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, 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 September 30, 2005, 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, 2005
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
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................................................... 16
ITEM 6. Exhibits............................................................ 16
SIGNATURE................................................................... 16
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MB SOFTWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
(UNAUDITED)
ASSETS
- ------
Current Assets
Cash $ 9,219
Accounts receivable 25,153
Inventory 82,221
Prepayments 134,155
------------
Total current assets 250,748
Fixed assets, net 66,359
Security deposits 15,693
------------
Total Assets $ 332,800
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
- ----------------------------------------
Current liabilities
Accounts payable and other accruals $ 65,068
Payroll tax liabilities 134,908
Obligation under capital lease - current portion 4,092
Royalties payable, including accrued interest 165,851
Due to related parties 472,304
Accrued interest - related parties 24,078
------------
Total current liabilities 866,301
Long-term liabilities
Obligation under capital lease - noncurrent portion 3,170
------------
Total Liabilities 869,471
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
Additional paid-in capital 11,181,496
Accumulated deficit (11,722,273)
------------
(524,632)
Less: treasury stock, at cost; 4,089 shares (12,039)
------------
Total stockholders' deficiency (536,671)
------------
Total Liabilities and Stockholders' Deficiency $ 332,800
============
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)
(Restated) (Restated)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 2005 Sept. 30, 2004 Sept. 30, 2005 Sept. 30, 2004
-------------- -------------- -------------- --------------
Revenues $ 59,119 $ 45,122 $ 158,435 $ 121,304
Cost of revenues 39,285 (65,729) 115,609 114,297
-------------- -------------- -------------- --------------
Gross margin 19,834 (20,607) 42,826 7,007
Selling, general and administrative 130,094 838,211 421,744 1,463,852
Royalty expenses and related option fee 1,756 -- 238,379 --
-------------- -------------- -------------- --------------
Loss from operations (112,016) (858,818) (617,297) (1,456,845)
Other income (expense), net (11,112) (229) (29,770) (40,046)
-------------- -------------- -------------- --------------
Loss before provision for income taxes (123,128) (859,047) (647,067) (1,496,891)
Provision for income taxes -- -- -- --
-------------- -------------- -------------- --------------
Loss from continuing operations (123,128) (859,047) (647,067) (1,496,891)
Discontinued operations
Operating loss -- (56,592) -- (225,224)
-------------- -------------- -------------- --------------
Net loss $ (123,128) $ (915,639) $ (647,067) $ (1,722,115)
============== ============== ============== ==============
Basic and diluted loss per share:
Continuing operations $ (0.01) $ (0.15) $ (0.04) $ (0.26)
Discontinued operations -- (0.01) -- (0.04)
-------------- -------------- -------------- --------------
$ (0.01) (0.16) $ (0.04) $ (0.30)
============== ============== ============== ==============
Weighted average common shares outstanding 16,454,432 5,822,810 15,524,498 5,822,810
============== ============== ============== ==============
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)
2005 2004
----------- -----------
Cash flows from operating activities
Net loss from continuing operations $ (647,067) $(1,496,891)
Adjustments to reconcile net loss from to net cash used in operating activities
Depreciation and amortization 6,005 1,528
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (5,067) (19,836)
(Increase) decrease in inventory 13,078 252,006
(Increase) decrease in prepaid expenses and other assets (61,254) (69,200)
Increase (decrease) in accounts payable and accrued liabilities 50,556 409,799
Increase (decrease) in royalties payable, including related accrued interest 163,378 --
----------- -----------
Net cash flows used in operating activities (480,371) (922,594)
Cash flows from investing activities
Purchase of fixed assets (17,445) (25,394)
----------- -----------
Net cash flows used in investing activities (17,445) (25,394)
Cash flows from financing activities
Cash overdraft -- 9,724
Net advances - related parties 502,216 853,862
Proceeds from unrelated party notes payable -- 70,000
Principal payments under capital lease (3,070) --
----------- -----------
Net cash flows provided by financing activities 499,146 933,586
----------- -----------
Increase (decrease) in cash 1,330 (14,402)
Cash and cash equivalents, beginning of period 7,889 14,402
----------- -----------
Cash and cash equivalents, end of period $ 9,219 $ --
=========== ===========
Cash paid during the period for:
Interest -- --
=========== ===========
Income taxes -- --
=========== ===========
See condensed notes to consolidated financial statements.
5
MB SOFTWARE CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 30, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States
of America for interim financial information and with the instructions to Form
10-QSB and Rule 10-01 of Regulation S-X. They do not include all information and
notes required by generally accepted accounting principles in the United States
of America for complete financial statements.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have been made.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Actual results may differ from these estimates. The results of
operations for the period ended September 30, 2005 are not necessarily
indicative of the operating results that may be expected for the entire year
ending December 31, 2005. These financial statements should be read in
conjunction with the Management's Discussion and Analysis included elsewhere in
this filing in addition to the Company's financial statements and accompanying
notes thereto as of and for the year ended December 31, 2004, as filed with the
Company's Annual Report on Form 10-KSB, as amended.
Certain financial information for the prior period has been reclassified to
conform to the current period's presentation.
On August 20, 2004, the Company consummated the acquisition of Wound Care
Innovations, LLC, ("WCI"), a Nevada limited liability company, through a merger
of WCI with the Company's wholly-owned subsidiary, Wcare Acquisition, LLC, a
Nevada limited liability company. WCI owns certain exclusive and nonexclusive
distribution rights to CellerateRxTM products, advanced collagen-based wound
care products based upon a patented molecular form of collagen. WCI's
distribution rights for these products are exclusive in the domestic medical,
retail, government and first aid human use wound care markets, as well as in
several international markets.
Transfers and exchanges of assets between companies under common control are
accounted for at historical cost in a manner similar to that in a pooling of
interests accounting. The excess of the cost of the asset acquired over the net
assets sold at their book values are charged to additional paid-in capital. The
Company's financial statements include the combined statements of financial
position, results of operations and cash flows for the entities merged. The
historical financial statements of the Company have been restated retroactively
for all periods presented as the entities were under common control during those
periods. All restated financial statements reflect the combined results of
operations and cash flows of the previously separate entities.
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.
6
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.
NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (Revised 2004) "Share-Based
Payment" ("SFAS No. 123R"). SFAS No. 123R addresses all forms of share-based
payment ("SBP") awards, including shares issued under employee stock purchase
plans, stock options, restricted stock and stock appreciation rights. SFAS No.
123R will require the Company to expense SBP awards with compensation cost for
SBP transactions measured at fair value. On March 29, 2005, the SEC issued Staff
Accounting Bulletin (SAB) 107 which expresses the views of the SEC regarding the
interaction between SFAS No. 123R and certain SEC rules and regulations and
provides the SEC's views regarding the valuation of share-based payment
arrangements for public companies. In April 2005, the SEC issued a release which
amends the compliance dates for SFAS No. 123R. We do not expect the adoption of
SFAS No. 123R and SAB 107 to have a material impact on the Company's financial
statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections". SFAS No. 154 replaces APB Opinion No. 20 "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements". SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. The adoption of SFAS No. 154 does affect our financial statements.
NOTE 4: 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
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.
7
NOTE 5: COMMITMENTS AND CONTINGENCIES
Purchase Option Agreement
Pursuant to A Purchase Option Agreement ("Option Agreement") with Applied
Nutritionals, LLC, ("AN") dated July 28, 2004, the Company has an exclusive
option for a period of five years to purchase certain patents related to the
hydrolyzed Type I form of collagen used within gel, powder, paste and film
collagen wound dressing compositions. The total cash exercise price of the
patent and related intellectual property is $5,100,000 and the Company is
entitled to pay $75,000 per year as an option fee to maintain its rights to
purchase the said property. The Company has the option to pay another $75,000 on
or before August 31, 2005 to retain its exclusive option pursuant to the Option
Agreement as well as other terms and conditions contained therein.
On April 18, 2005, the Company entered into a promissory note for $150,000 due
and payable to AN for unpaid royalties due under a Distribution Agreement
between AN and WCI dated July 28, 2004. The note, plus interest at 10% per annum
from September 30, 2004 ($8,754) was due in full on April 29, 2005. The Company
was unable to pay the note and is currently in default on the Agreement, thereby
losing its exclusive option to distribute the product under the original
Distribution Agreement. The Company is currently in negotiations to re-structure
the deal as it has determined it cannot meet the original terms of the
agreement. There is no assurance reasonable terms can be reached.
NOTE 6: RELATED PARTY TRANSACTIONS
A related party is generally defined as (i) any person that holds 10% or more of
the Company's securities and their immediate families, (ii) the Company's
management, (iii) someone that directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.
Funds are advanced from various entities controlled by the president of this
Company, and other majority shareholders, as necessary, to meet working capital
requirements. The advances bear interest at 10% per annum, are unsecured and
repayable on demand. Accrued interest due to related parties was $24,078 at
September 30, 2005.
Due to related parties at September 30, 2005 represents the following:
Related party Nature of relationship Description of transaction Amounts due to
related parties
- ------------------------------------- ------------------------------------- --------------------------- ---------------
HEB, LLC, a Nevada Limited Scott Haire, Chairman President, Series of funds advanced
Liability Company CEO and CFO of this company, for working capital
controls both entities financing purposes $ 232,894
and operating decisions
Araldo Cossutta, an individual Director and stockholder of the Series of funds advanced
Company for working capital 222,000
purposes
Richard Dahlson, an individual Director and stockholder of the Series of funds advanced
Company for working capital 15,000
purposes
eAppliance Payment Solutions, Controlling owners in eAppliance Series of funds advanced
LLC a Nevada Limited Liability Payment Solutions, LLC are the for working capital
Company President and one director of MB purposes 2,410
Software Corporation
---------------
$ 472,304
===============
8
NOTE 7: DISCONTINUED OPERATIONS
The Company disposed of its wholly-owned subsidiary, MB Holding Corporation
("MBH") in December 2004. MBH, through its wholly-owned subsidiary Envoii
Healthcare L.L.C., developed a system for transmitting electronic documents in a
secure environment. Condensed results of operations 6-30-2005 included in
discontinued operations are as follows:
Revenues $ 39,226
Expenses (264,450)
------------
Operating loss $ (225,224)
============
9
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.
10
Inability to Obtain Funding
- ---------------------------
We may not be able to obtain additional funding when needed, which could limit
future expansion and marketing opportunities, as well as result in lower than
anticipated revenues. We may require additional financing to pursue
relationships with other business opportunities. If the market price of the
common stock declines, some potential financiers may either refuse to offer us
any financing or will offer financing at unacceptable rates or unfavorable
terms. If we are unable to obtain financing on favorable terms, or at all, this
unavailability could prevent us from expanding our business, which could
materially impact our future potential revenues.
Sole Source of Products
- -----------------------
Applied Nutritionals holds the patent to, and is currently the sole source of
our products. In the event Applied Nutritionals was not able to fulfill our
product orders, we would be prevented from marketing and selling our products
into the market and we would be unable to conduct business.
OVERVIEW
The Company currently has limited business operations, maintaining leased
offices in Arlington, Texas, and Fort Lauderdale Florida. Business activities
currently include sales and marketing activities of our wound care products
through certain exclusive and nonexclusive distribution rights of
CellerateRX(TM) products. The product is a collagen-based wound care product
line based upon a patented molecular form of collagen. Wound Care's distribution
rights for these products are exclusive in the domestic medical, retail,
government and first aid human use wound care markets, as well as in several
international markets. Our products are FDA cleared for marketing for the
following indications: pressure ulcers, diabetic ulcers, surgical wounds, ulcers
due to arterial insufficiency, traumatic wounds, 1st and 2nd degree burns, and
superficial wounds. We believe that our products are unique in composition,
applicability, clinical performance, and demonstrate the ability to reduce costs
associated with standard wound management.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to bad debts, inventories, intangible assets, income
taxes and contingencies. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used or changes in the accounting estimate that are reasonably
likely to occur could materially change the financial statements.
We believe the following critical accounting policies reflect our more
significant estimates and assumptions used in the preparation of our
consolidated financial statements; however, management does not consider any of
the estimates and assumptions to be highly uncertain.
Allowance for Doubtful Accounts
We evaluate the collectibility of our trade receivables based on a combination
of factors. We regularly analyze our significant customer accounts, and, when we
become aware of a specific customer's inability to meet its financial
obligations to us, we record a specific reserve for bad debt to reduce the
related receivable to the amount we reasonably believe is collectible. The
11
allowances are calculated based on detailed review of certain individual
customer accounts. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. In the event that our accounts
receivables become uncollectible, we would be forced to record additional
adjustments to receivables to reflect the amounts at net realizable value. The
accounting effect of this entry would be a charge to income, thereby reducing
our net earnings. Although we consider the likelihood of this occurrence to be
remote based on past history and the current status of our accounts, there is a
possibility of this occurrence. There is no allowance for doubtful accounts at
September 30, 2005 as we deem all of our accounts receivable collectible.
Inventory
Our inventory purchases and commitments are made in order to build inventory to
meet future shipment schedules based on estimated demand for our products. We
perform a detailed assessment of inventory for each period, which includes a
review of, among other factors, demand requirements, product life cycle and
development plans, component cost trends, product pricing and quality issues.
Based on this analysis, we record adjustments to inventory for excess,
obsolescence or impairment, when appropriate, to reflect inventory at net
realizable value. Revisions to our inventory adjustments may be required if
actual demand, component costs or product life cycles differ from our estimates.
In the event we were unable to sell our products, the demand for our products
diminished, other competitors offered similar or better products, and/or the
product life cycles deteriorated causing quality issues, we would be forced to
record an adjustment to inventory for impairment or obsolescence to reflect
inventory at net realizable value. The effect of this entry would be a charge to
income, thereby reducing our net earnings. Although we consider the likelihood
of this occurrence to be remote based on our forecasted demand for our products,
there is a possibility of this occurrence
Income Taxes
SFAS 109, Accounting for Income Taxes, establishes financial accounting and
reporting standards for the effect of income taxes. The objectives of accounting
for income taxes are to recognize the amount of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in an entity's financial
statements or tax returns. Judgment is required in assessing the future tax
consequences of events that have been recognized in our financial statements or
tax returns. Variations in the actual outcome of these future tax consequences
could materially impact our financial position or our results of operations.
Contingencies
The outcomes of potential legal proceedings and claims brought against us are
subject to significant uncertainty. SFAS 5, Accounting for Contingencies,
requires that an estimated loss from a loss contingency such as a legal
proceeding or claim should be accrued by a charge to income if it is probable
that an asset has been impaired or a liability has been incurred and the amount
of the loss can be reasonably estimated. Disclosure of a contingency is required
if there is at least a reasonable possibility that a loss has been incurred. In
determining whether a loss should be accrued we evaluate, among other factors,
the degree of probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. Changes in these factors could
materially impact our financial position or our results of operations.
RESULTS OF OPERATIONS
Three And Nine Months Ended September 30, 2005 Compared To September 30, 2004
- -----------------------------------------------------------------------------
Revenues, Cost of Sales and Gross Margin. The Company generated revenues of
approximately $59,119 and $158,435. for the three and nine months ended
September 30, 2005, through its wholly-owned subsidiary Wound Care Innovations,
LLC, ("WCI"), which it acquired in August 2004. Costs of sales approximated
12
$39,285 and $115,609, for the three and nine months ended September 30, 2005,
and revenues of approximately $45,122 and $121,304 for the three and nine months
ended September 30, 2004. Overall, we have experienced relatively slow growth
and during our early years of operation.
Selling, general and administrative expenses ("SGA"). SGA for the three and nine
months ended September 30, 2005, approximated $130,094 and $421,744,
respectively, compared to $838,211 and $1,463,852, respectively, for the same
periods in 2004. Major contributors to SGA expenses are wages, rent, and
professional fees incurred in connection with our SEC reporting requirements.
Royalties Expense and related option fees
The Company incurs royalty fees based on a percentage of sales and fees to
maintain its exclusive option to its wound care product. The significant fees
incurred were $225,000 representing $150,000 due under the option agreement with
AN and $75,000 paid as an option fee to maintain the exclusive right to
distribute the product.
Discontinued Operations. The Company disposed of its wholly-owned subsidiary, MB
Holding Corporation ("MBH") in December 2004. MBH, through its wholly-owned
subsidiary Envoii Healthcare L.L.C., developed a system for transmitting
electronic documents in a secure environment. Included in discontinued
operations for the three and nine months ended September 30, 2004 were revenues
of $39,226 and expenses of $264,450 and $56,592, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has limited resources to maintain its current operations,
secure more inventory, and meet its contractual obligations. Additional capital
must be raised immediately through equity or debt offerings. If we are unable to
obtain additional capital, we will be unable to operate our business. The
Company has continuously incurred losses from operations and has a significant
accumulated deficit. The appropriateness of using the going concern basis is
dependent upon the Company's ability to obtain additional financing or equity
capital and, ultimately, to achieve profitable operations. These conditions
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
The Company also has insignificant revenues and a negative cash flow from
operating activities. The Company currently relies on income from operations and
its majority shareholders to fund operating expenses as necessary. It is the
Company's belief that it will continue to incur losses for at least the next
twelve months, and as a result will require additional funds from debt or equity
investments to meet such needs. To meet these objectives, management's plans are
to (i) raise capital by obtaining financing from debt financing and / or equity
financing through private placement efforts, (ii) issue common stock for
services rendered in lieu of cash payments and (iii) obtain loans from
shareholders as necessary.
Without realization of additional capital or significant revenues from
operations, it would be unlikely for the Company to continue as a going concern.
The Company anticipates that its majority shareholders will contribute
sufficient funds to satisfy the cash needs of the Company for the next twelve
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.
13
RELATED PARTY TRANSACTIONS
A related party is generally defined as (i) any person that holds 10% or more of
the Company's securities and their immediate families, (ii) the Company's
management, (iii) someone that directly or indirectly controls, is controlled by
or is under common control with the Company, or (iv) anyone who can
significantly influence the financial and operating decisions of the Company. A
transaction is considered to be a related party transaction when there is a
transfer of resources or obligations between related parties.
Funds are advanced from various entities controlled by the president of this
Company, and other majority shareholders, as necessary, to meet working capital
requirements. The advances bear interest at 10% per annum, are unsecured and
repayable on demand. Accrued interest due to related parties was $24,078 at
September 30, 2005.
Due to related parties at September 30, 2005 represents the following:
Due to related parties at September 30, 2005 represents the following:
Related party Nature of relationship Description of transaction Amounts due to
related parties
- ------------------------------------- ------------------------------------- --------------------------- ---------------
HEB, LLC, a Nevada Limited Scott Haire, Chairman President, Series of funds advanced
Liability Company CEO and CFO of this company, for working capital
controls both entities financing purposes $ 232,894
and operating decisions
Araldo Cossutta, an individual Director and stockholder of the Series of funds advanced
Company for working capital 222,000
purposes
Richard Dahlson, an individual Director and stockholder of the Series of funds advanced
Company for working capital 15,000
purposes
eAppliance Payment Solutions, Controlling owners in eAppliance Series of funds advanced
LLC a Nevada Limited Liability Payment Solutions, LLC are the for working capital
Company President and one director of MB purposes 2,410
Software Corporation
---------------
$ 472,304
===============
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 to $65,000 per month for working capital and general corporate purposes,
including any marketing expenses.
The Company is in default with Applied Nutritionals, LLC on the contract signed
July 28, 2004. We are currently in negotiations with Applied Nutritionals, LLC
on the default and continue to sell the product. The Company has no assurance
that contract can be re-negotiated at this time.
Products
CellerateRX Gel and Powder are our two primary products for the professional
healthcare market. Both products contain the patented form of collagen and can
be used on a variety of wounds, wound states, and phases. We believe that the
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spectrum of use of our products allows us to market to a wide range of
customers, and enables us to pursue relationships with compatible product
companies for potential joint marketing activities. Our products are sold in gel
and powder form in a variety of configurations. Both products are sold,
physician ordered, and reimbursed (when applicable) by the gram.
Marketing, Sales, and Distribution
The Company anticipates building and supporting a limited sales and marketing
force directed toward securing key high profile accounts, penetrating select
geographic markets, and supporting the efforts of our resellers and
distributors. The wound care products market has a variety of overlapping
distribution channels, with many customers able to procure products in multiple
ways. With an intended limited force, our goal is to market directly to large
accounts and open distribution channels preferred by those clients, as well as
marketing through traditional online, offline, trade show and local activities.
Applied Nutritionals is our exclusive supplier of products. Packaging, inventory
management, and shipping activities are currently outsourced to Diamond Contract
Manufacturing, a non-affiliated entity who provides packaging, warehousing, and
fulfillment services from their Rochester, NY facilities.
R & D
We conduct our research and development activities, in conjunction with Applied
Nutritionals. Although our efforts are currently focused on marketing and
selling our current product lines, we anticipate that we will develop derivative
products, utilizing the patented form of collagen, for other markets and
applications.
Clinical Studies
We begin clinical studies during the second quarter of 2005, no quantifying
benefits of Celebrate RX have been published as of this date but the company
will continue to conduct theses studies will published the results upon
completion of the studies.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to the Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, Scott Haire.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer has concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file under the Exchange Act is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
There were no 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
15
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: December 20, 2005 /s/ Scott A. Haire
--------------------------------------
Scott A. Haire, Chairman of the Board,
Chief Executive Officer and President
(Principal Financial Officer)
16