UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended September 30, 1997
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 Commission File Number: 0-25678
MUSTANG SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
California
(State of incorporation)
77-0204718
(I.R.S. employer identification number)
6200 Lake Ming Road
Bakersfield, California 93306
(Address of principal executive offices)
(805) 873-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such 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 October 23, 1997, there were 3,383,694 shares of the Registrant's
Common Stock outstanding.
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<PAGE>2
MUSTANG SOFTWARE, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information:
Balance Sheets as of September 30, 1997 and December 31, 1996 3
Statements of Operations for the three and nine months
ended September 30, 1997 and 1996 4
Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. Other Information:
Report of sales of securities and use of proceeds therefrom FORM SR 9
Signatures 12
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<PAGE>3
<TABLE>
MUSTANG SOFTWARE, INC.
BALANCE SHEETS
ASSETS
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,646,233 $ 2,920,231
Accounts receivable, net of allowance for doubtful
accounts of $400,000 and $185,000 at December 31, 1996
and September 30, 1997, respectively 80,096 63,529
Income taxes receivable 173,540 173,540
Inventories 150,567 228,136
Other 46,788 55,500
- - - - ---------------------------------------------------------------------------------------------
Total current assets 2,097,224 3,440,936
- - - - ---------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,256,337 1,256,337
Accumulated depreciation (505,296) (393,337)
- - - - ---------------------------------------------------------------------------------------------
Net property and equipment 751,041 863,000
- - - - ---------------------------------------------------------------------------------------------
OTHER ASSETS:
Capitalized software development costs, net 4,422 5,475
Other -- 1,300
- - - - ---------------------------------------------------------------------------------------------
Total other assets 4,422 6,775
- - - - ---------------------------------------------------------------------------------------------
$2,852,687 $4,310,711
= = = =============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $337,004 $859,053
Accrued payroll and liabilities 90,783 163,056
Accrued warranty and support 45,000 45,000
Deferred revenue 80,000 80,000
- - - - ---------------------------------------------------------------------------------------------
Total current liabilities 552,787 1,147,109
- - - - ---------------------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATION, net of current portion 291,416 337,221
- - - - ---------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized--10,000,000 shares
None issued or outstanding -- --
Common stock, no par value:
Authorized--30,000,000 shares
Issued and outstanding--3,374,967 and 3,383,694 shares at
December 31,1996 and September 30, 1997, respectively 6,634,286 6,628,722
Retained earnings (4,625,802) (3,802,341)
- - - - ---------------------------------------------------------------------------------------------
Total shareholders' equity 2,008,484 2,826,381
- - - - ---------------------------------------------------------------------------------------------
$2,852,687 $4,310,711
= = = =============================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>4
<TABLE>
MUSTANG SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Sept 30, Nine Months Ended Sept 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUE $ 331,365 $ 755,235 $ 1,589,914 $ 3,224,233
COSTS OF REVENUE 58,419 114,903 273,283 579,122
- - - - ---------------------------------------------------------------------------------------------
Gross profit 272,946 640,332 1,316,631 2,645,111
- - - - ---------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 181,048 242,096 523,157 733,144
Selling and marketing 80,350 1,028,439 614,743 2,780,308
General and administrative 273,871 518,917 1,059,290 1,716,235
- - - - ---------------------------------------------------------------------------------------------
Total operating expenses 535,269 1,789,452 2,197,190 5,229,687
- - - - ---------------------------------------------------------------------------------------------
Income(loss)from operations ( 262,323) (1,149,120) ( 880,559) (2,584,576)
- - - - ---------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (8,961) (10,424) (28,013) (32,591)
Interest income 22,189 41,377 85,911 197,436
Gain/loss on sale of asset -- -- -- 2,000
- - - - ---------------------------------------------------------------------------------------------
Total other income (exp) 13,228 30,953 57,898 166,845
- - - - ---------------------------------------------------------------------------------------------
Income (loss) before
provision for income taxes ( 249,095) (1,118,167) ( 822,661) (2,417,731)
PROVISION (BENEFIT)
FOR INCOME TAXES -- -- 800 --
- - - - ---------------------------------------------------------------------------------------------
NET INCOME (LOSS) $( 249,095) $(1,118,167) $( 823,461) $(2,417,731)
= = = =============================================================================================
NET INCOME (LOSS)
PER COMMON SHARE $ (.07) $ (.33) $ (.24) $ (.72)
= = = =============================================================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,383,694 3,362,940 3,380,785 3,360,570
= = = =============================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>5
<TABLE>
MUSTANG SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $(823,460) $(2,417,731)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,013 145,044
Net changes in assets and liabilities (523,309) 128,962
- - - - ---------------------------------------------------------------------------------------------
Net cash used by operating activities (1,233,756) (2,143,725)
- - - - ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITES:
Purchase of property and equipment -- (51,459)
- - - - ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock 5,563 5,751
Payments on capital lease obligation (45,805) (41,523)
- - - - ---------------------------------------------------------------------------------------------
Net Cash provided (used) by financing
activities (40,242) (35,772)
- - - - ---------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (1,273,998) (2,230,956)
CASH BALANCE, beginning of period 2,920,231 5,615,404
- - - - ---------------------------------------------------------------------------------------------
CASH BALANCE, end of period $1,646,233 $3,384,448
= = = =============================================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid 28,013 32,591
Taxes paid 800 --
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>6
MUSTANG SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Accounting Policies
The accompanying unaudited Condensed Financial Statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have either been condensed or omitted pursuant to those
rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations and cash flows for
the periods presented are not necessarily indicative of the results that may be
expected for the full fiscal year. For further information, refer to the
financial statements and notes thereto for the year ended December 31, 1996,
included in the 1996 Form 10KSB.
The condensed Balance Sheet at December 31, 1996 has been taken from the
audited financial statements at that date and condensed.
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<PAGE>7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to the comments that follow, further information can be obtained by
referring to the management's discussion and analysis of financial condition
and results of operations section included in the Form 10KSB, filed for the
year ended December 31, 1996.
Results of Operations:
Three Months Ended September 30, 1997 and 1996
Revenues for the three months ended September 30, 1997 were $331,365 a decrease
of $423,870 or 56% under revenues for the same period in 1996. As a percentage
of revenues by product category for the third quarter 1997 vs. 1996 showed the
QmodemPro line at 19% and 9%, the Wildcat! line at 88% and 79%, and other
products at 2% and 2%, respectively. The greater Wildcat! revenues in 1996 were
directly related to the release of Wildcat! version 5 in March 1996.
Gross profit for the quarter decreased from $640,332 in 1996 to $272,946 in
1997, and increased slightly as a percentage of revenues from 84.8% in 1996 to
82.4% in 1997. Gross profit percentage has averaged approximately 80-84% over
the last three calendar years.
Research and development expenses decreased $61,048 in the third quarter of
1997 from 1996, but increased as a percentage of revenues from 32.1% in 1996
to 54.6% in 1997. Research and development is concentrated in Windows NT and
Windows 95 and directly targets the expanded use of international networks,
including the Internet. The Company has devoted and is devoting a substantial
portion of its research and development resources to the Windows 95 and
Windows NT environments and now offers a suite of Web server and
internet/intranet utility applications for Windows 95 and Windows NT
environments. The headcount in this department decreased from 13 at September
1996 to 9 at September 30, 1997. The headcount reduction accounted for the
majority of the decrease in absolute dollars and the decline in revenues
accounted for the increase as a percentage of revenues.
Selling and marketing expenses for the quarter were $80,350, a decrease of
$948,089 over the same quarter the previous year, and they decreased as a
percentage of revenues from 136.2% in 1996 to 24.2% in 1997. The items
primarily accounting for the decrease were a reduction of advertising and
promotional costs for existing products, the fact that 1996 expenses associated
with the launch of Wildcat! 5 were not repeated in 1997 and a reduction in
expenses resulting from a decrease in the number of trade shows attended in
1997. The decrease in headcount from 10 at September 30, 1996 to 6 at
September 30, 1997 also contributed to the decrease.
General and administrative expenses decreased for the quarter over the previous
year, from $518,917 in 1996 to $273,871 in 1997, but increased as a percentage
of revenues, from 68.7% in 1996 to 82.6% in 1997. The items primarily
accounting for the decrease in absolute dollars were salaries and costs
associated with employee benefits eliminated with the decrease in headcount.
The General and administrative headcount decreased 65% from the prior year.
The decline in revenues during the quarter ended September 30, 1997 accounted
for the increase in geneeral and administrative expenses as a percentage of
revenues.
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<PAGE>8
Nine Months Ended September 30, 1997 and 1996
Revenues for the nine months ended September 30, 1997 were $1,589,914, a
decrease of $1,634,319 or 50.7% under revenues for the same period in the prior
year. As a percentage of revenues by product category showed the QmodemPro
line at 14% and 3%, the Wildcat! line at 83% and 95%, and other at 3% and 2%
for the first nine months of 1997 and 1996, respectively. The greater
percentage of revenues in the nine months ended September 30, 1996 for the
Wildcat! line was due to the launch of Wildcat! v.5 for Win95/NT in March 1996.
Gross profit for the first nine months decreased from $2,645,111 in 1996 to
$1,316,631 in 1997, and increased slightly as a percentage of revenues from
82.0% in 1996 to 82.8% in 1997. Gross profit percentage has averaged
approximately 80-84% over the last three calendar years.
Research and development expenses decreased $209,987 in the first nine months
of 1997 from 1996, but increased as a percentage of revenues from 22.7% in 1996
to 32.9% in 1997. The headcount in this department decreased from 13 at
September 1996 to 9 at September 30, 1997. The heacount reduction accounted
for the majority of the decrease in absolute dollars and the decline in
revenues accounted for the increase as a percentage of revenues. To maintain
its competitive market position, the Company expects to invest a significant
amount of its resources for the development of new products and product
enhancements.
Selling and marketing expenses for the first nine months of 1997 decreased
$2,165,565 over the same period the previous year, from $2,780,308 to
$614,743. As a percentage of revenues selling and marketing expenses
decreased from 86.2% in 1996 to 38.7% in 1997. The items primarily
accounting for the decrease were advertising and promotional costs for existing
products and the launch of Wildcat! Version 5 for Windows 95/NT in March 1996
were not incurred in 1997, a reduction in trade shows and the costs associated
with them and the decrease in headcount from 10 at September 30, 1996 to 6 at
September 30, 1997.
General and administrative expenses decreased $656,945 in the first nine months
of 1997 from $1,716,235 in 1996 to $1,059,290 in 1997, but as a percentage of
revenues increased from 53.2% in 1996 to 66.6% in 1997. The items primarily
accounting for the decrease in absolute dollars were salaries and costs
associated with employee benefits eliminated with the decrease in headcount.
The General and administrative headcount decreased 65% from the prior year.
The decline in revenues during the quarter ended September 30, 1997 accounted
for the increase in general and administrative expenses as a perentage of
revenues.
Liquidity and Capital Resources
Cash and cash equivalents balance at September 30, 1997 were approximately
$1,646,000, a decrease of approximately $1,274,000 from December 31, 1996.
Accounts receivable increased approximately $17,000 in 1997, fromm $63,529 at
December 31, 1996 to $80,096 aaat September 30, 1997. Accounts receivable
average days to collect for the quarter ended September 30, 1996 and 1997
were 48 and 65 days, respectively, and for the nine months ended
September 30, 1996 and 1997 were 53 and 58 days, respectively. Average days to
collect for the year 1996 was 50 days. Management's goal is to maintain
receivable collection days at or below 50 for 1997. Management is
aggresively pursuing delinquent accounts through collections and increasing
the credit approval process in an effort to bring the average days to collect
within 50 days. Inventory levels have decreased approximately $78,000 in
1997 from December 31, 1996 amounts.
Longer term cash requirements, other than normal operating expenses, are
anticipated for development of new software products and enhancements of
existing products, launching new products and enhancements, and the possible
acquisition of businesses, software products or technologies complementary to
the Company's business. The Company believes that its existing cash, cash
equivalents, marketable securities and cash generated from operations will be
sufficient to meet the Company's working capital and capital expenditure
requirements for at least the next 12 months.
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<PAGE>9
<TABLE>
<CAPTION>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d)
(1) The effective date of the Securities Act registration statement for which
this use of proceeds information is being disclose and the Commission file
number assigned to the registration statement is April 5, 1995 and 2-89900-LA,
respectively.
(2) The offering date was April 5, 1995.
(3) The offering did not terminate before any securities were sold.
(i) The offering has terminated byt not before the sale of all securities
registered.
(ii) The name(s) of the managing underwriter(s) is Cruttenden Roth, Inc.
(iii)The title of each class of securities registered is Common Stock, no
par value and Warrants to purchsssse Common Stock.
(iv) For each class of secuiries the following table provides
information for the account of the registrant and the selling
security holders with respect to the amount of the securities
registered, the aggregate price of the offering amount registered,
the amount sold and the aggregate offering price of the amount sold
to date:
<S>
For the account of the registrant For the account(s)of any selling security
holder(s)
Title Amount Aggregate Amount Aggregrate Amount Aggregrate Amount Aggregrate
of registered price of sold offering registered price of sold offering
Security offering price offering price
amount of amount amount of amount
registered sold registered sold
<C> <C> <C> <C> <C> <C> <C> <C>
Common
Stock 1,250,000 8,125,000 1,125,000 8,125,000 187,500 $1,109,063 187,500 $1,109,063
Warrants 125,000 125 125,000 125
Total 1,375,000 8,125,125 1,375,000 8,125,125 187,500 $ 1,109,063 187,500 $1,109,063
</TABLE>
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<PAGE>10
<TABLE>
<CAPTION>
(v) From April 5, 1995 (the effective date of the Securities Act
registration statement) to September 30, 1997 the following table provides
information as to the amount of expenses incurred for the registrant's
account in connection with the issuance and distribution of the securities
registered for underwriting discounts and commissions finders' fees, expenses
paid to or for underwriters, other expenses and total expenses were as
follows:
Direct or indirect Direct or indirect payment
payments to directors to others
officers, general
partners of the registrantr or
their associated; to
persons owning ten
percent or more of any
class of equity
securities of the registrant;
and to affiliates of the
registrant.
(A) (B)
<S> <C> <C>
(01)Underwriting discounts
and commissions [ ]$ [ ]$ 731,250
(02)Finder's Fees [ ] [ ]
(03)Expenses paid to or
for underwriters [ ] [ ] 243,750
(04)Other expenses [ ] [ ] 565,315
(05)Total Expenses [ ] [ ]$ 1,540,315
</TABLE>
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<PAGE>11
<TABLE>
<CAPTION>
(vi) The net offering proceeds to the registrant after deducting the
total expenses described in paragraaph (f) (4) (v) of this Item was
$6,584,810.
Direct or indirect payments to Direct or indirect payment
directors officers, general to others
partners of the registrant or their
associated; to persons owning
ten percent or more of any
class of equity securities of
the registant; and to affiliates
of the registrant.
(A) (B)
<S> <C> <C>
(01)Construction of plant,
building and facilities [ ]$ [ ]$
(02)Purchase and
installation of
machinery and equipment [ ] [ ]
(03)Purchase of real estate [ ] [ ]
(04)Acquisition of other
business(es) [ ] [ ]
(05)Repayment of
indebtedness [ ] [ ]
(06)Working capital [ ] 31,000 [ ] 563,196
Temporary investment (specify)
(07) [ ]$ [ ]$
(08) [ ] [ ]
(09) [ ] [ ]
(10) [ ] [ ]
Other purposes (specify)
(11)Advertising [ ]$ [ ]$ 755,616
(12)Marketing & Trade [ ] [ ] 2,539,483
(13)Research & Development [ ] [ ] 1,389,364
(14) [ ] [ ]
</TABLE>
(viii) The use of proceeds disclosed in paragraph (d) (3) (vii)
of this Item did not represent a material change in the use of
proceeds described in the prospectus.
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<PAGE>12
SIGNATURES
In accordance with the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Signature Title Date
_____________________ President and Chief Executive
James A. Harrer Officer (Principal Executive
Officer) and a Director November 14, 1997
_____________________
Donald M. Leonard Vice President Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer) November 14, 1997
8
8
<PAGE> 1 EXHIBIT 11.
MUSTANG SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share) (Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1997 1996 1997
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 3,363 3,384 3,361 3,381
Common stock equivlents from outstanding stock options 0 0 0 0
- - --------------------------------------------------------------------------------------------
Average common and common stock equivalents outstanding 3,363 3,384 3,361 3,381
==============================================================================================
Net Income $(1,118) $ (249) $(2,418) $ (823)
==============================================================================================
Earnings per share (1) $ (.33) $ (.07) $ (.72) $ (.24)
==============================================================================================
</TABLE>
(1) Fully diluted earnings per share have not been presented because the effects
are not material.
- - -----------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> $1,646,233
<SECURITIES> 0
<RECEIVABLES> 265,096
<ALLOWANCES> 185,000
<INVENTORY> 150,567
<CURRENT-ASSETS> 2,097,224
<PP&E> 1,256,337
<DEPRECIATION> 505,296
<TOTAL-ASSETS> 2,852,687
<CURRENT-LIABILITIES> 552,787
<BONDS> 291,416
0
0
<COMMON> 6,634,286
<OTHER-SE> (4,625,802)
<TOTAL-LIABILITY-AND-EQUITY> 2,852,687
<SALES> 1,589,914
<TOTAL-REVENUES> 1,589,914
<CGS> 273,283
<TOTAL-COSTS> 273,283
<OTHER-EXPENSES> 2,197,190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,013
<INCOME-PRETAX> ( 822,661)
<INCOME-TAX> ( 823,461)
<INCOME-CONTINUING> ( 823,461)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 823,461)
<EPS-PRIMARY> ( .24)
<EPS-DILUTED> ( .24)
</TABLE>
