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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, 1996 COMMISSION FILE NO. 0-11527
MPSI SYSTEMS INC.
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(Exact name of registrant as specified in its charter)
Delaware 73-1064024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8282 South Memorial Drive, Tulsa Oklahoma 74133
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 250-9611
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of shares of common stock outstanding at December 31, 1996 - 2,793,164
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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, 1996
and September 30, 1996 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations -
Three Months Ended December 31, 1996 and 1995 . . . . . 5
Consolidated Statement of Stockholders' Equity -
Three Months Ended December 31, 1996 . . . . . . . . . 6
Consolidated Statements of Cash Flow -
Three Months Ended December 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
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December 31, September 30,
1996 1996
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 610,000 $ 951,000
Short-term investments, at cost - 49,000
Receivables:
Trade 4,103,000 3,413,000
Current portion of long-term receivables 1,010,000 1,177,000
Work in process inventory 559,000 361,000
Prepayments 143,000 174,000
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Total current assets 6,425,000 6,125,000
Long-term receivables, net of current portion
and unamortized discount 1,837,000 1,779,000
Property and equipment, net of accumulated amortization 1,243,000 1,325,000
Software products, net of accumulated amortization 772,000 843,000
Other assets 234,000 247,000
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Total assets $10,511,000 $10,319,000
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
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December 31, September 30,
1996 1996
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(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,038,000 $ 1,241,000
Accrued liabilities 1,208,000 1,214,000
Deferred revenue 2,473,000 2,280,000
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Total current liabilities 4,719,000 4,735,000
Non-current deferred revenue 1,171,000 1,342,000
Other noncurrent liabilities 163,000 177,000
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Total liabilities 6,053,000 6,254,000
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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, 2,794,000 shares
issued and outstanding at December 31
and September 30, 1996 140,000 140,000
Junior Common Stock, $.05 par value, 500,000
shares authorized, none issued or
outstanding - -
Additional paid-in capital 12,934,000 12,934,000
Deficit (9,525,000) (9,963,000)
Foreign currency translation adjustment 909,000 954,000
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Total stockholders' equity 4,458,000 4,065,000
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Total liabilities and stockholders' equity $10,511,000 $10,319,000
================================================================================================
</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,
-----------------------------------
1996 1995
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<S> <C> <C>
Revenues:
Software maintenance and information services $ 5,269,000 $ 5,252,000
Software 87,000 59,000
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Total revenues 5,356,000 5,311,000
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Cost of Sales:
Software maintenance and information services 1,867,000 2,191,000
Software 246,000 132,000
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Total cost of sales 2,113,000 2,323,000
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Gross profit 3,243,000 2,988,000
Operating expenses:
General and administrative 854,000 725,000
Marketing 1,566,000 1,665,000
Research and development 372,000 333,000
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Total operating expenses 2,792,000 2,723,000
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Operating income 451,000 265,000
Other income (expense):
Interest income 34,000 52,000
Interest expense (10,000) (4,000)
Gain on foreign exchange 38,000 105,000
Other, net 31,000 1,000
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Income before income taxes 544,000 419,000
Provision for income taxes (106,000) (239,000)
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Net income $ 438,000 $ 180,000
================================================================================================
Per share $ .16 $ .06
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1996
(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, 1996 2,794,000 $140,000 $12,934,000 $(9,963,000) $954,000 $ 4,065,000
Net income - - - 438,000 - 438,000
Foreign currency
translation adjustment - - - - (45,000) (45,000)
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Balance,
December 31, 1996 2,794,000 $140,000 $12,934,000 $(9,525,000) $909,000 $ 4,458,000
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(NOTE 2)
<TABLE>
<CAPTION>
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Three Months Ended December 31,
-----------------------------------
1996 1995
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<S> <C> <C>
Income from continuing operations $ 438,000 $ 180,000
Adjustments to reconcile income from continuing operations
to cash provided (used) by continuing operations:
Depreciation and amortization of property and equipment 114,000 111,000
Amortization of software products 152,000 123,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables (580,000) 807,000
Inventories (198,000) (89,000)
Other 46,000 26,000
Increase (decrease) in liabilities:
Trade payables and accruals (445,000) (15,000)
Taxes payable 172,000 (116,000)
Deferred revenue 21,000 (1,016,000)
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Net cash provided (used) by operations (280,000) 11,000
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Cash flows from investing activities:
Decrease in short-term investments 49,000 -
Purchase equipment (29,000) (141,000)
Software development (81,000) (122,000)
Proceeds from disposition of assets - 2,000
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Net cash used by investing activities (61,000) (261,000)
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Cash provided by financing activities - exercised stock options - 41,000
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Decrease in cash and cash equivalents (341,000) (209,000)
Cash and cash equivalents at beginning of period 951,000 1,270,000
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Cash and cash equivalents at end of period $ 610,000 $ 1,061,000
===============================================================================================================
</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, 1996 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the three months ended December 31,
1996. 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 December 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 results of
operations for the three months ended December 31, 1996 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 $10,000 and $4,000 during the three months
ended December 31, 1996 and 1995, respectively, related to certain lease
obligations and supplier financing arrangements. Income taxes of $58,000
and $355,000 were paid during the quarter ended December 31, 1996 and
1995, respectively, including foreign income taxes withheld at the source
from remittances by customers.
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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 and believes that the resolution of any items raised
will not have a material effect on its financial position.
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 $438,000 or $.16 per share on revenues of $5.4
million for the quarter ended December 31, 1996 compared with net income of
$180,000 or $.06 per share on revenues of $5.3 million for the comparable
quarter last year. As discussed in more detail below, revenues were up from
last year and margins increased to 61% for the quarter ended December 31, 1996
from 56% for the quarter ended December 31,1995. The margin increase resulted
from a favorable revenue mix of multi-client databases (which allows MPSI to
leverage its database construction costs) and improved margins on certain new
products. The increase in gross margin along with lower income taxes accounts
for the significant increase in net income over the same quarter last year.
Revenues of $5.4 million for the first quarter of fiscal 1997 represent a
nominal increase compared with last year but do include increased revenue
from software and from certain new products. The timing of long-term software
license agreements and renewals can significantly affect comparability of
reported software revenues for any fiscal quarter and therefore may not
accurately project a trend for the remainder of the fiscal year. The increase
in new product revenue reflects growth in both the number of clients and
markets utilizing new trending products. These products, which were in the
start-up phase last fiscal year, generated $103,000 of revenue with an
associated loss at the gross margin level of $148,000 during the quarter ended
December 31, 1995 compared with revenues of $177,000 and a gross profit of
$92,000 for the quarter ended December 31, 1996. This increase in
profitability is a result of the company's emphasis on cost control, process
improvements and more favorable pricing (introductory pricing was in effect
last fiscal year).
Due to the release of MPSI's CAPS (Capital Planning System) software in Europe
and South America in the fourth quarter of fiscal 1996 the related amortization
reflected in software cost of sales increased $21,000 as compared to the same
period last year. An additional $93,000 of amortization was taken in the
current quarter related to royalties to third party software developers. As
stated above, the margins on market study revenues increased as a result of a
favorable mix of multi-client databases during the quarter ended December 31,
1996, primarily in the Company's Pacific Rim operating region where a
substantial new client was added.
Operating expenses in total for the quarter ended December 31, 1996 increased
slightly compared with the first quarter last fiscal year. The Company
underwent a restructuring in July of 1996 to respond to some of the problems
encountered in timely development of the CAPS software product and to realign
the Company's resources to increase attention to quality client support
services. This restructuring resulted in a shift of costs between operating
expense classifications but did not materially affect operating expenses in
total. General and administrative expenses were up approximately $129,000
(18%), marketing costs decreased approximately $99,000 (6%). Research and
development costs increased approximately $39,000 (12%) as a result of lower
cost capitalization as explained below under Financial Condition and Liquidity
During the quarter ended December 31, 1996, 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 transaction gains for the first quarter of fiscal 1997 were $38,000
compared with $105,000 for the comparable quarter last year. Currency swings
can substantially affect quarterly results, but management anticipates a
continuing positive effect for the remainder of fiscal year 1997.
Income taxes of $106,000 (19% effective tax rate) during the quarter ended
December 31, 1996 were down from the $239,000 (57% effective tax rate) reported
December 31, 1995. Reduction of the effective tax rate for fiscal 1997 results
from lower withholdings by certain foreign clients from payments of U.S.
invoices. The fluctuation of such taxes between reporting periods is a result
of the geographical source of quarterly business and the resultant customer
remittances.
FINANCIAL CONDITION AND LIQUIDITY
Working capital improved during the quarter ended December 31, 1996, at which
time it amounted to approximately $1.7 million compared with $1.4 million at
September 30, 1996. The first fiscal quarter is generally a lean cash receipts
quarter compared with the other three quarters of the fiscal year (because many
clients are completing their spending budgets for the forthcoming year). As a
result of the lower cash receipts during the first fiscal quarter, cash at
December 31, 1996 of
9
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$610,000 was down from $951,000 at September 30, 1996. The reduction in cash
and short-term investments at December 31, 1996 was accompanied by a
corresponding increase in work-in-process inventory and a reduction in trade
payables and accrued liabilities.
Trade receivables increased 20% to $4.1 million at December 31, 1996 from $3.4
million at September 30, 1996 as a result of market study contracts received
late in the first quarter from a new Pacific Rim client. A corresponding
increase of deferred revenue, which at December 31, 1996 amounted to $2.5
million as compared to $2.3 million at September 30, 1996, was also a result of
orders received late in the first fiscal quarter in which billings exceeded
revenue recognized. Backlog of $15.8 million at December 31, 1996 declined
from the $16.3 million at September 30, 1996 and $18.6 million at December 31,
1995. This reduction in backlog relates to two new products released in 1995
for which several clients signed noncancelable contracts with multi-year
commitments. As these contracts are performed, a resulting decrease in backlog
occurs each year until such time as the multi-year commitments are renewed.
As set forth in the consolidated statements of cash flow, MPSI expended
approximately $81,000 for capitalized programming of new software
products/versions during the quarter ended December 31, 1996 compared with
$122,000 during the same quarter last fiscal year. The lower capitalized costs
are a result of initial CAPS development being completed for all regions except
for the Pacific Rim which is currently in process.
During the quarter ended December 31, 1996 the Company spent approximately
$29,000 on personal computer equipment and software as compared with $141,000
in the first fiscal quarter of 1996. During the current quarter, the Company
slowed down equipment acquisitions in an effort to conserve cash. Although no
firm commitments presently exist for additional computer equipment, the Company
expects to update computer equipment and software throughout the year at an
increased rate. Funding for equipment acquisitions is expected to be generated
internally or through lease financing alternatives. Although MPSI does not
currently have a line of credit in place, the Company is negotiating with
prospective lenders to procure one.
The company continues to fund its operations internally and has not incurred
any outside debt during the quarter ended December 31, 1996. 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 Stockholder's Equity since September 30, 1996, are the result of
routine recognition of earnings for the quarter 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) 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, 1996.
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 February 4, 1997 By /s/ Ronald G. Harper
----------------------------- ----------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date February 4, 1997 By /s/ James C. Auten
----------------------------- ----------------------------------
James C. Auten, Vice President
(Chief Financial Officer)
12
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EXHIBIT INDEX
Exhibit
Number Description
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11.1 Earnings per share computation
27.1 Financial Data Schedule
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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,
-------------------------------
Weighted Average Shares Outstanding 1996 1995
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<S> <C> <C>
Common stock outstanding throughout the period 2,794,000 2,732,000
Exercised options - 15,000
Dilutive unexercised stock options:
Shares presumed issued at exercise ($2.25 to $5.50 per share) - 163,000
Less: Shares repurchased with presumed proceeds at average per
share price ($6.06 per share in 1995) - (66,000)
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Weighted average shares outstanding 2,794,000 2,844,000
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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(a) (b)
Per Share Computations Weighted Per Share (a / b)
Results of Average -----------------------
Operations Shares 1996 1995
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<S> <C> <C> <C> <C>
Net income - Three Months Ended
December 31, 1996 $ 438,000 2,794,000 $ .16
Net income - Three Months Ended
December 31, 1995 $ 180,000 2,844,000 $ .06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 610
<SECURITIES> 0
<RECEIVABLES> 5,113
<ALLOWANCES> 0
<INVENTORY> 559
<CURRENT-ASSETS> 6,425
<PP&E> 8,449
<DEPRECIATION> 7,206
<TOTAL-ASSETS> 10,511
<CURRENT-LIABILITIES> 4,719
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 4,318
<TOTAL-LIABILITY-AND-EQUITY> 10,511
<SALES> 5,356
<TOTAL-REVENUES> 5,356
<CGS> 2,113
<TOTAL-COSTS> 4,905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 544
<INCOME-TAX> 106
<INCOME-CONTINUING> 438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 438
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
