<PAGE> 1
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, 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 December 31, 1997 - 2,837,955
-------------
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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, 1997
and September 30, 1997 ................................................................... 3
Consolidated Statements of Operations -
Three Months Ended December 31, 1997 and 1996............................................. 5
Consolidated Statement of Stockholders' Equity -
Three Months Ended December 31, 1997 ..................................................... 6
Consolidated Statements of Cash Flow -
Three Months Ended December 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
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets
------------ ------------
December 31, September 30,
1997 1997
------------ ------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 536,000 $ 1,599,000
Short-term investments, at cost 3,000 3,000
Receivables:
Trade 5,254,000 4,210,000
Current portion of long-term receivables 1,175,000 1,122,000
Work in process inventory 183,000 197,000
Prepayments 165,000 161,000
------------ ------------
Total current assets 7,316,000 7,292,000
Long-term receivables, net of current portion
and unamortized discount 2,699,000 2,642,000
Property and equipment, net of accumulated amortization 1,082,000 1,165,000
Software products, net of accumulated amortization 214,000 393,000
Other assets 162,000 146,000
------------ ------------
Total assets $ 11,473,000 $ 11,638,000
============ ============
</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
------------ ------------
December 31, September 30,
1997 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current liabilities:
Note payable to bank (Note 4) $ 450,000 $ 147,000
Accounts payable 978,000 882,000
Accrued liabilities 1,144,000 1,390,000
Deferred revenue 1,901,000 1,837,000
------------ ------------
Total current liabilities 4,473,000 4,256,000
Non-current deferred revenue 1,486,000 1,634,000
Non-current deferred income taxes (Note 2) 433,000 442,000
Other noncurrent liabilities 24,000 37,000
------------ ------------
Total liabilities 6,416,000 6,369,000
------------ ------------
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, 2,838,000 and 2,832,000 shares
issued and outstanding at December 31
and September 30, 1997, respectively 142,000 142,000
Junior Common Stock, $.05 par value, 500,000
shares authorized, none issued or
outstanding -- --
Additional paid-in capital 13,045,000 13,030,000
Deficit (8,895,000) (8,860,000)
Foreign currency translation adjustment 765,000 957,000
------------ ------------
Total stockholders' equity 5,057,000 5,269,000
------------ ------------
Total liabilities and stockholders' equity $ 11,473,000 $ 11,638,000
============ ============
</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 December 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Software maintenance and information services $ 4,704,000 $ 5,269,000
Software 58,000 87,000
------------ ------------
Total revenues 4,762,000 5,356,000
------------ ------------
Cost of Sales:
Software maintenance and information services 1,751,000 1,867,000
Software 179,000 246,000
------------ ------------
Total cost of sales 1,930,000 2,113,000
------------ ------------
Gross profit 2,832,000 3,243,000
Operating expenses:
General and administrative 674,000 854,000
Marketing 1,725,000 1,566,000
Research and development 429,000 372,000
------------ ------------
Total operating expenses 2,828,000 2,792,000
------------ ------------
Operating income 4,000 451,000
Other income (expense):
Interest income 71,000 34,000
Interest expense (12,000) (10,000)
Gain (loss) on foreign exchange (46,000) 38,000
Other, net (16,000) 31,000
------------ ------------
Income before income taxes 1,000 544,000
Provision for income taxes (36,000) (106,000)
------------ ------------
Net income (loss) $ (35,000) $ 438,000
============ ============
Per share $ (.01) $ .16
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Foreign
Additional currency Total
Common stock paid-in translation stockholders'
Shares Amount capital Deficit adjustment equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1997 2,832,000 $ 142,000 $ 13,030,000 $ (8,860,000) $ 957,000 $ 5,269,000
Net loss -- -- -- (35,000) -- (35,000)
Stock options exercised 6,000 -- 15,000 -- -- 15,000
Foreign currency
translation adjustment -- -- -- -- (192,000) (192,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1997 2,838,000 $ 142,000 $ 13,045,000 $ (8,895,000) $ 765,000 $ 5,057,000
============ ============ ============ ============ ============ ============
</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>
Three Months Ended December 31,
-------------------------------
1997 1996
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<S> <C> <C>
Income (loss) from continuing operations $ (35,000) $ 438,000
Adjustments to reconcile income (loss) from continuing operations
to cash used by continuing operations:
Depreciation and amortization of property and equipment 105,000 114,000
Amortization of software products 179,000 152,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables (1,149,000) (580,000)
Inventories 14,000 (198,000)
Other (20,000) 46,000
Increase (decrease) in liabilities:
Trade payables and accruals (286,000) (445,000)
Taxes payable (79,000) 172,000
Deferred revenue (82,000) 21,000
----------- ---------
Net cash provided (used) by operations (1,353,000) (280,000)
----------- ---------
Cash flows from investing activities:
Decrease in short-term investments -- 49,000
Purchase equipment (28,000) (29,000)
Software development -- (81,000)
----------- ---------
Net cash used by investing activities (28,000) (61,000)
----------- ---------
Cash flows from financing activities:
Proceeds from debt 303,000 --
Exercise of stock options 15,000 --
----------- ---------
Net cash provided by financing activities 318,000 --
----------- ---------
Decrease in cash and cash equivalents (1,063,000) (341,000)
Cash and cash equivalents at beginning of period 1,599,000 951,000
----------- ---------
Cash and cash equivalents at end of period $ 536,000 $ 610,000
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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MPSI SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. General Notes
Certain notes to the September 30, 1997 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the three months ended December 31,
1997. Accordingly, reference should be made to the audited financial
statements at September 30, 1997.
In the opinion of the Company, the unaudited consolidated financial
statements as of December 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 results of
operations for the three months ended December 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 $12,000 and $10,000 during the three months
ended December 31, 1997 and 1996, respectively, related to certain lease
obligations and supplier financing arrangements. Income taxes of $___,000
and $58,000 were paid during the quarter ended December 31, 1997 and 1996,
respectively, including foreign income taxes withheld at the source from
remittances by customers.
================================================================================
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.
================================================================================
4. Note Payable to Bank
In May 1997, the Company obtained a bank line of credit through April 1998
in the aggregate amount of $500,000 which is secured by billed accounts
receivable applicable to North American customers; $450,000 was
outstanding at December 31, 1997. Outstanding balances bear interest at
9.5%. The Agreement requires that the Company shall maintain Tangible Net
Worth of not less than $4.5 million, shall maintain reasonable and
customary insurance, and shall not, without authorization of lender
undertake to lend money, invest in other entities or guarantee debt of
others during the term of the Agreement.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATION
FOR THE QUARTER ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS
MPSI reported a net loss of $35,000 or $.01 per share on revenues of $4.8
million for the quarter ended December 31, 1997 compared with net income of
$438,000 or $.16 per share on revenues of $5.4 million for the comparable
quarter last year. As discussed in more detail below, revenues were down from
last year while margin percentages remained consistent with those reported for
the quarter ended December 31, 1996.
Revenues of $4.8 million for the first quarter of fiscal 1998 represent a
decrease of approximately 11% or $594,000 compared with last year. MPSI
maintained its North American business level and increased its business in South
America and Europe during the quarter as compared with last year's quarter.
Software license agreements were signed with three significant new clients in
those regions during the 1998 first quarter, although revenues were not recorded
pending installation of the software. The combination of petroleum deregulation
in Japan and turmoil in the economies of the Pacific Rim, where clients were
undergoing reorganizations to cope with weaker currencies and uncertainties in
the banking systems, resulted in a lower level of new business from those
regions. The timing of long-term software license agreements or renewals and
market study orders can significantly affect comparability of reported revenues
for any fiscal quarter and therefore may not accurately project a trend for the
remainder of the fiscal year.
MPSI did report an increase in new product revenue and profitability which
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 revenues of $211,000 and a gross profit of $158,000 for the quarter
ended December 31, 1997 compared with $177,000 of revenue with an associated
profit at the gross margin level of $92,000 during the quarter ended December
31, 1996. This increase in profitability is a result of the Company's continued
emphasis on a fully integrated product offering and process improvements.
The Company's gross profit on information services during the quarter ended
December 31, 1997 remained comparable with that of the December 1996 quarter.
MPSI has consistently implemented new technology in its information services
business in order to counterbalance rising labor costs. The Company implemented
a new strategic initiative in mid 1997 wherein the average timeline for data
service projects is anticipated to be reduced by as much as 50% during 1998
through additional process revisions. Clients will thereby receive fresher data,
and the Company expects to reduce the average cost of database delivery.
Software cost of sales, including software amortization, decreased $78,000 as
compared to the same period last year. This change reflects the maturity of
certain products developed in 1996 and 1995. Later this year, management
anticipates introduction of a new but complementary software system, and
amortization of capitalized costs may increase thereafter to levels more
comparable with the December 31, 1996 quarter.
Operating expenses in total for the quarter ended December 31, 1997 increased
nominally compared with the first quarter last fiscal year. General and
administrative expenses were down approximately $180,000 (21%) reflecting lower
legal and accounting expenses associated with SEC filings and reductions of
accrued facility lease termination costs from amounts previously estimated and
accrued relative to the Bristol, England office. Marketing costs increased
approximately $159,000 (10%) principally the result of increased advertising and
strategic alliance business development activities. Research and development
costs increased approximately $57,000 (15%) as a result of lower cost
capitalization as explained below under Financial Condition and Liquidity.
During the quarter ended December 31, 1997, the U.S. dollar strengthened against
the Singapore Dollar and the Japanese Yen resulting in foreign exchange losses
recognized on transactions invoiced to the Pacific Rim in those currencies.
Currency transaction losses for the first quarter of fiscal 1998 were $46,000
compared with a gain of $38,000 for the comparable quarter last year. Currency
swings can substantially affect quarterly results, and management anticipates a
continuing negative effect for the remainder of fiscal year 1998, although not
of the magnitude triggered this quarter by economic issues in the Pacific Rim.
9
<PAGE> 10
Income taxes of $36,000 for the quarter ended December 31, 1997 resulted from
foreign withholdings and taxes on income from foreign subsidiaries and compare
to $106,000 (19% effective tax rate) reported December 31, 1996, which included
$81,000 of such foreign taxes as well as $25,000 U.S. tax. Reduction of the
effective U.S. tax rate for fiscal 1998 results from the use of tax credit
carryforwards from prior years as set forth in MPSI's 1997 Annual Report.
FINANCIAL CONDITION AND LIQUIDITY
Working capital of approximately $2.8 million decreased during the quarter ended
December 31, 1997 compared with $3.0 million at September 30, 1997 (but
increased from the $1.7 million at December 31, 1996). A reduction of cash
flow from operations, as set forth in the Consolidated Statements of Cash Flow,
is consistent with historical trends in the Company's first fiscal quarter, but
was more pronounced due to a slow down in payments from certain clients in the
Pacific Rim for the reasons previously discussed. The Company does not
ultimately expect an increase in its collection risk, merely in collection
timing. As to its effect on working capital, the decline in cash resources was
offset by increased receivables. Trade receivables net of associated deferred
revenues increased by approximately $1 million at December 31, 1997 compared
with September 30, 1997 as a result of significant final billings associated
with database deliveries to Pacific Rim clients. The Company continues to fund
its activities primarily from operations but has utilized an additional $303,000
of its available credit line during the quarter, bringing the outstanding
balance on the line to $450,000 at December 31, 1997. Backlog of $16.0 million
at December 31, 1997 increased approximately 5% from September 30, 1997 and was
comparable with the December 31, 1996 level.
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, 1997 compared with
$122,000 during the same quarter last fiscal year. The lower capitalized costs
in the current quarter were the result of CAPS development being limited to the
single remaining version requiring upgrade to PC compatability (Japanese
version), whereas last year higher costs were associated with pricing software
upgrades.
During the quarter ended December 31, 1997, the Company spent approximately
$29,000 on personal computer equipment and software as compared with $141,000 in
first fiscal quarter of 1997. Although no firm commitments had been made for
additional computer equipment at December 31, 1997, the Company has negotiated a
leasing commitment from a commercial leasing company for up to $400,000 of
computer and related equipment and expects to substantially upgrade present
equipment throughout the remainder of the year at an increased rate.
Changes in stockholder's equity since September 30, 1997, are the result of
routine recognition of the results of operations for the quarter and variation
in the foreign currency translation adjustment relating to the consolidation of
foreign subsidiaries.
- -----------------
Portions of this document may constitute forward looking statements as defined
by federal law. Although the Company believes any such statements are based on
reasonable assumptions, there is no assurance that actual outcomes will not be
materially different. Additional information about issues that could lead to
material changes in performance is contained in the Company's annual report on
Form 10-K which is filed with the Securities and Exchange Commission.
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.
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(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, 1997.
</TABLE>
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 February 10, 1998 By /s/ Ronald G. Harper
-------------------------- --------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date February 10, 1998 By /s/ James C. Auten
-------------------------- -----------------------
James C. Auten, Vice President
(Chief Financial Officer)
12
<PAGE> 13
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
11.1 Earnings per share computation
27.1 Financial Data Schedule
<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. Primary and fully diluted
earnings per share are the same for each period presented.
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
Weighted Average Shares Outstanding 1997 1996
--------- ---------
<S> <C> <C>
Common stock outstanding throughout the period 2,832,000 2,794,000
Weighted average exercised options 5,000 -
Dilutive unexercised stock options (Treasury Stock Method):
Shares presumed issued at exercise ($2.25 to $5.50 per share) 197,000 -
Less: Shares repurchased with presumed proceeds at average per
share price ($5.48 per share) (156,000) -
--------- ---------
Weighted average shares outstanding 2,878,000 2,794,000
========= =========
</TABLE>
<TABLE>
<CAPTION>
(a) (b)
Weighted Per Share (a / b)
Per Share Computations Results of Average ----------------------
Operations Shares 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss - Three Months Ended
December 31, 1997 $ (35,000) 2,878,000 $ (.01)
Net income - Three Months Ended
December 31, 1996 $ 438,000 2,794,000 $ .16
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 536
<SECURITIES> 0
<RECEIVABLES> 6,249
<ALLOWANCES> 0
<INVENTORY> 183
<CURRENT-ASSETS> 7,316
<PP&E> 7,481
<DEPRECIATION> 6,399
<TOTAL-ASSETS> 11,473
<CURRENT-LIABILITIES> 4,473
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 4,915
<TOTAL-LIABILITY-AND-EQUITY> 11,473
<SALES> 4,762
<TOTAL-REVENUES> 4,762
<CGS> 1,930
<TOTAL-COSTS> 1,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 1
<INCOME-TAX> 36
<INCOME-CONTINUING> (35)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
