10QSB 1 mbsoft10qsb063005.txt U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File No. 0-11808 MB SOFTWARE CORPORATION Texas 59-2220004 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2225 E. Randol Mill Road - Suite 305 Arlington, Texas 76011-6306 (817) 633-9400 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of June 30, 2005, 14,921,432 of the Issuer's $0.001 par value common stock were outstanding. Transitional Small Business Disclosure Format Yes [ ] No [X] MB SOFTWARE CORPORATION AND SUBSIDIARIES Form 10-QSB Quarter Ended June 30, 2005 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Consolidated Balance Sheet as of June 30, 2005 (Unaudited).....................3 Consolidated Statements of Operations for the three and six months ended June 30, 2005and 2004 (Unaudited)......................................4 Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004 (Unaudited).....................................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............9 ITEM 3. CONTROLS AND PROCEDURES...............................................14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings.....................................................15 ITEM 2. Changes in Securities and Use of Proceeds.............................15 ITEM 3. Defaults Upon Senior Securities.......................................15 ITEM 4. Submission of Matters to a Vote of Security Holders...................15 ITEM 5. Other Information.....................................................15 ITEM 6. Exhibits..............................................................15 SIGNATURE.....................................................................15 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 2005 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS ------ Current Assets Cash $ 2,377 Accounts receivable 16,768 Inventory 86,793 Prepayments 135,452 ------------ Total current assets 241,390 Fixed assets, net 77,061 Security deposits 15,693 ------------ Total Assets $ 334,144 ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY ------------ Current liabilities Accounts payable and other accruals $ 98,414 Payroll tax liabilities 111,549 Obligation under capital lease - current portion 4,092 Royalties payable, including accrued interest 164,098 Due to related parties 416,943 Accrued interest - related parties 16,358 ------------ Total current liabilities 811,454 Long-term liabilities Obligation under capital lease - noncurrent portion 4,194 ------------ Total Liabilities 815,648 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: 14,921,432 14,921 Stock subscription 221,971 Additional paid-in capital 15,159,637 Accumulated deficit (15,865,994) ------------ (469,465) Less: treasury stock, at cost; 4,089 shares (12,039) ------------ Total stockholders' deficiency (481,504) ------------ Total Liabilities and Stockholders' Deficiency $ 334,144 ============ See condensed notes to consolidated financial statements. 3

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30 (UNAUDITED) -------------------------------------------------------------------------------- Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 2005 June 30, 2004 June 30, 2005 June 30, 20004 ------------------ ------------------ ------------------ ------------------ Revenues $ 40,919 $ -- $ $ 97,180 -- Cost of revenues 35,874 -- 89,237 -- ------------------ ------------------ ------------------ ------------------ Gross margin 5,045 -- 7,943 -- Selling, general and administrative 106,761 9,619 279,258 35,113 Royalties expenses and related option fee 225,000 -- 225,000 -- ------------------ ------------------ ------------------ ------------------ Loss from operations (326,716) (9,619) (496,315) (35,113) Other income (expense), net (17,869) -- (25,275) -- ------------------ ------------------ ------------------ ------------------ Loss before provision for income taxes (344,585) (9,619) (521,590) (35,113) Provision for income taxes -- -- -- -- ------------------ ------------------ ------------------ ------------------ Loss from continuing operations (344,585) (9,619) (521,590) (35,113) Discontinued operations Operating loss -- (107,978) -- (168,632) ------------------ ------------------ ------------------ ------------------ Net loss $ (344,585) $ (117,597) $ (521,590) $ (203,745) ================== ================== ================== ================== Basic and diluted loss per share: Continuing operations $ (0.02) $ -- $ (0.03) $ -- Discontinued operations -- (0.02) -- (0.03) ------------------ ------------------ ------------------ ------------------ $ (0.02) $ (0.02) $ (0.03) $ (0.03) ================== ================== ================== ================== Weighted average common shares outstanding 14,921,432 5,822,810 14,921,432 5,822,810 ================== ================== ================== ==================

See condensed notes to consolidated financial statements. 4

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30 (UNAUDITED) -------------------------------------------------------------------------------- 2005 2004 --------- --------- Cash flows from operating activities ------------------------------------ Net loss $(521,590) $(203,745) Adjustments to reconcile net loss from to net cash used in operating activities Depreciation and amortization 4,004 10,000 Changes in assets and liabilities: (Increase) decrease in accounts receivable 3,318 -- (Increase) decrease in inventory 8,508 -- (Increase) decrease in prepaid expenses and other assets (135,452) -- Increase (decrease) in accounts payable and accrued liabilities 74,424 10,372 Increase (decrease) in royalties payable, including related accrued interest 164,098 -- --------- --------- Net cash flows used in operating activities (402,690) (183,373) Cash flows from investing activities ------------------------------------ Cash paid for software license -- (50,000) Purchase of fixed assets (26,144) (13,626) --------- --------- Net cash flows used in investing activities (26,144) (63,626) Cash flows from financing activities ------------------------------------ Proceeds from new borrowings - unrelated party -- 70,000 Net advances - related parties 425,369 181,244 Principal payments under capital lease (2,047) -- --------- --------- Net cash flows provided by financing activities 423,322 251,244 --------- --------- Increase (decrease) in cash (5,512) 4,245 Cash and cash equivalents, beginning of period 7,889 385 --------- --------- Cash and cash equivalents, end of period $ 2,377 $ 4,630 ========= ========= Cash paid during the year for: ------------------------------ Interest -- $ 13,354 ========= ========= Income taxes -- -- ========= =========

See condensed notes to consolidated financial statements. 5 MB SOFTWARE CORPORATION AND SUBSIDIARIES QUARTER ENDED JUNE 30, 2005 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. The results of operations for the period ended June 30, 2005 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2005. These financial statements should be read in conjunction with the Management's Discussion and Analysis included elsewhere in this filing in addition to the Company's financial statements and accompanying notes thereto as of and for the year ended December 31, 2004, as filed with the Company's Annual Report on Form 10-KSB. Certain financial information for the prior period has been reclassified to conform to the current period's presentation. NOTE 2: GOING CONCERN The financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company has continuously incurred losses from operations and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. It is the Company's belief that it will continue to incur losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. To meet these objectives, management's plans are to (i) raise capital by obtaining financing from debt financing and / or equity financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from shareholders as necessary. Without realization of additional capital or significant revenues from operations, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has minimal revenues and the Company's need for capital may change dramatically if it is successful in expanding its current business or acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. Management believes that actions presently taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company's future ability to achieve these objectives cannot be determined at this time. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 6 NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R addresses all forms of share-based payment ("SBP") awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. SFAS No. 123R will require the Company to expense SBP awards with compensation cost for SBP transactions measured at fair value. On March 29, 2005, the SEC issued Staff Accounting Bulletin (SAB) 107 which expresses the views of the SEC regarding the interaction between SFAS No. 123R and certain SEC rules and regulations and provides the SEC's views regarding the valuation of share-based payment arrangements for public companies. In April 2005, the SEC issued a release which amends the compliance dates for SFAS No. 123R. We do not expect the adoption of SFAS No. 123R and SAB 107 to have a material impact on the Company's financial statements. In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections". SFAS No. 154 replaces APB Opinion No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The adoption of SFAS No. 154 will have on our financial statements. NOTE 4: EARNINGS PER SHARE Basic earnings (loss) per share ("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 and dilutive common stock equivalents. Basic EPS is computed by dividing income/loss (numerator) applicable to common stockholders by the weighted average number of common shares outstanding (denominator) for the period. Convertible securities that could potentially dilute basic earnings per share in the future are not included in the computation of diluted EPS because to do so would be antidilutive. All EPS amounts in these financial statements are basic EPS, as defined by SFAS No. 128, "Earnings Per Share." All per share and per share information are adjusted retroactively to reflect stock splits and changes in par value. NOTE 5: COMMITMENTS AND CONTINGENCIES Purchase Option Agreement 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 has 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. On April 18, 2005, the Company entered into a promissory note for $150,000 due and payable to AN for unpaid royalties due under a Distribution Agreement between AN and WCI dated July 28, 2004. The note, plus interest at 10% per annum from September 30, 2004 ($8,754) was due in full on April 29, 2005. The Company was unable to pay the note and is currently in default on the Agreement, thereby losing 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. There is no assurance reasonable terms can be reached. 7

SEC Comment Letter The Company received a letter ("the Letter") from the Securities and Exchange Commission ("the SEC") dated July 5, 2005, notifying the Company that the SEC had reviewed the Company's Form 10-KSB filing for the year ended December 31, 2004 and Form 10-QSB for the quarter ended March 31, 2005, the purpose of which was to assist the Company in its compliance with applicable disclosure requirements and to enhance the overall disclosure in the Company's filings. The Company is currently in the process of reviewing and responding to the comment letter. Accordingly, the filings for both periods above may require an amendment. The Company intends to do so as soon as is practicable. NOTE 6: 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. Funds are advanced from various entities controlled by the president of this Company, and other majority shareholders, as necessary, to meet working capital requirements. The advances bear interest at 10% per annum, are unsecured and repayable on demand. Accrued interest due to related parties was $16,358 at June 30, 2005. Due to related parties at June 30, 2005 represents the following: Related party Nature of relationship Description of transaction Amounts due to (from) related parties ------------------------------------- ------------------------------------- --------------------------- -------------------- HEB, LLC, a Nevada Limited Scott Haire, Chairman President, Series of funds advanced $ 274,867 Liability Company CEO and CFO of this company, for working capital controls both entities financing purposes and operating decisions Araldo Cossutta, an individual Director and stockholder of the Series of funds advanced 117,000 Company for working capital purposes Richard Dahlson, an individual Director and stockholder of the Series of funds advanced 22,666 Company for working capital purposes eAppliance Payment Solutions, Controlling owners in eAppliance Series of funds advanced 2,410 LLC a Nevada Limited Liability Payment Solutions, LLC are the for working capital Company President and one director of MB purposes Software Corporation -------------------- $ 416,943 ====================

NOTE 7: DISCONTINUED OPERATIONS The Company disposed of its wholly-owned subsidiary, MB Holding Corporation ("MBH") in December 2004. MBH, through its wholly-owned subsidiary Envoii Healthcare L.L.C., developed a system for transmitting electronic documents in a secure environment. Condensed results of operations 6-30-2005 included in discontinued operations are as follows: Revenues $ 39,226 Expenses (207,858) ------------- Operating loss $ (168,632) ============= 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS The following discussion should be read in conjunction with the Company's 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. The Company does not undertake to publicly update or revise any of its 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, which affect our business, included in this section and elsewhere in this report. Factors that might cause actual results, performance or achievements to differ materially from those projected or implied in such forward-looking statements include, among other things: (i) the impact of competitive products; (ii) changes in law and regulations; (iii) adequacy and availability of insurance coverage; (iv) limitations on future financing; (v) increases in the cost of borrowings and unavailability of debt or equity capital; (vi) the effect of adverse publicity regarding our products; (vii) the inability of the Company to gain and/or hold market share; (viii) exposure to and expense of resolving and defending product liability claims and other litigation; (ix) consumer acceptance of the Company's products; (x) managing and maintaining growth; (xi) customer demands; (xii) market and industry conditions including pricing and demand for products, (xiii) the success of product development and new product introductions into the marketplace; (xiv) the departure of key members of management; (xv) the ability of the Company to efficiently market its products; as well as other risks and uncertainties that are described elsewhere in this report and from time to time in the Company's filings with the Securities and Exchange Commission. 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 only a limited operating history with which you can evaluate our current business model and our prospects and the historical financial data may be of limited value in evaluating our future revenue and operating expenses. Further, you may lose your investment if we are unable to successfully market our services and implement our business plan. We have not been profitable to date. Even if we become profitable in the future, we cannot accurately predict the level of, or our ability to sustain profitability. Because we have not yet been profitable and cannot predict any level of future profitability, you bear the risk of a complete loss of your investment in the event our business plan is unsuccessful. 9 Inability to Obtain Funding --------------------------- We may not be able to obtain additional funding when needed, which could limit future expansion and marketing opportunities, as well as result in lower than anticipated revenues. We may require additional financing to pursue relationships with other business opportunities. If the market price of the common stock declines, some potential financiers may either refuse to offer us any financing or will offer financing at unacceptable rates or unfavorable terms. If we are unable to obtain financing on favorable terms, or at all, this unavailability could prevent us from expanding our business, which could materially impact our future potential revenues. Sole Source of Products ----------------------- Applied Nutritionals holds the patent to, and is currently the sole source of our products. In the event Applied Nutritionals was not able to fulfill our product orders, we would be prevented from marketing and selling our products into the market and we would be unable to conduct business. OVERVIEW The Company currently has limited business operations, maintaining leased offices in Arlington, Texas, and Fort Lauderdale Florida. Business activities currently include sales and marketing activities of our wound care products through certain exclusive and nonexclusive distribution rights of CellerateRX(TM) products. The product is 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. Our 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 our products are unique in composition, applicability, clinical performance, and demonstrate the ability to reduce costs associated with standard wound management. CRITICAL ACCOUNTING POLICIES Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements; however, management does not consider any of the estimates and assumptions to be highly uncertain. 10 Allowance for Doubtful Accounts We evaluate the collectibility of our trade receivables based on a combination of factors. We regularly analyze our significant customer accounts, and, when we become aware of a specific customer's inability to meet its financial obligations to us, we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible. The allowances are calculated based on detailed review of certain individual customer accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. In the event that our accounts receivables become uncollectible, we would be forced to record additional adjustments to receivables to reflect the amounts at net realizable value. The accounting effect of this entry would be a charge to income, thereby reducing our net earnings. Although we consider the likelihood of this occurrence to be remote based on past history and the current status of our accounts, there is a possibility of this occurrence. There is no allowance for doubtful accounts at June 30, 2005 as we deem all of our accounts receivable collectible. Inventory Our inventory purchases and commitments are made in order to build inventory to meet future shipment schedules based on estimated demand for our products. We perform a detailed assessment of inventory for each period, which includes a review of, among other factors, demand requirements, product life cycle and development plans, component cost trends, product pricing and quality issues. Based on this analysis, we record adjustments to inventory for excess, obsolescence or impairment, when appropriate, to reflect inventory at net realizable value. Revisions to our inventory adjustments may be required if actual demand, component costs or product life cycles differ from our estimates. In the event we were unable to sell our products, the demand for our products diminished, other competitors offered similar or better products, and/or the product life cycles deteriorated causing quality issues, we would be forced to record an adjustment to inventory for impairment or obsolescence to reflect inventory at net realizable value. The effect of this entry would be a charge to income, thereby reducing our net earnings. Although we consider the likelihood of this occurrence to be remote based on our forecasted demand for our products, there is a possibility of this occurrence Income Taxes SFAS 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position or our results of operations. Contingencies The outcomes of potential legal proceedings and claims brought against us are subject to significant uncertainty. SFAS 5, Accounting for Contingencies, requires that an estimated loss from a loss contingency such as a legal proceeding or claim should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position or our results of operations. 11 RESULTS OF OPERATIONS Three And Six Months Ended June 30, 2005 Compared To June 30, 2004 ------------------------------------------------------------------ Revenues, Cost of Sales and Gross Margin. The Company generated revenues of approximately $40,919. and $97,180. for the three and six months ended June 30, 2005, through its wholly-owned subsidiary Wound Care Innovations, LLC, ("WCI"), which it acquired in August 2004. Costs of sales approximated $35,874 and $89,237, for the three and six months ended June 30, 2005. Gross margin as a percentage of sales approximated 12% and 8%, for the three and six months then ended respectively. There were no revenues for the same period in 2004. (See discontinued operations caption.) Selling, general and administrative expenses ("SGA"). SGA for the six months ended June 30, 2005 approximated $106,761 and $279,258 compared to $9,619 and $35,113 for the same periods in 2004. SGA for 2005 is comprised of mainly of WCI's operations. Major contributors to WCI's SGA expenses are (approximations) wages of $131,373. for 4 employees in Florida, rent of $19,220., and legal fees of $11,429. Major expenses related to the registrant were rent for the Company's Arlington, Texas offices of $19,015. and professional fees paid in connection with the company's SEC reporting requirements of $15,000. SGA for the same period 2004 mainly consists of professional fees paid in connection with the company's SEC reporting requirements and other corporate matters amounting to $18,200. Royalties Expense and related option fees The company incurred 225,000 in connection with the option agreement with AN representing $150,000 due under the option agreement and $75,000 paid as an option fee to maintain the exclusive right to distribute the product. Discontinued Operations. The Company disposed of its wholly-owned subsidiary, MB Holding Corporation ("MBH") in December 2004. MBH, through its wholly-owned subsidiary Envoii Healthcare L.L.C., developed a system for transmitting electronic documents in a secure environment. Included in discontinued operations for the three and six months ended June 30, 2004 were revenues of $28,509 and $39,226, respectively, and expenses of $136,488 and $207,858, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company currently has limited resources to maintain its current operations, secure more inventory, and meet its contractual obligations. Additional capital must be raised immediately through equity or debt offerings. If we are unable to obtain additional capital, we will be unable to operate our business. 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. The Company also has insignificant revenues and a negative cash flow from operating activities. The Company currently relies on income from operations and its majority shareholders to fund operating expenses as necessary. It is the Company's belief that it will continue to incur losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. To meet these objectives, management's plans are to (i) raise capital by obtaining financing from debt financing and / or equity financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from shareholders as necessary. Without realization of additional capital or significant revenues from operations, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its majority shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve 12

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. 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. Funds are advanced from various entities controlled by the president of this Company, and other majority shareholders, as necessary, to meet working capital requirements. The advances bear interest at 10% per annum, are unsecured and repayable on demand. Due to related parties at June 30, 2005 represents the following: Related party Nature of relationship Description of transaction Amounts due to (from) related parties ------------------------------------- ------------------------------------- --------------------------- -------------------- HEB, LLC, a Nevada Limited Scott Haire, Chairman President, Series of funds advanced $ 274,867 Liability Company CEO and CFO of this company, for working capital controls both entities financing purposes and operating decisions Araldo Cossutta, an individual Director and stockholder of the Series of funds advanced 117,000 Company for working capital purposes Richard Dahlson, an individual Director and stockholder of the Series of funds advanced 22,666 Company for working capital purposes eAppliance Payment Solutions, Controlling owners in eAppliance Series of funds advanced 2,410 LLC, a Nevada Limited Liability Payment Solutions, LLC are the for working capital Company President and one Director of MB purposes Software Corporation -------------------- $ 416,943 ====================

PLAN OF OPERATION 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. Our products are currently being used by providers of all types, and are getting to market through a variety of distribution channels. Our 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. 13 The Company does not presently generate profits and expends approximately $59,000 to $65,000 per month for working capital and general corporate purposes, including any marketing expenses. The Company is in default with Applied Nutritionals, LLC on the contract signed July 28, 2004. We are currently in negotiations with Applied Nutritionals, LLC on the default and continue to sell the product. The Company has no assurance that contract can be re-negotiated at this time. 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 our 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. Our products are sold in gel and powder form in a variety of configurations. Both 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 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 will develop derivative products, utilizing the patented form of collagen, for other markets and applications. Clinical Studies We begin clinical studies during the second quarter of 2005, no quantifying benefits of Celebrate RX have been published as of this date but the company will continue to conduct theses studies will published the results upon completion of the studies. ITEM 3. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to the Exchange Act Rule 13a-14. This evaluation was done under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, Scott Haire. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in the other factors that could significantly affect those controls since the most recent evaluation of such controls. 14 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Changes in Securities and Use of Proceeds - None ITEM 3. Defaults Upon Senior Securities - None ITEM 4. Submission of Matters to a Vote of Security Holders - None ITEM 5. Other Information - None ITEM 6. Exhibits (a) Exhibits 31 Certification pursuant to Rule 13a-14(a)/15d-14(a) 32 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MB SOFTWARE CORPORATION Date: August 22, 2005 /s/ Scott A. Haire --------------------------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 15