<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the nine months ended June 30, 1999 Commission file no. 0-11527
MPSI SYSTEMS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1064024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4343 South 118th East Avenue, Tulsa Oklahoma 74146
- --------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 877-6774
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Number of shares of common stock outstanding at June 30, 1999 - 2,849,454
-----------------
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INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - June 30, 1999 and September 30, 1998 ........................ 3
Consolidated Statements of Operations - Three Months and Nine Months
Ended June 30, 1999 and 1998 ......................................................... 5
Consolidated Statement of Stockholders' Equity - Nine Months
Ended June 30, 1999 .................................................................. 6
Consolidated Statements of Cash Flow -
Nine Months Ended June 30, 1999 and 1998 ............................................. 7
Notes To Consolidated Financial Statements ................................................ 8
Management's Discussion and Analysis of Financial Condition and
Quarterly Results of Operations ........................................................... 9
Part II. OTHER INFORMATION (Including Index to Exhibits) ............................................ 14
SIGNATURES............................................................................................ 15
</TABLE>
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 739,000 $ 224,000
Short-term investments, at cost 3,000 3,000
Receivables: (Note 4)
Trade 3,675,000 4,207,000
Current portion of long-term receivables 1,981,000 1,275,000
Inventories 120,000 107,000
Prepayments 97,000 81,000
------------- -------------
Total current assets 6,615,000 5,897,000
Property and equipment, net 905,000 962,000
Long-term receivables, net of current portion
and unamortized discount 1,485,000 2,201,000
Software products, net 1,351,000 280,000
Other assets 179,000 150,000
------------- -------------
Total assets $ 10,535,000 $ 9,490,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
------------ -------------
(unaudited)
Current liabilities:
<S> <C> <C>
Accounts payable ............................................... $ 690,000 $ 889,000
Accrued liabilities ............................................ 1,120,000 1,173,000
Notes payable - Line of Credit (Note 4) ....................... 1,300,000 350,000
Deferred revenue ............................................... 2,492,000 1,929,000
------------ ------------
Total current liabilities ............................ 5,602,000 4,341,000
Noncurrent deferred revenue .......................................... 1,138,000 1,346,000
Noncurrent deferred income taxes ..................................... 86,000 86,000
Other noncurrent liabilities ......................................... 141,000 172,000
------------ ------------
Total liabilities .................................... 6,967,000 5,945,000
------------ ------------
Commitments and contingencies ........................................ -- --
Stockholders' Equity:
Preferred Stock, $.10 par value, 1,000,000 shares
authorized, none issued or outstanding .................... -- --
Common Stock, $.05 par value, 20,000,000 shares authorized,
2,849,000 shares issued and outstanding at
June 30, 1999 and September 30, 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 ........................................................ (10,386,000) (10,359,000)
Foreign currency translation adjustment ........................ 733,000 683,000
------------ ------------
Total stockholders' equity ........................... 3,568,000 3,545,000
------------ ------------
Total liabilities and stockholders' equity ........... $ 10,535,000 $ 9,490,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software maintenance/information services $ 3,928,000 $ 4,984,000 $ 13,587,000 $ 13,857,000
Software licensing 1,000 240,000 265,000 540,000
------------ ------------ ------------ ------------
Total revenues 3,929,000 5,224,000 13,852,000 14,397,000
------------ ------------ ------------ ------------
Cost of Sales:
Software maintenance/information services 1,759,000 2,331,000 5,759,000 6,134,000
Software licensing 30,000 52,000 86,000 288,000
------------ ------------ ------------ ------------
Total cost of sales 1,789,000 2,383,000 5,845,000 6,422,000
------------ ------------ ------------ ------------
Gross profit 2,140,000 2,841,000 8,007,000 7,975,000
Operating expenses:
General and administrative 678,000 848,000 2,209,000 2,438,000
Marketing 1,598,000 1,731,000 4,745,000 5,252,000
Research and development 260,000 470,000 926,000 1,448,000
------------ ------------ ------------ ------------
Total operating expenses 2,536,000 3,049,000 7,880,000 9,138,000
------------ ------------ ------------ ------------
Operating income (loss) (396,000) (208,000) 127,000 (1,163,000)
Other income (expense):
Interest income 63,000 81,000 177,000 220,000
Interest expense (35,000) (35,000) (149,000) (81,000)
Foreign exchange (6,000) (96,000) (42,000) (150,000)
Other, net (14,000) (6,000) 3,000 (1,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes (388,000) (264,000) 116,000 (1,175,000)
Provision for income taxes (1,000) 44,000 143,000 (242,000)
------------ ------------ ------------ ------------
Net loss $ (387,000) $ (308,000) $ (27,000) $ (933,000)
============ ============ ============ ============
Loss per share:
Basic $ (.14) $ (.11) $ (.01) $ (.33)
Diluted $ (.13) $ (.11) $ (.01) $ (.33)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY TOTAL
--------------------- PAID-IN TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30,
1998 2,849,000 $142,000 $13,079,000 $(10,359,000) $ 683,000 $ 3,545,000
Net loss - - - (27,000) - (27,000)
Foreign currency
translation
adjustment - - - - 50,000 50,000
--------- -------- ----------- ------------ ---------- ------------
Balance,
June 30, 1999 2,849,000 $142,000 $13,079,000 $(10,386,000) $ 733,000 $ 3,568,000
========= ======== =========== ============ ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (NOTE 2)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
----------------------------------
1999 1998
------------- -----------
<S> <C> <C>
Net loss $ (27,000) $ (933,000)
------------- -----------
Adjustments to reconcile net loss to cash provided by operations:
Depreciation 306,000 307,000
Amortization 82,000 269,000
Loss on sale or abandonment of equipment - 5,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables 543,000 (665,000)
Inventories (13,000) (12,000)
Other assets (46,000) 41,000
Increase (decrease) in liabilities:
Trade payables and accruals (134,000) (185,000)
Taxes payable (101,000) (425,000)
Deferred revenue 357,000 342,000
------------- -----------
Net cash provided (used) by operating activities 967,000 (1,256,000)
------------- -----------
Cash flows from investing activities:
Proceeds from asset dispositions 1,000 23,000
Purchase equipment (250,000) (85,000)
Software development (1,153,000) (87,000)
------------- -----------
Net cash used by investing activities (1,402,000) (149,000)
------------- -----------
Proceeds from bank line of credit 950,000 353,000
Exercised stock options - 28,000
------------- -----------
Net cash provided by financing activities 950,000 381,000
------------- -----------
Increase (decrease) in cash and cash equivalents 515,000 (1,024,000)
Cash and cash equivalents at beginning of period 224,000 1,599,000
------------- -----------
Cash and cash equivalents at end of period $ 739,000 $ 575,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL NOTES:
Certain notes to the September 30, 1998 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the nine months ended June 30, 1999.
Accordingly, reference should be made to the audited financial statements
at September 30, 1998.
In the opinion of the Company, the unaudited consolidated financial
statements as of June 30, 1999 contain all adjustments (including normal
recurring accruals) necessary to fairly present the financial position and
the results of operations of the Company. The timing of market study
orders and software license agreements can significantly impact quarterly
results of operations.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $149,000 and $81,000 during the nine months
ended June 30, 1999 and 1998, respectively. Net income taxes of $244,000
and $184,000 were paid during the same respective periods.
3. INCOME TAXES
In March 1996, the Internal Revenue Service ("IRS") initiated an
examination of tax years 1993 through 1995. The Company has not yet
received a final report of the results but believes that the financial
statements will not be materially affected as a result of revenue timing
matters at issue and pending IRS technical review.
4. DEBT
Effective June 30, 1999, the Company renegotiated a line of credit with
NationsBank, N. A. at which time the amount of the line was increased to
$2,000,000. The agreement is for a twelve-month period and bears interest
on any outstanding balances at New York prime plus 1%. The line is secured
by substantially all of MPSI's accounts and contracts receivable, together
with general intangible assets. At June 30, 1999, $1,300,000 has been
advanced under the line of credit. The agreement restricts the Company's
external financing during the commitment period as described below:
* The Company must not permit to exist any borrowings except (a)
borrowings under this agreement, (b) borrowings in connection with the
purchase or leasing of assets in the normal course of business, (c)
obligations related to trade payables incurred in the ordinary course of
business, or (d) obligations under existing leases.
* The Company's "Stockholders' Equity" must be in excess of $3,500,000
during the commitment period.
The Company is in compliance with these restrictions, and management is of
the opinion that these restrictions will not adversely affect the
Company's operations as they allow sufficient flexibility to meet
anticipated operating requirements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
MPSI reported a net loss of $387,000 or $.13 per share on revenues of $3.9
million for its third fiscal quarter ended June 30, 1999 which compared with a
net loss of $308,000 or $.11 per share on revenues of $5.2 million for the June
30, 1998 quarter. For the nine months ended June 30, 1999, MPSI reported a net
loss of $27,000 or $.01 per share on revenues of $13.9 million. This compared
with a net loss of $933,000 or $.33 per share on revenues of $14.4 million for
the nine months last year.
Revenues of $3.9 million for the third quarter of fiscal 1999 represent a
decrease of approximately 24% or $1,295,000 as compared with the comparable
period last year. Revenues decreased $1,158,000 (48%) in the North American
region, as compared to the same quarter last fiscal year, resulting from pricing
pressures (less than a 5% impact on overall revenues), smaller sized studies
completed during the quarter and, comparatively, fewer multi-client studies
being completed, thereby decreasing the favorable revenue impact of leveraging
data. Revenues in the European / South African region decreased $398,000 (59%)
over the same quarter last year as a result of multi-year contracts which have
an eighteen month cycle (due to start late in the fourth fiscal quarter of
1999). Revenues from Latin America decreased $176,000 (39%) as compared to last
year resulting from a downturn in the Brazilian economy which is expected to
unfavorably impact the Company through the remainder of 1999. The Pacific Rim
region experienced a $192,000 (17%) increase in revenues as compared to the
third quarter last year as a result of increased activity in that region.
Revenues of $13.4 million for the nine months ended June 30, 1999 represent a 4%
($545,000) decrease over the same nine months of fiscal 1998. Driven by the
second and third quarter performance of the Pacific Rim, revenues increased
$781,000 (19%) over the comparable period last year. Revenues decreased
$1,389,000 (22%), $1,270,000 (70%) and $36,000 (4%) in North America, Europe /
South Africa and Latin America, respectively, as compared to the same period
last fiscal year for the same reasons outlined in the above analysis of quarter
revenue fluctuations. Although there has been a decrease of $1,914,000 in
revenues from the Company's core petroleum business, revenues from related
products (consulting) and new product offerings (pricing products and
DataMetrix) has increase $1,369,000 over the nine months as compared to fiscal
year 1998.
Revenue and gross profit from the Company's pricing product line (principally
North American customers) was $463,000 and $237,000, respectively, for the
quarter ended June 30, 1999 as compared to $412,000 and $283,000, respectively,
for the comparable quarter last year. For the nine months ended June 30, 1999
revenue and gross profit were $1,657,000 and $1,050,000, respectively, as
compared with $866,000 and $661,000 for the comparative period last fiscal year.
This increase in pricing revenue and profitability reflects growth in both the
number of clients and markets utilizing these products.
The Company continues to place emphasis on a fully integrated product offering
and process improvements over and above its traditional retail/site evaluation
niche. Accordingly, the Company has undertaken three new initiatives designed to
(a) reduce software complexity and improve flexibility in order to open up new
petroleum market segments and/or industries, (b) leverage the substantial data
warehouse that MPSI has accumulated over the years, and (c) open new sales
channels for existing products utilizing the worldwide web. Included in expenses
during the quarter and nine months ended June 30, 1999 were costs of more than
$772,000 and $1,127,000, respectively, related to these initiatives (without
substantial revenue offset during start-up). During the quarter and reflected in
the nine months ended June 30, 1999, the new DataMetrix business unit generated
$139,000 of revenue. As of June 30, 1999, the DataMetrix business unit released
its first major product offering to the market. Management anticipates that
revenues during the fourth fiscal quarter of 1999 and thereafter will be
sufficient to cover associated operating expenses.
The Company's gross profit margin on information services during the quarter
ended June 30, 1999 increased to 54% as compared with 52% during the June 1998
quarter. Margins on information services for the nine months ended June 30, 1999
were 56% as compared to 55% for the comparable period last year. MPSI has
consistently implemented new technology in its information services business in
order to counterbalance rising labor costs and maintain the ability to
competitively price
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its products. The Company will continue to aggressively look at all aspects of
its software and information services to determine ways to reduce costs. The
software re-engineering noted above will also allow the Company to
significantly alter its database processes and further reduce costs beginning
in the fourth fiscal quarter of 1999. Additionally, year-to-date margins were
favorably impacted by the signing of a new software user late in the first
quarter which allowed the company to leverage information from studies which
were previously completed. Software cost of sales, including software
amortization, decreased $22,000 and $202,000 for the quarter and nine months
ended June 30, 1999, respectively, as compared to the same periods last year.
This change reflects the complete amortization of certain products developed in
prior years. The Company introduced its Capital Planning System (CAPS)(R)
software for its Japanese clients during the June quarter of 1999 and
anticipates a fourth quarter completion of a new but complementary software
system in North America. Based on the completion of these projects,
amortization of capitalized costs in future periods should increase to levels
more comparable with prior years.
During the quarter and nine months ended June 30, 1999, MPSI experienced a
decrease in operating expenses of approximately $513,000 (17%) and $1,258,000
(14%), respectively, compared with the same periods last year. General and
administrative expenses decreased $170,000 (20%) and $229,000 (9%),
respectively, for the quarter and nine months ended June 30, 1999 as compared
with the same periods last fiscal year, primarily as a result of audit fees
related to an IRS audit incurred last fiscal year and certain expenses incurred
during the third fiscal quarter of 1998 related to our corporate relocation.
Decreases in marketing expenses of $133,000 (8%) and $507,000 (10%),
respectively, for the quarter and nine months ended June 30, 1999 as compared
with the same periods last fiscal year are the result of cost cutting measures
implemented during the latter part of fiscal 1998, including personnel
reductions, office downsizing and a reduction of associated sales-oriented
travel. Research and development expenses are down approximately $210,000 (45%)
and $522,000 (36%) for the quarter and nine months, respectively, compared with
the similar periods last year. Although there has been no substantial change in
personnel levels, more resources are presently allocated to new software
development (capitalized), whereas last year such resources were allocated to
software maintenance and research activities (expensed). As MPSI anticipates
significant software product improvements during the remainder of fiscal year
1999, management anticipates that more of the costs of this group will again be
capitalized in future financial statements.
Other income is up approximately $64,000 in the quarter and up approximately
$1,000 for the nine months compared with last year. MPSI has reported a decrease
in interest income relative to multi-year software license agreements as a
result of normal accretion of deferred interest in excess of new contracts
received. Additionally, MPSI has experienced higher interest expense thus far in
fiscal year 1999 associated with increased working capital financing through its
principal bank line of credit. During the quarter ended June 30, 1999, the
Singapore Dollar and Japanese Yen maintained their value against the US Dollar
resulting in minimal foreign currency gains/losses on transactions invoiced to
the Pacific Rim in those currencies. Currency transaction losses for the third
quarter and nine months ended June 30, 1999 were $6,000 and $42,000,
respectively, as compared with losses of $52,000 and $150,000 for the comparable
periods last year. The currency transaction losses for fiscal 1999 relate
primarily to the devaluation of the Brazilian currency which occurred during the
second fiscal quarter. Currency swings can substantially affect quarterly
results, but management anticipates continued stability in the foreign markets
for the remainder of this fiscal year.
The income tax benefit on the net loss of $387,000 for the quarter ended June
30, 1999 was $1,000 resulting from foreign withholdings ($12,000) taxes on
income from foreign subsidiaries ($12,000) and an income tax refund related to a
quarterly estimate overpayment of $25,000. This compares to a tax expense of
$45,000 (including $37,000 foreign withholdings, $68,000 tax on foreign
subsidiaries and utilization of net operating loss carryforwards in certain
foreign subsidiaries of $60,000) on losses of $308,000 reported for the quarter
ended June 30, 1998. Income taxes on net income of $116,000 for the nine months
ended June 30, 1999 of $143,000 are made up of $131,000 foreign withholdings,
$37,000 tax on foreign subsidiaries and the refund of a quarterly estimate
overpayment of $25,000. This compares to a tax benefit of $242,000 on a net loss
of $1,175,000 for the comparable period last year. Included in last years tax
benefit were foreign withholdings of $86,000, taxes on foreign subsidiaries of
$94,000, utilization of the US deferred tax liability from 1997 against 1998 net
operating losses of $351,000 and utilization of net operating loss carryforwards
in certain foreign subsidiaries of $71,000.
FINANCIAL CONDITION AND LIQUIDITY
Working capital of approximately $1.0 million at June 30, 1999 decreased from
$1.6 million at September 30, 1998 primarily as a result of increased borrowing
($950,000) on the bank line of credit to fund operations, offset by an increase
in
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cash of $515,000 resulting from collections received late in the third fiscal
quarter. Trade receivables (net of associated deferred revenues) increased
$174,000 primarily as a result of delayed collections from a significant client
relating to a large multi-year software agreement, however, no ultimate
collection problem is anticipated. Trade accounts payable and accruals at June
30, 1999 decreased $262,000 as compared with September 30, 1998 resulting from
cash payments made to vendors late in the third fiscal quarter. The Company
continues to fund its activities primarily from operations but utilizes funds
from its available credit line as required. At June 30, 1999, the Company had
utilized $1,300,000 of the $1,500,000 available line of credit as compared to
$350,000 at September 30, 1998 to meet periodic fluctuations in cash
requirements. Although the working capital credit line expired June 30, 1999,
the Company has subsequently re-negotiated the existing agreement (including an
increase of the line to $2,000,000) for another year. The twelve-month credit
line is secured by substantially all of MPSI's accounts and contracts
receivable, together with general intangible assets and bears interest as New
York prime plus 1%. See note 4 to the Consolidated Financial Statements for
information about additional terms and financial covenants. Backlog of $14.0
million at June 30, 1999 increased slightly from $13.6 million at September 30,
1998. New orders received from North American, Japanese, and Southeast Asia
customers offset backlog reductions resulting from revenue recognized through
June 30, 1999.
Long term contracts (net of unamortized discount) decreased approximately
$716,000 during the nine months ended June 30, 1999 as compared to the same
period last fiscal year as a result of billings for current year portions
exceeding new contracts received.
During the nine months ended June 30, 1999, as set forth in the Consolidated
Statements of Cash Flow, MPSI expended approximately $1,153,000, approximately
equally split between capitalized programming of new software products/versions
and development of mapping products for DataMetrix. Comparatively, only $87,000
was expended during the same period last fiscal year (incurred late during the
third quarter) as work began on the Japanese CAPS model. During the first eight
months of fiscal year 1998, no new development was undertaken as the Company was
evaluating new product offerings and maintaining existing products. The higher
capitalized costs in the current year are the result of CAPS development for the
Japanese markets (which was completed in the third fiscal quarter of 1999),
re-engineering of the Company's core software system (first North American
release anticipated in September 1999), development of new mapping products for
the new DataMetrix business unit (first commercial products released June 30),
and development of software to be utilized internally to enhance the production
process of database construction and to shorten development times of new product
offerings (expected to begin use in the December 1999 quarter).
MPSI's net investment in equipment declined approximately $57,000 during the
quarter ended June 30, 1999 due principally to depreciation. During the nine
months ended June 30, 1999, the Company spent approximately $250,000,
principally on computer equipment and software, as compared with $85,000 in
fiscal 1998. Such expenditures were part of a plan initiated in fiscal 1998 to
upgrade internal systems and achieve Y2K compliance (see below). No firm
commitments had been made for additional computer equipment at June 30, 1999.
The Company expects to upgrade present equipment, as needed, throughout the
remainder of the year through funding from operations.
Other non-current liabilities declined $239,000 during the nine months ended
June 30, 1999 primarily due to the recognition of deferred maintenance revenues
associated with long term software agreements in excess of new contracts
received.
Changes in stockholders' equity since September 30, 1998 are the result of
routine recognition of the results of operations for the nine months ended June
30, 1999 and variations in the foreign currency translation adjustment relating
to the consolidation of foreign subsidiaries brought about by the currency
valuation benefits as discussed above.
YEAR 2000 IMPACT
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.
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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. Costs yet to be incurred are
estimated to be less than $75,000.
o MPSI Software Held for Resale. The Company has preliminarily 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. A detailed testing plan was begun in May 1999
and should be completed well in advance of December 31, 1999. 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. Although not all inquiries have been
completed and additional issues could yet be discovered, management
estimates that it has received compliance satisfaction from all of the
third party vendors that could materially impact MPSI product performance.
Although no significant costs have been incurred to date relative to this
category of computerized process, management is unable to assess future
costs associated with as yet unidentified issues.
o Customers and Vendors. MPSI's evaluation of the potential impact of Year
2000 readiness by major customers and data suppliers is not yet complete.
Slow response from third parties has extended the timeline for this
evaluation. Management now expects this phase to be completed by September
30, 1999 and should cost less than $25,000 to 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 (although
on-site support would be more expensive for a period). Should major
clients experience general systems failures as the 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 compliant
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 an effective program in place to
resolve the Year 2000 issue in a timely manner, to the extent that compliance is
within the Company's control. As noted above, the Company has not yet completed
all necessary phases of the Year 2000 program. 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.
- -------------------
12
<PAGE> 13
Portions of this document may constitute forward-looking statements as defined
by federal law. Although the Company believes any such statements are based on
reasonable assumptions, there is no assurance that actual outcomes will not be
materially different. Additional information about issues that could lead to
material changes in performance is contained in the Company's annual report on
Form 10-K which is filed with the Securities and Exchange Commission.
All per share amounts reflected herein are computed on a diluted basis.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings - No material items.
Item 2 -- Changes in Securities - None.
Item 3 -- Defaults Upon Senior Securities - None.
Item 4 -- Submission of Matters to a Vote of Security Holders - None.
Item 5 -- Other Information - None
Item 6 -- Exhibits and Reports on Form 8-K.
Page
----
(a) Exhibits:
11.1 Earnings per share computation 16
27.1 Financial Data Schedule 17
(b) Reports on Form 8-K - None --
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
MPSI SYSTEMS INC.
Date August 10, 1999 By /s/ Ronald G. Harper
---------------------- ------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date August 10, 1999 By /s/ James C. Auten
---------------------- ------------------------------
James C. Auten
Vice President
(Chief Financial Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
11.1 Earnings Per Share Computation
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
EARNINGS PER SHARE COMPUTATION
Earnings per share calculations may be affected by the granting of stock options
under the provisions of MPSI Systems Inc. Stock Option Plans. The granting of
these options may have a dilutive effect on earnings per common and common
equivalent share. Following is a summary computation of the weighted average
number of shares outstanding and earnings per share using the treasury-stock
method. All computations give effect to a reverse stock split effective November
16, 1993 as if the transaction had occurred retroactively. Primary and fully
diluted earnings per share are the same for each period presented.
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
---------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Common stock outstanding throughout the period 2,849,000 2,801,000 2,849,000 2,793,000
Exercised options -- -- -- 3,000
Dilutive unexercised stock options:
Shares presumed issued at exercise
($1.00 to $2.25 per share in 1999 and 1998) 49,000 4,000 38,000 24,000
--------- --------- --------- ---------
Weighted average shares outstanding 2,898,000 2,805,000 2,887,000 2,820,000
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
(a) (b)
Weighted
Results of Average
Operations Shares Per Share (a / b)
----------- --------- ------------------
<S> <C> <C> <C> <C>
Net loss - Three Months Ended June 30, 1999 $(387,000) 2,898,000 $(.13)
Nine Months Ended June 30, 1999 $ (27,000) 2,887,000 $(.01)
Net loss - Three Months Ended June 30, 1998 $(308,000) 2,805,000 $(.11)
Nine Months Ended June 30, 1998 $(933,000) 2,820,000 $(.33)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 739
<SECURITIES> 3
<RECEIVABLES> 5,656
<ALLOWANCES> 0
<INVENTORY> 120
<CURRENT-ASSETS> 6,615
<PP&E> 5,833
<DEPRECIATION> 4,928
<TOTAL-ASSETS> 10,535
<CURRENT-LIABILITIES> 5,602
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 3,426
<TOTAL-LIABILITY-AND-EQUITY> 10,535
<SALES> 13,852
<TOTAL-REVENUES> 13,852
<CGS> 5,845
<TOTAL-COSTS> 7,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> 116
<INCOME-TAX> 143
<INCOME-CONTINUING> (27)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
