U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2006
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File No. 0-11808
MB SOFTWARE CORPORATION
Texas 59-2220004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2225 E. Randol Mill Road - Suite 305
Arlington, Texas 76011-6306
(817) 633-9400
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for 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 [ ]
As of March 31, 2006, 16,145,432 shares of the Issuer's $.001 par value common
stock were outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [ X ]
MB SOFTWARE CORPORATION AND SUBSIDIARIES
Form 10-QSB
Quarter Ended March 31, 2006
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 2006 (Unaudited)....................3
Consolidated Statements of Operations for the three months ended
March 31, 2006 and 2005 (Unaudited)....................................4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2006 and 2005 (Unaudited)....................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............9
ITEM 3. CONTROLS AND PROCEDURES...............................................12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................13
ITEM 2. Changes in Securities and Use of Proceeds.............................13
ITEM 3. Defaults Upon Senior Securities.......................................13
ITEM 4. Submission of Matters to a Vote of Security Holders...................13
ITEM 5. Other Information.....................................................13
ITEM 6. Exhibits..............................................................13
SIGNATURE.....................................................................13
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
March 31, December 31,
2006 2005
(unaudited) (audited)
ASSETS
------
Current Assets
Cash $ -- $ 2,828
Accounts receivable 23,128 30,198
Inventory 113,607 30,644
Prepaid inventory 46,537 130,454
------------ ------------
Total current assets 183,272 194,124
Fixed assets, net 62,776 48,771
Security deposits 14,912 14,912
------------ ------------
Total Assets $ 260,960 $ 257,807
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current liabilities
Cash overdraft $ 1,074 $ --
Accounts payable 60,732 34,919
Accrued liabilities 221,485 204,383
Obligation under capital lease - current portion 4,092 4,092
Amounts due to related parties 704,357 625,012
Accrued interest due to related parties 45,304 33,797
------------ ------------
Total current liabilities 1,037,044 902,203
Long-term liabilities
Obligation under capital lease - non-current portion 2,147 3,069
------------ ------------
Total Liabilities 1,039,191 905,272
Commitments and contingencies
Stockholders' Deficiency
Preferred stock, $10 par value; 5,000,000 shares authorized;
issued and outstanding none -- --
Common stock: $0.001 par value; 20,000,000 shares authorized;
issued and outstanding: 16,145,432 16,145 16,145
Additional paid-in capital 11,181,496 11,181,496
Accumulated deficit (11,963,833) (11,833,067)
------------ ------------
(766,192) (635,426)
Less: treasury stock, at cost; 4,089 shares (12,039) (12,039)
------------ ------------
Total stockholders' deficiency (778,231) (647,465)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 260,960 $ 257,807
============ ============
See condensed notes to consolidated financial statements
3
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
--------------------------------------------------------------------------------
2006 2005
------------ ------------
Revenues $ 46,901 $ 56,261
Cost of revenues 38,284 53,363
------------ ------------
Gross margin 8,617 2,898
Selling, general and administrative 122,963 172,497
------------ ------------
Loss from operations (114,346) (169,599)
Other income (expense), net (16,420) (7,406)
------------ ------------
Loss before provision for income taxes (130,766) (177,005)
Provision for income taxes -- --
------------ ------------
Net loss $ (130,766) $ (177,005)
============ ============
Basic and diluted loss per share: $ (0.008) $ (0.01)
============ ============
Weighted average common shares outstanding 16,145,432 14,921,432
============ ============
See condensed notes to consolidated financial statements.
4
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
--------------------------------------------------------------------------------
2006 2005
--------- ---------
Cash flows from operating activities
Net loss $(130,766) $(177,005)
Adjustments to reconcile net loss from to net cash used in operating activities
Depreciation 2,425 2,002
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 7,070 (3,844)
(Increase) decrease in inventory (82,963) 5,270
(Increase) decrease in prepaid expenses and other assets 83,917 (112,512)
Increase (decrease) in accounts payable and accrued liabilities 54,422 65,123
--------- ---------
Net cash flows used in operating activities (65,895) (220,966)
Cash flows from investing activities
Cash paid for intangible assets -- (75,000)
Purchase of fixed assets (16,430) (26,144)
--------- ---------
Net cash flows used in investing activities (16,430) (101,144)
Cash flows from financing activities
Cash overdraft 1,074 --
Net advances - related parties 79,345 318,025
Principal payments under capital lease (922) (1,023)
--------- ---------
Net cash flows provided by financing activities 79,497 317,002
--------- ---------
Decrease in cash (2,828) (5,108)
Cash and cash equivalents, beginning of period 2,828 7,889
--------- ---------
Cash and cash equivalents, end of period $ -- $ 2,781
========= =========
Cash paid during the year for:
Interest and income taxes -- --
========= =========
See condensed notes to consolidated financial statements.
5
MB SOFTWARE CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 2006
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
of America for interim financial information and with the instructions to Form
10-QSB and Rule 10-01 of Regulation S-X. They do not include all information and
notes required by generally accepted accounting principles in the United States
of America for complete financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have been made.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results may differ from these estimates. The results of
operations for the period ended March 31, 2006 are not necessarily indicative of
the operating results that may be expected for the entire year ending December
31, 2006. These financial statements should be read in conjunction with the
Management's Discussion and Analysis included in the Company's financial
statements and accompanying notes thereto as of and for the year ended December
31, 2005, filed with the Company's Annual Report on Form 10-KSB
NOTE 2: GOING CONCERN
The financial statements have been prepared on a going concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. The Company has continuously incurred losses from
operations and has a significant accumulated deficit. The appropriateness of
using the going concern basis is dependent upon the Company's ability to obtain
additional financing or equity capital and, ultimately, to achieve profitable
operations. These conditions raise substantial doubt about its ability to
continue as a going concern.
It is the Company's belief that it will continue to incur losses for at least
the next twelve months, and as a result will require additional funds from debt
or equity investments to meet such needs. To meet these objectives, management's
plans are to (i) raise capital by obtaining financing from debt financing and /
or equity financing through private placement efforts, (ii) issue common stock
for services rendered in lieu of cash payments and (iii) obtain loans from
shareholders as necessary. Without realization of additional capital or
significant revenues from operations, it would be unlikely for the Company to
continue as a going concern. The Company anticipates that its shareholders will
contribute sufficient funds to satisfy the cash needs of the Company for the
next twelve months. However, there can be no assurances to that effect, as the
Company has minimal revenues and the Company's need for capital may change
dramatically if it is successful in expanding its current business or acquiring
a new business. If the Company cannot obtain needed funds, it may be forced to
curtail or cease its activities.
Management believes that actions presently taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern. The Company's future ability to achieve these
objectives cannot be determined at this time. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
6
NOTE 3 - RELATED PARTY TRANSACTIONS
Funds are advanced from various related parties including the Company's
President and CEO/CFO and entities controlled by him. Other shareholders fund
the company as necessary to meet working capital requirements and expenses. The
advances are made pursuant to a note agreement that bears interest at 10% per
annum, payable quarterly, and with maturity dates through June 30, 2006. All
notes are current liabilities. Accrued interest due to related parties included
in accrued liabilities as of March 31, 2006 was approximately $45,000. The
following is a summary of amounts due to / from related parties as of March 31,
2006:
Related party Nature of relationship Terms of the agreement Amounts due
to related
parties
------------------------- ----------------------------- ----------------------------------------------- ----------------
Scott Haire, an Chairman of the Board, Unsecured note dated July 11, 2005 for $ 10,000
individual CEO and CFO of this $10,000 at 10% per annum, due on
Company December 31, 2005, currently in default
HEB, LLC, a Scott Haire, Chairman Series of funds advanced under two 394,947
Nevada Limited President, CEO and CFO separate, unsecured $1 million lines of
Liability Company of this company, controls credit dated November 26, 2003 and
both entities financing November 4, 2004, both at 10% per
and operating decisions annum; no maturity date, interest
payable quarterly; unused lines available
at March 31, 2006 total $1,605,053.
Araldo Cossutta, Director and stockholder Series of unsecured notes bearing 297,000
an individual of the Company interest at 10% per annum , maturing
through June 30, 2006. As of March 31,
2006, $147,000 were past due and
$155,000 mature on June 30, 2006.
eAppliance Controlling owners in Note dated January 1, 2004 for $2,410 at 2,410
Payment Solutions, eAppliance Payment 10% per annum due on December 31,
LLC a Nevada Solutions, LLC are 2005 (currently in default)
Limited Liability Cossutta and Haire
Company
----------------
$ 704,357
================
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Consulting Agreement
The Company's subsdiary entered into a Consulting Agreement dated November 7,
2005, for consulting and advisory services to the Company for period of 6 months
at the rate of $12,500 per month. For the three months ended March 31, 2006,
consulting expenses totaled $37,500 (2004: $-) for this consultant. Future
commitments under the Consulting Agreement for 2006 are $18,750.
Operating leases
The Company leases office space and office equipment under operating leases
expiring in various years through 2009. Rental expense charged to operations for
the three months ended March 31, 2006 was approximately $27,000 (2004: $27,000).
7
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of March 31, 2006, for each of the next
five years and in the aggregate are as follows (approximately):
2006 $ 78,000
2007 91,000
2008 57,000
2009 39,000
2010 --
--------
$265,000
========
Capital leases
The Company leases a phone system under a capital lease for a period of
thirty-six months through September 2007. Minimum future lease payments under
capital lease as of March 31, 2006, for each of the next five years and in the
aggregate are: (2006: $4,092 and 2007: $2,147).
Federal Payroll Taxes
The Company is delinquent in the payment of its payroll tax liabilities with the
Internal Revenue Service. As of March 31, 2005, unpaid payroll taxes total
approximately $143,000 and related penalties and interest approximated $37,000
computed through March 31, 2006, and are included in accrued liabilities at
March 31, 2006. The Company expects to pay these delinquent payroll tax
liabilities as soon as possible. The final amount due will be subject to the
statutes of limitations related to such liabilities and to negotiations with the
Internal Revenue Service.
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS
Introduction
Management's discussion and analysis of results of operations and financial
condition ("MD&A") is provided as a supplement to the accompanying consolidated
financial statements and footnotes to help provide an understanding of our
financial condition, changes in financial condition and results of operations.
Caution Concerning Forward-Looking Statements/Risk Factors
The following discussion should be read in conjunction with the financial
statements and the notes thereto and the other financial information appearing
elsewhere in this document. In addition to historical information, the following
discussion and other parts of this document contain certain forward-looking
information. When used in this discussion, the words "believes," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected due
to a number of factors beyond our control. We do not undertake to publicly
update or revise any of our forward-looking statements even if experience or
future changes show that the indicated results or events will not be realized.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. You are also urged to
carefully review and consider our discussions regarding the various factors that
affect our business, included in this section and elsewhere in this report.
Factors That Could Affect Future Results
We face an inherent risk of exposure to product liability claims in the event
that the use of our products results in injury. Such claims may include, among
others, that our products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. We do not anticipate obtaining contractual
indemnification from parties supplying raw materials or marketing our products.
In any event, any such indemnification if obtained would be limited by our terms
and, as a practical matter, to the creditworthiness of the indemnifying party.
In the event that we do not have adequate insurance or contractual
indemnification, product liabilities relating to defective products could have a
material adverse effect on our operations and financial conditions.
Because of our dependence upon consumer perceptions, adverse publicity
associated with illness or other adverse effects resulting from the use of our
products or any similar products distributed by other companies could have a
material adverse effect on our operations. Such adverse publicity could arise
even if the adverse effects associated with such products resulted from
consumers' failure to consume such products as directed. In addition, we may not
be able to counter the effects of negative publicity concerning the efficacy of
our products. Any such occurrence could have a negative effect on our
operations.
Other key factors that affect our operating results are as follows:
o Overall customer demand and acceptance for our various products.
o Volume of products ordered and the prices at which we sell our
products.
o Our ability to manage our cost structure for capital expenditures and
operating expenses such as salaries and benefits, freight and
royalties.
o Our ability to match operating costs to shifting volume levels.
o Increases in the cost of raw materials and other supplies.
o The impact of competitive products.
o Limitations on future financing.
o Increases in the cost of borrowings and unavailability of debt or
equity capital.
o Our inability to gain and/or hold market share.
9
o Exposure to and expense of resolving and defending product liability
claims and other litigation.
o Managing and maintaining growth.
o The success of product development and new product introductions into
the marketplace.
o The departure of key members of management.
o Our ability to efficiently manufacture our products.
o Unexpected customer bankruptcy.
Overview and Plan of Operation
The Company currently has limited business operations, maintaining leased
offices in Arlington, TX, and Fort Lauderdale, FL. All major business functions
are performed by our subsidiary, Wound Care Innovations. Although Wound Care is
a distributor of our products, it is also responsible for product packaging
development, packaging materials, and coordination of all processes except the
actual manufacturing of the product. Wound Care also conducts other activities
that are typical of a product distributor and include sales, marketing, customer
service, and customer support. All of these activities are run and managed out
of Wound Care's Fort Lauderdale offices.
Manufacturing of our products is conducted by Applied Nutritionals. Warehousing,
shipping, and physical inventory management is outsourced to Diamond Contract
Manufacturing of Rochester, NY.
Our sales and marketing activities to date have been limited and have resulted
in a nominal revenue stream. Through these activities, we have, however, secured
product evaluations with a number of key accounts. These accounts are regional
and national healthcare provider organizations that represent strong recurring
revenue opportunities for the Company.
We currently intend to secure capital resources for expansion of staff,
inventories, marketing efforts, and research and development, however we may be
unsuccessful in our efforts to secure such capital. If we are successful in
raising capital, we anticipate hiring a number of management, marketing, and
clinical staff to secure additional accounts, market to the broader US wound
care market, support customers in specific geographies, broaden our
clinical/educational programs, and evaluate retail and international market
opportunities.
Results of Operations
Three months ended March 31, 2006 and 2005
Revenues. The Company generated revenues for the three months ended March 31,
2006 of $46,901 (2005: $56,261), through its wholly-owned subsidiary Wound Care
Innovations, LLC, ("WCI"), a decrease of approximately 17% from the same period
in 2005.
Cost of revenues and gross margin. Costs of revenues for 2006 were $38,284
(2005: $53,363) resulting in a gross margin of $8,617 (2005: $2,898). Our gross
margins increased to 18% versus 5% in 2005 as a result of the reduction in
employees from 3 employees in 2005 to 2 employees in 2006. We don't expect
realization of gross margins to increase much higher as we bear the costs and
continue to try to compete with other larger, better capitalized companies that
can offer a similar product at a reduced cost.
Selling, general and administrative expenses ("SGA"). SGA for 2006 were $122,963
(2005: $172,497) and consisted primarily of wages, facility-related expenses
such as rent and utilities, and outside professional services such as legal and
professional fees incurred in connection with our SEC reporting requirements. We
expect selling, general and administrative expenses to increase as we continue
to expand our marketing efforts and the number of products we offer and as our
business continues to grow and the costs associated with being a public company
continue to increase as a result of increased reporting requirements, including
but not limited to the Sarbanes-Oxley Act of 2002.
10
Liquidity and Capital Resources
The Company currently has limited resources to maintain its current operations,
secure more inventory, and meet its contractual obligations. Additional capital
must be raised immediately through equity or debt offerings. If we are unable to
obtain additional capital, we will be unable to operate our business. We have
historically relied on advances from related parties to fund our working capital
expenses. We generated a loss from operations of $130,766 and we had a cash
overdraft of approximately $1,100 at March 31, 2006.
Without realization of additional capital or significant revenues from
operations, it would be unlikely for the Company to continue as a going concern.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates realization of assets and liquidation of liabilities
in the ordinary course of business. The Company has continuously incurred losses
from operations and has a significant accumulated deficit. The appropriateness
of using the going concern basis is dependent upon the Company's ability to
obtain additional financing or equity capital and, ultimately, to achieve
profitable operations. These conditions raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty and
should not be regarded as typical for normal operating periods.
It is the Company's belief that it will continue to incur nominal losses for at
least the next twelve months, and as a result will require additional funds from
debt or equity investments to meet such needs. The Company anticipates that its
officers and shareholders will contribute sufficient funds to satisfy the cash
needs of the Company for the next twelve months. However, there can be no
assurances to that effect, as the Company has insignificant revenues and the
Company's need for capital may change dramatically if it is successful in
acquiring a new business. If the Company cannot obtain needed funds, it may be
forced to curtail or cease its activities. Our future funding requirements will
depend on numerous factors, some of which are beyond the Company's control.
These factors include our ability to operate profitably, recruit and train
management and personnel, and to compete with other, better-capitalized and more
established competitors. To meet these objectives, management's plans are to (i)
raise capital by obtaining financing through private placement efforts, (ii)
issue common stock for services rendered in lieu of cash payments and (iii)
obtain loans from officers and shareholders as necessary.
Contractual Obligations (Commitments And Contingencies)
Consulting Agreement
The Company's subsdiary entered into a Consulting Agreement dated November 7,
2005, for consulting and advisory services to the Company for period of 6 months
at the rate of $12,500 per month. For the three months ended March 31, 2006,
consulting expenses totaled $37,500 (2004: $-) for this consultant. Future
commitments under the Consulting Agreement for 2006 are $18,750.
Operating leases
The Company leases office space and office equipment under operating leases
expiring in various years through 2009. Rental expense charged to operations for
the three months ended March 31, 2006 was approximately $27,000 (2004: $27,000).
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of March 31, 2006, for each of the next
five years and in the aggregate are as follows (approximately):
2006 $ 78,000
2007 91,000
2008 57,000
2009 39,000
2010 --
--------
$265,000
========
11
Capital leases
The Company leases a phone system under a capital lease for a period of
thirty-six months through September 2007. Minimum future lease payments under
capital lease as of March 31, 2006, for each of the next five years and in the
aggregate are: (2006: $4,092 and 2007: $2,147).
Federal Payroll Taxes
The Company is delinquent in the payment of its payroll tax liabilities with the
Internal Revenue Service. As of March 31, 2005, unpaid payroll taxes total
approximately $143,000 and related penalties and interest approximated $37,000
computed through March 31, 2006, and are included in accrued liabilities at
March 31, 2006. The Company expects to pay these delinquent payroll tax
liabilities as soon as possible. The final amount due will be subject to the
statutes of limitations related to such liabilities and to negotiations with the
Internal Revenue Service.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer, who is also the principal financial officer, of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer/principal financial officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There was no change in the Company's internal
control over financial reporting during the Company's most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
such evaluation.
12
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities and Use of Proceeds - None
ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits
(a) Exhibits
31 Certification pursuant to Rule 13a-14(a)/15d-14(a)
32 Certification of Principal Executive Officer and Principal Financial
Officer in accordance with 18 U.S.C. Section 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
MB SOFTWARE CORPORATION
Date: May 22, 2006 /s/ Scott A. Haire
---------------------------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
13