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 June 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 August 5, 1997, there were 3,383,694 shares of the Registrant's
Common Stock outstanding.
Transitional Small Business Disclosure Format (check one);
Yes No X
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<PAGE>2
MUSTANG SOFTWARE, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information:
Balance Sheets as of June 30, 1997 and December 31, 1996 3
Statements of Operations for the three and six months ended
June 30, 1997 and 1996 4
Statements of Cash Flows for the six months ended June 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:
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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<PAGE>3
<TABLE>
MUSTANG SOFTWARE, INC.
BALANCE SHEETS
ASSETS
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,041,368 $ 2,920,231
Accounts receivable, net of allowance for
doubtful accounts of $400,000 and $300,000
at December 31, 1996 and June 30, 1997,
respectively 13,457 63,529
Income taxes receivable 173,540 173,540
Inventories 182,934 228,136
Other 71,959 55,500
- - - - ------------------------------------------------------------------------
Total current assets 2,483,258 3,440,936
- - - - ------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,256,336 1,256,337
Accumulated depreciation (467,976) (393,337)
- - - - ------------------------------------------------------------------------
Net property and equipment 788,360 863,000
- - - - ------------------------------------------------------------------------
OTHER ASSETS:
Capitalized software development costs, net 4,773 5,475
Other -- 1,300
- - - - -------------------------------------------------------------------------
Total other assets 4,773 6,775
- - - --------------------------------------------------------------------------
$3,276,391 $4,310,711
= ============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $482,120 $859,053
Accrued payroll and liabilities 104,632 163,056
Accrued warranty and support 45,000 45,000
Deferred revenue 80,000 80,000
- - - - --------------------------------------------------------------------------
Total current liabilities 711,752 1,147,109
- - - - --------------------------------------------------------------------------
CAPITAL LEASE OBLIGATION, net of current portion 307,060 337,221
- - - - ------------------------------------------------------------------------
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 June 30, 1997,
respectively 6,634,286 6,628,722
Retained earnings (4,376,707) (3,802,341)
- - - - ------------------------------------------------------------------------
Total shareholders' equity 2,257,579 2,826,381
- - - - -----------------------------------------------------------------------
$3,276,391 $4,310,711
= ==============================================================================
<FN>
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>
Six Months Ended June 30, Three Months Ended June 30,
1997 1996 1997 1996
<S> <C> <C>
REVENUE $ 1,258,050 $ 2,468,998 $ 458,129 $ 1,265,644
COSTS OF REVENUE 214,864 464,219 92,498 246,483
- - - - --------------------------------------------------------------------------------------------------------------------------
Gross profit 1,043,186 2,004,779 365,631 1,019,161
- - - - --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 342,109 491,048 170,902 292,689
Selling and marketing 534,393 1,751,869 205,953 857,553
General and administrative 784,920 1,197,318 363,057 578,995
- - - - --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,661,422 3,440,235 739,912 1,729,237
- - - - --------------------------------------------------------------------------------------------------------------------------
Income(loss)from operations (618,236) (1,435,456) (374,281) (710,076)
- - - - --------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (19,051) (22,167) (9,341) (10,913)
Interest income 63,721 156,059 27,068 70,239
Gain/Loss on sale of asset -- 2,000 -- 2,000
- - - - --------------------------------------------------------------------------------------------------------------------------
Total other income (exp.) 44,670 135,892 17,727 61,326
- - - - --------------------------------------------------------------------------------------------------------------------------
Income (loss) before
provision for income taxes (573,566) (1,299,564) (356,554) (648,750)
PROVISION (BENEFIT)
FOR INCOME TAXES 800 -- 800 --
- - - - --------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (574,366) $(1,299,564) $ (357,354) $ (648,750)
= ==============================================================================================================================
NET INCOME (LOSS)
PER COMMON SHARE $(.17) $(.39) $(.11) $(.19)
= ==============================================================================================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,379,330 3,360,570 3,383,694 3,362,940
<FN>
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>
Six Months Ended June 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (574,366) $(1,299,564)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 75,342 98,142
Net changes in assets and liabilities (355,242) 211,998
- - - - --------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (854,266) (989,424)
- - - - --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITES:
Purchase of property and equipment -- (51,459)
- - - - --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock 5,564 4,751
Payments on capital lease obligation (30,161) (27,341)
- - - - --------------------------------------------------------------------------------------------------------------------------
Net Cash provided (used) by financing activities (24,597) (22,590)
- - - - --------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (878,863) (1,063,473)
CASH BALANCE, beginning of period 2,920,231 5,615,404
- - - - --------------------------------------------------------------------------------------------------------------------------
CASH BALANCE, end of period $ 2,041,368 $ 4,551,931
= ==============================================================================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid 19,051 22,167
Taxes paid 800 0
<FN>
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 June 30, 1997 and 1996
Revenues for the three months ended June 30, 1997 were $458,129 a decrease
of $807,515 or 63.8% over 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 3% and 2%, the Wildcat! line at 95% and 96%, 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 $1,019,161 in 1996 to
$365,631 in 1997, and decreased as a percentage of revenues from 80.5% in 1996
to 79.8% in 1997. Gross profit percentage has averaged approximately 80 to 84%
over the last three calendar years. The decrease in gross profit percentage is
due mainly to royalties paid to third party developers for products that the
Company sells to compliment the WinServer line of products.
Research and development expenses decreased $121,787 in the second quarter
of 1997 from 1996, and increased as a percentage of revenues from 23.1% in 1996
to 37.3% 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 14 at June 30, 1996 to 10 at June 30, 1997.
The headcount reduction accounts for the majority of the decrease.
Selling and marketing expenses for the quarter were $205,953, a
decrease of $651,600 over the same quarter the previous year, and they
decreased as a percentage of revenues from 67.8% in 1996 to 45.0% 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 12 at June 30, 1996 to seven at
June 30, 1997 also contributed to the decrease.
General and administrative expenses decreased for the 1997 quarter
compared to the previous year, from $578,995 in 1996 to $363,057 in 1997, but
increased as a percentage of revenues, from 45.7% in 1996 to 79.1% in 1997.
The items primarily accounting for the decrease were salaries and costs
associated with employee benefits. The General and administrative headcount
decreased 36% from the prior year.
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<PAGE>8
Six Months Ended June 30, 1997 and 1996
Revenues for the six months ended June 30, 1997 were $1,258,050, a
decrease of $1,210,948 or 49.0% over revenues for the same period in the prior
year. As a percentage of revenues by product category showed the QmodemPro line
at 13% and 1%, the Wildcat! line at 84% and 97%, and other at 3% and 2% for the
first six months of 1997 and 1996, respectively. The greater percentage of
revenues in the six months ended June 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 six months decreased from $2,004,779 in 1996
to $1,043,186 in 1997, but increased as a percentage of revenues from 81.2% in
1996 to 82.9% in 1997. Gross profit percentage has averaged approximately 80 to
84% over the last three calendar years.
Research and development expenses decreased $148,939 in the first six
months of 1997 from 1996, and increased as a percentage of revenues from 19.9%
in 1996 to 27.2% in 1997. 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 six months of 1997
decreased $1,217,476 over the same period the previous year, from $1,751,869
to $534,393. As a percentage of revenues selling and marketing expenses
decreased from 71.0% in 1996 to 42.5% 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 12 at June 30, 1996 to 7 at June 30 1997.
General and administrative expenses decreased $412,398 in the first six
months of 1997 from $1,197,318 in 1996 to $784,920 in 1997, as a percentage of
revenues increased from 48.5% in 1996 to 62.4% in 1997. The items primarily
accounting for the decrease in actual dollars spent were due to reduction in
salaries and costs associated with employee benefits.
Liquidity and Capital Resources
Cash and cash equivalents balance at June 30, 1997 were approximately
$2,041,000, a decrease of approximately $879,000 from December 31, 1996.
Accounts receivable decreased approximately $50,000 and Accounts Payable
decreased approximately $377,000 in 1997. Accounts receivable average days to
collect for the quarter ended June 30, 1996 and 1997 were 55 and 64 days,
respectively. Average days to collect in 1996 were 50 days. Management's goal
is to maintain receivable collection days at or below 50 for 1997. Inventory
levels have decreased $45,200 in 1997 from December 31, 1996. As well as
accrued liabilities have decreased approximately $58,000.
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,
financing anticipated growth 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
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On May 27, 1997, registrant held its annual meeting of shareholders. Each of
the following directors was elected by vote indicated after his name:
NAME FOR WITHHELD
James A. Harrer 3,126,405 38,238
Richard J. Heming 3,125,693 38,950
C. Scott Hunter 3,126,405 38,238
Stanley A. Hirschman 3,126,405 38,238
Michael S. Noling 3,126,405 38,238
Bruce Fredrickson 3,126,405 38,238
Donald M. Leonard 3,126,405 38,238
The only other matter voted upon by shareholders was a proposal to
ratify the appointment of Arthur Andersen LLP as the Company's independent
accountants for the year ending December 31, 1997. The following were the
number of votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes, as to such matter
FOR AGAINST ABSTAIN
3,148,485 14,113 2,045
Item 5. Other Information
The NASDAQ Stock Market has notified the Company that based upon its review of
recent price data, the Company's Common Stock has failed to maintain a closing
bid price greater than or equal to $1.00 per share and that to be eligible for
continued listing, the Company has until September 30, 1997 to regain
compliance with the listing requirements. Further, The NASDAQ Stock Market has
notified the Company that if the Company's Common Stock doses not maintain a
minimum bid price of $1.00 per share for 10 consecutive trading days by
September 30, 1997, its Common Stock will be delisted from The Nasdaq Stock
Market unless the Company submits to The Nasdaq Stock Market by that date a
satisfactory proposal for achieving compliance.
At this time the Company is considering its alternatives, which may include
making a proposal for achieving compliance to The Nasdaq Stock Market or seeking
to include its Common Stock on the OTC Bulletin Board service. If the Company's
shares are delisted from The Nasdaq Stock Market, the liquidity of and public
market for its Common Stock could be materially adversely affected.
Item 6. Exhibits and Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended June 30, 1997
===============================================================================
<PAGE>10
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 August 12, 1997
_____________________
Donald M. Leonard Vice President Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer) August 12, 1997
<PAGE> 1 EXHIBIT 11.
MUSTANG SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share) (Unaudited)
- - -----------------------------------------------------------------
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
- - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 3,363 3,384 3,361 3,379
Common stock equivlents from outstanding stock options 0 0 0 0
- - --------------------------------------------------------------------------------------------
Average common and common stock equivalents outstanding 3,363 3,384 3,361 3,379
==============================================================================================
Net Income $(649) $ (357) $ (1,300) $(574)
==============================================================================================
Earnings per share (1) $(.19) $ (.11) $ (.39) $(.17)
===============================================================================
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> $2,041,368
<SECURITIES> 0
<RECEIVABLES> 313,457
<ALLOWANCES> 300,000
<INVENTORY> 182,934
<CURRENT-ASSETS> 2,483,258
<PP&E> 1,256,336
<DEPRECIATION> 467,976
<TOTAL-ASSETS> 3,276,391
<CURRENT-LIABILITIES> 711,752
<BONDS> 307,060
0
0
<COMMON> 6,634,286
<OTHER-SE> (4,376,707)
<TOTAL-LIABILITY-AND-EQUITY> 3,276,391
<SALES> 1,258,050
<TOTAL-REVENUES> 1,258,050
<CGS> 214,864
<TOTAL-COSTS> 214,864
<OTHER-EXPENSES> 1,661,422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,051
<INCOME-PRETAX> ( 573,566)
<INCOME-TAX> ( 574,366)
<INCOME-CONTINUING> ( 574,366)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 574,366)
<EPS-PRIMARY> ( .17)
<EPS-DILUTED> ( .17)
</TABLE>
