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Page 1 of 14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SIX MONTHS ENDED MARCH 31, 1996 COMMISSION FILE NO. 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
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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 March 31, 1996 - 2,752,264
---------------
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INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - March 31, 1996 and September 30, 1995 . . 3
Consolidated Statements of Operations - Three Months and Six Months
Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity - Six Months
Ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flow - Six Months Ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 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
- ---------------------------------------------------------------------------------------------------------------------
March 31, September 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 756,000 $ 1,270,000
Short-term investments, at cost 41,000 41,000
Receivables:
Trade 4,092,000 4,522,000
Current portion of long-term receivables 1,572,000 1,893,000
Work in process inventory 383,000 304,000
Prepayments 130,000 175,000
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 6,974,000 8,205,000
Long-term receivables, net of current portion
and unamortized discount 2,161,000 2,421,000
Property and equipment, net of accumulated amortization 1,337,000 1,191,000
Software products, net of accumulated amortization 769,000 673,000
Other assets 430,000 434,000
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Total assets $ 11,671,000 $ 12,924,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------
March 31, September 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 912,000 $ 905,000
Accrued liabilities 1,260,000 1,738,000
Deferred revenue 3,011,000 3,614,000
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Total current liabilities 5,183,000 6,257,000
Non-current deferred revenue 1,696,000 1,961,000
Other noncurrent liabilities 205,000 220,000
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Total liabilities 7,084,000 8,438,000
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Commitments and contingencies - -
Stockholders' equity (Note 2):
Preferred Stock, $.10 par value, 1,000,000
shares authorized, none issued or
outstanding - -
Common Stock, $.05 par value, 20,000,000 shares
authorized, 2,752,000 and 2,733,000 shares issued
and outstanding at March 31, 1996 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 12,803,000 12,751,000
Deficit (9,308,000) (9,340,000)
Foreign currency translation adjustment 954,000 938,000
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Total stockholders' equity 4,587,000 4,486,000
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Total liabilities and stockholders' equity $ 11,671,000 $ 12,924,000
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Software maintenance and information services $ 5,246,000 $ 5,055,000 $ 10,498,000 $ 9,714,000
Software licensing 118,000 225,000 177,000 477,000
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Total revenues 5,364,000 5,280,000 10,675,000 10,191,000
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Cost of Sales:
Software maintenance and information services 2,734,000 1.986,000 4,925,000 3,890,000
Software licensing 125,000 50,000 257,000 79,000
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Total cost of sales 2,859,000 2,036,000 5,182,000 3,969,000
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Gross profit 2,505,000 3,244,000 5,493,000 6,222,000
Operating expenses:
General and administrative 724,000 645,000 1,449,000 1,291,000
Marketing 1,704,000 1,760,000 3,369,000 3,404,000
Research and development 308,000 541,000 641,000 1,150,000
- ----------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,736,000 2,946,000 5,459,000 5,845,000
- ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) (231,000) 298,000 34,000 377,000
Other income (expense):
Interest income 49,000 32,000 101,000 72.000
Interest expense (3,000) (3,000) (7,000) (5,000)
Net gain of foreign exchange 12,000 121,000 117,000 212,000
Other, net 10,000 (24,000) 11,000 (19,000)
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Income (loss) before income taxes (163,000) 424,000 256,000 637,000
Provision for income taxes 15,000 (38,000) (224,000) (79,000)
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (148,000) $ 386,000 $ 32,000 $ 558,000
======================================================================================================================
Income (loss) per share $ (.05) $ .14 $ .01 $ .20
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Foreign
Common stock Additional currency Total
--------------------------- paid-in translation stockholders'
Shares Amount capital Deficit adjustment equity
- -------------------------------------------------------------------------------------------------------------------------
<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 - - - 32,000 - 32,000
Exercised stock options 19,000 1,000 52,000 - - 53,000
Foreign currency
translation
adjustment - - - - 16,000 16,000
- -------------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1996 2,752,000 $138,000 $12,803,000 $(9,308,000) $954,000 $4,587,000
=========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Six Months Ended March 31,
--------------------------
1996 1995
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<S> <C> <C>
Net income $ 32,000 $ 558,000
Adjustments to reconcile net income to cash provided
by operations:
Depreciation 219,000 197,000
Amortization 247,000 80,000
Loss (gain) on sale of equipment (1,000) 3,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables 1,058,000 83,000
Inventories (79,000) (344,000)
Other assets 49,000 (62,000)
Increase (decrease) in liabilities:
Trade payables and accruals (83,000) (179,000)
Taxes payable (425,000) 16,000
Deferred revenue (821,000) 198,000
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Net cash provided by operating activities 196,000 550,000
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Cash flow from investing activities:
Proceeds from asset dispositions 18,000 11,000
Purchase equipment (385,000) (224,000)
Software development (343,000) (112,000)
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Net cash used by investing activities (710,000) (325,000)
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Net cash used by financing activities - -
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Increase (decrease) in cash and cash equivalents (514,000) 225,000
Cash and cash equivalents at beginning of period 1,270,000 635,000
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 756,000 $ 860,000
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
MPSI SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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 six months ended March 31, 1996.
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 March 31, 1996 contain all adjustments (including normal
recurring accruals) necessary to fairly present the financial position and
the results of operations of the Company. The timing of market study
orders and software license agreements can significantly impact quarterly
results of operations and, accordingly, the results of operations for the
six months ended March 31, 1996, are not necessarily indicative of the
results to be expected for the full year.
================================================================================
2. SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid interest of $3,000 and $5,000 during the three months
ended March 31, 1996 and 1995, respectively. Income taxes of $295,000 and
$64,000 were paid during the quarter ended March 31, 1996 and 1995,
respectively.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
MPSI Systems Inc. reported a net loss for the second fiscal quarter
ended March 31, 1996, of $148,000 or $.05 per share on revenues of $5,364,000
compared with net income of $386,000 or $.14 per share on revenues of
$5,280,000 during the comparable quarter a year ago. Net income for the first
six months of fiscal year 1996 was $32,000 or $.01 per share on revenues of
$10,675,000 compared with $558,000 or $.20 per share on revenues of 10,191,000
in the comparable period last year.
Although revenues increased by approximately $500,000 (5%) during the
six months when compared with the first six months of last fiscal year, there
was only a nominal increase during the 1996 second quarter compared with last
year. The revenue growth was principally attributable to MPSI's North and
South American operations with revenues for the six months and quarter being
flat in Europe and down slightly in the Pacific Rim. The Pacific Rim trend is,
however, primarily a timing matter. The Company has substantial firm orders
for market studies to be produced for Pacific Rim clients beginning in the last
half of fiscal 1996 and through mid 1997, and that region is expected to
ultimately reflect revenue growth for the 1996 fiscal year.
Even though the South American region experienced some growth in
revenue during the quarter and six months, both that region and MPSI's European
region are awaiting the release of the new Capital Planning System (CAPS)
software applicable to those clients. The Company expects to release both
versions during its third fiscal quarter of 1996. The present release dates
are delayed approximately six months from the original plan. The delayed
releases have caused certain clients in the effected regions to hold off
placement of market study and software orders, some of which were anticipated
in the quarter and six months covered by this report. These circumstances are
reflected in the modest revenue growth for the quarter and six months compared
with the similar periods of last year and in the 62% lower revenues from
software licensing during the first six months of fiscal 1996 compared with the
same six-month period last year.
These delayed orders have had a second effect on the Company in
addition to delaying projected revenue growth. MPSI has not had the
opportunity to schedule as many multiple-client market studies as anticipated
from clients in the indicated regions. There is generally a significant
improvement in gross margins on multiple-client market studies compared with
single client studies. MPSI has not, therefore, been able to leverage its
fixed market study production costs to the level expected in its operating
plan. As the new software releases encourage market study (and software)
orders in South America and Europe and as the number of studies underway or
recently completed in all operating regions increases, the Company's ability to
"pair up" additional clients on existing and future market studies is expected
to positively impact gross margins by fiscal year end.
In addition to the effect on market study margins noted above, gross
margins in the information services product line are lower than last year, both
for the quarter and six months, due to substantial costs incurred relative to
two new data products. The Company introduced a retail price tracking data
service late last fiscal year and that product has proven to be significantly
more costly than originally anticipated. MPSI has recently received certain
pricing concessions from the users of this product and should, accordingly,
recognize improved operating results during the remainder of this fiscal year.
MPSI also was required to negotiate price increases from present users of its
newest market study product, wherein the client is required to provide a
substantial amount of the information necessary to update these data bases
annually. Since MPSI received a lesser degree of client-supplied data and was,
therefore, required to do more original research than anticipated in order to
maintain quality standards, the Company has re- engineered the production
process and increased the price on future studies of this type. MPSI
anticipates better operating results from this product in future periods.
Operating expenses are approximately $210,000 (7%) and $386,000 (7%)
lower in the quarter and six months ending March 31, 1996, respectively, than
for the comparable periods last year. General and administrative expenses are
approximately $80,000 (12%) and $155,000 (12%) higher than last year for the
quarter and six months, respectively, reflecting increased costs related to
public listing of MPSI's Common Stock on the NASDAQ SmallCap Market(SM) and
additional costs associated with trademark registration of new products.
Marketing expenses are level with last year for both
9
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the quarter and the six months. Research and development expenses are lower by
approximately $233,000 (43%) and $509,000 (44%) for the quarter and six months
ended March 31, 1996, respectively, compared with the same periods last year.
This decline corresponds to the increased product development related to the
South American and European CAPS software, which costs are capitalized in the
Balance Sheet (see discussion of capitalized software costs below).
In the Other Income category, MPSI continues to experience overall
gains on transactions denominated in foreign currency, although the amount of
gain from that source was lower than last year by $109,000 (90%) and $95,000
(45%) in the quarter and six months, respectively. MPSI continues to invoice a
substantial number of Pacific Rim clients in Singapore Dollars, which accounts
for most of the indicated foreign exchange gain to date.
MPSI reported $224,000 of income taxes for the six months ended March
31, 1996, compared with $79,000 for the six months ended March 31, 1995.
Although the Company had utilized most of its net operating loss carryforwards
in 1995 and expected to generate income taxes in the United States during this
fiscal year, the income taxes presented in both six-month periods are primarily
foreign taxes withheld at the source by clients making payments to MPSI in the
United States for services. The amount of U.S. taxable income generated during
the six months ended March 31, 1996, was minimal but is expected to increase by
September 30, 1996.
FINANCIAL CONDITION AND LIQUIDITY
Working capital was $1,791,000 at March 31, 1996, compared with
$1,948,000 at September 30, 1995, and $571,000 at March 31, 1995. The
$157,000 reduction in working capital since September 30, 1995, is attributable
to internal funding of computer equipment acquisitions and software development
which reduced cash resources, and to lower receivables (net of deferred
revenue) due in part to the delayed software releases discussed above. The
Company has a bank line of credit in the amount of $250,000 which expires on
September 30, 1996. Negotiations are presently under way with several banks to
obtain a credit line thereafter. The Company also has the option of leasing
certain of its targeted computer equipment additions but has elected thus far
to buy such equipment in most instances.
MPSI's business relies heavily on workstations and personal computers,
both of which are advancing rapidly in technological terms. The continually
increased capacity of such equipment offers MPSI the opportunity to continue
productivity improvements both internally and for its client software users.
However, in order to maintain technological pace, the Company continues to
regularly replace its computer equipment on a rotating basis. For the quarter
and six months ended March 31, 1996, MPSI spent $244,000 and $385,000,
respectively, on new computer equipment. Present plans anticipate the
acquisition of approximately $450,000 of additional equipment by September 30,
1996, much of it directed to our foreign offices as they receive and begin to
support the CAPS releases applicable to their clients.
As previously mentioned, MPSI has a continuing commitment to upgrading
its premier retail planning software for all operating regions. The North
American version of CAPS was released early last fiscal year, and amortization
of the capitalized costs of that product is the principal component of Cost of
Sales - Software. During the quarter and six months ended March 31, 1996, MPSI
spent and capitalized approximately $221,000 and $343,000, respectively,
related to the South American and European CAPS versions previously discussed.
MPSI will undertake development of CAPS versions for Japan and Southeast Asia
beginning later this fiscal year. Those versions are scheduled for release to
clients in early fiscal 1997.
Noncurrent liabilities, including deferred maintenance obligations in
future years under software license agreements ($1,696,000) and an accrued
liability related to the difference between average office lease expense and
actual cash lease payments ($205,000), have declined $265,000 and $15,000
respectively. The decline in deferred maintenance is attributable to
reclassification of current portions and to the lower sales of new software
licenses previously discussed. The lease accrual will continue to decline for
the remaining two years of the MPSI headquarters office lease as actual cash
payments each month will exceed the average rental rate utilized to record
monthly rent expense.
The only changes in equity for the quarter and six months covered by
this report relate to exercise of stock options by employees, net income, and
continued nominal gain attributable to translation of foreign subsidiary
operations to U.S. dollar equivalents.
10
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PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings - None.
Item 2 -- Changes in Securities - None.
Item 3 -- Defaults Upon Senior Securities - None.
Item 4 -- Submission of Matters to a Vote of Security Holders -
(a) The annual stockholders meeting was held February 1,
1996. Proxies were solicited in accordance with
Regulation 14 of the Securities Exchange Act of 1934.
(b) All members of the Board of Directors, as previously
reported in the Company's Form 10-K at September 30,
1995, were re-elected.
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 - None.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
MPSI SYSTEMS INC.
Date May 10, 1996 By /s/ Ronald G. Harper
------------------ ------------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date May 10, 1996 By /s/ James C. Auten
------------------ ------------------------------------
James C. Auten, Vice President
(Chief Financial Officer)
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
----
<S> <C> <C>
11.1 Earnings per share computation 13
27.1 Financial Data Schedule 14
</TABLE>
<PAGE> 1
EXHIBIT 11.1 - Earnings Per Share Computation
Earnings per share calculations may be affected by the granting of stock
options under the Company's stock option plan. The granting of these options
may have a dilutive effect on earnings per common and common equivalent share.
Following is a summary computation of the weighted average number of shares
outstanding and earnings per share using the treasury- stock method.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------
Weighted Average Shares Outstanding 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock outstanding throughout the period 2,751.000 2,728,000
Dilutive unexercised stock options:
Shares presumed issued at exercise ($2.25 to $3.75 per share) 135,000 91,000
Less: Shares repurchased with presumed proceeds at average per
share price ($4.40 in 1996 and $2.41 in 1995) (57,000) (85,000)
- ---------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 2,829,000 2,734,000
=====================================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,1996 Three Months Ended March 31, 1995
-------------------------------- ----------------------------------
Earnings Per Share Earnings Per Share
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings (loss) per share $ (148,000) $ (.05) $ 386,000 $ .14
=====================================================================================================================
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 756
<SECURITIES> 41
<RECEIVABLES> 5,664
<ALLOWANCES> 0
<INVENTORY> 383
<CURRENT-ASSETS> 6,974
<PP&E> 8,774
<DEPRECIATION> 7,437
<TOTAL-ASSETS> 11,671
<CURRENT-LIABILITIES> 5,183
<BONDS> 0
<COMMON> 138
0
0
<OTHER-SE> 4,449
<TOTAL-LIABILITY-AND-EQUITY> 11,671
<SALES> 5,364
<TOTAL-REVENUES> 5,364
<CGS> 2,859
<TOTAL-COSTS> 5,595
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> (163)
<INCOME-TAX> 15
<INCOME-CONTINUING> (148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
