U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2008 [ ] 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) 777 Main Street Suite 3100 Fort Worth, Texas 76102 (Address of principal executive offices) (817) 820-7080 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated Accelerated Non-accelerated Smaller reporting filer [ ] filer [ ] filer [ ] company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of April 28, 2008, 17,095,692 shares of the Issuer's $.001 par value common stock were outstanding.
MB SOFTWARE CORPORATION AND SUBSIDIARY Form 10-Q Quarter Ended March 31, 2008 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Consolidated Balance Sheets as of March 31, 2008 (Unaudited) December 31, 2007 (Audited).........................................3 Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007 (Unaudited)....................................5 Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (Unaudited)....................................6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................................9 ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............13 ITEM 4T. CONTROLS AND PROCEDURES..............................................13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings.....................................................13 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds...........13 ITEM 3. Defaults Upon Senior Securities.......................................14 ITEM 4. Submission of Matters to a Vote of Security Holders...................14 ITEM 5. Other Information.....................................................14 ITEM 6. Exhibits..............................................................14 SIGNATURE.....................................................................14 2
<TABLE> <CAPTION> PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS MB SOFTWARE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- UNAUDITED AUDITED ASSETS March 31, 2008 December 31, 2007 - ------ ------------ ------------ <S> <C> <C> CURRENT ASSETS: Cash $ 406,327 $ 781 Accounts Receivable, less doubtful accounts 28,089 24,668 Notes Receivable - Related Parties 542,950 81,650 Inventory, less reserve for obsolescence 248,682 263,276 ------------ ------------ Total current assets 1,226,048 370,375 Property and Equipment, Net 22,252 23,335 Other Assets 12,020 12,020 ------------ ------------ TOTAL ASSETS $ 1,260,320 $ 405,730 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Accounts payable $ 59,295 $ 110,107 Accrued liabilities 326,649 326,649 Accrued interest-related parties 271,345 274,680 Notes payable 710,000 10,000 Note payable -related parties 214,380 1,498,074 ------------ ------------ Total current liabilities 1,581,669 2,219,510 Long Term Liabilities -- -- ------------ ------------ TOTAL LIABILITIES 1,581,669 2,219,510 Stockholders' Deficiency Preferred stock, $10 par value, 5,000,000 shares authorized; 1,490.196 issued and outstanding as of March 31, 2008 and 1,000 outstanding as of December 31, 2007 14,902 10,000 3
Common stock: $0.001 par value; 20,000,000 shares authorized; 17,099,781 issued and 17,095,692 outstanding as of March 31, 2008 and 16,145,432 issued and 16,141,343 outstanding as of December 31, 2007 17,099 16,145 Additional paid-in capital 13,011,304 11,171,496 Treasury Stock (12,039) (12,039) Accumulated deficit (13,352,615) (12,999,382) ------------ ------------ Total stockholders deficiency (321,349) (1,813,780) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' $ 1,260,320 $ 405,730 DEFICIENCY ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 4
MB SOFTWARE CORPORATION AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31: - -------------------------------------------------------------------------------- REVENUES: 2008 2007 ------------ ------------ Total Revenue $ 63,270 $ 83,941 COST OF SALES: 148,236 26,999 ------------ ------------ Gross Profit/(Loss) (84,966) 56,942 GENERAL AND ADMINISTRATIVE EXPENSES: General and Administrative Expenses 271,602 202,102 ------------ ------------ LOSS FROM CONTINUING OPERATIONS: (356,568) (145,160) OTHER INCOME (Expenses): Interest (expense) (13,406) (28,093) Interest Income 16,741 -- ------------ ------------ Total Other Income/(Expense) 3,335 (28,093) LOSS BEFORE INCOME TAXES $ (353,233) $ (173,253) Current tax expense -- -- Deferred tax expense -- -- ------------ ------------ NET LOSS $ (353,233) $ (173,253) Basic and diluted loss per share of common stock: $ (0.02) $ (0.01) Weighted average number of common shares outstanding 16,844,585 16,141,343 The accompanying notes are an integral part of these consolidated financial statements. 5
MB SOFWARE CORPORATION AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31: - -------------------------------------------------------------------------------- 2008 2007 ----------- ----------- Cash flows from operating activities - ------------------------------------ Net loss from continuing operations $ (353,233) $ (173,253) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 1,084 2,168 Stock paid for services 50,000 -- Changes in assets and liabilities: (Increase) decrease in accounts receivable (3,421) 2,641 (Increase) decrease in inventory 14,593 18,731 (Increase) decrease in prepaid expenses and other assets -- (133,967) Increase (decrease) in accounts payable and accrued liabilities (50,812) 130,523 Increase (decrease) in royalties payable, including related accrued interest (3,335) 28,093 ----------- ----------- Net cash flows used in operating activities (345,124) (125,064) Cash flows from investing activities - ------------------------------------ Net Increase in line of credit - Related Party (461,300) -- ----------- ----------- Net cash flows used in investing activities (461,300) -- Cash flows from financing activities - ------------------------------------ Net advances - related parties-line of credit 211,970 17,449 Proceeds from unrelated party notes payable 700,000 -- Sale of stock for cash 300,000 -- ----------- ----------- Net cash flows provided by financing activities 1,211,970 17,449 Increase (decrease) in cash 405,546 (107,615) Cash and cash equivalents, beginning of period 781 236,301 ----------- ----------- Cash and cash equivalents, end of period 406,327 128,686 =========== =========== Cash paid during the period for: - -------------------------------- Interest -- -- Income taxes -- -- Supplemental Non-cash investing and financing activities: For the three months ended March 31, 2008: The Company issued 490.196 shares of Series A Preferred stock for debt reduction of $1,495,664 For the three months ended March 31, 2007: None </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 6
MB SOFTWARE CORPORATION AND SUBSIDIARY QUARTER ENDED MARCH 31, 2008 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1- BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. They do not include all information and notes required by accounting principles generally accepted 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, 2008 are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2008. These financial statements should be read in conjunction with the Management's Discussion and Analysis and with the Company's financial statements and accompanying notes thereto as of and for the year ended December 31, 2007, filed with the Company's Annual Report on Form 10-K. 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. 7
<TABLE> <CAPTION> MB SOFTWARE CORPORATION AND SUBSIDIARY QUARTER ENDED MARCH 31, 2008 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 3 - CURRENT NOTES PAYABLE Accrued Total Interest Debt -------- ---- <S> <C> <C> Island Capital $ 358 $ 10,000 Investment Firm, unsecured, payable on March 31, 2008 including interest at 10% per annum, currently in default 9,333 700,000 ======== ======== $ 9,691 $710,000 ======== ======== NOTE 4 - RELATED PARTY NOTES PAYABLE AND OTHER TRANSACTIONS Notes Payable Funds are advanced from various related parties including the Company's President and CEO/CFO. Other shareholders fund the Company as necessary to meet working capital requirements and expenses. The advances are made pursuant to a note agreement that bears interest at 10% per annum, payable quarterly, and with maturity dates through March 31, 2008 per the table below. All notes are current liabilities and some of the notes are currently in default. Accrued interest due to related parties included in accrued liabilities as of March 31, 2008 was approximately $271,345. The following is a summary of amounts due to / from related parties as of March 31, 2008: Related party Nature of relationship Terms of the agreement Amounts due to related parties - ------------------------- ----------------------------- ----------------------------------------------- ----------------- HEB, LLC, a Nevada Scott Haire, is a Series of funds advanced under two separate, $ 211,970 Limited Liability one-percent unsecured $1 million lines of credit dated Company Member, but the managing November 26, 2003 and November 4, 2004, member of HEB, LLC both at 10% per annum; no maturity date, interest payable quarterly; unused lines available at March 31, 2008 total $1,788,030. eAppliance Payment Controlling owners in Note dated January 1, 2004 for $2,410 at Solutions, LLC a Nevada eAppliance Payment 10% per annum; $10,000 line of credit. 2,410 Limited Liability Solutions, LLC are Cossutta Company and Haire ---------- $ 214,380 ========== </TABLE> Notes Receivable During January 2008, the Company extended a Line of Credit to HEB, LLC in the amount of $1,000,000. Interest is accrued on outstanding balances at 10% per annum. At March 31, 2008 the amount advanced and receivable on the Line was $542,950, with interest income of $16,741 and $0 for the three months ended March 31, 2008 and 2007 respectively. 8
NOTE 5- STOCK ISSUANCES Effective January 1, 2008 the Company issued 490.196 shares of $10.00 par value preferred stock for related party debt totaling $1,495,664 or $3,051.15 per share. The following notes payable and lines of credit were converted: Scott Haire $10,000 note dated July 11, 2005, at 10% per annum, due December 31, 2008; Araldo Cossutta six separate, unsecured notes as follows: (i)$75,000 note dated September 30, 2004, at 10% per annum, due December 31, 2008; (ii)$80,000 note dated September 14, 2005, at 10% per annum, due December 31, 2008; (iii) $350,000 note dated October 15, 2007 at 10% per annum, due December 31, 2008; (iv) $42,000 note dated April 5, 2005 at 10% per annum, due December 31, 2008; (v) $50,000 note dated January 4, 2006, at 10% per annum , due December 31, 2008 and (vi) $50,000 note dated January 31, 2006 due December 31, 2008. Series of funds advanced $338,664 under two separate, unsecured $ 1 million lines of credit dated November 26, 2003 and November 4, 2004, both from HEB, LLC at 10% per annum; no maturity date, interest payable quarterly; unused lines available at December 31, 2007 total $211,970 (see note 4). Keystone Equity Partners Investors note dated December 14, 2006 for $500,000 at 10% per annum; due December 31, 2008. On January 11, 2008, the Company issued 86,702 shares of common stock for cash of $50,000 or $.58 per share. On January 21, 2008, the Company issued 500,000 shares of common stock for services valued at $50,000 or $.10 per share. On January 31, 2008, the Company entered into a subscription agreement to issue 367,647 shares of common stock for cash of $250,000 or $.68 per shares. The Company has received payment on the agreement but hasn't issued the stock as of March 31, 2008. NOTE 6-SUBSEQUENT EVENTS None ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Management's discussion and analysis of results of operations and financial condition 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 9
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 condition. 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. 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 Our current focus is developing and marketing products for the advanced wound care market, as pursued through our wholly-owned subsidiary, Wound Care Innovations, LLC, a Nevada limited liability company. We hold the exclusive worldwide license to certain patented technologies and processes related to an advanced collagen based wound care product formulation, which we market under the brand name "CellerateRx(TM)". These 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. Our CellerateRx products are currently marketed to and being used by wound care providers of all types. These products are also approved for reimbursement under Medicare Part B and as a consequence, the professional medical market is, and will remain the primary focus of our marketing and sales efforts for the immediate future. We believe that these products are unique in composition, applicability, clinical performance, and demonstrate the ability to reduce costs associated with standard wound management. We currently have limited business operations, maintaining leased offices in Fort Worth, Texas and Fort Lauderdale, Florida. All of our major business functions are performed by our subsidiary, Wound Care Innovations, LLC. Although Wound Care Innovations is a product distributor, it is also responsible for product packaging development, packaging materials, and coordination of all processes except the actual manufacturing of the product. Wound Care Innovations also conducts other activities that are typical of a product distributor, including sales, marketing, customer service, and customer support. All of these activities are run and managed out of Wound Care Innovations' Fort Lauderdale offices. 10
Manufacturing of our products is conducted by Applied Nutritionals. CellerateRx is a trademark of Applied Nutritionals, LLC. Warehousing, shipping, and physical inventory management is outsourced to Diamond Contract Manufacturing of Rochester, NY. Our sales and marketing activities to date have been limited and have resulted in a nominal revenue stream. Through these activities, we have, however, secured product evaluations with a number of key accounts. These accounts are regional and national healthcare provider organizations that represent strong recurring revenue opportunities for the Company. We currently intend to secure capital resources for expansion of staff, inventories, marketing efforts, and research and development; however we may be unsuccessful in our efforts to secure such capital. If we are successful in raising capital, we anticipate hiring a number of management, marketing, and clinical staffs 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 March 31, 2008 and 2007 Revenues. The Company generated revenues for the three months ended March 31, 2008 of $63,270 (2007: $83,941), a decrease of approximately 25% from the same period in 2007. Cost of revenues and gross margin. Costs of revenues for 2008 were $148,236 (2007: $26,999) resulting in a gross margin/(loss) of ($84,966) (2007: $56,942). Selling, general and administrative expenses ("SGA"). SGA for 2008 were $270,518 (2007: $202,102) consisting primarily of wages, enhanced product promotions, facility-related expenses, 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. LIQUIDITY AND CAPITAL RESOURCES The Company currently has limited resources to maintain its current operations, secure more inventories, and meet its contractual obligations. Additional capital must be raised through equity or debt offerings. If we are unable to obtain additional capital, we will be unable to operate our business. Effective January 1, 2008, $1,495,664 of Company debt was cancelled in exchange for 490.196 shares of our Series A Convertible Preferred stock. Effective January 11, 2008, we received $50,000 from the sale and issuance of 86,207 shares of our common stock and warrants to purchase common stock, and an additional $700,000 from the sale and issuance of a convertible promissory note. On January 31, 2008, the Company received $250,000 from the sale of 367,647 shares of common stock. Without realization of additional capital or significant revenues from operations, it would be unlikely for the Company to continue as a going concern. The consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and liquidation of liabilities in the ordinary course of business. The Company has continuously incurred losses from operations and has a significant accumulated deficit. The appropriateness of using the going concern basis is dependent upon the Company's ability to obtain additional financing or equity capital and, ultimately, to achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty and should not be regarded as typical for normal operating periods. It is the Company's belief that it will continue to incur nominal losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. The Company anticipates that its officers and shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has insignificant revenues and the Company's need for capital may change dramatically if it is successful in acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. Our future funding requirements will 11
depend on numerous factors, some of which are beyond the Company's control. These factors include our ability to operate profitably, recruit and train management and personnel, and to compete with other, better-capitalized and more established competitors. To meet these objectives, management's plans are to (i) raise capital by obtaining financing through private placement efforts, (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from officers and shareholders as necessary. 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. GOING CONCERN 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. It is the Company's belief that it will continue to incur nominal losses for at least the next twelve months, and as a result will require additional funds from debt or equity investments to meet such needs. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company anticipates that its officers and shareholders will contribute sufficient funds to satisfy the cash needs of the Company for the next twelve months. However, there can be no assurances to that effect, as the Company has insignificant revenues and the Company's need for capital may change dramatically if it is successful in acquiring a new business. If the Company cannot obtain needed funds, it may be forced to curtail or cease its activities. To meet these objectives, management's plans are to (i) raise capital by obtaining financing through private placement efforts; (ii) issue common stock for services rendered in lieu of cash payments and (iii) obtain loans from officers and shareholders as necessary. 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 and should not be regarded as typical for normal operating periods. Contractual Obligations (Commitments And Contingencies) Operating leases The Company leases office space and office equipment under an operating lease expiring in various years through 2009. Rental expense charged to operations for the three months ended March 31, 2008, was approximately $12,400 (2007: $19,000). Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of 1 year as of March 31, 2008, for each of the next two years and in the aggregate are as follows (approximately): 2009 $ 39,000 2010 -- -------- $39,000 ======== Federal Payroll Taxes The Company is delinquent in the payment of its payroll tax liabilities with the Internal Revenue Service. As of March 31, 2008, unpaid payroll taxes total approximately $203,000. The Company has estimated the related penalties and interest at approximately $123,000 computed through March 31, 2008, which are included in current liabilities at March 31, 2008. The Company expects to pay these delinquent payroll tax liabilities as soon as possible. The final amount 12
due will be subject to the statutes of limitations related to such liabilities and to negotiations with the Internal Revenue Service. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, we are not required to provide this information. ITEM 4T. CONTROLS AND PROCEDURES CONTROLS AND PROCEDURES As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer, who is also the principal financial officer, of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the principal executive officer/principal financial officer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING During the first quarter of 2008, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our chief executive officer and chief financial officer concluded that our internal control over financial reporting was effective as of March 31, 2008. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings - None ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds Effective January 1, 2008, $1,495,664 of Company debt was cancelled in exchange for 490.196 shares of our Series A Convertible Preferred stock. Effective January 11, 2008, we received $50,000 from the sale and issuance of 86,207 shares of our common stock and warrants to purchase common stock, and an additional $700,000 from the sale and issuance of a convertible promissory note. January 31, 2008, the Company received $250,000 from the sale of 367,697shares of common stock. The foregoing issuance of the shares of our common stock, the convertible promissory notes and the warrants described above were made in private transactions or private placements intending to meet the requirements of one or more exemptions from registration. In addition to any noted exemption below, we relied upon Regulation D and Section 4(2) of the Securities Act of 1933, as amended (the "Act"). The investors were not solicited through any form of general solicitation or advertising, the transactions being non-public offerings, and the sales were conducted in private transactions where the 13
investor identified an investment intent as to the transaction without a view to an immediate resale of the securities; the shares were "restricted securities" in that they were both legended with reference to Rule 144 as such and the investors identified they were sophisticated as to the investment decision and in most cases we reasonably believed the investors were "accredited investors" as such term is defined under Regulation D based upon statements and information supplied to us in writing and verbally in connection with the transactions. We have never utilized an underwriter for an offering of our securities and no sales commissions were paid to any third party in connection with the above-referenced sales. 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 Pursuant to the requirements of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MB SOFTWARE CORPORATION Date: May 13, 2008 /s/ Scott A. Haire ---------------------- Scott A. Haire, Chairman of the Board, Chief Executive Officer and President (and Principal Financial Officer) 14