<PAGE> 1
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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 nine months ended June 30, 1997 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
- -------------------------------------------------------------------------------
(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 June 30, 1997 - 2,796,497
----------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - June 30, 1997 and September 30, 1996 ..... 3
Consolidated Statements of Operations - Three Months and Nine Months
Ended June 30, 1997 and 1996 ...................................... 5
Consolidated Statement of Stockholders' Equity - Nine Months
Ended June 30, 1997 ............................................... 6
Consolidated Statements of Cash Flow -
Nine Months Ended June 30, 1997 and 1996 .......................... 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
<PAGE> 3
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 384,000 $ 951,000
Short-term investments, at cost 3,000 49,000
Receivables:
Trade 5,896,000 3,413,000
Current portion of long-term receivables 1,273,000 1,177,000
Inventories 418,000 361,000
Prepayments 141,000 174,000
----------- -----------
Total current assets 8,115,000 6,125,000
Property and equipment, net 1,082,000 1,325,000
Long-term receivables, net of current portion
and unamortized discount 3,766,000 1,779,000
Software products, net 562,000 843,000
Other assets 392,000 247,000
----------- -----------
Total assets $13,917,000 $10,319,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
------------ ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,058,000 $ 1,241,000
Accrued liabilities 1,332,000 1,214,000
Notes payable - Line of Credit 300,000 --
Deferred revenue 3,538,000 2,280,000
Deferred net tax liability - current portion 126,000 --
------------ ------------
Total current liabilities 6,354,000 4,735,000
Noncurrent deferred revenue 1,980,000 1,342,000
Other noncurrent liabilities 332,000 177,000
----------- ------------
Total liabilities 8,666,000 6,254,000
---------- ------------
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, 2,796,000 and
2,794,000 shares issued and outstanding at
June 30, 1997 and September 30, 1996, respectively 140,000 140,000
Junior Common Stock, $.05 par value, 500,000 shares
authorized, none issued or outstanding -- --
Additional paid-in capital 12,941,000 12,934,000
Deficit (9,067,000) (9,963,000)
Foreign currency translation adjustment 1,237,000 954,000
------------ ------------
Total stockholders' equity 5,251,000 4,065,000
------------ ------------
Total liabilities and stockholders' equity $ 13,917,000 $ 10,319,000
============ ============
</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 JUNE 30, NINE MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software maintenance/information services $ 5,384,000 $ 4,889,000 $ 15,267,000 $ 15,387,000
Software licensing 1,168,000 87,000 1,701,000 264,000
------------ ------------ ------------ ------------
Total revenues 6,552,000 4,976,000 16,968,000 15,651,000
------------ ------------ ------------ ------------
Cost of Sales:
Software maintenance/information services 2,479,000 2,670,000 6,363,000 7,595,000
Software licensing 196,000 145,000 391,000 402,000
------------ ------------ ------------ ------------
Total cost of sales 2,675,000 2,815,000 6,754,000 7,997,000
------------ ------------ ------------ ------------
Gross profit 3,877,000 2,161,000 10,214,000 7,654,000
Operating expenses:
General and administrative 790,000 770,000 2,534,000 2,219,000
Marketing 1,800,000 1,762,000 5,053,000 5,131,000
Research and development 450,000 347,000 1,233,000 988,000
------------ ------------ ------------ ------------
Total operating expenses 3,040,000 2,879,000 8,820,000 8,338,000
------------ ------------ ------------ ------------
Operating income (loss) 837,000 (718,000) 1,394,000 (684,000)
Other income (expense):
Interest income 38,000 49,000 107,000 150,000
Interest expense (85,000) (4,000) (193,000) (11,000)
Foreign exchange (45,000) 86,000 (3,000) 203,000
Other, net 26,000 (6,000) 112,000 5,000
------------ ------------ ------------ ------------
Income (loss) before income taxes 771,000 (593,000) 1,417,000 (337,000)
Provision for income taxes 474,000 (130,000) 521,000 (354,000)
------------ ------------ ------------ ------------
Net income (loss) $ 297,000 $ (723,000) $ 896,000 $ (691,000)
============ ============ ============ ============
Income (loss) per share $ .11 $ (.26) $ .31 $ (.24)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1997
(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, 1996 2,794,000 $ 140,000 $12,934,000 $(9,963,000) $ 954,000 $ 4,065,000
Net income (loss) -- -- -- 896,000 -- 896,000
Exercised
stock options 3,000 -- 7,000 -- -- 7,000
Foreign currency
translation
adjustment -- -- -- -- 283,000 283,000
----------- ----------- ----------- ----------- ----------- -----------
Balance,
June 30, 1997 2,797,000 $ 140,000 $12,941,000 $(9,067,000) $ 1,237,000 $ 5,251,000
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (NOTE 2)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net income (loss) $ 896,000 $ (691,000)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Depreciation 317,000 331,000
Amortization 438,000 370,000
Loss on sale or abandonment of equipment -- 3,000
Deferred income taxes 449,000 --
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables (4,564,000) 204,000
Inventories (57,000) (278,000)
Other assets (112,000) 79,000
Increase (decrease) in liabilities:
Trade payables and accruals (376,000) 306,000
Taxes payable 423,000 (417,000)
Deferred revenue 1,894,000 500,000
------------ ------------
Net cash provided (used) by operating activities (692,000) 407,000
------------ ------------
Cash flows from investing activities:
Decrease in short-term investment 46,000 --
Proceeds from asset dispositions 5,000 22,000
Purchase equipment (76,000) (509,000)
Software development (157,000) (594,000)
------------ ------------
Net cash used by investing activities (182,000) (1,081,000)
------------ ------------
Proceeds from bank line of credit 300,000 --
Exercised stock options 7,000 --
------------ ------------
Net cash provided by financing activities 307,000 --
------------ ------------
Increase in cash and cash equivalents (567,000) (674,000)
Cash and cash equivalents at beginning of period 951,000 1,270,000
------------ ------------
Cash and cash equivalents at end of period $ 384,000 $ 596,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
1. GENERAL NOTES:
Certain notes to the September 30, 1996 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the nine months ended June 30,
1997. Accordingly, reference should be made to the audited financial
statements at September 30, 1996.
In the opinion of the Company, the unaudited consolidated financial
statements as of June 30, 1997 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.
===============================================================================
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $123,000 and $11,000 during the three months
ended June 30, 1997 and 1996, respectively. Net income taxes of $27,000
and $771,000 were paid during the same respective periods.
===============================================================================
3. INCOME TAXES
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 but believes that the financial statements reflect
the estimated impact resulting from revenue timing matters at issue and
pending IRS technical review.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
Results of Operations
MPSI reported net income of $297,000 or $.11 per share on revenues of
$6,552,000 for the quarter ended June 30, 1997 compared with a net loss of
$723,000 or $.26 per share on revenues of $4,976,000 for the comparable quarter
last year. Net income for the first nine months of fiscal year 1997 was
$896,000 or $.31 per share on revenues of $16,968,000 compared with a net loss
of $691,000 or $.24 per share on revenues of $15,651,000 in the comparable
period last year. As discussed in more detail below, revenues and gross
profits were up for both the quarter and nine months ended June 30, 1997 as
compared to the same periods last year. The gross profit increase resulted from
a favorable revenue mix of multi-client databases (which allows MPSI to
leverage its database construction costs), improved profitability on certain
new products, the renewal of a major client to a long term software license
agreement and an adjustment to software cost of sales relating to royalty costs
(discussed in a previous report). The increase in gross margins along with the
software license agreement renewal accounts for the significant increase in net
income over the same quarter and nine months last fiscal year.
Revenues increased $1,256,000 (32%) and $1,317,000 (8%), respectively, during
the quarter and nine months ended June 30, 1997 as compared with the same
periods last year. Software revenues rose $1,081,000 and $1,437,000,
respectively, for the indicated periods as a result of the software license
renewal agreement with a major client. The timing of long-term software license
agreements and renewals can significantly affect comparability of reported
software revenues and net income for any fiscal period, and therefore may not
accurately reflect a trend for the remainder of the fiscal year. Software
revenues in the nine months ended June 30, 1997 also include revenues from
initial sales of new pricing software in both the Pacific Rim and United States
($302,000). Revenues from information services increased $495,000 (10%) compared
to the same quarter last year as a result of additional multi-client databases
during the quarter. Revenues for the nine months ended June 30, 1997 decreased
slightly as compared with the same period last year.
The improved profitability from new products reflects (1) cost leverage
associated with growth in the number of clients utilizing new trending products
(2) the company's emphasis on cost control and process improvements, and (3)
more favorable pricing (introductory pricing was in effect last fiscal year).
These products, which were in the start-up phase last fiscal year, generated
$384,000 of revenue with an associated loss at the gross margin level of
$372,000 during the nine months ended June 30, 1996 compared with revenues of
$584,000 and a gross profit of $242,000 for the comparable period this fiscal
year. Revenues generated for the third quarter ended June 30, 1996 were
$130,000 with a loss at the gross margin level of $56,000 as compared with
revenues of $212,000 with a gross margin of $89,000 for the quarter ended June
30, 1997.
Operating expenses are approximately $161,000 (6%) and $482,000 (6%) higher in
the quarter and nine months ending June 30, 1997, respectively, than for the
comparable periods last year. The primary increases are in (1) general and
administrative expense, which relate to utilization of external strategic
planning consultants and professional fees associated with a routine
examination by the Internal Revenue Service, and (2) research and development
expense which resulted in lower cost capitalization as explained below under
Financial Condition and Liquidity. A July 1996 corporate reorganization
resulted in a shift of costs between operating expense classifications
affecting inter-period comparability which does not materially affect operating
expenses in total.
Currency transaction losses for the quarter and nine months ended June 30,
1997, respectively, were $45,000 and $3,000, compared with translation gains of
$86,000 and $203,000 for the comparable periods last year . The U.S. dollar
strengthened against the Singapore dollar resulting in a reduction of foreign
exchange gains recognized on transactions invoiced to the Pacific Rim in
Singapore currency. Currency swings can substantially affect quarterly results,
but management does not anticipate a materially negative effect for the
remainder of fiscal year 1997.
Income taxes of $521,000 (37% effective tax rate) during the nine months ended
June 30, 1997 increased from the $354,000 (105% effective tax rate) reported
June 30, 1996. Reduction of the effective tax rate for fiscal 1997 results in
part from lower withholdings by certain foreign clients from payments of U.S.
invoices. Income taxes for the quarter ended June 30, 1997 of $474,000 (61%
effective tax rate) increased substantially relative to the two previous
quarters of fiscal 1997 since foreign tax credits had been fully utilized to
offset earnings during the first 6 months and were, therefore, insufficient
to offset the strong quarterly performance resulting from the software license
renewal and increased margins from multi-client studies.
9
<PAGE> 10
Due to the utilization of available credits management anticipates that the
effective tax rate will approximate the U.S. statutory rate over the remainder
of the current fiscal year.
Financial Condition and Liquidity
Working capital was $1,761,000 at June 30, 1997, compared with $1,390,000 at
September 30, 1996, and $922,000 at June 30, 1996. The primary contribution to
the improved working capital position at June 30, 1997 was a higher balance in
trade receivables. Receivables increased to $5.9 million at June 30, 1997 from
$3.4 million at September 30, 1996 as a result of new business in the Pacific
Rim and the software license renewal of a major client. Backlog of $20.0
million at June 30, 1997 increased from $16.3 million at September 30, 1996.
This increase in backlog relates to multi-year market study commitments from
new and existing Pacific Rim clients and the software license agreement
renewal, among other orders.
As set forth in the consolidated statements of cash flow, MPSI expended
approximately $2,000 for capitalized programming of new software
products/versions during the quarter ended June 30, 1997 compared with $251,000
during the same quarter last fiscal year. The lower capitalized costs in the
quarter are a result of timing of product development projects. At March 31,
1997, MPSI had substantially completed CAPS development for Southeast Asia.
MPSI is currently in the initial development stage for CAPS - Japan and will
start incurring capitalized costs early in fiscal year 1998 on that project.
During the quarter ended June 30, 1997, the Company spent approximately $17,000
on personal computer equipment and software as compared with $124,000 in the
third fiscal quarter of 1996. The Company continues to limit equipment
acquisitions in an effort to conserve cash. Although no firm commitments
presently exist for additional computer equipment, the Company expects to
continue updating computer equipment and software on a limited basis throughout
the remainder of the year. Funding for equipment acquisitions is expected to be
generated internally or from the bank line of credit.
During the third quarter, the Company completed negotiations with a U.S. bank
for a $500,000 line of credit. Although the company continues to fund its
operations internally, there was a draw down on the line of credit of $300,000
during the quarter due to the timing of collections from trade accounts
receivable. The amounts reflected in the consolidated balance sheets at June
30, 1997 as Other Non-Current Liabilities relate primarily to a non-current
deferred tax liability, whereas the amount reflected at September 30, 1996
related to the 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 Stockholder's Equity since September 30, 1996, are the result of
earnings for the quarter, the exercise of certain stock options as set forth in
the Consolidated Statement of Stockholders' Equity, and variation in the Foreign
Currency Translation Adjustment relating to the consolidation of foreign
subsidiaries.
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 - None.
Item 5 -- Other Information - None
Item 6 -- Exhibits and Reports on Form 8-K. Page
----
(a) Exhibits:
11.1 Earnings per share computation 14
27.1 Financial Data Schedule 15
(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 August 8, 1997 By /s/ Ronald G. Harper
----------------------------------- -----------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date August 8, 1997 By /s/ James C. Auten
----------------------------------- -----------------------------
James C. Auten
Vice President
(Chief Financial Officer)
12
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
11.1 Earnings Per Share Computation 14
27.1 Financial Data Schedule 15
</TABLE>
13
<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. All computations give effect to a reverse stock split
effective November 16, 1993 as if the transaction had occurred retroactively.
Primary and fully diluted earnings per share are the same for each period
presented.
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Common stock outstanding throughout the period 2,794,000 2,752,000 2,794,000 2,732,000
Exercised options 3,000 -- 3,000 11,000
Dilutive unexercised stock options:
Shares presumed issued at exercise
($2.25 to $3.00 per share in 1997 and
$2.25 to $3.75 per share in 1996) 10,000 68,000 53,000 83,000
--------- --------- --------- ---------
Weighted average shares outstanding 2,807,000 2,820,000 2,850,000 2,826,000
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
(a) (b)
Weighted
Results of Average
Operations Shares Per Share (a / b)
---------- ------ -----------------
<S> <C> <C> <C>
Net income - Three Months Ended June 30, 1997 $ 297,000 2,807,000 $.11
Nine Months Ended June 30, 1997 $ 896,000 2,850,000 $.31
Net loss - Three Months Ended June 30, 1996 $ (723,000) 2,820,000 $ (.26)
Nine Months Ended June 30, 1996 $ (691,000) 2,826,000 $ (.24)
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 384
<SECURITIES> 3
<RECEIVABLES> 7,169
<ALLOWANCES> 0
<INVENTORY> 418
<CURRENT-ASSETS> 8,115
<PP&E> 8,419
<DEPRECIATION> 7,337
<TOTAL-ASSETS> 13,917
<CURRENT-LIABILITIES> 6,354
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 5,111
<TOTAL-LIABILITY-AND-EQUITY> 13,917
<SALES> 6,552
<TOTAL-REVENUES> 6,552
<CGS> 2,675
<TOTAL-COSTS> 2,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (85)
<INCOME-PRETAX> 771
<INCOME-TAX> 474
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
