlesboro, Kentucky. He is also a founder and active in PTRL, which operates contract research laboratories located in Kentucky, North Carolina, California and Germany. He is also a founder and active in the management of environmental, financial and hotel corporations in Kentucky and Tennessee. Robert E. Gross is President of R. E. Gross & Associates, providing consulting and systems projects for clients in the multi-location service, banking and healthcare industries. From 1987 to 1990, he was vice president - technical operations for Medaphis Physicians Service Corp., Atlanta, Georgia. Prior to that, he held executive positions with Chi-Chi's, Inc., Royal Crown and TigerAir. He also spent 13 years as an engineer with IBM. 9

Compensation of Directors - ------------------------- The Company's directors are not currently compensated for their services as a director of the Company and are not currently reimbursed for out-of-pocket costs incurred in attending meetings. Board of Directors Committees - ----------------------------- The board of directors has not yet established an audit committee or a compensation committee. An audit committee typically reviews, acts on and reports to the board of directors with respect to various auditing and accounting matters, including the recommendations and performance of independent auditors, the scope of the annual audits, fees to be paid to the independent auditors, and internal accounting and financial control policies and procedures. Certain stock exchanges currently require companies to adopt a formal written charter that establishes an audit committee that specifies the scope of an audit committee's responsibilities and the means by which it carries out those responsibilities. In order to be listed on any of these exchanges, we will be required to establish an audit committee. The board of directors has not yet established a compensation committee. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning the ownership of the Company's common stock as of December 31, 2003, with respect to: (i) each person known to the Company to be the beneficial owner of more than five percent 10 of the Company's common stock; (ii) all directors; and (iii) directors and executive officers of the Company as a group. The notes accompanying the information in the table below are necessary for a complete understanding of the figures provided below. As of December 31, 2003, there were 5,822,810 shares of common stock issued and outstanding. Amount and Nature Title Name of Beneficial of Beneficial Percent Class Owner of Group (1) Ownership of Class - ----- ------------------ --------- -------- Common Scott A. Haire2 1,971,667 34% Common Araldo A. Cossutta3 1,725,000 30% Common Steven W. Evans4 1,333,333 23% Common Thomas J. Kirchhofer5 1,500 * Common Robert E. Gross6 2,000 * Common Gilbert Valdez7 6,000 * Common All Directors and Executive Officers As a Group (six in number) 5,357,713 92% Common Robert Shaw8 110,000 2% Common Imagine Investments 45,000 % * Less than 1% (1) Unless otherwise noted, the address for each person or entity listed is 2225 E. Randol Mill Road, Suite 305, Arlington, Texas, 76011. (2) Includes 33,000 shares subject to stock options that are presently exercisable. (3) Includes 1,000 shares subject to stock options that are presently exercisable. (4) Includes 2,000 shares subject to options that are presently exercisable. (5) Consists 1,500 of shares subject to options that are presently exercisable. (6) Consists 2,000 of shares subject to options that are presently exercisable. (7) Includes 3,000 shares subject to options that are presently exercisable. (8) Mr. Shaw has sole voting and dispositive power with respect to 1,506 shares and shares voting and dispositive power with respect to 131,494 shares. Mr. Shaw is presently principally occupied as an executive officer and director of Consolidated National Corporation ("CNC"), a privately held company organized under the laws of the State of Florida. CNC has sole voting and dispositive power with respect to 21,494 shares. The principal business of CNC is investment, management and consulting. Mr. Shaw is an affiliate of RMS Investments, Ltd., a limited partnership organized under the laws of the State of Florida ("RMS"). RMS has sole voting and dispositive power with respect to 110,000 shares. The principal business of RMS Investments, Ltd. is investment holdings. Mr. Shaw is also a director and President of Imagine. Each of Mr. Shaw, CNC and RMS have their principal business and principal office address at 504 Clubside Circle, Venice, Florida 34293. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Effective August 1, 2002, the Company sold its 99% equity interest in eAppliance Innvoations, LLC to eAppliance Payment Solutions, LLC in exchange for the assumption by eAppliance Payment Solutions, LLC of substantially all of the Company's liabilities. Mr. Scott A. Haire, the Company's President and Chief 11 Executive Officer directly owns 0.5%, of the membership interests in Payment Solutions, and beneficially may be deemed to own an additional 57.8% through HEB LLC and SAH, LLC. Mr. Haire is also the Manager of Payment Solutions. Mr. Gilbert Valdez and Mr. Araldo Cossutta, each a director of the Company, directly own 0.5%, and 16.44%, respectively, of the membership interest in Payment Solutions. Mr. Cossutta may be deemed to beneficially own an additional 8.38% of the membership interests of Payment Solutions thorough Patricia Cossutta, his wife. Mr. Richard F. Dahlson, a partner with the law firm of Jackson Walker L.L.P., the Company's chief legal counsel, owns 7.51% of the membership interest in Payment Solutions. Effective November 10, 2003, the Company acquired MB Holding Corporation through a merger transaction, for an aggregate of 5,000,000 shares of the Company's common stock. Messrs. Haire and Cossutta, were the sole owners of MB Holding Corporation. In connection with the acquistion, Mr. Steven Evans, one of the Company's directors, received a portion of the 5,000,000 shares issued in the acquistion. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit No. 3.1 Articles of Incorporation. (incorporated by reference to the Company's Form 10-QSB for the fiscal quarter ended June 30, 2002) 3.2 Bylaws. (incorporated by reference to the Company's Form 10-QSB for the fiscal quarter ended June 30, 2002) 10.1 Restructure and Settlement Agreement dated as of November 5, 2001 by and among MB Software Corporation, Healthcare Innovations, LLC, Imagine Investments, Inc., and XHI(2), Inc. (incorporated by reference to the Company's Form 10-QSB for the fiscal quarter ended September 30, 2001) 10.2 Agreement and Plan of Merger, dated as of November 10, 2003 by and among MBH Acquisition, Inc., MB Software Corporation, MB Holding Corporation, and all of the stockholders of MB Holding Corporation. (incorporated by reference to the Company's Current Report on Form 8-K, filed with the commission on November 21, 2003) 31.1 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002* * Filed herewith (b) Reports on Form 8-K. None. The Company filed one Current Report on Form 8-K on November 21, 2003 reporting the acquisition of MB Holding Corporation under Items 2 and 7, of such Report. 12 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Clancy and Co., P.L.L.C. served as the independent auditors of the Company for the years ended December 31, 2003 and 2002. The Company's board of directors pre-approves all services performed by the Company's principal auditor. During 2003 and 2002, the Company retained its principal auditor, Clancy and Co., P.L.L.C., to provide services in the following categories and amounts: 2003 2002 Audit Fees $ 9,000.00 $ 11,850.00 Audit-Related Fees 1,650.00 3,000.00 Tax Fees -- -- All Other Fees 870.00 -- ----------- ----------- Total $ 11,520.00 $ 14,850.00 The Audit fees for the years ended December 31, 2003 and 2002 were for professional services rendered for the audit of the consolidated financial statements of the Company. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 6th day of April 2004. In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/ Scott A. Haire CEO, President, Chairman and Principal - ------------------ Financial Officer April 8, 2004 Scott A. Haire 13 INDEX TO EXHIBITS (a) Exhibits 31.1 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 14 MB SOFTWARE CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements - -------------------------------------------------------------------------------- Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . .F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) . . .F-5 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . .F-6 - F-7 Notes to the Consolidated Financial Statements . . . . . . . . . . . F-8 - F-20 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of MB Software Corporation We have audited the accompanying consolidated balance sheet of MB Software Corporation, a Texas Corporation, and Subsidiaries (the "Company") as of December 31, 2003, and the related consolidated statements of operations, changes in stockholders' equity (deficiency), and cash flows for the years ended December 31, 2003 and 2002. These consolidated 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 generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits of the financial statements provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2003, and the results of their operations and their cash flows for the preceding two years then ended, in conformity with generally accepted accounting principles in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring losses and has a significant accumulated deficit. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Clancy and Co., P.L.L.C. Phoenix, Arizona March 10, 2004 F-2 MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 2003 ASSETS - ------ Current Assets Cash $ 385 Due from related parties (Note 4) 467,760 ----------- Total current assets 468,145 Other Assets License, net of amortization of $31,667 (Note 3) 68,333 ----------- Total Assets $ 536,478 =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY - ---------------------------------------- Current liabilities Accounts payable $ 56,724 Notes payable (Note 5) 457,500 Accrued interest payable (Note 5) 45,154 ----------- Total current liabilities 559,378 Stockholders' Deficiency Preferred stock, $10 par value, 5,000,000 shares authorized; issued and outstanding none -- Common stock: $0.001 par value; 20,000,000 shares authorized; issued and outstanding 5,822,810 5,823 Additional paid-in capital 9,032,385 Accumulated deficit (9,049,069) ----------- (10,861) Less: treasury stock, at cost; 4,089 shares (12,039) ----------- Total stockholders' deficiency (22,900) ----------- Total Liabilities and Stockholders' Deficiency $ 536,478 =========== The accompanying notes are an integral part of these consolidated financial statements. F-3

The accompanying notes are an integral part of these consolidated financial statements. F-4

The accompanying notes are an integral part of these consolidated financial statements. F-5

The accompanying notes are an integral part of these consolidated financial statements. F-6

The accompanying notes are an integral part of these consolidated financial statements. F-7 MB SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------------- Organization and Nature of Operations MB Software Corporation (the "Company") was originally formed on August 27, 1982, in the State of Colorado and after several name changes and a change of domicile, is now known as MB Software Corporation, a Texas Corporation, with an authorized capital of 20,000,000 shares of $0.001 par value common stock and 5,000,000 shares of $10 par value preferred stock. Effective June 13, 2002, the Company reincorporated in the State of Texas through a merger of the Company with a newly formed wholly-owned subsidiary. At the effective date of the merger, each share of the Company's outstanding common stock was converted into one share of the reincorporated company's common stock and all options to purchase shares of the Company's common stock were converted into options to purchase shares of the reincorporated company's common stock at the time of the merger. All of the Company's officers and directors became officers and directors of the reincorporated company after the merger. The reincorporation was approved at the Company's Annual Meeting of Shareholders held on February 11, 2002. Effective June 24, 2002, the Company effected a one-for-one hundred reverse stock split and amended the Company's Articles of Incorporation to reduce the number of authorized shares of common stock from 150,000,000 shares to 20,000,000 shares, and increased the number of authorized shares of preferred stock from 1,000,000 shares to 5,000,000 shares (the "Amendment"). The reverse stock split and Amendment were approved by the Board of Directors and by a majority of the Company's shareholders on June 21, 2002. The Company has acquired the license to proprietary software that provides real-time prescription monitoring by electronically capturing electronic prescriptions for scheduled drugs from physicians' offices, transmitting those prescriptions to participating pharmacies electronically, and providing associated information on those prescriptions to State Regulators. Significant Accounting Policies Principles of consolidation and presentation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and its majority-owned (99%) subsidiary. The minority interest (1%) is owned 0.5% by the Company's president and majority stockholder and 0.5% by a director of the Company. The Company fully consolidates the assets, liabilities, revenues and expenses of its majority-owned subsidiary because it has control over the operating and financing decisions of this subsidiary, and the operating results or financial position would not differ from those that would have been obtained if the entity was wholly-owned. All intercompany transactions and balances have been eliminated upon consolidation. The Company's financial statements include the combined statements of financial position, results of operations and cash flows for the entities merged as a result of certain merger agreements completed during 2003. (See Note 3 for details) The Company remains as the reporting entity and its balance sheet and other financial information have been updated as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial statements and financial information presented for the prior year have been restated to furnish comparative information. All restated financial statements reflect the combined results of operations and cash flows of the previously separate entities. F-8 Business combinations - Transfers and exchanges of assets between companies under common control are accounted for at historical cost in a manner similar to that in a pooling of interests accounting. The excess of the cost of the asset acquired over the net assets sold at their book values are charged to additional paid-in capital. Accounting basis - The Company's financial statements are prepared using the accrual basis of accounting. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Actual results could differ from those estimates. Business and credit risk concentrations - The Company maintains its cash in bank deposit accounts at high quality financial institutions. The balances at times, may exceed Federally insured limits. Cash and cash equivalents - The Company considers all cash on hand and in banks, demand and time deposits, and all other highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Property and equipment - Property and equipment are stated at cost. Depreciation for financial statement purposes is computed principally on the straight-line method over the estimated useful lives of the related assets ranging from five to seven years. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. Depreciation expense amounted to $nil for 2003 (2002: $10,016). Revenue recognition - Revenue from licenses is recognized when the license term begins and the licensed technology is physically delivered to the customer. Revenues from discontinued operations consist of sales of the Company's medical clinic fees, which are recognized at the time the medical services are rendered. (See Note 11 for discontinued operations) Software development - The Company capitalizes software development costs after technological feasibility has been established in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Software costs are amortized over the greater of the ratio that current gross revenues bear to the current and future gross revenues or amortized using the straight-line basis over the estimated economic life of the software. Net software license costs purchased from Portalook of $307,316 were written off during 2002. Software development costs incurred by the Company for 2002 were $70,000. There were no software development costs for 2003. Long-lived assets - Long-lived assets and certain identifiable intangibles to be held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company continuously evaluates the recoverability of its long-lived assets based on estimated future cash flows and the estimated liquidation value of such long-lived assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the long-lived assets. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. F-9 Intangible assets - Intangible assets represent a license that is being amortized over a period of sixty months. Amortization for 2003 was $20,000 (2002: $11,667). The gross carrying amount is $100,000 and accumulated amortization is $31,667. The aggregate amortization for each of the succeeding years is as follows: 2004: $20,000; 2005: $20,000; 2006: $20,000; and 2007: $8,333. Income taxes - The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary, to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Stock-based compensation - The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. SFAS No.123, "Accounting for Stock-Based Compensation," established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. The Company has elected to remain on its current method of accounting as described above, and has adopted the pro forma disclosure requirements only of SFAS No. 123. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", amending FASB No. 123, and "Accounting for Stock-Based Compensation". This statement amends Statement No. 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 amends APB Opinion No. 28 "Interim Financial Reporting" to require disclosure about those effects in interim financial information. The Company adopted the disclosure provisions and amendment to APB No. 28, effective for interim periods beginning after December 15, 2002. Earnings per share - Basic earnings or loss per share is based on the weighted average number of common shares outstanding. Diluted earnings or loss per share is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. Basic earnings/loss per share is computed by dividing net income/loss (numerator) by the weighted average number of common shares outstanding (denominator) for the period. All earnings or loss per share amounts in the financial statements are basic earnings or loss per share, as defined by SFAS No. 128, "Earnings Per Share." Diluted earnings or loss per share does not differ materially from basic earnings or loss per share for all periods presented. Convertible securities that could potentially dilute basic earnings or loss per share in the future, such as options and warrants, are not included in the computation of diluted earnings or loss per share because to do so would be antidilutive. All per share and per share information are adjusted retroactively to reflect stock splits and changes in par value. Related party transactions - A related party is generally defined as (i) any person that holds 10% or more of the Company's securities and their immediate families, (ii) the Company's management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. (See Note 4) Recent accounting pronouncements - The Financial Accounting Standards Board ("FASB") has issued the following pronouncements, none of which have a significant affect on the financial statements: F-10 January 2003 - FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. April 2003 - SFAS No. 149, "Accounting for Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is generally effective for contracts entered into or modified after June 30, 2003, and all provisions should be applied prospectively. May 2003 - SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. NOTE 2 - GOING CONCERN - ---------------------- The financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company has continuously incurred losses from operations and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. It is the Company's belief that it will continue to incur losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. To meet these objectives, management's plans are to (i) raise capital by obtaining financing from debt financing and / or equity financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from shareholders as necessary. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has no revenues and the Company's need for capital may change dramatically if it is successful in expanding its current business or acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. Management believes that actions presently taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company's future ability to achieve these objectives cannot be determined at this time. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-11 NOTE 3 - ACQUISITIONS AND DISPOSITIONS - -------------------------------------- Portalook, Inc. ("Portalook") In July of 2001, the Company acquired certain assets and assumed certain liabilities of Portalook, a California based company, which developed proprietary technology for use in enabling Internet Transaction Devices ("ITD's") to be used as transaction processing devices in the field. North Florida Physical Medicine, LLC ("NFPM") On July 31, 2001 the Company purchased certain assets including: inventory valued at $140,000, property and equipment valued at $84,000, and a software license valued at $420,000 from Portalook. The purchase price was allocated to the assets acquired based on their relative fair values on the purchase date. The purchase price for the assets was cash of $40,000, a payable of $184,000, assumed liability of $30,000 and 3,000,000 shares of common stock valued at $390,000, based on the fair value of the common stock on the purchase date. The purchase of the Portalook assets allowed the Company to sell internet transaction devices and to develop supporting services. During the second quarter of 2002, the Company wrote off the net assets acquired in the transaction and it no longer sells internet transaction devices. The net assets of $292,257 included accounts receivable of $7,250, software license (net of amortization) of $307,316, inventory of $131,740, server (net of depreciation) of $68,600, deferred revenues of $16,149, payable of $184,000, and the remaining assumed liability of $22,500. The Company does not believe any further recourse will arise as a result of its actions, however there is a remote possibility it could be contingently liable for these liabilities. The financial statements do not include any reserves for future claims. (See Note 8) North Florida Physical Medicine, LLC ("NFPM") On November 5, 2001, the Company entered into a Restructure and Settlement Agreement with Imagine Investments, Inc. ("Imagine"), which was approved by the shareholders on February 11, 2002. Pursuant to the agreement, the Company transferred its interest in NFPM and issued common stock in exchange for settlement of debt and preferred stock. As a result of this agreement, certain assets, liabilities and operations of NFPM are presented as discontinued. (See Note 11) On May 8, 2002, the Company completed the Restructure and Settlement Agreement with Imagine for the sale of the Company's medical clinics business (NFPM). In accordance with the agreement, proceeds ($4,634,203) represented the conversion of 340,000 shares of Series A Convertible Preferred Stock ($3,400,000), dividends in arrears ($45,644), convertible debt ($800,000) and accrued interest on the debt ($388,559), all held by Imagine, into 4,500,000 shares of common stock and the Company conveyed to Imagine its ownership in NFPM. The fair market value of the consideration given was $690,275 representing the net assets in NFPM ($629,999) and the fair market value of the 4,500,000 shares of common stock ($60,276). No gain or loss on the transaction with the preferred stockholder was recognized. The transaction resulted in a net increase in stockholders' equity of approximately $850,000. The calculation of the gain or loss did not include $1,178,977 of cumulative preferred stock dividends, which were not required to be paid to Imagine as part of the sale because these dividends were cumulative, but have never been declared as a result of past net losses. The exclusion of the dividends in the calculation does not have any effect on total stockholders' equity. (See Note 11) eAppliance Innovations, LLC Effective August 1, 2002, the Company sold its ninety-nine percent interest in e-Appliance Innovations, LLC, a Nevada limited liability company, to e-Appliance Payment Solutions, LLC, a Nevada limited liability company ("Payment Solutions"), in exchange for the assumption by Payment Solutions of substantially all the Company's liabilities. E-Appliance Innovations constituted F-12 substantially all of the assets of the Company, and held all of the Company's rights to the Company's proprietary technology designed to enable Internet transaction devices (ITDs) to be used as transaction processing devices in the field and the software programs implementing this technology that were developed or acquired by the Company (the "Technology"). In connection with this sale, Payment Solutions granted the Company a worldwide, royalty-free, perpetual, non-exclusive license to use the Technology to develop, market, sell and operate electronic client services to be made available to clients through the Company's computer network. The transaction resulted in a decrease in liabilities and an increase in total stockholders' equity of approximately $2,247,000. The transaction occurred between entities under common control. MB Holding Corporation ("MBH") On November 10, 2003, the Company completed a merger agreement with MBH Acquisition, Inc. ("MBHAI"), a Nevada Corporation and wholly-owned subsidiary of the Company, and MB Holding Corporation ("MBH"), a Nevada Corporation, under reorganization within the meaning of Internal Revenue Code Section 368(a). MBHAI was a newly formed entity for the purpose of the merger, and it had no assets or liabilities of any kind whatsoever. Subsequent to the merger, MBHAI's existence ceased and MBH continued as the surviving entity. MBH, through its wholly-owned subsidiary Envoii Healthcare L.L.C. ("Envoii"), a Nevada limited liability company, has developed a system for transmitting electronic documents in a secure environment. This system is targeted toward meeting the privacy and data security requirements of the healthcare industry imposed by the Health Insurance Portability and Accountability Act of 1996. The consideration paid by the Company for MBH consisted of an aggregate of 5,000,000 restricted shares of the Company's common stock. The shares were issued to Scott Haire ("Haire") and Araldo Cossutta ("Cossutta"), the sole stockholders of MBH, in proportionate share to their respective holdings in MBH. Both Haire and Cossutta are directors of the Company, and Haire is also the Company's Chairman of the Board, Chief Executive Officer and President. The shares were issued by the Company pursuant to an exemption (Section 4(2)) from the registration requirements of the Securities Act of 1933, as amended. The shares were valued at the historical cost basis of the transferred entity because the assets were transferred between entities under common control. As a result of the net assets transferred, the Company remains as the reporting entity and its balance sheet and other financial information have been updated as of the beginning of the period as though the assets and liabilities had been transferred at that date. Financial statements and financial information presented for the prior year have been restated to furnish comparative information. All restated financial statements reflect the combined results of operations and cash flows of the previously separate entities. Prior to and contingent upon the merger agreement discussed above, Envoii completed a merger with Envoii Acquisition LLC ("EAI", newly formed for purposes of the merger only) and MBH, under reorganization within the meaning of Internal Revenue Code Section 368(a). Subsequent to the merger, EAI's existence ceased and Envoii was the surviving company and now a wholly-owned subsidiary of MBH. The membership interests in Envoii were owned 67% Haire (majority shareholder of MB Software Corporation and its Chairman/CEO/President) and 33% Cossutta (a director of MB Software Corporation). MBH's outstanding shares were 1,000, which were held by the sole shareholders of Haire (669 shares) and Cossutta (331 shares). Envoii Healthcare, L.L.C. On June 14, 2002, Envoii Healthcare, L.L.C. purchased a license from Envoii Inc. (unrelated party) for $100,000. The license granted Envoii Healthcare the exclusive right to Envoii Inc.'s proprietary software and Helathcare Exclusive domain for its own business. The term of the agreement was for 24 months, with automatic renewal provisions for one-year periods unless terminated by either party. On July 24, 2003, Envoii Healthcare, L.L.C. transferred the license to Envoii Technologies, L.L.C. F-13 During 2003, Envoii Inc. declared bankruptcy and Envoii Healthcare, L.L.C. bought certain assets pursuant to an Asset Purchase Agreement dated May 6, 2003 for $75,000. Envoii Healthcare also paid approximately $40,000 for expenses incurred in connection with the Envoii Inc. bankruptcy. On July 24, 2003, Envoii Healthcare, L.L.C. and Envoii Technologies, L.L.C. (identical parties in each entity) completed an Asset Purchase Agreement for the purchase of certain assets for consideration of $375,000 with a cost basis of $71,292 for a net gain on the transaction of $303,708. Envoii Healthcare and Envoii Technolgoies are controlled by identical parties, Haire, which is the Company's President, Chairman and CEO, and Cossutta, one of the Company's directors. Both Haire and Cossutta converted notes payable totaling $240,800 to capital and then applied the capital to the purchase price of the transaction leaving a net balance due of $134,200 at December 31, 2003. Since the transaction occurred between entities under common control, no gain on the transaction was recognized, but credited to additional paid-in capital. (See Note 4) NOTE 4 - RELATED PARTY TRANSACTIONS - ----------------------------------- Amounts due from related parties Amounts due from related parties at December 31, 2003 totaling $467,760 represent (1) $333,560 of funds advanced, as necessary, from various entities controlled by the president of this Company and (2) $134,200 representing the balance due from an entity controlled by the Company's President for the purchase of certain assets pursuant to an Asset Purchase Agreement dated July 24, 2003 between Envoii Healthcare, L.L.C. and Envoii Technologies, L.L.C. (See Note 3), both related parties. The amounts due are interest-free, unsecured and repayable on demand. Note receivable Notes receivable due from Scott A. Haire, a related party, dated November 1, 1999, bearing interest at 8% per annum, for the original principal sum of $350,000 and accrued interest through June 30, 2002 of $47,359 were written off during 2002 as management deemed it impaired. Notes payable The Company converted various notes payable to shareholders and other related parties during 2003 and 2002. Interest expense incurred under related party notes payable for the year ended December 31, 2002 was approximately $126,000. Administrative services The Company provides limited administrative services to other companies affiliated through common ownership of Company shareholders. Merger acquisition On November 10, 2003, the Company completed a merger agreement with MBH, whose directors and officers are the same as the Company's directors and officers. (See Note 3 for details) Divestiture of Assets Effective August 1, 2002, the Company sold substantially all of its assets to Payment Solutions, in exchange for the assumption by Payment Solutions of substantially all of the Company's liabilities. Mr. Scott A. Haire, the Company's President and Chief Executive Officer directly owns 0.5%, of the membership interests in Payment Solutions, and beneficially may be deemed to own an additional 57.8% through HEB LLC and SAH, LLC. Mr. Haire is also the Manager of Payment Solutions. (See Note 3 for details) F-14 Mr. Gilbert Valdez, and Mr. Araldo Cossutta, each a director of the Company, directly own 0.5%, and 16.44%, respectively, of the membership interest in Payment Solutions. Mr. Cossutta may be deemed to beneficially own an additional 8.38% of the membership interests of Payment Solutions thorough Patricia Cossutta, his wife. Mr. Richard F. Dahlson, a partner with the law firm of Jackson Walker L.L.P., the Company's chief legal counsel, owns 7.51% of the membership interest in Payment Solutions. Properties The Company's headquarters are located at 2255 E. Randol Mill Road, Suite 305, Arlington, Texas, 76011. The Company was obligated for rent expense under a noncancelable lease at the rate of $2,720 per month until the Company divested its assets. (See Note 3) Subsequent to that date, the Company has not paid any rent expense. The fair market value of the rent has not been included in the financial statements because the amount is immaterial. NOTE 5 - NOTES PAYABLE - ---------------------- Notes payable at December 31 consists of the following: Convertible promissory note payable [1] $ 200,000 Convertible promissory note payable [2] 100,000 Promissory notes payable [3] 157,500 ------------ $ 457,500 ============ [1] Convertible promissory note payable represents one note with outstanding principal convertible (in denominations of $10,000 or integral multiples thereof) into shares of the Company's common stock at the conversion price of $1.00 per share; maturity date is December 26, 2003; interest rate is 10% per annum or in the event of default 15% per annum; personally guaranteed by the Company's president. The note is currently in default. [2] Convertible promissory note payable represents one note with outstanding principal convertible into shares of the Company's common stock at the conversion price of $0.50 per share equal to the total value of the note after the first quarterly interest payment, which is due on February 28, 2004; maturity date is also February 28, 2004; interest rate is 10% per annum. [3] Promissory notes payable represents five different notes bearing interest at 10% per annum and originally convertible into shares of the Company's common stock at the conversion price of $0.50 to $1.00 per share; the notes mature at various dates through August 28, 2003, and which are currently in default. Accrued interest on the above notes at December 31, 2003 was $45,154. Aggregate principal maturities on debt are as follows: 2003: $357,500 and 2004: $100,000. NOTE 6 - PREFERRED STOCK - ------------------------ The Series A Senior Cumulative Convertible Participating Preferred Stock ("Series A Stock") is entitled to receive cash dividends of $1 per share per annum accruing from the date of issuance. Such dividends are cumulative and must be paid before any dividends can be paid on the common stock. The Series A Stock is convertible into common stock, at the option of the holders, into a maximum F-15 of 29,267,324 shares of common stock upon: (a) the sale of substantially all of the assets of the Company; (b) a change in control of the Company; (c) the dissolution of the Company; or (d) October 1, 2000. If the Series A Stock is not converted into common stock, it becomes redeemable at the option of the holder any time after October 1, 2000 at a redemption price of $10 per share. Should the Company fail to redeem any share of the Series A Stock after a redemption request, the Series A stockholders shall have the right to elect a majority of the Company's board of directors and the Company shall pay interest on the redemption price at the rate of prime plus 5% until actually redeemed. During 2002, dividends in arrears on preferred stock of $1,178,977 were canceled in connection with the sale of the Company's medical clinics business (NFPM). (See Note 3) NOTE 7 - INCOME TAXES - --------------------- The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes. At December 31, 2003 deferred tax asset results from the deferred tax benefit of net operating losses for the parent company's operations only as the other entities combined file separate tax returns. The net current and non-current deferred tax assets have a 100% valuation allowance, as the ability of the Company to generate sufficient taxable income in the future is uncertain. The net change in the valuation allowance for 2003 was approximately $15,000 (2002: $1,028,000). The Company generated net operating losses for financial reporting and Federal income tax reporting prior to its reorganization in 1993. As of December 31, 2003, subject to limitations under Internal Revenue Code Section 382, approximately $469,000 of these losses are available for use after the reorganization, which expire in 2008 if not previously utilized. The net operating loss carryforward at December 31, 2003 is approximately $10,500,000 and will begin to expire in 2008, if not previously utilized. The components of tax expense (benefit) are as follows: 2003 2002 ---------- ---------- Current $ -- $ (78,676) Deferred -- -- ---------- ---------- Income tax expense (benefit) $ -- $ (78,676) ========== ========== A reconciliation of expected federal income tax expense (benefit) based on the U.S. Corporate income tax rate of 34% to actual expense (benefit) for 2003 and 2002 is as follows: 2003 2002 ---------- ---------- Expected federal income tax benefit $ (15,270) $ (357,699) Valuation allowance and other 15,270 279,023 ---------- ---------- Income tax expense (benefit) $ -- $ (78,676) ========== ========== F-16

F-17

All of the 29,000 outstanding stock warrants were fully vested at December 31, 2001. During 2002, the Company granted additional warrants in connection with loans made to the Company and then canceled all of the outstanding warrants in connection with its divestiture of assets. (See Note 3) Warrants granted during 2002 were to employees and directors. No compensation was recognized for the warrants attached to debt. Had compensation been determined based on the fair value at the grant date, there would be no material impact on net loss or loss per share. The fair value of warrants granted during 2002 was estimated on the date of grant using a Black-Sholes option pricing model and the following assumptions: a risk-free rate of return of 3.28%; a weighted average expected life of 2.04 years; expected volatility of 227%; and no dividends. The weighted-average fair value of warrants granted during 2002 was $306,568. F-18 NOTE 11 - DISCONTINUED OPERATIONS - --------------------------------- On November 5, 2001, the Company entered into a Restructure and Settlement Agreement with Imagine Investments, Inc. (Imagine). Pursuant to the agreement, which was approved by the shareholders on February 11, 2002, the Company transferred its interest in North Florida Physical Medicine, LLC (NFPM) to Imagine and Imagine converted its convertible preferred stock and convertible debt to common stock and, accordingly, no gain or loss was recorded on the transaction. Results of operations included in discontinued operations are as follows at December 31: Condensed operating results 2002 - --------------------------- ----------- Revenues: Medical fees 740,619 Expenses: Selling, general and administrative expenses 509,223 ----------- Income (loss) before taxes 231,396 Income tax provision 78,676 ----------- Income (loss) from discontinued operations $ 152,720 =========== NOTE 12 - SUBSEQUENT EVENTS In January 2004, the Company, through its wholly-owned subsidiary MBH and its wholly-owned subsidiary Envoii, completed a merger agreement with VPS Holding, LLC, a Kentucky limited liability company, ("VPSH"), VP Acquisition, LLC, a Kentucky limited liability company and a wholly-owned subsidiary of Envoii, and James K. Millard, the sole member of VPSH, under a reorganization within the meaning of Internal Revenue Code Section 368(a). Subsequent to the merger, VPSH continues as the surviving entity and wholly-owned subsidiary of Envoii. The purpose of the merger was to obtain the rights to the intellectual property and know-how related to prescription drug monitoring databases for use in controlled substance prescription environments, as well as by third parties in non-controlled substance prescription environments. The original technologies were developed and pursued by Equity Technologies & Resources, Inc. ("ETCR"), a public company that trades on the Nasdaq Over-the-counter bulletin board on the "pink sheets", and its wholly-owned subsidiary, Verified Prescription Safeguards, Inc. ("VPS"). On April 23, 2003, ETCR, VPS, VPSH and Envoii had entered into a Joint Venture Agreement, which terminated upon the completion of this merger. VPSH was awarded a contract by the State of Kentucky for the development and deployment of a prescription drug monitoring pilot project utilizing the intellectual property. Pursuant to a "Patent and License Agreement and Release" dated January 2004, ETCR and VPS grant to VPSH an exclusive, world-wide, sub-licensable, right and license to all of the respective rights, title, and interest of ETCR and VPS in and to the technologies and the patent application, and all related intellectual properties claimed therein. In consideration of the rights granted to VPSH under the agreement, VPSH agreed to pay ETCR the following royalties: (a) an initial royalty of 2/3 of the first $150,000 in gross revenues received by VPSH from the State of Kentucky in connection with the Pilot Project. In the event the State of Kentucky extends or expands the Pilot Project, the parties agree that all revenues received in connection with such extension or expansion are the property of VPSH; (b) for all other projects incorporating or utilizing the intellectual property, VPSH agrees to pay a royalty of 25% of the net revenues if the project was undertaken VPSH as a direct result of an initial introduction to the customer by ETCR, or 5% of the net revenues if the project was undertaken by VPSH without an initial introduction to the customer by ETCR. Net revenues means the revenues actually received by VPSH from the applicable project less the direct costs incurred by VPSH in connection with performing the project. Other terms and conditions apply as more fully described in the agreement. F-19