UNITED STATES SECURITIES AND EXCHANGE COMMISSION 				 Washington, D.C. 20549 ------------------- FORM 10-QSB [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended March 31, 1996. [ ]		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 May 5, 1996, there were 3,358,200 shares of the Registrant's Common Stock outstanding. ============================================================================== 2 MUSTANG SOFTWARE, INC. FORM 10-QSB INDEX 		 PART I. Financial Information: Page Balance Sheets as of March 31, 1996 and December 31, 1995 3 Statements of Operations for the three ended March 31, 1996 and 1995 4 Statements of Cash Flows for the three months ended March 31, 1996 and 1995 5 Notes to Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. Other Information: Exhibits and Reports on Form 8-K 8 Signatures 9 ============================================================================= 3 MUSTANG SOFTWARE, INC. BALANCE SHEETS ASSETS March 31, 1996 December 31 1995 						 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 5,037,683 $ 5,615,404 Accounts receivable, net of allowance for doubtful accounts of $425,000 and $825,000 at December 31, 1995 and March 31, 1996, respectively 464,251 352,174 Income taxes receivable 404,340 404,340 Inventories 324,964 230,486 Other 4,679 28,945 - - ---------------------------------------------------------------------------- Total current assets 6,235,917 6,631,349 - - ---------------------------------------------------------------------------- PROPERTY AND EQUIPMENT: Property and equipment 1,303,424 1,270,765 Accumulated depreciation (318,653) (278,603) - - ---------------------------------------------------------------------------- Net property and equipment 984,771 992,162 - - ---------------------------------------------------------------------------- OTHER ASSETS: Capitalized software development costs, net 18,232 22,483 Other 28,616 30,882 - - ---------------------------------------------------------------------------- Total other assets 46,848 53,365 - - ---------------------------------------------------------------------------- Total Assets 		 $7,267,536 $7,676,876 = ============================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $956,823 $750,124 Accrued payroll and liabilities 156,310 145,077 Accrued warranty and support 45,000 45,000 Deferred revenue 123,100 88,500 - - ---------------------------------------------------------------------------- Total current liabilities 1,281,233 1,028,701 - - ---------------------------------------------------------------------------- CAPITAL LEASE OBLIGATION, net of current portion 385,557 399,060 - - ---------------------------------------------------------------------------- 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-- 3,356,000 and 3,358,200 shares at December 31,1995 and March 31, 1996, respectively 6,601,633 6,598,632 Retained earnings (1,000,887) (349,517) - - ---------------------------------------------------------------------------- Total shareholders' equity 5,600,746 6,249,115 - - ---------------------------------------------------------------------------- Total Liabilities & Shareholders Equity $7,267,536 $7,676,876 = ============================================================================ The accompanying notes are an integral part of these financial statements. ============================================================================== 4 MUSTANG SOFTWARE, INC. STATEMENTS OF OPERATIONS 			 Three Months Ended March 31, 			 1996 1995 REVENUE $1,203,354 $1,050,768 COSTS OF REVENUE 217,736 190,630 - - ---------------------------------------------------------------------------- Gross profit 985,618 860,138 - - ---------------------------------------------------------------------------- OPERATING EXPENSES: Research and development 202,069 133,615 Selling and marketing 896,004 261,878 General and administrative 613,482 438,652 - - ---------------------------------------------------------------------------- Total operating expenses 1,711,555 834,145 - - ---------------------------------------------------------------------------- Income(loss)from operations (725,937) 25,993 - - ---------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest expense (11,254) (10,755) Interest income 85,821 1,468 - - ---------------------------------------------------------------------------- Total other(income)exp. 74,567 (9,287) - - ---------------------------------------------------------------------------- Income (loss) before provision for income taxes (651,370) 16,706 - - ---------------------------------------------------------------------------- PROVISION (BENEFIT) FOR INCOME TAXES -- 5,000 - - ---------------------------------------------------------------------------- NET INCOME (LOSS) $ (651,370) $ 11,706 = ============================================================================ NET INCOME (LOSS) PER COMMON SHARE $ (.19) $ .01 = ============================================================================ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,358,200 2,131,000 The accompanying notes are an integral part of these financial statements. ============================================================================== 5 MUSTANG SOFTWARE, INC. STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income(loss) $ (651,370) $ 11,706 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 46,902 36,200 Net changes in assets and liabilities 69,909 (107,035) - - ---------------------------------------------------------------------------- Net cash provided (used) by operating activities (534,559) (59,129) - - ---------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITES: Purchase of property and equipment (32,659) (47,073) - - ---------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of stock 3,000 -- Payments on capital lease obligation (13,503) (13,000) - - ---------------------------------------------------------------------------- Net Cash provided (used) by financing activities (10,503) (13,000) - - ---------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH (577,721) (119,202) CASH BALANCE, beginning of period 5,615,404 209,799 - - ---------------------------------------------------------------------------- CASH BALANCE, end of period $5,037,683 $ 90,597 = ============================================================================ SUPPLEMENTAL DISCLOSURES: Interest paid 11,254 10,755 Taxes paid 0 0 	 The accompanying notes are an integral part of these financial statements. ============================================================================== 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, 1995, included in the 1995 Form 10KSB. The condensed Balance Sheet at December 31, 1995 has been taken from the audited financial statements at that date and condensed. ============================================================================= 7 MUSTANG SOFTWARE, INC. 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, 1995. Results of Operations: Three Months Ended March 31, 1996 and 1995 Revenues for the three months ended March 31, 1996 were $1,203,354 an increase of $152,586 or 14.5% over revenues for the same period in 1995. As a percentage of revenues by product category for the first quarter 1996 vs. 1995 showed the QmodemPro line at 1% and 30%, the Wildcat! line at 96% and 63%, and other products at 3% and 7%, respectively. The increase in Wildcat! revenues was directly related to the release of Wildcat! version 5 in March 1996. Gross profit for the quarter increased from $860,138 in 1995 to $985,618 in 1996, and increased as a percentage of revenues from 81.8% in 1995 to 81.9% in 1996. Gross profit percentage has averaged between 80-84% over the last three calendar years. Research and development expenses increased $68,454 in the first quarter of 1996 from 1995, and increased as a percentage of revenues from 12.7% in 1995 to 16.8% in 1996. 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 expects that the release of Windows 95 by Microsoft will generate demand for products capable of making use of its new features, and has devoted a substantial portion of its research and development expenditures to such products. The headcount in this department increased from 11 to 14 in 1995 to 1996, respectively. Selling and marketing expenses for the quarter were $896,004, an increase of $634,126 over the same quarter the previous year, and they increased as a percentage of revenues from 24.9% in 1995 to 74.4% in 1996. The items primarily attributing to the increase were advertising and promotional costs of existing products and the launch of Wildcat! version 5 in March 1996. The increase in headcount from 3 in 1995 to 17 in 1996, also contributed to the increase. General and administrative expenses increased for the quarter over the previous year, from $438,652 in 1995 to $613,482 in 1996, and increased as a percentage of revenues, from 41.7% in 1995 to 50.9% in 1996. The items primarily accounting for the increase were, insurance, investor relations, and legal and accounting expenses. These increases were directly related to the Company going public in April 1995. The General and administrative headcount increased 27% from the prior year. ============================================================================== 8 Liquidity and Capital Resources Cash and cash equivalents balance at March 31, 1996 were approximately $5,038,000, an decrease of approximately $578,000 from December 31, 1995. Accounts receivable increased approximately $113,000 in 1996. Accounts receivable average days to collect for the quarter ended March 31, 1995 and 1996 were 53 and 68 days, respectively. Average days to collect in 1995 was 50 days. Management's goal is to maintain receivable collection days at or below 50 for 1996. Inventory levels have increased $94,500 in 1996 from December 31, 1995. The increase is due to the introduction of the two new product lines QmodemPro for Windows 95 in August 1995 and Wildcat! for Windows95/NT in March 1996. 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, 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. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1996. There are no exhibits to this report. =============================================================================== 9 	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 Officer (Principal Executive Officer) and a Director May 14, 1996 Donald M. Leonard Vice President Finance and Chief Financial Officer (Principal Financial and Accounting Officer) May 14, 1996