10QSB 1 mb10qsb063006.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, 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 June 30, 2006, 16,145,432 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, 2006 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Consolidated Balance Sheet as of June 30, 2006 (Unaudited).....................3 Consolidated Statements of Operations for the three and six months ended June 30, 2006and 2005 (Unaudited)......................................4 Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (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.....................................................14 ITEM 2. Changes in Securities and Use of Proceeds.............................14 ITEM 3. Defaults Upon Senior Securities.......................................14 ITEM 4. Submission of Matters to a Vote of Security Holders...................14 ITEM 5. Other Information.....................................................14 ITEM 6. Exhibits..............................................................14 SIGNATURE.....................................................................14 2

PART I - FINANCIAL INFORMATION MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ------------------------------------------------------------------------------------------------- June 30, December 31, 2006 2005 (unaudited) (audited) ASSETS ------ Current Assets Cash $ 17,100 $ 2,828 Accounts receivable 38,538 30,198 Inventory 101,746 30,644 Prepayments and other current assets 85,567 130,454 ------------ ------------ Total current assets 242,951 194,124 Fixed assets, net 60,352 48,771 Security deposits 11,239 14,912 ------------ ------------ Total Assets 314,542 257,807 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY ---------------------------------------- Current liabilities Accounts payable and other accruals 63,233 18,334 Payroll tax liabilities 221,502 204,383 Obligation under capital lease - current portion 3,069 4,092 Due to related parties 864,557 625,012 Accrued interest - related parties 87,197 50,382 ------------ ------------ Total current liabilities 1,239,558 902,203 Long-term liabilities Obligation under capital lease - noncurrent portion 2,146 3,069 ------------ ------------ Total Liabilities 1,241,704 905,272 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 Stock subscription Additional paid-in capital 11,181,496 11,181,496 Accumulated deficit (12,112,764) (11,833,067) ------------ ------------ (915,123) (635,426) Less: treasury stock, at cost; 4,089 shares (12,039) (12,039) ------------ ------------ Total stockholders' deficiency (927,162) (647,465) ------------ ------------ Total Liabilities and Stockholders' Deficiency $ 314,542 $ 257,807 ============ ============

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 Three Months Six Months Six Months Ended Ended Ended Ended June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005 ---------------------------------------------------------------- Revenues 45,782 $ 40,919 92,683 $ 97,180 Cost of revenues 39,967 35,874 78,251 89,237 ---------------------------------------------------------------- Gross margin 5,815 5,045 14,432 7,943 Selling, general and administrative 122,906 106,761 246,395 279,258 Royalties expenses and related option fee -- 225,000 -- 225,000 ---------------------------------------------------------------- Loss from operations (117,091) (326,716) (231,963) (496,315) Other income (expense), net (31,315) (17,869) (47,734) (25,275) ---------------------------------------------------------------- Loss before provision for income taxes (148,406) (344,585) (279,697) (521,590) Provision for income taxes -- -- -- ---------------------------------------------------------------- Loss from continuing operations (148,406) (344,585) (279,697) (521,590) ---------------------------------------------------------------- Net loss $ (148,406) $ (344,585) $ (279,697) $ (521,590) ================================================================ ---------------------------------------------------------------- Basic and diluted loss per share $ (0.01) $ (0.02) $ (0.02) $ (0.03) ================================================================ Weighted average common shares outstanding 16,145,432 14,921,432 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 SIX MONTHS ENDED JUNE 30 (UNAUDITED) -------------------------------------------------------------------------------------------------------- 2006 2005 --------- --------- Cash flows from operating activities ------------------------------------ Net loss (279,697) $(521,590) Adjustments to reconcile net loss from to net cash used in operating activities Depreciation and amortization 4,850 4,004 Changes in assets and liabilities: (Increase) decrease in accounts receivable (8,340) 3,318 (Increase) decrease in inventory (71,102) 8,508 (Increase) decrease in prepaid expenses and other assets 48,560 (135,452) Increase (decrease) in accounts payable and accrued liabilities 98,832 238,522 --------- --------- Net cash flows used in operating activities (206,897) (402,690) Cash flows from investing activities ------------------------------------ Purchase of fixed assets (16,430) (26,144) --------- --------- Net cash flows used in investing activities (16,430) (26,144) Cash flows from financing activities ------------------------------------ Net advances - related parties 239,545 425,369 Principal payments under capital lease (1,946) (2,047) --------- --------- Net cash flows provided by financing activities 237,599 423,322 --------- --------- Increase (decrease) in cash 14,272 (5,512) Cash and cash equivalents, beginning of period 2,828 7,889 --------- --------- Cash and cash equivalents, end of period 17,100 $ 2,377 ========= =========

See condensed notes to consolidated financial statements. 5 MB SOFTWARE CORPORATION AND SUBSIDIARIES QUARTER ENDED JUNE 30, 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 June 30, 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 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, 2005, as filed with the Company's Annual Report on Form 10-KSB. Certain comparative prior period amounts have 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 (See Note 3). 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/CEO/CFO/majority shareholder, including various entities controlled by him, and other shareholders to 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 December 31, 2006. All notes are current liabilities. Accrued interest due to related parties included in accrued liabilities as of June 30, 2006 was approximately $87,000. The following is a summary of amounts due to / from related parties as of June 30, 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, $ 10,000 individual CEO and CFO of this 2005 for $10,000 at 10% per Company annum, due on December 31, 2006. --------------------- -------------------------- -------------------------------- ----------------- --------------------- -------------------------- -------------------------------- ----------------- HEB, LLC, a Nevada Scott Haire, Chairman Series of funds advanced under 485,147 Limited Liability President, CEO and two separate, unsecured $1 Company CFO of this company, million lines of credit dated controls both entities November 26, 2003 and financing and operating November 4, 2004, both at 10% decisions per annum; no maturity date, interest payable quarterly; unused lines available at June 30, 2006 total $1,514,853. --------------------- -------------------------- -------------------------------- ----------------- --------------------- -------------------------- -------------------------------- ----------------- Araldo Cossutta, an Director and stockholder Series of unsecured notes 367,000 individual of the Company bearing interest at 10% per annum, maturing through December 31, 2006. --------------------- -------------------------- -------------------------------- ----------------- --------------------- -------------------------- -------------------------------- ----------------- eAppliance Payment Controlling owners in Note dated January 1, 2004 for 2,410 Solutions, LLC a eAppliance Payment $2,410 at 10% per annum due Nevada Limited Solutions, LLC are on December 31, 2006. Liability Company Cossutta and Haire --------------------- -------------------------- -------------------------------- ----------------- $ 864,557 --------------------- -------------------------- -------------------------------- -----------------

NOTE 4 - COMMITMENTS AND CONTINGENCIES Consulting Agreement The Company's subsidiary entered into a Consulting Agreement dated November 7, 2005, for consulting and advisory services to the Company for a period of 6 months at the rate of $12,500 per month. For the six months ended June 30, 2006, consulting expenses totaled $37,500. The consulting agreement was not renewed. 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 and six months ended June 30, 2006 was approximately $25,000 and $52,000, respectively. Minimum future rental payments under non-cancelable 7 operating leases having remaining terms in excess of 1 year as of June 30, 2006, for each of the next five years and in the aggregate are as follows (approximately): 2007 $ 100,000 2008 70,000 2009 48,000 2010 12,000 2011 -- --------- $ 230,000 ========= 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 in the aggregate are: 2006: $3,069 and 2007: $2,146. Federal Payroll Taxes The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of June, 30, 2006, unpaid payroll taxes totaled approximately $172,000 and related penalties and interest of approximately $49,000 computed through June 30, 2006, and are included in accrued liabilities at June 30, 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 5 - RECENT ACCOUNTING PRONOUNCEMENTS In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets--an amendment of FASB Statement No. 140." SFAS No. 156 addresses the accounting for separately recognized servicing assets and servicing liabilities. SFAS 156 is effective as of the beginning of an entity's first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 156 does not have any impact on the Company's financial statements. In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," (FIN 48). FIN 48 clarifies the accounting for uncertainty in tax positions and requires that a Company recognize in its financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 is not expected to have any 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. 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, an unrelated party. 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 June 30, 2006 and June 30, 2005 Revenues. The Company generated revenues for the three months ended June 30, 2006 of $45,782 (2005: $40,919), through its wholly-owned subsidiary Wound Care Innovations, LLC, ("WCI"). The slight increase is a result of increased sales volumes to our current customers. Cost of revenues and gross margin. Costs of revenues for 2006 were $39,967 (2005: $35,874) resulting in a gross margin of $5,815 (2005: $5,045). Our gross margins approximated 12% for both periods presented. 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 $122,906 (2005: $106,761) 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 Six months ended June 30, 2006 and June 30, 2005 Revenues. The Company generated revenues for the six months ended June 30, 2006 of $92,683 (2005: $97,180), through its wholly-owned subsidiary Wound Care Innovations, LLC, ("WCI"). Revenues decreased slightly, but still remain relatively consistent for the period to date as we continue to provide product to our current customer base. Cost of revenues and gross margin. Costs of revenues for 2006 were $78,251 (2005: $89,237) resulting in a gross margin of $14,432 (2005: $7,943). Our gross margins increased to approximately 16% from 8% in 2005. The increase resulted from a 2005 additional inventory adjustment that lowered our gross margins. We expect our current margins to approximate between 10 - 12 % and 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 $246,395 (2005: $279,258) 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. Royalties expense and related option fee. These prior year amounts were incurred in connection with a prior year option agreement to distribute the wound care product through the Company's wholly-owned subsidiary, which option agreement is no longer in effect. The total amount of $225,000 represented $150,000 due under the option agreement and $75,000 paid as an option fee to maintain the exclusive right to distribute the product. 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 $148,406 and $279,697 for the three and six months ended June 30, 2006, respectively, and had a negative working capital of approximately $997,000 at June 30, 2006. We rely on the funds advanced from our President/CEO/CFO/majority shareholder, including various controlled by him, and other shareholders to 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 December 31, 2006. All notes are current liabilities. Accrued interest due to related parties included in accrued liabilities as of June 30, 2006 was approximately $87,000. The following is a summary of amounts due to / from related parties as of June 30, 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, $ 10,000 individual CEO and CFO of this 2005 for $10,000 at 10% per Company annum, due on December 31, 2006. --------------------- -------------------------- -------------------------------- ----------------- 11 --------------------- -------------------------- -------------------------------- ----------------- HEB, LLC, a Nevada Scott Haire, Chairman Series of funds advanced under 485,147 Limited Liability President, CEO and two separate, unsecured $1 Company CFO of this company, million lines of credit dated controls both entities November 26, 2003 and financing and operating November 4, 2004, both at 10% decisions per annum; no maturity date, interest payable quarterly; unused lines available at June 30, 2006 total $1,514,853. --------------------- -------------------------- -------------------------------- ----------------- --------------------- -------------------------- -------------------------------- ----------------- Araldo Cossutta, an Director and stockholder Series of unsecured notes 367,000 individual of the Company bearing interest at 10% per annum, maturing through December 31, 2006. --------------------- -------------------------- -------------------------------- ----------------- --------------------- -------------------------- -------------------------------- ----------------- eAppliance Payment Controlling owners in Note dated January 1, 2004 for 2,410 Solutions, LLC a eAppliance Payment $2,410 at 10% per annum due Nevada Limited Solutions, LLC are on December 31, 2006. Liability Company Cossutta and Haire --------------------- -------------------------- -------------------------------- ----------------- $ 864,557 --------------------- -------------------------- -------------------------------- -----------------

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. 12 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 a period of 6 months at the rate of $12,500 per month. For the six months ended June 30, 2006, consulting expenses totaled $37,500. The consulting agreement was not renewed. 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 and six months ended June 30, 2006 was approximately $25,000 and $52,000, respectively. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of 1 year as of June 30, 2006, for each of the next five years and in the aggregate are as follows (approximately): 2007 $ 100,000 2008 70,000 2009 48,000 2010 12,000 2011 -- --------- $ 230,000 ========= 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 are: 2006: $3,069 and 2007: $2,146. Federal Payroll Taxes The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of June, 30, 2006, unpaid payroll taxes totaled approximately $172,000 and related penalties and interest of approximately $49,000 computed through June 30, 2006, and are included in accrued liabilities at June 30, 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. 13 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 changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. 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: Aug. 11, 2006 /s/ Scott A. Haire --------------------------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 14