<PAGE> 1
Page 1 of 15
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, 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 March 31, 1997 - 2,793,164
-------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - March 31, 1997 and September 30, 1996 . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations - Three Months and Six Months
Ended March 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Stockholders' Equity - Six Months
Ended March 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flow -
Six Months Ended March 31, 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
<TABLE>
<CAPTION>
ASSETS
- ---------------------------------------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 554,000 $ 951,000
Short-term investments, at cost -- 49,000
Receivables:
Trade 4,586,000 3,413,000
Current portion of long-term receivables 1,157,000 1,177,000
Inventories 576,000 361,000
Prepayments 155,000 174,000
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 7,028,000 6,125,000
Property and equipment, net 1,159,000 1,325,000
Long-term receivables, net of current portion
and unamortized discount 1,748,000 1,779,000
Software products, net 698,000 843,000
Other assets 346,000 247,000
- ---------------------------------------------------------------------------------------------------------------------
Total assets $10,979,000 $10,319,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,105,000 $ 1,241,000
Accrued liabilities 1,215,000 1,214,000
Deferred revenue 2,647,000 2,280,000
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,967,000 4,735,000
Noncurrent deferred revenue 1,281,000 1,342,000
Other noncurrent liabilities 145,000 177,000
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 6,393,000 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,
2,794,000 shares issued and outstanding at
March 31, 1997 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 (9,364,000) (9,963,000)
Foreign currency translation adjustment 876,000 954,000
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,586,000 4,065,000
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $10,979,000 $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 MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- ---------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Software maintenance/information services $4,614,000 $5,246,000 $ 9,883,000 $10,498,000
Software licensing 446,000 118,000 533,000 177,000
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 5,060,000 5,364,000 10,416,000 10,675,000
- ---------------------------------------------------------------------------------------------------------------------
Cost of Sales:
Software maintenance/information services 2,017,000 2,734,000 3,884,000 4,925,000
Software licensing (51,000) 125,000 195,000 257,000
- ---------------------------------------------------------------------------------------------------------------------
Total cost of sales 1,966,000 2,859,000 4,079,000 5,182,000
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 3,094,000 2,505,000 6,337,000 5,493,000
Operating expenses:
General and administrative 890,000 724,000 1,744,000 1,449,000
Marketing 1,687,000 1,704,000 3,253,000 3,369,000
Research and development 411,000 308,000 783,000 641,000
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,988,000 2,736,000 5,780,000 5,459,000
- ---------------------------------------------------------------------------------------------------------------------
Operating income (loss) 106,000 (231,000) 557,000 34,000
Other income (expense):
Interest income 35,000 49,000 69,000 101,000
Interest expense (98,000) (3,000) (108,000) (7,000)
Foreign exchange 4,000 12,000 42,000 117,000
Other, net 55,000 10,000 86,000 11,000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 102,000 (163,000) 646,000 256,000
Provision for income taxes 59,000 15,000 (47,000) (224,000)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 161,000 $ (148,000) $ 599,000 $ 32,000
=====================================================================================================================
Income (loss) per share $ .06 $ (.05) $ .21 $ .01
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 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 - - - 599,000 - 599,000
Foreign currency
translation
adjustment - - - - (78,000) (78,000)
- ---------------------------------------------------------------------------------------------------------------------
Balance,
March 31, 1997 2,794,000 $140,000 $12,934,000 $(9,364,000) $ 876,000 $ 4,586,000
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (NOTE 2)
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 599,000 $ 32,000
Adjustments to reconcile net income
to cash provided (used) by operations:
Depreciation 218,000 219,000
Amortization 304,000 247,000
Loss (gain) on sale or abandonment of equipment 1,000 (1,000)
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables (1,119,000) 1,058,000
Inventories (215,000) (79,000)
Other assets (80,000) 49,000
Increase (decrease) in liabilities:
Trade payables and accruals (304,000) (83,000)
Taxes payable 58,000 (425,000)
Deferred revenue 304,000 (821,000)
- --------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (234,000) 196,000
- --------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in investments 49,000 -
Proceeds from asset dispositions 6,000 18,000
Purchase equipment (59,000) (385,000)
Software development (159,000) (343,000)
- -------------------------------------------------------------------------------------------------
Net cash used by investing activities (163,000) (710,000)
- --------------------------------------------------------------------------------------------------
Net cash used by financing activities - -
- --------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (397,000) (514,000)
Cash and cash equivalents at beginning of period 951,000 1,270,000
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 554,000 $ 756,000
==================================================================================================
</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 six months ended March 31, 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 March 31, 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 and, accordingly, the results of operations for the
six months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
================================================================================
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $98,000 and $3,000 during the three months
ended March 31, 1997 and 1996, respectively. Income taxes of $53,000 and
$295,000 were paid during the quarters ended March 31, 1997 and 1996,
respectively.
================================================================================
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
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
MPSI reported net income of $161,000 or $.06 per share on revenues of
$5,060,000 for the quarter ended March 31, 1997 compared with a net loss of
$148,000 or $.05 per share on revenues of $5,364,000 for the comparable quarter
last year. Net income for the first six months of fiscal year 1997 was
$599,000 or $.21 per share on revenues of $10,416,000 compared with $32,000 or
$.01 per share on revenues of $10,675,000 in the comparable period last year.
As discussed in more detail below, revenues were down for both the quarter and
six months ended March 31, 1997 as compared to the same periods last year,
however gross profits were 12% higher in both the quarter and six months this
year. The gross profit increase resulted from a favorable revenue mix of
multi-client databases (which allows MPSI to leverage its database construction
costs), including a new client in the Pacific Rim, improved profitability on
certain new products and a favorable adjustment to software cost of sales
relating to royalty costs associated with the extension of an agreement with a
third party developer. The increase in gross margin along with lower income
taxes accounts for the significant increase in net income over the same quarter
and six months last fiscal year.
Revenues decreased $304,000 (6%) and $259,000 (2%), respectively, during the
quarter and six months ended March 31, 1997 as compared with the same periods
last year. Although revenues decreased in total, software revenues rose
$328,000 (278%) and $356,000 (200%) for the respective periods. Software
revenues reflected in the second fiscal quarter were primarily the result of
the release of CAPS software in the Pacific Rim ($76,000) and initial sales of
new pricing software in both the Pacific Rim and United States ($253,000).
Management anticipates growth in revenues and profitability from pricing
software and services henceforth. 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.
The improved profitability from new products reflects (1) growth in both the
number of clients and markets 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 $254,000
of revenue with an associated loss at the gross margin level of $316,000 during
the six months ended March 31, 1996 compared with revenues of $372,000 and a
gross profit of $153,000 for the same period in fiscal 1997. Revenues
generated for the second quarter ended March 31, 1996 were $151,000 with a
gross margin loss of $168,000 as compared with revenues of $195,000 with a
gross margin of $61,000 for the quarter ended March 31, 1997.
Operating expenses are approximately $252,000 (9%) and $321,000 (6%) higher in
the quarter and six months ending March 31, 1997, respectively, than for the
comparable periods last year. The primary increases are in (1) general and
administrative expense, which related to an accounting system conversion,
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 gains for the quarter and six months ended March 31, 1997
were $4,000 and $42,000, respectively, compared with $11,000 and $117,000 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 substantially negative effect for the remainder of fiscal year
1997.
Income taxes of $47,000 (7% effective tax rate) during the six months ended
March 31, 1997 were down from the $224,000 (87% effective tax rate) reported
March 31, 1996. Reduction of the effective tax rate for fiscal 1997 results
from lower withholdings by certain foreign clients from payments of U.S.
invoices, and the application of prior year foreign withholdings against
current year foreign source income. The fluctuation of such taxes between
reporting periods is a result
9
<PAGE> 10
of the geographical source of quarterly business and the resultant customer
remittances. Due to the utilization of available credits, management
anticipates that the effective tax rate will increase over the remainder of the
current fiscal year.
FINANCIAL CONDITION AND LIQUIDITY
Working capital was $2,061,000 at March 31, 1997 compared with $1,390,000 at
September 30, 1996 and $1,791,000 at March 31, 1996. The primary contribution
to the improved working capital position at March 31, 1997 was a higher balance
in trade receivables. Receivables increased to $4.6 million at March 31, 1997
from $3.4 million at September 30, 1996 as a result of new business in the
Pacific Rim. Backlog of $17.9 million at March 31, 1997 increased from $16.3
million at September 30, 1996. This increase in backlog relates to multi-year
market study commitments from new Pacific Rim clients.
As set forth in the consolidated statements of cash flow, MPSI expended
approximately $78,000 for capitalized programming of new software
products/versions during the quarter ended March 31, 1997 compared with
$221,000 during the same quarter last fiscal year. The lower capitalized costs
are a result of initial CAPS development being completed for all MPSI operating
regions in 1996 except for the Pacific Rim which is currently in process.
During the quarter ended March 31, 1997, the Company spent approximately
$30,000 on personal computer equipment and software as compared with $244,000
in the second fiscal quarter of 1996. During the current quarter, the Company
continued to limit 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 has been
notified that a $500,000 working capital credit line will be extended by a U.S.
bank pending completion of loan documentation.
The Company continues to fund its operations internally and has not incurred
any outside debt during the quarter ended March 31, 1997. 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
<PAGE> 11
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
<PAGE> 12
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 9, 1997 By /s/ Ronald G. Harper
--------------- -------------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date May 9, 1997 By /s/ James C. Auten
--------------- -------------------------------------
James C. Auten, Vice President
(Chief Financial Officer)
12
<PAGE> 13
EXHIBIT INDEX
<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 March 31, Six Months Ended March 31,
---------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock outstanding throughout the period 2,794,000 2,751,000 2,794,000 2,732,000
Exercised options - - - 17,000
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) 110,000 135,000 110,000 138,000
Less: Shares repurchased with presumed
proceeds at average per share price
($2.11 per share in 1997 and
$4.40 in 1996) (102,000) (57,000) (76,000) (50,000)
- ----------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 2,802,000 2,829,000 2,828,000 2,837,000
======================================================================================================================
</TABLE>
________________________________________________________________________________
<TABLE>
<CAPTION>
(a) (b)
Weighted
Results of Average
Operations Shares Per Share (a / b)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - Three Months Ended March 31, 1997 $ 161,000 2,802,000 $.06
Six Months Ended March 31, 1997 $ 599,000 2,828,000 $.21
Net income (loss) - Three Months Ended March 31, 1996 $ (148,000) 2,829,000 $(.05)
Six Months Ended March 31, 1996 $ 32,000 2,837,000 $ .01
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 554
<SECURITIES> 0
<RECEIVABLES> 5,743
<ALLOWANCES> 0
<INVENTORY> 576
<CURRENT-ASSETS> 7,028
<PP&E> 8,350
<DEPRECIATION> 7,191
<TOTAL-ASSETS> 10,979
<CURRENT-LIABILITIES> 4,967
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 4,446
<TOTAL-LIABILITY-AND-EQUITY> 10,979
<SALES> 5,060
<TOTAL-REVENUES> 5,060
<CGS> 1,966
<TOTAL-COSTS> 4,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 102
<INCOME-TAX> (59)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
