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In lieu of a separate annual report, this Form 10-K includes all financial
statements of the corporation.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 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.)
4343 SOUTH 118TH EAST AVENUE, TULSA, OKLAHOMA 74146
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 877-6774
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
----------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements or
any amendment to this Form 10-K. [ X ]
The aggregate market value of common stock held by non-affiliates of the
registrant on November 30, 1999 was approximately $1,766,427.
The number of shares outstanding of the registrant's common stock was
2,849,000 shares of $0.05 Par Value Common Stock as of November 30, 1999.
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MPSI SYSTEMS INC.
FORM 10-K
CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
ITEM 1. Business.................................................................... 3
ITEM 2. Properties.................................................................. 11
ITEM 3. Legal proceedings........................................................... 11
ITEM 4. Submission of matters to a vote of security holders......................... 12
PART II
ITEM 5. Market for the registrant's common equity and related
stockholder matters......................................................... 12
ITEM 6. Selected financial data..................................................... 13
ITEM 7. Management's discussion and analysis of financial
condition and results of operations......................................... 13
ITEM 8. Financial statements and supplementary data................................. 18
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure........................................................ 34
PART III
ITEM 10. Directors and executive officers of the registrant.......................... 34
ITEM 11. Executive compensation...................................................... 37
ITEM 12. Security ownership of certain beneficial owners and management.............. 39
ITEM 13. Certain relationships and related transactions.............................. 40
PART IV
ITEM 14. Exhibits, financial statement schedules, and
reports on Form 8-K......................................................... 41
Signatures ............................................................................ 45
Index to Exhibits ............................................................................ 46
</TABLE>
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PART I
All statements other than statements of historical fact included in this Form
10-K, including without limitation statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations, are
forward-looking statements. When used in this Form 10-K, words such as
"anticipate," "believe," "estimate," "expect" "intend," and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to technological change, product development
risks, competitive factors, pricing pressures and general economic conditions.
Such statements reflect the current views of the Company with respect to future
events and are subject to these and other risks, uncertainties, and assumptions
relating to the operations, results of operations, growth strategy, and
liquidity of the Company.
ITEM 1. BUSINESS
GENERAL
The operations of MPSI are comprised of four business segments wherein it
provides decision support products and services. These business segments are
designated as Convenience Retailing, Pricing, DataMetrix and Postal Services.
MPSI's core competency, which spans all four business units, is (a) the
development of computer software which models consumer behavior in certain
retail situations, and (b) the development of strategic geographic information
systems ("GIS") databases concerning specified markets ("Market Studies"). These
products and services are designed to meet retail business planning requirements
of the Company's clients, who have traditionally been petroleum-oriented
convenience retailers.
From its inception in 1970 until it became a publicly-held company in 1983,
the Company's decision support services were directed primarily at planning
requirements for petroleum companies and other multi-outlet retailers who were
concerned with retail site selection and retail network optimization. MPSI
products provided computerized models of specified retail markets which enabled
its clients to predict sales volumes at proposed new retail sites, while at the
same time indicating the effects of each new outlet on sales volumes at both the
client's and competitors' existing outlets. During this period, the Company's
operations were characterized by limited geographic diversification, centralized
management, centralized market study production and significant dependence on
the petroleum industry.
With the 1983 capital infusion from its initial public offering, the
operating plan of the Company expanded. In order to diversify and maintain
growth, management initiated programs intended to expand the Company's
geographic presence and its client mix. Accordingly, during the period from 1983
to 1987, MPSI expanded its European operations and opened new offices in
Singapore, Japan and Brazil. This expansion led to decentralization of
management and market study production. In the late 1980's, MPSI also attempted
to diversify its product set and target industries through acquisitions. Such
acquisitions utilized all remaining funds from the initial public offering and
were supplemented by corporate debt. Ultimately, the burden of multi-faceted
product diversification was too great; and, when compounded by the negative
effect of the Persian Gulf War on the core petroleum business, the Company was
forced to substantially scale back and reorganize in the early 1990's. The
reorganization resulted in (1) sale of the two acquired companies, (2)
downsizing of foreign database production facilities in Singapore and Bristol,
England, (3) substantial personnel reductions (approximately 50%), and (4) an
equity infusion, the proceeds of which liquidated the remaining bank debt.
Among other benefits, the recapitalization allowed the Company to redirect
funding from debt service to product development. Beginning in 1994 and in
response to client input, MPSI committed substantial funding and development
efforts toward release of a new generation of MPSI decision support products.
Early versions of these products were completed for commercial release in North
America during fiscal year 1995 (see discussion of CAPS(TM) and PVO(R) software
under "Product Development"). New versions of CAPS for European and South
American clients were scheduled for release in the first quarter of fiscal year
1996 but were ultimately
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released in June 1996. The delay in release was partially attributable to MPSI's
desire to accommodate client requests for additional functionality and
multi-product modeling capabilities. However, a portion of the delay was
attributable to MPSI's software development methodology and organizational
structure. In order to address these organizational implications, MPSI undertook
a revision of its software development group and initiated an evaluation of its
database production methodology. These evaluations ultimately highlighted not
only short-term opportunities to streamline processes and reduce costs, but also
indicated competitive threats to MPSI's long-term growth.
In 1997, MPSI undertook a complete strategic re-evaluation of its product
direction, competitive position, pricing structure, and cost structure. This
strategic planning, headed by an expert external consultant, encompassed most of
fiscal 1997 and identified several key issues and corrective initiatives which
management began to implement in fiscal 1998. Among other things, the Company
undertook to (1) completely re-engineer its core "retail planning" software
suite in order to reduce development/maintenance costs and in order to open new
market segments for its software applications, (2) launch a substantially
expanded effort to leverage its considerable data warehouse of business location
and operational information through new sales channels, and (3) expand its
consulting practice within the convenience retailing segment to encompass
broader services to its petroleum target market. These initiatives were designed
to make MPSI the "one-stop" shop for clients whose retail planning needs span
the gamut from raw data through sophisticated applications software, to the
ultimate "Solution" (rather than the tools and data to develop a solution in
house). Although implementation of certain strategic measures was hampered in
1998 by a significant economic downturn in the Pacific Rim, management was able
to focus on process and cost reductions during fiscal 1999 and expects to
complete this strategic shift by the end of fiscal 2000.
PRODUCTS AND SERVICES
The Company markets its services in the United States, Europe, Africa,
Canada, South America, Central America, the Caribbean Basin and the Pacific Rim.
See Note 7 to the Consolidated Financial Statements for financial information
addressing foreign and domestic operations and export sales. Generally, the
Company's marketing activities center on personal presentations to existing and
prospective clients, client referrals, proposal submissions, selective mailings,
limited print advertising, seminars and trade show participation. Most of the
Company's clients are presently identified by the Company's direct sales force.
In the future, use of the Internet and business partnerships are expected to
play an increasingly significant role in sales and marketing (as well as product
delivery) activities.
The Company's operating cycle and cash flow are dependent upon the timing of
client orders for market studies. Such studies are high dollar projects and,
consequently, the timing of market study production and the resulting revenues
are subject to a degree of quarterly fluctuation. Quarterly/annual revenues can
also be impacted by the timing of software license agreements (although adoption
of a recent Financial Accounting Standards Board statement of position will
lessen the magnitude of quarterly/annual fluctuations from this source beginning
in 2000). Accordingly, management believes that quarterly results may not be
indicative of results for full fiscal years and that the comparability of annual
revenues and profitability should also be evaluated giving effect to the
potential impact of contract timing.
Economic conditions throughout the world have varying degrees of impact on
the Company's products. Volatile oil prices, unsettled economic conditions in
the Pacific Rim and consolidations of major multi-national oil companies
negatively affected the Company's volume of new business in fiscal 1998. The
Company experienced a resurgence from the Pacific Rim region during 1999.
More than 97% of consolidated revenues were derived from the petroleum
industry during the fiscal years ended September 30, 1999, 1998, and 1997,
respectively. In each of those fiscal years, MPSI derived revenues representing
10% or more of consolidated revenues from certain clients, together with their
affiliates, as set forth below (in millions of dollars):
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<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Exxon/Esso/Imperial ............... $ 4.4 23 $ 3.5 19 $ 5.6 24
Texaco/Caltex ..................... * * * * $ 2.6 11
Amoco ............................. * * $ 2.1 11 * *
</TABLE>
*Below 10% during this period.
The Company would be adversely affected if several petroleum industry
clients curtailed their long-term usage of MPSI products. The following table
shows the percentage of total revenue from operations that the Company derived
from various sources during each of the last three fiscal years.
REVENUE DERIVED FROM KEY PRODUCTS AND SERVICES (%)
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Market information databases ........... 65 62 63
Software licenses ...................... 3 3 8
Software maintenance agreements ........ 3 4 4
Other services ......................... 29 31 25
----- ----- -----
100 100 100
</TABLE>
Described below are the computer applications software, information
databases and other services currently provided by the Company.
Convenience Retailing Segment
Until 1995, the Company's primary convenience retailing applications
software was the mainframe, computer-based Retail Planning System(R) ("RPS").
See "Product Development" for discussion of major enhancements of RPS
commercially released beginning in fiscal year 1995. Long-term capital
investment and retail operational issues have traditionally been addressed using
the Capital Planning System ("CAPS(R)"). This software will be systematically
replaced with the Retail Explorer ("REX(TM)") software, the initial version of
which was released in the U.S. in September 1999. CAPS/REX allows clients to
maximize their investment planning in the areas of (1) new retail site location
where the system provides an objective measure for comparing available sites
based on competition and convenience to demand, (2) identification of outlets to
divest where the system isolates and evaluates client locations that have poor
performance, (3) identification of outlets to be rebuilt by identifying sales
potential to be realized by remodeling or reformatting specified outlets and (4)
assessing multiple profit centers by forecasting the potential benefits of
retailing complementary products and services.
Software licensing agreements for the RPS, CAPS and REX software (including
ancillary products) generally have multi-year (primarily five-year agreements)
noncancellable terms. These agreements offer the client an installment payment
option requiring a payment upon execution and annual payments on the succeeding
anniversary dates of the agreement. The software can be used by the client for a
particular industry (such as petroleum) and a particular geographic market (such
as Japan). The Company's software license agreements contain broad restrictions
on the use and disclosure of the software by the client. See "Trademarks,
Copyrights, and Licenses" below. Modifying the software typically involves
changes in the weighting of various supply and demand factors or the addition of
a new factor as the result of changes in the marketplace.
MPSI provides full maintenance (postcontract customer support) services for
the RPS, CAPS and REX software and, where necessary, training of and
consultation with client staff. Software licenses, maintenance and optional
consulting services are set out separately in each multi-year license agreement.
The agreement states that any company-sponsored modification to the software
during the postcontract customer support period will be provided to the client
at no additional cost. Prices for these software products in the United States
are based upon formulas which address geographical boundaries, population,
number of automobiles and other factors. Prices for such software applicable to
foreign countries are based on a percentage of the United States pricing.
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Information Databases for use with Convenience Retailing Software
The Company also constructs customized market study databases that are the
primary informational sources used by the retail planning and pricing software.
The database construction process involves acquisition of geographic digitized
mapping, traffic counts, and demographic demand data from governmental agencies
or independent suppliers, on-site survey of retail outlet supply information by
MPSI personnel or contract surveyors, collation of all demographic demand and
supply information into specified data layout, data editing and quality control
checking, and preparation of the client-specific deliverables. Separate
contracts govern each database order by a client and generally require advance
payments ranging from 35 percent to 70 percent of the total sales value. The
amount of the required prepayment is determined principally by the client's
delivery requirements. There is no retainage provision relative to these
production-type contracts. These databases are arranged and presented in five
types of studies.
Multi-Year Study Program. These multi-year, noncancelable studies are
used by clients who possess a large number of retail sites and who wish to
analyze market conditions and evaluate site locations in metropolitan areas
on a regular basis. The supply and demand data used in this type of study is
collected by the Company. This type of study provides clients with a series
of consecutive database updates over a specific time period, generally five
years. Clients agree to pay for this program in periodic installments. It is
tailored to individual client needs, and pricing is determined in part by
the number of subscribers to a particular market during the commitment
period and offers clients discounts for their multi-year commitments.
Scheduled Market Area Studies ("SMAS"). These studies are similar in
construction and content to those described above, but are only scheduled
for production at a single point in time. These studies are usually
scheduled by one client and offered to additional clients on a subscription
basis. While each study uses a common demand-side database, because of
customized supply-side information, the final database provided to each
client is unique.
Market Area Studies ("MAS"). These studies are similar to the SMAS
except they may contain client-specific information and are therefore sold
only to a single client. They generally carry a higher price than a
multi-client SMAS of the same market. Portions of the demographic data can
generally be used as a major part of other studies in the same market for
clients in the same or comparable retail industries.
Mini-Market Area Studies. These studies are similar to the MAS except
the area studied does not contain more than 75 outlets. Likewise, the
accompanying study deliverables are scaled down.
Single Site Studies. These studies are used to evaluate market
conditions or the effects of various operating decisions at a specific
location within a specified geographic area.
Licensed software clients may utilize the retail planning software and
information databases on their own computer facilities, may dial in to MPSI's
computers and use the software interactively (subject to certain usage
restrictions), or may elect to have MPSI run tactics (that is, pose "what if"
questions) on MPSI's computers. In cases where software is installed on client
computers, the Company charges for installation of the software and training the
client's personnel. A client may then run unlimited tactics on its own
equipment. If tactics are run on the Company's computers, the client pays a fee
per tactic. Clients who have entered into long-term user agreements are entitled
to discounts on databases and on tactics or support services. The Company also
provides consulting services to its convenience retailing clients which include
specialized data acquisitions (e.g., consumer research); competitive analyses to
identify key competitors; brand value assessment; market entry/exit strategies;
and litigation support.
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Pricing Segment
Pricing software is generally licensed on a perpetual basis. The contracts
provide that subsequent upgrades will be provided as MPSI determines them to be
necessary for a given geographic region and that the client will receive such
upgrades upon payment for the enhanced modules, albeit at a discount for
licensed users. The license agreements also provide for post-installation
maintenance and support services, which terms are generally similar to those
related to CAPS and REX.
In the pricing segment, MPSI offers decision support software to meet
several client planning needs. Price Zones Software ("PZS"(TM)) allows a client
to establish different pricing zones within major markets relative to supplying
its dealer networks with petrol fuels. Price Volume Optimizer ("PVO"(R)) allows
a client to react to competitive price changes on a daily basis at the
individual outlet level in order to set prices for the ultimate consumer. MPSI's
newest product, the Street Back Pricing System ("SBP") incorporates Price Zone
methodology in order to group outlets for the purpose of identifying
competition. Once competition is identified, the client selects representative
outlets for price tracking surveys and then formats that pricing data into a
data set to feed the SBP software. Based on competitive factors and the client's
desired margins by product, SBP determines the price at which desired sales
volume to the dealers can be achieved.
As with convenience retailing products, MPSI provides not only the pricing
products geared to a client's needs, but in many cases, also provides portions
of the market information necessary for the pricing software to perform. MPSI's
PriceTracker(TM) service is an example of customized data collection. MPSI
performs customized pricing surveys which allow clients to obtain high quality,
timely retail pricing information on a recurring basis in order to track pricing
trends in the marketplace.
DataMetrix Segment - Generic Information Databases
During fiscal year 1999, MPSI began the development of a new suite of GIS
database products with the formation of its new DataMetrix segment. This suite
of market information data products contains many of the data components
inherent in MPSI's traditional market study databases, but is designed to go
significantly beyond those traditional products in the scope of geographic
coverage. At present, MPSI has concentrated development on a national database
for the U.S. This initiative has been undertaken in an effort to (a) leverage
the customized data sets the Company already has available in major markets by
repackaging them with other information into a data product which will be
amenable in both price and content to a broader segment of the Company's
traditional petroleum-oriented convenience retailing target market, and (b)
allow the Company to attract customers in other industries who may also be
retail oriented.
The principal product offered by DataMetrix is StreetMetrixPlus(TM), which
encompasses the entire U.S. and contains, among other things, the latest road
network, consumer demographics, automobile traffic counts, and key topographical
features. All of the basic geophysical information required by a spatially
oriented business client is contained in this one database. If a client only
wants the traffic information or the geophysical information, they can obtain a
subset of StreetMetrixPlus. Should a customer be involved in petroleum or
convenience retailing, an add-on dataset called PointMetrix(TM) gives them
geocoded and plotted information about existing petroleum retail outlets and
convenience stores in most major markets.
Postal Segment
MPSI has provided specific retail-oriented services to postal agencies for a
number of years. In 1997, a more segregated organizational unit was established
to specifically target such potential clients. In some instances, the Company's
convenience retailing products have been effectively leveraged with foreign and
domestic postal agencies. Increasingly though, MPSI is asked to help develop
customized solutions rather than merely provide tools and data. As MPSI migrates
more of its products to an Internet/intranet environment, postal clients will
benefit by not having to make substantial technology expenditures but yet get
the answers to critical operating problems of a retail nature.
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COMPETITION
Since its inception in 1970 the Company has provided comprehensive
applications software and database systems, primarily to the retail petroleum
industry, and currently has more than 139 multinational clients in 76 countries.
There has recently been a worldwide trend toward competitive product development
of this type due to the availability of computer resources and acceptance of
retail modeling theory. The Company believes its competition lies in two areas:
first, in the information technology and market research staffs of petroleum
companies or potential customers who develop and manage their own software and
data; and second, in consulting firms and data companies which compete for
portions of the Company's business.
The Company has found that the market research staffs of some large
petroleum companies, supported by their internal IT groups, continue to
concentrate on in-house data gathering and customized site selection methods,
while other companies with more limited resources must consider low cost
alternatives for obtaining market information. To be successful, MPSI must
overcome the desire of its customers for total control on the one hand and cost
sensitivity on the other. It has been MPSI's experience that clients often
encounter substantial cost barriers relative to internally developed systems.
Without the economies of scale, data gathering expertise and modeling
sophistication that MPSI has obtained during its 29-year existence, clients
often find that systems developed in house may be more customized to their
particular situation and may appear to cost less (i.e., incremental pricing
methods don't generally include costs of their internal development personnel)
to develop initially, but are expensive to maintain given changing market
conditions, require market information with an inherent degree of accuracy which
is difficult to obtain with internal resources, and that the results of such
systems do not justify the associated costs and effort. Additionally, as clients
or potential clients struggle to manage operating costs and consider outsourcing
certain activities where economically feasible, the capabilities of companies
like MPSI offer an attractive alternative to internal systems.
Because of the trend in large companies to outsource certain functions and
because of the growth in business consulting generally, independent consulting
and research companies have challenged certain products the Company offers such
as demographic data collection, geographic databases, retail outlet surveys,
retail consulting, pricing applications, and single site studies. Occasionally,
such consultants are engaged to develop a proprietary internal model for their
clients. Often competitive services of this type are offered by independent
consultants as part of a larger consulting project wherein pricing for the
retail planning segment can be very competitive with MPSI's pricing. Certain of
such companies are offering computerized tools and services which, the Company
believes are not as sophisticated as MPSI products, but may be attractive to
customers willing to sacrifice accuracy for a lower cost solution to their
business needs.
The Company believes it competes with the internal solution and the external
consulting firms by providing generic high-quality, sophisticated software and
reliable, accurate databases at a reasonable cost. MPSI further believes its
historical expertise and success in the areas of volume projections and retail
network planning provide a substantial barrier to entry for competitors in the
petroleum and convenience retailing sectors. Further, MPSI's maintenance
programs and its service to multiple clients in multiple geography result in
products that reflect the most up-to-date decision support methodologies and
market information available. The Company attributes its ability to provide
these quality products and services to the expertise and experience of its
personnel.
By focusing on PC-oriented products and services, the Company believes it is
also well positioned to challenge "lower cost competitors". New data collection
techniques, implemented in 1999, will allow more timely and regular updating of
market data using handheld data collection technology and PC-based data
transmission and delivery technology. These processes are expected to reduce
MPSI's data collection costs relative to market studies and thereby allow the
Company to leverage data already collected or to collect custom data for clients
who may not require full market study information. The Company believes it can
thereby be competitive with potential competitors who have targeted customers
with limited retail market resources.
In addition to addressing low-cost competitors, MPSI regularly evaluates
potential strategic alliances with independent companies who will allow MPSI to
offer a wider variety of integrated products and/or provide a wider product
distribution system. The target firms will be those who service industries in
which MPSI has historical expertise (e.g., petroleum, government/postal, and
banking). Such alliances can also provide MPSI the opportunity
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to sub-contract portions of larger consulting projects thereby establishing
MPSI's credibility with the client and allowing interface with customer
personnel who are potentially valuable sales contacts for future business. As an
integrated service provider and trusted advisor that can draw on both its own
resources and also bring to bear specific expertise of its business partners to
meet a client's needs for a variety of retail decision support information and
services, MPSI can combat both the small competitor's pricing pressure (because
the client can identify the added value of MPSI's multi-purpose data and
software as compared to the individual product or service pricing by a
competitor) and the larger consulting firm's encroachment on retail business
segments (by offering particular industry expertise and a proven track record in
our retail planning niche which the larger firms cannot equal).
BACKLOG
The Company's September 30, 1999 and 1998 backlog consisted principally of
orders for market information databases (1999 -- $9,287,000, 1998 --
$11,638,000) and multi-year commitments by customers for software maintenance
and support services (1999 -- $1,763,000, 1998 -- $1,991,000). The Company
expects that the market information databases in backlog at September 30, 1999
will be recognized in fiscal year revenues as follows: 2000 -- $5,811,000, 2001
- -- $1,458,000, 2002 -- $1,577,000, 2003 -- $325,000, 2004 -- $104,000 and beyond
- -- $12,000. Maintenance and support services in backlog are the result of
noncancelable client contractual obligations to purchase support services
generally over periods of three to five years. Such revenues will be recognized,
and backlog accordingly reduced, on a ratable basis over the life of each
underlying agreement. Of the aggregate maintenance and support backlog at
September 30, 1999, future fiscal year revenues are expected to be recognized as
follows: 2000 -- $617,000, 2001 -- $544,000, 2002 -- $373,000, 2003 -- $137,000,
and 2004 -- $92,000.
EMPLOYEES
As of September 30, 1999, the Company employed 214 people, including 169 in
the convenience retail segment, 39 in the DataMetrix segment, 3 in the postal
segment, and 3 in the pricing segment. Of the total employees, there are 71 in
marketing (which includes sales and client services); 39 in research and
development (which includes software development and system support); 83 in
database analysis, consulting, and production; and 21 in management,
administration, and finance. Of these, 187 are employed in the United States and
27 are employed in foreign countries.
PRODUCT DEVELOPMENT
MPSI's product development cycle consists of four primary stages. During the
product specification phase the Company identifies the initial requirements of
the software, determines the functional requirements and begins the initial
design. During this stage, the Company sets forth the database requirements as
well as the hardware, operating systems, third-party imbedded software and
general functional requirements. From this information a business plan,
conceptual prototype and a project plan are developed. The prototypes developed
during this stage are not fully functional prototypes, but are designed to
present the "look and feel" of the end product. Upon completion of this phase,
the Company has generally completed a detailed program design and, accordingly,
established the technological feasibility of the project. Following the product
specification phase, the project enters the build phase where actual software
programming takes place. Once coding is complete the project enters the quality
assurance phase which encompasses various internal systems testing and user
acceptance testing. Once testing is completed the project enters the
implementation phase where hardware and software installation procedures and
user documentation are finalized.
Software development costs incurred prior to completion of the detailed
program design are expensed as research and development costs. Costs incurred
during the build, quality assurance and implementation phases are generally
capitalized. At the point where the software product is ready for general
release to the customers, capitalization of costs ceases.
Over the last five years, the major development efforts of the Company have
been directed toward (1) enhancement of retail planning products in order to
extend petroleum utilization around the world, (2) portation of
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the software to a variety of workstation/PC platforms, and (3) incorporation of
internally developed or third party software in order to enhance the user
interface, speed and efficiency of this software.
For most of the last five years the CAPS software and related databases have
been the premier MPSI product set as regional versions of CAPS became available.
The CAPS software for North America was released in January 1995, and from that
time to the present, MPSI has developed and released CAPS and PVO so that those
products are now capable of serving all MPSI operating regions.
Management anticipates extending the recent roll out of the North American
REX to encompass all MPSI service regions within 18 months. Implicit in the REX
design is (1) less expensive and less complex client deliverables, (2) modular
architecture which will yield maximum flexibility for interface with existing
client technology and maximum flexibility for MPSI to apply its technology to
industries other than retail petroleum, (3) a substantially reduced data
requirement thereby significantly reducing data gathering costs, (4) a higher
degree of predictive accuracy in geographic areas of sparse housing density
(high transient areas) and (5) improved predictive capabilities with respect to
convenience stores. To date, the Company has capitalized approximately $650,000
of development costs related to the U.S. version of REX. Management expects to
incur an additional $350,000 to build a generic version capable of being applied
in foreign markets. The Company expects to internally fund the ongoing
development of REX. However, additional development costs which may be
associated with utilization of this new technology to service industries other
than retail petroleum may require external funding.
The initial commercial version of PVO was completed in August of 1995 with
Price Zones following the next year. These products represent a continuing
opportunity for MPSI to leverage its retail data warehouse and allows the
Company to expand its services to other management units within our clients'
retail groups. Although acceptance of this new price-prediction technology was
slow initially, the pricing segment was profitable in 1998, and enjoyed solid
growth in fiscal year 1999. During fiscal 1999, MPSI developed two spin-off
products from PVO -- PriceIt which will take this technology to the smaller user
and is potentially the first Internet pricing offering by MPSI, and StreetBack
Pricing software for petroleum franchisee pricing. These products are now
available and are expected to expand MPSI's pricing dominance during fiscal
2000. Management has committed resources for fiscal 2000 to significantly
upgrade the PVO interface and add additional functionality to this pricing
engine.
In addition to the enhancements to retail planning and pricing product
lines noted above, the Company has undertaken development of two new products
aimed at (a) expanding usage of retail modeling within the petroleum industry by
smaller customers, and (b) positioning the Company to begin penetrating
retail-oriented industries other than petroleum. In February 1999, the Company
acquired exclusive rights to market the most recent retail/customer analysis
software product developed by Dr. David Huff. This new data mining tool allows
clients to analyze customer segments for target marketing, product segmentation
and a variety of other merchandising purposes. The first commercial roll out of
the Huff Market Area Planner software product ("Huff") is anticipated by January
1, 2000. The Company has also formed the DataMetrix business segment, whose
primary mission is to develop and market a suite of U.S.-market data products.
These products include road networks, traffic density, demographic and retail
outlet characteristics which should allow clients in a variety of industries to
evaluate competition, analyze consumers and plan retail spending. Initial
versions of the data products were commercially available in July 1999, but with
the expected release of version 2.0 in January 2000, the Company is much better
positioned versus data competitors.
Management has committed resources in fiscal 2000 to development of certain
software and data products for use and/or delivery via the Internet. Not only
will this initiative allow the Company to reach a much broader client base, it
will have significant impact on product development and support costs in future
periods.
During the years ended September 30, 1999, 1998, and 1997, the Company spent
$3,101,000, $2,282,000, and $2,132,000, respectively, on research and
development or enhancement of new products and the maintenance of existing
products. The amounts spent on research and development were primarily Company
sponsored, meaning there was no material amount of direct recoupment of expenses
from clients.
10
<PAGE> 11
TRADEMARKS, COPYRIGHTS, AND LICENSES
The Company holds a number of trademarks, some of which are registered at
the U.S. Patent and Trademark Office. To date, registrations have been sought
only in the United States and Mexico. Set forth below are the Company's
trademarks and final filing dates required to renew trademark status.
<TABLE>
<CAPTION>
STATUS OF
PRODUCT MARK EXPIRATION COUNTRY
- --------------------------------------- ---------- ---------------- -------------
<S> <C> <C> <C>
MPSI's Site Evaluation System.......... Registered October 25, 2001 U.S.
MPSI and Design........................ Registered February 5, 2002 U.S. / Mexico
MPSI................................... Registered January 29, 2002 U.S. / Mexico
MPSI's OPS............................. Registered November 9, 2004 U.S.
Retail Planning System................. Registered August 7, 2005 U.S.
PVO.................................... Registered April 2, 2006 U.S.
Location Volume........................ Registered July 23, 2006 U.S.
Facility/Location Volume............... Registered February 11, 2007 U.S.
MPSI's CAPS............................ Registered November 12, 2007 U.S. / Mexico
Price Volume Optimizer................. Registered February 11, 2007 U.S.
MPSI Systems........................... Registered N/A Mexico
Capital Planning Systems............... Registered N/A Mexico
MPSI's Market Monitor.................. Trademark Common Law Rights U.S.
PriceTracker........................... Trademark Common Law Rights U.S.
The Intelligent Approach to Retail
Marketing.............................. Trademark Common Law Rights U.S.
StreetMetrix........................... Trademark Common Law Rights U.S.
Street MetrixPlus...................... Trademark Common Law Rights U.S.
DataMetrix............................. Trademark Common Law Rights U.S.
TrafficMetrix.......................... Trademark Common Law Rights U.S.
Retail Explorer........................ Trademark Common Law Rights U.S.
</TABLE>
The Company does not hold any patents or registered copyrights. The
Company's long-term software license agreements require customer acknowledgment
of the proprietary nature of the Company's software. The Company relies on these
agreements, together with trade secret laws and internal nondisclosure
safeguards, to protect its products. To date, the Company has had no indication
of any material breach in the security of its products. Should a material breach
in the security of the Company's software products occur, it might have the
impact of reducing the current barriers to entry for competitors and thus
materially adversely affect long-term results of Company operations. The
Company's modeling methodology, mathematical modeling algorithms and data
gathering processes have been developed over an extensive period of time and
would, in the absence of a material breach in the security, require potential
competitors a substantial period of time to duplicate. Even in the event that a
material breach did occur, such as a reverse engineering of an MPSI software
product, the Company believes that because of the annual change in technology,
the retail markets served, and the regular software upgrades potentially
associated therewith, such breach would not result in a material adverse effect
on the Company's short-term business because new versions of its products would
likely reduce the competitive value of older versions breached by potential
competitors.
ITEM 2. PROPERTIES
The Company's principal facility and corporate headquarters in Tulsa,
Oklahoma (56,000 square feet) is the primary location for software development
and market study production. The Bristol, England facility encompasses 700
square feet, and the Rio de Janeiro, Brazil office encompasses 1,500 square
feet. Both foreign offices do single site and special project work in addition
to their primary marketing role. Regional sales offices in Singapore;
Johannesburg, South Africa; Tokyo, Japan; Bangkok, Thailand; and Seoul, South
Korea remained the Company's principal client liaison facilities in those areas
at September 30, 1999. Management believes that the various facilities are
properly sized to meet anticipated business levels.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings at September 30, 1999
which meet the criteria for disclosure under this item.
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<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended September 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on The NASDAQ SmallCap Market tier of
The Nasdaq Market (hereafter NASDAQ). The trading symbol is "MPSI." Information
in the table below reflects the high and low sales prices reported by NASDAQ.
<TABLE>
<CAPTION>
LOW HIGH
------ ------
<S> <C> <C>
Fiscal 1998
First Quarter Ended December 31, 1997 ..... 3.75 7.00
Second Quarter Ended March 31 ............. 3.00 4.63
Third Quarter Ended June 30 ............... 1.75 3.50
Fourth Quarter Ended September 30 ......... 1.00 3.75
Fiscal 1999
First Quarter Ended December 31, 1998 ..... 0.88 3.00
Second Quarter Ended March 31 ............. 1.38 3.56
Third Quarter Ended June 30 ............... 1.38 3.00
Fourth Quarter Ended September 30 ......... 2.38 2.88
</TABLE>
The 2,849,451 shares of Common Stock outstanding at November 30, 1999, were
held by 900 stockholders of record. At that date, an additional 246,000 shares
were subject to options to purchase Common Stock (See Note 8 to the Consolidated
Financial Statements). The per share bid and offer price on November 30, 1999,
was $1.50. Common Stock that could be sold pursuant to Rule 144 under the 1933
Act totals 1,672,000 shares as of November 30, 1999.
The Company intends to reinvest its earnings in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
Company has not paid cash dividends since its inception.
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<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues ........................................... $ 19,332 $ 19,101 $ 23,438 $ 21,745 $ 23,437
Income (loss) ...................................... 87 (1,499) 1,103 (623) 2,029
Per share:
Basic income (loss) per common share ............ $ .03 $ (.53) $ .39 $ (.23) $ .73
Weighted average common shares outstanding ...... 2,849 2,844 2,798 2,756 2,784
Diluted income (loss) per common and common
equivalent share ........................... $ .03 $ (.53) $ .39 $ (.23) $ .72
Weighted average shares of common stock and
dilutive common stock equivalents
outstanding ................................. 2,894 2,844 2,820 2,756 2,802
BALANCE SHEET DATA:
Total assets ....................................... $ 10,518 $ 9,490 $ 11,638 $ 10,319 $ 12,924
Noncurrent deferred revenue ........................ 1,146 1,346 1,634 1,342 1,961
Noncurrent deferred income taxes ................... 86 86 442 98 --
Other noncurrent liabilities ....................... 133 172 37 79 220
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth (in thousands), for the periods indicated,
certain items in the consolidated statements of operations and the change of
such items as compared with the indicated prior period.
<TABLE>
<CAPTION>
CHANGE
--------------------------
YEAR ENDED SEPTEMBER 30 1999 1998
------------------------------------------ VS. VS.
1999 1998 1997 1998 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 19,332 $ 19,101 $ 23,438 $ 231 $ (4,337)
Cost of sales ............................... 8,245 8,796 9,603 (551) (807)
---------- ---------- ---------- ---------- ----------
Gross profit .............................. 11,087 10,305 13,835 782 (3,530)
---------- ---------- ---------- ---------- ----------
Operating expenses:
General and administrative ................ 3,184 3,312 3,763 (128) (451)
Marketing and client services ............. 6,235 6,773 6,834 (538) (61)
Research and development .................. 1,216 1,888 1,598 (672) 290
---------- ---------- ---------- ---------- ----------
Total operating expenses .......... 10,635 11,973 12,195 (1,338) (222)
---------- ---------- ---------- ---------- ----------
Operating income (loss) ..................... 452 (1,668) 1,640 2,120 (3,308)
Other income (expense), net ................. (58) (30) 92 (28) (122)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes .......... 394 (1,698) 1,732 2,092 (3,430)
Income taxes ................................ 307 (199) 629 506 (828)
---------- ---------- ---------- ---------- ----------
Net income (loss) ........................... $ 87 $ (1,499) $ 1,103 $ 1,586 $ (2,602)
========== ========== ========== ========== ==========
</TABLE>
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS. MPSI reported net income of $87,000 for fiscal year
1999 compared with a net loss of $1.5 million for fiscal year 1998 and net
income of $1.1 million in fiscal year 1997. The Company operates in four
business segments. Its largest business segment is dedicated to Convenience
retailing, wherein the Company has provided decision support software and market
information databases since its inception. More recent new business initiatives
have been separately staffed with sales, product development and product
delivery personnel dedicated to the ultimate success of new business ventures.
These business development segments include industry diversification
(DataMetrix), postal and retail pricing groups discussed in more detail below.
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<PAGE> 14
CONVENIENCE RETAILING SEGMENT. This business unit accounted for revenues of
$16,372,000, $17,326,000 and $22,246,000 in fiscal years 1999, 1998 and 1997,
respectively. Corresponding operating profit (loss) was $1,170,000,
($1,340,000), and $2,343,000. The decline in 1998 profitability compared with
both 1999 and 1997 was attributable to (a) the economic and financial problems
in the Pacific Rim, and (b) a cyclical software license agreement from a major
client which cycled for renewal in 1997. The "Asian flu," principally in 1998
resulted in a 42% ($4.3 million) drop in revenues from the Pacific Rim, which
has traditionally also been MPSI's highest growth area. Accordingly, the Company
also experienced a 6% decline in gross profit margins for 1998. In 1999 MPSI
experienced a resurgence in Pacific Rim business, and although consolidated
revenues in 1999 were flat compared with 1998 due to cyclical factors in Europe
and client consolidations, the Asian business together with cost reductions in
both production and operating expenses yielded improved operating results.
Recently announced consolidations (e.g. Exxon and Mobil, British Petroleum and
Amoco) may have a more pronounced future impact. Management is not able at this
time to fully assess the impact of these recent events (positive or negative).
In addition to the revenue fluctuation attributable to the Asian business, it
should be noted that as compared to fiscal 1997, 1999 and 1998 revenues do not
include a $1.5 million single client software license renewal similar to that
recorded under a worldwide master agreement during 1997. That transaction
principally accounted for the significant difference in 1997 revenue from
software licensing as compared with 1999 and 1998. See Note 7 to the
Consolidated Financial Statements which sets forth the historical impact of that
client on MPSI's annual revenues. The timing of new or renewed long-term
software license agreements, and the normally attendant market study orders
which often accompany them, can have a substantial impact upon reported revenues
and net income between accounting periods.
The Company does not believe that inflation has significantly impacted the
results of operations during the three years ended September 30, 1999. The
Company has adjusted prices downward for certain portions of its business in
response to increased competition. However, the annual price reductions in each
of the last three years have not had a material adverse effect on revenues in
any single period. MPSI's new Retail Explorer ("REX(TM)") technology (see
product development discussion below) is expected to allow the Company to reduce
both price and delivery time in the future through cost reductions and process
simplifications. Management expects to implement portions of this new pricing
and delivery mechanism for U.S. customers in early fiscal 2000 with similar
changes for our broader client constituency beginning later in 2000.
DATAMETRIX SEGMENT. In December 1998, MPSI formed a separate wholly-owned
subsidiary, DataMetrix Inc., whose mission is to leverage MPSI's substantial
data warehouse and modeling competency. This unit will target customers in
industries outside MPSI's traditionally strong core petroleum-oriented customer
base (e.g., banking, telecommunications or quick serve restaurants). These
customers will generally have strong retail orientations, but may utilize MPSI's
products for a variety of new and exciting reasons. The Company committed
significant resources during fiscal 1999 to repackaging existing market
information, enhancing that information from both public and private data
sources, and developing new delivery vehicles (PC and Internet interfaces).
Although some sales did occur in late fiscal 1999, with the expected release of
version 2.0 in January 2000, the unit will be fully positioned to grow this new
business opportunity. The unit generated revenues of $245,000 against aggregate
fully-loaded costs of approximately $2.1 million (of which $794,000 was
capitalized in connection with development of the U.S. geographic database).
POSTAL SEGMENT. Although MPSI has undertaken projects directed at postal
agencies for a number of years, this business tends to be cyclical and has not
yet reached critical mass. This unit generated revenues of $467,000, $251,000
and $508,000 with attendant operating losses of $111,000, $463,000 and $221,000
in fiscal years 1999, 1998 and 1997, respectively. Introduction of new "Huff"
software is expected to positively impact fiscal 2000.
PRICING SEGMENT. MPSI experienced solid growth in this business segment
since it was separately staffed in 1997. Revenues have grown to $2,248,000 in
1999 from $1,524,000 in 1998 and $684,000 in 1997. Likewise, operating profits
have improved as reflected in the 1999 operating income of $451,000 compared
with an operating loss of $482,000 in 1997 as the Company was able to leverage
its semi-fixed cost base against higher revenues. Prior to fiscal 1999, the
revenues attributable to this business unit were principally related to special
projects and
14
<PAGE> 15
data gathering. In fiscal 1999, the Company secured its first major client
commitments to roll out pricing software systems throughout a substantial retail
outlet network.
CONSOLIDATED OPERATING EXPENSES. Consolidated operating expenses were $12.4
million, $12.2 million and $12.4 million in fiscal years 1999, 1998 and 1997,
respectively (including corresponding capitalized research and development costs
of $1,806,000, $201,000 and $167,000).
General and administrative expenses decreased $128,000 from 1998 to 1999
despite approximately $100,000 of legal and accounting fees associated with
aborted merger discussions and a tax examination of fiscal year 1993-1995. The
1999 reduction was principally due to not having corporate moving costs similar
to those incurred in the 1998 move of the Company's Tulsa headquarters. The
lower 1999 general and administrative costs continued the downward trend in
which corresponding costs had also declined $451,000 (12%) in 1998 as compared
with 1997. The 1998 decrease is attributable to (a) cost cutting measures,
including staff reductions and related lease space requirements, reduced
expenses in Brazil and Bristol of $58,000 and $174,000 respectively, and (b)
reduction of performance bonuses due to lower fiscal 1998 results.
Consolidated sales, marketing, and client service expenses declined $538,000
or 8% in fiscal 1999 after being essentially comparable between 1998 and 1997.
The convenience retailing segment experienced a decrease of $1,030,000
attributable primarily to lesser staff and reduced office overheads and travel
costs. An additional component of the decrease in consolidated marketing
expenses is approximately $396,000, attributable to cost reductions and
efficiencies after start up in the pricing and postal segments. Offsetting the
declines was an increase of $888,000 for marketing infrastructure added in the
DataMetrix segment in fiscal 1999.
Consolidated research and development expenses (before considering amounts
capitalized for product development as discussed under Financial Condition and
Liquidity below), increased $933,000 (45%) in fiscal 1999 compared with 1998
while 1998 expenses were higher by $324,000 (18%) over 1997. The 1999 increase
reflects approximately $800,000 for new staff, and related costs, required in
the DataMetrix segment to develop their U.S. geographic database. The 1998
increase from 1997 was related to the utilization of contract programmers to
begin development of Japan CAPS.
OTHER INCOME AND EXPENSES. Interest expense of $243,000 in 1999 was up
substantially from 1998 as the Company carried higher working capital balances
throughout 1999, partially due to temporary funding needs attributable to new
business start up of DataMetrix. The 1997 interest expense related principally
to interest charged by certain suppliers for deferred payments. MPSI enters into
multi-year contracts for market studies, some of which are denominated in
foreign currencies (principally the Singapore Dollar and the British Pound
Sterling). This exposes MPSI to exchange gains or losses depending upon the
periodic value of the U.S. Dollar relative to the respective foreign currencies.
The Company experienced exchange losses of approximately $57,000, $240,000 and
$98,000 in fiscal 1999, 1998 and 1997, respectively. Although MPSI anticipates
continuing exposure from the same source in fiscal year 2000, the magnitude is
not expected to materially increase as the Company expects to denominate a
limited number of contracts in foreign currencies. The Company does not utilize
derivative financial instruments to hedge their foreign currency risks.
INCOME TAXES. Income taxes for fiscal 1999 increased $506,000 over those in
1998 primarily due to higher foreign tax withheld at the source by customers.
The amount of foreign income taxes withheld can fluctuate significantly between
fiscal periods based upon not only the geographic areas in which the Company
operates, but on the particular products and services delivered within an
individual country. Income taxes decreased $828,000 in 1998 as compared to 1997
as a result of the losses incurred in the U.S. in fiscal 1998 which allowed MPSI
to offset substantially all of the deferred tax liability from 1997 (See Note 6
to the consolidated financial statements).
In March 1996, the Internal Revenue Service initiated an examination of tax
years 1993 through 1995. The examination was centered upon the Company's revenue
recognition policies for computer software, maintenance and market study
products. The total estimated additional income taxes (U.S. federal and state),
including penalties and interest, have been accrued at September 30, 1999 in the
amount of $60,000. The Company expects to finally
15
<PAGE> 16
resolve these issues with the IRS by the end of calendar 1999, although
preparation and filing of amended returns may require several months thereafter.
FINANCIAL CONDITION AND LIQUIDITY
Working capital, the Company's primary measure of liquidity, was $259,000 at
September 30, 1999 compared with $1.6 million at September 30, 1998. The 1999
decrease of $1.3 million reflects a $1,225,000 increase in corporate working
capital debt and 12% ($241,000) higher trade liabilities and 6% ($326,000)
decrease in trade receivables. Additionally, the Company's production
throughput, which exceeded new orders, resulted in a 19% ($367,000) decrease of
the deferred revenue component at September 30, 1999 compared with 1998. This
1999 decrease in liquidity is principally attributable to (a) substantial new
product development and (b) the new DataMetrix segment established in early
fiscal 1999. Similarly, the Company experienced a decrease in working capital of
$1.4 million (47%) in fiscal 1998 compared with 1997. This decline was
principally attributable to the lower revenues and profitability in the
Company's Pacific Rim business as discussed previously.
Based primarily on the product re-engineering activities and new business
initiatives, coupled with a resurgence in Pacific Rim activities in 1999, the
Company was able to obtain an increase in its bank line of credit to $2 million
effective June 30, 1999. The new business initiative and REX product development
costs have taxed the Company's internal liquidity, and we have had to
increasingly rely on bank financing to level working capital fluctuations caused
by internal funding of new initiatives. With the September 1999 roll out of REX
for U.S. customers and the January 2000 release of the DataMetrix version 2.0
data products, management expects the combination of internal funding and the
bank line of credit to be sufficient for 1999 operations although cash resources
will continue to be tight through about March 2000. Management further believes
that additional funding could be attracted through equity channels, and is
exploring such options in connection with a third business initiative, expansion
of the retail consulting group.
As set forth in the statements of cash flow, the Company generated
$1,038,000 of cash flow from operations based principally on the strength of its
core convenience retailing division and the resurgence of Pacific Rim business
in that division (which region's economic crisis contributed substantially to
the $1,202,000 of cash utilized to fund operations in 1998). Management expects
its core convenience retailing division will continue to experience improved
results as the new REX technology (currently only available to U.S. customers)
becomes available to more customers in expanded geographic regions during fiscal
2000. The strength in this core business will continue to provide the funding
necessary for reinvestment as MPSI transitions its businesses into the new
millennium.
Expenditures for the acquisition/upgrade of computer equipment were $386,000
in fiscal 1999 compared with $255,000 in 1998. Over this two-year period, MPSI
has substantially upgraded its computer systems and is positioned to move
forward under its new technology guidelines. Except for possible acquisition of
equipment and software which might be necessary in connection with an increased
Internet initiative, management expects fiscal 2000 equipment acquisitions to be
lower than in fiscal 1999 and to be associated with normal maintenance patterns.
Other than operating leases, the Company has made no long-term commitments for
equipment purchases.
Capitalized software expenditures were $1,806,000, compared with $201,000
in 1998 (wherein only the CAPS version for Japan was under development during
the last half of the fiscal year). The 1999 capitalized costs principally
reflect development of the U.S. version of REX together with completion of Japan
CAPS software. Management anticipates software development will decrease in
fiscal 2000, but will still be substantially higher than 1998 levels due to the
development of REX for geography outside the U.S. Also in fiscal 2000, MPSI will
begin to migrate several of its modeling products to the Internet, thereby
opening up access to many smaller clients who have traditionally not been able
to utilize the Company's technology due to price or computer system constraints.
Fiscal 2000 development costs, like those in 1999 and 1998, are expected to be
funded out of operating cash flows supplemented by the bank line of credit.
MPSI's backlog of market studies at September 30, 1999 in the amount of
approximately $9.3 million, ($11.6 million at September 30, 1998), contained a
substantial number of recurring studies under multi-year client
16
<PAGE> 17
commitments. Such studies represent approximately 45% of the estimated revenues
for fiscal year 2000. Because customer commitments for market studies may entail
multi-year terms, the number of such agreements in force may have significant
implications on the conclusions to be drawn concerning fluctuations in backlog
between accounting periods. For example, if a customer commits to a five-year
series of market studies in year one, backlog of that year would substantially
increase. Thereafter, as the Company delivers successive market studies, backlog
would decline in years 2 - 4. An analysis which identifies a declining backlog
might lead one to incorrectly assume that the Company's business is declining,
when in fact it is servicing its customers satisfactorily and can rightfully
expect renewed study commitments in the future. Management believes that its
backlog continues to indicate substantial commitment to MPSI technology on the
part of its long-time clients.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of a company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
of deliverable software products to meet client specifications or the inability
of internal software to process transactions, send invoices, or engage in
similar normal business activities. In order to correct this problem, computer
operating systems, applications software and/or hardware may require
modifications.
MPSI's assessment of the impact of this issue has encompassed (1) internally
utilized systems, (2) software held for resale, (3) computerized information and
software provided by third parties which might be integral to client usage of
MPSI products, and (4) compliance issues related entirely to the state of
readiness by major customers and vendors. Set forth below is the status of each
review and the estimated impact, to the extent that management can determine it:
o Internal Systems. MPSI has assessed and tested its financial accounting
systems, production control systems, software/data development
applications, internal hardware, and other internal management information
systems and believes them to be materially Year 2000 compliant. No
significant costs have been expended and no substantive further costs are
anticipated.
o MPSI Software Held for Resale. The Company has evaluated and tested the
date sensitivity features of its applications software held for resale to
customers and believes that there are no material unresolved Year 2000
compliance issues. MPSI's products typically are not date sensitive in
nature and no significant costs were incurred or are anticipated in the
future.
o Third Party Systems. MPSI has queried all critical external suppliers of
applications software, operating systems and PC computer equipment which we
believe are integral components of a client's computer network that could
affect the performance of MPSI products in that environment. While such
products are not directly embedded in the MPSI product delivery, their Year
2000 compliance could affect a client's satisfaction with the use of MPSI
products on site. Management believes that it has received compliance
satisfaction from all of the third party vendors that could materially
impact MPSI product performance. Management has proactively coordinated
with each of its major customers the updating, where applicable, to Y2K
compliant versions of third party software. No significant costs have been
incurred to date relative to this category of computerized process and
management does not expect significant further costs.
o Customers and Vendors. MPSI's evaluation of the potential impact of Year
2000 readiness by major customers and suppliers is complete. To date,
management has identified two potential issues: (1) remote product support,
and (2) general client system failures. Other than the applications
software delivered to clients as discussed above, the Company has limited
direct interfaces with computerized systems of its customers or vendors,
except that MPSI does provide a variety of product support and installation
support services using remote access to client systems. We do not expect
those interfaces to be materially impacted by Year 2000 issues, but in the
event that they were, manual support could supplant the remote support
without significantly affecting client relationships. Should major clients
experience general systems failures as the
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<PAGE> 18
result of their planning for Year 2000, MPSI could be substantially
impacted on a temporary basis. However, as most of MPSI's applications
software can run on a single PC if necessary, our contingency plan
contemplates transfer of client delivered software from its network
configuration to individual PC equipment until a client's overall system
problems can be resolved. As clients and vendors are often unable or
unwilling to share information about their state of Year 2000 readiness,
management does not have sufficient information concerning the state of
readiness of major customers/vendors, and assessment of the potential costs
of the contingency plan (which might have to be partially borne by MPSI)
cannot be determined.
Management of the Company believes it has appropriately tested and resolved
the Year 2000 issue, to the extent that compliance is within the Company's
control. In the event that the Company is unable to ascertain all potential
external impacts and thereby is unable to contemplate all possible contingency
plans, the Company may be unable to satisfy customer product performance
expectations, take additional orders, invoice customers or collect payments, or
perform certain other mission-critical functions. In addition, disruptions in
the economy generally resulting from Year 2000 issues could also materially
adversely affect the Company. The Company could be subject to litigation for
computer systems product failure, for example, equipment shutdown or failure to
properly date business records. The amount of potential liability and lost
revenue cannot be reasonably estimated at this time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Auditors............................................ 19
Consolidated Statements of Operations for the Years Ended September 30,
1999, 1998 and 1997....................................................... 20
Consolidated Balance Sheets at September 30, 1999 and 1998................ 21
Consolidated Statements of Cash Flow for the Years Ended September 30,
1999, 1998 and 1997....................................................... 22
Consolidated Statements of Stockholders' Equity - Fiscal Years Ended
September 30, 1997, 1998 and 1999......................................... 23
Notes to Consolidated Financial Statements................................ 24
FINANCIAL STATEMENT SCHEDULES:
44
Schedule VIII - Valuation and Qualifying Accounts.........................
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
18
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders MPSI Systems Inc.
We have audited the accompanying consolidated balance sheets of MPSI Systems
Inc. and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MPSI Systems Inc. and subsidiaries at September 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1999 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 30, 1999
19
<PAGE> 20
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
Information services and software maintenance ....... $ 18,772,000 $ 18,563,000 $ 21,630,000
Software licensing .................................. 560,000 538,000 1,808,000
--------------- --------------- ---------------
Total revenues ................................... 19,332,000 19,101,000 23,438,000
--------------- --------------- ---------------
Cost of sales:
Information services and software maintenance ....... 8,088,000 8,482,000 8,837,000
Software licensing (Note 4) ......................... 157,000 314,000 766,000
--------------- --------------- ---------------
Total cost of sales .............................. 8,245,000 8,796,000 9,603,000
--------------- --------------- ---------------
Gross profit ..................................... 11,087,000 10,305,000 13,835,000
Operating expenses:
General and administrative .......................... 3,184,000 3,312,000 3,763,000
Marketing and client services ....................... 6,235,000 6,773,000 6,834,000
Research and development ............................ 1,216,000 1,888,000 1,598,000
--------------- --------------- ---------------
Total operating expenses ......................... 10,635,000 11,973,000 12,195,000
--------------- --------------- ---------------
Operating income (loss) .......................... 452,000 (1,668,000) 1,640,000
Other income (expense):
Interest income ..................................... 240,000 292,000 197,000
Interest expense .................................... (243,000) (99,000) (154,000)
Loss on foreign exchange ............................ (57,000) (240,000) (98,000)
Other, net .......................................... 2,000 17,000 147,000
--------------- --------------- ---------------
Income (loss) before income taxes ................... 394,000 (1,698,000) 1,732,000
Income taxes .......................................... 307,000 (199,000) 629,000
--------------- --------------- ---------------
Net income (loss) ..................................... $ 87,000 $ (1,499,000) $ 1,103,000
=============== =============== ===============
Per share (Note 11):
Basic and diluted income (loss) per common share .... $ .03 $ (.53) $ .39
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................... $ 296,000 $ 224,000
Short-term investments, at cost .............................................. 3,000 3,000
Receivables (Notes 2 and 5):
Trade ..................................................................... 3,849,000 4,207,000
Current portion of long-term receivables, net of unamortized
discount ................................................................. 1,307,000 1,275,000
Work in process inventory .................................................... 107,000 107,000
Prepaid assets ............................................................... 137,000 81,000
--------------- ---------------
Total current assets ...................................................... 5,699,000 5,897,000
Long-term receivables, net of unamortized discount (Note 2) .................... 1,756,000 2,201,000
Property and equipment, net (Note 3) ........................................... 945,000 962,000
Capitalized product development costs, net (Note 4) ............................ 1,933,000 280,000
Other assets ................................................................... 185,000 150,000
--------------- ---------------
Total assets .............................................................. $ 10,518,000 $ 9,490,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (Note 5) ............................................... $ 1,575,000 $ 350,000
Accounts payable ............................................................. 686,000 889,000
Accrued liabilities (Notes 6 and 8) .......................................... 1,617,000 1,173,000
Deferred revenue ............................................................. 1,562,000 1,929,000
--------------- ---------------
Total current liabilities ................................................. 5,440,000 4,341,000
Noncurrent deferred revenue .................................................... 1,146,000 1,346,000
Noncurrent deferred income taxes (Note 6) ...................................... 86,000 86,000
Other noncurrent liabilities ................................................... 133,000 172,000
--------------- ---------------
Total liabilities .................................................... 6,805,000 5,945,000
--------------- ---------------
Commitments and contingencies (Note 9) ......................................... -- --
Stockholders' equity (Note 8):
Preferred Stock, $.10 par value, 1,000,000 shares authorized,
none issued or outstanding ................................................ -- --
Common Stock, $.05 par value, 20,000,000 shares authorized,
2,849,000 shares issued and outstanding at
September 30, 1999 and 1998 ............................................... 142,000 142,000
Junior Common Stock, $.05 par value, 500,000 shares authorized,
none issued or outstanding ................................................ -- --
Additional paid-in capital ................................................... 13,079,000 13,079,000
Deficit ...................................................................... (10,272,000) (10,359,000)
Other accumulated comprehensive income ....................................... 764,000 683,000
--------------- ---------------
Total stockholders' equity ........................................... 3,713,000 3,545,000
--------------- ---------------
Total liabilities and stockholders' equity ........................... $ 10,518,000 $ 9,490,000
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTE 10)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Income (loss) from operations .......................... $ 87,000 $ (1,499,000) $ 1,103,000
Adjustments to reconcile income (loss) from
operations to cash provided (used) by operations:
Depreciation and amortization of property and
equipment ......................................... 403,000 425,000 419,000
Amortization of software products .................... 153,000 314,000 617,000
Deferred income taxes ................................ -- (354,000) 312,000
Loss on sale of assets ............................... (1,000) -- --
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables ....................................... 718,000 295,000 (1,602,000)
Inventories ....................................... -- 90,000 164,000
Prepaid and other assets .......................... (91,000) 76,000 114,000
Increase (decrease) in liabilities:
Trade payables and accruals ....................... 319,000 (406,000) (365,000)
Taxes payable ..................................... 17,000 51,000 178,000
Deferred revenue .................................. (567,000) (194,000) (155,000)
--------------- --------------- ---------------
Net cash provided (used) by operations ....... 1,038,000 (1,202,000) 785,000
--------------- --------------- ---------------
Cash flows from investing activities:
Decrease in short-term investment .................... -- -- 46,000
Purchase equipment ................................... (386,000) (255,000) (267,000)
Capitalized product development costs ................ (1,806,000) (201,000) (167,000)
Proceeds from disposition of assets .................. 1,000 31,000 6,000
--------------- --------------- ---------------
Net cash used by investing activities ........ (2,191,000) (425,000) (382,000)
--------------- --------------- ---------------
Cash flows from financing activities:
Net proceeds from bank line of credit ................ 1,225,000 203,000 147,000
Proceeds from exercised stock options ................ -- 49,000 98,000
--------------- --------------- ---------------
Net cash provided by financing activities .... 1,225,000 252,000 245,000
--------------- --------------- ---------------
Increase (decrease) in cash and cash equivalents ....... 72,000 (1,375,000) 648,000
Cash and cash equivalents at beginning of period ....... 224,000 1,599,000 951,000
--------------- --------------- ---------------
Cash and cash equivalents at end of period ............. $ 296,000 $ 224,000 $ 1,599,000
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK OTHER
--------------------------- ADDITIONAL ACCUMULATED TOTAL
CARRYING PAID-IN COMPREHENSIVE STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT INCOME 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
COMPREHENSIVE INCOME:
Net income ..................... -- -- -- 1,103,000 -- 1,103,000
Other accumulated comprehensive
income:
Foreign currency translation
adjustment ................ -- -- -- -- 3,000 3,000
TOTAL COMPREHENSIVE INCOME $ 1,106,000
Stock options exercised ........ 39,000 2,000 96,000 -- -- 98,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - SEPTEMBER 30, 1997....... 2,833,000 142,000 13,030,000 (8,860,000) 957,000 5,269,000
COMPREHENSIVE INCOME:
Net loss ....................... -- -- -- (1,499,000) -- (1,499,000)
Other accumulated comprehensive
income:
Foreign currency translation
adjustment ................. -- -- -- -- (274,000) (274,000)
TOTAL COMPREHENSIVE INCOME $ (1,773,000)
Stock options exercised ........ 16,000 -- 49,000 -- -- 49,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - SEPTEMBER 30, 1998....... 2,849,000 142,000 13,079,000 (10,359,000) 683,000 3,545,000
COMPREHENSIVE INCOME:
Net income:..................... -- -- -- 87,000 -- 87,000
Other accumulated comprehensive
income:
Foreign currency translation
adjustment ............... -- -- -- -- 81,000 81,000
TOTAL COMPREHENSIVE INCOME $ 168,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - SEPTEMBER 30, 1999 ...... 2,849,000 $ 142,000 $ 13,079,000 $(10,272,000) $ 764,000 $ 3,713,000
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
MPSI SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations: MPSI Systems Inc. is a United States-based
multinational corporation whose principal line of business is providing decision
support software, information databases and consulting services to businesses
which have an investment in retail outlet networks. The Company markets its
products and services in North America, the Pacific Rim, Latin America, Europe
and South Africa through a direct sales force located in various foreign
countries. As discussed more fully in Note 7, over 51% of consolidated revenues
are generated from foreign customers, and portions of such revenues are billed
in foreign currencies. Most of the Company's business comes from the petroleum
industry, including several customers who individually account for a significant
portion of consolidated revenues. Services are also provided for clients in the
banking, convenience food, quick service restaurant and government postal
industries. All software development and substantially all of the information
database preparation are performed at the Company's headquarters facility in
Tulsa, Oklahoma.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of MPSI Systems Inc. and its wholly owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Revenue Recognition: Revenues and costs related to production of market
information databases are recorded based upon the ratio of costs incurred to
total estimated completion costs (percentage-of-completion method). Revenues and
costs related to single site studies, mini-market studies and other projects
which are completed in a short time period are recognized at completion.
Anticipated losses on contracts are charged against earnings at the time such
losses are identified.
The Company's software products are generally licensed to customers through
noncancelable software license and maintenance contracts with terms of up to
five years. The corresponding long-term receivables and deferred maintenance
revenue from these installment contracts are stated at the discounted present
value of annual license and maintenance payments to be received over the
contract term based upon the prime rate of interest on the effective date of
each contract. The present value discount, related to installments due after one
year, is amortized to interest income using an accelerated method that equates
interest earnings with outstanding receivable balances. Software license
revenues, equal to the present value of the aggregate annual license
installments, are recognized at the latter of contract execution or software
delivery when collection is probable. When it cannot be determined that
collection is probable, or if a contract contains cancellation options, software
revenues are deferred. At the time revenue is recognized, the Company has no
remaining obligations under the software license and maintenance contracts other
than providing postcontract customer support services related to the maintenance
portion of the contract and performance obligations under any optional and
separately priced training or consulting arrangements. Maintenance revenues,
equal to the present value of annual installment payments, are recognized
ratably over the term of the contracts as the postcontract customer support
services are provided and the related costs are incurred and recognized.
Optional training and consulting represents service transactions as to which
revenues and expense are recognized when the earnings process is substantially
complete.
Statement of Cash Flows: For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment: Property and equipment is stated at cost.
Depreciation is provided using the straight-line method, over the estimated
useful lives of the respective assets, except for leasehold improvements which
are amortized over the lesser of the lease term or the economic life of the
underlying asset. Since such assets are employed in all facets of the Company's
operations, depreciation expense is reflected in cost of sales as well as in
each category of operating expenses. The Company charges the cost of repairs and
maintenance to expense as incurred and capitalizes the cost of replacements,
renewals and betterments. When property or equipment is retired,
24
<PAGE> 25
the cost and accumulated depreciation are removed from the accounts, and the
resulting gain or loss on the disposition is reflected in other income
(expense).
Capitalized Product Development Costs: Cost of software held for resale
(which was either purchased with the intent to incorporate the acquired software
in MPSI products or developed internally) and the capitalized cost of software
developed for internal use are presented net of accumulated amortization.
The costs of internally developed software held for resale include direct
labor, materials and overhead, and relate to significant enhancements to
existing software or to development of new software products. All costs incurred
to establish the technological feasibility of internally developed software are
charged to research and development expense as incurred. Royalties, which may
become payable because of ongoing proprietary interests related to third-party
software imbedded in MPSI products, are charged to cost of sales-software
licensing as applicable software sales are recognized.
The annual amortization of software products is computed on a
product-by-product basis and is the greater of the amount determined using (1)
the ratio that current gross revenues for a product bear to the total of current
and anticipated future gross revenues for that product or (2) the straight-line
method over the remaining economic life of the product. Historically, the
straight-line method has resulted in a greater amount of amortization in each
accounting period and has, therefore, been the basis for amortization in the
current period and in prior periods. Amortization starts when a product is
available for general release to customers (internal or external) and is
reflected in cost of sales-software licensing.
In the event that capitalized software development costs are subsequently
determined not to be fully recoverable from future operations, the carrying
value of such software is reduced to an amount equal to its net realizable value
less costs of marketing and distribution. The reduction in carrying value is
recorded in cost of sales-software licensing.
Inventory: Work-in-process is composed of direct labor, costs of gathering
demographic data, indirect costs and overhead. Indirect costs and overhead are
allocated to each contract based upon the direct labor incurred.
Income Taxes: The Company applies the liability method of accounting for
income taxes. Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in the results
of operations during the period that includes the enactment date.
Earnings Per Share: Basic earnings per share is based upon the average
number of common shares outstanding. Diluted earnings per share assume the
issuance of common stock from dilutive stock options.
Foreign Currency Translation: Assets and liabilities of the Company's
foreign operations, except Brazil, are translated from the foreign operating
currency to the U.S. Dollar equivalent for consolidated reporting purposes using
the applicable exchange rates at the balance sheet date. Revenues and expenses
are translated at average rates for the year. Exchange differences from these
translations are included in stockholders' equity. Where amounts denominated in
a foreign currency are or are expected to be converted into dollars by
remittance or repayment, the realized exchange differences are reflected in the
results of operations. Brazil transactions and accounting records are maintained
in U.S. Dollar equivalents.
Advertising: Costs of advertising were $87,000, $90,000 and $112,000 in
fiscal years 1999, 1998 and 1997, respectively, and are expensed as incurred.
New Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued two additional accounting standards, FAS No. 130
"Reporting Comprehensive Income" ("FAS 130") and FAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("FAS 131"), effective for
fiscal years beginning after December 15, 1997 (fiscal year 1999 for the
Company). FAS 130 establishes standards for the reporting and display of
comprehensive income. While the Company does have certain comprehensive income
items, primarily foreign currency translation adjustments, the adoption of FAS
130 did not materially affect the
25
<PAGE> 26
Company's financial reporting and disclosures. FAS 131 establishes standards for
reporting financial and descriptive information about a company's operating
segments. The required disclosures applicable to FAS 131 are set forth in Note
7.
In November 1997, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 97-2 ("SOP 97-2") entitled "Software Revenue
Recognition." The SOP provides revised and expanded guidance on when software
revenue should be recognized and in what amounts for licensing, selling, and
leasing, or otherwise marketing computer software. The SOP was effective for
transactions entered into by the Company beginning October 1, 1998. However, in
March 1998, the AcSEC issued SOP 98-4 which defers for one year the effective
date of specific provisions within SOP 97-2. In December 1998, AcSEC issued SOP
98-9, Modification of SOP 97-2, Software Revenue Recognition, with Respect to
Certain Transactions. SOP 98-9 extended the deferral period in SOP 98-4 to be
effective through fiscal years beginning on or before March 15, 1999 (or through
the Company's fiscal 1999). Other provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999 (the
Company's fiscal 2000). Under the terms of SOPs 97-2 and 98-9, companies are
required to defer all revenue from multiple-element software arrangement if
sufficient vendor specific objective evidence (other than the license agreement
itself) does not exist for the allocation of revenue to the various elements of
the arrangement. As a result, beginning in fiscal 2000, the Company will
recognize software licensing revenues and the related maintenance ratably over
the term of the arrangement. If the provisions of these SOPs had been adopted in
fiscal 1999, $398,000 of software licensing revenue would have been deferred to
future periods.
In March 1998, the AICPA issued SOP 98-1, Accounting For the Costs of
Computer Software Developed For or Obtained For Internal-Use. The SOP is
effective for the Company beginning on October 1, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal-use. Although not
yet applicable for fiscal year 1999, the Company has adopted the accounting
policies set forth in the SOP and has capitalized certain costs for internally
developed software (see Note 4).
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
- --------------------------------------------------------------------------------
2. RECEIVABLES:
Trade accounts receivable include unbilled amounts of $984,000 at September
30, 1999 and $692,000 at September 30, 1998. These amounts represent market
study revenues recognized under the percentage-of-completion method in excess of
amounts billed and will generally be billable during the succeeding twelve
months upon completion of the respective studies.
Current and noncurrent receivables also include unbilled amounts of
$3,158,000 at September 30, 1999 and $3,605,000 at September 30, 1998 (before
present value discount and excluding $142,000 and $231,000 which had been billed
at September 30, 1999 and 1998, respectively) related to multi-year software
license and maintenance agreements. Since these agreements contain annual
installment billing provisions, the unbilled receivable balance for some
contracts is as much as four years' future annual billings. Of the September 30,
1999 unbilled amounts, $1,314,000 (compared with $1,248,000 at September 30,
1998) will be billed in the succeeding twelve months, and the remainder will be
billed thereafter at such future dates as are specified in the respective
contracts. The portion of such future billings related to maintenance and
support services not yet performed is offset by corresponding amounts in
deferred revenue. The current portions of long-term receivables are reduced by
unamortized present value discount of $149,000 and $204,000 at September 30,
1999 and 1998, respectively. Noncurrent long-term receivables are presented net
of unamortized present value discount in the amount of $88,000 and $156,000 at
September 30, 1999 and 1998, respectively. The present value discount is imputed
based upon the New York prime rate on the effective date of each agreement.
Interest income related to these agreements was $225,000, $267,000, and $177,000
in fiscal years 1999, 1998 and 1997, respectively.
26
<PAGE> 27
A significant portion of the Company's business activity is with the major
multinational oil companies. At September 30, 1999, 97% ($6,890,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($7,680,000 or 96% at September 30, 1998). The receivable portfolio is
well diversified geographically which tends to mitigate the potential impact of
fluctuations in petroleum activities which may otherwise result if receivables
were confined to a particular geographic area. Software license agreements are
payable over several years (generally five-year agreements) and are expected to
be paid from operating cash flows of the customers. The Company does not require
collateral or other security to support these contractual receivables. The
carrying value of long-term receivables, net of unearned discount, approximates
market value.
- --------------------------------------------------------------------------------
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
USEFUL LIFE --------------------------
IN YEARS 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Leasehold improvements................. Various $ 198,000 $ 803,000
Computer equipment and software........ 4-5 4,600,000 4,426,000
Office furnishings and equipment....... 3-10 1,085,000 1,309,000
---------- ----------
5,883,000 6,538,000
Accumulated depreciation............... (4,938,000) (5,576,000)
---------- ----------
Net property and equipment... $ 945,000 $ 962,000
========== ==========
</TABLE>
The provision for depreciation was $403,000, $425,000, and $419,000 for the
years ended September 30, 1999, 1998 and 1997, respectively. At September 30,
1999, fully depreciated assets with an aggregate original cost of approximately
$3,760,000 remain in use.
- --------------------------------------------------------------------------------
4. CAPITALIZED PRODUCT DEVELOPMENT COSTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Software held for resale ........ $ 4,891,000 $ 4,299,000
Internal use software ........... 420,000 --
U.S. geographic database ........ 794,000 --
------------ ------------
Total capitalized costs .... $ 6,105,000 $ 4,299,000
Accumulated amortization ........ (4,172,000) (4,019,000)
============ ============
Net capitalized product
development costs .... $ 1,933,000 $ 280,000
============ ============
</TABLE>
Amortization of capitalized product development costs is generally based
upon useful lives of 18 to 36 months. The provision for amortization, reflected
in Software Licensing cost of sales, was $157,000, $314,000, and $617,000 for
the years ended September 30, 1999, 1998 and 1997, respectively. Based upon
current sales forecasts, capitalized product development costs are projected to
be recoverable. However, these sales forecasts are subject to certain
vulnerabilities which could potentially affect the recoverability of those
costs.
27
<PAGE> 28
- --------------------------------------------------------------------------------
5. NOTE PAYABLE TO BANK:
The Company maintains a working capital credit facility through its
principal U.S. bank in the aggregate amount of $2,000,000 which is secured by
billed accounts receivable and current portions of long-term receivables. The
credit line currently bears interest at approximately 9.25% and matures in June
2000. The weighted average interest rates were 8.94% in fiscal year 1999 and
8.66% in fiscal year 1998. The Agreement requires that the Company shall
maintain Tangible Net Worth of not less than $3.5 million, shall maintain
reasonable and customary insurance on its assets and personnel, and shall not,
without authorization of lender, undertake additional debt (other than lease
indebtedness or normal supplier obligations), lend money, invest in other
entities or guarantee debt of others during the term of the Agreement.
- --------------------------------------------------------------------------------
6. INCOME TAXES:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income (loss)
before income taxes:
Domestic .................................... $ 111,000 $ (1,987,000) $ 1,682,000
Foreign ..................................... 283,000 289,000 50,000
------------ ------------ ------------
Total ............................... $ 394,000 $ (1,698,000) $ 1,732,000
============ ============ ============
Income taxes (benefits):
Current:
Federal .................................. $ 15,000 $ -- $ 27,000
State .................................... 45,000 -- 81,000
Foreign .................................. 247,000 155,000 209,000
------------ ------------ ------------
Current income taxes ................ 307,000 155,000 317,000
Deferred:
Federal .................................. -- (307,000) 285,000
State .................................... -- (50,000) 24,000
Foreign .................................. -- 3,000 3,000
------------ ------------ ------------
Deferred income taxes .................... -- (354,000) 312,000
------------ ------------ ------------
Provision for total income taxes .... $ 307,000 $ (199,000) $ 629,000
============ ============ ============
</TABLE>
A reconciliation of the provision for income taxes at the applicable Federal
statutory income tax rate to the actual provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Expense (benefit) at statutory rate .... $ 138,000 $ (595,000) $ 607,000
Foreign income and taxes, net .......... 78,000 57,000 9,000
State income taxes ..................... 45,000 -- 71,000
Increase (decrease) in valuation
allowance ........................... (47,000) 302,000 (120,000)
Other, net ............................. 93,000 37,000 62,000
---------- ---------- ----------
Income taxes ......................... $ 307,000 $ (199,000) $ 629,000
========== ========== ==========
</TABLE>
Income taxes of $60,000 were payable at September 30, 1999 ($25,000
receivable at September 30, 1998). The Company does not accrue income taxes on
undistributed earnings of certain foreign subsidiaries which are permanently
invested. At September 30, 1999 and 1998, the amount of undistributed earnings
for which taxes have not been accrued was insignificant.
In March 1996, the Internal Revenue Service initiated an examination of tax
years 1993 through 1995. The Company received a final report of the results in
November 1999. The resolution of the examination resulted in no material effect
on the Company's financial position.
At September 30, 1999, the Company has various U.S. tax credits of $731,000
which expire between 2000 and 2004. At September 30, 1999, certain foreign
subsidiaries have net operating loss carryforwards of approximately $7,806,000
which may be utilized in future years.
28
<PAGE> 29
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Software revenue ........................... $ 958,000 $ 730,000
Depreciation ............................... 163,000 126,000
Other ...................................... 121,000 121,000
---------- ----------
Total deferred tax liabilities ..... 1,242,000 977,000
---------- ----------
Deferred tax assets:
Accrued liabilities ........................ 482,000 379,000
U.S. and foreign loss carryforwards ........ 2,956,000 2,841,000
U.S. tax credit carryforwards .............. 284,000 284,000
---------- ----------
Total deferred tax assets .......... 3,722,000 3,504,000
Valuation allowance for deferred tax assets 2,566,000 2,613,000
---------- ----------
Net deferred tax assets ................. 1,156,000 891,000
---------- ----------
Net deferred tax liabilities ....... $ 86,000 $ 86,000
========== ==========
</TABLE>
Utilization of the Company's tax credit and loss carryforwards is dependent
on realizing taxable income in the appropriate tax jurisdiction. Deferred tax
assets for these carryforwards have been reduced by the valuation allowance to
an amount that is more likely than not to be realized.
- --------------------------------------------------------------------------------
7. BUSINESS SEGMENT AND REVENUE FROM MAJOR CUSTOMERS:
In 1999, the Company adopted Financial Accounting Standards Board Statement
No. 131, Disclosures about Segments of the Enterprise and Related Information
("Statement No. 131"). Under the provisions of Statement No. 131, public
business enterprises must report financial and descriptive information about its
reportable segments.
The Company identifies segments based upon line of business which results in
four reportable segments: convenience retailing, pricing, postal and DataMetrix
segments. The convenience retailing segment derives its revenues from providing
decision support software, information databases and consulting services to
businesses which have an investment in retail outlet networks, primarily in the
petroleum industry. In many cases, pricing products are sold within the same
customer base applicable to convenience retailing. However, pricing services are
directed more towards operational issues rather than retail site location or
operation. The postal segment is a specific niche organization which services
government or quasi-government postal agencies around the world, although in
recent years, most revenues from this segment have been generated in the United
States. The DataMetrix segment derives its revenues primarily from the sales of
visual mapping information for cities in the United States. The Company's
measure of segment profit is operating income. Amortization is specifically
assigned to each reported segment as capitalized development costs are written
off to segmented cost of sales over their useful economic life. Development of
the DataMetrix segment core product was not completed as of September 30, 1999
and, therefore, no amortization was recorded. Depreciation is allocated to each
reported segment through pre-determined corporate percentages. Identifiable
assets in the convenience retailing, pricing and postal segments, which are
recorded in the convenience retailing segment, are shared resources which are
not specifically allocated. All assets acquired are managed as shared resources
and are not identifiable to specific reporting segments.
29
<PAGE> 30
Information on segments and a reconciliation to income before taxes are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
S E G M E N T S
------------------------------------------------------------------------------------
CONVENIENCE
RETAILING PRICING POSTAL DATAMETRIX TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Revenues:
Information services and
software maintenance ............... $ 15,998,000 $ 2,062,000 $ 467,000 $ 245,000 $ 18,772,000
Software licensing .................... 374,000 186,000 -- -- 560,000
------------ ------------ ------------ ------------ ------------
Total revenues ................... $ 16,372,000 $ 2,248,000 $ 467,000 $ 245,000 $ 19,332,000
============ ============ ============ ============ ============
Operating income ...................... $ 1,170,000 $ 451,000 $ (111,000) $ (1,058,000) $ 452,000
============ ============ ============ ============
Other income (expense) ................ (58,000)
------------
Income before income tax .............. $ 394,000
============
Amortization .......................... $ 130,000 $ 23,000 $ -- $ -- $ 153,000
Depreciation .......................... 325,000 13,000 8,000 57,000 403,000
Identifiable assets ................... 9,586,000 -- -- 932,000 10,518,000
Additions to property/equipment ....... 386,000 -- -- -- 386,000
YEAR ENDED SEPTEMBER 30, 1998
Revenues:
Information services and
software maintenance ............... $ 16,818,000 $ 1,494,000 $ 251,000 $ -- $ 18,563,000
Software licensing .................... 508,000 30,000 -- -- 538,000
------------ ------------ ------------ ------------ ------------
Total revenues ................... $ 17,326,000 $ 1,524,000 $ 251,000 $ -- $ 19,101,000
============ ============ ============ ============ ============
Operating income ...................... $ (1,340,000) $ 135,000 $ (463,000) $ -- $ (1,668,000)
============ ============ ============ ============
Other income (expense) ................ (30,000)
------------
Income before income tax .............. $ (1,698,000)
============
Amortization .......................... $ 314,000 $ -- $ -- $ -- $ 314,000
Depreciation .......................... 397,000 19,000 9,000 -- 425,000
Identifiable assets ................... 9,490,000 -- -- -- 9,490,000
Additions to property/equipment ....... 255,000 -- -- -- 255,000
YEAR ENDED SEPTEMBER 30, 1997
Revenues:
Information services and
software maintenance ............... $ 20,740,000 $ 382,000 $ 508,000 $ -- $ 21,630,000
Software licensing .................... 1,506,000 302,000 -- -- 1,808,000
------------ ------------ ------------ ------------ ------------
Total revenues ................... $ 22,246,000 $ 684,000 $ 508,000 $ -- $ 23,438,000
============ ============ ============ ============ ============
Operating income ...................... $ 2,343,000 $ (482,000) $ (221,000) $ -- $ 1,640,000
============ ============ ============ ============
Other income (expense)................. 92,000
------------
Income before income tax .............. $ 1,732,000
============
Amortization .......................... $ 699,000 $ 67,000 $ -- $ -- $ 766,000
Depreciation .......................... 392,000 18,000 9,000 -- 419,000
Identifiable assets ................... 11,638,000 -- -- -- 11,638,000
Additions to property/equipment ....... 267,000 -- -- -- 267,000
</TABLE>
30
<PAGE> 31
The Company's principal production facility in the United States is supported by
satellite production facilities in England and Brazil. Foreign sales offices or
representatives are currently maintained in Australia, Brazil, Japan, South
Africa, South Korea, Shanghai, the United Kingdom and Singapore. The following
table sets forth the revenues by each of the Company's three production centers,
export sales from the United States and long-lived assets.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from external customers:
United States.................... $ 18,992,000 $ 18,102,000 $ 21,845,000
Europe........................... 181,000 550,000 908,000
South America.................... 159,000 449,000 685,000
------------ ------------ ------------
Total revenues....................... $ 19,332,000 $ 19,101,000 $ 23,438,000
============ ============ ============
Export sales from the United States:
Canada........................... $ 264,000 $ 478,000 $ 462,000
Central America.................. 326,000 489,000 408,000
South America.................... 776,000 295,000 572,000
Europe........................... 546,000 582,000 788,000
Asia/Pacific Rim................. 7,506,000 5,991,000 10,815,000
Africa........................... 312,000 829,000 188,000
------------ ------------ ------------
Total export sales................... $ 9,730,000 $ 8,664,000 $ 13,233,000
============ ============ ============
Long-lived assets:
United States.................... $ 4,478,000 $ 3,182,000 $ 4,076,000
Foreign offices.................. 341,000 411,000 270,000
------------ ------------ ------------
Total long-lived assets.............. $ 4,819,000 $ 3,593,000 $ 4,346,000
============ ============ ============
</TABLE>
More than 97% of total revenues from continuing operations were derived from the
petroleum industry during each of the years ended September 30, 1999, 1998 and
1997. Individual customers accounted for MPSI revenues that were in excess of
10% of consolidated revenues in those years as follows (in millions of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ -----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Exxon/Esso/Imperial........... $4.3 23 $3.5 19 $5.6 24
Texaco/Caltex................. * * * * $2.6 11
Amoco......................... * * $2.1 11 * *
</TABLE>
*Below 10% for this period.
Although the Company would be adversely affected if several petroleum industry
customers curtailed their long-term usage of MPSI products or, in the event of a
significant long-term economic downturn in the petroleum industry generally, the
Company's petroleum clients are well diversified geographically which reduces
the long-term risk attendant with its industry dependence, and MPSI has
historically experienced high renewal rates for its software license and
maintenance agreements.
31
<PAGE> 32
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFITS:
Under an employee stock ownership and investment plan, all qualifying U.S.
employees may contribute up to 16% of their annual earnings. Subject to certain
limitations, the Company will contribute in cash or Common Stock an amount equal
to but not less than 50% or more than 100% of a participant's salary deferral
contributions that are not in excess of 6% of the participant's earnings for the
year. Contributions may be invested in nine equity or fixed-income funds. The
Company recorded expense related to its matching contribution of $166,000,
$155,000, and $153,000 in fiscal years 1999, 1998 and 1997, respectively. At
September 30, 1999 and 1998, the Company had accrued $138,000 and $120,000 of
liabilities for matching contributions to the 401(k) plan (which in each case
represented the estimated Company match attributable to nine months of
participant contributions since the Plan year ends December 31). During fiscal
year 1999, the Company liquidated its matching contribution liability for the
Plan year ended December 31, 1998 by contributing $161,000 in cash. During
fiscal year 1998, the Company contributed $158,000 in cash applicable to the
Plan year ended December 31, 1997. The matching contribution for Plan year 1999
will be paid during fiscal year 2000.
The Company had reserved 750,000 shares of Common Stock for issuance of
stock options under a 1988 stock option plan covering all employees. At
September 30, 1999, although that plan expired in November 1998, 141,000 options
granted under that plan vest one-third annually over a three-year period, and
will not expire until 2002. An additional 750,000 shares are reserved under a
1998 stock plan. Options of 125,000 are outstanding under the 1998 plan, expire
from 2003 to 2004 and also vest one-third annually over a three-year period.
The Company has elected to follow Accounting Principals Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement 123, "Accounting
for Stock-Based Compensation," requires the use of option valuation models that
were not developed for use in valuing stock options. Under APB 25, the Company
only recognizes compensation expense when the exercise price of the Company's
employee stock options is less than the market price of the underlying stock on
the date of grant.
Pro forma information regarding net income and earnings per share is
required by FASB 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of the grant using a
Black-Scholes option-pricing model. The fair value of the options was estimated
at the date of the grants with the following average assumptions: expected life
of the stock options 4 years; volatility of the expected market price of the
Company's common stock price of 109%, 106.5% and 114% in 1999, 1998 and 1997,
respectively; risk-free interest rate of 5.81%, 5.77% and 6.2% in 1999, 1998 and
1997, respectively, and a no-dividend yield.
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ------------------------ ------------------------
PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA REPORTED
---------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)......... $ 24,000 $ 87,000 $(1,675,000) $(1,499,000) $ 941,000 $1,103,000
Basic and diluted income
(loss) per share....... $ .01 $ .03 $ (.59) $ (.53) $ .33 $ .39
</TABLE>
32
<PAGE> 33
A summary of the Company's stock option activity and related information for
the years ended September 30 follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE EXERCISABLE
------- -------------- -----------
<S> <C> <C> <C>
AT SEPTEMBER 30, 1996 279,283 4.04 98,288
Granted.............. 3,000 3.25
Exercised............ (38,782) 2.53
Forfeited............ (28,866) 4.53
Expired.............. (1,100) 8.75
AT SEPTEMBER 30, 1997 213,535 4.21 117,810
Granted.............. 3,000 4.63
Exercised............ (17,516) 2.82
Forfeited............ (5,233) 3.34
Expired.............. (33,967) 2.25
AT SEPTEMBER 30, 1998 159,819 4.75 153,597
Granted.............. 121,500 1.41
Exercised............ -- --
Forfeited............ (4,867) 4.99
Expired.............. (10,000) 3.60
AT SEPTEMBER 30, 1999 266,452 3.31 141,952
</TABLE>
The weighted average grant date fair value for options granted during each
of the three fiscal years ended September 30, 1999, 1998 and 1997 were $1.33,
$3.45, and $2.52, respectively. The exercise price for options outstanding as of
September 30, 1999 ranged from $1.00 to $5.50. The weighted average remaining
contractual life of those options is 2.8 years.
The Company accrued $127,000 at September 30, 1999 ($14,000 accrued at
September 30, 1998); in connection with incentive award programs for certain
employees. The awards were accrued based upon the Company's achievement of
certain revenue and operating income objectives and the respective contributions
of certain employees to the achievement of those objectives. The various
incentive plans specify cash settlement of the accrued liability prior to
December 31, 1999.
At September 30, 1995, the Company approved discretionary employee
performance awards in the form of deferred compensation. Such amount was earned
based on the employee's performance during the year ended September 30, 1994.
Under related deferred compensation agreements with certain key employees as
approved by the Compensation Committee, the Company agreed to pay future cash
awards to the specified employees upon the achievement, for thirty consecutive
business days, of a $6.00 per share market price for the Company's Common Stock
and upon exercise of the underlying options. Such payments could be made at any
point after November 29, 1995, assuming stock price and other vesting
requirements have been met. Based upon the stock price at September 19, 1997,
which triggered the Company's obligation under the plan, approximately $102,000
of compensation expense was accrued and reflected in G&A expense.
At September 30, 1999 and 1998, the Company had accrued $613,000 and
$573,000, respectively, related to employee vacations earned but not yet taken.
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES:
The Company leases other office space and equipment under various
agreements, substantially all of which have been accounted for as operating
leases. Rental expense, including the leases described above, of $1,126,000 was
recorded during the year ended September 30, 1999 ($952,000 in 1998 and $929,000
in 1997). Aggregate future rentals under these commitments are as follows: 2000
- -- $959,000, 2001 -- $812,000, 2002 -- $701,000, 2003 -- $496,000, and 2004 --
$4,000.
33
<PAGE> 34
- --------------------------------------------------------------------------------
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $243,000 during fiscal year 1999, $99,000
during fiscal year 1998, and $154,000 during fiscal year 1997. Income taxes of
$290,000, $105,000, and $132,000 were paid during fiscal years 1999, 1998 and
1997, respectively.
- --------------------------------------------------------------------------------
11. BASIC AND DILUTED EARNINGS PER SHARE:
The following sets forth the computation of basic and diluted earnings
(loss) per share for the years ended September 30:
<TABLE>
<CAPTION>
In thousands: 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Basic weighted-average shares ............ 2,849 2,844 2,798
Effect of dilutive stock options ......... 45 -- 22
Diluted weighted-average shares .......... 2,894 2,844 2,820
Net income (loss): ....................... $ 87 $ (1,499) $ 1,103
Basic and diluted earnings (loss)
per common share .................... $ .03 $ (.53) $ .39
-------- -------- --------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants
on matters related to accounting or financial disclosure during the fiscal years
ended September 30, 1999 and 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) and (b) Identification of directors and officers.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------- ------------ -----------------------------------------
<S> <C> <C>
Ronald G. Harper (1)(2)(3) 61 Chairman of the Board of Directors,
President and Chief Executive Officer
Roger A. Finn 62 President - DataMetrix Inc.
Bryan D. Porto 50 Executive Vice President and Director
James C. Auten 51 Vice President, Chief Financial Officer
William H. Webb 59 Gen. Mgr., Corporate Human Resources
John C. Bumgarner, Jr. (1)(2)(3) 57 Director
Dr. David L. Huff (1) 68 Director
Joseph C. McNay (1)(2)(3) 65 Director
John J. McQueen (2)(3) 78 Director
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
34
<PAGE> 35
(c) Identification of certain significant employees.
Not applicable.
(d) Family relationships.
Not applicable.
(e) Business experience.
Mr. Harper, who founded the Company in 1970, has served as its
President, Chairman of the Board and Chief Executive Officer since
inception.
Mr. Finn was named President of DataMetrix Inc. in 1999. He was
previously Vice President, Pricing Division. Mr. Finn joined MPSI in 1982
as Director of Network Planning and has served in various marketing and
network planning positions since that time.
Mr. Porto was appointed Executive Vice President of MPSI's Petroleum
Service Division in 1998. He previously served as Sr. Vice President -
Retail Petroleum and has served in marketing and network planning positions
since joining MPSI in the Rio de Janeiro office in 1985. Mr Porto was
named to MPSI's Board of Directors in June 1998.
35
<PAGE> 36
Mr. Auten was appointed Vice President and Chief Financial Officer in
1996. Mr. Auten joined MPSI in 1984 as Corporate Controller and held such
position until December 1992 when he was appointed Principal Accounting
Officer. Prior to joining MPSI, Mr. Auten was with KPMG Peat Marwick
accounting firm.
Mr. Webb joined MPSI as General Manager, Corporate Human Resources on
April 8, 1996. Previously, Mr. Webb spent 14 years with Amerada Hess
Corporation as Manager of Personnel Administration.
Mr. Bumgarner serves in the following capacities for the Williams
Companies, a Tulsa-based conglomerate -- Sr. Vice President, Corporate
Development and Planning; President, Williams International; President,
Strategic Investments, Williams Communications Group; and President,
Williams Headquarter Building Group. He has been employed by The Williams
Companies, Inc. since 1977. He is also a director of TRANSCO, James River
Coal Company and several privately held companies. He has served on MPSI's
Board since 1982.
Dr. Huff has been a member of the faculty at the University of Texas
since 1968. He has been a Fulbright Lecturer and has published numerous
books and articles, including "Market Area Analysis, A Graphical Index of
Consumer Expectation," "Measures of Market Area Overlap," and "Retail
Location Theory." He is an expert in computer modeling techniques. He has
served on MPSI's Board since 1982.
Mr. McNay has been the President, Director and Chairman of the Board of
Essex Investment Management Company, Inc., a company engaged in investment
and advisory services, since 1976. Mr. McNay is also a director of Softech,
Inc. and Alpha 1 Biomedical, Inc., which are publicly held companies. He
has served on MPSI's Board since 1982.
Mr. McQueen has been in the private practice of law in the Tulsa area
since 1959. He has also served as a certified public accountant with KPMG
Peat Marwick, as a tax specialist with Warren Petroleum Corp., and as
controller of Davis Investments, a company engaged in oil and real estate
activities. He has served on MPSI's Board since 1982.
(f) Involvement in certain legal proceedings.
Not applicable.
(g) Promoters and control persons.
Not applicable.
(h) Compliance with Section 16(a) of the Exchange Act.
Based upon a review of Forms 4 furnished to the Company with respect to
its most recent fiscal year, the Company has determined that reports
required pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended, were filed on a timely basis.
36
<PAGE> 37
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table summarizes the
compensation paid over the last three completed fiscal years to the Company's
CEO and the other executive officers of the Company who received compensation of
$100,000 or more during the fiscal year ended September 30, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------- -------------------- -------
OTHER ALL
ANNUAL OTHER
COMPEN- RESTRICTED LTIP COMPEN-
NAME AND BONUS SATION STOCK OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR SALARY($) ($) ($)(1) AWARDS SARS (#) ($) ($)(2)
------------------ ---- --------- -------- --------- ---------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald G. Harper.......... 1999 $ 252,531 -- 7,885 -- -- -- 10,682
Chairman of the Board, 1998 205,863 -- 7,885 -- -- -- 10,121
President & CEO 1997 194,158 -- 8,242 -- -- -- 9,657
Bryan D. Porto............ 1999 $ 159,390 -- -- -- -- -- 5,821
Executive Vice President, 1998 156,856 14,541 -- -- -- -- 4,771
Petroleum 1997 125,022 -- -- -- -- -- 12,200
James C. Auten............ 1999 $ 117,185 -- -- -- -- -- 2,720
Vice President and 1998 103,375 10,671 -- -- -- -- 2,035
Chief Financial Officer 1997 92,482 -- -- -- -- -- 12,365
Roger A. Finn............. 1999 $ 105,919 3,094 -- -- -- -- 3,878
President, DataMetrix Inc.
</TABLE>
- -----------------
(1) Represents automobile lease paid to or on behalf of Mr. Harper.
(2) The components of "All Other Compensation" for the fiscal years ended
September 30, 1999, 1998, and 1997 include (a) Company matching
contributions to the Company's 401(k) defined contribution plan (Mr.
Harper--$4,800, $4,750, and $4,750; Mr. Porto -- $4,800, $3,961, and
$2,678; Mr. Auten--$1,699, $1,387, and $1,193; respectively, and Mr.
Finn--$2,857 in 1999), (b) supplemental life insurance premiums paid
by the Company (Mr. Harper--$5,882, $5,371, and $4,907; Mr.
Porto--$1,021, $810, and $822; and Mr. Auten--$1,021, $648, and $672;
respectively), and (c) deferred compensation, accrued and payable in
1997 (Mr. Porto--$8,700 and Mr. Auten--$10,500). At September 30,
1995, the Company approved discretionary employee performance awards
in the form of deferred compensation to a group of 19 employees
including the indicated executive officers. Such amounts were earned
based on the employee's performance during the year ended September
30, 1994. The Company agreed to pay future cash awards to the
specified employees upon the achievement, for thirty consecutive
business days, of a $6.00 per share market price for the Company's
Common Stock and upon the exercise of the underlying options. Such
payments could be made at any point after November 29, 1995, assuming
stock price and other vesting requirements have been met. The amounts
reflected above vested based upon the stock price at September 19,
1997, which triggered the Company's obligation under the plan.
Options/SAR Grants Table. The following table sets forth certain information
with respect to stock options granted to the named executive officers during the
last completed fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value
------------------------------------------- at Assumed Annual
% of Total Rates of Stock Price
Options / Options / SARs Appreciation for
SARs Granted to Exercise or Option Term
Granted Employees in Base Price Expiration --------------------
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bryan D. Porto 10,000 8% $1.00 12-7-2003 8,019 17,156
Roger A. Finn 5,000 4% $2.19 5-4-2004 8,780 18,786
- -------------------------------------------------------------------------------
</TABLE>
Options Exercised Table. The following table sets forth information
concerning each exercise of stock options by the named executive officers during
the last completed fiscal year together with information concerning unexercised
options held by the named executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS/SAR
VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options/SARs
Acquired Value Options/SARs at FY-End (#) at FY-End ($)
on Exercise Realized
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------- ------------ ------------ ----------------------------- -----------------------------
<S> <C> <C> <C> <C>
James C. Auten * * 10,000 / - --
Bryan D. Porto * * 28,900 / 10,000 $- / $15,000
Roger A. Finn * * 17,500 / - --
William D. Webb * * 667 / - --
- ----------------------------- ------------ ------------ ----------------------------- -----------------------------
</TABLE>
*None exercised during the period.
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
The Company maintains a severance policy applicable to all full-time regular
employees with at least one year of full-time service. Eligible employees are
those who are terminated as the result of (1) a reduction of the Company's work
force, (2) elimination of a job or position, (3) inability to satisfactorily
perform required responsibilities, or (4) relocation of applicable Company
facilities. The amount of severance paid is based upon the employee's base
salary and length of service, and includes payment for vested but unused
vacations and pro rated automobile allowances, if applicable. The only named
executive officer who would receive aggregate severance in excess of $100,000
under the current policy is Mr. Ronald G. Harper. Mr. Harper's aggregate
severance would be approximately $131,332 at September 30, 1999.
37
<PAGE> 38
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ronald G. Harper, Chief Executive Officer of the Company, is the only member
of the Compensation Committee who is also an employee or officer of the Company.
DIRECTORS' COMPENSATION
Members of the Board of Directors who are employees of the Company receive
no additional compensation as a result of their service as directors. Directors
who are not employees of the Company are compensated at the rate of
38
<PAGE> 39
$1,500 for each board meeting attended and are reimbursed for any out-of-pocket
expenses incurred in attending meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of November 30, 1999, as
to shares of Common Stock beneficially owned by the directors (all of whom are
nominees for another term), certain executive officers, the directors and
officers of the Company as a group, and certain persons known to the Company to
own beneficially more than five percent of the Common Stock. Except as otherwise
indicated, each person has sole investment and voting power with respect to the
shares shown. Ownership information is based upon information furnished by the
respective individuals.
39
<PAGE> 40
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
---------------------------
NUMBER PERCENT
NAME OF COMMON STOCKHOLDER OF SHARES OF CLASS
- -------------------------- ---------- --------
<S> <C> <C>
Ronald G. Harper (2)............................................................ 1,192,036(1) 41.8%
4343 South 118th East Avenue
Tulsa, Oklahoma 74146
John C. Bumgarner, Jr........................................................... 222,322 7.8%
4900 Bank of Oklahoma Tower
One Williams Center
Tulsa, Oklahoma 74172
Joseph C. McNay................................................................. 242,722 8.5%
125 High Street, 29th Floor
Boston, Massachusetts 02110
Bank of Oklahoma, N.A........................................................... 285,714 10.0%
P. O. Box 2300
Tulsa, Oklahoma 74192
The Robertson Stephens Orphan Fund (3).......................................... 244,888 8.6%
555 California Street, Suite 2600
San Francisco, California 94104
Sanford Orkin................................................................... 222,222 7.8%
3414 Peachtree Road, N.E., Suite 236
Atlanta, Georgia 30326
James C. Auten (2).............................................................. 5,354 0.2%
Bryan D. Porto (2).............................................................. 1,002 0.0%
Roger A. Finn (2) .............................................................. 8,397 0.3%
All officers and directors as a group (6 persons)............................... 1,671,833 59.1%
</TABLE>
(1) Includes 417,777 shares of Common Stock held in trust for the benefit
of Mr. Harper's family and 434,209 shares held in trust for the
benefit of certain charities. Mr. Harper has sole voting and
investment power over all of the trust shares except for 135,637
shares over which he shares investment or voting power and 235,773
shares over which he has no investment or voting power. Mr. Harper
disclaims beneficial ownership of these trust shares.
(2) The indicated individuals are executive officers of the Company.
(3) As reported in the Schedule 13G filed by the named person (among
others), voting and dispositive power over the listed shares may be
deemed shared among BankAmerica Corporation, Robertson Stephens
Investment Management Co., Robertson Stephens & Company Investment
Management, L.P. and the named person by reason of corporate
relationships. Each such beneficial owner has the same address as that
set forth above for the named person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1999, the Company obtained an exclusive license to incorporate
in a new suite of products a software modeling engine, Huff 2000, developed by
Dr. David L. Huff. Dr. Huff has been a director of MPSI since 1982. The
five-year license agreement provides that MPSI shall be responsible for all
sales and marketing, as well as the development of user interfaces. The Company
and Dr. Huff shall each share 50% in any net software revenues derived from
utilization of this new software technology.
40
<PAGE> 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of ITEM 14 is submitted as a separate
section of this report under ITEM 8.
(2) The response to this portion of ITEM 14 is set forth in ITEM 14(d)
below.
(3) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------
<S> <C> <C>
*3.1 -- Certificate of Incorporation of MPSI Systems Inc., as amended, filed
as the same numbered exhibit with the Company's Form 10-Q dated March
31, 1987, File No. 0-11527.
*3.2 -- By-laws, as amended, filed as Exhibit 3.1 with the Company's Form
10-Q dated June 30, 1987, File No. 0-11527.
*3.3 -- Certificate of Designation dated September 23, 1993 establishing the
rights conferred on $.10 Par Value Convertible Preferred Stock,
Series 1993, filed as the same numbered exhibit with the Company's
1993 Form 10-K, File No. 0-11527.
*3.4 -- Amendment to Certificate of Incorporation dated November 16, 1993 to
reflect a one-for-ten reverse stock split, filed as the same numbered
exhibit with the Company's 1993 Form 10-K, File No. 0-11527.
*10.1 -- MPSI Systems Inc. 1998 Stock Plan, filed as the same numbered exhibit
with the Company's 1998 Form 10-K, File No. 0-11527.
*10.3 -- MPSI Systems Inc. 1984 Stock Option Plan as amended effective January
1, 1987, filed as the same numbered exhibit with the Company's 1987
Form 10-K, File No. 0-11527.
*10.4 -- Stock Option Agreement pursuant to MPSI Systems Inc. 1984 Stock
Option Plan, filed as the same numbered exhibit with the Company's
1984 Form 10-K, File No. 0-11527.
*10.7 -- Real property lease dated February 11, 1998, between American
Southwest Properties, Inc., as lessor, and the Company, as lessee,
relating to the Company's Tulsa, Oklahoma facility, filed as the same
numbered exhibit with the Company's 1998 Form 10-K, File No. 0-11527.
*10.15 -- Indemnification Agreements with Directors and Officers of MPSI
Systems Inc. filed as the same numbered exhibit with the Company's
1986 Form 10-K, File No. 0-11527.
*10.16 -- MPSI Systems Inc. Amended and Restated 1988 Stock Option Plan,
effective November 29, 1988, filed as Exhibit 4.5 with the Company's
1994 Form S-8, File No. 0-11527.
*10.17 -- Stock Option Agreement pursuant to MPSI Systems Inc. Amended and
Restated 1988 Stock Option Plan, filed as Exhibit 4.6 with the
Company's 1994 Form S-8, File No. 0-11527.
*10.20 -- MPSI Systems Inc. Matching Investment Plan, effective January 1,
1990, filed as Exhibit 4(c) with Pre-effective Amendment No. 1 to the
Company's Form S-8, filed on December 29, 1989, File No. 0-11527.
</TABLE>
41
<PAGE> 42
(3) Exhibits. (Continued)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------
<S> <C>
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP.
27.1 -- Financial Data Schedule.
</TABLE>
- ----------
* Incorporated by reference.
(b) No report on Form 8-K was filed by the Company during or applicable to the
quarter ended September 30, 1999.
(c) Exhibits - The response to this ITEM is submitted as a separate section of
this report.
(d) Financial Statement Schedules - The response to this Item is submitted as
a separate section of this report.
42
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
We have audited the consolidated financial statements of MPSI Systems Inc. and
subsidiaries as of September 30, 1999 and 1998, and for each of the three years
in the period ended September 30, 1999, and have issued our report thereon dated
November 30, 1999 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedule included in this Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 30, 1999
43
<PAGE> 44
SCHEDULE VIII
MPSI SYSTEMS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- -------------- --------------------------------- ------------ ------------
ADDITIONS
----------------------------
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND REDUCTION OF (DEDUCTIONS) AT END OF
DESCRIPTION OF PERIOD EXPENSES REVENUES ADDITIONS PERIOD
- ------------------------------------------- ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
For the year ended September 30, 1997
Accumulated depreciation ............... $ 6,969,000 $ 419,000 $ -- $ (86,000)(2) $ 7,302,000
Accumulated amortization ............... 3,088,000 617,000 -- -- 3,705,000
Unamortized discount on software
license agreements ................... 238,000 -- 445,000(1) (177,000)(1) 506,000
For the year ended September 30, 1998
Accumulated depreciation ............... $ 7,302,000 $ 425,000 $ -- $ (2,151,000)(2) $ 5,576,000
Accumulated amortization ............... 3,705,000 314,000 -- -- 4,019,000
Unamortized discount on software
license agreements ................... 506,000 -- 121,000(1) (267,000)(1) 360,000
For the year ended September 30, 1999
Accumulated depreciation ............... $ 5,576,000 $ 403,000 $ -- $ (1,041,000)(2) $ 4,938,000
Accumulated amortization ............... 4,019,000 153,000 -- 00 4,172,000
Unamortized discount on software
license agreements ................... 360,000 -- 102,000(1) (225,000)(1) 237,000
</TABLE>
- ----------
(1) Reduction of unamortized discount on long-term receivables represents
current period interest income recognition (see Note 2 to Consolidated
Financial Statements). Increases to unamortized discount represent the
present-value-discount on new software license agreements net of adjustment
for any contract cancellations or revisions.
(2) Reduction is due to retirement of fully amortized assets and to assets sold
or otherwise disposed.
44
<PAGE> 45
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, a corporation organized and existing under
the laws of the State of Delaware, has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
State of Oklahoma, on the 14th day of December, 1999.
MPSI SYSTEMS INC.
By /s/ Ronald G. Harper
-----------------------------
Ronald G. Harper
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant, in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Ronald G. Harper Chairman of the Board, December 14, 1999
- --------------------------------------------- President and Chief
Ronald G. Harper Executive Officer
/s/ James C. Auten Vice President and Chief-- December 14, 1999
- --------------------------------------------- Financial Officer
James C. Auten
s/ John C. Bumgarner, Jr. Director December 14, 1999
- ---------------------------------------------
John C. Bumgarner, Jr.
/s/ David L. Huff Director December 14, 1999
- ---------------------------------------------
David L. Huff
/s/ Joseph C. McNay Director December 14, 1999
- ---------------------------------------------
Joseph C. McNay
/s/ John J. McQueen Director December 14, 1999
- ---------------------------------------------
John J. McQueen
/s/ Bryan D. Porto Director December 14, 1999
- ---------------------------------------------
Bryan D. Porto
</TABLE>
45
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------- -------
<S> <C>
21.1 -- List of Subsidiaries
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP
27.1 -- Financial Data Schedule
</TABLE>
46
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<S> <C>
MPSI Systems Limited....................................................U.K. Corporation
MPSI Australia Pty. Ltd............................................Australia Corporation
MPSI do Brasil........................................................Brazil Corporation
MPSI Systems K.K....................................................Japanese Corporation
MPSI Systems Pte. Ltd..............................................Singapore Corporation
Shanghai MPSI Software Inc...........................................Chinese Corporation
Management Planning Systems, Inc.....................................Oklahoma Corporation
DataMetrix Inc.......................................................Oklahoma Corporation
INACTIVE CORPORATIONS
MPSI China Inc......................................................Delaware Corporation
MPSI Surveys Inc....................................................Oklahoma Corporation
MPSI Systems Canada Inc.............................................Canadian Corporation
MPSI Systems GmbH.....................................................German Corporation
MPSI Systems SARL.....................................................French Corporation
Quest Systems International Inc......................................Delaware Corporation
BRANCH OFFICES
Seoul, South Korea...................................Branch of MPSI Systems Pte. Ltd.
Johannesburg, South Africa.................Branch of Management Planning Systems Inc.
(d/b/a MPSI Africa Inc.)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-97190 and 33-86016) pertaining to the MPSI Systems Inc. 1984
Stock Option Plan and the MPSI Systems Inc. 1988 Stock Option Plan of our
reports dated November 30, 1999, with respect to the consolidated financial
statements and schedule of MPSI Systems Inc. included in this Annual Report
(Form 10-K) for the year ended September 30, 1999.
ERNST & YOUNG LLP
Tulsa, Oklahoma
December 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 296
<SECURITIES> 3
<RECEIVABLES> 5,156
<ALLOWANCES> 0
<INVENTORY> 107
<CURRENT-ASSETS> 5,699
<PP&E> 5,883
<DEPRECIATION> 4,938
<TOTAL-ASSETS> 10,518
<CURRENT-LIABILITIES> 5,440
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 3,571
<TOTAL-LIABILITY-AND-EQUITY> 10,518
<SALES> 19,332
<TOTAL-REVENUES> 19,332
<CGS> 8,245
<TOTAL-COSTS> 10,635
<OTHER-EXPENSES> 2
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> 394
<INCOME-TAX> 307
<INCOME-CONTINUING> 87
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 87
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
