UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended September 30, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 Commission File Number: 0-25678
MUSTANG SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
California
(State of incorporation)
77-0204718
(I.R.S. employer identification number)
6200 Lake Ming Road
Bakersfield, California 93306
(Address of principal executive offices)
(805) 873-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes [X] No [ ]
As of October 14, 1996, there were 3,362,940 shares of the Registrant's
Common Stock outstanding.
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2
MUSTANG SOFTWARE, INC.
FORM 10-QSB
INDEX
Page
PART I. Financial Information:
Balance Sheets as of September 30, 1996 and December 31, 1995 3
Statements of Operations for the three and nine months ended
September 30, 1996 and 1995 4
Statements of Cash Flows for the nine months ended
September 30, 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 9
Signatures 10
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3
MUSTANG SOFTWARE, INC.
BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 3,384,448 $ 5,615,404
Accounts receivable, net of allowance
for doubtful accounts of $425,000 and
$400,000 at December 31, 1995 and
September 30, 1996, respectively 107,831 352,174
Income taxes receivable 404,340 404,340
Inventories 167,637 230,486
Other 65,652 28,945
- - - ----------------------------------------------------------------------------
Total current assets 4,129,908 6,631,349
- - - ----------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Property and equipment 1,322,224 1,270,765
Accumulated depreciation (403,092) (278,603)
- - - ----------------------------------------------------------------------------
Net property and equipment 919,132 992,162
- - - ----------------------------------------------------------------------------
OTHER ASSETS:
Capitalized software development costs, net 9,730 22,483
Other 54,897 30,882
- - - ----------------------------------------------------------------------------
Total other assets 64,627 53,365
= ==============================================================================
Total Assets $5,113,667 $7,676,876
= ==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $619,025 $750,124
Accrued payroll and liabilities 174,969 145,077
Accrued warranty and support 45,000 45,000
Deferred revenue 80,000 88,500
- - - ----------------------------------------------------------------------------
Total current liabilities 918,994 1,028,701
- - - ----------------------------------------------------------------------------
CAPITAL LEASE OBLIGATION,
NET OF CURRENT PORTION 357,537 399,060
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 3,362,940
shares at December 31,1995
and September 30, 1996, respectively 6,604,383 6,598,632
Retained earnings (2,767,247) (349,517)
- - - ----------------------------------------------------------------------------
Total shareholders' equity 3,837,136 6,249,115
- - - ----------------------------------------------------------------------------
Total Liabilities & Shareholders Equity $5,113,667 $7,676,876
= ==============================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
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<PAGE 4>
MUSTANG SOFTWARE, INC.
STATEMENTS OF OPERATIONS
Three Months Ended Sept 30, Nine Months Ended Sept 30,
1996 1995 1996 1995
REVENUE $ 755,235 $ 2,602,972 $ 3,224,233 $ 4,586,560
COSTS OF REVENUE 114,903 411,396 579,122 780,634
- - - --------------------------------------------------------------------------------------------------
Gross profit 640,332 2,191,576 2,645,111 3,805,926
- - - --------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 242,096 264,068 733,144 542,811
Selling and marketing 1,028,439 841,688 2,780,308 1,571,150
General and administrative 518,917 542,666 1,716,235 1,364,303
- - - --------------------------------------------------------------------------------------------------
Total operating expenses 1,789,452 1,648,422 5,229,687 3,478,264
- - - --------------------------------------------------------------------------------------------------
Income(loss)from operations (1,149,120) 543,154 (2,584,576) 327,662
- - - --------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (10,424) (11,645) (32,591) (34,857)
Interest income 41,377 82,730 197,436 170,250
Gain/loss on sale of asset 0 0 2,000 0
- - - -------------------------------------------------------------------------------------------------
Total other income (exp.) 30,953 71,085 166,845 135,393
- - - --------------------------------------------------------------------------------------------------
Income (loss) before
provision for income taxes (1,118,167) 614,239 (2,417,731) 463,055
- - - --------------------------------------------------------------------------------------------------
PROVISION (BENEFIT)
FOR INCOME TAXES -- 195,500 -- 150,000
- - - --------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(1,118,167) $ 418,739 $(2,417,731) $ 313,055
= ====================================================================================================
NET INCOME (LOSS)
PER COMMON SHARE $(.33) $ .12 $ (.72) $ .11
= ====================================================================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,362,940 3,390,000 3,360,570 2,965,300
<FN>
The accompanying notes are an integral part of these financial statements.
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5
MUSTANG SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $(2,417,731) $ 313,055
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 145,044 108,600
Net changes in assets
and liabilities 128,962 (615,048)
- - - -------------------------------------------------------------------------
Net cash used by
operating activities (2,143,725) (193,393)
- - - -------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITES:
Purchase of property
and equipment (51,459) (233,022)
- - - -------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance
of stock 5,751 6,584,538
Payments on capital lease obligation (41,523) (39,000)
- - - -------------------------------------------------------------------------
Net Cash provided (used) by
financing activities (35,772) 6,545,538
- - - -------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (2,230,956) 6,119,123
CASH BALANCE, beginning of period 5,615,404 209,799
- - - -------------------------------------------------------------------------
CASH BALANCE, end of period $ 3,384,448 $ 6,328,922
= ===========================================================================
SUPPLEMENTAL DISCLOSURES:
Interest paid 32,591 34,857
Taxes paid 0 230,000
<FN>
The accompanying notes are an integral part of these financial statements.
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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.
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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 September 30, 1996 and 1995
- - ---------------------------------------------
Revenues for the three months ended September 30, 1996 were $755,235 a
decrease of $1,847,737 or 71% under revenues for the same period in 1995.
As a percentage of revenues by product category for the third quarter 1996
vs. 1995 showed the QmodemPro line at 9% and 86%, the Wildcat! line at 88%
and 12%, and other products at 2% and 2%, respectively. The large percentage
of Wildcat! revenues was directly related to the launch of Wildcat! v.5 for
Win95/NT in the first quarter of 1996, while the large QmodemPro percentage
in 1995 was due to the launch of QmodemPro for Windows 95 in August 1995.
Gross profit for the quarter decreased from $2,191,576 in 1995 to $640,332
in 1996, and increased slightly as a percentage of revenues from 84.2% in
1995 to 84.8% in 1996. Gross profit percentage has averaged approximately
80-84% over the last three calendar years.
Research and development expenses decreased $21,972 in the third quarter of
1996 from 1995, but increased as a percentage of revenues from 10.1% in 1995
to 32.1% 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 headcount in this department decreased from 14
to 13 in 1995 to 1996, respectively.
Selling and marketing expenses for the quarter were $1,028,439, an increase
of $186,751 over the same quarter the previous year, and they increased as
a percentage of revenues from 32.3% in 1995 to 136.2% 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 7 in 1995 to 10 in 1996, also
contributed to the increase.
General and administrative expenses decreased for the quarter over the
previous year, from $542,666 in 1995 to $518,917 in 1996, but increased
as a percentage of revenues, from 20.8% in 1995 to 68.7% in 1996. The
General and administrative headcount remained the same from the prior year.
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8
Nine Months Ended September 30, 1996 and 1995
- - --------------------------------------------
Revenues for the nine months ended September 30, 1996 were $3,224,233, a
decrease of $1,362,327 or 29.7% over revenues for the same period in the
prior year. As a percentage of revenues by product category showed the
QmodemPro line at 3% and 61%, the Wildcat! line at 95% and 35%, and other
at 2% and 4% for the first nine months of 1996 and 1995, respectively. The
large percentage of revenues attributed to the Wildcat! line in the nine
months ended September 30, 1996 was due to the launch of Wildcat! v.5 for
Windows95/NT in March 1996, while the large percentage of revenue attributed
to the QmodemPro line in 1995 came from the launch of QmodemPro for Windows 95
in August 1995.
Gross profit for the first nine months decreased from $3,805,926 in 1995 to
$2,645,111 in 1996, and decreased slightly as a percentage of revenues from 83%
in 1995 to 82% in 1996. Gross profit percentage has averaged approximately
80-84% over the last three calendar years.
Research and development expenses increased $190,333 in the first nine months of
1996 from 1995, and increased as a percentage of revenues from 11.8% in 1995 to
22.7% in 1996. Absolute spending increased 35% due in large part to the hiring
of additional engineers by the Company and increases in engineers' salaries. 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 and to continue recruiting and hiring experienced software
developers, while at the same time considering the acquisition of software
businesses and technologies.
Selling and marketing expenses for the first nine months of 1996 increased
$1,209,158 over the same period the previous year, from $1,571,150 to
$2,780,308. As a percentage of revenues selling and marketing expenses increased
from 34.3% in 1995 to 86.2% in 1996. The items primarily accounting for the
increase were advertising and promotional costs for existing products and
the launch of Wildcat! v.5 for Windows 95/NT in March 1996 as well as the
release of 9 add-on products to the Wildcat! line.
General and administrative expenses increased $351,932 in the first nine months
of 1996 from $1,364,303 in 1995 to $1,716,235 in 1996, and as a percentage of
revenues increased from 29.7% in 1995 to 53.2% in 1996. The items primarily
accounting for the increase were higher personnel and facility costs associated
with increased operations and expenditures to support the Company's
infrastructure and additional cost associated with the Company going public in
April 1995.
Liquidity and Capital Resources
- - -------------------------------
Cash and cash equivalents balance at September 30, 1996 were approximately
$3,384,000, a decrease of approximately $2,231,000 from December 31, 1995.
Accounts receivable decreased approximately $244,000 in 1996. Accounts
receivable average days to collect for the quarter ended September 30, 1995
and 1996 were both 48 days. Average days to collect for the year 1995 was
50 days. Management's goal is to maintain receivable collection days at or
below 50 for 1996. Inventory levels have decreased approximately $63,000 in
1996 from December 31, 1995 amounts.
Longer term cash requirements, other than normal operating expenses, are
anticipated for development of new software products and enhancements of
existing products, launching new products and enhancements, 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.
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Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1996.
There are no exhibits to this report.
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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 November 14, 1996
_____________________
Donald M. Leonard Vice President Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer) November 14, 1996