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 March 31, 1998.
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934Commission 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 May 11, 1998, there were 3,425,011 shares of the Registrant's
Common Stock outstanding.
===============================================================================
<PAGE> 2
MUSTANG SOFTWARE, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information:
Balance Sheets as of March 31, 1998 and December 31, 1997 3
Statements of Operations for the three months ended March 31,1998
and 1997 4
Statements of Cash Flows for the three months ended March 31, 1998
and 1997 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>
March 31, December 31
1998 1997
(Unaudited)
<S>
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $ 992,919 $ 1,403,776
Accounts receivable, net of allowance for doubtful 73,964 6,378
accounts of $160,000 December 31, 1997 and
March 31,1998
Income taxes receivable -- 97,004
Inventories 74,868 99,915
Other 27,503 28,215
- -------------------------------------------------------------------------------
Total current assets 1,169,254 1,635,288
- -------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,245,263 1,238,713
Accumulated depreciation (561,772) (527,279)
- -------------------------------------------------------------------------------
Net property and equipment 683,491 711,434
- -------------------------------------------------------------------------------
OTHER ASSETS:
Capitalized software development costs, net 3,732 4,083
- -------------------------------------------------------------------------------
Total other assets 3,732 4,083
- -------------------------------------------------------------------------------
$1,856,477 $2,350,805
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $259,646 $242,451
Accrued payroll and liabilities 132,660 217,318
Accrued warranty and support 45,000 45,000
Deferred revenue 80,000 80,000
- -------------------------------------------------------------------------------
Total current liabilities 517,306 584,769
- -------------------------------------------------------------------------------
CAPITAL LEASE OBLIGATION, net of current portion 252,573 269,005
- -------------------------------------------------------------------------------
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--3,392,728 and 3,417,961 6,673,163 6,640,045
at December 31,1997 and March 31, 1998,
respectively
Retained earnings (5,586,565) (5,143,014)
- -------------------------------------------------------------------------------
Total shareholders' equity 1,086,598 1,497,031
- -------------------------------------------------------------------------------
$1,856,477 $2,350,805
===============================================================================
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 March 31,
1998 1997
<S> <C> <C>
REVENUE $ 398,480 $ 799,922
COSTS OF REVENUE 66,409 122,366
- -------------------------------------------------------------------------------
Gross profit 332,071 677,556
- -------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 174,278 171,207
Selling and marketing 247,018 328,440
General and administrative 360,585 421,863
- -------------------------------------------------------------------------------
Total operating expenses 781,881 921,510
- -------------------------------------------------------------------------------
Income(loss)from operations (449,810) (243,954)
- -------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (8,174) (9,711)
Interest income 14,433 36,654
- -------------------------------------------------------------------------------
Total other income (exp). 6,259 26,943
- ----------------------------------------------------------------------------
Income (loss) before
provision for income taxes (443,551) (217,011)
PROVISION (BENEFIT)
FOR INCOME TAXES -- --
- -------------------------------------------------------------------------------
NET INCOME (LOSS) $ (443,551) $ (217,011)
===============================================================================
NET INCOME (LOSS)
PER COMMON SHARE $ (.13) $ (.06)
===============================================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,417,961 3,374,967
===============================================================================
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>
Three Months Ended March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (443,551) $ (217,011)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,842 37,670 1
Net changes in assets and liabilities (12,289) (233,374)
- -------------------------------------------------------------------------------
Net cash provided (used) by operating
activities (420,998) (412,715)
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITES:
Purchase of property and equipment (6,545) -
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock 33,118
Payments on capital lease obligation (16,432) (14,895)
- -------------------------------------------------------------------------------
Net Cash provided (used) by
financing activities 16,686 (14,895)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (410,857) (427,610)
CASH BALANCE, beginning of period 1,403,776 2,920,231
- -------------------------------------------------------------------------------
CASH BALANCE, end of period $ 992,919 $ 2,492,621
===============================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid 8,174 9,711
Taxes paid -- --
The accompanying notes are an integral part of these financial statements.
</TABLE>
===============================================================================
<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, 1997,
included in the 1997 Form 10KSB.
The condensed Balance Sheet at December 31, 1997 has been taken from the
audited financial statements at that date and condensed.
===============================================================================
<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, 1997.
Results of Operations:
Three Months Ended March 31, 1998 and 1997
Revenues for the three months ended March 31, 1998 were $398,480,
a decrease of $401,442 or 50.2% under revenues for the same
period in 1997. As a percentage of revenues by product category for the first
quarter 1998 vs. 1997 showed the QmodemPro line at 8% and 15%, the
Wildcat! line at 52% and 82%, Web Essentials at 32% and 0% and other
products at 8% and 3%, respectively. Sales were higher in first quarter of
1997 than in the first quarter of 1998 due to the release of three add-on
products for the Wildcat Line to an established customer base. First quarter
of 1998 did not benefit from any new releases to an established customer base.
However, first quarter of 1998 did have the release of IMC Enterprise edition
which is a positive move towards the company goal of building a new customer
base for the Web Essentials product line.
Gross profit for the quarter decreased from $677,556 in 1997 to
$332,071 in 1998, and increased as a percentage of revenues from
84.7% in 1997 to 83.3% in 1998. Gross profit percentage has averaged
between 80-84% over the last three calendar years.
Research and development expenses increased $3,071 in the
first quarter of 1998 from 1997, and increased as a percentage of revenues
from 21.4% in 1997 to 43.7% in 1998. The decline in revenues accounted for
the increase as a percentage of revenues. In an effort to improve its
competitive 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 quarter were $247,018,
a decrease of $81,422 under the same quarter the previous year, and
they increased as a percentage of revenues from 41.1% in 1997 to
62.0% in 1998. The items primarily attributing to the decrease was a
reduction of advertising and promotional costs for existing products.
The decrease in headcount from 9 in 1997 to 8 in 1998, also contributed
to the decrease.
General and administrative expenses decreased for the quarter
compared to the previous year, from $421,863 in 1997 to $360,585 in 1998,
but increased as a percentage of revenues, from 52.7% in 1997 to 90.5%
in 1998. The items primarily accounting for the decrease were
salaries and costs associated with employee benefits. The General
and administrative headcount decreased 29% from the prior year.
===============================================================================
<PAGE>8
Liquidity and Capital Resources
Cash and cash equivalents balance at March 31, 1998 were approximately
$992,919, a decrease of approximately $410,859 from
December 31, 1997. Accounts receivable increased approximately $67,586
and Accounts Payable increased approximately $17,195 in 1998.
Accounts receivable average days to collect for the quarter ended
March 31, 1997 and 1998 were 64 and 52 days, respectively. Average days to
collect in 1997 was 64 days. Management's goal is to maintain receivable
collection days at or below 65 for 1998. Inventory levels have decreased
$25,047 in 1998 from December 31, 1997.
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 and
available line of credit, will be sufficient to meet the Company's working
capital and capital expenditure requirements for at least the next 12 months.
===============================================================================
<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 disclosed 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 but not before the sale of all
securities registered.
(ii) The name(s) of the managing underwriter(s) is Cruttenden Roth,
Incorporated.
(iii) The title of each class of securities registered is Common
Stock, no par value and Warrants to purchase Common Stock.
(iv) For each class of securities 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:
For the account of the registrant For the account(s)of any
selling security holder(s)
<S>
Title Amount Aggregate Amount Aggregate Amount Aggregate Amount Aggregate
of registered price of sold offering registered price of Sold offering
Security offering price of offering price of
amount amount amount amount
registered sold registered sold
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Common 1,250,000 $8,125,000 1,125,000 $8,125,000 187,500 $1,109,063 187,500 $1,109,063
Stock
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 $1,109,063
(v) From April 5, 1995 (the effective date of the Securities Act
registration statement) to March 31, 1998 the following table provides
information as to the amount of expenses incurred for the registrant's account
in connection with the issuance and distribution of the securities registered
for underwriting discounts and commissions, finders fees, expenses paid to or
for underwriters, other expenses and total expenses were as follows:
</TABLE>
===============================================================================
<PAGE>10
<TABLE>
<CAPTION>
Direct or indirect Direct or indirect
payments to directors payment to others
officers, general
partners of the
registrant or their
associated; to
persons owning ten
percent or more of
any class of equity
securities of the
registrant; and to
affiliates of the
registrant.
(A) (B)
<S> <C> <C>
(01)Underwriting
discounts and [ ]$ [ ]$ 731,250
commissions
(02)Finder's Fees [ ] [ ]
(03)Expenses paid to
or for underwriters [ ] [ ] 243,750
(04)Other expenses [ ] [ ] 565,315
(05)Total Expenses [ ] [ ]$ 1,540,315
(vi) The net offering proceeds to the registrant after deducting the
total expenses described in paragraph (f)(4)(v) of this Item was $6,584,810.
</TABLE>
===============================================================================
<PAGE>11
<TABLE>
<CAPTION>
(vii) From April 5, 1995 (the effective date of the Securities Act
registration statement) to March 31, 1998 the following table provides
information with respect to the amount of net offering proceeds to the
registrant used for construction of plant, building and facilities; purchase
and installation of machinery and equipment; purchases of real estate;
acquisition of other business(es); repayment of indebtedness;
working capital; temporary investments; and any other purposes for which at
least five (5) percent of the registrant's total offering proceeds or $100,000
(whichever is less) has been used:
Direct or indirect Direct or indirect
payments to directors payment to others
officers, general
partners of the
registrant or their
associated; to persons
owning ten percent or
more of any class of
equity securities of the
registrant; and to
affiliates of the
registrant.
(A) (B)
<S> <C> <C>
(01)Construction of
plant, building and [ ]$ [ ]$
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 [ ] 39,500 [ ] 669,822
Temporary investment (specify)
(07) [ ]$ [ ]$
(08) [ ] [ ]
(09) [ ] [ ]
(10) [ ] [ ]
Other purposes (specify)
(11)Advertising [ ]$ [ ]$ 859,940
(12)Marketing & Trade [ ] [ ] 2,908,855
(13)Research & [ ] [ ] 1,738,494
Development
(14) [ ] [ ]
(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.
</TABLE>
===============================================================================
<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
____________________
James A. Harrer President and Chief Executive May 14, 1998
Officer (Principal Executive
Officer) and a Director
____________________
Donald M. Leonard Vice President and Chief May 14, 1998
Financial Officer (Principal Financial
and Accounting Officer)
and a Director
<PAGE> 1 EXHIBIT 11.
MUSTANG SOFTWARE, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share) (Unaudited)
- - -----------------------------------------------------------------------------
<TABLE>
Three Months Ended
March 31,
1998 1997
- - -----------------------------------------------------------------------------
<S> <C> <C>
Weighted average number of common shares outstanding 3,418 3,375
Common stock equivlents from outstanding stock options 0 0
- - -----------------------------------------------------------------------------
Average common and common stock equivalents outstanding 3,418 3,375
===============================================================================
Net Income $(444) $ (217)
===============================================================================
Earnings per share (1) $(.13) $ (.06)
===============================================================================
</TABLE>
(1) Fully diluted earnings per share have not been presented because the effects
are not material.
- - -----------------------------------------------------------------------------
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $ 992,919
<SECURITIES> 0
<RECEIVABLES> 233,964
<ALLOWANCES> 160,000
<INVENTORY> 74,868
<CURRENT-ASSETS> 1,169,254
<PP&E> 1,245,263
<DEPRECIATION> 561,772
<TOTAL-ASSETS> 1,856,477
<CURRENT-LIABILITIES> 517,306
<BONDS> 252,573
0
0
<COMMON> 6,673,163
<OTHER-SE> (5,586,565)
<TOTAL-LIABILITY-AND-EQUITY> 1,856,477
<SALES> 398,480
<TOTAL-REVENUES> 398,480
<CGS> 66,409
<TOTAL-COSTS> 66,409
<OTHER-EXPENSES> 781,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,174
<INCOME-PRETAX> ( 443,551)
<INCOME-TAX> ( 443,551)
<INCOME-CONTINUING> ( 443,551)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 443,551)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
