10QSB 1 mb10qsb093006.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: September 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 [ ] Indicate by check mark wheter the registrant is a shell company (as defined I Rule 12-b-S of the Exchange Act). Yes [ ] No [X] As of September 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 September 30, 2006 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS (Unaudited) Consolidated Balance Sheet ....................................................3 Consolidated Statements of Operations .........................................4 Consolidated Statements of Cash Flows..........................................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS............10 ITEM 3. CONTROLS AND PROCEDURES...............................................15 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 -------------------------------------------------------------------------------- September 30, December 31, 2006 2005 ASSETS (unaudited) (audited) ------ Current Assets Cash $ 1,192 $ 2,828 Accounts receivable 43,699 30,198 Inventory 172,164 30,644 Prepayments and other current assets 46,537 130,454 ------------- ------------- Total current assets 263,592 194,124 Fixed assets, net 57,927 48,771 Security deposits 11,239 14,912 ------------- ------------- Total Assets $ 332,758 $ 257,807 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIENCY ---------------------------------------- Current liabilities Accounts payable and other accruals $ 78,221 $ 34,919 Payroll tax liabilities 248,622 204,383 Obligation under capital lease - current portion 4,192 4,092 Due to related parties 956,357 625,012 Accrued interest - related parties 111,286 33,797 ------------- ------------- Total current liabilities 1,398,678 902,203 Long-term liabilities Obligation under capital lease - non-current portion -- 3,069 ------------- ------------- Total Liabilities 1,398,678 905,272 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 (12,251,522) (11,833,067) ------------- ------------- (1,053,881) (635,426) Less: treasury stock, at cost; 4,089 shares (12,039) (12,039) ------------- ------------- Total stockholders' deficiency (1,065,920) (647,465) ------------- ------------- Total Liabilities and Stockholders' Deficiency $ 332,758 $ 257,807 ============= =============

See condensed notes to consolidated financial statements. 3

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) --------------------------------------------------------------------------------------------------------------------- Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended Sept. 30, 2006 Sept. 30, 2005 Sept. 30, 2006 Sept. 30, 2005 -------------- -------------- -------------- -------------- Revenues $ 39,556 $ 59,119 $ 133,340 $ 158,435 Cost of revenues 26,495 39,285 104,858 115,609 -------------- -------------- -------------- -------------- Gross margin 13,061 19,834 28,482 42,826 Selling, general and administrative 118,093 130,094 362,457 421,744 Royalty expenses and related option fee -- 1,756 -- 238,379 -------------- -------------- -------------- -------------- Loss from operations (105,032) (112,016) (333,975) (617,297) Other expense - related party interest expense (35,644) (11,112) (84,479) (29,770) -------------- -------------- -------------- -------------- Loss before provision for income taxes (140,676) (123,128) (418,454) (647,067) Provision for income taxes -- -- -- -- -------------- -------------- -------------- -------------- Net loss $ (140,676) $ (123,128) $ (418,454) $ (647,067) ============== ============== ============== ============== -------------- -------------- -------------- -------------- Basic and diluted loss per share $ (0.01) $ (0.01) $ (0.03) $ (0.04) ============== ============== ============== ============== Weighted average common shares outstanding 16,145,432 16,145,432 16,145,432 15,524,498 ============== ============== ============== ==============

See condensed notes to consolidated financial statements. 4

MB SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30 (UNAUDITED) -------------------------------------------------------------------------------------------------------- 2006 2005 --------- --------- Cash flows from operating activities ------------------------------------ Net loss $(418,454) $(647,067) Adjustments to reconcile net loss from to net cash used in operating activities Depreciation and amortization 7,275 6,005 Write off of bad debts 14,156 -- Changes in assets and liabilities: (Increase) decrease in accounts receivable (27,657) (5,067) (Increase) decrease in inventory (141,520) 13,078 (Increase) decrease in prepaid expenses and other assets 87,590 (61,254) Increase (decrease) in accounts payable and accrued liabilities 165,028 213,934 --------- --------- Net cash flows used in operating activities (313,582) (480,371) Cash flows from investing activities ------------------------------------ Purchase of fixed assets (16,430) (17,445) --------- --------- Net cash flows used in investing activities (16,430) (17,445) Cash flows from financing activities ------------------------------------ Net advances - related parties 331,345 502,216 Principle payments under capital lease (2,969) (3,070) --------- --------- Net cash flows provided by financing activities 328,376 499,146 --------- --------- Increase (decrease) in cash and cash equivalents (1,636) 1,330 Cash and cash equivalents, beginning of period 2,828 7,889 --------- --------- Cash and cash equivalents, end of period $ 1,192 $ 9,219 ========= ========= Cash paid during the period for interest and income taxes -- -- ========= =========

See condensed notes to consolidated financial statements. 5 MB SOFTWARE CORPORATION AND SUBSIDIARIES QUARTER ENDED SEPTEMBER 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 September 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 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 (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 loan agreements that bear 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 September 30, 2006 was approximately $111,000. The following is a summary of the principal due to/ from related parties as of September 30, 2006: --------------------- -------------------------- -------------------------------- ------------------ Related party Nature of relationship Terms of the agreement Principal due to related parties --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ Scott Haire, an Chairman of the Board, Unsecured note dated July 11, $ 10,000 individual CEO and CFO of the 2005 for $10,000 at 10% per Company annum, due on December 31, 2006. --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ HEB, LLC Controlled by Scott Series of funds advanced under 576,947 Haire, Chairman two separate, unsecured $1 President, CEO and million lines of credit dated CFO of the company. November 26, 2003 and November 4, 2004, both at 10% per annum; no maturity date, interest payable quarterly; unused lines available at September 30, 2006 total $1,423,053. --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ Araldo Cossutta, an Director and shareholder 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 eAppliance Payment $2,410 at 10% per annum due Solutions, LLC are on December 31, 2006. Araldo Cossutta and Scott A. Haire --------------------- -------------------------- -------------------------------- ------------------ $ 956,357 --------------------- -------------------------- -------------------------------- ------------------

NOTE 4 - COMMITMENTS AND CONTINGENCIES Operating leases The Company leases office space and office equipment under operating leases expiring in various years through 2009. Rental expense charged to operations for the three and nine months ended September 30, 2006 was approximately $27,000 and $79,000, respectively. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of 1 year as of September 30, 2006, for each of the next five years and in the aggregate are as follows (approximately): 7 2007 $ 94,000 2008 62,000 2009 48,000 2010 -- 2011 -- --------- $ 204,000 ========= 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 that are due within one year total $4,192. Federal Payroll Taxes The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of September, 30, 2006, unpaid payroll taxes totaled approximately $188,000 and related penalties and interest of approximately $61,000 computed through September 30, 2006, and are included in accrued liabilities at September 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 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. In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value Measurements." SFAS No. 157 defines fair value, and establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosure about fair value measurements. SFAS No. 157 is effective for the Company for financial statements issued subsequent to November 15, 2007. The Company does not expect the new standard to have any material impact on its financial statements. In September 2006, the FASB issued FASB Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." This Statement requires an employer to recognize the over funded or under funded status of a defined benefit post retirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The Company does not expect that the implementation of SFAS No. 158 will have any impact on its financial statements. Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force ("EITF")), the American Institute of Certified Public Accountants ("AICPA"), and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements. NOTE 6: EARNINGS PER SHARE Basic earnings (loss) per share ("EPS") are based on the weighted average number of common shares outstanding. Diluted EPS is based on the weighted average 8 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. 9 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. 10 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, Texas, and Fort Lauderdale, Florida. All major business functions are performed by our subsidiary, Wound Care Innovations, LLC. Although WCI 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. WCI 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 WCI's Fort Lauderdale, Florida 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, New York. 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 September 30, 2006 Compared To September 30, 2005 -------------------------------------------------------------------- Revenues. The Company generated revenues for the three months ended September 30, 2006, of $39,556 (2005: $59,119), through its wholly-owned subsidiary WCI We have experienced a 33% decrease for the presented periods which is a result of a decrease in powder sales due to expired product. We purchased approximately $78,500 of powder products that were received in September 2006 and we expect our sales to re-generate as a result. Cost of revenues and gross margin. Costs of revenues for the 2006 period were $26,495 (2005: $39,285) resulting in a gross margin of $13,061 (2005: $19,834). Our gross margins approximated 33% 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 the 2006 period were $118,093 (2005: $130,094) 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 11 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. Other expense. Other expenses represents interest expense accrued on the Company's outstanding related party notes payable and has increased due to the increase in payables. Net loss and loss per share. Net loss did not fluctuate materially for the periods presented and loss per share remained the same at $0.01 for the periods presented. Nine Months Ended September 30, 2006 Compared To September 30, 2005 ------------------------------------------------------------------- Revenues. The Company generated revenues for the nine months ended September 30, 2006 of $133,340 (2005: $158,435), through its wholly-owned subsidiary WCI. Revenues decreased 16% which is a result of a decrease in powder sales due to expired product. We purchased approximately for the presented periods, $78,500 of powder products that were received in September 2006 and we expect our sales to re-generate as a result. Cost of revenues and gross margin. Costs of revenues for 2006 were $104,858 (2005: $115,609) resulting in a gross margin of $28,482 (2005: $42,826), a decrease in our gross margin percentage of sales from approximately 27% in 2006 to 21% 2005. 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 $362,457 (2005: $421,744) 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. During the nine month period ended September 30, 2005, we incurred fees related to royalty expenses and option fees to maintain an exclusive option on our wound care product that have since expired. The significant fees incurred were $225,000 consisting of $150,000 due under the option agreement and $75,000 paid as an option fee to maintain the exclusive right to distribute the product. Other expenses. Other expenses represents interest expense accrued on the Company's outstanding related party notes payable and has increased due to the increase in payables. Net loss and loss per share. Net loss decreased as a result of a reduction in SGA as described above. Net per share was reduced to $0.03 from $0.04 for the periods presented. LIQUIDITY AND CAPITAL RESOURCES The Company currently has limited resources to maintain its current operations, secure inventory, and meet its contractual obligations and we realize that 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. 12 The following are the Company's current contractual obligations that will require additional funding to meet as necessary: 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 nine months ended September 30, 2006 was approximately $27,000 and $79,000, respectively. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of 1 year as of September 30, 2006, for each of the next five years and in the aggregate are as follows (approximately): 2007 $ 94,000 2008 62,000 2009 48,000 2010 -- 2011 -- --------- $ 204,000 ========= 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 due in the next twelve months total $4,192. Federal Payroll Taxes. The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of September, 30, 2006, unpaid payroll taxes totaled approximately $188,000 and related penalties and interest of approximately $61,000 computed through September 30, 2006, and are included in accrued liabilities at September 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. Going Concern. We have insignificant revenues, negative cash flow from operating activities, and we rely on income from operations and loans from shareholders to fund operating expenses as necessary. It is our belief that we 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 either debt or equity financing, (ii) issue 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 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. Research and Development 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, unless the company's operations change materially. 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 13

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 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 loan agreements that bear interest at 10% per annum, payable quarterly. All notes are current liabilities. Accrued interest due to related parties included in accrued liabilities as of September 30, 2006 was approximately $111,000. The following is a summary of principal due to/from related parties as of September 30, 2006: --------------------- -------------------------- -------------------------------- ------------------ Related party Nature of relationship Terms of the agreement Principal due to related parties --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ Scott Haire, an Chairman of the Board, Unsecured note dated July 11, $ 10,000 individual CEO and CFO of the 2005 for $10,000 at 10% per Company annum, due on December 31, 2006. --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ HEB, LLC Controlled by Scott Series of funds advanced under 576,947 Haire, Chairman two separate, unsecured $1 President, CEO and million lines of credit dated CFO of the company. November 26, 2003 and November 4, 2004, both at 10% per annum; no maturity date, interest payable quarterly; unused lines available at September 30, 2006 total $1,423,053. --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ Araldo Cossutta, an Director and Series of unsecured notes 367,000 individual shareholder of the bearing interest at 10% per Company annum, maturing through December 31, 2006. --------------------- -------------------------- -------------------------------- ------------------ --------------------- -------------------------- -------------------------------- ------------------ eAppliance Payment Controlling owners in Note dated January 1, 2004 for 2,410 Solutions, LLC eAppliance Payment $2,410 at 10% per annum due Solutions, LLC are on December 31, 2006. Araldo Cossutta and Scott Haire --------------------- -------------------------- -------------------------------- ------------------ $ 956,357 --------------------- -------------------------- -------------------------------- ------------------

14 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 changes in the Company's internal controls or in the other factors that could affect those controls since the most recent evaluation of such controls. 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: November 13, 2006 /s/ Scott A. Haire ------------------ Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (Principal Financial Officer) 15