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: September 30, 2007
[ ] 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)
777 Main Street
Suite 3100
Fort Worth, Texas 76102
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2007, 16,145,432 shares of the Issuer's $.001 par value common
stock were outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
MB SOFTWARE CORPORATION AND SUBSIDIARY
Form 10-QSB
Quarter Ended September 30, 2007
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheet as of September 30, 2007 (Unaudited)............. F-3
Consolidated Statements of Operations for the three and nine months ended
September 30, 2007 and 2006 (Unaudited)............................. F-4
Consolidated Statements of Cash Flows for the nine months ended September 30,
2007 and 2006
(Unaudited)......................................................... F-5
Condensed Notes to Consolidated Financial Statements........................ F-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.......... 8
ITEM 3. CONTROLS AND PROCEDURES............................................. 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................... 11
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds......... 11
ITEM 3. Defaults Upon Senior Securities..................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders................. 11
ITEM 5. Other Information................................................... 11
ITEM 6. Exhibits............................................................ 11
SIGNATURE................................................................... 11
2
MB SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30, 2007
------------------
CURRENT ASSETS:
Cash 41,031
Accounts Receivable 60,982
Inventory 273,066
Prepaid and other current assets --
-----------
Total current assets 375,079
Property and Equipment, Net 38,410
Other Assets 13,739
-----------
TOTAL ASSETS 427,228
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable 42,379
Accrued Liabilities 30,969
Accrued payroll tax penalty 324,789
Obligation under capital lease 3,169
Accrued interest - related parties 202,906
Other accrued current expense 43,645
Notes payable (Note 3) 500,000
Notes payable - related parties 866,324
-----------
Total current liabilities 2,014,181
Long Term Liabilities: --
-----------
TOTAL LIABILITIES 2,014,181
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
Additional paid-in capital 11,181,496
Less: Treasury Stock (12,039)
Accumulated deficit (12,772,555)
-----------
Total stockholders' Deficiency (1,586,953)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY 427,228
===========
See condensed notes to consolidated financial statements.
3
MB SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
September 30, September 30, September 30, September 30,
2007 2007 2007 2006
----------- ----------- ----------- -----------
TOTAL REVENUE 173,319 39,556 557,365 133,340
COST OF REVENUE 70,395 26,495 207,835 104,858
----------- ----------- ----------- -----------
GROSS PROFIT 102,924 13,061 349,530 28,482
GENERAL AND ADMINISTRATIVE EXPENSES: 192,402 118,093 556,678 362,457
----------- ----------- ----------- -----------
(LOSS) FROM OPERATIONS: (89,478) (105,032) (207,148) (333,975)
OTHER (EXPENSE): (37,049) (35,644) (108,782) (84,479)
Interest expense - related parties
----------- ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES (126,527) (140,676) (315,930) (418,454)
----------- ----------- ----------- -----------
NET LOSS (126,527) (140,676) (315,930) (418,454)
=========== =========== =========== ===========
Basic and diluted loss per share of common stock: $ (0.01) $ (0.01) $ (0.02) $ (0.03)
Weighted average number of common shares outstanding 16,145,432 16,145,432 16,145,432 16,145,432
See condensed notes to the financial statements.
4
MB SOFTWARE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND SEPTEMBER 30, 2006
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
September 30, September 30,
2007 2006
-------- --------
Cash flows from operating activities
------------------------------------
(Loss) from continuing operations (315,930) (418,454)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 6,505 7,275
Write off of bad debts -- 14,156
Changes in assets and liabilities:
(Increase) in accounts receivable (1,257) (27,657)
(Increase) in inventory (176,495) (141,520)
Decrease in prepaid expenses and other assets 46,537 87,590
Increase (decrease) in accounts payable and accrued liabilities (3,017) 165,028
Increase in related party accrued interest 161,440 --
-------- --------
Net cash flows (used) in operating activities (282,217) (313,582)
Cash flows from investing activities
------------------------------------
Purchase of fixed assets (1,500) (16,430)
-------- --------
Net cash flows (used) in investing activities (1,500) (16,430)
Cash flows from financing activities
------------------------------------
Net advances - related parties 88,447 331,345
Principal payments under capital lease -- (2,969)
-------- --------
Net cash flows provided by financing activities 88,447 328,376
-------- --------
(Decrease) in cash (195,270) (1,636)
Cash and cash equivalents, beginning of period 236,301 2,828
-------- --------
Cash and cash equivalents, end of period 41,031 1,192
======== ========
Cash paid during the period for:
--------------------------------
Interest 0 0
Income taxes 0 0
Non-cash investing & financing None None
See condensed notes to consolidated financial statements.
5
MB SOFTWARE CORPORATION AND SUBSIDIARY
QUARTER ENDED SEPTEMBER 30, 2007
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted 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 accounting principles generally accepted 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 September 30, 2007 are not necessarily
indicative of the operating results that may be expected for the entire year
ending December 31, 2007. 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, 2006, filed with the Company's Annual Report on Form
10-KSB.
Reclassification - The financial statements for periods prior to September 30,
2007 have been reclassified to conform to the headings and classifications used
in the September 30, 2007 financial statements.
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's revenues have been insufficient to sustain the Company's operations
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.
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NOTE 3 - NOTES PAYABLE
Accrued Total
Interest Debt
Investment Firm, unsecured, payable on December 31, 2007
including interest at 10% per annum $ 39,930 $ 500,000
========== ===========
NOTE 4 - NOTES PAYABLE and 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 may
fund the Company as necessary to meet working capital requirements and expenses.
The advances are made pursuant to note agreements that bear interest at 10% per
annum, with various maturity dates. All notes are current liabilities. Accrued
interest to related parties totaled $202,906, at September 30, 2007.
Accrued Total
Interest Debt
-------- --------
Scott Haire, Company Chairman, CEO, and CFO,
unsecured, payable on December 31, 2007, including
interest at 10% per annum $ 2,255 $ 10,000
HEB LLC, Scott Haire an owner, Chairman, CEO, and CFO,
unsecured, two separate $1,000,000 open lines of credit,
no maturity date, interest at 10% per annum,
unused lines available at September 30, 2007 total
$1,458,086 119,193 541,914
Araldo Cossutta, Company Director and Stockholder,
unsecured series of notes:
payable on December 31, 2007, with interest at 10% 30,673 142,000
payable on December 31, 2007, with interest at 10% 49,955 170,000
eAppliance Payment Solutions, LLC, owned by Scott Haire
and Araldo Cossutta, unsecured, payable on
December 31, 2007, interest at 10% per annum 830 2,410
-------- --------
Total Current Balance $202,906 $866,324
======== ========
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NOTE 5 - COMMITMENTS AND CONTINGENCIES
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 nine months ended September 30, 2007 was approximately $43,527 (2006:
$27,000). Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of 1 year as of September 30, 2007, for each of
the next three years and in the aggregate are as follows (approximately):
2007 $ 62,000 Federal Payroll Taxes
2008 58,000
2009 39,000 The Company is delinquent in the
---------------- payment of its payroll tax
$ 159,000 liabilities with the Internal
---------------- Revenue Service. As of September
---------------- 30, 2007, unpaid payroll taxes
---------------- total approximately $203,484. The
================ Company has estimated related
penalties and interest at $121,305
computed through September 30, 2007, which are included in current liabilities
at September 30, 2007. 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 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Introduction
Management's discussion and analysis of results of operations and financial
condition 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.
8
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.
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 Fort Worth, TX, and Fort Lauderdale, FL. All major business functions
are performed by our subsidiary, Wound Care Innovations, LLC. Although Wound
Care is a product distributor, 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, including 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 not
resulted in sufficient revenues to sustain the Company's operations. 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 we believe represent strong recurring revenue opportunities
for the Company.
We currently intend to secure capital resources for expansion of staff, expanded
inventory, and marketing efforts, 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
Nine months ended September 30, 2007 and 2006
Revenues: The Company generated revenues for the nine months ended September 30,
2007 of $557,365 (2006: $133,340), an increase of approximately 318% from the
same period in 2006. We believe that the Company will continue to experience
higher revenue levels than in the past, primarily as a result of increased
expenditures on sales and marketing.
Cost of revenues and gross margin: Costs of revenues for 2007 were $207,835
(2006: $104,858) resulting in a gross margin of $349,530 (2006: $28,482). Our
gross margin has increased to approximately 63% of revenues compared to
approximately 21% of revenues for the year ago period.
9
Selling, general and administrative expenses ("SGA").SGA for 2007 were $556,678
(2006: $362,457) consisting primarily of wages, enhanced product promotions,
facility-related expenses, and continuing exceptional expense increases related
to our fast growth. We expect selling, general and administrative expenses to
continue to increase as we continue to expand our marketing efforts and the
number of products we offer.
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 realized a loss from operations of $315,930 during the nine months
ended September 30, 2007, funded by cash available at December 31, 2006 and
additional advances from shareholders of $88,447.
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.
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.
10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Unregistered Sales of Equity 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
/S/ Scott A. Haire
Date: November 12, 2007 Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
11