10QSB 1 mb10qsb033106.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: March 31, 2006 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File No. 0-11808 MB SOFTWARE CORPORATION Texas 59-2220004 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2225 E. Randol Mill Road - Suite 305 Arlington, Texas 76011-6306 (817) 633-9400 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of March 31, 2006, 16,145,432 shares of the Issuer's $.001 par value common stock were outstanding. Transitional Small Business Disclosure Format Yes [ ] No [ X ] MB SOFTWARE CORPORATION AND SUBSIDIARIES Form 10-QSB Quarter Ended March 31, 2006 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Consolidated Balance Sheet as of March 31, 2006 (Unaudited)....................3 Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (Unaudited)....................................4 Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (Unaudited)....................................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............9 ITEM 3. CONTROLS AND PROCEDURES...............................................12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings.....................................................13 ITEM 2. Changes in Securities and Use of Proceeds.............................13 ITEM 3. Defaults Upon Senior Securities.......................................13 ITEM 4. Submission of Matters to a Vote of Security Holders...................13 ITEM 5. Other Information.....................................................13 ITEM 6. Exhibits..............................................................13 SIGNATURE.....................................................................13 2

PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET -------------------------------------------------------------------------------- March 31, December 31, 2006 2005 (unaudited) (audited) ASSETS ------ Current Assets Cash $ -- $ 2,828 Accounts receivable 23,128 30,198 Inventory 113,607 30,644 Prepaid inventory 46,537 130,454 ------------ ------------ Total current assets 183,272 194,124 Fixed assets, net 62,776 48,771 Security deposits 14,912 14,912 ------------ ------------ Total Assets $ 260,960 $ 257,807 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY ---------------------------------------- Current liabilities Cash overdraft $ 1,074 $ -- Accounts payable 60,732 34,919 Accrued liabilities 221,485 204,383 Obligation under capital lease - current portion 4,092 4,092 Amounts due to related parties 704,357 625,012 Accrued interest due to related parties 45,304 33,797 ------------ ------------ Total current liabilities 1,037,044 902,203 Long-term liabilities Obligation under capital lease - non-current portion 2,147 3,069 ------------ ------------ Total Liabilities 1,039,191 905,272 Commitments and contingencies Stockholders' Deficiency Preferred stock, $10 par value; 5,000,000 shares authorized; issued and outstanding none -- -- Common stock: $0.001 par value; 20,000,000 shares authorized; issued and outstanding: 16,145,432 16,145 16,145 Additional paid-in capital 11,181,496 11,181,496 Accumulated deficit (11,963,833) (11,833,067) ------------ ------------ (766,192) (635,426) Less: treasury stock, at cost; 4,089 shares (12,039) (12,039) ------------ ------------ Total stockholders' deficiency (778,231) (647,465) ------------ ------------ Total Liabilities and Stockholders' Deficiency $ 260,960 $ 257,807 ============ ============

See condensed notes to consolidated financial statements 3 MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED) -------------------------------------------------------------------------------- 2006 2005 ------------ ------------ Revenues $ 46,901 $ 56,261 Cost of revenues 38,284 53,363 ------------ ------------ Gross margin 8,617 2,898 Selling, general and administrative 122,963 172,497 ------------ ------------ Loss from operations (114,346) (169,599) Other income (expense), net (16,420) (7,406) ------------ ------------ Loss before provision for income taxes (130,766) (177,005) Provision for income taxes -- -- ------------ ------------ Net loss $ (130,766) $ (177,005) ============ ============ Basic and diluted loss per share: $ (0.008) $ (0.01) ============ ============ Weighted average common shares outstanding 16,145,432 14,921,432 ============ ============ See condensed notes to consolidated financial statements. 4

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31 (UNAUDITED) -------------------------------------------------------------------------------- 2006 2005 --------- --------- Cash flows from operating activities Net loss $(130,766) $(177,005) Adjustments to reconcile net loss from to net cash used in operating activities Depreciation 2,425 2,002 Changes in assets and liabilities: (Increase) decrease in accounts receivable 7,070 (3,844) (Increase) decrease in inventory (82,963) 5,270 (Increase) decrease in prepaid expenses and other assets 83,917 (112,512) Increase (decrease) in accounts payable and accrued liabilities 54,422 65,123 --------- --------- Net cash flows used in operating activities (65,895) (220,966) Cash flows from investing activities Cash paid for intangible assets -- (75,000) Purchase of fixed assets (16,430) (26,144) --------- --------- Net cash flows used in investing activities (16,430) (101,144) Cash flows from financing activities Cash overdraft 1,074 -- Net advances - related parties 79,345 318,025 Principal payments under capital lease (922) (1,023) --------- --------- Net cash flows provided by financing activities 79,497 317,002 --------- --------- Decrease in cash (2,828) (5,108) Cash and cash equivalents, beginning of period 2,828 7,889 --------- --------- Cash and cash equivalents, end of period $ -- $ 2,781 ========= ========= Cash paid during the year for: Interest and income taxes -- -- ========= =========

See condensed notes to consolidated financial statements. 5 MB SOFTWARE CORPORATION AND SUBSIDIARIES QUARTER ENDED MARCH 31, 2006 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 1: BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles in the United States of America for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. The results of operations for the period ended March 31, 2006 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2006. These financial statements should be read in conjunction with the Management's Discussion and Analysis included in the Company's financial statements and accompanying notes thereto as of and for the year ended December 31, 2005, filed with the Company's Annual Report on Form 10-KSB NOTE 2: GOING CONCERN The financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company has continuously incurred losses from operations and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. It is the Company's belief that it will continue to incur losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. To meet these objectives, management's plans are to (i) raise capital by obtaining financing from debt financing and / or equity financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from shareholders as necessary. Without realization of additional capital or significant revenues from operations, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has minimal revenues and the Company's need for capital may change dramatically if it is successful in expanding its current business or acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. Management believes that actions presently taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. The Company's future ability to achieve these objectives cannot be determined at this time. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 6

NOTE 3 - RELATED PARTY TRANSACTIONS Funds are advanced from various related parties including the Company's President and CEO/CFO and entities controlled by him. Other shareholders fund the company as necessary to meet working capital requirements and expenses. The advances are made pursuant to a note agreement that bears interest at 10% per annum, payable quarterly, and with maturity dates through June 30, 2006. All notes are current liabilities. Accrued interest due to related parties included in accrued liabilities as of March 31, 2006 was approximately $45,000. The following is a summary of amounts due to / from related parties as of March 31, 2006: Related party Nature of relationship Terms of the agreement Amounts due to related parties ------------------------- ----------------------------- ----------------------------------------------- ---------------- Scott Haire, an Chairman of the Board, Unsecured note dated July 11, 2005 for $ 10,000 individual CEO and CFO of this $10,000 at 10% per annum, due on Company December 31, 2005, currently in default HEB, LLC, a Scott Haire, Chairman Series of funds advanced under two 394,947 Nevada Limited President, CEO and CFO separate, unsecured $1 million lines of Liability Company of this company, controls credit dated November 26, 2003 and both entities financing November 4, 2004, both at 10% per and operating decisions annum; no maturity date, interest payable quarterly; unused lines available at March 31, 2006 total $1,605,053. Araldo Cossutta, Director and stockholder Series of unsecured notes bearing 297,000 an individual of the Company interest at 10% per annum , maturing through June 30, 2006. As of March 31, 2006, $147,000 were past due and $155,000 mature on June 30, 2006. eAppliance Controlling owners in Note dated January 1, 2004 for $2,410 at 2,410 Payment Solutions, eAppliance Payment 10% per annum due on December 31, LLC a Nevada Solutions, LLC are 2005 (currently in default) Limited Liability Cossutta and Haire Company ---------------- $ 704,357 ================

NOTE 4 - COMMITMENTS AND CONTINGENCIES Consulting Agreement The Company's subsdiary entered into a Consulting Agreement dated November 7, 2005, for consulting and advisory services to the Company for period of 6 months at the rate of $12,500 per month. For the three months ended March 31, 2006, consulting expenses totaled $37,500 (2004: $-) for this consultant. Future commitments under the Consulting Agreement for 2006 are $18,750. Operating leases The Company leases office space and office equipment under operating leases expiring in various years through 2009. Rental expense charged to operations for the three months ended March 31, 2006 was approximately $27,000 (2004: $27,000). 7 Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of 1 year as of March 31, 2006, for each of the next five years and in the aggregate are as follows (approximately): 2006 $ 78,000 2007 91,000 2008 57,000 2009 39,000 2010 -- -------- $265,000 ======== Capital leases The Company leases a phone system under a capital lease for a period of thirty-six months through September 2007. Minimum future lease payments under capital lease as of March 31, 2006, for each of the next five years and in the aggregate are: (2006: $4,092 and 2007: $2,147). Federal Payroll Taxes The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of March 31, 2005, unpaid payroll taxes total approximately $143,000 and related penalties and interest approximated $37,000 computed through March 31, 2006, and are included in accrued liabilities at March 31, 2006. The Company expects to pay these delinquent payroll tax liabilities as soon as possible. The final amount due will be subject to the statutes of limitations related to such liabilities and to negotiations with the Internal Revenue Service. 8 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS Introduction Management's discussion and analysis of results of operations and financial condition ("MD&A") is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in financial condition and results of operations. Caution Concerning Forward-Looking Statements/Risk Factors The following discussion should be read in conjunction with the financial statements and the notes thereto and the other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain certain forward-looking information. When used in this discussion, the words "believes," "anticipates," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected due to a number of factors beyond our control. We do not undertake to publicly update or revise any of our forward-looking statements even if experience or future changes show that the indicated results or events will not be realized. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. You are also urged to carefully review and consider our discussions regarding the various factors that affect our business, included in this section and elsewhere in this report. Factors That Could Affect Future Results We face an inherent risk of exposure to product liability claims in the event that the use of our products results in injury. Such claims may include, among others, that our products contain contaminants or include inadequate instructions as to use or inadequate warnings concerning side effects and interactions with other substances. We do not anticipate obtaining contractual indemnification from parties supplying raw materials or marketing our products. In any event, any such indemnification if obtained would be limited by our terms and, as a practical matter, to the creditworthiness of the indemnifying party. In the event that we do not have adequate insurance or contractual indemnification, product liabilities relating to defective products could have a material adverse effect on our operations and financial conditions. Because of our dependence upon consumer perceptions, adverse publicity associated with illness or other adverse effects resulting from the use of our products or any similar products distributed by other companies could have a material adverse effect on our operations. Such adverse publicity could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products as directed. In addition, we may not be able to counter the effects of negative publicity concerning the efficacy of our products. Any such occurrence could have a negative effect on our operations. Other key factors that affect our operating results are as follows: o Overall customer demand and acceptance for our various products. o Volume of products ordered and the prices at which we sell our products. o Our ability to manage our cost structure for capital expenditures and operating expenses such as salaries and benefits, freight and royalties. o Our ability to match operating costs to shifting volume levels. o Increases in the cost of raw materials and other supplies. o The impact of competitive products. o Limitations on future financing. o Increases in the cost of borrowings and unavailability of debt or equity capital. o Our inability to gain and/or hold market share. 9 o Exposure to and expense of resolving and defending product liability claims and other litigation. o Managing and maintaining growth. o The success of product development and new product introductions into the marketplace. o The departure of key members of management. o Our ability to efficiently manufacture our products. o Unexpected customer bankruptcy. Overview and Plan of Operation The Company currently has limited business operations, maintaining leased offices in Arlington, TX, and Fort Lauderdale, FL. All major business functions are performed by our subsidiary, Wound Care Innovations. Although Wound Care is a distributor of our products, it is also responsible for product packaging development, packaging materials, and coordination of all processes except the actual manufacturing of the product. Wound Care also conducts other activities that are typical of a product distributor and include sales, marketing, customer service, and customer support. All of these activities are run and managed out of Wound Care's Fort Lauderdale offices. Manufacturing of our products is conducted by Applied Nutritionals. Warehousing, shipping, and physical inventory management is outsourced to Diamond Contract Manufacturing of Rochester, NY. Our sales and marketing activities to date have been limited and have resulted in a nominal revenue stream. Through these activities, we have, however, secured product evaluations with a number of key accounts. These accounts are regional and national healthcare provider organizations that represent strong recurring revenue opportunities for the Company. We currently intend to secure capital resources for expansion of staff, inventories, marketing efforts, and research and development, however we may be unsuccessful in our efforts to secure such capital. If we are successful in raising capital, we anticipate hiring a number of management, marketing, and clinical staff to secure additional accounts, market to the broader US wound care market, support customers in specific geographies, broaden our clinical/educational programs, and evaluate retail and international market opportunities. Results of Operations Three months ended March 31, 2006 and 2005 Revenues. The Company generated revenues for the three months ended March 31, 2006 of $46,901 (2005: $56,261), through its wholly-owned subsidiary Wound Care Innovations, LLC, ("WCI"), a decrease of approximately 17% from the same period in 2005. Cost of revenues and gross margin. Costs of revenues for 2006 were $38,284 (2005: $53,363) resulting in a gross margin of $8,617 (2005: $2,898). Our gross margins increased to 18% versus 5% in 2005 as a result of the reduction in employees from 3 employees in 2005 to 2 employees in 2006. We don't expect realization of gross margins to increase much higher as we bear the costs and continue to try to compete with other larger, better capitalized companies that can offer a similar product at a reduced cost. Selling, general and administrative expenses ("SGA"). SGA for 2006 were $122,963 (2005: $172,497) and consisted primarily of wages, facility-related expenses such as rent and utilities, and outside professional services such as legal and professional fees incurred in connection with our SEC reporting requirements. We expect selling, general and administrative expenses to increase as we continue to expand our marketing efforts and the number of products we offer and as our business continues to grow and the costs associated with being a public company continue to increase as a result of increased reporting requirements, including but not limited to the Sarbanes-Oxley Act of 2002. 10 Liquidity and Capital Resources The Company currently has limited resources to maintain its current operations, secure more inventory, and meet its contractual obligations. Additional capital must be raised immediately through equity or debt offerings. If we are unable to obtain additional capital, we will be unable to operate our business. We have historically relied on advances from related parties to fund our working capital expenses. We generated a loss from operations of $130,766 and we had a cash overdraft of approximately $1,100 at March 31, 2006. Without realization of additional capital or significant revenues from operations, it would be unlikely for the Company to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company has continuously incurred losses from operations and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty and should not be regarded as typical for normal operating periods. It is the Company's belief that it will continue to incur nominal losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. The Company anticipates that its officers and shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has insignificant revenues and the Company's need for capital may change dramatically if it is successful in acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. Our future funding requirements will depend on numerous factors, some of which are beyond the Company's control. These factors include our ability to operate profitably, recruit and train management and personnel, and to compete with other, better-capitalized and more established competitors. To meet these objectives, management's plans are to (i) raise capital by obtaining financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from officers and shareholders as necessary. Contractual Obligations (Commitments And Contingencies) Consulting Agreement The Company's subsdiary entered into a Consulting Agreement dated November 7, 2005, for consulting and advisory services to the Company for period of 6 months at the rate of $12,500 per month. For the three months ended March 31, 2006, consulting expenses totaled $37,500 (2004: $-) for this consultant. Future commitments under the Consulting Agreement for 2006 are $18,750. Operating leases The Company leases office space and office equipment under operating leases expiring in various years through 2009. Rental expense charged to operations for the three months ended March 31, 2006 was approximately $27,000 (2004: $27,000). Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of 1 year as of March 31, 2006, for each of the next five years and in the aggregate are as follows (approximately): 2006 $ 78,000 2007 91,000 2008 57,000 2009 39,000 2010 -- -------- $265,000 ======== 11 Capital leases The Company leases a phone system under a capital lease for a period of thirty-six months through September 2007. Minimum future lease payments under capital lease as of March 31, 2006, for each of the next five years and in the aggregate are: (2006: $4,092 and 2007: $2,147). Federal Payroll Taxes The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of March 31, 2005, unpaid payroll taxes total approximately $143,000 and related penalties and interest approximated $37,000 computed through March 31, 2006, and are included in accrued liabilities at March 31, 2006. The Company expects to pay these delinquent payroll tax liabilities as soon as possible. The final amount due will be subject to the statutes of limitations related to such liabilities and to negotiations with the Internal Revenue Service. ITEM 3. CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer, who is also the principal financial officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the principal executive officer/principal financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company's internal control over financial reporting during the Company's most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. 12 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Changes in Securities and Use of Proceeds - None ITEM 3. Defaults Upon Senior Securities - None ITEM 4. Submission of Matters to a Vote of Security Holders - None ITEM 5. Other Information - None ITEM 6. Exhibits (a) Exhibits 31 Certification pursuant to Rule 13a-14(a)/15d-14(a) 32 Certification of Principal Executive Officer and Principal Financial Officer in accordance with 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MB SOFTWARE CORPORATION Date: May 22, 2006 /s/ Scott A. Haire --------------------------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 13