<PAGE> 1
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, 1999
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)
(661) 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 3, 1999, there were 4,616,456 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 June 30, 1999 and December 31, 1998 3
Statements of Operations for the three and six months ended 4
June 30, 1999 and 1998
Statements of Cash Flows for the six months ended June 30, 1999 and 1998 5
Notes to Financial Statements 6
Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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<PAGE> 3
MUSTANG SOFTWARE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31
1999 1998
(Unaudited)
<S>
CURRENT ASSETS: <C> <C>
Cash and cash equivalents $ 2,251,247 $ 1,849,700
Accounts receivable, net of allowance for 494,430 409,077
doubtful accounts of $168,200 and $150,000
at December 31, 1998 and June 30, 1999
respectively
Income taxes receivable -- --
Inventories 12,444 9,196
Other --
19,660
- - - -----------------------------------------------------------------------------
Total current assets 2,758,121 2,287,633
- - - -----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,305,358 1,239,882
Accumulated depreciation (734,125) (647,027)
- - - -----------------------------------------------------------------------------
Net property and equipment 571,233 592,855
- - - -----------------------------------------------------------------------------
OTHER ASSETS:
Capitalized software development costs, net -- --
Other 18,289 11,183
- - - -----------------------------------------------------------------------------
Total other assets 18,289 11,183
- - - -----------------------------------------------------------------------------
$3,347,643 $2,891,671
= ===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $299,950 $233,854
Current portion of capital lease 8,259 8,259
Accrued payroll and liabilities 137,234 114,381
Income taxes payable 99,776 99,776
Accrued warranty and support -- --
Deferred revenue 135,000 125,000
- - - -----------------------------------------------------------------------------
Total current liabilities 680,219 581,270
- - - -----------------------------------------------------------------------------
CAPITAL LEASE OBLIGATION, net of current portion 256,719 260,747
- - - -----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized-10,000,000 shares
7,956 issued and outstanding as of 730,229 730,229
December 31, 1998
Common stock, no par value:
Authorized-30,000,000 shares
Issued and outstanding 4,098,845 and 8,086,642 7,618,954
4,615,956 shares at December 31, 1998 and
June 30, 1999, respectively
Retained earnings (6,406,166) (6,299,529)
- - - -----------------------------------------------------------------------------
Total shareholders' equity 2,410,705 2,049,654
- - - -----------------------------------------------------------------------------
$3,347,643 $2,891,671
= ===============================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
MUSTANG SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUE $ 803,109 $ 404,158 $ 1,576,091 $ 802,638
COSTS OF REVENUE 106,292 33,439 154,853 99,848
- - - ------------------------------------------------------------------------------------
Gross profit 696,817 370,719 1,421,238 702,790
- - - ------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 174,334 147,524 303,853 301,577
Selling and marketing 274,883 223,075 526,512 470,093
General and administrative 396,291 306,713 743,613 687,523
- - - ------------------------------------------------------------------------------------
Total operating expenses 845,508 677,312 1,573,978 1,459,193
- - - ------------------------------------------------------------------------------------
Income(loss)from operations (148,691) (306,593) (152,740) (756,403)
- - - ------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (6,562) (7,766) (13,173) (15,941)
Interest income 31,242 11,674 52,201 26,107
Gain/Loss on sale of asset 11,625 -- 11,625 --
- - - ------------------------------------------------------------------------------------
Total other income (exp.)36,305 3,908 50,653 10,166
- - - ------------------------------------------------------------------------------------
Income (loss) before
provision for income taxes (112,386) (302,685) (102,087) (746,237)
- - - ------------------------------------------------------------------------------------
PROVISION (BENEFIT)
FOR INCOME TAXES 800 800 800 800
- - - ------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (113,186) $ (303,485) $ (102,887) $ (747,037)
= =======================================================================================
NET INCOME (LOSS)
PER COMMON SHARE $(.02) $(.09) $(.02) $(.22)
= =======================================================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,591,803 3,451,365 4,417,288 3,434,663
= ========================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
= ==============================================================================
<PAGE> 5
<TABLE>
MUSTANG SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended June 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ (102,887) $(747,037)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 87,098 69,684
Net changes in assets and liabilities 7,528 (52,387)
- - - -----------------------------------------------------------------------
Net cash provided (used) by operating (8,261) (729,740)
activities
- - - -----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITES:
Purchase of property and equipment (53,858) (12,349)
- - - -----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock 467,689 68,903
Payments on capital lease obligation (4,028) (33,271)
- - - -----------------------------------------------------------------------
Net Cash provided (used) by financing 463,661 35,632
activities
- - - -----------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 401,542 (706,457)
CASH BALANCE, beginning of period 1,849,700 1,403,776
- - - -----------------------------------------------------------------------
CASH BALANCE, end of period $ 2,251,247 $ 697,319
= =========================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid 13,173 15,941
Taxes paid 800 800
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, 1998,
included in the 1998 Form 10KSB.
The condensed Balance Sheet at December 31, 1998 has been taken from the
audited financial statements at that date and condensed
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, 1998.
Results of Operations:
Three Months Ended June 30, 1999 and 1998
Revenues for the three months ended June 30, 1999 were $803,109 an
increase of $398,951 or 98.7% over revenues for the same period in 1998. As a
percentage of revenues by product category for the second quarter 1999 vs. 1998
showed the Internet directed product line consisting of Internet Message Center
("IMC"), Liscater and FileCenter Web Essential at 98% and 63%, Wildcat! line at
nil and 24% and the QmodemPro line at 2% and 7%, respectively. The increase in
sales of the Web Essentials line was due to increased acceptance of the Web
Essentials products and the increase in products from 1 in 1997 to 3 in 1998.
Because of its decision to focus on products that are designed to facilitate
interaction on the Internet, Mustang sold its Wildcat! WinServer, Wildcat! BBS
and Off-line Xpress BBS mail reader product lines to Santronics Software, Inc.
of Homestead, Florida in November 1998. That accounts for nil sales of
products from this line in the second quarter of 1999.
Gross profit for the quarter increased from $370,719 in 1998 to
$696,817 370,71 in 1999, and decreased as a percentage of revenues from 91.7%
in 1998 to 86.8% in 1999. Gross profit percentage has averaged approximately
83% to 86% over the last three calendar years. The Company does not expect the
gross profit percentage to remain at the current level. As more turnkey
solutions are sold through the Mustang Professional Services division, the
Company expects the gross profit percentage to decrease.
<PAGE> 7
Research and development expenses increased $26,810 in the second
quarter of 1999 from 1998, but decreased as a percentage of revenues from 36.5%
in 1998 to 21.7% in 1999. 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. The headcount in this department decreased
from 8 at June 30, 1998 to 7 at June 30, 1999.
Selling and marketing expenses for the quarter were $274,883, an
increase of $51,808 over the same quarter the previous year, but they decreased
as a percentage of revenues from 55.2% in 1998 to 34.2% in 1999. The items
primarily accounting for the increase was the advertising and promotional costs
for the new Web Essentials line of products and an increase in the number of
trade shows attended in 1999 as compared to 1998.
General and administrative expenses increased for the 1999 quarter
compared to the previous year, from $306,713 in 1998 to $396,291 in 1999, but
decreased as a percentage of revenues, from 75.9% in 1998 to 49.3% in 1999.
The items primarily accounting for the increase were legal expenses and costs
associated investor relations. The decrease as percent of sales was due to
the increase in sales of 98.7%, actual dollars spend only increased 29.2%.
Six Months Ended June 30, 1999 and 1998
Revenues for the six months ended June 30, 1999 were $1,576,091, an
increase of $773,453 or 96.4% over revenues for the same period in the prior
year. As a percentage of revenues by product category showed the Company's
Internet directed product line consisting of Internet Message Center ("IMC"),
ListCaster and FileCenter at 93% and 48%, the QmodemPro line at 3% and 8% ,
and the Wildcat! line at nil and 39%, and other at 5% and 3 for the first six
months of 1999 and 1998, respectively. Because of its decision to focus on
products that are designed to facilitate interaction on the Internet, Mustang
sold its Wildcat! WinServer, Wildcat ! BBS and Off-Line Xpress BBS mail reader
product lines to Santronics Software, Inc. of Homestead, Florida in November
1998. That accounts for nil sales of products from this line in the first six
months of 1999.
Gross profit for the first six months increased from $702,790 in 1998
to $1,421,238 in 1999 , and increased as a percentage of revenues from 87.6%
in 1998 to 90.2% in 1999 . Gross profit percentage has averaged approximately
83% to 87% over the last three calendar years. The increase in Gross Profit
percentage from 1998 to 1999 is due mainly to the increase in sales of the
Internet Message Center ("IMC"). The Internet Message Center ("IMC") has higher
average selling prices and gross profit percentages then the Company's previous
lines of products. As more turnkey solutions are sold through the Mustang
Professional Services division, the Company expects the gross profit percentage
to decrease.
<PAGE> 8
Research and development expenses increased $2,276 in the first six
months of 1999 from 1998 , but decreased as a percentage of revenues from
37.6% in 1998 to 19.3% in 1999 . 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. The decrease as
a percent of revenues is due to the actual dollars spent remaining relatively
flat while revenue increased 96.4%.
Selling and marketing expenses for the first six months of 1999
increased $56,419 30 over the same period the previous year, from $470,093
$534,39 to $526,512 . As a percentage of revenues selling and marketing
expenses decreased from 58.6% in 1998 to 33.4% in 1999. The items primarily
accounting for the increase was the advertising and promotional costs for the
Internet Message Center ("IMC") and an increase in travel related expenses 1999
as compared to 1998 .
General and administrative expenses increased $56,090 in the first six
months of 1999 from $687,523 in 1998 to $743,613 in 1999, but as a
percentage of revenues decreased from 85.7% in 1998 to 47.2% in 1999 . The
items primarily accounting for the increase in actual dollars spent were legal
and investor relations expenses.
Liquidity and Capital Resources
Cash and cash equivalents balance at June 30, 1999 were approximately
$2,250,000, an increase of approximately $401,000 from December 31, 1998.
Accounts receivable increased approximately $85,000 and Accounts Payable
increased approximately $66,000 in 1999. Accounts receivable average days to
collect for the quarter ended June 30, 1998 and 1999 were 48 and 40 days,
respectively. Average days to collect in 1998 were 52 days. Management's
goal is to maintain receivable collection days at or below 50 for 1999.
Inventory levels have increased approximately $3,000 in 1999 from December
31, 1998. As well as accrued liabilities have increased approximately $22,000.
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 intends to meet its long-term liquidity needs through
available cash and cash flow as well as through financing from outside sources.
The Company is actively seeking to raise additional capital and has made
arrangements to raise funds through a private placement of securities that will
not be registered under the Securities Act of 1933 and may not be offered or
sold in the United States absent registration or an applicable exemption from
registration requirements. However, there can be no assurance that the Company
will be successful in completing the private placement or otherwise raising
additional capital. Further, there can be no assurance, assuming the Company
successfully raises additional funds, that the Company will achieve
profitability or positive cash flows. If the Company is not successful in
raising additional funds, it appears it will be forced to curtail the scope of
its operations.
<PAGE> 9
Certain Risk Factors That Could Affect Future Results
Variability of Operating Results; Lengthy Sales Cycle. Mustang's expense levels
are based, in part, on its expectations as to future revenues and are not
expected to decrease, at least in the short term. In fact Mustang expects
expenses to increase from those incurred during the first half of 1999 as it
implements a strategy to add sales and support personnel in an effort to grow
revenues. Further, Mustang may from time to time be forced by the competitive
environment in which it competes to make tactical or strategic decisions that
disrupt or reduce anticipated revenues. Moreover, during 1998, which was the
first year that the Company achieved material revenues from IMC and its other
Internet-directed products introduced during 1997, the Company observed a trend
that a disproportionate percentage of the Company's net sales were generated
during the last month of a quarter. As a result, a shortfall in sales in any
quarter as compared to expectations may not be identifiable until the end of a
quarter. Mustang may not be able to adjust its spending plan in a timely manner
to compensate for any future revenue shortfall. Any significant shortfall in
sales in relation to the Company's revenue expectations would have a material
adverse impact on the Company's business, results of operations, financial
condition and prospects.
The purchase of the Enterprise Edition of IMC, the Company's core product,
involves a significant commitment of customers' personnel and other resources.
Furthermore, the cost of the software is typically only a small portion of the
related hardware, development, training and integration costs associated with
implementing a complete e-mail management solution. For these and other
reasons, the sales cycle associated with the purchase of IMC is typically
complex, lengthy and subject to a number of significant risks. Such risks
include changes in customers' budgetary constraints and approval at senior
levels of customers' organizations, over which the Company has no control.
The Company's sales cycle can range from four to six months or more and
varies substantially from customer to customer. Because of the lengthy sales
cycle and the dependence of the Company's quarterly revenues upon a relatively
small number of orders that represent large dollar amounts, the loss or delay
of a single order could have a material adverse effect on the Company's
business, financial condition and results of operations.
Uncertainty of Market for E-mail Management Software and Dependence upon IMC.
Prior to 1998, most of the Company's revenues were derived from its Wildcat!
WinServer and BBS software. Beginning in the second quarter of 1997 and
continuing throughout the year, Mustang changed its focus and launched new
products designed to facilitate interaction on the Internet's World Wide Web.
Mustang released the Business Edition of IMC in September 1997 and its core
product, the Enterprise Edition, in February 1998. The future of the Company is
dependent upon the acceptance by the market of IMC and Mustang's ability to
market this e-mail management solution and related services successfully. IMC
accounted for over 50 percent of the Company's net sales during 1998, but
Mustang has only limited operating history with respect to this product. As a
result, as well as the recent emergence of the commercial e-mail management
market, the Company has neither internal nor industry-based historical
financial data for a significant period upon which to project revenues or
base planned.
<PAGE> 10
operating expenses. Future operating results will depend on a variety of
factors, including Mustang's ability to maintain or increase market demand for
IMC, and its other products and services, usage and acceptance of the Internet
the introduction and acceptance of new, enhanced or alternative products or
services by Mustang or its competitors. Other factors that could affect its
operating results include Mustang's ability to anticipate and effectively adapt
to a developing market and to rapidly changing technologies, the financial
resources Mustang has to devote to developing enhanced versions of its
products, general economic conditions, competition by existing and emerging
competitors, software defects and other quality control problems and the mix
of products and services sold.
Undeveloped and Rapidly Changing Markets. The markets for Mustang's products
and services are at a very early stage of development, are rapidly changing
and are characterized by an increasing number of market entrants that have
introduced or are developing competing products and services for use on
the Internet and the World Wide Web. As is typical for a new and rapidly
evolving industry, demand for and market acceptance of recently introduced
products and services are subject to a high level of uncertainty and risk.
Acceptance and usage of the IMC is dependent on continued growth in use of
e-mail as a primary means of communications by businesses and consumers.
Businesses that already have invested substantial resources in traditional
or other methods of conducting business may be reluctant to adopt new
commercial methodologies or strategies that may limit or compete with
their existing businesses. Individuals with established patterns of
purchasing goods and services may be reluctant to alter those patterns.
Accordingly, it is not assured that sufficient demand for Mustang's
products and services will develop to sustain Mustang's business.
There can be no assurance that use of e-mail as a primary method of
communication or commerce over the Internet will become widespread, that a
substantial market for Mustang's products and services will emerge or that the
IMC will be generally adopted. Mustang's business, financial condition and
results of operations will be materially and adversely affected if the market
fails to develop as expected or develops more slowly than expected. Similarly,
Mustang's business, financial condition and results of operations will be
materially and adversely affected if the Internet infrastructure is not
adequately expanded or managed, or if Mustang's products and services do not
achieve market acceptance by a significant number of businesses.
Competition. The market for e-mail message management products and services is
intensely competitive, and Mustang expects competition to increase
significantly. There are no substantial barriers to entry into Mustang's
business, and it expects established and new entities to enter the market for
e-mail message management products and services in the near future. It is
possible that a single supplier will dominate one or more market segments
including e-mail management, customer service and call center automation.
Furthermore, since there are many potential entrants to the field, it is
extremely difficult to assess which companies are likely to offer competitive
products and services in the future, and in some cases it is difficult to
discern whether an existing product or service is competitive with the IMC.
<PAGE> 11
Mustang's principal competitors in the e-mail message management market include
Adante, Aptex Software, Brightware, eGain, General Interactive, Kana
Communications, MessageMedia and Micro Computer Systems, each of which provides
software solutions for e-mail management. Mustang also competes with other
firms that provide e-mail message management services on an outsourcing
basis. The Company competes with a number of independent software suppliers
who offer Web Server or telecommunications software as or among their
product line(s). Several of Mustang's current and potential competitors
have greater name recognition, larger installed customer bases, more
diversified lines of products and services and significantly greater
financial, technical, marketing and other resources than Mustang. Such
competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to businesses to induce them to use their products or services. Such
competitors may also be able to devote more financial resources and personnel
to research and development activities, which could have the effect of
making their products more technologically advanced and attractive to
customer than Mustang's products.
Limited Intellectual Property and Proprietary Rights. Mustang relies on a
combination of trade secret, copyright and trademark laws, nondisclosure
agreements and other contractual provisions and technical measures to protect
its proprietary rights. Mustang believes that, due to the rapid pace of
technological innovation for Internet products, Mustang's ability to establish
and maintain a position of technology leadership in the industry depends more
on skills of its development personnel than upon the legal protections
afforded its existing technology. There can be no assurance that trade secret,
copyright and trademark protections will be adequate to safeguard the
proprietary software underlying Mustang's products and services. Similarly,
there can be no assurance that agreements with employees, consultants and
others who participate in the development of its software will not be
breached, that Mustang will have adequate remedies for any breach or that
Mustang's trade secrets will not otherwise become known. Mustang also faces
the risk that notwithstanding Mustang's efforts to protect its intellectual
property, competitors will be ableto develop functionally equivalent e-mail
message management technologies without infringing any of Mustang's
intellectual property rights. Despite Mustang's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain and use products or technology that Mustang considers proprietary,
and third parties may attempt to develop similar technology independently.
In addition, effective protection of intellectual property rights may be
unavailable or limited in certain countries. Accordingly, there can be no
assurance that Mustang's means of protecting its proprietary rights will
be adequate or that Mustang's competitors will not independently develop
similar technology.
As the use of the Internet for commercial activity increases, and the number of
products and service providers that support Internet commerce increases, Mustang
believes that Internet commerce technology providers may become increasingly
subject to infringement claims. There can be no assurance that plaintiffs will
not file infringement claims in the future. Any such claims, with or without
merit, could be time consuming, result in costly litigation, disrupt or delay
the enhancement or shipment of Mustang's products and services or require
<PAGE> 12
Mustang to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable or favorable
to Mustang, which could have a material adverse effect on Mustang's business,
financial condition and results of operations. In addition, Mustang may initiate
claims or litigation against third parties for infringement of Mustang's
proprietary rights or to establish the validity of Mustang's proprietary rights.
Dependence of Key Personnel. The Company is dependent upon James A. Harrer, its
President and Chief Executive Officer and C. Scott Hunter, its Vice President
and Chief Technical Officer. The loss of either of these executives could have a
material adverse effect on the Company. While the Company has one- year
employment agreements with these executives, such agreements are terminable by
each without any reason upon four months notice. Moreover, unforeseen
circumstances could cause either of them to no longer render services to the
Company. Mustang has key-man life insurance on the life of Mr. Harrer for
$1,000,000. There can be no assurance that the proceeds from this policy will be
sufficient to compensate the Company in the event of Mr. Harrer's death, and
this policy does not cover the Company in the event that he becomes disabled or
is otherwise unable to render services to the Company. Mustang's success of the
Company is also dependent upon its ability to attract and retain highly
qualified personnel. There can be no assurance that the Company will be able to
recruit and retain such personnel.
Dependence on Increased Usage; Stability of the Internet. The demand for
products used on the Internet such as those offered by Mustang will depend in
significant part on continued rapid growth in the number of households and
commercial, educational and government institutions with access to the Internet,
in the level of usage by such entities. Usage of the Internet as a source for
information, products and services is a relatively recent phenomenon.
Accordingly, it is difficult to predict whether the number of users drawn to the
Internet will continue to increase and whether any significant market for usage
of the Internet for such purposes will continue to develop and expand. There can
be no assurance that Internet usage patterns will not decline as the novelty of
the medium recedes or that the quality of products and services offered online
will improve significantly to continue to support user interest. In addition, it
is uncertain whether the cost of Internet access will decline. Failure of the
Internet to stimulate user interest and be accessible to a broad audience at
moderate costs would jeopardize the markets for Mustang's products and services.
Issues regarding the stability of the Internet's infrastructure remain
unresolved. The rapid rise in the number of Internet users and increased
transmission of audio, video, graphical and other multimedia content over the
Internet has placed increasing strains on the Internet's communications and
transmission infrastructures. Continuation of such trends could lead to
significant deterioration in transmission speeds and reliability of the Internet
and could reduce the usage of the Internet by businesses and individuals. The
Internet continues to experience significant growth in the number of users and
level of use. Without corresponding increases and improvements in the Internet
infrastructure, there can be no assurance that the Internet will be able to
support the demands placed upon it by such continued growth. Any failure of the
Internet to support such increasing number of users due to inadequate
<PAGE> 13
infrastructure, or otherwise, would seriously limit the development of the
Internet as a viable source of communication or commerce. This could materially
and adversely affect the acceptance of Mustang's products and services which
would, in turn, materially and adversely affect Mustang's business, results of
operations, financial condition and prospects.
Government Regulation and Legal Uncertainties. Mustang believes it is not
currently subject to direct regulation by any government agency in the U.S.,
other than regulations generally applicable to businesses, and there are
currently few laws or regulations directly applicable to access to, or commerce
on, the Internet. However, there can be no assurance that federal, state or
foreign agencies will not attempt in the near future to begin to regulate the
market for Internet commerce. More generally, due to the increasing popularity
and use of the Internet, it is possible that a number of laws and regulations
will be adopted with respect to the Internet, covering issues such as user
privacy, pricing, taxation and characteristics and quality of products and
services. For example, the Telecommunications Reform Act of 1996 may subject
certain Internet content providers to criminal penalties for the transmission of
certain information and could also result in liability to Internet service
providers, World Wide Web hosting sites and transaction facilitators such as
Mustang. Various foreign jurisdictions have also moved to regulate access to the
Internet and to strictly control World Wide Web content. Even if Mustang's
business is not directly subject to regulation, the adoption of any such laws or
regulations may inhibit the growth of the Internet, or the businesses of the
users of Mustang's products and services, which could in turn adversely affect
Mustang's business, financial condition and results of operations. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel, taxation and personal privacy is uncertain. Such uncertainty
creates the risk that such laws could be interpreted in a manner that could
generally inhibit commerce on the Internet and adversely impact Mustang's
business.
Due to the growth of Internet commerce, Congress has considered regulating
providers of services and transactions in this market, and federal or state
authorities could enact laws, rules or regulations affecting Mustang's business
or operations. Government agencies may promulgate rules and regulations
affecting Mustang's activities or those of the users of its products and
services. Any or all of these potential actions could result in increased
operating costs for Mustang or for the principal users of its products or
services and could also reduce the convenience and functionality of Mustang's
products or services. This could result in reduced market acceptance, which
would have a material adverse effect on Mustang's business, financial condition
and results of operations.
<PAGE> 14
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two- digit entries in date code fields.
Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century dates. As
a result, in less than a year, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Mustang designed IMC and its other products to be Year 2000 compliant and has
completed a systematic effort to identify any Year 2000 compliance problems in
the various components of its products. However, significant uncertainty exists
concerning the potential effects associated with compliance. Although Mustang
believes that Mustang's IMC and other products are Year 2000 compliant, there
can be no assurance that coding errors or other defects will not be discovered
in the future. Moreover, Year 2000 problems affecting other hardware or software
products which Mustang's customers rely on or intend to use beyond the end of
1999 could adversely affect the use or functionality of Mustang's products. Any
Year 2000 compliance problem of Mustang, its service providers, its customers or
the Internet infrastructure could result in a material adverse effect on the
Company's business, operating results and financial conditions.
Nasdaq Maintenance Requirements; Possible Delisting of Common Stock from Nasdaq
Market. Mustang currently lists its common stock on The Nasdaq SmallCap Market.
Nasdaq moved the listing from the Nasdaq National Market to The Nasdaq Small Cap
Market on October 15, 1998 because the Company did not meet the maintenance
requirements for the Nasdaq National Market. Mustang has to maintain certain
minimum requirements for the continued listing of its common stock on The Nasdaq
SmallCap Market. In this regard, it needs: net tangible assets of at least
$2,000,000, or a market capitalization of at least $35,000,000, or net income in
two of the last three years of at least $500,000; a public float of at least
500,000 shares with a minimum market value of $1,000,000; a minimum bid price of
at least $1.00 per share; and a minimum of two active market makers and 300
round lot shareholders. While Mustang met the requirements for continued listing
at December 31, 1998, it reported only $2,251,247 of net tangible assets at that
date. Accordingly, if the Company reports losses during the quarter ending
September 30, 1999 or future quarters that causes its net tangible assets to
drop below $2,000,000 and if it is unable or unwilling to raise needed capital
to satisfy the net tangible asset requirement, it could be delisted from The
Nasdaq Stock Market. Similarly, if Mustang is unable to satisfy Nasdaq's other
maintenance requirements, Nasdaq may delist its common stock from The Nasdaq
Stock Market. If Mustang's stock is delisted from The Nasdaq Stock Market,
public trading, if any, in the common stock would be limited to the
over-the-counter markets in the so-called "pink sheets" or the NASD's OTC
Electronic Bulletin Board. Consequently, the liquidity of its common stock and
Mustang's ability to raise additional equity capital, if required, could be
impaired.
<PAGE> 15
Penny Stock Regulation. If Nasdaq delisted its common stock from the Nasdaq
Stock Market, Mustang could become subject to Rule 15g-9 under the Securities
Exchange Act of 1934. This rule imposes additional sales practice requirements
on broker-dealers who sell so-called "penny" stocks to persons other than
established customers and "accredited investors." Generally, accredited
investors are individuals with a net worth more than $1,000,000 or annual
incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction before sale. Consequently, the rule may
adversely affect the ability of broker-dealers to sell our shares in the
secondary market.
Subject to some exceptions, the SEC's regulations define a "penny stock" to be
any non-Nasdaq equity security that has a market price of less than $5.00 per
share. Unless exempt, the rules require delivery, prior to any transaction in a
penny stock, of a disclosure schedule relating to the penny stock market and the
associated risks. The rules also require disclosure about commissions payable to
both the broker-dealer and the registered representative and current quotations
for the securities. Finally, the rules require that broker-dealers send monthly
statements disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks. If Mustang's
common stock became subject to the rules applicable to penny stocks, the market
liquidity for the common stock could be severely adversely affected.
<PAGE> 16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On June 7, 1999, 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 3,529,650 1,575
Anthony Mazzarella 3,529,650 1,575
Stanley A. Hirschman 3,529,650 1,575
Michael S. Noling 3,529,650 1,575
Phillip E. Pearce 3,529,650 1,575
To approve amendments to the Company's 1994 Incentive and Nonstatutory Stock
Option Plan to increase the total number of shares of Common Stock that can be
optioned and sold under the Stock Option Plan to 1,100,000 shares. 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 BROKER NON-VOTES
1,190,600 155,820 19,104 2,165,701
To ratify the appointment of Arthur Andersen LLP as the Company's independent
accountants for the year ending December 31, 1999. 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
3,526,825 4,206 194
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) No Form 8-K was filed during the quarter ended June 30, 1999.
(b) Exhibits. The following exhibit is filed as a part of this Report.
Ex. 11 Computation of Earnings Per Share
Ex. 27 Financial Data Schedule.
<PAGE> 18
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
_/s/ James A. Harrer___
James A. Harrer President and Chief Executive August 13, 1999
Officer (Principal Executive
Officer) and a Director
_/s/ Donald M. Leonard_
Donald M. Leonard Vice President and Chief August 13, 1999
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding 4,592 3,451 4,417 3,434
Common stock equivlents from outstanding
stock options 0 0 0 0
- - ------------------------------------------------------------------------------
Average common and common stock
equivalents outstanding 4,592 3,451 4,417 3,434
================================================================================
Net Income $(113) $ (303) $ (103) $ (747)
================================================================================
Earnings per share (1) $(.02) $ (.09) $ (.02) $ (.22)
================================================================================
</TABLE>
(1) Fully diluted earnings per share have not been presented because the effects
are not material.
- - -----------------------------------------------------------------------------
<TABLE> <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-31-1999
<PERIOD-END> Jun-30-1999
<CASH> $2,251,247
<SECURITIES> 0
<RECEIVABLES> 494,430
<ALLOWANCES> 150,000
<INVENTORY> 12,444
<CURRENT-ASSETS> 2,758,121
<PP&E> 1,305,358
<DEPRECIATION> (734,125)
<TOTAL-ASSETS> 3,347,643
<CURRENT-LIABILITIES> 608,219
<BONDS> 0
0
0
<COMMON> 8,086,642
<OTHER-SE> (6,406,166)
<TOTAL-LIABILITY-AND-EQUITY> 3,347,643
<SALES> 803,109
<TOTAL-REVENUES> 803,109
<CGS> 106,292
<TOTAL-COSTS> 106,292
<OTHER-EXPENSES> 845,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,562
<INCOME-PRETAX> (112,386)
<INCOME-TAX> 800
<INCOME-CONTINUING> (113,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113,186)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
