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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 0-11527
MPSI SYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1064024
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8282 SOUTH MEMORIAL DRIVE, TULSA, OKLAHOMA 74133
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 250-9611
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
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(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 5, 1996 was approximately $2,240,000.
The number of shares outstanding of the registrant's common stock was
2,793,164 shares of $0.05 Par Value Common Stock as of December 5, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders presently anticipated to be held on January 30, 1997, are
incorporated by reference into Part III. The Registrant's Annual Report to
Stockholders for fiscal year ended September 30, 1996 is incorporated by
reference into Parts I, II and IV.
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MPSI SYSTEMS INC.
FORM 10-K
CONTENTS
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PAGE
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<S> <C> <C> <C>
PART I
ITEM 1. Business.................................................. 3
ITEM 2. Properties................................................ 11
ITEM 3. Legal proceedings......................................... 12
ITEM 4. Submission of matters to a vote of security holders....... 12
PART II
ITEM 5. Market for the registrant's common equity and related
stockholder matters....................................... 12
ITEM 6. Selected financial data................................... 12
ITEM 7. Management's discussion and analysis of financial
condition and results of operation........................ 12
ITEM 8. Financial statements and supplementary data............... 12
ITEM 9. Changes in and disagreements with accountants on
accounting and financial disclosure....................... 13
PART III
ITEM 10. Directors and executive officers of the registrant....... 13
ITEM 11. Executive compensation.................................... 13
ITEM 12. Security ownership of certain beneficial owners and
management................................................ 13
ITEM 13. Certain relationships and related transactions............ 13
PART IV
ITEM 14. Exhibits, financial statement schedules, and
reports on Form 8-K....................................... 13
Signatures .......................................................... 20
Index to Exhibits .......................................................... 21
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
The operations of MPSI are confined to one business segment wherein it
provides decision support products and services in the form of (1) proprietary
computer software, (2) geographically specific information databases (market
studies), and (3) consulting services. These products and services are designed
to meet retail business planning requirements of its clients.
From its inception in 1970 until it became a publicly-held company in
1983, the Company's decision support services were directed primarily at
planning requirements for petroleum companies and other multi-outlet retailers
who were concerned with retail site selection and retail network optimization.
MPSI products provided computerized models of specified retail markets which
enabled its clients to predict sales volumes at proposed new retail sites,
while at the same time indicating the effects of each new outlet on sales
volumes at both the client's and competitors' existing outlets. During this
period, the Company's operations were characterized by limited geographic
diversification, centralized management, centralized market study production
and significant dependence on the petroleum industry.
With the 1983 capital infusion from its initial public offering, the
operating plan of the Company expanded. In order to diversify and maintain
growth, management initiated programs intended to expand the Company's
geographic presence and its client mix. Such programs sought to reduce MPSI's
exposure to economic factors in a particular country and to lessen the
percentage of its total revenues which were attributable to the petroleum
industry (while maintaining steady growth in that core business). Accordingly,
during the period from 1983 to 1987, MPSI expanded its European operations and
opened new offices in Singapore, Japan and Brazil. This expansion led to
decentralization of management and the market study production operations. In
1986, the Company acquired RSI, a company headquartered in Minneapolis,
Minnesota, which offered products to retail food clients that were similar to
those offered by MPSI to the petroleum industry. This acquisition combined with
expanded retail planning software for banks, restaurants and governmental
clients, enabled MPSI to diversify its revenue portfolio such that revenues
from the petroleum industry, as a percent of total revenues, dropped from 90%
in 1985 to 75% in 1988. During this period, MPSI's products continued to be
directed toward site selection, although enhancements such as artificial
intelligence technology moved the Company's products toward operational
decision support capabilities.
In 1988 MPSI undertook significant changes aimed at accelerating the
Company's revenue growth, product expansion and diversification of its customer
base. MPSI reorganized its existing business unit and acquired Execucom Systems
Corporation ("ESC"). The ESC acquisition resulted in (1) a more diverse family
of products including financial planning and executive information systems, (2)
a greater number of client industries, and (3) an expanded international
presence. Although revenues from petroleum clients continued to be important to
the Company, they accounted for approximately 53% of consolidated revenues in
1990 because of the dilutive effect of ESC's non-petroleum revenues. The
concurrent restructuring of the MPSI business unit resulted in the realignment
of managerial responsibilities to correspond with the distinct client
industries it served. This realignment centralized management responsibilities
such that functional units were again controlled from the United States,
regardless of where the personnel might be located. Although not brought about
directly as the result of the changes noted above, in 1989 management also
decided that the computer workstation should replace the mainframe computer as
the Company's principal product delivery and product development hardware. This
action was taken in order to reduce internal operating costs associated with
the mainframe, facilitate product development and communications using
workstation networks and enhance product distribution.
The period from 1988 to 1991 was characterized by significant product
development. The development activities were driven by two principal needs. The
MPSI unit needed new products and services which went beyond site selection to
operational decision support. The ESC unit, being in a highly competitive
environment, needed to regularly upgrade existing products incorporating new
technology in order to retain its maintenance revenue stream.
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These requirements coupled with additional marketing personnel and programs
contributed to a substantial increase in the Company's debt through early 1991.
In March 1991, effective for accounting purposes at February 28, 1991, the
Company sold substantially all of the net operating assets of ESC to Comshare,
Incorporated. This action was necessitated because of poor performance by the
ESC unit, the weakening U.S. economy, declines in MPSI revenues due to the
effects of the Persian Gulf conflict and limitations on the Company's cash
resources. The sale resulted in a substantial loss on disposition, but
generated approximately $4.5 million of cash which was used to reduce debt.
Concurrent with the ESC sale, management scaled back the MPSI business
unit to refocus on the core petroleum industry products and clients in order to
begin liquidating the remaining debt. Additionally, the Company wrote down
certain capitalized software development costs previously carried in the
consolidated balance sheet which related to products developed for industries
that had not met profit goals.
The corporate restructuring initiated in 1991 eventually encompassed
further restructuring throughout the three-year period ended September 30,
1993. The initial 1991 restructuring involved a 30% reduction of the work force
in England, closure of the Singapore production center with termination of
virtually all employees in that facility, and reduction of management personnel
in the United States. Substantially all market study production and software
development activities were consolidated back into the United States. Portions
of these activities had been previously performed in the Company's Singapore
and England offices, in addition to the U.S. corporate headquarters. In spite
of the cost reductions and production streamlining achieved as the result of
1991 actions discussed above, consolidated revenues continued to decline during
fiscal year 1992 forcing the Company to further reduce its work force in the
United States and in England. Economic conditions continued to worsen for MPSI
during fiscal year 1993. The Company again reduced its work force and overhead
expenses throughout the fiscal year. Approximately 106 employees (30% of work
force) were terminated or resigned, and the Company negotiated a reduction in
the space occupied by its corporate headquarters. Further, the Company closed
certain foreign sales offices and moved to less expensive office space in
several satellite offices.
During the fourth quarter of fiscal year 1993, the Company completed a
significant recapitalization transaction and eliminated its corporate debt
(other than trade payables and accrued liabilities). Among other benefits, the
recapitalization allowed the Company to redirect funding from debt service to
product development. Beginning in 1994 and in response to client input, MPSI
committed substantial funding and development efforts toward release of a new
generation of MPSI decision support products. Early versions of these products
were completed for commercial release in fiscal year 1995 (see discussion of
CAPS(TM), OPS(R) and PVO(R) software under "Product Development").
During fiscal years 1994 and 1995, the Company experienced increased
stability in its regional petroleum industry markets as clients, except in
Europe, generally completed restructuring and focused on the retail aspects of
their businesses. Although European operations continued to be sluggish,
revenues in North America, South America and the Pacific Rim grew. Several U.S.
oil companies who had been recently inactive with MPSI placed significant
market study orders in 1994 and 1995 indicating interest in MPSI's new software
products which targeted operational and pricing decision support.
Although the petroleum industry utilization of MPSI's products had
been somewhat revitalized, the Company's retail food line of business, which
was serviced by RSI, never developed to the point of being a profitable
endeavor and had sustained losses regularly since its acquisition. As a result,
on September 1, 1994, RSI sold all of its noncash assets to Dakota Worldwide
Corporation ("Dakota"), an unaffiliated third party, and the Company
discontinued its services and products to that class of customer. See Note 2 to
the Consolidated Financial Statements.
Although MPSI successfully launched initial versions of new products
in 1994 and 1995, such products principally were directed at the North American
market. New versions of CAPS(TM) for European and South American clients were
scheduled for release in the first quarter of fiscal year 1996 but were
ultimately delayed approximately eight months until June 1996. The delay in
release was partially attributable to MPSI's desire to accommodate client
requests for additional functionality and multi-product modeling capabilities.
However, a portion of the delay
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was attributable to MPSI's software development methodology and organizational
structure. The delayed release of the two new CAPS(TM) versions significantly
hampered MPSI's sales activities in the European and South American regions and
contributed to the lower 1996 revenues and profitability compared to 1995. In
order to address the organizational implications indicated above, MPSI
undertook a significant reorganization in July 1996. The primary objectives of
the reorganization were to (1) promote interdepartmental cooperation in
software development, (2) improve accountability and teamwork, and (3) insure
timely delivery of future software versions. Although not undertaken
specifically in order to reduce staffing, the reorganization resulted in
approximately an 8% staff reduction for which MPSI took a $215,000 charge
against its 1996 fourth quarter earnings. Management believes that the new
organizational structure positions MPSI for better quality, more timely
delivery and better client service going forward.
PRODUCTS AND SERVICES
The Company markets its services in the United States, Europe, Africa,
Canada, South America, Central America, the Caribbean Basin and the Pacific
Rim. See Note 8 to the Consolidated Financial Statements for financial
information addressing foreign and domestic operations and export sales.
Generally, the Company's marketing activities center on personal presentations
to existing and prospective clients, client referrals, proposal submissions,
selective mailings, limited print advertising, seminars and trade show
participation. Most of the Company's clients are identified by the Company's
direct sales force.
The Company's operating cycle and cash flow are driven principally by the
timing of client orders for market studies. Many North American petroleum
clients budget on a calendar year basis. Consequently, MPSI generally receives
a concentration of orders in December through February from such clients. Many
European and Pacific Rim clients operate on March 31 fiscal periods resulting
in significant orders during the period May through June. The timing of market
study production and the resulting revenues are subject to a degree of
fluctuation. Quarterly revenues can also be impacted by the timing of software
license agreements. Accordingly, management believes that quarterly results may
not be indicative of results for full fiscal years.
Economic conditions throughout the world have varying degrees of impact on
the Company's products. Volatile oil prices, unsettled economic conditions and
retail consolidation affected the Company's volume of new business in fiscal
1996. The Company is unable to predict the extent to which these conditions
will continue to affect its business during 1997. At present, however, the
Company is realigning its products and services to increase profitability,
either by evaluating alternative methods for gathering market information in
order to contain future expenses or by development of ancillary products and
services which will allow the Company to leverage market information through
sales to companies who cannot afford a commitment to MPSI's more expensive main
line products. The Company anticipates growth in Southeast Asia during fiscal
1997 and increased retail petroleum activity in the U.S. and South American
markets.
After adjustment to remove the effects of RSI, which business was
discontinued in September 1994 as set forth above, approximately 97%, 96%, and
99% of revenues were derived from the petroleum industry during the fiscal
years ended September 30, 1996, 1995, and 1994, respectively. In each of the
fiscal years 1996, 1995 and 1994, MPSI derived revenues representing 10% or
more of consolidated revenues from certain clients, together with their
affiliates, as set forth below (in millions of dollars):
<TABLE>
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1996 1995 1994
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AMOUNT % AMOUNT % AMOUNT %
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<S> <C> <C> <C> <C> <C> <C>
Exxon/Esso/Imperial $ 6.3 29 $ 4.4 19 $ 3.8 19
Texaco/Caltex $ 2.7 12 $ 1.3 6 $ 3.0 15
Shell $ 1.5 7 $ 2.8 12 $ 2.1 11
Amoco $ 2.1 10 $ 2.5 11 $ 1.4 7
</TABLE>
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The Company would be adversely affected if several petroleum industry
clients curtailed their long-term usage of MPSI products.
The following table shows the percentage of total revenue from continuing
operations that the Company derived from various sources during each of the
last three fiscal years.
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REVENUE DERIVED FROM KEY PRODUCTS AND SERVICES (%)
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1996 1995 1994
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<S> <C> <C> <C>
Database construction (market studies) 71 70 65
Software licenses 2 5 12
Software maintenance agreements 6 5 7
Consulting, educational, and other services 21 20 16
</TABLE>
Described below are the computer applications software, information
databases and other services currently provided by the Company.
Retail Planning
Until 1995, the Company's primary retail planning applications software
was the Retail Planning System(R) ("RPS"). See "Product Development" for
discussion of three major enhancements of RPS scheduled for commercial release
in fiscal years 1996 and 1997. In fiscal year 1995, MPSI released the first
version of its new CAPSa software for use by North American clients. This
country-specific software interacts with an information database (market study)
to construct a mathematical model of a retail market. The enhanced systems
support client needs in three areas:
Short-term pricing issues are addressed by assisting the client with
daily pricing decisions at retail outlets that optimize profit while
maintaining target sales volumes. The system also aids with the
establishment of supply/demand-balanced trade zones to reduce rapid
geographic deterioration in pricing.
Medium-term operational issues are addressed by systematic
forecasting of retail sales volume changes resulting from operational
changes (such as hours of operation and merchandising practices), by
counselling dealers as to pricing, merchandising and operational practices
and by providing territory-wide planning for anticipated retail sales
volumes, pricing and operations.
Long-term capital investment issues are addressed in the areas of (1)
new retail site location where the system provides an objective measure
for comparing available sites based on competition and convenience to
demand, (2) identification of outlets to divest where the system isolates
and evaluates client locations that have poor performance, (3)
identification of outlets to be rebuilt by identifying sales potential to
be realized by remodeling or reformatting specified outlets and (4)
assessing multiple profit centers by forecasting the potential benefits of
retailing complementary products and services.
Software licensing agreements for the RPS and/or CAPS(TM) software
(including ancillary products) generally have multi-year (generally five year
agreements) noncancellable terms. These agreements offer the client an
installment payment option requiring a payment upon execution and annual
payments on the succeeding anniversary dates of the agreement. The software can
be used by the client for a particular industry (such as petroleum) and a
particular geographic market (such as Japan). Also, the agreement contains
broad restrictions on the use and disclosure of the software by the client. See
"Trademarks, Copyrights, and Licenses" below. Modifying the software typically
involves changes in the weighting of various supply and demand factors or the
addition of a new factor as the result of changes in the marketplace.
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MPSI provides full maintenance (postcontract customer support) services
for the RPS and, where necessary, training of and consultation with client
staff. Software licenses, maintenance and optional consulting services are set
out separately in each multi-year license agreement. The agreement states that
any company-sponsored modification to the software during the postcontract
customer support period will be provided to the client at no additional cost.
Prices for the CAPS(TM) software in the United States are based upon formulas
which address geographical boundaries, population, number of automobiles and
other factors. Prices for the RPS and/or CAPS(TM) software applicable to
foreign countries are based on a percentage of the United States pricing.
Information Databases
The Company also constructs the market study databases that are the
primary informational sources used by the retail planning software. The
database construction process involves acquisition of geographic digitized
mapping, traffic counts, and demographic demand data from governmental agencies
or independent suppliers, on-site survey of retail outlet supply information by
MPSI personnel or contract surveyors, collation of all demographic demand and
supply information into specified data layout, data editing and quality control
checking, and preparation of the client-specific deliverables. Separate
contracts govern each database order by a client and generally require advance
payments ranging from 35 percent to 70 percent of the total sales value. The
amount of the required prepayment is determined principally by the client's
delivery requirements. There is no retainage provision relative to these
production-type contracts. These databases are arranged and presented in six
types of studies.
Constantly Current Market Studies ("CCMS"). These studies are used by
clients who possess a large number of retail sites and who wish to analyze
market conditions and evaluate site locations in metropolitan areas on a
regular basis. The supply and demand data used in this type of study is
collected by the Company. This type of study provides clients with a
series of consecutive database updates over a specific time period,
generally five years. Clients agree to pay for the CCMS in periodic
installments. It is tailored to individual client needs, and pricing is
determined in part by the number of subscribers to a particular market
during the commitment period and offers clients discounts for their
multi-year commitments.
Quality Partnership Studies ("QP"). These study programs, like the
CCMS studies, offer clients the opportunity to regularly update market
study information on an annual basis. However, in the QP program, all
clients participate in the updating process by providing regular
information about changes (new outlets, new brands, rebuilt outlets, etc.)
in the market. MPSI gathers information relative to these changes and
updates the database which otherwise remains unchanged. The lower update
costs are passed on to the client participants in the form of lower annual
update prices. Although the updates are not as extensive as full CCMS
updates, clients are able to track the effects of major market changes
using QP's.
Scheduled Market Area Studies ("SMAS"). These studies are similar to
the CCMS except that the clients do not commit to a series of consecutive
database updates over a specific time period. These studies are usually
scheduled by one client and offered to additional clients on a
subscription basis. While each study uses a single demand-side database,
the final database provided to each client is unique.
Market Area Studies ("MAS"). These studies are similar to the SMAS
except they are sold to a single client. Portions of the demographic data
can generally be used as a major part of other studies in the same market
for clients in the same or comparable retail industries.
Mini-Market Area Studies. These studies are similar to the MAS except
the area studied does not contain more than 75 outlets. Likewise, the
accompanying study deliverables are scaled down.
Single Site Studies. These studies are used to evaluate market
conditions or the effects of various operating decisions at a specific
location within a specified geographic area.
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Other Products and Services
Licensed software clients may utilize the retail planning software and
information databases on their own computer facilities, may dial in to MPSI's
computers and use the software interactively (subject to certain usage
restrictions),or may elect to have MPSI run tactics (that is, pose "what if"
questions) on MPSI's computers. In cases where software is installed on client
computers, the Company charges for installation of the software and training
the client's personnel. A client may then run unlimited tactics on its own
equipment. If tactics are run on the Company's computers, the client pays a fee
per tactic. Clients who have entered into long-term user agreements are
entitled to discounts on databases and on tactics.
MPSI introduced two new "data" products during fiscal year 1995 which were
designed to leverage market information already in MPSI's inventory or allow
clients to contract for customized data collection by MPSI. The Quest product
allows MPSI clients to obtain point-in-time retail outlet information either
relative to MPSI's standard market study boundaries in a given geographic
market or to establish specialized market boundaries or specialized data
requirements for an additional fee. MPSI's PriceTracker(TM) product allows
clients to obtain high quality, timely retail pricing information on a
recurring basis in order to track trends in the marketplace. Such products were
introduced partially in response to competitors who attempt to infiltrate
MPSI's client base by initially providing low-cost market data. The
PriceTracker(TM) product is currently utilized by clients only in the United
States. Quest services have been supplied in Europe, South Africa, and the
United States, among other other countries. These products, while not intended
to be a material portion of MPSI's business, have been well received by clients
needing lower cost data.
Other products and services provided by the Company include litigation
support; determination of petroleum price zones and key competitors; regular
tracking of petroleum prices using geographic information systems for user
analyses; retail consulting; consumer research; and customized retail outlet
surveys. Certain services are complementary to retail planning services. For
example, the databases provided as part of the retail planning services may be
linked with other data supplied by the client. This data could then be
processed interactively through geographic information system software which
manages and displays information in a variety of graphic and map formats.
COMPETITION
Since its inception in 1970 the Company has provided comprehensive
applications software and database systems, primarily to the retail petroleum
industry, and currently has more than 175 multinational clients in 73
countries. There has recently been a worldwide trend toward competitive product
development of this type due to the availability of computer resources and
acceptance of retail modeling theory. The Company believes its competition lies
in two areas: first, in the market research staffs of petroleum companies or
potential customers who develop and manage their own software and data; and
second, in consulting and research companies which compete for portions of the
Company's business.
The Company has found that the market research staffs of some large
petroleum companies continue to concentrate on in-house data gathering and site
selection methods, while other companies with more limited resources must
consider low cost alternatives for obtaining market information. It has been
MPSI's experience that clients often encounter substantial cost barriers
relative to internally developed systems. Without the economies of scale, data
gathering expertise and modelling sophistication that MPSI has obtained during
its 25-year existence, clients often find that systems developed in house are
expensive to develop, expensive to maintain given changing market conditions,
require market information with an inherent degree of accuracy which is
difficult to obtain, and that the results of such systems do not justify the
associated costs and effort. Additionally, as clients or potential clients
struggle to manage operating costs and consider outsourcing certain activities
where economically feasible, the capabilities of companies like MPSI offer an
attractive alternative to internal systems. Because of the trend in large
companies to outsource certain functions and because of the growth in business
consulting generally, independent consulting and research companies have
challenged certain products the Company offers such as demographic data
collection, geographic databases, retail outlet surveys, retail consulting,
pricing applications, and single site studies. Occasionally, such consultants
are engaged to develop a proprietary internal model for their clients. Often
competitive services of this type
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are offered by independent consultants as part of a larger consulting project
wherein pricing for the retail planning segment can be very competitive with
MPSI's pricing. Certain of such companies are offering computerized tools and
services which, the Company believes are not as sophisticated as MPSI products,
but may be attractive to customers willing to sacrifice accuracy for a lower
cost solution to their business needs.
The Company believes it competes with these various market alternatives by
providing high-quality, sophisticated software and reliable, accurate databases
at a reasonable cost. MPSI further believes its historical expertise and
success in the areas of volume projections and retail network planning provide
a substantial barrier to entry for competitors. Further, MPSI's maintenance
programs and its commitment to more than one client in a given market results
in regular updates of existing software in line with changes in a given market.
The Company attributes its ability to provide these quality products and
services to the expertise and experience of its personnel.
By focusing on PC-oriented products and services, the Company believes it
is better equipped to challenge "lower cost competitors". New data collection
techniques will allow more timely and regular updating of market data using
hand-held data collection technology and PC-based data transmission and
delivery technology. These processes are expected to reduce MPSI's data
collection costs relative to market studies and thereby allow the Company to
leverage data already collected or to collect custom data for clients who may
not require full market study information. The Company believes it can thereby
be competitive with potential competitors who have targeted customers with
limited retail market resources.
In addition to addressing low-cost competitors, MPSI regularly evaluates
potential strategic alliances with certain independent consulting firms. The
target consulting firms will be those who service industries in which MPSI has
historical expertise (e.g., petroleum, government/postal, and banking). Such
alliances can provide MPSI the opportunity to sub-contract portions of larger
consulting projects thereby establishing MPSI's credibility with the client and
allowing interface with customer personnel who are potentially valuable sales
contacts for future business.
BACKLOG
The Company's September 30, 1996 and 1995 backlog consisted principally of
orders for market information databases (1996--$16,338,000, 1995--$14,669,000)
and multi-year commitments by customers for software maintenance and support
services (1996--$2,194,000, 1995--$3,014,000). The Company expects that the
market information databases in backlog at September 30, 1996 will be
recognized in fiscal year revenues as follows: 1997--$9,998,000;
1998--$3,264,000, 1999--$2,248,000 and 2000--$828,000. Maintenance and support
services in backlog are the result of client contractual obligations to
purchase support services generally over periods of three to five years. Such
revenues will be recognized, and backlog accordingly reduced, on a ratable
basis over the life of each underlying agreement. Of the aggregate maintenance
and support backlog at September 30, 1996, future fiscal year revenues are
expected to be recognized as follows: 1997--$875,000; 1998--$562,000;
1999--$391,000, 2000--$246,000, 2001--$100,000 and 2002--$20,000.
EMPLOYEES
As of September 30, 1996, the Company employed 225 people, including 80 in
sales and marketing, 39 in research and development, 77 in database analysis,
consulting, and production and 29 in management, administration, and finance.
Of these, 184 are employed in the United States and 41 are employed in foreign
countries.
PRODUCT DEVELOPMENT
Since 1970, the foundation of the Company's business has been its
developed software which helps retailers select sites, improve operations and
make product pricing decisions. Over the last five years, the major development
efforts of the Company have been directed toward (1) enhancement of this core
RPS product in order to extend its petroleum utilization around the world, (2)
portation of the software from mainframe to workstation/PC platforms, and (3)
incorporation of third party software in order to enhance the user interface,
speed and efficiency of this software. Currently, the Company has several
development efforts underway that address the aforesaid areas.
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MPSI's product development cycle consists of four primary stages. During
the PRODUCT SPECIFICATION PHASE the Company identifies the initial requirements
of the software, determines the functional requirements and begins the initial
design. During this stage, the Company sets forth the database requirements as
well as the hardware, operating systems, third-party imbedded software and
general functional requirements. From this information a business plan,
conceptual prototype and a project plan are developed. The prototypes developed
during this stage are not fully functional prototypes, but are designed to
present the "look and feel" of the end product. Upon completion of this phase,
the Company has generally completed a detailed program design and, accordingly,
established the technological feasibility of the project. Following the product
specification phase, the project enters the BUILD PHASE where actual software
programming takes place. Once coding is complete the project enters the QUALITY
ASSURANCE PHASE which encompasses various internal systems testing and user
acceptance testing. Once testing is completed the project enters the
IMPLEMENTATION PHASE where hardware and software installation procedures and
user documentation are finalized.
Software development costs incurred prior to completion of the detailed
program design are expensed as research and development costs. Costs incurred
during the build, quality assurance and implementation phases are generally
capitalized. At the point where the software product is ready for general
release to the customers, capitalization of costs ceases.
Beginning in fiscal year 1993, MPSI undertook a major internally funded
rewrite of its retail planning software. The new systems are designed to meet
the three primary operational requirements of clients through PC-based products
including the Capital Performance System ("CAPS")(TM) for site selection and
capital planning, the Operational Performance System ("OPS")(R) for use in the
field by retail managers in order to optimize outlet and territory performance
and the Price Volume Optimizer ("PVO")(R) for retail fuel pricing decisions.
The initial versions of OPS(R) and PVO(R) software were available to customers
in fiscal year 1994 but are presently undergoing further enhancement. The
CAPS(TM) software for North America was released in January 1995. Third-party
geographic information system software is being incorporated into the CAPS(TM)
as part of rewrite enhancements. The new software should not only provide
client requested enhancements but is also expected to reduce costs associated
with (market study) database production and efficiencies in future product
programming and model revisions. Regional CAPS(TM) software for Europe and
South America was released in June 1996. CAPS(TM) for Japan and Asia is
scheduled for release in fiscal year 1997.
Development of the initial PVO(R) product was the result of a contract
that was signed with a North American client during 1993 for the nonexclusive
development of a volume prediction model for a petroleum related product and
service facility. Several market databases were also part of the contract. The
commercial version of PVO(R) was completed in August of 1995 and is presently
undergoing implementation testing by clients in Canada, England, Belgium, South
Korea, and the United States. It is anticipated this product, if successful,
will not only result in contracts for additional client databases in 1997, but
also will lead to further business with other clients through the adaptation of
the model to other petroleum client ancillary product/service needs. Utilizing
information from Company produced CAPS(TM)/RPS databases or from other MPSI
studies, PVO(R) is designed to give retailers an easy to use decision tool for
optimizing petroleum outlet profits through price or volume level
determinations.
The PC-based OPS(R) software utilizing CAPSO/RPS database information is
currently installed with clients in the United States, Europe and the Pacific
Rim. During fiscal year 1997, the Company intends to continue making the model
available to existing clients at a nominal cost for the purpose of increasing
Company-produced databases, MPSI's principal revenue source. A stand-alone
OPS(R) product is scheduled for development and release late in fiscal year
1998.
MPSI has historically provided retail network planning software, data, and
consulting services to the postal industry on a limited basis, primarily in
Europe and the United States. MPSI continues to pursue opportunities with the
United States Postal Service and expects an increase in revenues from that
source in 1997. Should MPSI be awarded a U.S. postal contract for market
studies, additional development efforts would be expended during fiscal 1997 to
enhance certain features of an existing prototype model and to incorporate new
technology which has become available since the prototype was developed.
10
<PAGE> 11
During the years ended September 30, 1996, 1995, and 1994, the Company
spent $2,610,000, $2,789,000, and $3,257,000, respectively, on research and
development or enhancement of new products and the maintenance of existing
products. The amounts spent on research and development were primarily Company
sponsored, meaning there is no direct recoupment of expenses from clients.
TRADEMARKS, COPYRIGHTS, AND LICENSES
The Company holds a number of trademarks, some of which are registered at
the U.S. Patent and Trademark Office. To date, registrations have been sought
only in the United States and Mexico. During fiscal year 1997 and in connection
with global introduction of new products, the Company will evaluate trademark
registration in certain other foreign countries where the volume of present
and/or potential business warrants registration. Set forth below are the
Company's trademarks and related registration expiration dates.
<TABLE>
<CAPTION>
PRODUCT TYPE OF MARK STATUS/EXPIRATION
------- ------------ -----------------
<S> <C> <C>
MPSI's Site Evaluation System Registered 2001
MPSI and Design Registered 2002
MPSI's OPS Registered 2002
MPSI Registered 2004
Retail Planning System Registered 2005
PVO Registered 2006
Location Volume Registered 2006
Facility/Location Volume Registered 2006
Price Volume Optimizer Trademark Filed
MPSI's CAPS Trademark Filed
MPSI's Market Monitor Trademark Common Law Rights
PriceTracker Trademark Common Law Rights
The Intelligent Approach to Retail Marketing Trademark Common Law Rights
</TABLE>
The Company does not hold any patents or registered copyrights. The
Company's long-term software license agreements require customer acknowledgment
of the proprietary nature of the Company's software. The Company relies on
these agreements, together with trade secret laws and internal nondisclosure
safeguards, to protect its products. To date, the Company has had no indication
of any material breach in the security of its products. Should a material
breach in the security of the Company's software products occur, it might have
the impact of reducing the current barriers to entry for competitors and thus
materially adversely affect long-term results of Company operations. The
Company's modeling methodology, mathematical modeling algorithms and data
gathering processes have been developed over an extensive period of time and
would, in the absence of a material breach in the security, require potential
competitors a substantial period of time to duplicate. Even in the event that a
material breach did occur, such as a reverse engineering of an MPSI software
product, the Company believes that because of the rapid annual change in
technology and the regular software upgrades required thereby, such breach
would not result in a material adverse effect on the Company's short-term
business because new versions of its products would likely reduce the
competitive value of older versions breached by potential competitors.
ITEM 2. PROPERTIES
The Company's principal facility and corporate headquarters in Tulsa,
Oklahoma (42,500 square feet) is the primary location for software development
and market study production. The Bristol, England facility encompasses 10,000
square feet, and the Rio de Janeiro, Brazil office encompasses 3,000 square
feet. Both foreign offices do single site and special project work in addition
to their primary marketing role. Regional sales offices in Singapore;
Johannesburg, South Africa (established in 1996); Melbourne, Australia; and
Tokyo, Japan remained the Company's principal client liaison facilities in
those areas at September 30, 1996. MPSI has established a new office in Seoul,
South Korea which will begin operations during the first quarter of fiscal year
1997. Management believes that the various facilities are now properly sized to
meet anticipated business levels. Additional space may be required to
accommodate business expansion. All office facilities are leased.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings at September 30, 1996
which meet the criteria for disclosure under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended September 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this ITEM is incorporated by reference to page
20 of the Company's 1996 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data required by this ITEM for the five years ended
September 30, 1996 is incorporated by reference to page 1 of the Company's 1996
Annual Report to Stockholders. The Selected Quarterly Financial Data required
by this ITEM for the two years ended September 30, 1996 is set forth below:
SELECTED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
NET GROSS NET PER
QUARTER ENDED SALES PROFIT INCOME SHARE
------------- ----- ------ ------ -----
<S> <C> <C> <C> <C>
Fiscal Year 1995:
December 31, 1994 $4,911 $2,978 $ 172 $ .06
March 31, 1995 5,280 3,244 386 .14
June 30, 1995 6,114 3,288 593 .21
September 30, 1995 7,132 3,494 878 .31
Fiscal Year 1996:
December 31, 1995 $5,311 $2,988 $ 180 $ .06
March 31, 1996 5,364 2,505 (148) (.05)
June 30, 1996 4,976 2,161 (723) (.26)
September 30, 1996 6,094 3,077 68 .02
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this ITEM is incorporated by reference to
pages 3 through 6 of the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement information required by this ITEM is incorporated
by reference to pages 7 through 19 of the Company's 1996 Annual Report to
Stockholders. Supplementary financial statement schedules are presented under
ITEM 14 of this Form 10-K beginning on page 17.
12
<PAGE> 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants on
matters related to accounting or financial disclosure during the fiscal years
ended September 30, 1996 and 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information appearing under the caption
"Directors and Executive Officers" in the Company's Proxy Statement which will
be filed pursuant to Regulation 14A not later than 120 days after the end of
the Company's fiscal year ended September 30, 1996 and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the caption
"Compensation of Directors and Officers" in the Company's Proxy Statement which
will be filed pursuant to Regulation 14A not later than 120 days after the end
of the Company's fiscal year ended September 30, 1996 and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information appearing under the caption "Stock
Ownership" in the Company's Proxy Statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year ended September 30, 1996 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information appearing under the caption "Certain
Transactions" in the Company's Proxy Statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year ended September 30, 1996 and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of ITEM 14 is submitted as a
separate section of this report under ITEM 8.
(2) The response to this portion of ITEM 14 is set forth in ITEM 14(d)
below.
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
*3.1 -- Certificate of Incorporation of MPSI Systems Inc., as amended,
filed as the same numbered exhibit with the Company's Form 10-Q
dated March 31, 1987, File No. 0-11527.
</TABLE>
13
<PAGE> 14
(3) Exhibits. (Continued)
EXHIBIT
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
*3.2 -- By-laws, as amended, filed as Exhibit 3.1 with the Company's
Form 10-Q dated June 30, 1987, File No. 0-11527.
*3.3 -- Certificate of Designation dated September 23, 1993 establishing
the rights conferred on $.10 Par Value Convertible Preferred Stock,
Series 1993, filed as the same numbered exhibit with the Company's
1993 Form 10-K, File No. 0-11527.
*3.4 -- Amendment to Certificate of Incorporation dated November 16,
1993 to reflect a one-for-ten reverse stock split, filed as the
same numbered exhibit with the Company's 1993 Form 10-K, File
No. 0-11527.
*3.5 -- Certificate dated November 18, 1993 whereby the $.10 Par Value
Preferred Stock, Series 1993, and the rights previously set forth
in the Certificate of Designation were eliminated, filed as the
same numbered exhibit with the Company's 1993 Form 10-K,
File No. 0-11527.
*4.1 -- Stock Purchase Agreement dated September 3, 1993 between MPSI
Systems Inc. and various private investors (excluding exhibits
thereto which are included herewith as Exhibits 4.2 and 4.3) which
sets forth the terms of an equity recapitalization of the
registrant, filed as the same numbered exhibit with the Company's
1993 Form 10-K, File No. 0-11527.
*4.2 -- Stockholder Agreement dated September 29, 1993 between MPSI
Systems Inc. and certain private investors which regulates
certain stockholder relationships with respect to voting,
ownership, transfer or other disposition of MPSI stock, filed
as the same numbered exhibit with the Company's 1993 Form 10-K,
File No. 0-11527.
*4.3 -- Registration Rights Agreement dated September 29, 1993
between MPSI Systems Inc. and certain private investors which
sets forth the rights of the parties with respect to future
registrations of stock of the registrant, filed as the same
numbered exhibit with the Company's 1993 Form 10-K, File No.
0-11527.
*4.4 -- Supplemental Agreement dated October 7, 1993 which revised
the requirements and procedures related to the proposed reverse
stock split and the conversion of preferred stock, filed as the
same numbered exhibit with the Company's 1993 Form 10-K, File
No. 0-11527.
*4.5 -- Stock Purchase Agreement dated September 23, 1993 among MPSI
Systems Inc. and Selling Stockholders other than the Principal
Investors, filed as the same numbered exhibit with the
Company's 1994 Registration Statement on Form S-1, Registration
No. 33-76286.
*4.6 -- Registration Agreement dated July 1, 1994 among MPSI Systems
Inc. and the Selling Stockholders (final form), filed as the
same numbered exhibit with the Company's 1994 Registration
Statement on Form S-1, Registration No. 33-76286.
*10.3 -- MPSI Systems Inc. 1984 Stock Option Plan as amended effective
January 1, 1987, filed as the same numbered exhibit with the
Company's 1987 Form 10-K, File No. 0-11527.
*10.4 -- Stock Option Agreement pursuant to MPSI Systems Inc. 1984 Stock
Option Plan, filed as the same numbered exhibit with the Company's
1984 Form 10-K, File No. 0-11527.
</TABLE>
14
<PAGE> 15
(3) Exhibits. (Continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
*10.7 -- Real property lease dated August 7, 1981, between MPSI
Centre Joint Venture, as lessor, and the Company, as lessee,
relating to the Company's Tulsa, Oklahoma facility, filed as
Exhibit 10.5 with the Company's Registration Statement on Form
S-1, File No. 2-81641, which became effective on March 2, 1983.
*10.14 -- Stipulation Providing For Settlement, Mutual Release and Transfer
of Certain Assets of the Estate of Comarc Systems, Inc. (Debtor),
filed as the same numbered exhibit with the Company's 1986 Form
10-K, File No. 0-11527.
*10.15 -- Indemnification Agreements with Directors and Officers of MPSI
Systems Inc. filed as the same numbered exhibit with the Company's
1986 Form 10-K, File No. 0-11527.
*10.16 -- MPSI Systems Inc. Amended and Restated 1988 Stock Option
Plan, effective November 29, 1988, filed as Exhibit 4.5 with
the Company's 1994 Form S-8, File No. 0-11527.
*10.17 -- Stock Option Agreement pursuant to MPSI Systems Inc. Amended and
Restated 1988 Stock Option Plan, filed as Exhibit 4.6 with the
Company's 1994 Form S-8, File No. 0-11527.
*10.20 -- MPSI Systems Inc. Matching Investment Plan, effective January 1,
1990, filed as Exhibit 4(c) with Pre-effective Amendment No. 1 to
the Company's Form S-8, filed on December 29, 1989, File No.
0-11527.
*10.22 -- Asset Purchase Agreement dated March 11, 1991 between Comshare,
Incorporated (Buyer), Execucom Systems Corporation (Seller) and
MPSI Systems Inc. (Seller's Parent); and Amendment to Asset Purchase
Agreement effective March 22, 1991, filed as Exhibit 2.1 to Form
8-K dated March 22, 1991, File No. 0-11527.
*10.23 -- Amendment dated March 19, 1991 to real property lease between MPSI
Centre Joint Venture, as lessor, and MPSI Systems Inc., as lessee,
filed as the same numbered exhibit with the Company's 1991 Form
10-K, File No. 0-11527.
*10.25 -- Amendment dated March 31, 1993 to real property lease between MPSI
Centre Joint Venture, as lessor, and MPSI Systems Inc., as lessee,
filed as the same numbered exhibit with the Company's 1993 Form
10-K, File No. 0-11527.
*10.26 -- Asset Purchase Agreement dated August 29, 1994 between the
Registrant, its wholly-owned Subsidiary, Retail Systems, Inc.,
and Dakota Worldwide Corporation filed as Exhibit 10.1 to Form
8-K filed September 15, 1994.
11.1 -- Computation of Earnings Per Share.
13.1 -- MPSI Systems Inc. 1996 Annual Report to Stockholders.
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP.
27.1 -- Financial Data Schedules.
</TABLE>
- ----------
* Incorporated by reference.
15
<PAGE> 16
(b) No report on Form 8-K was filed by the Company during or applicable to the
quarter ended September 30, 1996.
(c) Exhibits - The response to this ITEM is submitted as a separate section of
this report.
(d) Financial Statement Schedules - Set forth below are the required financial
statement schedules together with the Report of Independent Auditors on
Financial Statement Schedules. All other schedules are omitted because
they are not applicable or the information is shown in the financial
statements or notes thereto.
16
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
We have audited the consolidated financial statements of MPSI Systems Inc. as
of September 30, 1996 and 1995, and for each of the three years in the period
ended September 30, 1996, and have issued our report thereon dated November 19,
1996 (incorporated by reference in this Form 10-K). Our audits also included
the financial statement schedules included in this Form 10-K. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 19, 1996
17
<PAGE> 18
SCHEDULE VIII
MPSI SYSTEMS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ----------------------- -------- --------
ADDITIONS
-----------------------
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND REDUCTION OF (DEDUCTIONS) AT END OF
DESCRIPTION OF PERIOD EXPENSES REVENUES ADDITIONS PERIOD
----------- --------- -------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
For the year ended September 30, 1994:
Accumulated depreciation $7,112,000 $433,000 $ -- $(441,000)(3) $7,104,000
Accumulated amortization 1,958,000 246,000 -- -- 2,204,000
Allowance for doubtful receivables (RSI) 16,000 17,000 -- (33,000)(3) --
Unamortized discount on software license
agreements 278,000 -- 138,000(1) (228,000)(1) 188,000
For the year ended September 30, 1995:
Accumulated depreciation $7,104,000 $405,000 $ -- $ (89,000)(2) $7,420,000
Accumulated amortization 2,204,000 294,000 -- -- 2,498,000
Unamortized discount on software license
agreements 188,000 -- 304,000(1) (171,000)(1) 321,000
For the year ended September 30, 1996:
Accumulated depreciation $7,420,000 $450,000 $ -- $(901,000)(2) $6,969,000
Accumulated amortization 2,498,000 592,000 -- (2,000) 3,088,000
Unamortized discount on software license
agreements 321,000 -- 77,000(1) (160,000)(1) 238,000
</TABLE>
- ----------
(1) Reduction of unamortized discount on long-term receivables represents
current period interest income recognition (see Note 3 to Consolidated
Financial Statements). Increases to unamortized discount represent the
present-value-discount on new software license agreements net of
adjustment for any contract cancellations or revisions.
(2) Reduction is due to retirement of fully amortized assets and to assets
sold or otherwise disposed.
(3) Included in the reductions are $373,000 of accumulated depreciation and
$33,000 related to uncollectible accounts, all of which are attributable
to the sale of the RSI business unit.
18
<PAGE> 19
SCHEDULE X
MPSI SYSTEMS INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
THREE YEARS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- --------------------------
FISCAL YEARS ENDED
SEPTEMBER 30,
--------------------------
ITEM 1996 1995 1994
---- --------------------------
<S> <C> <C> <C>
Maintenance and repairs $172,000 $155,000 $178,000
Amortization of internally developed software 592,000 294,000 246,000
Royalties 125,000 28,000 --
Advertising costs 114,000 99,000 51,000
</TABLE>
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, a corporation organized and existing
under the laws of the State of Delaware, has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tulsa, State of Oklahoma, on the 6th day of December, 1996.
MPSI SYSTEMS INC.
By /s/ Ronald G. Harper
------------------------------
Ronald G. Harper
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant, in
the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Ronald G. Harper Chairman of the Board, December 6, 1996
------------------------------- President and Chief
Ronald G. Harper Executive Officer
/s/ James C. Auten Vice President and Chief-- December 6, 1996
------------------------------- Financial Officer
James C. Auten
/s/ John C. Bumgarner, Jr. Director December 6, 1996
-------------------------------
John C. Bumgarner, Jr.
/s/ David L. Huff Director December 6, 1996
-------------------------------
David L. Huff
/s/ Joseph C. McNay Director December 6, 1996
--------------------------------
Joseph C. McNay
/s/ John J. McQueen Director December 6, 1996
--------------------------------
John J. McQueen
</TABLE>
The Company's proxy statement for the Annual Meeting of Stockholders to be
held February 4, 1997* has not yet been sent to stockholders. Copies of such
materials will be furnished to the Commission at such time as they are sent to
stockholders.
* The date of the Annual Meeting of Stockholders has subsequently been changed
to January 30, 1997.
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ----
<S> <C> <C>
11.1 -- Earnings Per Share Computation................................. 22
13.1 -- MPSI Systems Inc. 1996 Annual Report to Stockholders........... 23
21.1 -- List of Subsidiaries........................................... 46
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP........... 47
27.1 -- Financial Data Schedule........................................ 48
</TABLE>
21
<PAGE> 1
EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATION
Earnings per share calculations may be affected by the granting of stock
options under the provisions of MPSI Systems Inc. Stock Option Plans. 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. There is no significant difference between primary and
fully diluted earnings per share in any period presented.
Fiscal Year Ended September 30, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
ISSUED INCREMENTAL
WEIGHTED AVERAGE SHARES OUTSTANDING SHARES SHARES
- ----------------------------------- ------ ------
<S> <C> <C>
Common stock:
Outstanding throughout the period 2,733,000 2,733,000
Stock options exercised 20,000 10,000
Stock issued to 401(k) Plan 41,000 13,000
Dilutive unexercised stock options* -- --
--------- ---------
Total shares 2,794,000 2,756,000
========= =========
<CAPTION>
WEIGHTED
1996 AVERAGE PER SHARE
PER SHARE COMPUTATIONS RESULTS(A) SHARES(B) (a)(b)
- ---------------------- ---------- --------- ------
<S> <C> <C> <C>
Net loss $(623,000) 2,756,000 $(.23)
</TABLE>
* Represents incremental shares as computed using the Treasury Stock Method
applied to all outstanding options which would be dilutive if exercised.
22
<PAGE> 1
EXHIBIT 13.1
[FRONT COVER]
MPSI SYSTEMS INC.
1996 ANNUAL REPORT
23
<PAGE> 2
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA*
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues ................................... $21,745 $23,437 $19,872 $19,524 $25,313
Income (loss) from continuing operations..... (623) 2,029 1,956 (939) (5,567)
Income (loss) from discontinued operations... -- -- (482) 2,149 (14)
Extraordinary gain on debt extinguishment.... -- -- -- 350 --
Net income (loss)............................ (623) 2,029 1,474 1,560 (5,581)
Per share:
Income (loss) per common and common
equivalent share:
Continuing operations.................. $ (.23) $ .72 $ .71 $ (.94) $(6.53)
Discontinued operations................ -- -- (.18) 2.15 (.01)
Extraordinary item..................... -- -- -- .35 --
Net income (loss)...................... (.23) .72 .53 1.56 (6.54)
Weighted average shares of common stock
and common stock equivalents outstanding.. 2,756 2,802 2,766 998 853
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................. $10,319 $12,924 $ 9,734 $10,040 $14,861
Long-term debt............................... -- -- -- -- 2,620
Noncurrent deferred revenue.................. 1,342 1,961 1,068 1,453 2,602
Other noncurrent liabilities................. 177 220 349 252 2,429
</TABLE>
* Operating data prior to fiscal year 1994 has been restated giving effect to
the September 1994 sale of RSI. See Note 2 to Consolidated Financial
Statements regarding discontinued operations.
===============================================================================
ABOUT THE COMPANY
MPSI Systems Inc., headquartered in Tulsa, Oklahoma, was founded more
than two decades ago as a company focused on providing site analysis
services to the petroleum industry. Today, we are an international company
that provides decision support systems, consulting services, and market
information databases to clients in many retail environments such as
petroleum, food, banking, and postal services.
MPSI has regional offices strategically located around the world and
employs more than 225 highly skilled professionals. Our products and
services incorporate the most modern, proven technologies and are designed
to meet a variety of business planning requirements, including retail site
location, retail network operations, short-term pricing, and much more.
With the comprehensive mix of offerings from MPSI, clients can develop
strategies, solve problems, identify opportunities, and increase the
decision-making effectiveness for their retail business.
===============================================================================
<PAGE> 3
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
TO OUR STOCKHOLDERS
After two solid years in 1994 and 1995, fiscal year 1996 was a year of
retrenchment for MPSI in some respects. Having successfully released our new
generation decision support software to North American clients in 1995 with a
positive upturn in revenues from those customers, we had anticipated the
release of similar software for the European and South American markets during
the first quarter of fiscal year 1996. Unfortunately, those software products
were not ultimately released until June 1996, thereby severely hampering our
sales efforts in two of our four main operating regions of the world. The
delays were a combination of our desire to react to additional client requests
for increased functionality and internal organizational structures and
procedures which lengthened the programming and testing phases of software
development.
In June, we took steps to rectify the organization implications. We
restructured our entire organization in a manner which we believe will promote
teamwork, provide incentives for timely completion of corporate objectives, and
allocate the right resources to effectively roll out our new products
henceforth. Our basic objective has not changed and will not change. We must
remain focused on and committed to client service. Competition demands that we
segregate ourself from the pack by delivering the standard-setting product line
in its market niche at a price which, while perhaps not the lowest in the
market, assures clients that they are achieving maximum value for their
decision support technology. We believe our restructuring positions us to
attack the competition in a more streamlined, focused manner.
Despite the disappointing results in 1996, I believe MPSI received some very
positive messages from its clients and potential clients as we exposed our new
products in the world market. MPSI is undertaking significant new business in
Southeast Asia, a very dynamic retail petroleum market. In that arena, we are
not only delivering our mainline software and market information databases, but
are also undertaking consulting projects designed to help our clients integrate
ancillary services into their petroleum retail networks. In another area, one
of the objectives of our product reengineering process was to make our products
available at the personal computer level and thereby accessible by smaller
retail companies who do not have sophisticated data processing networks. During
1996, we have licensed our software and delivered market information databases
to a number of these clients on the PC platform. We believe that there is a
significant market from such smaller retail petroleum chains.
Although we encountered delays in rolling out new products for Europe and South
America, MPSI's business remains strong in North America and in the Pacific
Rim. The Japanese petroleum market will undergo deregulation shortly, and this
provides MPSI a significant opportunity to enhance the competitive advantages
for each of our Japanese clients through use of both our traditional site
evaluation software and our new pricing software. Likewise, mergers of
petroleum companies offer MPSI opportunities both with respect to the merger
partners who must streamline their combined retail networks and for their
competitors who must evaluate their retail strengths and weaknesses in order to
remain competitive against the new entities. Such business combinations have
recently occurred in Australia, Europe and the U.S.
As has traditionally been our operating posture, MPSI will continue to target
controlled expansion geographically. In addition to Southeast Asia, there are
several other potential new markets for MPSI in Asia and South America. It is
likely that MPSI will have some presence in at least two new countries during
1997. These countries are characterized by having large populations, high
growth rates in the number of automobiles and often contain a retail petroleum
structure which is being pressured to deregulate and allow entry of the
multinational oil companies.
I firmly believe that MPSI's future offers a number of opportunities for us to
return to profitability, grow our revenue base, diversify our services to
encompass new industry groups including a substantially untapped market of
smaller customers, and to increase shareholder value. Admittedly, we face more
competition in certain of our markets as new software tools become available
that make it easier for potential customers to accumulate and evaluate
information. We remain committed to deployment of cost effective software,
which we believe is still the premier offering of its type in the world and
continues to set the standard for competition. We thank our clients, employees
and stockholders for their continuing support as we look forward to a
successful and profitable 1997 and beyond.
Sincerely,
Ronald G. Harper
Chairman of the Board and President
- -------------------------------------------------------------------------------
2
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MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth (in thousands), for the periods indicated,
certain items in the consolidated statements of continuing operations and the
change of such items as compared with the indicated prior period. See Note 2 to
the Consolidated Financial Statements which sets forth the effect of the
September 1994 sale of RSI. All information below reflects RSI as discontinued
operations.
<TABLE>
<CAPTION>
CHANGE
-------------------
YEAR ENDED SEPTEMBER 30, 1996 1995
------------------------------------ vs. vs.
1996 1995 1994 1995 1994
------------------------------------ ------- -------
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ 21,745 $ 23,437 $ 19,872 $(1,692) $ 3,565
Cost of sales .................... 11,014 10,432 7,614 582 2,818
-------- -------- -------- ------- -------
Gross profit ................... 10,731 13,005 12,258 (2,274) 747
-------- -------- -------- ------- -------
Operating expenses:
General and administrative ..... 3,005 2,571 2,388 434 183
Marketing and client services .. 6,928 6,993 5,578 (65) 1,415
Research and development ....... 1,382 1,794 2,331 (412) (537)
-------- -------- -------- ------- -------
Total operating expenses 11,315 11,358 10,297 (43) 1,061
-------- -------- -------- ------- -------
Operating income (loss) .......... (584) 1,647 1,961 (2,231) (314)
Other income (expense), net ...... 332 836 289 (504) 547
-------- -------- -------- ------- -------
Income (loss) from continuing
operations before income taxes . (252) 2,483 2,250 (2,735) 233
Income taxes ..................... (371) (454) (294) (83) 160
-------- -------- -------- ------- -------
Income (loss) from continuing
operations ..................... $ (623) $ 2,029 $ 1,956 $(2,652) $ 73
======== ======== ======== ======= =======
</TABLE>
RESULTS OF OPERATIONS
MPSI reported a loss for the fiscal year ended September 30, 1996 of
$623,000 or $.23 per share on revenues of $21.7 million compared with income of
$2.0 million or $.72 per share on revenues of $23.4 million in 1995 and $2.0
million or $.71 per share on revenues of $19.9 million in 1994. The 1996
results reflected a 7% decline in revenues and substantially reduced
profitability through the first three fiscal quarters compared with 1995.
However, despite severance costs of approximately $215,000 related to a
corporate restructuring completed in July 1996, the 1996 fourth quarter results
were positive. In contrast, fiscal year 1995 results reflected a revenue
increase of $3.6 million or 18% as compared to 1994 coupled with strong fourth
quarter revenues and earnings. (The Company reported net income of $878,000 or
$.31 per share on revenues of $7.1 million compared with net income of $45,000
or $.02 per share on revenues of $4.8 million in the 1994 fourth quarter.)
Set forth below (in thousands of dollars) is an analysis of MPSI's revenue
fluctuations over the last three fiscal years.
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
---------------- ----------------
AMOUNT % AMOUNT %
---------------- ----------------
<S> <C> <C> <C> <C>
North America .............. $ 336 4 $ 2,455 35
South America .............. (11) (1) 394 31
Pacific Rim ................ (1,193) (12) 1,342 15
Europe/Africa .............. (824) (34) (626) (21)
------- -------
Totals............ $(1,692) (7) $ 3,565 18
======= =======
</TABLE>
North American revenues continued to grow in 1996 compared with the two
previous years, but the rate of growth has slowed to the level that the Company
would anticipate carrying forward in this highly competitive market segment.
Oil companies are recording solid profits in North America and there is good
activity in the retail marketing portion of their business. The revenue surge
in 1995 was principally attributable to the release during late 1994 of the new
CAPS(TM) software. CAPS(TM) software versions for the three remaining MPSI
regions were targeted for release during fiscal year 1996. As discussed below,
the South American and European versions of CAPS(TM) were substantially delayed
and were not released until June 1996. MPSI was able to maintain revenues in
South America at a level comparable with 1995 by expanding into several new
countries, as the oil industry is experiencing reasonable growth in certain
South American countries. European business continued to decline in 1996 as the
oil industry, particularly in western Europe, is undergoing significant
consolidation and is not, therefore, committing substantial resources to
- -------------------------------------------------------------------------------
3
<PAGE> 5
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
growth of the retail markets. Eastern European customers, whose retail
marketing staffs are expanding and becoming more sophisticated, appear to be
more interested presently in turnkey solutions rather than decision support
tools. The delay in European CAPS(TM) release delayed MPSI's ability to meet
European customer needs for most of 1996, but with a shift in product
targeting, MPSI anticipates being able to begin growing European revenues in
1997. The CAPS(TM) release for Japan/Southeast Asia was delayed in part due to
the impending deregulation of the Japanese oil industry. The revenue decline in
the Pacific Rim is principally attributable to Japanese clients spending very
cautiously for new retail marketing sites until they can assess the effects of
deregulation. MPSI has been able to partially counteract this situation by
entry into new geographic markets, most notably South Korea.
The Company does not believe that inflation has significantly impacted the
results of operations during the three years ended September 30, 1996. The 1994
implementation of lower pricing in North America, South America and Europe
resulted in increased client interest in those regions. While the Company
believes that lower pricing, brought about by competition in certain MPSI
regions, has stimulated revenues from such customers during the three years,
the Company attributes the 1996 and 1995 revenue growth, where it occurred,
primarily to the technological improvements of its new products.
The combination of the economic and industry factors discussed above with
the delayed release of CAPS(TM) software for Europe and South America
contributed substantially to the $698,000 (64%) decline in software licensing
revenues for 1996. Such revenues also declined $1.2 million or 52% in 1995
compared with 1994. While MPSI regularly records software license renewals and
recorded software renewals in both 1996 and 1995, the surge in 1994 software
revenues related to a single large renewal transaction in which a worldwide
licensee renewed its license for three years in the amount of $1.5 million. The
timing of new or renewed long-term software license agreements can have a
substantial impact upon reported revenues and gross profits from software
licensing for any interim or annual fiscal period. In general, over the past
two years, MPSI's software license renewal rate has been declining, except in
the U.S. where the new CAPS(TM) software has resulted in new business.
Management believes that as CAPS(TM) is released in MPSI's other operating
regions, the trend of software renewals will reflect acceptance of CAPS(TM) as
a valuable replacement for the aging Retail Planning System(R) (RPS) software.
While MPSI is projecting revenue and earnings growth in 1997 within its
core petroleum business back to levels comparable with fiscal year 1995,
several new products have been under development which management believes have
the potential to accelerate growth. Although they were not profit contributors
in fiscal year 1996 because of delays in deployment due to resource constraints
and start-up costs, they are expected to positively impact fiscal years 1997
and beyond. MPSI completed development and released its enhanced commercial
version of PVO(R) software in August 1995. Clients in North America, South
America, Europe and Australia are presently evaluating the PVO(R) software. In
addition to new software offerings, MPSI introduced two data products during
fiscal year 1995 which were designed to leverage market information already in
MPSI's inventory and to combat the competitive challenge from data providers.
The Quest product allows clients to obtain point-in-time retail outlet
information either relative to MPSI's standard market study boundaries in a
given geographic market or to establish specialized market boundaries or
specialized data requirements for an additional fee. PriceTracker(TM) allows
clients to obtain high quality, timely retail pricing information on a
recurring basis in order to track trends in the marketplace. The start-up and
survey coordination costs on these products exceeded revenues in fiscal years
1995 and 1996, but these products are expected to attain profitability in
fiscal year 1997. Despite the fact MPSI is projecting revenue and earnings
growth in 1997 within its core petroleum business, no assurance can be given
that such goals will be achieved for several reasons, including competition
from other vendors or the work of in-house research staffs; economic conditions
in the petroleum business; product development delays; and the Company's own
ability to generate and identify sales prospects. It is noted that MPSI had
anticipated the revenue and earnings growth, as well as the decline of new
product start-up and survey coordination costs discussed above, to have
achieved the favorable results expected for 1997 within fiscal 1996, where such
objectives were not realized.
In line with reduced revenues and the lower percentage of such revenues
that were attributable to software licensing, MPSI experienced a 17% decline in
gross profits in 1996, whereas MPSI experienced better gross profit margins on
its software and market studies in 1995 compared with 1994 (excluding the
impact of the $1.5 million license renewal discussed above). Software cost of
sales reflects amortization of capitalized software development costs generally
over product lives of 18 months from product release. Software cost of sales
rose 83% in 1996 compared with 1995 and 35% in 1995 over 1994. Substantial
non-capitalized research and specification work was undertaken in 1994 as
preparation for actual development of the CAPS(TM) software which began late in
fiscal year 1994 (see discussion of research and development expenses below).
Fiscal years 1996 and 1995 reflect the amortization of capitalized development
costs undertaken in prior years relative to the various CAPS(TM) versions. The
Company expects fiscal year 1997 amortization to increase as new CAPS(TM)
software will be amortized for the entire year (only three months in 1996).
Gross profit on market studies, the largest component of information services
revenues, was approximately $9.1 million in 1996, $9.9 million in 1995 and $7.5
million in 1994, and represented 58%, 60%, and 58% of market study revenues in
1996, 1995 and 1994, respectively. The lower market study gross profits in 1996
were attributable in part to certain of the multi-year study updates which
carry acceptable gross profit margins overall, but may result in reduced
margins in certain fiscal year components. MPSI did implement production
efficiencies during fiscal years 1996 and 1995. Those implemented in 1995,
combined with a higher number of studies
- -------------------------------------------------------------------------------
4
<PAGE> 6
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
prepared for multiple client users, allowed MPSI to leverage its costs to a
greater degree in that year. Gross profit on special projects and other
services declined approximately 8%, reflecting the start-up of new data
products discussed above.
Also in line with reduced revenues, MPSI curtailed growth in operating
expenses in spite of undertaking operations in several new geographic countries
(business presences were established in Italy, Canada, South Korea and South
Africa). The $434,000 (17%) increase in general and administrative expenses in
1996 is primarily attributable to severance costs associated with a corporate
reorganization completed in July 1996, to the legal costs associated with
organizing the new offices and with accounting costs associated with an income
tax examination initiated by the Internal Revenue Service as discussed below.
The corporate restructuring was undertaken primarily in response to some of the
problems encountered in timely development of the CAPS(TM) versions noted above
and partly in order to realign the Company's resources to increase attention to
quality client support services. While not undertaken specifically in order to
reduce personnel, the restructuring did result in a reduction of the workforce
by approximately 7% (equally between Tulsa and Bristol, England) with an
associated severance cost of approximately $215,000. Marketing expenses were
slightly lower than in 1995 in spite of the Company's increased focus on client
service resources. Research and development expenses declined $412,000 (23%) as
the proportion of capitalizable activities increased in 1996 (European and
South American CAPS(TM) programming). The 1995 increases in operating expenses
compared with 1994 included higher general and administrative costs in the
amount of $183,000 (8%) related principally to accrual of incentive bonuses and
awards for employees where no similar amounts were accrued or paid for fiscal
year 1994. Marketing and client services expenses grew in 1995 by $1.4 million
(25%) reflecting primarily the start-up costs for the new products mentioned
above. Research and development expenses in the consolidated statements of
operations declined $537,000 (23%) in fiscal year 1995 compared with 1994 as
the Company's overall expenditures were less in respect of contract programming
resources and because a higher proportion of such expenses were capitalized in
connection with development of PVO(R) version 2.0 and the CAPS(TM) versions for
Europe and South America as these products achieved technological feasibility.
MPSI enters into multi-year contracts for market studies, some of which
are denominated in foreign currencies (principally the Singapore Dollar and the
British Pound Sterling). This exposes MPSI to exchange gains or losses
depending upon the periodic value of the U.S. Dollar relative to the respective
foreign currencies. During fiscal years 1996 and 1995, MPSI benefited from
foreign currency exchange gains in the amount of $146,000 and $638,000,
respectively. These gains were generally the result of multi-year database
contracts denominated in Singapore Dollars which were booked by clients in
prior years and partially collected in 1996 or 1995. By the time the
collections were effected, the contract values had increased relative to the
U.S. Dollar reporting currency. Although MPSI anticipates continuing benefit
from the same source in fiscal year 1997, the magnitude should be somewhat
lower. In the longer term, these multi-year commitments could result in
exchange losses if the current currency trends were to reverse.
Income taxes declined $83,000 in 1996 compared with increases of $160,000
and $172,000 in fiscal years 1995 and 1994, respectively. The 1994 income taxes
were primarily foreign income taxes either applicable to the Company's foreign
subsidiaries or withheld at the source from payments by foreign clients. Income
taxes in 1995, however, reflected a larger estimated component of U.S. Federal
and state income taxes (see Note 6 to the Consolidated Financial Statements).
In 1996, the Company subsequently filed income tax returns applicable to fiscal
year 1995 which reflected refunds of both federal ($125,000) and state
($85,000) income taxes. Such refunds are reflected as adjustments to the 1996
income tax expense in accordance with generally accepted accounting principles
governing changes in estimates. The profits generated in fiscal years 1995 and
1994 from U.S. operations resulted in utilization of virtually all net
operating loss carryforwards available for income tax purposes in the U.S.
Certain foreign tax credits may be carried forward to fiscal year 1997, as set
forth in Note 6, but can only be utilized to offset U.S. incomes taxes to the
extent they result from foreign source income. The Company expects to pay
higher U.S. income taxes in 1997 and beyond although a significant portion of
U.S. taxable income in 1997 is anticipated to come from foreign sources.
In March 1996, the Internal Revenue Service initiated an examination of
tax years 1993 through 1995. The Company has not yet received a final report of
the results and believes that the resolution of any issues raised will not have
a material effect on its financial position.
FINANCIAL CONDITION AND LIQUIDITY
Compared with 1995, the Company's working capital, its primary measure of
"liquidity", declined approximately $558,000 or 29% to $1.4 million at
September 30, 1996. Working capital had improved to a positive balance of $1.9
million at September 30, 1995 from a deficit of $5,000 at September 30, 1994.
The 1996 decline was principally attributable to the decline in market study
and software revenues previously discussed. The revenue shortfall resulted in
lower receivables balances at year end and reduced the number of
multiple-client studies. Multiple-client studies, in addition to being more
profitable, generally contribute significant incremental cash flow. The 1995
improvement was a combination of the Company's continued generation of
operating cash flow ($1.6 million as reflected in the statement of cash flow)
and the higher balance in current receivables at September 30, 1995 ($6.4
million) compared with September 30, 1994 ($4.4 million). The increase in trade
receivables was principally attributable to increased market study activity.
- -------------------------------------------------------------------------------
5
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MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The 1996 operating results have precluded the Company from obtaining a
renewal of its previous bank line of credit. The Company intends to seek a
replacement credit facility in 1997. The lack of a back-up funding facility
means that operations must be funded entirely internally, except perhaps for
some limited capital equipment leasing options. The Company has historically
placed significant reliance on customer deposits and prepayments as a source of
ongoing liquidity and operating capital and had not drawn on the previous line
of credit since 1993. Management anticipates internal funding will be
sufficient to satisfy operating needs during the fiscal year although, for
short periods of time, the Company may be required to defer capital acquisition
and tightly manage cash resources. Should substantial direct competitors gain
market share and offer price concessions or favorable payment terms, the
Company's liquidity could be negatively impacted. The Company relies on its
long-term client relationships and the quality of its products and services to
mitigate this potential negative impact on liquidity.
As set forth in the statements of cash flow, the Company generated cash
flow from operations of $1.0 million in 1996 which represented a $.7 million or
41% decline compared with 1995. Cash flow from operations of $1.6 million in
1995 was 41% higher than the $1.2 million in 1994. During 1996, 1995 and 1994,
MPSI committed substantial resources to acquisition of additional computer
equipment and to development of new software products, as previously discussed.
The Company expended $1.4 million in 1996 ($1.0 million in both 1995 and 1994)
for such purposes. The Company anticipates comparable expenditures in 1997 for
similar purposes but has no commitments for capital expenditures at September
30, 1996, other than those related to the forthcoming regional versions of
CAPS(TM) software which are expected to be funded entirely out of operating
cash flows.
The trends in software licensing discussed under "Results of Operations"
above impacted the relative levels of both the related receivables and deferred
revenues. The current and noncurrent balances in long-term receivables
(totaling $3.2 million and $4.3 million at September 30, 1996 and 1995,
respectively) and the deferred maintenance component of deferred revenue
(totaling $2.2 million and $3.0 million at September 30, 1996 and 1995,
respectively) decreased in 1996 as the receivables and deferred revenue from
new software contracts were less than the collections and maintenance revenue
recognized during 1996. MPSI's license agreements generally are noncancelable,
although a few contracts include provisions for cancellation of portions of the
client's commitment upon occurrence of certain negative economic events in the
clients' geographic areas of operations. In accordance with its policy, the
Company does not recognize revenues on such contingent portions of agreements,
so that in the event of cancellation, only receivables and deferred revenue are
generally adjusted. In accordance with contractual cancellation options,
certain clients canceled portions of their software licenses in 1996
aggregating $435,000 compared with $65,000 during 1995 and $226,000 during
1994. As the number of contracts with cancellation clauses are few, the Company
does not expect a significant impact from cancellations in 1997.
The decrease in other noncurrent liabilities to $177,000 at September 30,
1996 from $220,000 at September 30, 1995 is the result of reclassifying certain
U.S. headquarters lease obligations to current accrued liabilities. The
Company's present lease on its headquarters facility expires in April 1998, and
the Company has been informed by a new landlord who recently acquired the
building that MPSI will be required to vacate at the end of the lease. The
Company is presently evaluating facility alternatives but does not expect to
move before lease expiration.
MPSI's backlog of market studies at September 30, 1996 in the amount of
approximately $16.3 million contained a substantial number of recurring studies
under multi-year client commitments. Such studies represented approximately 26%
of the estimated revenues for fiscal year 1997. Revenues in 1995, particularly
during the last six months of the fiscal year, resulted in a drop of
approximately $4.1 million in backlog compared with 1994 and reduced the market
study backlog at September 30, 1995 to $14.7 million.
- -------------------------------------------------------------------------------
6
<PAGE> 8
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MPSI SYSTEMS INC.
We have audited the accompanying consolidated balance sheets of MPSI
Systems Inc. and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flow for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of MPSI Systems Inc. and subsidiaries at September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996 in conformity with generally
accepted accounting principles.
Tulsa, Oklahoma
November 19, 1996
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7
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MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Information services and software maintenance ....... $ 21,354,000 $ 22,348,000 $ 17,593,000
Software licensing .................................. 391,000 1,089,000 2,279,000
------------ ------------ ------------
Total revenues ............................... 21,745,000 23,437,000 19,872,000
------------ ------------ ------------
Cost of sales:
Information services and software maintenance ....... 10,406,000 10,100,000 7,368,000
Software licensing (Note 5) ......................... 608,000 332,000 246,000
------------ ------------ ------------
Total cost of sales .......................... 11,014,000 10,432,000 7,614,000
------------ ------------ ------------
Gross profit ................................. 10,731,000 13,005,000 12,258,000
Operating expenses:
General and administrative .......................... 3,005,000 2,571,000 2,388,000
Marketing and client services ....................... 6,928,000 6,993,000 5,578,000
Research and development ............................ 1,382,000 1,794,000 2,331,000
------------ ------------ ------------
Total operating expenses ..................... 11,315,000 11,358,000 10,297,000
------------ ------------ ------------
Operating income (loss) ...................... (584,000) 1,647,000 1,961,000
Other income (expense):
Interest income ..................................... 204,000 195,000 205,000
Interest expense .................................... (17,000) (12,000) (16,000)
Gain on foreign exchange ............................ 146,000 638,000 8,000
Other, net .......................................... (1,000) 15,000 92,000
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes .............................. (252,000) 2,483,000 2,250,000
Income taxes ........................................... (371,000) (454,000) (294,000)
------------ ------------ ------------
Income (loss) from continuing operations ............... (623,000) 2,029,000 1,956,000
Discontinued operations (Note 2):
Operating loss of RSI before disposition ............ -- -- (431,000)
Loss on RSI disposition ............................. -- -- (51,000)
------------ ------------ ------------
Net income (loss) ...................................... $ (623,000) $ 2,029,000 $ 1,474,000
============ ============ ============
Per share (Note 1):
Income (loss) per common and common equivalent share:
Continuing operations ............................ $ (.23) $ .72 $ .71
Discontinued operations .......................... $ -- $ -- $ (.18)
Net income (loss) ................................ $ (.23) $ .72 $ .53
</TABLE>
See accompanying notes to consolidated financial statements.
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8
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MPSI Systems Inc. and Subsidiaries
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
=====================================================================================================
SEPTEMBER 30,
------------------------------
1996 1995
------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 951,000 $ 1,270,000
Short-term investments, at cost ............................... 49,000 41,000
Receivables (Note 3):
Trade ...................................................... 3,413,000
4,522,000
Current portion of long-term receivables, net of unamortized
discount ................................................ 1,177,000 1,893,000
Work in process inventory ..................................... 361,000 304,000
Prepayments ................................................... 174,000 175,000
------------ ------------
Total current assets ................................... 6,125,000 8,205,000
Long-term receivables, net of unamortized discount (Note 3) ...... 1,779,000 2,421,000
Property and equipment, net (Note 4) ............................. 1,325,000 1,191,000
Software products, net (Note 5) .................................. 843,000 673,000
Other assets ..................................................... 247,000 434,000
------------ ------------
Total assets ........................................... $ 10,319,000 $ 12,924,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
=====================================================================================================
Current liabilities:
Accounts payable .............................................. $ 1,241,000 $ 905,000
Accrued liabilities (Notes 6 and 8) ........................... 1,214,000 1,738,000
Deferred revenue .............................................. 2,280,000 3,614,000
------------ ------------
Total current liabilities .............................. 4,735,000 6,257,000
Noncurrent deferred revenue ...................................... 1,342,000 1,961,000
Other noncurrent liabilities ..................................... 177,000 220,000
------------ ------------
Total liabilities ...................................... 6,254,000 8,438,000
------------ ------------
Commitments and contingencies (Note 9) ........................... -- --
Stockholders' equity (Note 8):
Preferred Stock, $.10 par value, 1,000,000 shares authorized,
none issued or outstanding ................................. -- --
Common Stock, $.05 par value, 20,000,000 shares authorized,
2,794,000 and 2,733,000 shares issued and outstanding at
September 30, 1996 and 1995, respectively .................. 140,000 137,000
Junior Common Stock, $.05 par value, 500,000 shares authorized,
none issued or outstanding ................................. -- --
Additional paid-in capital .................................... 12,934,000 12,751,000
Deficit ....................................................... (9,963,000)
(9,340,000)
Foreign currency translation adjustment ....................... 954,000 938,000
------------ ------------
Total stockholders' equity ............................. 4,065,000 4,486,000
------------ ------------
Total liabilities and stockholders' equity ............. $ 10,319,000 $ 12,924,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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9
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MPSI Systems Inc. and Subsidiaries
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CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTE 10)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations ................. $ (623,000) $ 2,029,000 $ 1,956,000
Adjustments to reconcile income (loss) from continuing
operations to cash provided by continuing operations:
Depreciation and amortization of property and equipment 450,000 405,000 406,000
Amortization of software products ..................... 592,000 294,000 246,000
Deferred income taxes ................................. -- -- 26,000
Loss (gain) on sale of assets ......................... 5,000 7,000 (1,000)
Write off of capitalized software development costs ... -- 30,000 --
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables ........................................ 1,970,000 (2,436,000) (715,000)
Inventories ........................................ (57,000) 228,000 (254,000)
Prepayments ........................................ 189,000 138,000 191,000
Increase (decrease) in liabilities:
Trade payables and accruals ........................ 388,000 (214,000) (699,000)
Taxes payable ...................................... (438,000) 234,000 (24,000)
Deferred revenue ................................... (1,501,000) 924,000 440,000
----------- ----------- -----------
Net cash provided by continuing operations ..... 975,000 1,639,000 1,572,000
----------- ----------- -----------
Loss from discontinued operations ........................ -- -- (482,000)
Adjustments to reconcile loss from discontinued
operations to cash used by discontinued operations:
Provision for loss on receivables in excess of
write-offs ......................................... -- -- 2,000
Loss on sale of assets ................................ -- -- 51,000
Provision for income taxes ............................ -- -- (10,000)
Depreciation and amortization ......................... -- -- 27,000
----------- ----------- -----------
Net cash used by discontinued operations ....... -- -- (412,000)
----------- ----------- -----------
Net cash provided by operating activities ...... 975,000 1,639,000 1,160,000
----------- ----------- -----------
Cash flows from investing activities:
Increase in short-term investment ..................... -- -- (28,000)
Purchase equipment .................................... (601,000) (634,000) (388,000)
Software development .................................. (762,000) (396,000) (590,000)
Proceeds from disposition of assets ................... 16,000 16,000 7,000
Proceeds from sale of discontinued RSI unit ........... -- -- 70,000
Net investment activities of discontinued operations .. -- -- (11,000)
----------- ----------- -----------
Net cash used by investing activities .......... (1,347,000) (1,014,000) (940,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercised stock options ................. 53,000 10,000 --
----------- ----------- -----------
Net cash provided by financing activities ...... 53,000 10,000 --
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ......... (319,000) 635,000 220,000
Cash and cash equivalents at beginning of period ......... 1,270,000 635,000 415,000
----------- ----------- -----------
Cash and cash equivalents at end of period ............... $ 951,000 $ 1,270,000 $ 635,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
10
<PAGE> 12
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN TOTAL
-------------------- ADDITIONAL CURRENCY STOCK-
CARRYING PAID-IN TRANSLATION HOLDERS'
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
------ -------- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993 .. 2,705,000 $135,000 $12,636,000 $(12,843,000) $ 1,006,000 $ 934,000
Net income ................ -- -- -- 1,474,000 -- 1,474,000
Stock issued to 401(k) Plan 23,000 1,000 106,000 -- -- 107,000
Translation adjustment .... -- -- -- -- (32,000) (32,000)
--------- -------- ----------- ------------ ----------- -----------
Balance, September 30, 1994 .. 2,728,000 136,000 12,742,000 (11,369,000) 974,000 2,483,000
Net income ................ -- -- -- 2,029,000 -- 2,029,000
Stock options exercised ... 5,000 1,000 9,000 -- -- 10,000
Translation adjustment .... -- -- -- -- (36,000) (36,000)
--------- -------- ----------- ------------ ----------- -----------
Balance, September 30, 1995 .. 2,733,000 137,000 12,751,000 (9,340,000) 938,000 4,486,000
Net loss .................. -- -- -- (623,000) -- (623,000)
Stock options exercised ... 20,000 1,000 52,000 -- -- 53,000
Stock issued to 401(k) Plan 41,000 2,000 131,000 -- -- 133,000
Translation adjustment .... -- -- -- -- 16,000
--------- -------- ----------- ------------ ----------- -----------
16,000
Balance, September 30, 1996 .. 2,794,000 $140,000 $12,934,000 $ (9,963,000) $ 954,000 $ 4,065,000
========= ======== =========== ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
11
<PAGE> 13
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations: MPSI Systems Inc. is a United States-based
multinational corporation whose principal line of business is providing
decision support software, information databases and consulting services to
businesses which have an investment in retail outlet networks. The Company
markets its products and services in North America, the Pacific Rim, South
America, Europe and South Africa through a direct sales force located in
various foreign countries. As discussed more fully in Note 7, over 60% of
consolidated revenues are generated from foreign customers, and substantial
portions of such revenues are billed in foreign currencies. Most of the
Company's business comes from the petroleum industry, including several
customers who individually account for a significant portion of consolidated
revenues. Services are also provided for clients in the banking, convenience
food, quick service restaurant and government postal industries. All software
development and substantially all of the information database preparation is
performed at the Company's headquarters facility in Tulsa, Oklahoma.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of MPSI Systems Inc. and its wholly owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Revenue Recognition: Revenues and costs related to production of market
information databases are recorded based upon the ratio of costs incurred to
total estimated completion costs (percentage-of-completion method). Revenues
and costs related to single site studies, mini-market studies and other
projects which are completed in a short time period are recognized at
completion. Anticipated losses on contracts are charged against earnings at the
time such losses are identified.
The Company's software products are generally licensed to customers
through noncancelable software license and maintenance contracts with terms of
up to five years. The corresponding long-term receivables and deferred
maintenance revenue from these installment contracts are stated at the
discounted present value of annual license and maintenance payments to be
received over the contract term based upon the prime rate of interest on the
effective date of each contract. The present value discount, related to
installments due after one year, is amortized to interest income using an
accelerated method that equates interest earnings with outstanding receivable
balances. Software license revenues, equal to the present value of the
aggregate annual license installments, are recognized at the latter of contract
execution or software delivery when collection is probable. When it cannot be
determined that collection is probable, or if a contract contains cancellation
options, software revenues are recognized as the annual installments are
billed. At the time revenue is recognized, the Company has no remaining
obligations under the software license and maintenance contracts other than
providing postcontract customer support services related to the maintenance
portion of the contract and performance obligations under any optional and
separately priced training or consulting arrangements. Maintenance revenues,
equal to the present value of annual installment payments, are recognized
ratably over the term of the contracts as the postcontract customer support
services are provided and the related costs are incurred and recognized.
Optional training and consulting represent service transactions as to which
revenues and expense are recognized when the earnings process is substantially
complete.
Statement of Cash Flows: For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment: Property and equipment is stated at cost.
Depreciation is provided using the straight-line method, over the estimated
useful lives of the respective assets, except for leasehold improvements which
are amortized over the lesser of the lease term or the economic life of the
underlying asset. Since such assets are employed in all facets of the Company's
operations, depreciation expense is reflected in cost of sales as well as in
each category of operating expenses. The Company charges the cost of repairs
and maintenance to expense as incurred and capitalizes the cost of
replacements, renewals and betterments. When property or equipment is retired,
the cost and accumulated depreciation are removed from the accounts, and the
resulting gain or loss on the disposition is reflected in other income
(expense).
Software Products: Cost of software held for resale, which was either
purchased with the intent to incorporate the acquired software in MPSI products
or developed internally, is presented net of accumulated amortization. The
costs of internally developed software include direct labor, materials and
overhead, and relate to significant enhancements to existing software or to
development of new software products. All costs incurred to establish the
technological feasibility of internally developed software are charged to
research and development expense as incurred. Royalties, which may become
payable because of ongoing proprietary interests related to third-party
software imbedded in MPSI products, are charged to cost of sales-software
licensing as applicable software sales are recognized.
The annual amortization of software products is computed on a
product-by-product basis and is the greater of the amount determined using (1)
the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product or (2) the
straight-line method over the remaining economic life of the product.
Historically, the
- -------------------------------------------------------------------------------
12
<PAGE> 14
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
straight-line method has resulted in a greater amount of amortization in each
accounting period and has, therefore, been the basis for amortization in the
current period and in prior periods. Amortization starts when a product is
available for general release to customers and is reflected in cost of
sales-software licensing.
In the event that capitalized software development costs are subsequently
determined not to be fully recoverable from future operations, the carrying
value of such software is reduced to an amount equal to its net realizable
value less costs of marketing and distribution. The reduction in carrying value
is recorded in cost of sales-software licensing.
Inventory: Work-in-process is composed of direct labor, costs of gathering
demographic data, indirect costs and overhead. Indirect costs and overhead are
allocated to each contract based upon the direct labor incurred.
Income Taxes: The Company applies the liability method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards No.
109 which was adopted October 1, 1993 as required. Under this method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in the results of operations during the period that
includes the enactment date.
Earnings Per Share: Earnings per share computations are based upon the
weighted average number of common shares outstanding during each period,
including dilutive common stock equivalents related to unexercised stock
options. Earnings per share computations do not give effect to common stock
equivalents for any period in which their inclusion would have the effect of
increasing the earnings per share amount or decreasing the loss per share
amount otherwise computed. The adjusted weighted average shares utilized in
determining income (loss) per share were 2,756,000 for fiscal year 1996,
2,802,000 for fiscal year 1995, and 2,766,000 for fiscal year 1994.
Foreign Currency Translation: Assets and liabilities of the Company's
foreign operations, except Brazil, are translated from the foreign operating
currency to the U.S. Dollar equivalent for consolidated reporting purposes
using the applicable exchange rates at the balance sheet date. Revenues and
expenses are translated at average rates for the year. Exchange differences
from these translations are included in stockholders' equity. Where amounts
denominated in a foreign currency are or are expected to be converted into
dollars by remittance or repayment, the realized exchange differences are
reflected in the results of operations. Due to high rates of inflation in
Brazil, transactions and accounting records are maintained in U.S. Dollar
equivalents.
Restructuring Expenses: Expenses associated with corporate restructuring
are recognized at the time that the underlying obligations are incurred.
Severance costs are accrued in the accounting period during which management,
having authority to do so, approves severance plans, provided that (1) the
specific individuals or positions to be terminated have been identified and the
costs thereof were reasonably quantifiable and probable of occurrence within
the succeeding twelve months, and (2) prior to release of the financial
statements for the affected period, the affected employees or positions are
either terminated or the general terms of the termination plan have been
communicated, including the benefits to which terminated employees are entitled
or will voluntarily receive. The net present value of remaining lease
obligations related to excess space is accrued in full at the time the space is
abandoned, net of sublease recoveries which are probable. The costs of other
corporate restructuring decisions are accrued at the time the obligations
related thereto are incurred and quantifiable.
New Accounting Pronouncements: In March 1995 the Financial Accounting
Standards Board adopted Statement No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for
fiscal years beginning after December 15, 1995. Adoption of this new Statement
is not expected to have a material effect on the Company's financial position
or results of operations.
In October 1995, the Financial Accounting Standards Board adopted
Statement No. 123, "Accounting for Stock Based Compensation," effective for
fiscal years beginning after December 15, 1995. FAS 123 provides MPSI the
option to continue present methods of accounting for stock-based compensation
with additional disclosure of the effects thereof had the accounting policies
set forth in the Statement been adopted. MPSI will incorporate the required
disclosure in future financial statements issued after the effective date.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
- -------------------------------------------------------------------------------
13
<PAGE> 15
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
2. DISCONTINUED OPERATIONS:
On September 1, 1994, the Company's wholly owned subsidiary, RSI, sold all
of its noncash assets to an unaffiliated third party, Dakota Worldwide
Corporation ("Dakota"). Dakota paid $70,000 cash, assumed trade accounts
payable of approximately $97,000, assumed certain lease obligations of
approximately $426,000 at the date of sale (although RSI remains contingently
liable on such leases in the event Dakota fails to perform) and agreed to pay
RSI future royalties equal to 10% of sales generated from RSI's client base
through and including August 31, 1997. Dakota acquired trade accounts
receivable, furnishings and equipment (with a net book value of $52,000) and
work in process inventory. Dakota assumed all performance obligations related
to contracts in force with RSI's customers at the sale date.
Concurrent with this transaction, RSI and MPSI executed an agreement not
to compete with Dakota in North America. RSI terminated all of its employees,
subject to temporary retention of certain administrative staff, and RSI was
responsible for all severance costs related thereto. The Company has completed
a winding down of the corporate affairs of RSI and dissolved it effective
September 25, 1995.
Operating results of the discontinued RSI business unit at September 30,
1994 were as follows:
Revenues ..................................... $ 1,226,000
Loss before income taxes...................... (440,000)
Income tax benefit ........................... 9,000
Loss from operations ......................... (431,000)
The loss on disposal of RSI at September 30, 1994 included the following:
Gain on net assets sold ...................... $ 32,000
Accrued close-down costs ..................... (38,000)
Income tax benefit ........................... 1,000
Accrued employee severance ................... (46,000)
-----------
Loss on disposal of discontinued
operations ............................... $ (51,000)
===========
3. RECEIVABLES:
Trade accounts receivable include unbilled amounts of $1,423,000 at
September 30, 1996 and $1,662,000 at September 30, 1995. These amounts
represent market study revenues recognized under the percentage-of-completion
method in excess of amounts billed and will generally be billable during the
succeeding twelve months upon completion of the respective studies.
Current and noncurrent receivables also include unbilled amounts of
$2,987,000 at September 30, 1996 and $4,254,000 at September 30, 1995 (before
present value discount and excluding $207,000 and $381,000 which had been
billed at September 30, 1996 and 1995, respectively) related to multi-year
software license and maintenance agreements. Since these agreements contain
annual installment billing provisions, the unbilled receivable balance for some
contracts is as much as four years' future annual billings. Of the September
30, 1996 unbilled amounts, $1,086,000 (compared with $1,656,000 at September
30, 1995) will be billed in the succeeding twelve months, and the remainder
will be billed thereafter at such future dates as are specified in the
respective contracts. The portion of such future billings related to
maintenance and support services not yet performed is offset by corresponding
amounts in deferred revenue. The current portions of long-term receivables are
reduced by unamortized present value discount of $116,000 and $144,000 at
September 30, 1996 and 1995, respectively. Noncurrent long-term receivables are
presented net of unamortized present value discount in the amount of $122,000
and $177,000 at September 30, 1996 and 1995, respectively. The present value
discount is imputed based upon the New York prime rate on the effective date of
each agreement. Interest income related to these agreements was $160,000,
$171,000, and $196,000 in fiscal years 1996, 1995 and 1994, respectively.
A significant portion of the Company's business activity is with the major
multinational oil companies. At September 30, 1996, 96% ($6,341,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($8,556,000 or 93% at September 30, 1995). The receivable portfolio is
well diversified geographically which tends to mitigate the potential impact of
fluctuations in petroleum activities which may otherwise result if receivables
were confined to a particular geographic area. Software license agreements are
payable over several years (generally five-year agreements) and are expected to
be paid from operating cash flows of the customers. The Company does not
require collateral or other security to support these contractual receivables.
The carrying value of long-term receivables, net of unearned discount,
approximates market value.
- -------------------------------------------------------------------------------
14
<PAGE> 16
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
USEFUL LIFE ----------------------------
IN YEARS 1996 1995
-------- ----------------------------
<S> <C> <C> <C>
Leasehold improvements ......... Various $ 702,000 $ 713,000
Computer equipment and software 4-5 5,955,000 6,243,000
Office furnishings and equipment 3-10 1,637,000 1,655,000
----------- -----------
8,294,000 8,611,000
Accumulated depreciation ....... (6,969,000) (7,420,000)
----------- -----------
Net property and equipment .. $ 1,325,000 $ 1,191,000
=========== ===========
</TABLE>
The provision for depreciation was $450,000, $405,000, and $406,000 for
the years ended September 30, 1996, 1995 and 1994, respectively. At September
30, 1996, fully depreciated assets with an aggregate original cost of
approximately $5,517,000 remain in use.
5. SOFTWARE PRODUCTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1996 1995
----------------------------
<S> <C> <C>
Capitalized software development costs $ 3,931,000 $ 3,171,000
Accumulated amortization ............. (3,088,000) (2,498,000)
----------- -----------
Net software products ............. $ 843,000 $ 673,000
=========== ===========
</TABLE>
The provision for amortization, reflected in Software Licensing cost of
sales, was $592,000, $294,000, and $246,000 for the years ended September 30,
1996, 1995 and 1994, respectively. Based upon current sales forecasts,
capitalized software costs are projected to be recoverable. However, these
sales forecasts are subject to certain vulnerabilities which could potentially
affect the recoverability of those costs.
6. INCOME TAXES:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations before
income taxes:
Domestic............................................. $ 27,000 $ 3,515,000 $ 2,977,000
Foreign.............................................. (279,000) (1,032,000) (727,000)
---------- ----------- -----------
Total......................................... $ (252,000) $ 2,483,000 $ 2,250,000
========== =========== ===========
Income taxes (benefits):
Current:
Federal............................................. $ 15,000 $ 80,000 $ 56,000
State............................................... (56,000) 203,000 3,000
Foreign............................................. 412,000 171,000 209,000
---------- ----------- -----------
Current income taxes.......................... 371,000 454,000 268,000
Foreign deferred income taxes....................... -- -- 26,000
---------- ----------- -----------
Provision for total income taxes.............. $ 371,000 $ 454,000 $ 294,000
========== =========== ===========
</TABLE>
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15
<PAGE> 17
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
A reconciliation of the provision for income taxes at the applicable
Federal statutory income tax rate to the actual provision for income taxes
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Expense (benefit) at statutory rate........................... $ (88,000) $ 869,000 $ 787,000
Alternative minimum tax....................................... 15,000 80,000 56,000
Foreign income and taxes, net................................. 295,000 (201,000) 177,000
Loss carryforwards............................................ 156,000 418,000 311,000
Federal loss carryforwards utilized........................... -- (813,000) (1,069,000)
State income taxes............................................ (36,000) 132,000 2,000
Other, net.................................................... 29,000 (31,000) 30,000
--------- --------- -----------
Income taxes............................................... $ 371,000 $ 454,000 $ 294,000
========= ========= ===========
</TABLE>
Income taxes of $210,000 were refundable at September 30, 1996 ($352,000
payable at September 30, 1995). The Company does not accrue income taxes on
undistributed earnings of certain foreign subsidiaries which are permanently
invested. At September 30, 1996 and 1995, the amount of undistributed earnings
for which taxes have not been accrued was insignificant.
In March 1996, the Internal Revenue Service initiated an examination of
tax years 1993 through 1995. The Company has not yet received a final report of
the results and believes that the resolution of any items raised will not have
a material effect on its financial position.
At September 30, 1996, the Company has various U.S. tax credits of
$633,000 which expire between 1997 and 2001. At September 30, 1996, certain
foreign subsidiaries have net operating loss carryforwards of approximately
$8,115,000 which may be utilized in future years.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1996 1995
-----------------------------
<S> <C> <C>
Deferred tax liabilities:
Software revenue ............................................... $ 699,000 $ 825,000
Depreciation ................................................... 58,000 49,000
Other .......................................................... 98,000 98,000
----------- -----------
Total deferred tax liabilities .......................... 855,000 972,000
----------- -----------
Deferred tax assets:
Accrued liabilities ............................................ 287,000 245,000
U.S. and foreign loss carryforwards ............................ 2,413,000 2,279,000
U.S. tax credit carryforwards .................................. 633,000 689,000
----------- -----------
Total deferred tax assets ............................... 3,333,000 3,213,000
Valuation allowance for deferred tax assets .................... (2,576,000) (2,339,000)
----------- -----------
Net deferred tax assets ................................. 757,000 874,000
----------- -----------
Net deferred tax liabilities included in Other Noncurrent
Liabilities .......................................... $ 98,000 $ 98,000
=========== ===========
</TABLE>
Utilization of the Company's tax credit and loss carryforwards is
dependent on realizing taxable income in the appropriate tax jurisdiction.
Deferred tax assets for these carryforwards have been reduced by the valuation
allowance to an amount that is more likely than not to be realized.
- -------------------------------------------------------------------------------
16
<PAGE> 18
MPSI Systems Inc. and Subsidiaries
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7. BUSINESS SEGMENT AND REVENUE FROM MAJOR CUSTOMERS:
The Company operates in one business segment from its principal production
facility in the United States supported by satellite production facilities in
England and Brazil. Foreign sales offices or representatives are currently
maintained in Australia, Brazil, Canada, Japan, Italy, South Africa, South
Korea, Shanghai, the United Kingdom and Singapore. The following table sets
forth the revenues and other information related to continuing services
provided by each of the Company's three production centers.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Unaffiliated customers:
United States .............................. $ 20,248,000 $ 21,839,000 $ 18,045,000
Europe ..................................... 780,000 1,369,000 1,428,000
Brazil ..................................... 717,000 229,000 399,000
Between geographic areas(1):
United States .............................. 237,000 300,000 391,000
Europe ..................................... 673,000 284,000 384,000
Asia/Pacific Rim ........................... 2,228,000 2,222,000 2,033,000
Brazil ..................................... 387,000 -- --
Eliminations .................................. (3,525,000) (2,806,000) (2,808,000)
------------ ------------ ------------
Total revenues ...................... $ 21,745,000 $ 23,437,000 $ 19,872,000
============ ============ ============
Operating income (loss):
United States .............................. $ 795,000 $ 2,868,000 $ 2,520,000
Europe ..................................... (891,000) (649,000) (430,000)
Brazil ..................................... (488,000) (572,000) (129,000)
------------ ------------ ------------
Total operating income (loss) ....... $ (584,000) $ 1,647,000 $ 1,961,000
============ ============ ============
Identifiable assets:
United States .............................. $ 9,276,000 $ 11,581,000 $ 8,620,000
Europe ..................................... 436,000 891,000 860,000
Brazil ..................................... 607,000 452,000 254,000
------------ ------------ ------------
Total assets ........................ $ 10,319,000 $ 12,924,000 $ 9,734,000
============ ============ ============
Export sales from U.S.:
Canada ..................................... $ 952,000 $ 749,000 $ 572,000
Central America ............................ 358,000 154,000 418,000
South America .............................. 1,055,000 1,554,000 790,000
Europe ..................................... 521,000 903,000 1,475,000
Asia/Pacific Rim ........................... 8,873,000 10,066,000 8,724,000
Africa ..................................... 289,000 143,000 137,000
------------ ------------ ------------
Total export sales .................. $ 12,048,000 $ 13,569,000 $ 12,116,000
============ ============ ============
Consolidated revenues from foreign customers by
geographic area are as follows:
Canada and Central America ................. $ 1,310,000 $ 903,000 $ 991,000
Singapore, Australia and Japan ............. 8,873,000 10,066,000 8,724,000
Europe and United Kingdom .................. 1,172,000 2,271,000 2,903,000
Africa ..................................... 418,000 143,000 137,000
South America .............................. 1,772,000 1,783,000 1,189,000
------------ ------------ ------------
Consolidated foreign revenues ....... $ 13,545,000 $ 15,166,000 $ 13,944,000
============ ============ ============
Depreciation and amortization of property and
equipment:
United States .............................. $ 402,000 $ 366,000 $ 373,000
Europe ..................................... 36,000 24,000 18,000
Brazil ..................................... 12,000 15,000 15,000
Capital expenditures:
United States .............................. $ 563,000 $ 565,000 $ 374,000
Europe ..................................... 20,000 64,000 14,000
Brazil ..................................... 18,000 5,000 --
</TABLE>
(1) Sales between geographic areas are made at prices that generally
approximate the prices of similar charges to unaffiliated customers.
- -------------------------------------------------------------------------------
17
<PAGE> 19
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
Approximately 97% of total revenues from continuing operations were
derived from the petroleum industry during the year ended September 30, 1996
(96% and 99% during 1995 and 1994, respectively). Individual customers
accounted for MPSI revenues which were in excess of 10% of consolidated
revenues in 1996, 1995 or 1994 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Exxon/Esso/Imperial...................... $6.3 29 $4.4 19 $3.8 19
Texaco/Caltex............................ $2.7 12 $1.3 6 $3.0 15
Shell.................................... $1.5 7 $2.8 12 $2.1 11
Amoco.................................... $2.1 10 $2.5 11 $1.4 7
</TABLE>
Although the Company would be adversely affected if several petroleum
industry customers curtailed their long-term usage of MPSI products or in the
event of a significant long-term economic downturn in the petroleum industry
generally, the Company's petroleum clients are well diversified geographically
which reduces the long-term risk attendant with its industry dependence, and
MPSI has historically experienced high renewal rates for its software license
and maintenance agreements.
8. EMPLOYEE BENEFITS:
Under an employee stock ownership and investment plan, all qualifying U.S.
employees may contribute up to 16% of their annual earnings. Subject to certain
limitations, the Company will contribute in cash or Common Stock an amount
equal to but not less than 50% or more than 100% of a participant's salary
deferral contributions that are not in excess of 6% of the participant's
earnings for the year. Contributions may be invested in the Company's Common
Stock or in five other equity or fixed-income funds. The Company recorded
expense related to its matching contribution of $143,000, $132,000 and $114,000
in fiscal years 1996, 1995 and 1994, respectively. At September 30, 1996 and
1995, the Company had accrued $114,000 and $102,000 of liabilities for matching
contributions to the 401(k) plan (which in each case represented the estimated
Company match attributable to nine months of participant contributions since
the Plan year ends December 31). During fiscal year 1996, the Company
liquidated its matching contribution liability for the Plan year ended December
31, 1995 by contributing previously unissued Common Stock at a value of
$133,000. During fiscal year 1995, the Company paid a $121,000 cash matching
contribution applicable to the Plan year ended December 31, 1994. The matching
contribution for Plan year 1996 will be paid during fiscal year 1997.
The Company has reserved 750,000 shares of Common Stock for issuance of
stock options under a 1988 stock option plan covering all employees which
expires in 1998. An additional 129,000 shares are potentially issuable if
outstanding options under a 1984 stock option plan are exercised. The remaining
options under the 1984 plan expire from September 3, 1998 to November 28, 1999,
and no further options may be granted under that plan.
The following table summarizes the status of the plans at
September 30, 1996:
<TABLE>
<CAPTION>
NO. OF OPTION PRICE
SHARES PER SHARE
------ ---------
<S> <C> <C> <C>
Outstanding September 30, 1993..................................................... 109,600 $ 2.25 - $17.50
Granted......................................................................... 18,000 $ 3.00 - $ 4.50
Cancelled....................................................................... (15,500) $ 2.25
-------
Outstanding September 30, 1994..................................................... 112,100 $ 2.25 - $17.50
Granted......................................................................... 68,900 $ 3.00
Cancelled....................................................................... (8,050) $ 2.25 - $ 8.75
Exercised....................................................................... (4,333) $ 2.25
--------
Outstanding September 30, 1995..................................................... 168,617 $ 2.25 - $17.50
Granted......................................................................... 139,050 $ 3.50 - $ 5.50
Cancelled....................................................................... (8,884) $ 2.25 - $17.50
Exercised....................................................................... (19,500) $ 2.25 - $ 4.50
-------
Outstanding September 30, 1996..................................................... 279,283 $ 2.25 - $ 8.75
=======
Exercisable September 30, 1996..................................................... 98,288 $ 2.25 - $ 8.75
========
</TABLE>
The Company accrued $92,000 at September 30, 1996 ($140,000 accrued at
September 30, 1995); in connection with incentive award programs for certain
employees. The awards were accrued based upon the Company's achievement of
certain revenue and operating income objectives and the respective
contributions of certain employees to the achievement of those objectives. The
various incentive plans specify cash settlement of the accrued liability prior
to December 31, 1996.
- -------------------------------------------------------------------------------
18
<PAGE> 20
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
At September 30, 1995, the Company had an accrual of approximately
$110,000 in connection with discretionary employee performance awards in the
form of deferred compensation. Such amount was earned and accrued based on the
employee's performance during the year ended September 30, 1994. Under deferred
compensation agreements with certain key employees as approved by the
Compensation Committee, the Company will pay future cash awards to the
specified employees upon the achievement, for thirty consecutive business days,
of a $6.00 per share market price for the Company's Common Stock. Such payments
could be made at any point after November 29, 1995, assuming stock price and
other vesting requirements have been met. Based upon the stock price at
September 30, 1996, the amount previously accrued has been reversed.
At September 30, 1996 and 1995, the Company had accrued $607,000 and
$546,000, respectively, related to employee vacations earned but not yet taken.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases other office space and equipment under various
agreements, substantially all of which have been accounted for as operating
leases. Rental expense, including the leases described above, of $1,040,000 was
recorded during the year ended September 30, 1996 ($1,095,000 and $1,265,000 in
1995 and 1994, respectively). Aggregate future rentals under these commitments
are as follows: 1997--$770,000; 1998--$386,000, 1999--$40,000 and 2000--$7,000.
During 1994, the Company leased computer equipment from its chairman
and members of his family under various agreements which required aggregate
quarterly payments of approximately $16,000 which expired in 1995.
Approximately $45,000 was paid under such agreements during each of the years
ended September 30, 1995 and 1994.
In connection with the discontinued RSI business unit and sale of its
assets as described in Note 2, the Company remains contingently liable until
December 31, 1997, for certain lease obligations in the event that the
purchaser does not fully perform in accordance with the lease terms. The
Company has received no notices of non-performance on these obligations. At
September 30, 1996, the aggregate remaining lease obligations assumed by the
purchaser was $155,000 related to the office space which RSI occupied prior to
the sale. The annual amounts under such lease obligations for which the Company
might be liable in the event that Dakota fails to perform are: 1997--$124,000
and 1998--$31,000.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following information concerning noncash transactions is provided to
supplement the Consolidated Statements of Cash Flow.
In the normal course of business, certain clients exercised contract
cancellation options available in their software license agreements in response
to economic downturns in their operating regions. As the Company, in accordance
with its policy, had not recognized any revenues on such contingent portions of
those agreements, the cancellations resulted in noncash reductions of long-term
receivables and deferred revenues in the amount of approximately $435,000
during fiscal year 1996 and $65,000 during fiscal year 1995.
The Company satisfied its 401(k) matching contribution for the Plan year
ended December 31, 1995 by subsequently issuing its Common Stock. This
transaction resulted in a noncash reduction of accrued liabilities and a
corresponding increase in Common Stock and additional paid-in capital of
approximately $133,000 in fiscal year 1996.
The Company paid interest of $17,000 during fiscal year 1996, $12,000
during fiscal year 1995, and $16,000 in fiscal year 1994. Income taxes of
$809,000, $220,000, and $295,000 were paid during fiscal years 1996, 1995 and
1994, respectively.
- -------------------------------------------------------------------------------
19
<PAGE> 21
MPSI Systems Inc. and Subsidiaries
- -------------------------------------------------------------------------------
MARKET INFORMATION FOR MPSI COMMON STOCK
During fiscal 1994 and through September 25, 1995, the Company's Common
Stock was not listed with an established securities exchange and all purchases
and sales occurred in direct negotiations or over the counter. Set forth below
for those periods are the high and low bid prices, as adjusted giving effect to
a one-for-ten reverse stock split on November 18, 1993. The trading symbol is
"MPSI". Bid prices reflect interdealer prices without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. On
September 26, 1995, the Company's Common Stock was listed on The NASDAQ
SmallCap Market(SM) (hereafter NASDAQ). Information in the table below for the
fourth quarter of fiscal 1995 and for fiscal 1996 reflects the high and low
sales prices reported by NASDAQ.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1994
First Quarter Ended December 31, 1993............ 7 5
Second Quarter Ended March 31 .................. 7 4
Third Quarter Ended June 30 .................... 5 1/4 2
Fourth Quarter Ended September 30 .............. 4 3/4
Fiscal 1995
First Quarter Ended December 31, 1994........... 2 5/8 1 1/2
Second Quarter Ended March 31 .................. 2 1/2 1
Third Quarter Ended June 30 .................... 7 1 1/2
Fourth Quarter Ended September 30 .............. 7 1/2 3
Fiscal 1996
First Quarter Ended December 31, 1995........... 7 4 3/4
Second Quarter Ended March 31 .................. 5 1/4 3
Third Quarter Ended June 30 .................... 3 1/2 2 3/4
Fourth Quarter Ended September 30 .............. 4 1/4 5/8
</TABLE>
The 2,794,000 shares of Common Stock outstanding at September 30, 1996,
were held by 923 stockholders of record. At that date, an additional 279,283
shares were subject to options to purchase Common Stock as discussed more fully
in Note 8 to the Consolidated Financial Statements. The per share bid and offer
prices on December 5, 1996, were $2.50 and $3.50, respectively. Common Stock
that could be sold pursuant to Rule 144 under the 1933 Act totals 912,224
shares as of December 5, 1996.
The Company intends to reinvest its earnings in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
Company has not paid cash dividends since its inception.
- -------------------------------------------------------------------------------
20
<PAGE> 22
[INSIDE BACK COVER]
BOARD OF DIRECTORS
Ronald G. Harper
Chairman of the Board
John C. Bumgarner, Jr.
Senior Vice President
The Williams Companies
Tulsa, Oklahoma
Dr. David L. Huff
Faculty Member
The University of Texas
Austin, Texas
Joseph C. McNay
Chairman of the Board
Essex Investment
Management Company
Boston, Massachusetts
John J. McQueen
Attorney
Tulsa, Oklahoma
OFFICERS
Ronald G. Harper
President and
Chief Executive Officer
Bryan D. Porto
Sr. Vice President
Jyo Umezawa
Sr. Vice President
James C. Auten
Vice President and
Chief Financial Officer
Roger A. Finn
Vice President
Mark R. Davis
Vice President
Lance Taylor
General Manager
Linda K. Wells
Corporate Secretary
CORPORATE DATA
CORPORATE HEADQUARTERS:
MPSI Systems Inc.
8282 South Memorial Drive
Tulsa, Oklahoma 74133
TEL: 918/250-9611
FAX: 918/254-8764
http://www.mpsisys.com
AUDITORS:
Ernst & Young LLP
Tulsa, Oklahoma
REGISTRAR AND TRANSFER AGENT:
ChaseMellon Shareholder Services
Ridgefield Park, New Jersey
LEGAL COUNSEL:
Hall, Estill, Hardwick, Gable,
Golden & Nelson, P.C.
Tulsa, Oklahoma
ANNUAL MEETING:
11:00 a.m. February 4, 1997
The Grandview Hotel
Sunset Room
7900 South Lewis
Tulsa, Oklahoma
ANNUAL REPORTS:
Copies of the Form 10-K and Annual Report to Stockholders filed with the
Securities and Exchange Commission are available without charge upon
written request to:
Linda K. Wells
Corporate Secretary
MPSI Systems Inc.
8282 South Memorial Drive
Tulsa, Oklahoma 74133
STOCK LISTING:
NASDAQ SmallCap(SM) Symbol - MPSI
MPSI, PVO, Location Volume and Facility Location Volume are registered
trademarks of MPSI Systems Inc.
The Intelligent Approach to Retail Marketing, MPSI's CAPS, Price Volume
Optimizer, Market Monitor and PriceTracker are trademarks of MPSI Systems Inc.
44
<PAGE> 23
[OUTSIDE BACK COVER]
MPSI SYSTEMS INC.
8282 SOUTH MEMORIAL DRIVE
TULSA, OKLAHOMA 74133
PHONE: 1-800-727-6774
(918-250-9611 OUTSIDE THE U.S.)
FAX: 918-254-8764
MPSI is an Affirmative Action/Equal
Opportunity Employer.
Printed in the United States of America.
All Rights Reserved.
45
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
MPSI Systems Limited U.K. Corporation
MPSI Australia Pty. Ltd. Australia Corporation
MPSI do Brasil Brazil Corporation
MPSI Systems K.K. Japanese Corporation
MPSI Systems Pte. Ltd. Singapore Corporation
Shanghai MPSI Software Inc. Chinese Corporation
Management Planning Systems, Inc. Oklahoma Corporation
INACTIVE CORPORATIONS
MPSI China Inc. Delaware Corporation
MPSI Surveys Inc. Oklahoma Corporation
MPSI Systems Canada Inc. Canadian Corporation
MPSI Systems SARL French Corporation
MPSI Systems GmbH German Corporation
Quest Systems International Inc. Delaware Corporation
BRANCH OFFICES
Seoul, South Korea Branch of MPSI Systems Pte. Ltd.
Johannesburg, South Korea Branch of Management Planning
Systems, Inc. (d/b/a MPSI Africa Inc.)
46
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-97190 and 33-86016) pertaining to the MPSI Systems Inc. 1984
Stock Option Plan and the MPSI Systems Inc. 1988 Stock Option Plan and in the
related Prospectuses of our reports dated November 19, 1996, with respect to
the consolidated financial statements and schedules of MPSI Systems Inc.
included/incorporated by reference in the Annual Report (Form 10-K) for the
year ended September 30, 1996.
ERNST & YOUNG LLP
Tulsa, Oklahoma
December 18, 1996
47
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 951
<SECURITIES> 49
<RECEIVABLES> 4,590
<ALLOWANCES> 0
<INVENTORY> 361
<CURRENT-ASSETS> 6,125
<PP&E> 8,294
<DEPRECIATION> 6,969
<TOTAL-ASSETS> 10,319
<CURRENT-LIABILITIES> 4,735
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 3,925
<TOTAL-LIABILITY-AND-EQUITY> 10,319
<SALES> 21,354
<TOTAL-REVENUES> 21,354
<CGS> 11,014
<TOTAL-COSTS> 11,014
<OTHER-EXPENSES> 11,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (252)
<INCOME-TAX> 371
<INCOME-CONTINUING> (623)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (623)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
