Edgar Filing: M B A HOLDINGS INC

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDED 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, 2002

[ ] 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, 2002
were $5,935,478. 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, 2002, as reported on NASDAQ, was $315,285. As of October
31, 2002, 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 vehicle
mechanical breakdown insurance ("MBI") policies and sells contracts for repair
services to vehicles ("VSCs"). The MBI policies and VSC contracts are for the
repair of automobiles, light trucks, recreational vehicles, motorcycles, boats
and certain 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. merged with Brixen Enterprises, Inc. ("Brixen"), an inactive publicly
held corporation, in an exchange of stock transaction. The M.B.A. shareholders
retained control of the merged company. After the merger, the surviving company
changed its name to M.B.A. Holdings, Inc. and changed its legal domicile from
Utah to Nevada.

MECHANICAL BREAKDOWN INSURANCE

The Company acts as an agent for insurance companies and sells their MBI
policies. In addition, it provides marketing educational/support services and
arranges for sub-agents to sell the policies. After the sale, the Company
provides third-party administrative policy services (claims adjudication,
cancellation processing, and technical computer services) on policies sold by
the Company or its sub-agents. The MBI policies are contracts of insurance for
repair services to vehicles that are entered into between the insurance
companies and the ultimate consumer/purchaser. The insurance company is directly
liable for the costs of claims that arise under the terms of the insurance
policy. M.B.A. acts only as a sales agent and a third party administrator. The
Company currently has agency and/or servicing agreements with American Bankers
Insurance Group of Florida, Kemper Cost Management, Inc., Heritage RRG, Inc. and
Fireman's Fund Insurance Company. 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.

MBI policies have terms that range from twelve (12) to eighty-four (84) months
and generally contain elapsed mileage limitations. Actual repairs or
replacements covered by the policies are made by independent repair facilities.
The costs of the repairs remain the responsibility of the insurance company that
provided the MBI policy.

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).
The remainder is paid to the Company as its sales commission and fee for
providing administrative policy services.

For the years ended October 31, 2002, 2001, and 2000, the net revenues related
to sales and servicing of MBI policies represented approximately 71%, 64% and
92%, respectively, of the Company's net revenues less direct acquisition costs
of vehicle service contracts.

VEHICLE SERVICE CONTRACTS

The Company markets and administers VSC programs that supplement the
manufacturer's warranty and enhance the profitability of the sale of
automobiles, light trucks, recreational vehicles, motorcycles, boats and
automotive components. These contracts are sold principally through dealerships.
A VSC is a contract between the Company and the consumer/purchaser that offers
repair coverage for periods ranging from one (1) to eighty-four (84) months
and/or with mileage limitations ranging from 1,000 to 100,000 miles. The
coverage is for a broad range of possible failures of mechanical components that
may occur during the term of the VSC. The coverage is supplemental to the
manufacturers' warranty. The Company is primarily responsible for the
administration of the contract and related claims during the life of the
contract.

At the time a VSC is sold, the Company purchases an insurance policy that
reinsures its' liability. 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 including Heritage RRG,
Inc. and Fireman's Fund Insurance Company.

For the years ended October 31, 2002, 2001, and 2000, the net revenues less
direct acquisition costs of vehicle service contracts related to sales and
servicing of VSCs represented approximately 29%, 36% and 8%, respectively, of
the Company's net revenues less direct acquisition costs of vehicle service
contracts. The relative increase in VSC revenues as a percent of total business
written is the result of severe competition from the vehicle manufacturer's
in-house financing programs being experienced by Credit Unions that are the
Company's main source of new MBI business. In addition, the Company has been
able to establish selling agency relationships with major used vehicle
dealerships that provide a significant number of VSC contracts.

VIRTUAL PRIVATE NETWORK

The Company has developed a computerized sales system using the internet that it
calls its Virtual Private Network ("VPN"). The VPN enables financial
institutions, dealerships and others to obtain individualized policy/contract
pricing using their personal computer. The system user provides the VPN with the
vehicle identification number ("VIN") of the vehicle being insured together with
a few other specific data items. The VPN returns an accurate premium quotation
and provides the customer with the ability to purchase the policy/contract on
line. When an internet purchase is made, the system transmits the application,
approval and policy data directly to the financial institution/dealership and
prints the insurance policy itself on the on-site printer. The information
gathered in the quotation process is transmitted directly to the Company's
policy management system. Payments for internet sales are accomplished by credit
card charge or by a billing to the financial institution/dealership.

The VPN system eliminates many of the errors that arise among the Company, the
financial institutions and the dealerships. The premium quotations coming from
VPN are vehicle specific thereby eliminating the errors made when using pricing
tables, data entry errors are significantly reduced and the process of policy
issuance is streamlined.

SIGNIFICANT CUSTOMERS

In 2002, a single national insurance brokerage firm accounted for $4,281,000 of
VSC sales up from $2,875,000 in 2001. This firm accounted for 79 % of total VSC
sales. The Company estimates, based on its historical experience, that should
this 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
MBIs and VSCs. Some competitors have greater operating experience, more
employees and/or greater financial resources. Furthermore, many manufacturers of
motor vehicles market and administer their own VSC programs for and through
their captive dealers.

SALES AND MARKETING

The Company maintains its own staff of sales and marketing personnel. These
individuals conduct the sales training and motivational programs that are the
primary form of specialized assistance provided by the Company to its
retailers/dealers and financial institutions. As an adjunct to these programs,
the Company develops the training materials that are used at these educational
seminars. In addition, the Company markets its products directly to consumers
through its VPN and through selected automobile magazine advertisements.

The number of policies and contracts sold during the last three fiscal years
are:

Number of
Time Period Policies and Contracts
----------- ----------------------
For the twelve months ended October 31, 2002 8,130
For the twelve months ended October 31, 2001 15,847
For the twelve months ended October 31, 2000 33,209

The decline in the numbers of policies and contracts sold is due to a loss of
market share by the Company's associated credit unions. This loss was due to
increased competition for vehicle sales and loans by the vehicle manufacturers
including the zero interest rate loan and expanded initial warranty programs. In
addition, new federal privacy legislation forced the elimination of the very
successful direct mail program. This latter program was discontinued because the
new law that eliminated the Company's ability to obtain customer information
from state vehicle licensing bureaus.

The Company will continue to look for ways to increase sales including strategic
alliances with vehicle sellers and others, the inclusion of other types of
mechanical equipment such as watercraft and off-road vehicles and the further
expansion of its VPN system in order to more directly reach the ultimate
consumer with its product information.

FEDERAL AND STATE REGULATION

Federal law and the statutes of most states regulate the MBI and VSC programs
that are developed and marketed by the Company. The Company continually reviews
all existing and proposed statutes and regulations to ascertain their
applicability to its existing and future operations. Generally, these laws
regulate the scope of the coverage that is allowed to be offered and the terms
that may/may not be contained within the policy/contract document. All the MBI
and VSC policies/contracts are issued and/or underwritten by highly rated
insurance companies.

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.

The Company makes every effort to comply with all applicable statutes and
regulations. Nevertheless, it cannot be assured that its interpretations, if
challenged, would be upheld by a court or regulatory body. On every occasion
that the Company has been notified that it is not in compliance with state
regulation, the Company has been able to take the steps necessary to achieve
compliance. In the event the Company's authorization to do business in a
specific state is challenged successfully, the Company may be required to cease
operations in that state and suffer financial sanctions. 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
current statutes, the Company does not believe that this is a present concern.

EMPLOYEES

The Company and its subsidiary employed 32 individuals at October 31, 2002 and
40 at October 31, 2001. There is one external sales person who is responsible to
recruit and train the insurance agents or representatives of the financial
institutions and dealerships in the M.B.A. product line. In addition, the
Company has assigned six individuals to handle customer inquiries that many
times result in direct sales. The remainder of the staff is assigned to the
management and support departments including : claims adjudication, data entry,
information systems, finance and administration.

The Company is not a party to a collective bargaining agreement.

ITEM 2. PROPERTIES

The Company's executive offices are located in leased premises at 9419 E. San
Salvador Drive, Suite 105, Scottsdale, Arizona. The Company leases approximately
19,750 square feet from Cactus Partnership, a firm in which the Company's Chief
Executive Officer and Vice President are principals. The lease has a five-year
term that expires December 31, 2003. The lease provides for annual base rent
payments ranging from $212,000 to $276,000. The lease terms and pricing have
been established at fair market value that was determined by comparison to other
leases in the area for similar space. (See Item 14 Certain Relationships and
Related Transactions).

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 connected
with the sale of insurance, with personnel matters and with disputes over
outstanding accounts. The Company is currently involved in a dispute with one of
its associated insurance companies over alleged wrongdoing, an alleged breach of
its Administrative Agreement and over reimbursement for claims and cancellations
expenditures. The Company maintains a reserve for claims arising in the ordinary
course of business and believes that this reserve is sufficient to cover the
costs of such claims. Based on the information presently available and on the
Company's Executive and Officers' Liability coverage, 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 this fiscal
year, through the solicitation of proxies or otherwise.

CONTROLS AND PROCEDURES

In the year ended October 31, 2002, we did not make any significant changes in,
nor take any corrective actions regarding our internal controls or other factors
that could significantly affect these controls. We periodically review our
internal controls for effectiveness and we have performed an evaluation of
disclosure controls and procedures during this final quarter. We will conduct a
similar evaluation each quarter.

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,
2002, 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 $1.05. The following is a summary of the price range of the Company's
common stock during its 2002 and 2001 fiscal years:

Bid
--------------
Common Stock High Low
------------ ---- ---
Quarter of Fiscal 2002
First 1.85 1.65
Second 1.65 1.50
Third 1.50 1.05
Fourth 1.05 1.05

Quarter of Fiscal 2001
First $2.00 $1.06
Second 2.00 1.06
Third 4.70 1.45
Fourth 2.15 1.85

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 2002, the Company did not issue any unregistered
securities.

ITEM 6. SELECTED FINANCIAL DATA

FISCAL YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------

Net revenues $ 5,935,478 $ 16,468,434 $ 8,323,876 $ 5,597,524 $ 3,289,477
Net (loss) income (847,797) (212,546) 177,149 148,016 13,771
Net (loss) income per common share (basic) (.43) (.11) .09 .07 0.01
Total assets 11,212,975 9,423,030 16,647,549 14,735,278 6,717,801
Long-term obligation and redeemable preferred stock -- 8,077 18,840 -- --
Cash dividends declared per common share -- -- -- -- --

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

The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The following selected financial
information is derived from the Company's historical financial statements and
should be read in conjunction with such financial statements and notes thereto
set forth elsewhere herein and the "Forward-Looking Statements" explanation
included herein.

COMPARISON OF FISCAL YEAR 2002 AND FISCAL YEAR 2001

NET REVENUES

Net revenues for the year ended October 31, 2002 totaled $5,935,000, a decrease
of $10,533,000 from the year ended October 31, 2001 net revenues of $16,468,000.
The decrease in net revenues is the result of the recognition of $8,488,000 of
deferred VSC revenues in fiscal 2001 that were derived from two underwriters.
These underwriters 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 remainder of the net
revenue decline is the result of increased competition for vehicle sales and
loans by the vehicle manufacturers including the zero interest rate loan and
expanded initial warranty programs. The Company is attempting to reverse this
downward trend with its VPN system and with increased marketing contacts with
other internet vendors.

The Company continues to perform certain administrative duties relating to the
calculation and administration of policy and contract cancellation. At the date
the responsibility transfer was recognized (July 31, 2001), 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 an individual policy or

contract is cancelled, the company will recognize the remaining portion of the
unearned revenue and direct acquisition cost as a current event. Approximately
$56,000 of net deferred income remains at October 31, 2002 to offset costs to be
incurred in administrating the cancellations of these policies.

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 is $254,000. The net effect of the
above adjustments was to increase fiscal 2001 net operating income by $490,000.

OPERATING EXPENSES

Operating expenses decreased $9,402,000 to $7,324,000 in the year ended October
31, 2002 compared to the similar period ended October 31, 2001. 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 $189,000 but were 36.0% of net revenues in 2002
compared to 14.1% in 2001 as the Company could no longer reduce operating
expenses at a rate equal to the decline in net revenues. The Company continued
to aggressively cut costs and expenses in most expense categories. Increases
were experienced in license and fee costs as a result of the Company's efforts
to replace the lost underwriters' business, in professional fees as the Company
defended itself in the law suit described above, in rent and lease expense due
to the terms of the lease escalator, in advertising expense and in other
operating expenses as a result of a charge to increase the law suit reserve

OTHER INCOME (EXPENSE)

Finance fee income increased 30.3% as more purchasers of policies elected to
finance premiums. Interest income declined $37,000 from $51,000 in fiscal 2001
to $14,000 in fiscal 2002 as a result of the nation-wide decline in interest
rates and to the decline in funds available for investment. There were no
realized gains on investments in 2002.

INCOME TAXES

Provisions for income taxes in the period ended October 31, 2002 and 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 2002 compared to
fiscal 2001 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 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 fiscal 2001 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
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.

LIQUIDITY AND CAPITAL RESOURCES

COMPARISON OF OCTOBER 31, 2002 AND OCTOBER 31, 2001

Working capital at October 31, 2002 consisted of current assets of $6,175,000
and current liabilities of $6,325,000, or a current ratio of 0.98 :1. At October
31, 2000, the current ratio was 1.18:1 with current assets of $5,726,000 and
current liabilities of $4,865,000.

As of October 31, 2002, the Company's cash position decreased to $896,000 from
$1,243,000 at October 31, 2001. Of this amount, $285,000 is classified as
restricted cash; there was $160,000 of restricted cash at October 31, 2001. 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 increase in restricted cash
in 2002 is due to one insurance company agreeing to accelerate its reimbursement
of Company claims payments The decline in sales volume has resulted in lower
premiums being held on deposit pending payment to the insurance companies and
therefore lower cash balances.

Deferred direct costs, including both the current and non-current portions,
increased $2,167,000 to $8,806,000 at October 31, 2002 from $6,639,000 at
October 31, 2001. 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
increase is the result of a return to more normal sales levels. The 2001 level
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.

The Company collects funds throughout the year and remits a portion of the funds
to the insurance companies. As of October 31, 2002, the amount owed to the
insurance companies increased by $408,000 to $793,000 from $385,000 at October
31, 2001. The change is due to the timing of payments remitted to and
reimbursements received from the insurance companies.

Deferred revenues, including both the current and non-current portions,
increased $2,179,000 to $10,122,000 at October 31, 2002 from $7,943,000 at
October 31, 2001. Deferred revenue consists of VSC gross sales and estimated
administrative service fees relating to the sales of MBI policies. The increase
is due to a return to more normal sales levels in 2002. During 2001, the Company
recognized the deferred revenue related to the transfer of responsibility for
administration of policies to a third party for two of the company's
underwriters.

The Company is operating with a working capital line of credit from Merrill
Lynch and a short-term note payable to its Chief Executive Officer. The working
capital line of credit is used to make claims payments if there is a timing
difference between when the Company is required to pay for the claims and when
the insurance companies reimburse for claims expenditures. 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, to fund
operations and to supplement 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.

This Annual Report on Form 10-K contains certain forward-looking statements and
information which we believe are within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The forward looking statements contained herein can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates," or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. The Company wishes to caution the
reader that these forward-looking statements that are not historical facts, are
only predictions. No assurances can be given that the future results indicated,
whether expressed or implied, will be achieved. While sometimes presented with
numerical specificity, these projections and other forward-looking statements
are based upon a variety of assumptions relating to the business of the Company,
which, although considered reasonable by the Company, may not be realized.
Because of the number and range of assumptions underlying the Company's
projections and forward-looking statements, many of which are subject to
significant uncertainties and contingencies that are beyond the reasonable
control of the Company, some of the assumptions inevitably will not materialize,
and unanticipated events and circumstances may occur subsequent to the date of
this report. Examples of uncertainties that could cause such differences
include, but are not limited to, the ability of the Company to attract and
retain key personnel, the ability of the Company to secure additional capital to
finance its business plan, and competition from other companies in the same
industry. These forward-looking statements are based on current expectations and
the Company assumes no obligation to update this information. Therefore, the
actual experience of the Company and the results achieved during the period
covered by any particular projections or forward-looking statements may differ
substantially from those projected. Consequently, the inclusion of projections
and other forward-looking statements should not be regarded as a representation

by the Company or any other person that these estimates and projections will be
realized, and actual results may vary materially. There can be no assurance that
any of these expectations will be realized or that any of the forward-looking
statements contained herein will prove to be accurate.

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 $848,000 for the twelve months ended October 31,
2002. 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, 2002, 2001, and 2000:

Report of Management

Independent Auditors' Reports

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

Schedule II - Valuation and Qualifying Accounts

REPORT OF MANAGEMENT

Board of Directors and Stockholders
M.B.A. Holdings, Inc.
Scottsdale, Arizona
January 13, 2003

Management is responsible for the accompanying consolidated financial statements
and financial statement schedule, which have been prepared in conformity with
accounting principals generally accepted in the United States of America. In
preparing the financial statements and financial statement schedule, it is
necessary for management to make informed judgements and estimates which it
believes are appropriate under the circumstances. Financial information
presented elsewhere in this annual report is consistent with that in the
financial statements.

In meeting its responsibility for preparing reliable financial statements and
financial statement schedules, the Company maintains a system of internal
accounting controls designed to provide reasonable assurance that assets are
safeguarded and transactions are properly recorded and executed in accordance
with corporate policy and management authorization. The Company believes its
accounting controls provide reasonable assurance that errors or irregularities
which could be material to the financial statements are prevented or would be
detected within a timely period. In designing such control procedures,
management recognizes judgements are required to assess costs and expected
benefits of a system of internal accounting controls. Adherence to these
policies and procedures is reviewed through a coordinated effort of the
Company's accounting staff and independent accountants.

The Audit Committee of the Board of Directors is comprised solely of outside
directors and is responsible for overseeing and monitoring the quality of the
Company's accounting and auditing practices. The independent accountants have
full and free access to the Audit Committee and meet periodically with the
committee to discuss accounting, auditing and financial reporting matters.

/s/ Gaylen M. Brotherson
----------------------------------------
Gaylen M. Brotherson
Chairman and Chief Executive Officer

/s/ Dennis M. O'Connor
----------------------------------------
Dennis M. O'Connor
Chief Financial Officer

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
M.B.A. Holdings, Inc.
Scottsdale, Arizona

We have audited the accompanying consolidated balance sheet of M.B.A. Holdings,
Inc. and subsidiary (the "Company") as of October 31, 2002 and the related
consolidated statement of operations and comprehensive (loss) income,
stockholders' (deficit) equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the index. These
financial statements, and the financial statement schedule, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements, and the financial statement schedule,
based on our audit. The financial statements, and financial statement schedule,
of the Company as of October 31, 2001 and 2000 were audited by other auditors
whose report dated January 10, 2002, expressed an unqualified opinion on those
statements and schedule.

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, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of October 31, 2002, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. Also , in our opinion, such financial statement
schedule for the year ended October 31, 2002, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Semple & Cooper, LLP

Phoenix, Arizona
December 20, 2003

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 two years in the period
ended October 31, 2001. Our audits also included the financial statement
schedule for the years ended October 31, 2001 and 2000 listed in the index These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements, and the
financial statement schedule for the years ended October 31, 2001 and 2000,
based on our audits.

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
two years in the period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule for the years ended October 31, 2001
and 2000, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona
January 10, 2002

M.B.A. HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

ASSETS 2002 2001
------------ ------------

CURRENT ASSETS:
Cash and cash equivalents $ 611,520 $ 1,083,024
Restricted cash 284,966 160,402
Investments (Note 4) 159,042 160,853
Accounts receivable, net of allowance for doubtful accounts
of $0 (2002 and 2001) 182,300 146,310
Prepaid expenses and other assets (Note 3) 10,429 80,350
Deferred direct costs 4,206,456 3,441,998
Income tax receivable (Note 5) 436,778 395,487
Deferred income tax asset (Note 5) 283,271 257,839
------------ ------------
Total current assets 6,174,762 5,726,263
------------ ------------
PROPERTY AND EQUIPMENT:
Computer equipment 285,894 268,517
Office equipment and furniture 140,259 140,043
Vehicle 16,400 16,400
Leasehold improvements 80,182 80,182
------------ ------------
Total property and equipment 522,735 505,142
Accumulated depreciation and amortization (368,065) (288,199)
------------ ------------
Property and equipment - net 154,670 216,943

DEFERRED DIRECT COSTS 4,599,368 3,196,954
DEFERRED INCOME TAX ASSET (Note 5) 284,175 282,870
------------ ------------

TOTAL ASSETS $ 11,212,975 $ 9,423,030
============ ============

See notes to consolidated financial statements.

M.B.A. HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2002 AND 2001
--------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY 2002 2001
------------ ------------

CURRENT LIABILITIES:
Net premiums payable to insurance companies $ 793,389 $ 385,113
Accounts payable and accrued expenses 632,519 489,208
Note payable - officer (Note 7) 106,548 --
Capital lease obligation - current portion (Note 7) 8,222 10,888
Deferred revenues 4,783,991 3,979,793
------------ ------------
Total current liabilities 6,324,669 4,865,002
Capital Lease Obligation - net of current portion (Note 7) -- 8,077
Other Liabilities 49,572 225,410
Deferred Rent 31,064 42,256
Deferred Revenues 5,338,994 3,963,543
------------ ------------
Total liabilities 11,744,299 9,104,288
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7,8 and 9) -- --
STOCKHOLDERS' (DEFICIT) 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), net of tax (5,418) (3,149)
Retained earnings (deficit) (673,269) 174,528
Less: 31,600 shares of common stock in treasury, at cost (55,500) (55,500)
------------ ------------
Total stockholders' (deficit) equity (531,324) 318,742
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 11,212,975 $ 9,423,030
============ ============

See notes to consolidated financial statements.

M.B.A. HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

2002 2001 2000
------------ ------------ ------------

NET REVENUES:
Vehicle service contract gross income $ 5,406,387 $ 15,136,581 $ 5,453,390
Net mechanical breakdown insurance income 164,441 598,055 2,221,320
MBI administrative service revenue 364,650 733,798 649,166
------------ ------------ ------------
Total net revenues 5,935,478 16,468,434 8,323,876
------------ ------------ ------------

OPERATING EXPENSES:
Direct acquisition costs of vehicle service contracts 5,189,412 14,402,029 5,189,065
Salaries and employee benefits 1,187,139 1,399,267 1,825,772
Mailings and postage 101,287 121,416 261,602
Rent and lease expense 272,261 282,508 326,327
Professional fees 160,379 91,357 158,844
Telephone 89,907 96,896 142,709
Depreciation and amortization 79,866 78,833 74,753
Merchant and bank charges 8,853 20,783 24,831
Insurance 32,613 32,959 37,052
Supplies 13,884 28,709 41,023
License and fees 26,717 24,104 13,618
Other operating expenses 162,080 146,958 146,676
------------ ------------ ------------
Total operating expenses 7,324,398 16,725,819 8,242,272
------------ ------------ ------------
OPERATING (LOSS) INCOME (1,388,920) (257,385) 81,604
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Finance fee income 26,210 20,120 51,820
Interest income 13,870 51,288 146,559
Interest expense (8,121) (10,775) (12,993)
Other income (expense) 33,333 (293) (763)
Realized gains (losses) on investments -- 15,629 (3,362)
------------ ------------ ------------
Other income - net 65,292 75,969 181,261
------------ ------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (1,323,628) (181,416) 262,865
INCOME TAXES (Note 5) (475,831) 31,130 85,716
------------ ------------ ------------
NET (LOSS) INCOME $ (847,797) $ (212,546) $ 177,149
============ ============ ============

BASIC NET (LOSS) INCOME PER SHARE $ (0.43) $ (0.11) $ 0.09
============ ============ ============
DILUTED NET (LOSS) INCOME PER SHARE $ (0.43) $ (0.11) $ 0.08
============ ============ ============
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 1,980,187 1,980,187 2,002,064
============ ============ ============
AVERAGE NUMBER OF COMMON AND
DILUTIVE SHARES OUTSTANDING 1,980,187 1,980,187 2,111,426
============ ============ ============

Net (loss) income $ (847,797) $ (212,546) $ 177,149
Other comprehensive income net of tax:
Net unrealized (loss) gain on available-for-sale securities (2,269) (15,364) 12,215
------------ ------------ ------------
Comprehensive (loss) income $ (850,066) $ (227,910) $ 189,364
============ ============ ============

See notes to consolidated financial statements.

M.B.A. HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL OTHER RETAINED STOCKHOLDERS'
------------------------- PAID COMPREHENSIVE EARNINGS TREASURY (DEFICIT)
SHARES AMOUNT IN-CAPITAL INCOME (DEFICIT) STOCK EQUITY
---------- ----------- ----------- ----------- ----------- ----------- -----------

BALANCE, NOVEMBER 1, 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
Unrealized loss on
available-for-sale (2,269) (2,269)
securities
Net loss (847,797) (847,797)
---------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, OCTOBER 31, 2002 2,011,787 $ 2,012 $ 200,851 $ (5,418) $ (673,269) $ (55,500) $ (531,324)
========== =========== =========== =========== =========== =========== ===========

See notes to consolidated financial statements

M.B.A. HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

OCTOBER 31,
-----------------------------------------
2002 2001 2000
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (847,797) $ (212,546) $ 177,149
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 79,866 78,833 74,753
Loss (gain) on sale of equipment (22,500) 22,237 --
Unrealized loss (gain) on available-for-sale securities 2,269 15,364 (12,215)
Deferred income taxes (26,737) 343,117 (97,198)
Changes in assets and liabilities:
Restricted cash (124,564) 326,613 437,683
Accounts receivable (35,990) 258,060 (17,565)
Prepaid expenses and other assets 69,921 80,894 (51,356)
Deferred direct costs (2,166,872) 6,059,515 (3,868,518)
Income tax receivable (41,291) (240,050) (249,596)
Net premiums payable to insurance companies 408,276 (52,101) (2,456,377)
Accounts payable and accrued expenses 143,311 (128,060) 19,824
Other liabilities (175,838) 88,876 136,534
Deferred rent (11,192) 717 9,435
Deferred revenues 2,179,649 (6,896,833) 4,134,977
----------- ----------- -----------
Net cash (used in) operating activities (569,489) (255,364) (1,762,470)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (17,593) (55,382) (58,008)
Proceeds from sale of equipment 22,500 24,000
Purchase of investments (2,727) (144,845) (439,007)
Proceeds from sales and maturities of investments -- 288,327 128,374
----------- ----------- -----------
Net cash provided by (used in) investing activities 2,180 112,100 (368,641)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Drawings on line of credit 643,654 -- --
Repayments of line of credit drawings (643,654) -- --
Proceeds of note payable - officer 106,548 -- --
Purchase of treasury stock -- -- (55,500)
Payments on capital lease obligation (10,743) (9,208) (2,827)
----------- ----------- -----------
Net cash provided by (used in) financing activities 95,805 (9,208) (58,327)
----------- ----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (471,504) (152,472) (2,189,438)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,083,024 1,235,496 3,424,934
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 611,520 $ 1,083,024 $ 1,235,496
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 4,902 $ 10,660 $ 13,820
=========== =========== ===========
Cash paid for (recovered from) income taxes $ (425,396) $ 334,157
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIY:
Purchase of equipment through capital lease obligation $ 31,000
===========

See notes to consolidated financial statements.

M.B.A. HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
--------------------------------------------------------------------------------

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 ("MBI") (as an agent for insurance
companies), selling vehicle service contracts ("VSC") for new automobiles,
trucks, recreational vehicles, and travel trailers, and providing claims
administrative services for MBI and VSC 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
their behalf.

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, 2002 and 2001. 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. 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 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 has concluded that
no impairment charge is necessary during 2002.

e. BENEFIT PLAN - The Company maintains the Mechanical Breakdown
Administrators 401(k) Profit Sharing Plan covering substantially all
employees. Participation in employer discretionary contributions
commences on the earliest plan entry date after an employee meets
eligibility requirements. Employees may elect to contribute to the
plan and the Company may make discretionary contributions. No
discretionary contributions were made during the years ended October
31, 2002, 2001 or 2000.

f. 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.

g. 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 to the extent that losses from
this program do not exceed 15% of premiums. The Company has
accumulated loss data for this guarantee and believes that the
remaining reserve is adequate to meet foreseeable losses.

h. REVENUE RECOGNITION - Net revenues includes the commissions earned on
sales of MBI, fees for providing administrative claims services
related to the MBI sold and revenues related to the sales and
servicing of VSC.

The Company receives one fee (commission) related to the sale of MBI,
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.

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 premium is
returned to the customer after deduction of a cancellation fee. 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.

All of the MBI 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 acts as a sales agent and claims administrator
but does not assume the role of obligor at any time during the life of
these policies.

VSCs are contracts between the Company and the purchaser. The Company
reinsures its obligations by obtaining an insurance policy that
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 and costs associated with the sales of
these contracts are deferred and recognized in income on a
straight-line basis over the actual life of the contracts.

i. INCOME TAXES - Provision for recoverable income taxes and related
income tax receivable in the year ended October 31, 2002 reflect the
Company's intent to carry back the current year losses to recover
federal income taxes paid in previous years. Arizona law does not
provide for the carry back of losses and therefore provisions for
recoverable state income taxes have not been provided.

Deferred income tax is recorded based upon differences between the
financial statement and tax basis of assets and liabilities using
income tax rates currently in effect.

j. 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
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. No dilutive effect is assumed in loss years. Below is the
reconciliation required by SFAS No. 128.

NUMBER OF SHARES USED IN COMPUTING INCOME PER SHARE

YEAR ENDED OCTOBER 31,
----------------------------------
2002 2001 2000
---------- ---------- ----------
Average number of common shares
outstanding - Basic 1,980,187 1,980,187 2,002,064

Dilutive shares from common stock
options calculated using the
treasury stock method 109,362
---------- ---------- ----------
Average number of common and
dilutive shares outstanding 1,980,187 1,980,187 2,111,426
========== ========== ==========

k. 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.

l. 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.

m. 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.

n. PENDING ACCOUNTING STANDARDS - In May 2002, the FASB issued SFAS No.
145, "RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF
FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS AS OF APRIL 2002",
that, among other things, rescinded SFAS No. 4, "REPORTING GAINS AND
LOSSES FROM EXTINGUISHMENT OF DEBT." With the rescission of SFAS No.
4, companies generally will no longer classify early extinguishment of
debt as an extraordinary item. The provision related to the rescission
is effective for fiscal years beginning after May 15, 2002, and early
application is encouraged. The Company will adopt the standard
November 1, 2002 and does not expect that the adoption will have a
significant impact on the Company's financial position or results of
operations.

In July, 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES", which replaces Emerging
Issues Task Force Issue No. 94-3, "LIABILITY RECOGNITION FOR CERTAIN
EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY
(INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)." The new
standard requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of
a commitment to an exit or disposal plan. The provisions of SFAS 146
are effective for disposals after December 31, 2002. The Company will
adopt the standard November 1, 2002 and does not expect that the
adoption will have a significant impact on the Company's financial
position or results of operations.

o. CONCENTRATIONS OF CREDIT RISK - The Company maintains its cash
balances in financial institutions. Deposits, not to exceed $100,000,
are insured by the Federal Deposit Insurance Corporation. At December
31, 2002, 2001 and 2000, the Company had uninsured cash of
approximately $536,000, $411,000 and $556,000, respectively.

p. RECLASSIFICATIONS - Certain reclassifications have been made to the
2001 and 2000 amounts to conform to the 2002 presentation.

2. SIGNIFICANT EVENTS

In 2001, two of the Company's underwriters transferred the administration of the
contracts/policies sold and administered by M.B.A. to a third party. The
transfer of this responsibility relieved the Company of its obligations under
the agency agreement except for obligations relating to future contract/policy
cancellations. As a result, $8,488,000 of deferred VSC revenue, $8,089,000 of
deferred direct acquisition costs and $345,000 of deferred administrative
service fee revenue were recognized as income and operating expenses in the
third quarter of 2001.

In 2001, the Company also wrote off a receivable from the underwriters for
deferred administrative costs. When a contract/ policy was sold, the Company
remitted a portion of its commission to the underwriter as a reserve for
administrative services. As the contracts/policies expired, the underwriter
would return the reserve submitted. As a part of the administrative release
agreements, the Company agreed to forfeit $254,000 of the reserves for deferred
administrative costs held by the underwriters.

The net effect of the above adjustments is an increase in net operating income
of $490,000 in fiscal 2001.

The Company continues to perform certain administrative duties relating to the
calculation and administration of contract/policy cancellations. The balance
included in deferred revenue and deferred direct acquisition costs at July 31,
2001 for these cancellations, $1,537,000 and $1,455,000 respectively, will be
recognized in income and expense over the remaining life of the contract/policy.
If the contract/policy is cancelled, the company will recognize the remaining
portion of the unearned revenue and direct acquisition cost in the month of
cancellation. Approximately $56,000 of net deferred income remains at October
31, 2002 to offset costs that are expected to be incurred in administrating the
cancellations of these contracts/policies.

3. RELATED PARTY TRANSACTIONS

Included in accounts payable and accrued expenses at October 31, 2002 is
$132,000 of accrued rent for office space payable to an entity owned by the
Company's majority stockholders. Rent expense for the years ending October 31,
2002, 2001 and 2000 was $274,000, $248,000 and $237,000, respectively. The 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.

On February 13, 2002, Gaylen Brotherson loaned the Company $73,398 and on
October 31, 2002 loaned an additional $30,000. The loans mature on the
anniversary date of the separate notes and the bear interest at a rate of 6%.

4. MARKETABLE SECURITIES

The following table summarizes the Company's available for sale securities as of
October 31, 2002 and October 31, 2001:

OCTOBER 31, 2002
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUE
---------- ---------- ---------- ----------

Marketable Securities:
Corporate bonds $ 33,642 $ 4,018 $ 37,660
Mutual Funds 106,179 3,827 110,006
Equities 27,601 $ (16,225) 11,376
---------- ---------- ---------- ----------

Total Marketable Securities at October 31, 2002 $ 167,422 $ 7,845 $ (16,225) $ 159,042
========== ========== ========== ==========

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
---------- ---------- ---------- ----------

$ 165,388 $ 6,244 $ (10,779) $ 160,853
========== ========== ========== ==========

5. INCOME TAXES

Income taxes were as follows for the years ended October 31:

2002 2001 2000
---------- ---------- ----------
Current $ (450,668) $ (311,987) $ 182,914
Deferred (25,163) 343,117 (97,198)
---------- ---------- ----------

Total income tax (benefit) expense $ (475,831) $ 31,130 $ 85,716
========== ========== ==========

The effective income tax rate differs from the federal statutory income tax rate
in effect each year as a result of the following items:

2002 2001 2000
---- ---- ----
Federal statutory income tax rate 34% 34% 34%
State taxes 6 6 6
Operating loss utilization (34)
Net operating loss carryback (34)
Valuation Allowance (6) (49)
Deferred revenues, net (2)
Other 0 (8) (7)
---- ---- ----

Effective income tax rate (36)% (17)% 33%
==== ==== ====

At October 31, 2002, the Company had a state net operating loss carryforward of
$973,000, which expires in 2006 and $1,323,000, which expires in 2007.

The Company has recorded receivables for recoverable taxes. The 2001 and 2002
net operating losses incurred were carried back and deducted from prior years
taxable income. The Company has received refunds from the application of these
carry backs. At October 31, 2002, $278,688 of FY 2000 taxable income remains
available for future 2003 net operating loss carry back.

The deferred tax assets at October 31, 2002 and 2001 are composed of the tax
effects of:

2002 2001
--------- ---------
Current deferred tax asset:

Current deferred revenues net of current
deferred expenses $ 236,789 $ 218,521
Non-deductible reserve for claims 16,400 --
Deferred compensation 20,704
Non-deductible vacation accruals 19,837 18,614
Unrealized gains (losses) in other comprehensive
Income (loss) 10,245 --
Arizona loss carryforward 208,107 89,094
Valuation allowance - contra (208,107) (89,094)
--------- ---------

Total $ 283,271 $ 257,839
========= =========

Long term deferred tax asset:

Long term deferred revenues net of long term
deferred expenses $ 303,247 $ 308,536
Excess of net book basis of fixed assets
over tax basis (19,072) (25,666)
--------- ---------

Total $ 284,175 $ 282,870
========= =========

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, 2002, 2001 and 2000, 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 loss and net loss 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, 2002 is
presented below along with pro-forma income statement information consistent
with SFAS No. 123.

WEIGHTED AVERAGE
EXERCISE EXPIRATION CONTRACTUAL LIFE
OPTIONS PRICE DATE (IN YEARS)
-------- -------- ---------- ----------------
33,334 $ 2.25 February 15, 2006 3.30
25,000 1.20 September 30, 2008 5.92
1,667 1.20 October 31, 2008 6.01
100,000 0.94 June 1, 2008 5.59
20,000 1.05 September 30, 2008 5.92
5,000 1.05 October 31, 2008 6.01
-------- -----
185,001 4.68
======== =====

2002 2001 2000
---------- ---------- ----------

Net (loss) income As reported $ (847,797) $ (212,546) $ 177,149
Pro forma $ (847,797) $ (212,546) $ 177,149

Basic net (loss) income per share As reported $ (0.43) $ (0.11) $ 0.09
Diluted net (loss) income per share $ (0.43) $ (0.11) $ 0.08

Basic net (loss) income per share Pro forma $ (0.43) $ (0.11) $ 0.09
Diluted net (loss) income per share $ (0.43) $ (0.11) $ 0.08

A summary of the activity regarding the Company's outstanding options for the
years ended October 31 is presented below:

2002 2001 2000
------------------- ------------------- -------------------
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
======== ======== ======== ======== ======== ========

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.

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, 2002 with a value of $9,472, net of accumulated
amortization of $21,528. Total rental expense was approximately, $294,000,
$283,000 and $326,000 for the years ended October 31, 2002, 2001 and 2000,
respectively.

Future minimum lease payments under non-cancelable lease agreements at October
31, 2002 are as follows:

OPERATING CAPITAL
LEASES LEASE
--------- ---------
2003 $ 272,980 $ 10,550
2004 45,930
---------

Total $ 318,910 10,550
=========

Less portion representing interest 2,328
---------
Total $ 8,222
=========

8. SIGNIFICANT CUSTOMERS

In 2002, a single national insurance brokerage firm accounted for $4,281,000 of
VSC sales up from $2,875,000 in 2001. This firm accounted for 79 % 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.

9. COMMITMENTS AND CONTINGENCIES

The Company is subject to claims and lawsuits that arise in the ordinary course
of business, consisting principally of alleged errors and omissions in
connection with the sale of insurance and personnel matters and of disputes over
outstanding accounts. The Company is currently involved in a dispute with one of
its associated insurance companies over alleged wrongdoing, an alleged breach of
its Administrative Agreement and over reimbursement for claims and cancellations
expenditures. The Company maintains a reserve for claims arising in the ordinary
course of business and believes that this reserve is sufficient to cover the
costs of such claims. On the basis of information presently available,
management does not believe the settlement of any such claims or lawsuits will
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.

The Company has available a $300,000 working capital line of credit which
expires on February 28, 2003. Borrowings under the line of credit bear interest
at a variable rate per annum equal to the sum of the thirty-day dealer
commercial paper rate, as published in THE WALL STREET JOURNAL plus 3.15 %.
Borrowings are collateralized by the Company's investments. There were no
borrowings outstanding at October 31, 2002.

10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

FOR THE YEAR ENDED OCTOBER 31, 2002
--------------------------------------------------------
1ST 2ND 3RD 4TH
QTR QTR QTR QTR
----------- ----------- ----------- -----------

Net revenues $ 1,867,748 $ 1,412,800 $ 1,380,276 $ 1,274,654
Gross profit 310,307 112,534 209,780 113,445
Net (loss) income (157,906) (202,791) (218,743) (268,357)
Net (loss) income per share (0.08) (0.10) (0.11) (0.14)

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)

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Column C - Additions
Column B (1) (2)
Balance at Charged to Charged to Column D Column E
Column A Beginning of costs and Other Deductions Balance at
Description Period expenses accounts describe End of period
----------- ------------ ---------- ---------- ---------- -------------

October 31, 2002
Arizona
Income
Taxes $ (89,094) $ (150,878) $ 0 $ 31,865 $ (208,107)

October 31, 2001
Arizona
Income
Taxes $ 0 $ (89,094) $ (89,094)

October 31, 2000

None

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.

The data required by Item 304 of Regulation S-K is set forth below:

Item 304 (a)(1)

(i) Deloitte & Touche LLP, the former certifying accountant declined to
stand for re-election on October 21, 2002.
(ii) Deloitte & Touche LLP's report on the financial statements for the
last two years did not contain an adverse opinion nor a disclaimer of
opinion nor was it qualified or modified as to uncertainty, audit
scope or accounting principals.
(iii) The decision not to stand for re-election was communicated to the
audit committee of the Board of Directors by Deloitte & Touche LLP.
(iv) During M.B.A. Holdings, Inc.'s two most recent fiscal years and during
the subsequent interim periods preceding Deloitte & Touche LLP's
decision not to stand for re-election, there have been no
disagreements with Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope of procedure.
(v) Deloitte & Touche LLP has not advised the registrant of any concerns
about:
(A) The Internal Controls of the registrant
(B) The reliability of management's representation or the financial
statements prepared by management
(C) Deloitte & Touche LLP has not advised the registrant of the need
to significantly expand the scope of its audit, nor has it
advised the registrant that information has come to Deloitte &
Touche LLP's attention, that if further investigated may (i)
materially impact the fairness or reliability of previously
issued audit reports or the underlying financial statements
issued, or (ii) cause it to be unwilling to rely on management's
representations or be associated with the registrant's financial
statements.

(D) Deloitte & Touche LLP has not advised the registrant that
information has come to Deloitte & Touche LLP's attention that it
has concluded materially impacts the fairness or reliability of
either (i) a previously issued audit report or the underlying
financial statements or (ii) the financial statements issued or
to be issued covering the fiscal periods subsequent to the date
of the most recent financial statements covered by an audit
report.

(a)(2) M.B.A. Holdings, Inc. engaged the firm Semple & Cooper, LLP as its
principal accountant as of November 25, 2002. During the two most recent fiscal
years and through November 25, 2002, the Registrant has not consulted with
Semple & Cooper regarding either (i) the application of accounting principles to
a specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Registrant's consolidated financial
statements; or (ii) any matter that was either the subject of a disagreement, as
that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304(a)(1)(v) of Regulation S-K.

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.

POSITION WITH
NAME AGE COMPANY
---- --- -------
Gaylen M. Brotherson 63 President, CEO, Chairman of the Board, Director
Judy K. Brotherson 55 Vice-President, Secretary, Director
Edward E. Wilczewski 63 Director
Keith A. Cannon 63 Director
Michael Brady 62 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, 63, 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, Secretary 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, 63, 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, 63, 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, 62, 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.

OTHER EXECUTIVE OFFICERS AND KEY EMPLOYEES

Dennis M. O'Connor, 63, is the Chief Financial Officer. He joined the Company in
November of 2001 as a consultant and entered the full time employ of the Company
in June 2002. Prior to joining the Company, Mr. O'Connor worked for more than
forty years in various financial leadership positions. Mr. O'Connor was educated
at Canisius College , Buffalo, NY where he received a Bachelor of Science degree
and Master of Business Administration degree. Mr. O'Connor is a Certified Public
Accountant.

Michael Gannon, 46, 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, 2000, 2001 and 2002.

ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------- ----------------------
Restricted Stock
Stock Option
Other (shares) (shares)
Name of Principal Position Year Salary Bonus (1) awards awards
----------------- -------- ---- ------ ----- --- ------ ------

Gaylen M. Brotherson Chairman of Board 2000 50,000 $100,000 22,115
President and 2001 50,000 21,894
Chief Executive Officer 2002 50,000 14,173

Judy K. Brotherson Vice-President, 2000 50,000 100,000 6,551
Secretary 2001 50,000
2002 50,000

----------
(1) Included in Other Annual Compensation are an auto lease paid for Gaylen
Brotherson in fiscal 2000, 2001 and 2002, auto insurance for Gaylen
Brotherson in fiscal 2000, 2001 and 2002, auto insurance for Judy
Brotherson in fiscal 2000, 2001 and 2002, and life insurance premiums for
Gaylen Brotherson and Judy Brotherson in years 2000, 2001 and 2002

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, 2002, 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, 2002 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 219,928 11.1%
Box 220
Bowling Green Station
New York, NY 10274

Common Stock All Directors and 1,679,916 shares 84.8%
Executive Officers as
a Group (five people)

----------
(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,274,000 , $248,000 and $237,000 for the
years ended October 31, 2002, 2001, and 2000, 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.

(a) Exhibit Index

Exhibit 99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Exhibit 99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

Exhibit 99.3 Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

Exhibit 99.4 Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

Form 8-K Current Report was filed September 16, 2002. This Current
Report contained the sworn statements of Gaylen M. Brotherson, Chief
Executive Officer and Dennis M. O'Connor, Chief Financial Officer in
the form specified by the Securities and Exchange Commission.

Form 8-K Current Report was filed October 23, 2002 and amended October
30, 2002. This Current Report disclosed that Deloitte & Touche, LLP
had declined to stand for re-election. The Current Report stated that
the last two years reports did not contain an adverse opinion, that
there were no disagreements on any matters of accounting principles or
practices, financial statement disclosure or auditing scope of
procedure.

From 8-K Current Report was filed November 27, 2002. This Current
Report stated that the firm Semple & Cooper, LLP has been engaged as
the principal accountants of the Company.

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 9 of Part II hereof, where such documents are listed.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereto duly authorized.

MBA Holdings, Inc.

By: /s/ Gaylen M. Brotherson Dated: January 22, 2003
-----------------------------------
Gaylen Brotherson
Chairman of the Board and
Chief Executive Officer

By: /s/ Dennis M. O'Connor Dated: January 22, 2003
-----------------------------------
Dennis M. O'Connor,
Chief Financial Officer