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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SIX MONTHS ENDED MARCH 31, 1995 COMMISSION FILE NO. 0-11527
MPSI SYSTEMS INC.
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(Exact name of registrant as specified in its charter)
Delaware 73-1064024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8282 South Memorial Drive, Tulsa Oklahoma 74133
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 250-9611
------------------------------
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
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Number of shares of common stock outstanding at March 31, 1995 - 2,728,412
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INDEX
<TABLE>
<CAPTION>
Page No.
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Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - March 31, 1995 and September 30, 1994 . . . . . . . . . . 3
Consolidated Statements of Operations - Three Months and Six Months
Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity - Six Months
Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flow - Six Months Ended
March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 8
Management's Discussion and Analysis of Financial Condition and
Quarterly Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part II. OTHER INFORMATION (Including Index to Exhibits) . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
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March 31, September 30,
1995 1994
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 860,000 $ 635,000
Short-term investments, at cost 46,000 44,000
Receivables:
Trade 2,749,000 2,089,000
Current portion of long-term receivables 1,749,000 2,313,000
Work in process inventory 876,000 532,000
Prepayments 298,000 216,000
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Total current assets 6,578,000 5,829,000
Long-term receivables, net of current portion
and unamortized discount 1,798,000 1,790,000
Property and equipment, net of accumulated amortization 1,005,000 987,000
Software products, net of accumulated amortization 634,000 601,000
Other assets 537,000 527,000
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Total assets $ 10,552,000 $ 9,734,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
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March 31, September 30,
1995 1994
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(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,015,000 $ 1,224,000
Accrued liabilities 1,399,000 1,160,000
Deferred revenue 3,582,000 3,392,000
Net current liabilities of discontinued operations 11,000 58,000
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Total current liabilities 6,007,000 5,834,000
Non-current deferred revenue 1,240,000 1,068,000
Other noncurrent liabilities 248,000 349,000
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Total liabilities 7,495,000 7,251,000
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Commitments and contingencies - -
Stockholders' equity (Note 2):
Preferred Stock, $.10 par value, 1,000,000
shares authorized, none issued or
outstanding - -
Common Stock, $.05 par value, 20,000,000 shares
authorized, 2,728,000 shares issued
and outstanding at March 31, 1995 and
September 30, 1994 136,000 136,000
Junior Common Stock, $.05 par value, 500,000
shares authorized, none issued or
outstanding - -
Additional paid-in capital 12,742,000 12,742,000
Deficit (10,811,000) (11,369,000)
Foreign currency translation adjustment 990,000 974,000
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Total stockholders' equity 3,057,000 2,483,000
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Total liabilities and stockholders' equity $10,552,000 $ 9,734,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------------
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Revenues:
Software maintenance and information services $ 5,055,000 $ 4,062,000 $ 9,714,000 $ 8,406,000
Software licensing 225,000 1,065,000 477,000 1,078,000
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Total revenues 5,280,000 5,127,000 10,191,000 9,484,000
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Cost of Sales:
Software maintenance and information services 1.986,000 1,763,000 3,890,000 3,433,000
Software licensing 50,000 62,000 79,000 122,000
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Total cost of sales 2,036,000 1,825,000 3,969,000 3,555,000
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Gross profit 3,244,000 3,302,000 6,222,000 5,929,000
Operating expenses:
General and administrative 645,000 644,000 1,291,000 1,254,000
Marketing 1,760,000 1,304,000 3,404,000 2,594,000
Research and development 541,000 637,000 1,150,000 1,181,000
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Total operating expenses 2,946,000 2,585,000 5,845,000 5,029,000
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Operating income 298,000 717,000 377,000 900,000
Other income (expense):
Interest income 32,000 39,000 72.000 91,000
Interest expense (3,000) (3,000) (5,000) (8,000)
Other, net 97,000 (26,000) 193,000 13,000
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Income before income taxes 424,000 727,000 637,000 996,000
Provision for income taxes (38,000) (27,000) (79,000) (85,000)
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Income from continuing operations 386,000 700,000 558,000 911,000
Discontinued operations - (110,000) - (198,000)
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Net income $ 386,000 $ 590,000 $ 558,000 $ 713,000
=====================================================================================================================
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Income (loss) per share:
Continuing operations $ .14 $ .25 $ .20 $ .33
Discontinued operations - (.04) - (.07)
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Net income $ .14 $ .21 $ .20 $ .26
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
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Foreign
Common stock Additional currency Total
--------------------------- paid-in translation stockholders'
Shares Amount capital Deficit adjustment equity
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<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1994 2,728,000 $136,000 $12,742,000 ($11,369,000) $974,000 $ 2,483,000
Net income - - - 558,000 - 558,000
Foreign currency
translation
adjustment - - - - 16,000 16,000
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Balance,
March 31, 1995 2,728,000 $136,000 $12,742,000 $(10,811,000) $990,000 $ 3,057,000
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</TABLE>
See accompanying notes to consolidated financial statements.
6
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
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Six Months Ended March 31,
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1995 1994
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<S> <C> <C>
Net income from continuing operations $ 558,000 $ 911,000
Adjustments to reconcile net income from continuing
operations to cash provided by continuing operations:
Depreciation 197,000 194,000
Amortization 80,000 121,000
Loss on sale of equipment 3,000 7,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables 83,000 35,000
Inventories (344,000) (19,000)
Other assets (62,000) 191,000
Increase (decrease) in liabilities:
Trade payables and accruals (179,000) (634,000)
Taxes payable 16,000 2,000
Deferred revenue 198,000 (553,000)
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Net cash provided by continuing operations 550,000 255,000
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Net loss from discontinued operations - 198,000
Adjustments to reconcile net loss from discontinued operations
to cash used by discontinued operations:
Depreciation and amortization - 20,000
Changes in noncash current assets and current liabilities - (385,000)
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Net cash used by discontinued operations - (167,000)
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Net cash provided by operating activities 550,000 88,000
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Cash flow from investing activities:
Decrease in short-term investment - (26,000)
Proceeds from asset dispositions 11,000 4,000
Purchase equipment (224,000) (158,000)
Software development (112,000) (111,000)
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Net cash used by investing activities (325,000) (291,000)
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Net cash used by financing activities - -
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Increase (decrease) in cash and cash equivalents 225,000 (203,000)
Cash and cash equivalents at beginning of period 635,000 415,000
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Cash and cash equivalents at end of period $ 860,000 $ 212,000
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
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MPSI SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL NOTES:
Certain notes to the September 30, 1994 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the six months ended March 31, 1995.
Accordingly, reference should be made to the audited financial statements
at September 30, 1994.
In the opinion of the Company, the unaudited consolidated financial
statements as of March 31, 1995 contain all adjustments (including normal
recurring accruals) necessary to fairly present the financial position and
the results of operations of the Company. The timing of market study
orders and software license agreements can significantly impact quarterly
results of operations and, accordingly, the results of operations for the
six months ended March 31, 1995 are not necessarily indicative of the
results to be expected for the full year.
2. STOCK TRANSACTIONS
During the quarter ended March 31, 1995, the Company collected
approximately $8,000 of royalties (reflected in "other income") from the
August 29, 1994 sale of assets by its Retail Systems, Inc. subsidiary. At
March 31, 1995, there remained approximately $11,000 of accrued employee
health insurance liabilities expected to be settled during the fiscal
quarter ending June 30, 1995.
3. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of $5,000 and $8,000 during the six months
ended March 31, 1995 and 1994, respectively. Income taxes of $64,000 and
$89,000 were paid during the six months ended March 31, 1995 and 1994,
respectively.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
MPSI Systems Inc. reported net income from continuing operations of
$386,000 or $.14 per share for the quarter ended March 31, 1995 on revenues of
$5,280,000 compared with $700,000 or $.25 per share on revenues of $5,127,000
for the second fiscal quarter last year.
REVENUES. Revenues in the comparative quarter ended March 31, 1994
were favorably impacted by a substantial software license renewal covering the
three-year period ending June 29, 1997. Such transaction accounted for
approximately $800,000 of the software revenues and net income in that quarter.
Although MPSI continues to experience good software license renewal rates and
had a Japanese client extend its license through the year 2000 in the current
quarter, no transaction similar in scope or amount to that 1994 transaction is
reflected in the results for the quarter ended March 31, 1995.
Revenues from market study and consulting services at March 31, 1995
were up approximately $995,000 or 24% compared with the same quarter last year.
Geographically, such increases reflected improved revenues in the Pacific Rim
and North America. European operations were flat compared with last year's
quarter. Although the Company does not anticipate substantial improvement in
that European trend during the remainder of fiscal year 1995, several clients
and former clients are very interested in recently released products aimed at
providing market information customized to each client's needs. Such
information is substantially less expensive than full-blown market studies and
does not provide the market place modeling attributes of the Company's more
expansive products, but does allow clients with smaller networks or more
limited budgets to have access to market information.
MPSI continued to pursue business opportunities with the United States
Postal Service. The Company currently expects to deliver a prototype market
study of a major U.S. metropolitan area in June 1995. Any subsequent business,
should it be forthcoming, is not expected to substantially impact the 1995
results of operations.
GROSS PROFIT. Gross profit on market study services as a percent of
revenues increased 7% during the quarter ended March 31, 1995 compared with the
same quarterly period last year. This profitability increase was attributable
to production process improvements and technology being applied to information
gathering, geographic mapping and data base production methods.
Amortization of software development costs, which accounted for the
Cost of Sales - Software in the Consolidated Statements of Operations, was
comparable to the March 31, 1994 quarter, but higher than the December 31,
1994 quarter as MPSI began to amortize the capitalized cost of its recently
released North American CAPS (Capital Performance System) software. The
Company anticipates that such amortization costs will increase in subsequent
quarters of 1995 as additional new products are commercially released. The
commercial version of PVO (Price Volume Optimizer) is scheduled for release
this summer. MPSI anticipates release of its new CAPS model for Europe and
South America in September 1995, Japan in December 1995 and Southeast Asia in
March 1996.
OPERATING EXPENSES. Operating expenses were $361,000 or 14% higher
than for the same quarter last year. General and administrative expenses are
the same between the quarters. Comparability of marketing expense between the
two quarters was affected by the severe staff reductions undertaken in 1993
which left the March 31, 1994 staff levels at its lowest point in several
years. Such staff reductions had been undertaken in order to more properly
align costs with the then current level of revenues. As revenues have
increased and new products have been commercially released, the Company has
selectively added staff to meet new demand. Cost increases reflected in the
current quarter were principally directed at South American business
opportunities and at increased technical expertise related to the PVO product.
Research and development costs declined compared with last year principally due
to a higher percentage of staff cost being capitalized. As the foreign CAPS
versions near delivery, resources will shift to specification and planning
phases on other projects. Such costs are not capitalizable in accordance with
the Company's current accounting policies and, accordingly, research expenses
will begin to rise in early fiscal year 1996.
9
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OTHER INCOME (EXPENSE). A substantial portion of the increase in
revenues during the quarter and six months ended March 31, 1995 was
attributable to the Pacific Rim. Such revenues are generally billed in
Singapore Dollars. The Singapore Dollar has continued to increase in strength
compared with the U.S. Dollar since September 30, 1994. The Company
accordingly realized higher exchange gains on such transactions in the quarter
and six months ended March 31, 1995 than in the comparable prior year periods.
Income taxes set forth in the Consolidated Statements of Operations are
primarily foreign income taxes withheld at the source by our clients. The
Company still has substantial net operating loss carryforwards for U.S. tax
purposes and is not anticipating significant U.S. tax expense this fiscal year.
FINANCIAL CONDITION AND LIQUIDITY
WORKING CAPITAL. Cash and working capital improved by approximately
$156,000 and $77,000, respectively, during the quarter ended March 31, 1995,
continuing a positive trend spanning several recent quarters and reflecting
better liquidity. The receivables decline during the quarter of approximately
$435,000 was used to fund increased work-in-process inventory related to the
postal study, to prepay quarterly lease obligations and for the acquisition of
computer equipment. MPSI is steadily upgrading its internal production and
software development computers to newer, faster and more efficient equipment.
The Company had a line of credit with its principal bank in the amount
of $375,000 at March 31, 1995, none of which was in use.
SOFTWARE DEVELOPMENT. Although nominal additional software
development costs were capitalized during the quarter ended March 31, 1995,
MPSI has begun development of regional CAPS releases as noted above. The
initial phase of such development does not meet the criteria for capitalization
and will be reflected in research and development expense. However, during the
third and fourth fiscal quarters of 1995, the Company anticipates capitalizing
approximately $300,000 for amortization against revenues in fiscal 1996 and
1997.
10
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PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings - None.
Item 2 -- Changes in Securities - None.
Item 3 -- Defaults Upon Senior Securities - None.
Item 4 -- Submission of Matters to a Vote of Security Holders -
(a) The annual stockholders meeting was held February 1,
1995. Proxies were solicited in accordance with
Regulation 14 of the Securities Exchange Act of 1934.
(b) All members of the Board of Directors, as previously
reported in the Company's Form 10-K at September 30,
1994, were re-elected except for Mr. Herbert G. Schiff
who died in January 1995. Mr. Schiff's position on the
Board was not filled and will remain vacant until the
next annual stockholders' meeting in February 1996.
Item 5 -- Other Information - None.
Item 6 -- Exhibits and Reports on Form 8-K
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Page
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(a) Exhibit:
11.1 Earnings per share computation 13
27.1 Financial Data Schedule 14
(b) Reports on Form 8-K - None.
</TABLE>
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C>
MPSI SYSTEMS INC.
Date May 10, 1995 By /s/ Ronald G. Harper
------------------------------------ ------------------------------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date May 10, 1995 By /s/ James C. Auten
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James C. Auten
Corporate Controller
(Principal Accounting
and Financial Officer)
</TABLE>
12
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INDEX TO EXHIBITS
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Exhibit: 11.1 Earnings per share computation
27.1 Financial Data Schedule
</TABLE>
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EXHIBIT 11.1 - Earnings Per Share Computation
Earnings per share calculations may be affected by the granting of stock
options under the Company's stock option plan. The granting of these options
may have a dilutive effect on earnings per common and common equivalent share.
Following is a summary computation of the weighted average number of shares
outstanding and earnings per share using the treasury-stock method.
<TABLE>
<CAPTION>
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Three Months Ended March 31,
----------------------------
Weighted Average Shares Outstanding 1995 1994
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<S> <C> <C>
Common stock outstanding throughout the period 2,728,000 2,705,000
Dilutive unexercised stock options:
Shares presumed issued at exercise ($2.25 per share) 91,000 107,000
Less: Shares repurchased with presumed proceeds at average per
share price ($2.41 in 1995 and $7.22 in 1994 per share) (85,000) (34,000)
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Weighted average shares outstanding 2,734,000 2,778,000
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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Three Months Ended March 31,1995 Three Months Ended March 31, 1994
-------------------------------- ----------------------------------
Earnings Per Share Earnings (Loss) Per Share
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<S> <C> <C> <C> <C>
Earnings per share:
Continuing operations $ 386,000 $ .14 $ 911,000 $ .33
Discontinued operations - - (198,000) (.07)
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Net income $ 386,000 $ .14 $ 713,000 $ .26
======================================================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 906
<SECURITIES> 0
<RECEIVABLES> 2,749
<ALLOWANCES> 0
<INVENTORY> 876
<CURRENT-ASSETS> 6,578
<PP&E> 8,333
<DEPRECIATION> 7,328
<TOTAL-ASSETS> 10,552
<CURRENT-LIABILITIES> 6,007
<BONDS> 0
<COMMON> 136
0
0
<OTHER-SE> 2,921
<TOTAL-LIABILITY-AND-EQUITY> 10,552
<SALES> 0
<TOTAL-REVENUES> 5,280
<CGS> 0
<TOTAL-COSTS> 2,036
<OTHER-EXPENSES> 2,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 424
<INCOME-TAX> 38
<INCOME-CONTINUING> 386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 386
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
