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