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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 six months ended March 31, 1998 Commission file no. 0-11527
MPSI SYSTEMS INC.
- -------------------------------------------------------------------------------
(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.)
4343 South 118th East Avenue, Tulsa Oklahoma 74146
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 877-6774
------------------------------
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 March 31, 1998 - 2,835,439
----------------
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INDEX
<TABLE>
<CAPTION>
Page No.
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Part I. FINANCIAL INFORMATION:
<S> <C>
Financial Statements:
Consolidated Balance Sheets - March 31, 1998 and September 30, 1997 ....................... 3
Consolidated Statements of Operations - Three Months and Six Months
Ended March 31, 1998 and 1997 ........................................................ 5
Consolidated Statement of Stockholders' Equity - Six Months
Ended March 31, 1998 ................................................................. 6
Consolidated Statements of Cash Flow -
Six Months Ended March 31, 1998 and 1997 ............................................. 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>
- -----------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
ASSETS 1998 1997
- -----------------------------------------------------------------------------------
(UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 408,000 $ 1,599,000
Short-term investments, at cost 3,000 3,000
Receivables:
Trade 5,731,000 4,210,000
Current portion of long-term receivables 1,268,000 1,122,000
Inventories 198,000 197,000
Prepayments 94,000 161,000
- -----------------------------------------------------------------------------------
Total current assets 7,702,000 7,292,000
Property and equipment, net 1,001,000 1,165,000
Long-term receivables, net of current portion
and unamortized discount 2,418,000 2,642,000
Software products, net 169,000 393,000
Other assets 158,000 146,000
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Total assets $11,448,000 $11,638,000
===================================================================================
</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>
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MARCH 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
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(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,470,000 $ 882,000
Accrued liabilities 1,090,000 1,390,000
Note payable under bank line of credit 500,000 147,000
Deferred revenue 2,425,000 1,837,000
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Total current liabilities 5,485,000 4,256,000
Noncurrent deferred revenue 1,397,000 1,634,000
Other noncurrent liabilities 109,000 479,000
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Total liabilities 6,991,000 6,369,000
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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, 2,836,000 and
2,833,000 shares issued and outstanding
at March 31, 1998 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 13,058,000 13,030,000
Deficit (9,485,000) (8,860,000)
Foreign currency translation adjustment 742,000 957,000
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Total stockholders' equity 4,457,000 5,269,000
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Total liabilities and stockholders' equity $ 11,448,000 $ 11,638,000
==================================================================================================================
</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 MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- --------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues:
Software maintenance/information services $ 4,169,000 $ 4,614,000 $ 8,873,000 $ 9,883,000
Software licensing 242,000 446,000 300,000 533,000
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Total revenues 4,411,000 5,060,000 9,173,000 10,416,000
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Cost of Sales:
Software maintenance/information services 2,052,000 2,017,000 3,803,000 3,884,000
Software licensing 57,000 (51,000) 236,000 195,000
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Total cost of sales 2,109,000 1,966,000 4,039,000 4,079,000
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Gross profit 2,302,000 3,094,000 5,134,000 6,337,000
Operating expenses:
General and administrative 916,000 890,000 1,590,000 1,744,000
Marketing 1,796,000 1,687,000 3,521,000 3,253,000
Research and development 549,000 411,000 978,000 783,000
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Total operating expenses 3,261,000 2,988,000 6,089,000 5,780,000
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Operating income (loss) (959,000) 106,000 (955,000) 557,000
Other income (expense):
Interest income 68,000 35,000 139,000 69,000
Interest expense (34,000) (98,000) (46,000) (108,000)
Foreign exchange 8,000 4,000 (54,000) 42,000
Other, net 5,000 55,000 5,000 86,000
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Income (loss) before income taxes (912,000) 102,000 (911,000) 646,000
Provision for income taxes 322,000 59,000 286,000 (47,000)
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Net income (loss) $ (590,000) $ 161,000 $ (625,000) $ 599,000
====================================================================================================================
Income (loss) per share $ (.21) $ .06 $ (.22) $ .21
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1998
(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,
1997 2,833,000 $ 142,000 $13,030,000 $(8,860,000) $ 957,000 $ 5,269,000
Net loss -- -- -- (625,000) -- (625,000)
Exercised stock
options 3,000 -- 28,000 -- -- 28,000
Foreign currency
translation
adjustment -- -- -- -- (215,000) (215,000)
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Balance,
March 31, 1998 2,836,000 $ 142,000 $13,058,000 $(9,485,000) $ 742,000 $ 4,457,000
======================================================================================================================
</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>
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SIX MONTHS ENDED MARCH 31,
1998 1997
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<S> <C> <C>
Net income $ (625,000) $ 599,000
Adjustments to reconcile net income to cash used by operations:
Depreciation 212,000 218,000
Amortization 224,000 304,000
Loss (gain) on sale or abandonment of equipment -- 1,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables (1,438,000) (1,119,000)
Inventories (1,000) (215,000)
Other assets 55,000 (80,000)
Increase (decrease) in liabilities:
Trade payables and accruals 116,000 (304,000)
Taxes payable (420,000) 58,000
Deferred revenue 353,000 304,000
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Net cash used by operating activities (1,524,000) (234,000)
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Cash flow from investing activities:
Net change in investments -- 49,000
Proceeds from asset dispositions -- 6,000
Purchase equipment (48,000) (59,000)
Software development -- (159,000)
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Net cash used by investing activities (48,000) (163,000)
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Cash flow from financing activities:
Net borrowing under bank line of credit 353,000 --
Proceeds from exercised stock options 28,000 --
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Net cash provided by financing activities 381,000 --
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Decrease in cash and cash equivalents (1,191,000) (397,000)
Cash and cash equivalents at beginning of period 1,599,000 951,000
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Cash and cash equivalents at end of period $ 408,000 $ 554,000
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 six months ended March 31, 1998.
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 March 31, 1998 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, 1998 are not necessarily indicative of the
results to be expected for the full year.
================================================================================
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $34,000 and $98,000 during the three months
ended March 31, 1998 and 1997, respectively. Income taxes of $20,000 and
$53,000 were paid during the quarters ended March 31, 1998 and 1997,
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
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
MPSI reported a net loss of $590,000 or $.21 per share on revenues of
$4.4 million for its second fiscal quarter ended March 31, 1998 which compared
with net income of $161,000 or $.06 per share on revenues of $5.1 million for
the March 31, 1997 quarter. For the six months ended March 31, 1998 MPSI
reported a net loss of $625,000 or $.22 per share on revenues of $9.2 million.
This compared with net income of $599,000 or $.21 per share on revenues of $10.4
million for the six months last year on the strength of substantial new business
in the Pacific Rim.
These results reflect the effects of lower profitability in the retail
petroleum industry in several geographic regions which MPSI serves, combined
with incremental net start-up costs of approximately $282,000 and $400,000 for
the quarter and six months versus last year related to certain new business
ventures. Traditionally, the petroleum industry, lead by the United States,
Japan and the Pacific Rim, generates over 90% of MPSI's revenues. Lower industry
profitability has caused several petroleum clients to implement cost containment
programs and delay their retail marketing spending during these unsettled times.
While MPSI's revenues and profitability were up 11% and 18%, respectively, from
the combined North American and European regions compared with last year, those
increases were not sufficient to counteract the impact of deregulation in Japan
and the turmoil in many Pacific Rim countries resulting from the recent crisis
in the international banking system in the region. Revenues from Asia/Japan were
down approximately 37% compared with last year ($760,000 for the quarter and
$1.7 million for the six months).
While the reported results and the levels of the petroleum industry
profitability present significant short-term challenges to MPSI's management,
the situation offers significant opportunities for MPSI to accelerate its
consultancy build up. MPSI has traditionally provided consulting services to its
clients, primarily in areas affecting retail site selection and operations. The
confluence of current petroleum industry economics and recent trends involving
more robust product and service offerings at the retail level provides MPSI the
opportunity to fill a gap in client expertise caused by staff reductions. Having
provided consultancy services on a worldwide basis and having developed an
unparalleled database of retail marketing information, MPSI is uniquely
qualified to provide integrated solutions based upon previous experiences to
clients who must now squeeze every ounce of profitability from their networks
while at the same time trimming costs and battling competition from new sources.
For these reasons, management anticipates improvement in revenue and
profitability over the remainder of the fiscal year.
During the quarter and six months, MPSI experienced an increase in
operating expenses of approximately $273,000 (9%) and $309,000 (5%),
respectively, compared with the same periods last year. In line with the trend
of revenues, MPSI implemented cost containment measures during March 1998
including limitations on new personnel and travel restrictions. For the long
term, MPSI has recently completed phase one of its internal process evaluation,
a project which was initiated in mid-1997 and was designed to identify
opportunities to refine or change our database production processes. MPSI has
identified opportunities for substantial reductions in future costs and database
delivery timelines. Phase two has now begun with the formulation of a new
product vision which will be the basis for implementation of the changes not
only to data management, but also to software development over the next twelve
months.
General and administrative expenses are comparable with the second
quarter last year but are down approximately $154,000 (9%) for the six months
due primarily to lower estimated employee benefit costs. The quarterly
administration expenses reflect nominal costs associated with office relocations
in England. Additional relocation costs estimated in the range of $50,000 to
$100,000 are anticipated during MPSI's third fiscal quarter relative to the
relocation of corporate headquarters in the U.S. Increased marketing expenses of
$109,000 (6%) and $268,000 (8%) for the quarter and six months, respectively,
compared with last year, are principally attributable to additional sales
personnel and the associated sales-oriented travel. Research and development
expenses are up approximately $138,000 (33%) and $195,000 (25%) for the quarter
and six months, respectively, compared with the similar periods last year.
Although there has been no substantial change in personnel levels, more
resources are presently allocated to software maintenance and research
activities (expensed), whereas last year such resources were dedicated to
development of regional software/upgrades and were therefore capitalized. As
MPSI anticipates significant software product improvements over the next six to
twelve months, management anticipates that more of the costs of this group will
again be capitalized in future financial statements.
9
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Other income is up approximately $51,000 in the quarter but down
approximately $45,000 for the six months compared with last year. MPSI has
reported higher interest income relative to multi-year software license
agreements renewed late last fiscal year. Additionally, MPSI has experienced
lower vendor financing charges thus far in fiscal year 1998 with improved
working capital financing through its principal bank line of credit which only
came into existence during the third quarter last year. Although small currency
gains were experienced during both the March 1998 and 1997 quarters, for the six
months ended March 31, 1998, MPSI reported aggregate currency losses of
approximately $54,000 compared with currency gains totalling approximately
$42,000 last year. Management anticipates that, particularly with respect to
clients in the Pacific Rim, MPSI can anticipate further currency losses of a
similar magnitude throughout the remainder of fiscal year 1998 as clients
pressure MPSI to bill partially in their local currencies. Income taxes are
commensurate with the year-to-date losses and reflect utilization of such losses
to offset previously recorded deferred income taxes.
FINANCIAL CONDITION AND LIQUIDITY
Working capital of $2.2 million at March 31, 1998 declined
approximately $626,000 during the quarter. Cash resources were $131,000 (13%)
lower and trade payables/accruals increased approximately $438,000 due to slower
cash receipts as client payment cycles lengthened, particularly in the Pacific
Rim. Trade receivables (net of the unearned portions reported in the current
portion of deferred revenue) increased about $46,000 reflecting modest positive
trends in North American and European business, and backlog of approximately $18
million remains strong. Although the economic uncertainties in the Pacific Rim
have not resulted in substantive receivables collection issues to date,
management anticipates additional pressure on cash resources from (1) longer
client payment cycles and (2) at least partial billing for future products and
services in certain local currencies. This may have the effect of exposing MPSI
to additional currency fluctuation risks in future periods.
At March 31, 1998 MPSI had borrowed the full $500,000 available under
its bank line of credit. Subsequent to March 31, 1998 cash receipts from the
Pacific Rim allowed the outstanding balance to be reduced by 50%. Management is
presently negotiating an increase in the line in order to combat longer client
payment cycles and expects to have that revised line in place during the third
quarter of fiscal 1998.
MPSI's net investment in equipment declined approximately $81,000
during the quarter ended March 31, 1998 due principally to depreciation. During
the quarter and six months ended March 31, 1998, the Company acquired $20,000
and $48,000, respectively, of new computer equipment, in addition to
approximately $142,000 which was leased under a new $400,000 equipment lease
line from a commercial leasing agent. Management anticipates that the available
lease funding will be sufficient for computer equipment requirements through the
end of calendar year 1998.
Net capitalized software development costs declined $45,000 during the
March 1998 quarter primarily as the result of amortization. Limited
capitalizable software development is presently being undertaken although
substantial research activities (expensed) are in process relative to a new
generation of MPSI products anticipated for roll-out beginning in 1999.
Other noncurrent liabilities declined $348,000 principally due to the
offset of 1998 operating losses against previously recorded deferred tax
liabilities.
10
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PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings - None.
Item 2 -- Changes in Securities - None.
Item 3 -- Defaults Upon Senior Securities - None.
Item 4 -- Submission of Matters to a Vote of Security Holders -
(a) The annual stockholders meeting was held March 5,
1998. Proxies were solicited in accordance with
Regulation 14 of the Securities Exchange Act of 1934.
(b) All members of the Board of Directors, as previously
reported in the Company's Form 10-K at September 30,
1997, were re-elected, the 1998 Stock Plan was
approved, and Ernst & Young LLP were ratified as the
certified public accountants.
Item 5 -- Other Information - None
<TABLE>
<CAPTION>
Item 6 -- Exhibits and Reports on Form 8-K. Page
----
<S> <C> <C> <C>
(a) Exhibits:
11.1 Earnings per share computation 14
27.1 Financial Data Schedule 15
(b) Reports on Form 8-K - None -
</TABLE>
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
MPSI SYSTEMS INC.
Date May 11, 1998 By /s/ Ronald G. Harper
-------------------------- ------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date May 11, 1998 By /s/ James C. Auten
-------------------------- ------------------------------
James C. Auten, Vice President
(Chief Financial Officer)
12
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
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<S> <C> <C>
11.1 Earnings Per Share Computation 14
27.1 Financial Data Schedule 15
</TABLE>
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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 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. Primary and fully diluted earnings per share are the same for each
period presented.
<TABLE>
<CAPTION>
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Three Months Ended March 31, Six Months Ended March 31,
---------------------------- --------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Common stock outstanding throughout the period 2,836,000 2,794,000 2,793,000 2,794,000
Exercised options 3,000 -- 5,000 --
Dilutive unexercised stock options:
Shares presumed issued at exercise
($2.25 to $3.75 per share in 1998 and
$2.25 to $3.00 per share in 1997) 198,000 110,000 201,000 110,000
Less: Shares repurchased with presumed
proceeds at average per share price
($3.73 per share in 1998 and
$2.11 per share in 1997) (180,000) (102,000) (169,000) (76,000)
- -----------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 2,857,000 2,802,000 2,830,000 2,828,000
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
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(a) (b)
Weighted
Results of Average
Operations Shares Per Share (a / b)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss - Three Months Ended March 31,1998 $(590,000) 2,857,000 $ (.21)
Six Months Ended March 31, 1998 $(625,000) 2,830,000 $ (.22)
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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 408
<SECURITIES> 3
<RECEIVABLES> 6,999
<ALLOWANCES> 0
<INVENTORY> 198
<CURRENT-ASSETS> 7,702
<PP&E> 7,560
<DEPRECIATION> 6,559
<TOTAL-ASSETS> 11,448
<CURRENT-LIABILITIES> 5,485
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 4,315
<TOTAL-LIABILITY-AND-EQUITY> 11,448
<SALES> 4,411
<TOTAL-REVENUES> 4,411
<CGS> 2,109
<TOTAL-COSTS> 5,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> (912)
<INCOME-TAX> (322)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (590)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
