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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 0-11527
MPSI SYSTEMS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1064024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8282 South Memorial Drive, Tulsa Oklahoma 74133
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 250-9611
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of common stock outstanding at December 31, 1995 2,752,264
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INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - December 31, 1995
and September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three Months Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity -
Three Months Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flow -
Three Months Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . 7
Notes To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 8
Management's Discussion and Analysis of Financial Condition and
Quarterly Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Part II. OTHER INFORMATION (Including Index to Exhibits) . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
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December 31, September 30,
1995 1995
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,061,000 $ 1,270,000
Short-term investments, at cost 41,000 41,000
Receivables:
Trade 3,869,000 4,522,000
Current portion of long-term receivables 1,838,000 1,893,000
Work in process inventory 393,000 304,000
Prepayments 167,000 175,000
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Total current assets 7,369,000 8,205,000
Long-term receivables, net of current portion
and unamortized discount 2,251,000 2,421,000
Property and equipment, net of accumulated amortization 1,216,000 1,191,000
Software products, net of accumulated amortization 672,000 673,000
Other assets 417,000 434,000
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Total assets $11,925,000 $12,924,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
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December 31, September 30,
1995 1995
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(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,093,000 $ 905,000
Accrued liabilities 1,325,000 1,738,000
Deferred revenue 2,680,000 3,614,000
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Total current liabilities 5,098,000 6,257,000
Non-current deferred revenue 1,867,000 1,961,000
Other noncurrent liabilities 206,000 220,000
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Total liabilities 7,171,000 8,438,000
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Commitments and contingencies - -
Stockholders' equity:
Preferred Stock, $.10 par value, 1,000,000
shares authorized, none issued or
outstanding - -
Common Stock, $.05 par value, 20,000,000 shares
authorized, 2,752,000 shares and 2,733,000
shares issued and outstanding at December 31
and September 30, 1995, respectively 138,000 137,000
Junior Common Stock, $.05 par value, 500,000
shares authorized, none issued or
outstanding - -
Additional paid-in capital 12,790,000 12,751,000
Deficit (9,160,000) (9,340,000)
Foreign currency translation adjustment 986,000 938,000
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Total stockholders' equity 4,754,000 4,486,000
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Total liabilities and stockholders' equity $11,925,000 $12,924,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
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Three Months Ended December 31,
-------------------------------
1995 1994
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<S> <C> <C>
Revenues:
Software maintenance and information services $ 5,252,000 $ 4,659,000
Software 59,000 252,000
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Total revenues 5,311,000 4,911,000
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Cost of Sales:
Software maintenance and information services 2,191,000 1,903,000
Software 132,000 30,000
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Total cost of sales 2,323,000 1,933,000
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Gross profit 2,988,000 2,978,000
Operating expenses:
General and administrative 725,000 646,000
Marketing 1,665,000 1,644,000
Research and development 333,000 609,000
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Total operating expenses 2,723,000 2,899,000
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Operating income 265,000 79,000
Other income (expense):
Interest income 52,000 40,000
Interest expense (4,000) (2,000)
Gain on foreign exchange 105,000 91,000
Other, net 1,000 5,000
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Income before income taxes 419,000 213,000
Provision for income taxes (239,000) (41,000)
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Net income $ 180,000 $ 172,000
=====================================================================================================================
Per share $ .06 $ .06
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
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Foreign
Common stock Additional currency Total
--------------------- paid-in translation stockholders'
Shares Amount capital Deficit adjustment equity
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<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1995 2,733,000 $137,000 $12,751,000 $(9,340,000) $938,000 $ 4,486,000
Net income - - - 180,000 - 180,000
Exercised stock options 19,000 1,000 39,000 - - 40,000
Foreign currency
translation adjustment - - - - 48,000 48,000
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Balance,
December 31, 1995 2,752,000 $138,000 $12,790,000 $(9,160,000) $986,000 $ 4,754,000
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements .
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(NOTE 2)
<TABLE>
<CAPTION>
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Three Months Ended December 31,
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1995 1994
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<S> <C> <C>
Income from continuing operations $ 180,000 $ 172,000
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations:
Depreciation and amortization of property and equipment 111,000 99,000
Amortization of software products 123,000 30,000
Gain on sale of assets - (5,000)
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables 807,000 (462,000)
Inventories (89,000) (63,000)
Other 26,000 51,000
Increase (decrease) in liabilities:
Trade payables and accruals (15,000) (46,000)
Taxes payable (116,000) (3,000)
Deferred revenue (1,016,000) 432,000
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Net cash provided by operations 11,000 205,000
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Cash flows from investing activities:
Decrease (increase) in short-term investment - (1,000)
Purchase equipment (141,000) (33,000)
Software development (122,000) (29,000)
Proceeds from disposition of assets 2,000 6,000
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Net cash used by investing activities (261,000) (57,000)
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Cash flows from financing activities - exercised stock options 41,000 -
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Decrease in cash and cash equivalents (209,000) 148,000
Cash and cash equivalents at beginning of period 1,270,000 635,000
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Cash and cash equivalents at end of period $ 1,061,000 $ 783,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
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MPSI SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. General Notes
Certain notes to the September 30, 1995 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the three months ended December 31,
1995. Accordingly, reference should be made to the audited financial
statements at September 30, 1995.
In the opinion of the Company, the unaudited consolidated financial
statements as of December 31, 1995 contain all adjustments (including
normal recurring accruals) necessary to fairly present the financial
position and the results of operations of the Company. The results of
operations for the three months ended December 31, 1995 are not
necessarily indicative of the results to be expected for the full year.
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2. Supplemental Cash Flow Information
The Company paid interest of $4,000 and $2,000 during the three months
ended December 31, 1995 and 1994, respectively, related to certain lease
obligations. Income taxes of $355,000 and $43,000 were paid during the
quarter ended December 31, 1995 and 1994, respectively, including foreign
income taxes withheld at the source from remittances by customers.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
MPSI(R) reported net income of $180,000 or $.06 per share on revenues
of $5.3 million for the quarter ended December 31, 1995 compared with net
income of $172,000 or $.06 per share on revenues of $4.9 million for the
comparable quarter last year. Although masked by a substantial increase in
income taxes compared with last year, the December 1995 quarterly results
reflect growth in both revenues and operating income as hereinafter discussed.
Revenues of $5.3 million for the first fiscal quarter of 1996
represented an increase of $400,000 or 8% compared with last year. Comparison
reflects approximately $200,000 lower software revenues in the 1996 first
quarter, offset with an increase in market study revenues of $460,000 or 13%.
The timing of new or renewed long-term software license agreements can affect
comparability of reported software revenues for any fiscal quarter, and the
Company attributes the comparative shortfall to timing as a number of potential
license agreements are in the process of negotiation. The increased revenues
from market studies, the largest component of overall revenues, reflects
continued growth in the North American segment of MPSI's business. This growth
is principally attributable to the release of MPSI's CAPS(TM) (Capital Planning
System) software in North America early last fiscal year. The timing of the
software release was such that the software did not significantly impact
revenues during the quarter ended December 31, 1994.
The timing of the North American CAPS software release also has
impacted the comparability of Cost of Sales - Software. Due to the release
date, no substantial amortization of capitalized CAPS development costs was
reported during the quarter ended December 31, 1994. However, the December
1995 quarter reflects amortization from that product together with amortization
of a newer pricing software product, resulting in software cost of sales being
approximately $100,000 higher. Conversely, gross profits on market studies
have risen approximately 6% as the result of process improvements and
identification of lower cost data sources. The Company anticipates realizing
comparatively higher gross profits on market studies throughout fiscal year
1996 as the result of these measures.
The December 1995 quarterly results encompass costs associated with
certain new products which exceeded applicable revenues. New pricing software
and new data service offerings have not yet achieved a level of revenues
sufficient to cover related costs and meet profit objectives. MPSI(R) continues
to monitor the progress of these new ventures and remains optimistic about
their ultimate success. Unamortized capitalized costs related to these new
products were approximately $135,000 at December 31, 1995, all other
development costs having been previously expensed as incurred.
Operating expenses for the quarter ended December 31, 1995 were $2.7
million compared with $2.9 million during the first quarter last fiscal year.
General and administrative expenses are up approximately $79,000 (12%) as the
result primarily of (1) higher investor relations costs as the Company is more
actively publicizing its financial information through publications which
target brokers and investors, and (2) higher legal and accounting costs related
to investigations associated with potential new offices in several countries.
Marketing expenses were essentially equivalent between the two quarters at
approximately $1.6 million. Research and development expenses of $333,000 in
the current quarter were down approximately 55% compared with last year,
primarily due to the increased amount of capitalized software development costs
this quarter as reflected in the consolidated statements of cash flow. The
capitalized development costs relate to completion of new CAPS versions for
South American and European regions, both scheduled for release within the next
six months.
In the Other Income (Expense) category, MPSI(R) recorded higher
interest on investments compared with the same quarter last year, due primarily
to a better liquidity position as discussed below. The Company continues to
benefit from currency gains on certain transactions denominated in Singapore
dollars, although the amount of the quarterly income from such source was only
slightly higher than during the December 1994 quarter.
Income taxes of $239,000 during the quarter ended December 31, 1995
were up considerably over the $41,000 reported through December 31, 1994. The
December 1994 quarter benefitted from utilization of U.S. tax loss
carryforwards,
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which carryforwards were substantially depleted through utilization to reduce
taxable income for the 1995 fiscal year. Accordingly, MPSI(R) going forward
will be subject to U.S. income taxes more closely related to the statutory
income tax rate. Foreign income taxes included in both periods were not
significant when considered net of the U.S. tax benefits derived therefrom.
Financial Condition and Liquidity
Working capital continued to improve during the quarter ended December
31, 1995 at which time it amounted to approximately $2.3 million compared with
$1.9 million at September 30, 1995 and $0.4 million at December 31, 1994.
Although the first fiscal quarter is generally a lean cash receipts quarter
compared with the other three quarters of a fiscal year (because many clients
are completing their spending budgets for the forthcoming year), the Company
was able to maintain a healthy cash balance of $1.1 million, down slightly from
$1.3 million at September 30, 1995. Concurrently, amounts payable to suppliers
declined approximately $225,000.
Two major components of working capital, receivables and deferred
revenues, both declined significantly during the current quarter in line with
the revenue throughput experienced. However, the Company's backlog of
approximately $22.9 million at December 31, 1995 was $5.2 million higher than
at September 30, 1995 and $0.7 million higher than at December 31, 1994.
As set forth in the consolidated statements of cash flow, MPSI(R)
expended approximately $122,000 for capitalized programming of new software
products/versions during the quarter ended December 31, 1995 compared with only
$29,000 during the comparable quarter last year. The higher costs in the
December 1995 quarter related to the new CAPS versions described previously.
The lower capitalized costs during the 1994 comparative quarter were
attributable to the fact that the North American CAPS version was substantially
complete going into that quarter.
MPSI(R) continues to acquire additional computer equipment in an
ongoing program to upgrade internal equipment inventory and in anticipation of
additional technical services required as additional CAPS versions and new
pricing software are rolled out. During the quarter ended December 31, 1995,
the Company spent approximately $141,000 on workstation and personal computer
equipment and software. During the December 1994 quarter the Company spent
only $33,000 on such equipment, partially as the result of cash constraints
imposed at the time. Although no firm commitments presently exist for
additional computer equipment, the Company expects to continue adding equipment
at a similar rate during the remainder of fiscal year 1996. Funding for
equipment additions is expected to be generated internally, although MPSI(R)
has an available credit line in the amount of $275,000 which could be utilized
for such purposes.
No borrowings are presently outstanding under the line of credit nor
has the Company utilized the line since the September 1993 recapitalization
transaction liquidated outstanding amounts thereunder. The amounts reflected
in the consolidated balance sheets as Other Non-Current Liabilities relate to
accounting treatment for the Company's headquarters office lease, wherein the
amounts of monthly cash payments differ from the average monthly lease expense
reflected in the results of operations.
Changes in stockholders' equity since September 30, 1995, are the
result of routine recognition of earnings for the quarter, exercise of stock
options by employees as set forth in the consolidated statements of cash flow,
and quarterly variation in the equity translation adjustment relating to
consolidation of foreign subsidiaries.
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PART II - OTHER INFORMATION
<TABLE>
<S> <C>
Item 1 -- Legal Proceedings - None.
Item 2 -- Changes in Securities - None.
Item 3 -- Defaults Upon Senior Securities - None.
Item 4 -- Submission of Matters to a Vote of Security Holders - None
Item 5 -- Other Information - None
Item 6 -- Exhibits and Reports on Form 8-K.
Page
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(a) Exhibit:
11.1 Earnings per share computation 13
27.1 Financial Data Schedule 14
(b) Reports on Form 8-K - No reports on such form were filed during the quarter
ended December 31, 1995.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
MPSI SYSTEMS INC.
Date February 2, 1996 By /s/ Ronald G. Harper
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Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date February 2, 1996 By /s/ James C. Auten
----------------------------- ------------------------------------
James C. Auten, Vice President
(Chief Financial Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
11.1 Earnings Per Share Computation
27.1 Financial Data Schedule
</TABLE>
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EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATION
Earnings per share calculations may be affected by the granting of stock
options under the Company's stock option plan. The granting of these options
may have a dilutive effect on earnings per common and common equivalent share.
Following is a summary computation of the weighted average number of shares
outstanding and earnings per share using the treasury- stock method. Primary
and fully diluted earnings per share are the same for each period presented.
<TABLE>
<CAPTION>
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Three Months Ended December 31,
-------------------------------
<S> <C> <C>
Weighted Average Shares Outstanding 1995 1994
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Common stock outstanding throughout the period 2,732,000 2,728,000
Exercised options 15,000 -
Dilutive unexercised stock options:
Shares presumed issued at exercise ($2.25 to $5.50 per share) 163,000 91,000
Less: Shares repurchased with presumed proceeds at average per
share price ($6.06 in 1995 and $2.95 in 1994 per share) (66,000) (69,000)
- ---------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 2,844,000 2,750,000
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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(a) (b)
Per Share Computations Weighted Per Share (a / b)
Results of Average ---------------------
Operations Shares 1995 1994
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<S> <C> <C> <C> <C>
Net income - Three Months Ended
December 31, 1995 $ 180,000 2,844,000 $ .06
Net income - Three Months Ended
December 31, 1994 $ 172,000 2,750,000 $ .06
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,061
<SECURITIES> 41
<RECEIVABLES> 5,707
<ALLOWANCES> 0
<INVENTORY> 393
<CURRENT-ASSETS> 7,369
<PP&E> 8,664
<DEPRECIATION> 7,448
<TOTAL-ASSETS> 11,925
<CURRENT-LIABILITIES> 5,098
<BONDS> 0
<COMMON> 138
0
0
<OTHER-SE> 4,616
<TOTAL-LIABILITY-AND-EQUITY> 11,925
<SALES> 5,311
<TOTAL-REVENUES> 5,311
<CGS> 2,323
<TOTAL-COSTS> 5,046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 419
<INCOME-TAX> 239
<INCOME-CONTINUING> 180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
