UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2006
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ___________
Commission File Number 0-11808
MB SOFTWARE CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 59-2220004
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 Main Street, Suite 3100, Fort Worth Texas 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 633-9400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------------- ---------------------------------------------
Common OTC BULLETIN BOARD
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $ .001 par value (Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. [ X ] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes [ ] No [X]
Issuer's revenues for its most recent fiscal year: $189,755. The aggregate
market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the quoted market price ($.50) at which the common
equity was sold as of December 31, 2006 was approximately $1,332,241.
As of December 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
Form 10-KSB
For the Year Ended December 31, 2006
Page
----
ITEM 1. BUSINESS ...........................................................1
ITEM 2. PROPERTIES...........................................................7
ITEM 3. LEGAL PROCEEDINGS....................................................7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................7
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS................................................7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION............8
ITEM 7. FINANCIAL STATEMENTS ................................................9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...........................................9
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS...............................................10
ITEM 10. EXECUTIVE COMPENSATION.............................................11
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................12
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................13
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K....................................13
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES..............................14
PART 1
Item 1. DESCRIPTION OF BUSINESS
Background
MB Software Corporation was incorporated in 1982 as a Colorado corporation and
was reincorporated in the State of Texas in 2002. References in this report to
"we" or "the Company" refer to MB Software Corporation.
The Company's current focus is developing and marketing products for the
advanced wound care market, as pursued through our wholly-owned subsidiary,
Wound Care Innovations, LLC, a Nevada limited liability company. We acquired
Wound Care effective August 20, 2004, through a merger of Wound Care with a
newly formed Company subsidiary. The consideration paid by the Company for Wound
Care consisted of an aggregate of 6,000,000 shares of our common stock. These
shares were issued to H.E.B., LLC, a Nevada limited liability company, and to
Mr. Araldo Cossutta, the sole owners of Wound Care. Mr. Scott A. Haire, our
Chairman of the Board, Chief Executive Officer and President is the majority
owner and managing member of HEB, and Mr. Cossutta is a member of our Board of
Directors.
In connection with the acquisition of Wound Care, HEB and Mr. Cossutta also
agreed to convert an aggregate of $1,800,612 of Wound Care's debt and other
obligations owed to HEB and Mr. Cossutta into an aggregate of 2,257,303
additional shares of our common stock.
Wound Care has certain exclusive and nonexclusive distribution rights to
CellerateRx(TM) products, a collagen-based wound care product line based upon a
patented molecular form of collagen. Wound Care's distribution rights for these
products are exclusive in the domestic medical, retail, government and first aid
human use wound care markets, as well as in several international markets;
however such rights are currently in default as described below. These products
are FDA cleared for marketing for the following indications: pressure ulcers,
diabetic ulcers, surgical wounds, ulcers due to arterial insufficiency,
traumatic wounds, 1st and 2nd degree burns, and superficial wounds. We believe
that these products are unique in composition, applicability, clinical
performance, and demonstrate the ability to reduce costs associated with
standard wound management. CellerateRx(TM) is a trademark of Applied
Nutritionals, Inc.
We have been pre-marketing CellerateRX products to select markets and have
received positive user feedback from many healthcare markets, including long
term care facilities, wound care centers, hospitals, homecare agencies, and
durable medical equipment companies. Our pre-marketing work is beginning to bear
results that we believe will generate additional revenues during 2007.
We are still in the early stage of our development and we will have to raise
additional capital, either through the sale of equity or through debt financing
to meet our contractual obligations, and continue operations.
Wound Care Industry
-------------------
The US wound care market is currently estimated at six billion dollars, and
serves between three to five million patients annually with wounds resulting
from diabetes, arterial insufficiency, pressure caused by immobility and other
causes. This market is currently estimated to be growing at 10% per year.
The wound care market in the US is made up of healthcare professionals and
organizations that provide care for those with wounds, durable medical equipment
companies that supply ambulatory patients with products, and product companies
that market drugs, devices, and methodologies to healthcare organizations and
patients. Presently, Wound Care focuses strictly on sales and marketing
activities directed toward professionals and organizations that will either
resell CellerateRx products or use them in the course of treating their
patient's wounds.
Within the wound care products market, there are two typical groups of products:
drugs and devices. CellerateRx(TM) products currently classified by the FDA as
Class I medical devices, and are further classified as dressings. Although
collagen has been used for a number of years as a component of wound care
dressings, we believe that the patented form of collagen in CellerateRx(TM)
products allows these dressings to have a more active role in wound therapy than
other currently available collagens based wound care dressings. The dressing
market in the United States is currently estimated to be $2.5 billion per year.
Competition
-----------
The wound care market is served by a number of large, multi-product line
companies offering a suite of products to the market. CellerateRx(TM) products
compete with all primary dressings, some prescription therapies (drugs), and
other medical devices. Manufacturers and distributors of competitive products
include: Smith & Nephew, Johnson & Johnson, Healthpoint, and Biocore. Many of
our competitors are significantly larger that we are and have more financial and
personnel resources that we do. Consequently, we will be at a competitive
disadvantage in marketing and selling our products into the marketplace. We
believe, however, that the patented molecular form of collagen allows
CellerateRx(TM) products to outperform currently available non-active dressings,
reduce the cost of wound management, and replace a variety of other products
with a single primary dressing.
General Business Plan
---------------------
The Company's general business plan is to introduce CellerateRX products to
select national and regional healthcare provider organizations, and focus on
geographically-targeted marketing. CellerateRx(TM) products are currently being
used by wound care providers of all types, and are getting to market through a
variety of distribution channels. CellerateRx(TM) products are currently
approved for reimbursement under Medicare Part B. As a consequence, the
professional medical market is, and will remain the primary focus of our
marketing and sales efforts for the immediate future.
Products
--------
CellerateRX Gel and Powder are our two primary products for the professional
healthcare market. Both products contain the patented form of collagen and can
be used on a variety of wounds, wound states, and phases. We believe that the
spectrum of use of CellerateRx(TM) products allows us to market to a wide range
of customers, and enables us to pursue relationships with compatible product
companies for potential joint marketing activities. Both gel and powered
products are sold, physician ordered, and reimbursed (when applicable) by the
gram.
Marketing, Sales, and Distribution
----------------------------------
The Company anticipates building and supporting a limited sales and marketing
force directed toward securing key high profile accounts, penetrating select
geographic markets, and supporting the efforts of our resellers and
distributors. The wound care products market has a variety of overlapping
distribution channels, with many customers able to procure products in multiple
ways. With an intended limited internal sales force, our goal is to market
directly to large accounts and open distribution channels preferred by those
clients, as well as marketing through traditional online, offline, trade show
and local activities.
Applied Nutritionals is our exclusive supplier of products. Packaging, inventory
management, and shipping activities are currently outsourced to Diamond Contract
Manufacturing, a non-affiliated entity who provides packaging, warehousing, and
fulfillment services from their Rochester, NY facilities.
R & D
-----
We conduct our research and development activities, in conjunction with Applied
Nutritionals. Although our efforts are currently focused on marketing and
selling our current product lines, we anticipate that we may develop derivative
products, utilizing the patented form of collagen, for other markets and
applications.
Clinical Studies
----------------
2
Although no clinical studies are currently planned, we intend to conduct a
number of clinical studies for the purposes of quantifying the benefits of
CellerateRX. We anticipate planning study design and management in the near
future.
Risk Factors
------------
We have sought to identify what we believe to be the most significant risks to
our business. However, we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business. These are factors that
we think could cause our actual results to differ materially from expected
results. Other factors besides those listed here could affect us.
Lack of Operating History
-------------------------
We acquired Wound Care in August of 2004 and we have not been profitable to
date. Although we have seen our sales increase in the two and a half years since
the acquisition, we cannot predict if and when we may become profitable. Even if
we become profitable in the future, we cannot accurately predict the level of,
or our ability to sustain profitability. Because we have not yet been profitable
and cannot predict any level of future profitability, you bear the risk of a
complete loss of your investment in the event our business plan is unsuccessful.
Inability to Obtain Funding
---------------------------
We may not be able to obtain additional funding when needed, which could limit
future expansion and marketing opportunities, as well as result in lower than
anticipated revenues. We may require additional financing to pursue
relationships with other business opportunities. If the market price of our
common stock declines, some potential financiers may either refuse to offer us
any financing or will offer financing at unacceptable rates or unfavorable
terms. If we are unable to obtain financing on favorable terms, or at all, this
unavailability could prevent us from expanding our business, which could
materially impact our future potential revenues.
Sole Source of Products
-----------------------
Applied Nutritionals holds the patent to, and is currently the sole source of
the products we offer for sale. In the event Applied Nutritionals is not able to
fulfill our product orders, or our relationship with Applied Nutritionals is
terminated we would be prevented from marketing and selling our products into
the market and we would be unable to conduct business. We are currently in the
process of renegotiating and extending our relationship with Applied
Nutritionals. Although we believe that this process will be successful, there
can be no assurances that we will successfully renegotiate or extend our
agreement. If we fail to renegotiate or extend our relationship with Applied
Nutritionals, we would be unable to conduct business.
Continued Control by Existing Management
----------------------------------------
You may lack an effective vote on corporate matters and management may be able
to act contrary to your objectives. Our officers and board members own
approximately 83.5% of the 16,145,432 shares of our outstanding common stock. If
management votes together, it will influence the outcome of corporate actions
requiring shareholder approval, including the election of directors, mergers and
asset sales. As a result, new stockholders may lack an effective vote with
respect to the election of directors and other corporate matters. Therefore, it
is possible that management may take actions with respect to its ownership
interest, which may not be consistent with your objectives or desires.
3
Unknown Product and Brand
-------------------------
Although our products have performed exceptionally well in customer evaluations,
and on a continual basis in the field, Wound Care is an unknown entity with a
relatively unknown brand in a market significantly controlled by much larger
products companies. We may not, even with strong customer accounts, be able to
establish the credibility necessary to secure large national customers.
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.
Product Liability Exposure
--------------------------
We face an inherent risk of exposure to product liability claims in the event
that the use of any products we sell results in injury. Such claims may include,
among others, that these 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 the products
we sell. 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.
Single Product Line
-------------------
Most companies providing wound care products are able to offer customers
multiple products. By doing so, they effectively offset the cost of customer
acquisition and support across several revenue sources. With only one product
line, our costs are relatively much higher and may prevent us from achieving
strong profitability.
Changes in Reimbursement Policies
---------------------------------
Healthcare services are heavily reliant upon health insurance reimbursement.
Although many current insurance plans place much of the financial risk on
providers of care (allowing them to choose whatever products/therapies are most
cost effective) under capitated or prospective payment structures, much of our
business is related to Medicare-eligible populations. Adjustments to our
reimbursement amounts under Medicare's reimbursement policies could have an
adverse effect on our ability to pursue market opportunities.
User Resistance
---------------
Because our products are classified by the FDA as medical devices and not drugs,
we were not required to pursue stringent clinical trials. Many physicians and
larger, sophisticated healthcare provider organizations often required clinical
studies demonstrating specific performance capabilities of new products. We do
not have results from controlled clinical studies.
Regulations
-----------
The FDA has cleared these devices for specific indications, and generally has
wide experience in evaluating collagen-based products. If the FDA were to change
its policy on collagen for any reason, we would likely be required to conduct
and submit data to satisfy additional requirements.
Competition
-----------
4
Competition in the wound care market is heavy among a vast array of medical
devices, drugs, and therapies. Most of our competitors are very well capitalized
and will continue to compete aggressively. Competitors may be able to keep us
out of some distribution channels, close us out from some larger accounts with
"Master Contracts" for full product lines, and create market awareness that
hinders our abilities to secure key accounts in a cost effective way.
Dividends
---------
We have not paid and do not currently intend to pay dividends, which may limit
the current return you may receive on your investment in our common stock.
Future dividends on our common stock, if any, will depend on our future
earnings, capital requirements, financial condition and other factors. We
currently intend to retain earnings, if any, to increase our net worth and
reserves. Therefore, we do not anticipate that any holder of common stock will
receive any cash, stock or other dividends on our shares of common stock at any
time in the near future. You should not expect or rely on the potential payment
of dividends as a source of current income.
"Penny Stock" Limitations
-------------------------
Our common stock currently trades on the OTC Bulletin Board. Since our common
stock continues to trade below $5.00 per share, our common stock is considered a
"penny stock" and is subject to SEC rules and regulations, which impose
limitations upon the manner in which our shares can be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market and the
associated risks. Under these regulations, certain brokers who recommend such
securities to persons other than established customers or certain accredited
investors must make a special written suitability determination regarding such a
purchaser and receive such purchaser's written agreement to a transaction prior
to sale. These regulations have the effect of limiting the trading activity of
our common stock and reducing the liquidity of an investment in our common
stock.
Stockholders should be aware that, according to the Securities and Exchange
Commission Release No. 34- 29093, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. These patterns include:
- Control of the market for the security by one or a few broker-dealers that
are often related to the promoter or issuer;
- Manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases;
- "Boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
- Excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
- The wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired level, along
with the inevitable collapse of those prices with consequent investor
losses.
Furthermore, the "penny stock" designation may adversely affect the development
of any public market for the Company's shares of common stock or, if such a
market develops, its continuation. Broker-dealers are required to personally
determine whether an investment in "penny stock" is suitable for customers.
Penny stocks are securities (i) with a price of less than five dollars per
share; (ii) that are not traded on a "recognized" national exchange; (iii) whose
prices are not quoted on the NASDAQ automated quotation system (NASDAQ-listed
stocks must still meet requirement (i) above); or (iv) of an issuer with net
tangible assets less than $2,000,000 (if the issuer has been in continuous
operation for at least three years) or $5,000,000 (if in continuous operation
5
for less than three years), or with average annual revenues of less than
$6,000,000 for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 of the Commission require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
penny stock for the investor's account. Potential investors in the Company's
common stock are urged to obtain and read such disclosure carefully before
purchasing any shares that are deemed to be "penny stock."
Rule 15g-9 of the Commission requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for the Company's stockholders to resell their shares to third parties
or to otherwise dispose of them.
Future sales of large amounts of common stock could adversely affect the market
price of our common stock and our ability to raise capital.
-----------------------------------------------------------
Future sales of large amounts of common stock could adversely affect the market
price of our common stock and our ability to raise capital. Future sales of our
common stock by existing stockholders pursuant to Rule 144 under the Securities
Act, or following the exercise of outstanding options, could adversely affect
the market price of our common stock. Substantially all of the outstanding
shares of our common stock are freely tradable, without restriction or
registration under the Securities Act, other than the sales volume restrictions
of Rule 144 applicable to shares held beneficially by persons who may be deemed
to be affiliates. Our directors and executive officers and their family members
are not under lockup letters or other forms of restriction on the sale of their
common stock. The issuance of any or all of these additional shares upon
exercise of options will dilute the voting power of our current stockholders on
corporate matters and, as a result, may cause the market price of our common
stock to decrease. Further, sales of a large number of shares of common stock in
the public market could adversely affect the market price of the common stock
and could materially impair our future ability to generate funds through sales
of common stock or other equity securities.
Dependence on Executive Officers and Technical Personnel
--------------------------------------------------------
The success of our business plan depends on attracting qualified personnel, and
failure to retain the necessary personnel could adversely affect our business.
Competition for qualified personnel is intense, and we may need to pay premium
wages to attract and retain personnel. Attracting and retaining qualified
personnel is critical to our business. Inability to attract and retain the
qualified personnel necessary would limit our ability to implement our business
plan successfully.
Potential Fluctuations in Quarterly Results
-------------------------------------------
Significant variations in our quarterly operating results may adversely affect
the market price of our common stock. Our operating results have varied on a
quarterly basis during our operating history, and we expect to experience
significant fluctuations in future quarterly operating results. These
fluctuations have been and may in the future be caused by numerous factors, many
of which are outside of our control. We believe that period-to-period
comparisons of our results of operations will not necessarily be meaningful and
that you should not rely upon them as an indication of future performance. Also,
it is likely that our operating results could be below the expectations of
public market analysts and investors. This could adversely affect the market
price of our common stock.
6
Employees
We currently have three employees in Florida. In addition, we use administrative
services provided by two employees of an entity controlled by Mr. Scott Haire,
our Chairman, President and Chief Executive Officer.
Reports to Security Holders
The Company is required to deliver period and other reports to the Securities
and Exchange Commission ("Commission"). The public may read and copy any
materials that are filed by the Company with the Commission at the Commission's
Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. The statements and forms filed by the Company
with the Commission have been filed electronically and are available for viewing
or copy on the Commission maintained Internet site that contains reports, proxy,
and information statements, and other information regarding issuers that file
electronically with the Commission. The Internet address for this site can be
found at: http://www.sec.gov.
ITEM 2. DESCRIPTION OF PROERTY
The Company's principal executive office is located at 777 Main Street, Fort
Worth. TX 761021. These offices contain approximately 2,390 square feet and are
leased for a 3 year term expiring March 31, 2010. Rental on our executive
offices is $3,784.00 per month. Wound Care's principal office is located at 790
E Broward Blvd, Suite 300, Fort Lauderdale, FL 33301. These offices contain
approximately 2,000 square feet and are leased for a 5 year term expiring
September 2009. Rental on Wound Care's office is $4,130.77 per month.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders, through the
solicitation of proxies or otherwise, during the fourth quarter ended December
31, 2006.
7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Over the Counter Bulletin Board, a
service maintained by the National Association of Securities Dealer, Inc. under
the symbol "MBSB". Trading in the common stock in the over-the-counter market
has been limited and sporadic and the quotations set forth below are not
necessarily indicative of actual market conditions. Further, these prices
reflect inter-dealer prices without retail mark-up, mark-down, or commission,
and may not necessarily reflect actual transactions.
The high and low sales prices are as follows for the periods indicated:
-------- ------------------------- ----------------- ----------------
YEAR QUARTER ENDING HIGH LOW
-------- ------------------------- ----------------- ----------------
2005 March 31, 2005 $0.80 $0.80
-------- ------------------------- ----------------- ----------------
June 30, 2005 $0.80 $0.80
-------- ------------------------- ----------------- ----------------
September 30, 2005 $0.45 $0.45
-------- ------------------------- ----------------- ----------------
December 31, 2005 $0.22 $0.15
-------- ------------------------- ----------------- ----------------
2006 March 31, 2006 $0.45 $0.45
-------- ------------------------- ----------------- ----------------
June 30, 2006 $0.20 $0.20
-------- ------------------------- ----------------- ----------------
September 30, 2006 $0.10 $0.10
-------- ------------------------- ----------------- ----------------
December 31, 2006 $0.05 $0.05
-------- ------------------------- ----------------- ----------------
--------------------------------------------------------------------------------
Record Holders
As of December 31, 2006, there were approximately 2000 shareholders of record
holding a total of 16,145,432 shares of common stock. The holders of the common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Holders of the common stock have no
preemptive rights and no right to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock.
Dividends
The Company has not declared any cash dividends since inception and does not
anticipate paying any dividends in the foreseeable future. The payment of
dividends is within the discretion of the board of directors and will depend on
the Company's earnings, capital requirements, financial condition, and other
relevant factors. There are no restrictions that currently limit the Company's
ability to pay dividends on its common stock other than those generally imposed
by applicable state law. The Company has determined that it will utilize any
earnings in the expansion of its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
8
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.
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. 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 and 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 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 staffs 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
Year ended December 31, 2006 Compared to Year ended December 31, 2005
---------------------------------------------------------------------
Revenues. The Company generated revenues for the year ended December 31, 2006 of
$189,755 compared to revenues of $211,167 for the year ended December 31, 2005,
or an 8% decrease in revenues.
Cost of revenues and gross margin. Costs of revenues for the year ended December
31, 2006 were $193,057 resulting in a gross loss margin of $3,302, compared to
cost of revenues for the year ended December 31, 2005 of $271,339 and gross loss
margin of $60,172. Lower cost of revenues in 2006 were primarily a result of
lower sales and a change in personnel during 2006 when compared to 2005. Our
margins continue to be small, but our client base is growing and we believe that
the product is gaining traction in the wound care field.
Selling, general and administrative expenses ("SGA"). SGA consists 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. SGA for 2006 were $484,583 compared to
9
$680,651 for fiscal 2005, or a decrease of approximately 28%. This decrease
resulted primarily from a change in top management during fiscal 2006. We expect
SGA to increase in the future 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.
Liquidity and Capital Resources
The Company currently has limited resources to maintain its current operations,
secure more inventories, and meet its contractual obligations. Additional
capital must be raised through equity or debt offerings. If we are unable to
obtain additional capital, we will be unable to operate our business. During
2006, certain related parties advanced us approximately $153,000 for working
capital purposes. We also secured a short-term loan of $500,000, due March 31,
2007. We generated a loss from operations of $623,559 and our cash position at
December 31, 2006 was $236,301.
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 majority 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. 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.
The Company does not anticipate incurring significant research and development
costs, the purchase of any major equipment, or any significant changes in the
number of its employees over the next twelve months.
Going Concern
The Company has continuously incurred losses from operations and has a
significant accumulated deficit. The appropriateness of using the going concern
basis is dependent upon the Company's ability to obtain additional financing or
equity capital and, ultimately, to achieve profitable operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
It is the Company's belief that it will continue to incur nominal losses for at
least the next twelve months, and as a result will require additional funds from
debt or equity investments to meet such needs. Without realization of additional
capital, it would be unlikely for the Company to continue as a going concern.
The Company anticipates that its officers and shareholders will contribute
sufficient funds to satisfy the cash needs of the Company for the next twelve
months. However, there can be no assurances to that effect, as the Company has
no revenues and the Company's need for capital may change dramatically if it is
successful in acquiring a new business. If the Company cannot obtain needed
funds, it may be forced to curtail or cease its activities. To meet these
objectives, management's plans are to (i) raise capital by obtaining financing
through private placement efforts; (ii) issue common stock for services rendered
in lieu of cash payments and (iii) obtain loans from officers and shareholders
as necessary.
The Company's future ability to achieve these objectives cannot be determined at
this time. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty and should not be
regarded as typical for normal operating periods.
10
ITEM 7. FINANCIAL STATEMENTS
MB SOFTWARE CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . F-1
Report of Independent Registered Public Accounting Firm. . . . . . . . . . . F-2
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Changes in Stockholders' Deficiency ... . . . ... F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . .. . . . . . . F-6
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . F7 - 16
11
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
MB SOFTWARE CORPORATION AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of MB Software
Corporation and Subsidiary as of December 31, 2006 and the related consolidated
statements of operations, changes in stockholders' deficiency and cash flows for
the year ended December 31, 2006. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MB Software
Corporation and Subsidiary as of December 31, 2006 and the consolidated results
of their operations and their cash flows for the year ended December 31, 2006,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that MB
Software Corporation and Subsidiary will continue as a going concern. As
discussed in Note 2 to the financial statements, MB Software Corporation and
Subsidiary have incurred recurring losses and has a stockholders' deficiency.
Further, the Company has current liabilities in excess of current assets. These
factors raise substantial doubt about the ability of the Company to continue as
a going concern. Management's plans in regards to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
March 8, 2007
12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of MB Software Corporation
We have audited the accompanying consolidated statements of operations, changes
in stockholders' deficiency and cash flows for the years ended December 31,
2005, of MB Software Corporation, a Texas Corporation, and Subsidiaries (the
"Company"). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards established by the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit of the consolidated financial statements provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of MB Software Corporation and Subsidiaries, for the year ended
December 31, 2005, in conformity with generally accepted accounting principles
in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred recurring losses and has a
significant accumulated deficit. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Clancy and Co., P.L.L.C.
Scottsdale, Arizona
May 18, 2006
13
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2006
--------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 236,301
Accounts receivable 59,724
Inventory 96,571
Prepaid inventory 46,537
------------
Total current assets 439,133
Fixed assets, net 43,415
Security deposits 13,739
------------
Total Assets $ 496,287
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable 45,396
Accrued liabilities 302,833
Obligation under capital lease- current portion 3,169
Notes and amounts due to related parties 1,277,877
Accrued interest due to related parties 138,036
------------
Total current liabilities 1,767,311
Long-term liabilities --
------------
Total Liabilities 1,767,311
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
Additional paid-in capital 11,181,496
Accumulated deficit (12,456,626)
Less: treasury stock, at cost; 4,089 shares (12,039)
------------
Total stockholders' deficiency (1,271,024)
------------
Total Liabilities and Stockholders' Deficiency $ 496,287
============
The accompanying notes are an integral part of these
consolidated financial statements.
14
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
--------------------------------------------------------------------------------
2006 2005
------------ ------------
Revenues $ 189,755 $ 211,167
Cost of revenues 193,057 271,339
------------ ------------
Gross margin (3,302) (60,172)
Selling, general and administrative (484,583) (680,651)
------------ ------------
Loss from operations (487,885) (740,823)
Other income (expense)
Write-off of liabilities -- 34,045
Interest expense, net (135,674) (51,085)
------------ ------------
Total other income (expense) (135,674) (17,040)
------------ ------------
Loss before provision for income taxes (623,559) (757,863)
Provision for income taxes -- --
------------ ------------
Loss from continuing operations (623,559) (757,863)
------------ ------------
Net loss $ (623,559) $ (757,863)
============ ============
Basic and diluted loss per share:
Continuing operations $ (0.04) $ (0.05)
------------ ------------
$ (0.04) $ (0.05)
============ ============
Weighted average common shares outstanding 16,145,432 15,665,869
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
15
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY
YEARS DECEMBER 31, 2006 AND 2005
--------------------------------------------------------------------------------
Common Common Additional
Stock Stock Stock Paid-In Accumulated Treasury
Shares Amount Subscription Capital Deficit Stock
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2004 14,921,432 $ 14,921 $ 221,971 $ 10,960,749 $(11,075,204) $ (12,039)
Common stock issued under stock
subscripton 1,224,000 1,224 (221,971) 220,747 -- --
Net loss (757,863)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2005 16,145,432 16,145 -- 11,181,496 (11,833,067) (12,039)
Net Loss (623,559)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2006 16,145,432 $ 16,145 $ -- $ 11,181,496 $(12,456,626) $ (12,039)
============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
16
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005
--------------------------------------------------------------------------------
2006 2005
--------- ---------
Cash flows from operating activities
Loss from continuing operations $(623,559) $(757,863)
Adjustments to reconcile net loss from to net cash used in operating activities
Depreciation 21,786 16,219
Loss on disposal of fixed assets 1,922
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (29,526) (10,112)
(Increase) decrease in inventory (65,927) 64,656
(Increase) decrease in prepaid expenses and other assets 85,090 (60,472)
Increase (decrease) in accounts payable and accrued liabilities 213,166 121,203
--------- ---------
Net cash flows used in operating activities (398,970) (624,447)
Cash flows from investing activities
Purchase of fixed assets (16,430) (11,992)
--------- ---------
Net cash flows used in investing activities (16,430) (11,992)
Cash flows from financing activities
Principal payments under capital lease obligation (3,992) (3,171)
Proceeds from notes payable - related parties 652,865 634,549
--------- ---------
Net cash flows provided by financing activities 648,873 631,378
--------- ---------
Increase (decrease) in cash 233,473 (5,061)
Cash and cash equivalents, beginning of year 2,828 7,889
--------- ---------
Cash and cash equivalents, end of year 236,301
2,828
--------- ---------
Cash paid during the year for:
Interest -- --
========= =========
Income taxes -- --
========= =========
Supplemental non-cash investing and financing activities: For the year ended
December 31, 2006:
None
For the year ended December 31, 2005:
None
The accompanying notes are an integral part of these
consolidated financial statements.
17
MB SOFTWARE CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
--------------------------------------------------------------------------------
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
MB Software Corporation and subsidiaries (collectively referred to as the
"Company") distributes collagen-based wound care products to healthcare
providers such as physicians, clinics and hospitals throughout the United
States.
Significant Accounting Policies
Principles of consolidation and presentation - The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany transactions and balances have been eliminated
upon consolidation.
Business combinations - Transfers and exchanges of assets between companies
under common control are accounted for at historical cost in a manner similar to
that in a pooling of interests accounting. The excess of the cost of the asset
acquired over the net assets sold at their book values are charged to additional
paid-in capital.
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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management makes its best
estimate of the ultimate outcome for these items based on historical trends and
other information available when the financial statements are prepared. Changes
in estimates are recognized in accordance with the accounting rules for the
estimate, which is typically in the period when new information becomes
available to management. Actual results could differ from those estimates.
Fair value of financial instruments - For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable and other accrued liabilities, and amounts due to related parties, the
carrying amounts approximate fair value due to their short maturities.
Cash and cash equivalents - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents. There were no cash equivalents at December 31, 2006. The Company
maintains its cash in bank deposit accounts at high quality financial
institutions. The balances at times may exceed Federally insured limits of
$100,000.
Fixed assets - Fixed assets are stated at cost. Depreciation for financial
statement purposes is computed principally on the straight-line method over the
estimated useful lives of the related assets ranging from three to seven years.
When fixed assets are sold or otherwise disposed of, the asset account and
related accumulated depreciation account are relieved, and any gain or loss is
included in operations. Maintenance and repairs are expensed as incurred.
Replacements and betterments are capitalized. Depreciation expense for 2006
amounted to $21,786 (2005: $16,219).
Revenue recognition - Revenue is recognized when the product is shipped and the
risks and rewards of ownership have transferred to the customer. The Company
recognizes shipping and handling fees as revenue, and the related expenses as a
component of cost of sales.
18
Allowance for doubtful accounts - The Company establishes an allowance for
doubtful accounts to ensure accounts receivables are not overstated due to
uncollectibility. Bad debt reserves are maintained based on a variety of
factors, including the length of time receivables are past due and a detailed
review of certain individual customer accounts. If circumstances related to
customers change, estimates of the recoverability of receivables would be
further adjusted. There is no allowance for doubtful accounts at December 31,
2006.
Inventories - Inventories are stated at the lower of cost or net realizable
value, with cost computed on a first-in, first-out basis. Inventories consist of
powders, gels and the related packaging supplies. The company has recorded an
allowance for obsolete and slow moving inventory of $75,000 at December 31,
2006.
Long-lived assets - Long-lived assets and certain identifiable intangibles to be
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company continuously evaluates the recoverability of its
long-lived assets based on estimated future cash flows and the estimated
liquidation value of such long-lived assets, and provides for impairment if such
undiscounted cash flows are insufficient to recover the carrying amount of the
long-lived assets. If impairment exists, an adjustment is made to write the
asset down to its fair value, and a loss is recorded as the difference between
the carrying value and fair value. Fair values are determined based on quoted
market values, discounted cash flows or internal and external appraisals, as
applicable. Assets to be disposed of are carried at the lower of carrying value
or estimated net realizable value.
Income taxes - The Company recognizes deferred tax assets and liabilities for
the expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts using enacted tax rates in
effect for the year the differences are expected to reverse. The Company records
a valuation allowance to reduce the deferred tax assets to the amount that is
more likely than not to be realized.
Stock-based compensation - The Company adopted SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123(R)"), on January 1, 2006, which requires the
measurement and recognition of compensation expense for all share-based awards
made to employees and directors, including employee stock options and shares
issued through its employee stock purchase plan, based on estimated fair values.
Prior to the adoption of SFAS 123(R), the Company accounted for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value method that was used to account for
stock-based awards prior to January 1, 2006, which had been allowed under the
original provisions of SFAS 123, compensation expense is recorded on the date of
grant if the current market price of the underlying stock exceeded the exercise
price. Any compensation expense is recorded on a straight-line basis over the
vesting period of the grant. The adoption of this standard had no impact to the
Company's financial position, results of operations or cash flows as the
Company's previous stock-based compensation awards expired prior to January 1,
2006, and there have been no grants during the current year. See Note 8 for a
description of the Company's stock option plan.
19
Earnings per share - Basic and diluted earnings or loss per share ("EPS")
amounts in the financial statements are computed in accordance with SFAS No.
128, "Earnings per Share." Basic EPS is based on the weighted average number of
common shares outstanding. Diluted EPS is based on the weighted average number
of common shares outstanding plus dilutive common stock equivalents. Basic EPS
is computed by dividing net earnings available to common stockholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Diluted EPS is calculated by dividing net
earnings by the weighted average number of common shares outstanding and other
dilutive securities, for which there were none for both periods presented.
Accordingly, basic and diluted EPS are the same for both periods presented. All
per share and per share information are adjusted retroactively to reflect stock
splits and changes in par value.
Related party transactions - A related party is generally defined as (i) any
person that holds 10% or more of the Company's securities and their immediate
families, (ii) the Company's management, (iii) someone that directly or
indirectly controls, is controlled by or is under common control with the
Company, or (iv) anyone who can significantly influence the financial and
operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between
related parties.
Recent accounting pronouncements - The Financial Accounting Standards Board
("FASB") has issued the following pronouncements:
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 123-R, Share-Based Payment
("SFAS 123(R)"). SFAS 123(R) replaces SFAS 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion 25, Accounting for Stock Issued to
Employees. SFAS 123(R) requires, among other things, that all share-based
payments to employees, including grants of stock options, be measured based on
their grant-date fair value and recognized as expense. Effective January 1,
2006, The Company adopted the fair value recognition provisions of SFAS 123(R)
using the modified prospective application method effective January 1, 2006.
Under this transition method, compensation expense recognized will include the
applicable amounts of: (a) compensation expense of all stock-based payments
granted prior to, but not yet vested as of January 1, 2006 (based on the
grant-date fair value estimated in accordance with the original provisions of
SFAS 123 and previously presented in pro forma footnote disclosures), and (b)
compensation expense for all stock-based payments granted subsequent to January
1, 2006 (based on the grant-date fair value estimated in accordance with the new
provisions of SFAS 123(R)). Results for periods prior to January 1, 2006, have
not been restated. Based on the Company's evaluation of the adoption of the new
standard, the Company believes that it could have a significant impact to the
Company's financial position and overall results of operations depending on the
number of stock options granted in a given year.
On June 7, 2005, the FASB issued Statement 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion 20 and FASB Statement 3, ("SFAS 154").
SFAS 154 changes the requirements for the accounting for and reporting of a
change in accounting principle. Previously, most voluntary changes in accounting
principles were required recognition via a cumulative effect adjustment within
net income of the period of the change. SFAS 154 requires retrospective
application to prior periods' financial statements, unless it is impracticable
to determine either the period-specific effects or the cumulative effect of the
change. SFAS 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005. The Company adopted SFAS 154 on January 1,
2006. The adoption is not expected to have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements 133 and 140, ("SFAS
155"). SFAS will be effective for the Company beginning January 1, 2007. The
statement permits interests in hybrid financial instruments that contain an
embedded derivative that would otherwise require bifurcation, to be accounted
for as a single financial instrument at fair value, with changes in fair value
recognized in earnings. This election is permitted on an
instrument-by-instrument basis for all hybrid financial instruments held,
20
obtained, or issued as of the adoption date. The adoption had no impact to the
Company's consolidated financial position, results of operations or cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty of Income Taxes-an interpretation of FASB Statement No. 109 ("FIN
48"), Which clarifies the accounting for uncertainty in income tax positions.
This Interpretation requires that the Company recognize in the consolidated
financial statements the impact of a tax position that is more likely than not
to be sustained upon examination based on the technical merits of the position.
The provisions of FIN 48 will be effective for the Company as of the beginning
of the Company's 2008 fiscal year, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings. The
provisions of FASB Interpretation 48 are not expected to any impact on the
Company's financial statements.
In September 2006, the FASB issued FASB No. 158, Employers' Accounting for
Defined Benefit Pension and Other Postretirement Benefits ("FAS 158"). FAS 158
addresses the accounting for defined benefit pension plans and other
postretirement benefit plans ("plans"). Specifically, FAS 158 requires companies
to recognize an asset for a plan's overfunded status or a liability for a plan's
underfunded status and to measure a plan's assets and its obligations that
determine its funded status as of the end of the company's fiscal year, the
offset of which is recorded, net of tax, as a component of other comprehensive
income in shareholders' equity. FAS 158 will be effective for the Company as of
September 30, 2007 and applied prospectively. The provisions of FAS 158 are not
expected to have any impact on the Company's financial statements.
In September 2006, the FASB issued FASB statement No.. 157, Fair Value
Measurements ("FAS 157"). FAS 157 establishes a single authoritative definition
of fair value, sets out a framework for measuring fair value and expands on
required disclosures about fair value measurement. FAS 157 is effective for the
Company on October 1, 2008 and will be applied prospectively. The provisions of
FAS 157 are not expected to have a material impact on the Company's financial
statements.
Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force ("EITF")), the American Institute of Certified Public
Accountants ("AICPA"), and the SEC did not or are not believed by management to
have a material impact on the Company's present or future 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 funds from debt financing and / or
equity financing through private placement efforts, (ii) issue common stock for
services rendered in lieu of cash payments (iii) convert outstanding debt to
equity and (iii) obtain loans from shareholders. Without realization of
additional capital, it would be unlikely for the Company to continue as a going
concern. The Company anticipates that its shareholders will contribute
sufficient funds to satisfy the cash needs of the Company for the next twelve
months. However, there can be no assurances to that effect, as the Company'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
21
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.
NOTE 3 - DISTRIBUTION AGREEMENT
Wound Care had entered into a Distribution Agreement (the "agreement") dated
July 28, 2004 ("effective date of agreement"), with Applied Nutritionals, LLC,
("AN") for the exclusive rights to market, sell and distribute wound products
that contain a certain tissue adhesive that AN had obtained the rights to via
U.S. Patent No. 6,136,341. The patent is for a tissue adhesive hydrolysate which
promotes wound healing containing hydrolyzed Type I collagen. Pursuant to the
agreement, WCI was obligated to pay certain royalties and maintain minimum
purchases with AN to maintain the exclusive rights. Since WCI was unable to pay
the royalties or make the purchases, WCI's rights converted to a non-exclusive
basis. Royalties are due and payable on a calendar quarterly basis on or before
the 30th day of the month immediately following the calendar quarter in which
gross receipts are received. Accrued royalties at December 31, 2006 were
$14,349.
Pursuant to a Purchase Option Agreement ("Option Agreement") with Applied
Nutritionals, LLC, ("AN") dated July 28, 2004, the Company has an exclusive
option for a period of five years to purchase certain patents related to the
hydrolyzed Type I form of collagen used within gel, powder, paste and film
collagen wound dressing compositions. The total cash exercise price of the
patent and related intellectual property is $5,100,000 and the Company is
entitled to pay $75,000 per year as an option fee to maintain its rights to
purchase the said property. The Company had the option to pay another $75,000 on
or before August 31, 2005 to retain its exclusive option pursuant to the Option
Agreement as well as other terms and conditions contained therein. The Company
was unable to pay the royalties or make the purchases and lost its exclusive
option to distribute the product under the original Distribution Agreement.
The Company is currently in negotiations to re-structure the deal as it has
determined it cannot meet the original terms of the agreement. Although Applied
Nutritionals has indicated that it is amenable to restructuring the agreement,
there is no assurance reasonable terms can be reached. We have been advised that
any restructured agreement will not include an option to purchase the above
described patent.
NOTE 4 - 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, 2007 per the
table below. All notes are current liabilities and some of the notes are
currently in default. Accrued interest due to related parties included in
accrued liabilities as of December 31, 2006 was approximately $131,049. The
following is a summary of amounts due to / from related parties as of December
31, 2006:
Related party Nature of relationship Terms of the agreement Amounts due to
related parties
------------------------- ----------------------------- -------------------------------------- -----------------
Scott Haire, an Chairman of the Board, CEO Unsecured note dated July 11, 2005 for $ 10,000
individual and CFO of this Company $10,000 at 10% per annum, due on June 30,
2007
HEB, LLC, a Nevada Scott Haire, Chairman Series of funds advanced under two separate, 398,467
Limited Liability President, CEO and CFO of unsecured $1 million lines of credit dated
Company this company, controls both November 26, 2003 and November 4, 2004, both
entities financing and at 10% per annum; no maturity date, interest
operating decisions payable quarterly; unused lines available at
December 31, 2006 total $1,601,532.
22
Araldo Cossutta, an Director and stockholder of Six separate, unsecured notes as follows: (i) 367,000
individual the Company $75,000 note dated September 30, 2004, at 10%
per annum, due June 30, 2006; (ii) $80,000 note
dated September 14, 2005, at 10% per annum,
due June 30, 2006; (iii) $70,000 note dated June
15, 2006 at 10% per annum, due June 30, 2006
and (iv) $42,000 noted date April 5, 2005, at
10% per annum, due March 31, 2006 and (v) $50,000
note dated January 4, 2006, at 10% per annum,
due June 30, 2006 and (vi) $50,000 note dated
January 31, 2006 due June 30, 2006
eAppliance Payment Controlling owners in Note dated January 1, 2004 for $2,410 at 10%
Solutions, LLC a Nevada eAppliance Payment per annum; $10,000 line of credit. 2,410
Limited Liability Solutions, LLC are
Company Keystone Cossutta and Haire
Equity Partners Investors Note dated December 14, 2006 for $500,000 at
10% per annum; due March 31, 2007 500,000
-----------------
$ 1,277,877
=================
Administrative services
The Company provides limited administrative services to other companies
affiliated through common ownership of the Company's shareholders.
NOTE 5 - FIXED ASSETS
Fixed assets consists of the following:
Furniture and fixtures $ 13,607
Phone system 13,302
Computer equipment 11,796
Artwork 30,000
Web-Site 16,430
----------------
85,135
Less accumulated depreciation 41,720
----------------
Net book value 43,415
================
NOTE 6 - 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 year ended December 31, 2006,
consulting expenses totaled $38,500 (2005: $18,750) for this consultant. The
agreement was mutually terminated in March 2006.
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
2006 was approximately $109,500 (2005: $105,000). Minimum future rental payments
23
under non-cancelable operating leases having remaining terms in excess of 1 year
as of December 31, 2006, for each of the next five years and in the aggregate
are as follows:
2007 $ 90,789
2008 56,636
2009 39,441
2010 --
----------------
$ 186,866
================
Capital leases
The Company leases a phone system under a capital lease for a period of
thirty-six months through September 2007. The asset and liability under capital
lease is recorded at the present value of the minimum lease payments and the
asset is depreciated over the related lease term. Depreciation of assets under
capital lease for 2006 totaled $4,434 (2005: $5,117).
The following is a summary of property held under capital lease:
Phone system $ 13,302
Less accumulated depreciation 10,575
----------------
Net book value 2,727
================
Minimum future lease payments under capital lease as of December 31, 2006, for
each of the next five years and in the aggregate are: (2007: $3,169).
Federal Payroll Taxes
The Company is delinquent in the payment of its payroll tax liabilities with the
Internal Revenue Service. As of December 31, 2006, unpaid payroll taxes total
approximately $203,484 and related penalties and interest approximated $85,000
computed through December 31, 2006. These liabilities have been recorded as
accrued liabilities and general and administrative expenses at December 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.
NOTE 7 - STOCKHOLDERS' EQUITY TRANSACTIONS
Common stock issued
At December 31, 2006 and 2005 the Company had 16,145,432 shares of common stock
issued and outstanding. Of these shares, 4,089 shares are held by the Company as
treasury stock.
Conversion of debt to equity
Pursuant to a "Settlement and Compromise Agreement" dated December 31, 2004,
(and approved by the Company's Board of Directors on that same date), the
Company agreed to issue 1,224,000 restricted shares of its common stock to
H.E.B., LLC ("HEB") for the forgiveness of debt outstanding on the Company's
books totaling $221,971 in exchange for all of the issued and outstanding shares
of MBH, one of the Company's wholly-owned subsidiaries. No gain or loss was
recognized on the transaction as it occurred between entities under common
control.
NOTE 8 - STOCK OPTIONS
Effective May 5, 1994, the Board of Directors approved an Incentive Stock Option
Plan (the "Plan") for key executives and employees. A summary of changes in the
Company's stock options follows:
24
Weighted Average
Options Exercise Price
------------ ------------
Outstanding at 12/31/03 52,000 5.00
Granted, exercised - -
Forfeited during 2004 (52,000) (5.00)
------------ ------------
Outstanding at 12/31/05 and 06 - -
============ ============
NOTE 9 - CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Major Customers and Trade Receivables
The Company has 4 customers (2005: 3 customers) that each account for more than
10% of its revenues. Trade receivables from these customers totaled
approximately $49,570 or 83% of total accounts receivable balance at December
31, 2006, and were unsecured.
NOTE 10 - CONCENTRATION OF SUPPLIER RISK
The Company purchases substantially all of its powders and gels from one vendor.
If this vendor became unable to provide materials in a timely manner and the
Company was unable to find alternative vendors, the Company's business,
operating results and financial condition would be materially adversely
affected.
NOTE 11 - INCOME TAXES
The deferred tax consequences of temporary differences in reporting items for
financial statement and income tax purposes are recognized, as appropriate.
Realization of the future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carry forward period. Management has
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes.
At December 31, 2006, deferred tax asset results from the deferred tax benefit
of net operating losses. The net current and non-current deferred tax assets
have a 100% valuation allowance, as the ability of the Company to generate
sufficient taxable income in the future is uncertain. The net change in the
valuation allowance for 2006 was approximately $200,000 (2005: $300,000).
The Company generated net operating losses for financial reporting and Federal
income tax reporting prior to its reorganization in 1993. As of December 31,
2005, subject to limitations under Internal Revenue Code Section 382,
approximately $437,000 of these losses is available for use after the
reorganization, which expire in 2008 if not previously utilized. The net
operating loss carry forward at December 31, 2006 is approximately $12,400,000
and will begin to expire in 2008, if not previously utilized.
A reconciliation of expected federal income tax expense (benefit) based on the
U.S. Corporate income tax rate of 34% to actual expense (benefit) for 2006 and
2005 is as follows (rounded):
2006 2005
---------- ----------
Expected federal income tax benefit $ 212,000 $ 248,000
Valuation allowance and other (212,000) (248,000)
---------- ----------
Income tax expense (benefit) - -
========== ==========
Deferred tax asset at December 31, 2006, is as follows:
25
Net operating loss carry forwards $ 4,200,000
Valuation allowance (4,200,000)
----------------
Net current deferred tax asset --
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
ITEM 8A. 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 changes in the Company's internal controls or in other factors
that could affect these controls subsequent to the date of such evaluation.
ITEM 8B. OTHER INFORMATION
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the directors and
executive officers of the Company:
Year First
Name Age Position Elected
---- ----- -------- -------
Scott A. Haire 42 Chairman, Chief Executive
Officer, President and Director 1993
Gilbert A. Valdez 63 Director 1996
Araldo A. Cossutta 82 Director 1994
Steven W. Evans 56 Director 1994
Robert E. Gross 62 Director 1994
Thomas J. Kirchhofer 66 Director 1994
Executive Officers of the Company are elected on an annual basis and serve at
the discretion of the Board of Directors. Directors of the Company are elected
on an annual basis. All of our directors have agreed to remain until the 2006
annual meeting.
26
Scott A. Haire is Chairman of the Board, Chief Executive Officer and President
of the Company. Prior to founding MB Software Corporation, he was an employee of
the Company from November 1993 to June 1994. Previously, Mr. Haire was president
of Preferred Payment Systems, a company specializing in electronic claims and
insurance system related projects.
Gilbert A. Valdez is Chief Operating Officer of the Company and past President
and CEO of four major financial and healthcare corporations. Most recently, he
served as CEO of Hospital Billing and Collection Services, Inc., a $550 million
healthcare receivables financing entity located in Wilmington, Delaware; Datix
Corporation, an Atlanta-based corporate divestiture from Harris-Lanier; Medaphis
Corporation, an interstate, multi-dimensional healthcare service agency based in
Atlanta; and NEIC, a national consortium of 40 major insurance companies formed
for development of electronic claim billing standards. Mr. Valdez has 30 years
of senior healthcare receivables financing experience.
Araldo A. Cossutta is President of Cossutta and Associates, an architectural
firm based in New York City, with major projects throughout the world.
Previously, he was a partner with I.M. Pei & Partners and is a graduate of the
Harvard Graduate School of Design and the Ecole des Beaux Arts in Paris. Mr.
Cossutta was a significant shareholder in Personal Computer Card Corporation
("PC3") and was chairman of PC3 at the time of its acquisition by the Company in
November 1993. He is also was a large shareholder and director of Computer
Integration Corporation of Boca Raton, Florida from 1993 to 2000.
Steven W. Evans is a Certified Public Accountant and President of Evans Phillips
& Co., PSC, an accounting firm which he established in 1976 in Barbourville and
Middlesboro, Kentucky. He is also a founder and active in PTRL, which operates
contract research laboratories located in Kentucky, North Carolina, California
and Germany. He is also a founder and active in the management of environmental,
financial and hotel corporations in Kentucky and Tennessee.
Robert E. Gross is President of R. E. Gross & Associates, providing consulting
and systems projects for clients in the multi-location service, banking and
healthcare industries. From 1987 to 1990, he was vice president-technical
operations for Medaphis Physicians Service Corp., Atlanta, Georgia. Prior to
that, he held executive positions with Chi-Chi's, Inc., Royal Crown and
TigerAir. He also spent 13 years as an engineer with IBM.
Thomas J. Kirchhofer is president of Synergy Wellness Centers of Georgia, Inc.
He is past president of the Georgia Chiropractic Association.
Compensation of Directors
The Company's directors are not currently compensated for their services as a
director of the Company and are not currently reimbursed for out-of-pocket costs
incurred in attending meetings.
Meetings and Committees of the Board of Directors
Our business is managed under the direction of the Board of Directors. The Board
of Directors meets on a regularly scheduled basis to review significant
developments affecting us and to act on matters requiring approval of the Board
of Directors. It also holds special meetings when an important matter requires
attention or action by the Board of Directors between scheduled meetings. During
fiscal 2006, the Board of Directors did not meet. The Board of Directors does
not have a standing audit, compensation, nominating or governance committee.
Audit Committee
---------------
The Company does not maintain a standing Audit Committee. An audit committee
typically reviews, acts on and reports to the board of directors with respect to
various auditing and accounting matters, including the recommendations and
performance of independent auditors, the scope of the annual audits, fees to be
paid to the independent auditors, and internal accounting and financial control
policies and procedures. Certain stock exchanges currently require companies to
27
adopt a formal written charter that establishes an audit committee that
specifies the scope of an audit committee's responsibilities and the means by
which it carries out those responsibilities. In order to be listed on any of
these exchanges, the Company will be required to establish an audit committee.
Compensation Committee
----------------------
The Company does not maintain a standing Compensation Committee.. Due to the
Company's small size at this point in time, the Board of Directors has not
established a separate compensation committee. All members of the Board of
Directors (with the exception of any member about whom a particular compensation
decision is being made) participate in the compensation award process. During
fiscal 2006, no executive officer received any compensation from the Company.
Nominating Committee
--------------------
The Company does not maintain a standing Nominating Committee and does not have
a Nominating Committee charter. Due to the Company's small size at this point in
time, the Board of Directors has not established a separate nominating committee
and feels that all directors should have input into nomination decisions. As
such, all members of the Board of Directors generally participate in the
director nomination process. Under the rules promulgated by the SEC, the Board
of Directors is, therefore, treated as a "nominating committee".
The Board of Directors will consider qualified nominees recommended by
shareholders. Shareholders desiring to make such recommendations should submit
such recommendations to the Corporate Secretary, c/o MB Software Corporation 777
Main Street, Suite 3100, Fort Worth, Texas 76102. The Board of Directors will
evaluate candidates properly proposed by shareholders in the same manner as all
other candidates.
With respect to the nominations process, the Board of Directors does not operate
under a written charter, but under resolutions adopted by the Board of
Directors. The Board of Directors is responsible for reviewing and interviewing
qualified candidates to serve on the Board of Directors, for making
recommendations for nominations to fill vacancies on the Board of Directors, and
for selecting the nominees for selection by the Company's shareholders at each
annual meeting. The Board of Directors has not established specific minimum age,
education, experience or skill requirements for potential directors. The Board
of Directors takes into account all factors they consider appropriate in
fulfilling their responsibilities to identify and recommend individuals as
director nominees. Those factors may include, without limitation, the following:
An individual's business or professional experience, accomplishments, education,
judgment, understanding of the business and the industry in which the Company
operates, specific skills and talents, independence, time commitments,
reputation, general business acumen and personal and professional integrity or
character;
The size and composition of the Board of Directors and the interaction of its
members, in each case with respect to the needs of the Company and its
shareholders; and
Regarding any individual who has served as a director of the Company, his or her
past preparation for, attendance at, and participation in meetings and other
activities of the Board of Directors or its committees and his or her overall
contributions to the Board of Directors and the Company.
The Board of Directors may use multiple sources for identifying and evaluating
nominees for directors, including referrals from the Company's current directors
and management as well as input from third parties, including executive search
firms retained by the Board of Directors. The Board of Directors will obtain
background information about candidates, which may include information from
directors' and officers' questionnaires and background and reference checks, and
will then interview qualified candidates. The Board of Directors will then
28
determine, based on the background information and the information obtained in
the interviews, whether to recommend that a candidate be nominated to the Board
of Directors. We strongly encourage and, from time to time actively survey, our
shareholders to recommend potential director candidates.
Shareholder Communications with the Company's Board of Directors
----------------------------------------------------------------
Any shareholder wishing to send written communications to the Company's Board of
Directors may do so by sending them in care of Lucy Singleton, Corporate
Secretary, at the Company's principal executive offices. All such communications
will be forwarded to the intended recipient(s).
Compliance with Section 16(a) of the Exchange Act
No Forms 3, 4 or 5 have been furnish, or to our knowledge, filed by any of our
directors, officers or ten percent stockholders during the one year period ended
December 31, 2006.
Code of Ethics
Due to the current formative stage of the Company's development, it has not yet
developed a written code of ethics for its directors or executive officers.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
No compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive officer of the Company during the last three years. The following
table and the accompanying notes provide summary information for each of the
last three fiscal years concerning cash and non-cash compensation paid or
accrued by the Company's Chief Executive Officer over the past three years.
SUMMARY COMPENSATION TABLE
--------------------------- ------------------------------------- -------------------------------------------------------
Annual Compensation Long Term Compensation
--------------------------- ------------------------------------- -------------------------------------------------------
Awards Payouts
----------------------------------------------------------------- ---------------------------- --------------------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Award(s) Options payouts Compensation
($) ($) ($) ($) SARs(#) ($) ($)
------------------- -------- ------------ ---------- ------------ ------------- -------------- ---------- ---------------
Scott A. Haire 2006 -0- - - - - - -
2005 -0- - - - - - -
2004 -0- - - - - -
------------------- -------- ------------ ---------- ------------ ------------- -------------- ---------- ---------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information concerning the ownership of
the Company's common stock as of December 31, 2006, with respect to: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the Company's common stock; (ii) all directors; and (iii) directors and
executive officers of the Company as a group. The notes accompanying the
information in the table below are necessary for a complete understanding of the
figures provided below.
As of December 31, 2006, there were 16,145,432 shares of common stock issued and
outstanding.
29
Amount and Nature
Title Name of Beneficial of Beneficial Percent
Class Owner of Group(1) Ownership of Class
----- ----------------- --------- --------
Common Scott A. Haire(2) 7,747,284 54%
Common Araldo A. Cossutta 4,717,000 33%
Common Steven W. Evans 1,015,000 7%
Common Thomas J. Kirchhofer --
Common Robert E. Gross --
Common Applied Nutritionals 900,000 6%
Common Gilbert Valdez 1,666
Common All Directors and Executive Officers
As a Group (six in number) 13,480,950 83.50%
* less than 1%
(1) Unless otherwise noted, the address for each person or entity listed is 777
Main Street, Suite 3100, Fort Worth Texas, 76102.
(2) 6,980,070 of these shares are held by H.E.B., LLC. Mr. Haire is the managing
member and majority owner of H.E.B., LLC, and as such, is deemed to be the
beneficial owner of such shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Effective August 20, 2004, we acquired Wound Care Innovations, LLC through a
merger of Wound Care with a newly formed Company subsidiary. The consideration
paid by the Company for Wound Care consisted of an aggregate of 6,000,000 shares
of our common stock. These shares were issued to H.E.B., LLC, a Nevada limited
liability company, and to Mr. Araldo Cossutta, the sole owners of Wound Care.
Mr. Scott A. Haire, our Chairman of the Board, Chief Executive Officer and
President is the majority owner and managing member of HEB, and Mr. Cossutta is
a member of our Board of Directors.
In connection with the acquisition of Wound Care, HEB and Mr. Cossutta also
agreed to convert an aggregate of $1,800,612 of Wound Care's debt and other
obligations owed to HEB and Mr. Cossutta into an aggregate of 2,257,303
additional shares of our common stock.
All of our directors are independent, as defined by Rule 4200(a)(15) of the
Nasdaq's listing standards, except for Mr. Haire, who is not independent because
he is currently employed by the Company as its Chief Executive Officer and Mr.
Cossutta, who is not independent due to the above described acquisition of Wound
Care.
ITEM 13. EXHIBITS
Exhibit No.
3.1 Articles of Incorporation (incorporated by reference to the
Company's Form 10-QSB for the fiscal quarter ended June 30,
2002).
3.2 Bylaws (incorporated by reference to the Company's Form
10-QSB for the fiscal quarter ended June 30, 2002).
30
10.1 Agreement and Plan of Merger, dated as of November 10, 2003
by and among MBH Acquisition, Inc., MB Software Corporation,
MB Holding Corporation, and all of the stockholders of MB
Holding Corporation (incorporated by reference to the
Company's Current Report on Form 8-K, filed with the
commission on November 21, 2003).
10.3 Agreement and Plan of Merger, dated as of August 20, 2004 by
and among Wound Care Innovations, LLC, MB Software
Corporation, WCare Acquisitions, LLC, H.E.B., LLC and Araldo
A. Cossutta (incorporated by reference to the Company's Form
10-QSB for the fiscal quarter ended September 30, 2004).
10.4 Settlement and Compromise Agreement, dated December 31, 2004
by and among MB Holding Corporation, MB Software Corporation
and Wound Care Innovations, LLC (incorporated by reference
to the Company's Form 10-KSB for the fiscal year ended
December 31, 2004).
31.1 Certification of Principal Executive Officer and Principal
Financial Officer in accordance with 18 U.S.C. Section 1350,
as adopted by Section 302 of the Sarbanes-Oxley Act of 2002*
32.1 Certification of Principal Executive Officer and Principal
Financial Officer in accordance with 18 U.S.C. Section 1350,
as adopted by Section 906 of the Sarbanes-Oxley Act of 2002*
* Filed herewith
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The firm of Pritchett, Siler & Hardy, P.C. served as the Company's independent
public accountants for the year ended December 31, 2006. The firm of Clancy and
Co., P.L.L.C served as the Company's independent public accounts for the year
ended December 31, 2005. The Board of Directors of the Company, in its
discretion, may direct the appointment of different public accountants at any
time during the year if the Board believes that a change would be in the best
interests of our stockholders. The Board of Directors has considered the audit
fees, audit-related fees, tax fees and other fees paid the Company's
accountants, as disclosed below, and determined that the payment of such fees is
compatible with maintaining the independence of the accountants.
Audit Fees
The Audit fees billed by Clancy and Co., P.L.L.C. for professional services
rendered for the audit of the Company's annual financial statements on Form
10-KSB and the reviews of the financial statements included in the Company's
Form 10-QSB's for the fiscal years ended December 31, 2006 and 2005 was $14,000
and $27,500, respectively.
Audit-Related Fees
None
Tax Fees
None
All Other Fees
None
31
Audit Committee Pre-Approval Policies and Procedures
The Company does not currently have and Audit Committee. Currently, the Board of
Directors pre-approves all audit and non-audit services that are to be performed
and fees to be charged by our independent auditor or assure that the provision
of these services does not impair the independence of such auditor. The Board of
Directors pre-approved all audit services and fees of our independent auditor
for the years ended December 31, 2006 and 2005. Our independent auditors did not
provide us with any non-audited services during the period indicated above.
32
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 26th day of March 2007.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Scott A. Haire CEO, President, Chairman and Principal March 26, 2007
------------------ Financial Officer
Scott A. Haire
33
INDEX TO EXHIBITS
(a) Exhibits
31.1 Certification of Principal Executive Officer and Principal
Financial Officer in accordance with 18 U.S.C. Section 1350,
as adopted by Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal
Financial Officer in accordance with 18 U.S.C. Section 1350,
as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
34