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, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File No. 0-11808
MB SOFTWARE CORPORATION
Texas 59-2220004
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2225 E. Randol Mill Road - Suite 305
Arlington, Texas 76011-6306
(817) 633-9400
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of March 31, 2005, 14,921,432 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, 20045
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 2005 (Unaudited)....................3
Consolidated Statements of Operations for the three months ended
March 31, 2005and 2004 (Unaudited).....................................4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004 (Unaudited)....................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.............8
ITEM 3. CONTROLS AND PROCEDURES...............................................11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................12
ITEM 2. Changes in Securities and Use of Proceeds.............................12
ITEM 3. Defaults Upon Senior Securities.......................................12
ITEM 4. Submission of Matters to a Vote of Security Holders...................12
ITEM 5. Other Information.....................................................12
ITEM 6. Exhibits..............................................................12
SIGNATURE.....................................................................12
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
- ------
Current Assets
Cash $ 2,781
Accounts receivable 23,930
Inventory 90,030
Prepayments 112,512
------------
Total current assets 229,253
Fixed assets, net 79,063
Other assets - patents 75,000
Security deposits 15,693
------------
Total Assets $ 399,009
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
- ----------------------------------------
Current liabilities
Accounts payable and other accruals $ 132,574
Payroll tax liabilities 84,445
Obligation under capital lease - current portion 4,092
Due to related parties 309,601
------------
Total current liabilities 530,712
Long-term liabilities
Obligation under capital lease - noncurrent portion 5,217
------------
Total Liabilities 535,929
Stockholders' Deficiency
Preferred stock, $10 par value, 5,000,000 shares authorized;
issued and outstanding none --
Common stock: $0.001 par value; 20,000,000 shares authorized;
issued and outstanding: 14,921,432 14,921
Stock subscription 221,971
Additional paid-in capital 15,159,637
Accumulated deficit (15,521,410)
------------
(124,881)
Less: treasury stock, at cost; 4,089 shares (12,039)
------------
Total stockholders' deficiency (136,920)
------------
Total Liabilities and Stockholders' Deficiency $ 399,009
============
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)
- --------------------------------------------------------------------------------
2005 2004
------------ ------------
Revenues $ 56,261 $ --
Cost of revenues 53,363 --
------------ ------------
Gross margin 2,898 --
Selling, general and administrative 172,497 25,495
------------ ------------
Loss from operations (169,599) (25,495)
Other income (expense), net (7,406) --
------------ ------------
Loss before provision for income taxes (177,005) (25,495)
Provision for income taxes -- --
------------ ------------
Loss from continuing operations (177,005) (25,495)
Discontinued operations
Operating loss -- (60,653)
------------ ------------
Net loss $ (177,005) $ (86,148)
============ ============
Basic and diluted loss per share:
Continuing operations $ (0.01) $ --
Discontinued operations -- (0.01)
------------ ------------
$ (0.01) $ (0.01)
============ ============
Weighted average common shares outstanding 14,921,432 5,822,810
============ ============
See condensed notes to consolidated financial statements.
4
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
- --------------------------------------------------------------------------------
2005 2004
--------- ---------
Cash flows from operatwing activities
- -------------------------------------
Net loss $(177,005) $ (86,148)
Adjustments to reconcile net loss from to net cash used in operating activities
Depreciation and amortization 2,002 5,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (3,844) --
(Increase) decrease in inventory 5,270 --
(Increase) decrease in prepaid expenses and other assets (112,512) (1,588)
Increase (decrease) in accounts payable and accrued liabilities 65,123 28,174
--------- ---------
Net cash flows used in operating activities (220,966) (54,562)
Cash flows from investing activities
- ------------------------------------
Cash paid for intangible assets (75,000) (50,000)
Purchase of fixed assets (26,144) (13,626)
--------- ---------
Net cash flows used in investing activities (101,144) (63,626)
Cash flows from financing activities
- ------------------------------------
Cash overdraft -- 1,049
Proceeds from new borrowings -- 25,000
Net advances - related parties 318,025 91,754
Principal payments under capital lease (1,023) --
--------- ---------
Net cash flows provided by financing activities 317,002 117,803
--------- ---------
Increase (decrease) in cash (5,108) (385)
Cash and cash equivalents, beginning of period 7,889 385
--------- ---------
Cash and cash equivalents, end of period $ 2,781 $ --
========= =========
Cash paid during the year for:
- ------------------------------
Interest -- $ 13,354
========= =========
Income taxes -- --
========= =========
See condensed notes to consolidated financial statements.
5
MB SOFTWARE CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
of America for interim financial information and with the instructions to Form
10-QSB and Rule 10-01 of Regulation S-X. They do not include all information and
notes required by generally accepted accounting principles in the United States
of America for complete financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have been made.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results may differ from these estimates. The results of
operations for the period ended March 31, 2005 are not necessarily indicative of
the operating results that may be expected for the entire year ending December
31, 2005. These financial statements should be read in conjunction with the
Management's Discussion and Analysis included in the Company's financial
statements and accompanying notes thereto as of and for the year ended December
31, 2004, filed with the Company's Annual Report on Form 10-KSB
Certain financial information for the prior period has been reclassified to
conform to the current period's presentation.
NOTE 2: GOING CONCERN
The financial statements have been prepared on a going concern basis, which
contemplates realization of assets and liquidation of liabilities in the
ordinary course of business. The Company has continuously incurred losses from
operations and has a significant accumulated deficit. The appropriateness of
using the going concern basis is dependent upon the Company's ability to obtain
additional financing or equity capital and, ultimately, to achieve profitable
operations. These conditions raise substantial doubt about its ability to
continue as a going concern.
It is the Company's belief that it will continue to incur losses for at least
the next twelve months, and as a result will require additional funds from debt
or equity investments to meet such needs. To meet these objectives, management's
plans are to (i) raise capital by obtaining financing from debt financing and /
or equity financing through private placement efforts, (ii) issue common stock
for services rendered in lieu of cash payments and (iii) obtain loans from
shareholders as necessary. Without realization of additional capital or
significant revenues from operations, it would be unlikely for the Company to
continue as a going concern. The Company anticipates that its shareholders will
contribute sufficient funds to satisfy the cash needs of the Company for the
next twelve months. However, there can be no assurances to that effect, as the
Company has minimal revenues and the Company's need for capital may change
dramatically if it is successful in expanding its current business or acquiring
a new business. If the Company cannot obtain needed funds, it may be forced to
curtail or cease its activities.
Management believes that actions presently taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern. The Company's future ability to achieve these
objectives cannot be determined at this time. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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NOTE 3: RELATED PARTY TRANSACTIONS
Due to related parties represent funds advanced from various entities controlled
by the president of this Company, and other majority shareholders, as necessary,
to meet working capital requirements. The advances bear interest at 10% per
annum, are unsecured and repayable on demand.
NOTE 4: OTHER ASSETS - PATENTS
Other assets represent cash amounts paid by the Company to maintain its right to
acquire certain patents related to the hydrolyzed Type I form of collagen used
within gel, powder, paste and film collagen would dressing compositions. The
total cash exercise price of the patent and related intellectual property is
$5,100,000 and the Company pays $75,000 per year as an option fee to to maintain
its rights to purchase the said property.
NOTE 5: DISCONTINUED OPERATIONS
The Company disposed of its wholly-owned subsidiary, MB Holding Corporation
("MBH") in December 2004. MBH, through its wholly-owned subsidiary Envoii
Healthcare L.L.C., developed a system for transmitting electronic documents in a
secure environment.
Condensed results of operations included in discontinued operations are as
follows:
Revenues $ 10,717
Expenses (71,370)
-----------
Operating loss $ 60,653
===========
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS/RISK FACTORS
The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto and the other financial information
appearing elsewhere in this document. In addition to historical information, the
following discussion and other parts of this document contain certain
forward-looking information. When used in this discussion, the words "believes,"
"anticipates," "expects," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected due to a number of factors beyond our control. The Company does not
undertake to publicly update or revise any of its forward-looking statements
even if experience or future changes show that the indicated results or events
will not be realized. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. You are also
urged to carefully review and consider our discussions regarding the various
factors, which affect our business, included in this section and elsewhere in
this report.
Factors that might cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements
include, among other things: (i) the impact of competitive products; (ii)
changes in law and regulations; (iii) adequacy and availability of insurance
coverage; (iv) limitations on future financing; (v) increases in the cost of
borrowings and unavailability of debt or equity capital; (vi) the effect of
adverse publicity regarding our products; (vii) the inability of the Company to
gain and/or hold market share; (viii) exposure to and expense of resolving and
defending product liability claims and other litigation; (ix) consumer
acceptance of the Company's products; (x) managing and maintaining growth; (xi)
customer demands; (xii) market and industry conditions including pricing and
demand for products, (xiii) the success of product development and new product
introductions into the marketplace; (xiv) the departure of key members of
management; (xv) the ability of the Company to efficiently market its products;
as well as other risks and uncertainties that are described elsewhere in this
report and from time to time in the Company's filings with the Securities and
Exchange Commission.
RISK FACTORS
We have sought to identify what we believe to be the most significant risks to
our business. However, we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business. These are factors that
we think could cause our actual results to differ materially from expected
results. Other factors besides those listed here could affect us.
Lack of Operating History
- -------------------------
We acquired Wound Care in August of 2004 and we have only a limited operating
history with which you can evaluate our current business model and our prospects
and the historical financial data may be of limited value in evaluating our
future revenue and operating expenses. Further, you may lose your investment if
we are unable to successfully market our services and implement our business
plan. We have not been profitable to date. Even if we become profitable in the
future, we cannot accurately predict the level of, or our ability to sustain
profitability. Because we have not yet been profitable and cannot predict any
level of future profitability, you bear the risk of a complete loss of your
investment in the event our business plan is unsuccessful.
8
Inability to Obtain Funding
- ---------------------------
We may not be able to obtain additional funding when needed, which could limit
future expansion and marketing opportunities, as well as result in lower than
anticipated revenues. We may require additional financing to pursue
relationships with other business opportunities. If the market price of the
common stock declines, some potential financiers may either refuse to offer us
any financing or will offer financing at unacceptable rates or unfavorable
terms. If we are unable to obtain financing on favorable terms, or at all, this
unavailability could prevent us from expanding our business, which could
materially impact our future potential revenues.
Sole Source of Products
- -----------------------
Applied Nutritionals holds the patent to, and is currently the sole source of
our products. In the event Applied Nutritionals was not able to fulfill our
product orders, we would be prevented from marketing and selling our products
into the market and we would be unable to conduct business.
OVERVIEW
- --------
The Company currently has limited business operations, maintaining leased
offices in Arlington, Texas, and Fort Lauderdale Florida. Business activities
currently include sales and marketing activities of our wound care products
through certain exclusive and nonexclusive distribution rights of
CellerateRX(TM) products. The product is a collagen-based wound care product
line based upon a patented molecular form of collagen. Wound Care's distribution
rights for these products are exclusive in the domestic medical, retail,
government and first aid human use would care markets, as well as in several
international markets. Our products are FDA cleared for marketing for the
following indications: Pressure ulcers, diabetic ulcers, surgical wounds, ulcers
due to arterial insufficiency, traumatic wounds, 1st and 2nd degree burns, and
superficial wounds. We believe that our products are unique in composition,
applicability, clinical performance, and demonstrate the ability to reduce costs
associated with standard wound management.
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO MARCH 31, 2004
------------------------------------------------------------
Results of Operations
- ---------------------
Revenues, Cost of Sales and Gross Margin. The Company generated revenues of
approximately $56,000 for the three months ended March 31, 2005, through its
wholly-owned subsidiary Wound Care Innovations, LLC, ("WCI"), which it acquired
in August 2004. Costs of sales approximated $53,000 and ross margin as a
percentage of sales approximated 5%, which approximates the historical gross
margin since the Company's acquisition of WCI. There were no revenues for the
same period in 2004. (See discontinued operations caption.)
Selling, general and administrative expenses ("SGA"). SGA for the three months
ended March 31, 2005 approximated $172,500 compared to $25,500 for the same
period in 2004, an increase of $147,000. Approximately $132,500 of the increase
in expenses is comprised of WCI's operations. Major contributors to WCI's SGA
expenses are (approximations) wages of $75,000 for 3 employees in Florida, rent
of $17,000, and legal fees of $7,000. Major expenses related to the registrant
were rent fort the Company's Arlington, Texas offices of $11,000 and
professional fees paid in connection with the company's SEC reporting
requirements of $15,000. SGA for the three months ended March 31, 2004 were
mainly comprised of professional fees paid in connection with the company's SEC
reporting requirements and other corporate matters amounting to $23,000
Discontinued Operations. The Company disposed of its wholly-owned subsidiary, MB
Holding Corporation ("MBH") in December 2004. MBH, through its wholly-owned
subsidiary Envoii Healthcare L.L.C., developed a system for transmitting
electronic documents in a secure environment. Included in discontinued
operations for the three months ended March 31, 2004 was revenues of $10,717 and
expenses of $71,370.
9
Liquidity and Capital Resources
- -------------------------------
The Company currently has limited resources to maintain its current operations,
secure more inventory, and meet its contractual obligations. Additional capital
must be raised immediately through equity or debt offerings. If we are unable to
obtain additional capital, we will be unable to operate our business. The
Company has continuously incurred losses from operations and has a significant
accumulated deficit. The appropriateness of using the going concern basis is
dependent upon the Company's ability to obtain additional financing or equity
capital and, ultimately, to achieve profitable operations. These conditions
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company also has minimal revenues and a negative cash flow from operating
activities. The Company currently relies on its majority shareholders to fund
operating expenses as necessary. It is the Company's belief that it will
continue to incur losses for at least the next twelve months, and as a result
will require additional funds from debt or equity investments to meet such
needs. To meet these objectives, management's plans are to (i) raise capital by
obtaining financing from debt financing and / or equity financing through
private placement efforts, (ii) issue common stock for services rendered in lieu
of cash payments and (iii) obtain loans from shareholders as necessary.
Without realization of additional capital or significant revenues from
operations, it would be unlikely for the Company to continue as a going concern.
The Company anticipates that its majority shareholders will contribute
sufficient funds to satisfy the cash needs of the Company for the next twelve
months. However, there can be no assurances to that effect, as the Company has
minimal revenues and the Company's need for capital may change dramatically if
it is successful in expanding its current business or acquiring a new business.
If the Company cannot obtain needed funds, it may be forced to curtail or cease
its activities. Our future funding requirements will depend on numerous factors,
some of which are beyond the Company's control. These factors include our
ability to operate profitably, recruit and train management and personnel, and
to compete with other, better-capitalized and more established competitors.
The Company does not anticipate incurring significant research and development
costs, the purchase of any major equipment, or any significant changes in the
number of its employees over the next twelve months.
Plan of Operation
- -----------------
The Company's general business plan is to introduce CellerateRX products to
select national and regional healthcare provider organizations, and focus on
geographically-targeted marketing. Our products are currently being used by
providers of all types, and are getting to market through a variety of
distribution channels. Our products are currently approved for reimbursement
under Medicare Part B. As a consequence, the professional medical market is, and
will remain the primary focus of our marketing and sales efforts for the
immediate future.
The Company does not presently generate profits and expends approximately
$59,000.00 to $65,000.00 per month for working capital and general corporate
purposes, including any marketing expenses.
Products
CellerateRX Gel and Powder are our two primary products for the professional
healthcare market. Both products contain the patented form of collagen and can
be used on a variety of wounds, wound states, and phases. We believe that the
spectrum of use of our products allows us to market to a wide range of
customers, and enables us to pursue relationships with compatible product
companies for potential joint marketing activities. Our products are sold in gel
and powder form in a variety of configurations. Both products are sold,
physician ordered, and reimbursed (when applicable) by the gram.
10
Marketing, Sales, and Distribution
The Company anticipates building and supporting a limited sales and marketing
force directed toward securing key high profile accounts, penetrating select
geographic markets, and supporting the efforts of our resellers and
distributors. The wound care products market has a variety of overlapping
distribution channels, with many customers able to procure products in multiple
ways. With an intended limited force, our goal is to market directly to large
accounts and open distribution channels preferred by those clients, as well as
marketing through traditional online, offline, trade show and local activities.
Applied Nutritionals is our exclusive supplier of products. Packaging, inventory
management, and shipping activities are currently outsourced to Diamond Contract
Manufacturing, a non-affiliated entity who provides packaging, warehousing, and
fulfillment services from their Rochester, NY facilities.
R & D
We conduct our research and development activities, in conjunction with Applied
Nutritionals. Although our efforts are currently focused on marketing and
selling our current product lines, we anticipate that we will develop derivative
products, utilizing the patented form of collagen, for other markets and
applications.
Clinical Studies
Although no clinical studies are currently planned, we intend to conduct a
number of clinical studies for the purposes of quantifying the benefits of
CellerateRX. We anticipate planning study design and management during the
second quarter of 2005.
ITEM 3. CONTROLS AND PROCEDURES
The President, who is also the chief executive officer and the chief financial
officer of the Company, has concluded based on his evaluation as of a date
within 90 days prior to the date of the filing of this Report, that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports filed or
submitted by it under the Securities Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and include controls and
procedures designed to ensure that information required to be disclosed by the
Company in such reports is accumulated and communicated to the Registrant's
management, including the president, as appropriate to allow timely decisions
regarding required disclosure.
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.
11
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 20, 2005 /s/ Scott A. Haire
---------------------------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
12