<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, 2000 Commission file no. 0-11527
MPSI SYSTEMS INC.
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(Exact name of registrant as specified in its charter)
Delaware 73-1064024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4343 South 118th East Avenue, Tulsa Oklahoma 74146
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 877-6774
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
Number of shares of common stock outstanding at June 30, 2000 - 2,911,783
-----------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - June 30, 2000 and September 30, 1999 ........................ 3
Consolidated Statements of Operations - Three Months and Nine Months
Ended June 30, 2000 and 1999 ......................................................... 5
Consolidated Statement of Stockholders' Equity - Nine Months
Ended June 30, 2000 .................................................................. 6
Consolidated Statements of Cash Flow -
Nine Months Ended June 30, 2000 and 1999 ............................................. 7
Notes To Consolidated Financial Statements ................................................ 8
Management's Discussion and Analysis of Financial Condition and
Quarterly Results of Operations ........................................................... 11
Part II. OTHER INFORMATION (Including Index to Exhibits) ............................................ 15
SIGNATURES ........................................................................................... 16
</TABLE>
2
<PAGE> 3
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
JUNE 30, SEPTEMBER 30,
2000 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 669,000 $ 296,000
Short-term investments, at cost 3,000 3,000
Receivables: (Note 3)
Trade, net 4,099,000 3,849,000
Current portion of long-term receivables 1,757,000 1,307,000
Inventories 97,000 107,000
Prepayments 105,000 137,000
------------ ------------
Total current assets 6,730,000 5,699,000
Property and equipment, net of accumulated amortization 1,128,000 945,000
Long-term receivables, net of current portion
and unamortized discount 764,000 1,756,000
Capitalized product development costs, net 1,929,000 1,933,000
Other assets 178,000 185,000
------------ ------------
Total assets $ 10,729,000 $ 10,518,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
JUNE 30, SEPTEMBER 30,
2000 1999
------------ -------------
(unaudited)
<S> <C> <C>
Current liabilities:
Note payable to bank (Note 3) $ 2,000,000 $ 1,575,000
Accounts payable 1,187,000 686,000
Accrued liabilities 1,207,000 1,617,000
Deferred revenue 1,502,000 1,562,000
------------ ------------
Total current liabilities 5,896,000 5,440,000
Noncurrent deferred revenue 842,000 1,146,000
Noncurrent deferred income taxes 84,000 86,000
Other noncurrent liabilities 115,000 133,000
------------ ------------
Total liabilities 6,937,000 6,805,000
------------ ------------
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,
2,912,000 and 2,849,000 shares issued and outstanding at
June 30, 2000 and September 30, 1999, respectively 146,000 142,000
Junior Common Stock, $.05 par value, 500,000 shares
authorized, none issued or outstanding -- --
Additional paid-in capital 13,145,000 13,079,000
Deficit (10,262,000) (10,272,000)
Other accumulated comprehensive income 763,000 764,000
------------ ------------
Total stockholders' equity 3,792,000 3,713,000
------------ ------------
Total liabilities and stockholders' equity $ 10,729,000 $ 10,518,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, NINE MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software maintenance/information services $ 5,192,000 $ 3,928,000 $ 13,575,000 $ 13,587,000
Software licensing 251,000 1,000 372,000 265,000
------------ ------------ ------------ ------------
Total revenues 5,443,000 3,929,000 13,947,000 13,852,000
------------ ------------ ------------ ------------
Cost of Sales:
Software maintenance/information services 1,967,000 1,759,000 5,128,000 5,759,000
Software licensing 160,000 30,000 376,000 86,000
------------ ------------ ------------ ------------
Total cost of sales 2,127,000 1,789,000 5,504,000 5,845,000
------------ ------------ ------------ ------------
Gross profit 3,316,000 2,140,000 8,443,000 8,007,000
Operating expenses:
General and administrative 936,000 678,000 2,711,000 2,209,000
Marketing 1,365,000 1,598,000 4,538,000 4,745,000
Research and development 262,000 260,000 919,000 926,000
------------ ------------ ------------ ------------
Total operating expenses 2,563,000 2,536,000 8,168,000 7,880,000
------------ ------------ ------------ ------------
Operating income (loss) 753,000 (396,000) 275,000 127,000
Other income (expense):
Interest income 48,000 63,000 131,000 177,000
Interest expense (103,000) (35,000) (275,000) (149,000)
Foreign exchange (31,000) (6,000) (18,000) (42,000)
Other, net (93,000) (14,000) (90,000) 3,000
------------ ------------ ------------ ------------
Income (loss) before income taxes 574,000 (388,000) 23,000 116,000
Provision for income taxes 14,000 (1,000) 13,000 143,000
------------ ------------ ------------ ------------
Net income (loss) $ 560,000 $ (387,000) $ 10,000 $ (27,000)
============ ============ ============ ============
Per share:
Basic income (loss) $ .19 $ (.14) $ .00 $ (.01)
Diluted income (loss) $ .19 $ (.14) $ .00 $ (.01)
Shares Outstanding:
Basic 2,912,000 2,849,000 2,878,000 2,849,000
Diluted 2,923,000 2,849,000 2,900,000 2,849,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
OTHER
COMMON STOCK ADDITIONAL ACCUMULATED TOTAL
---------------------------- PAID-IN COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INCOME EQUITY
------------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
September 30,
1999 2,849,000 $ 142,000 $ 13,079,000 $(10,272,000) $ 764,000 $ 3,713,000
Net income -- -- -- 10,000 -- 10,000
Other accumulated
comprehensive
income:
Foreign currency
translation adjustment -- -- -- -- (1,000) (1,000)
------------
Total comprehensive income $ 9 ,000
Stock options exercised 63,000 4,000 66,000 -- -- 70,000
------------ ------------ ------------ ------------ ------------ ------------
Balance,
June 30, 2000 2,912,000 $ 146,000 $ 13,145,000 $(10,262,000) $ 763,000 $ 3,792,000
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (NOTE 2)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net income (loss) $ 10,000 $ (27,000)
Adjustments to reconcile net income (loss) to cash provided by operations:
Depreciation and amortization of property and equipment 327,000 306,000
Amortization of product development costs 540,000 82,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables 287,000 543,000
Inventories 10,000 (13,000)
Other assets 35,000 (46,000)
Increase (decrease) in liabilities:
Trade payables and accruals 181,000 (134,000)
Taxes payable (106,000) (101,000)
Deferred revenue (364,000) 357,000
------------ ------------
Net cash provided by operating activities 920,000 967,000
------------ ------------
Cash flows from investing activities:
Proceeds from asset dispositions 25,000 1,000
Purchase equipment (80,000) (250,000)
Product development (987,000) (1,153,000)
------------ ------------
Net cash used by investing activities (1,042,000) (1,402,000)
------------ ------------
Cash flows from financing activities:
Proceeds from debt 425,000 950,000
Exercise of stock options 70,000 --
------------ ------------
Net cash provided by financing activities 495,000 950,000
------------ ------------
Increase in cash and cash equivalents 373,000 515,000
Cash and cash equivalents at beginning of period 296,000 224,000
------------ ------------
Cash and cash equivalents at end of period $ 669,000 $ 739,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL NOTES:
Certain notes to the September 30, 1999 audited consolidated financial
statements filed with Form 10-K are applicable to the unaudited
consolidated financial statements for the nine months ended June 30, 2000.
Accordingly, reference should be made to the audited financial statements
at September 30, 1999.
In December 1998, AcSEC issued Statement of Position 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 arrangements and recognize revenue ratably over
the term of the agreement 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.
In the opinion of the Company, the unaudited consolidated financial
statements as of June 30, 2000 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 new or renewed
long-term software license agreements, with the normally attendant market
study orders, can have a substantial impact upon reported revenues and net
income between accounting periods.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $275,000 and $149,000 during the nine months
ended June 30, 2000 and 1999, respectively. Net income taxes of $119,000
and $244,000 were paid during the same respective periods.
3. 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
10.5% and matures October 30, 2000. The weighted average interest rates
were 9.85% for the nine months ended June 30, 2000 and 8.75% for the nine
months ended June 30, 1999. 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. The Company is in compliance at June 30, 2000 with these
restrictions, and Management is of the opinion that these restrictions
will not adversely affect the Company's operations.
4. 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
8
<PAGE> 9
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 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
completed as of January 31, 2000. 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 operational
assets other than those developed internally are managed as shared
resources and are not identifiable to specific reporting segments.
Information on segments and a reconciliation to income (loss) before taxes
for the quarters ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
SEGMENTS
-------------------------------------------------------------------------------
CONVENIENCE
RETAILING PRICING POSTAL DATAMETRIX TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30, 2000
Revenues:
Information services and
software maintenance ... $ 4,670,000 $ 382,000 $ 62,000 $ 78,000 $ 5,192,000
Software licensing ........ 77,000 174,000 -- -- 251,000
------------ ------------ ------------ ------------ ------------
Total revenues ....... $ 4,747,000 $ 556,000 $ 62,000 $ 78,000 $ 5,443,000
============ ============ ============ ============ ============
Operating income (loss) ... $ 1,366,000 $ 9,000 $ (91,000) $ (531,000) $ 753,000
============ ============ ============ ============
Other income (expense) .... (179,000)
------------
Income before income tax .. $ 574,000
============
Amortization .............. $ 160,000 $ -- $ -- $ 99,000 $ 259,000
Depreciation .............. 83,000 3,000 3,000 15,000 104,000
Identifiable assets ....... 9,538,000 -- -- 1,191,000 10,729,000
Additions to property/
equipment .............. 26,000 -- -- -- 26,000
QUARTER ENDED JUNE 30, 1999
Revenues:
Information services and
software maintenance ... $ 3,322,000 $ 463,000 $ 5,000 $ 138,000 $ 3,928,000
Software licensing ........ 1,000 -- -- -- 1,000
------------ ------------ ------------ ------------ ------------
Total revenues ....... $ 3,323,000 $ 463,000 $ 5,000 $ 138,000 $ 3,929,000
============ ============ ============ ============ ============
Operating income (loss) ... $ (50,000) $ 16,000 $ (126,000) $ (236,000) $ (396,000)
============ ============ ============ ============
Other income (expense) .... 8,000
------------
Loss before income tax .... $ (388,000)
============
Amortization .............. $ 24,000 $ 6,000 $ -- $ -- $ 30,000
Depreciation .............. 87,000 3,000 2,000 15,000 107,000
Identifiable assets ....... 10,035,000 -- -- 500,000 10,535,000
Additions to property/
equipment .............. 56,000 -- -- -- 56,000
</TABLE>
9
<PAGE> 10
Information on segments and a reconciliation to income before taxes for
the nine months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
SEGMENTS
-------------------------------------------------------------------------------
CONVENIENCE
RETAILING PRICING POSTAL DATAMETRIX TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED JUNE 30, 2000
Revenues:
Information services and
software maintenance ......... $ 11,541,000 $ 1,574,000 $ 87,000 $ 373,000 $ 13,575,000
Software licensing .............. 91,000 280,000 -- 1,000 372,000
------------ ------------ ------------ ------------ ------------
Total revenues ............. $ 11,632,000 $ 1,854,000 $ 87,000 $ 374,000 $ 13,947,000
============ ============ ============ ============ ============
Operating income (loss) ......... $ 1,779,000 $ 110,000 $ (299,000) $ (1,315,000) $ 275,000
============ ============ ============ ============ ============
Other income (expense) .......... (252,000)
------------
Income before income tax ........ $ 23,000
============
Amortization .................... $ 362,000 $ 13,000 $ -- $ 165,000 $ 540,000
Depreciation .................... 264,000 10,000 7,000 46,000 327,000
Identifiable assets ............. 9,538,000 -- -- 1,191,000 10,729,000
Additions to property/
equipment .................... 531,000 -- -- -- 531,000
NINE MONTHS ENDED JUNE 30, 1999
Revenues:
Information services and
software maintenance ......... $ 11,509,000 $ 1,657,000 $ 282,000 $ 139,000 $ 13,587,000
Software licensing .............. 265,000 -- -- -- 265,000
------------ ------------ ------------ ------------ ------------
Total revenues ............. $ 11,774,000 $ 1,657,000 $ 282,000 $ 139,000 $ 13,852,000
============ ============ ============ ============ ============
Operating income (loss) ......... $ 595,000 $ 330,000 $ (122,000) $ (676,000) $ 127,000
============ ============ ============ ============ ============
Other income (expense) .......... (11,000)
------------
Income before income tax ........ $ 116,000
============
Amortization .................... $ 65,000 $ 17,000 $ -- $ -- $ 82,000
Depreciation .................... 248,000 9,000 6,000 43,000 306,000
Identifiable assets ............. 10,035,000 -- -- 500,000 10,535,000
Additions to property/
equipment .................... 250,000 -- -- -- 250,000
</TABLE>
5. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is net
income, plus certain other items that are recorded directly to
shareholders' equity, bypassing net income. The only such items currently
applicable to the Company are foreign currency translation adjustments.
Comprehensive income (loss) was $564,000 and $(406,000) for the quarters
ended June 30, 2000 and 1999, respectively. For the nine months ended June
30, 2000 and 1999, comprehensive income was $9,000 and $23,000,
respectively.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS. MPSI reported net income of $560,000 or $.19 per
share on revenues of $5.4 million for the quarter ended June 30, 2000 compared
with a net loss of $387,000 or $.13 per share on revenues of $3.9 million for
the comparable quarter last year. For the nine months ended June 30, 2000 MPSI
reported net income of $10,000 or $.00 per share on revenues of $13.9 million.
This compared with a net loss of $27,000 or $.01 per share on revenues of $13.9
million for the comparable nine months of last fiscal year. As discussed in more
detail below, revenues for the quarter and nine months ended June 30, 2000 were
up, while operating expenses increased slightly due to downsizing costs incurred
in the U.S. offices and an increased emphasis on new product offerings.
The Company does not believe that inflation has significantly impacted the
results of operations of any business segment during the quarters ended June 30,
2000 and 1999. The Company has adjusted prices downward for certain portions of
its U.S. business in response to increased competition. These price reductions
contributed to lower profitability on individual unit sales for the nine months
ended June 30, 2000, but MPSI's new Version 1.0 Retail Explorer(TM) ("REX")
software for North America, coupled with the lower prices, has generated
increased customer penetration in North America, which has offset the effect of
price adjustments.
CONVENIENCE RETAILING SEGMENT. This business unit accounted for revenues of
$4,747,000, and $3,323,000 for the fiscal quarters ended June 30, 2000 and 1999,
respectively, with corresponding operating profit (loss) of $1,366,000 and
$(50,000), respectively. The increase in revenues and profitability for the
third fiscal quarter of 2000 as compared with 1999 is primarily attributable to
a significant order for REX related projects from an existing client, thus
allowing the Company to leverage its extensive demographic database. The timing
of new or renewed long-term software license agreements, with the normally
attendant market study orders, can have a substantial impact upon reported
revenues and net income between accounting periods. The Company continues to
experience pricing pressures on its core products which has a negative impact on
revenues, but is countering the lower prices with cost reductions achieved
through technological improvements attributable to the North American REX
methodology. Amortization, including costs related to the REX software of
$73,000 (none in the 1999 quarter), was $160,000 for the quarter ended June 30,
2000 as compared to $24,000 for the same quarter last fiscal year.
Revenues for the nine months ended June 30, 2000 and 1999 were $11,632,000
and $11,774,000, respectively. Operating income for the nine months ended June
31, 2000 was $1,779,000 as compared to an operating income of $595,000 for the
comparable period last year. Although revenues decreased slightly from last
fiscal year, reflecting the effects of competitively driven lower prices in
certain MPSI operating regions, operating income has improved due to new
business and process improvements which were implemented during the fiscal year
as the result of the release of the REX software to North American clients.
These process changes in market study database development reduced the overall
cost of North American database construction. The Company continues to evaluate
its cost structure to determine where further reductions can be implemented as
Version 2.0 (the generic global version) of REX becomes available. Development
of the generic global modeling software was completed in June 2000, and it was
released to client service teams responsible for regional calibration and roll
out. In July 2000, the Company delivered its first Version 2 of REX to a Latin
American client. Management expects to have Version 2.0 REX available for all
MPSI operating regions by the end of calendar 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 targets 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. Over and above startup
operating expenses, the Company committed significant resources during fiscal
1999 ($794,000), and during the first fiscal quarter of 2000 ($392,000) to
repackaging existing market information, enhancing that information from both
public and private data sources, and developing new delivery vehicles (PC and
Internet interfaces). As of the completion date in January 2000, total costs of
$1.2 million have been capitalized in connection with development of the
national U.S. geographic database.
11
<PAGE> 12
The unit generated revenues of $78,000 during the fiscal quarter ended June
30, 2000 as compared with $138,000 (primarily one special project) during the
comparable period last fiscal year. DataMetrix incurred an operating loss of
$531,000 for the quarter ended June 30, 2000 as compared with an operating loss
of $236,000 during the same fiscal quarter last year. The increase in operating
loss is attributable principally to a full staffing compliment during the June
2000 quarter as compared to last year's startup phase and amortization costs of
$99,000 associated with the national U.S. geographic database (no amortization
was applicable last year during the development stage).
For the nine months ended June 30, 2000 and 1999, respectively, DataMetrix
generated revenues of $374,000 and $139,000 with related operating losses of
$1,315,000 and $676,000. The increase in the operating loss is partially
attributable to operating costs being incurred for the entire nine months as
compared to partial year startup costs for the comparable period last fiscal
year. Additionally, last fiscal year, development costs for the U.S. database of
$499,000 were being capitalized, whereas, with completion of that development in
January 2000, amortization costs of $165,000 on the U.S. database were charged
to cost of sales during fiscal year 2000.
POSTAL SEGMENT. Although MPSI has undertaken projects directed at postal
agencies (primarily the United States Postal Service) for several years, this
business unit tends to be cyclical and has not yet reached critical mass. The
unit generated revenue of $62,000 during the third fiscal quarter of 2000 as
compared to $5,000 in the comparable quarter of last fiscal year. Corresponding
operating losses for the quarters ended June 30, 2000 and 1999 were $91,000 and
$126,000, respectively.
Revenues for the nine months ended June 30, 2000 and 1999 were $87,000 and
$282,000, respectively. Operating loss for the nine months ended June 30, 2000
was $299,000 as compared to an operating loss of $122,000 for the comparable
fiscal period last year.
The Company is continuing to evaluate the overall impact of the Postal
segment on consolidated operations and the potential of this segment to
positively contribute to operating income. Introduction of the new Huff Market
Area Planner(TM) ("Huff") software will allow MPSI to target additional needs in
this market segment. Approximately $37,000 of cost was capitalized during this
fiscal year for the Huff software, which was completed during the second fiscal
quarter of 2000. This software tool facilitates client analysis of their retail
customer from a marketing perspective (as opposed to MPSI's traditional "site"
orientation).
PRICING SEGMENT. Revenues of $556,000 for the quarter ended June 30, 2000,
as compared to $463,000 during the same quarter last fiscal year, are up
approximately $93,000 (20%) primarily due to new customers and project timing.
Operating income of $9,000 for the third fiscal quarter of 2000 compares with
operating income of $16,000 during the comparable quarter last year. Although
revenues were up for the quarter, the effect on operating income was offset by
increased staffing and internal allocations of shared corporate services as this
unit continues to grow.
Revenues for the nine months ended June 30, 2000 and 1999 were $1,854,000
and $1,657,000, respectively. Operating income for the nine months ended June
30, 2000 was $110,000 as compared to an operating income of $330,000 for the
comparable fiscal period last year. The decline in operating income for the nine
months ended June 30, 2000 resulted from increased staff in anticipation of new
geographic business and internal allocations relating to utilization of shared
corporate resources.
CONSOLIDATED OPERATING EXPENSES. Consolidated operating expenses were
$2,563,000 for the quarter ended June 30, 2000 as compared with $2,536,000
during the same quarter last fiscal year. For the nine months ended June 30,
2000, consolidated operating expenses were $8,168,000 as compared with
$7,880,000 for the same period last fiscal year.
Consolidated general and administrative expenses for the quarter ended June
30, 2000 were $936,000 as compared to $678,000 during the same fiscal quarter of
last year. General and administrative expenses for the nine months ended June
30, 2000 were $2,711,000 as compared with $2,209,000 during the same fiscal
period last year. The increases for both the quarter and nine months ended June
30, 2000 were primarily the result of severance costs associated with a 20%
reduction in staff positions that occurred in several stages throughout the
reporting periods. Additionally, during the comparable quarter of last fiscal
year, the Company received a substantial franchise tax refund that reduced
general and administrative expenses.
Consolidated sales, marketing, and client service expenses for the quarter
ended June 30, 2000 were $1,365,000 as compared with $1,598,000 for the same
fiscal period of last year. For the nine months ended June 30, 2000 and 1999
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<PAGE> 13
respectively, sales, marketing and client services were $4,538,000 and
$4,745,000. The reduction in expenses for both the quarter and nine months ended
June 30, 2000, as compared to the same periods last fiscal year, is a result of
staff reductions that occurred during the second fiscal quarter of this year. As
the Company has adjusted its selling and marketing objectives to accommodate
changes in product offerings and the marketplace, we have realigned personnel to
meet those objectives.
Consolidated research and development expenses (including amounts
capitalized for product development as discussed under Financial Condition and
Liquidity below) for the quarter and nine months ended June 30, 2000 were
comparable with the same fiscal periods last year.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is
exposed to market risk from changes in interest rates on debt as well as changes
in foreign currency exchange rates. The Company does not use financial
instruments to hedge its market risks.
OTHER INCOME AND EXPENSES. Interest expense of $103,000 and $275,000 was
higher during the quarter and nine months ended June 30, 2000, respectively, as
compared to $35,000 and $149,000, respectively, for the comparable periods last
fiscal year as a result of increased borrowings on the Company's line of credit
in fiscal 2000. The Company carried higher working capital balances throughout
2000, due to funding needs attributable to new business start up of DataMetrix
and partially as the result of deferred market study orders by certain clients
undergoing mergers.
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 $31,000 and
$18,000, respectively, during the quarter and nine months ended June 30, 2000,
as compared to $6,000 and $42,000 for the comparable periods last fiscal year.
Although MPSI anticipates continuing exposure to exchange fluctuations, no
material adverse effect is expected as the Company denominates a limited number
of contracts in foreign currencies.
INCOME TAXES. Income taxes for the quarter and nine months ended June 30,
2000 were $14,000 and $13,000, respectively, as compared to $(1,000) and
$143,000 for the same fiscal periods last year. The changes in income taxes are
primarily due to (a) foreign taxes withheld at the source by customers and (b)
favorable settlement of an IRS tax audit (for which the Company had accrued
approximately $60,000 at September 30, 1999 against an ultimately lower
settlement which resulted in a favorable adjustment of approximately $45,000 in
the first fiscal quarter). 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.
FINANCIAL CONDITION AND LIQUIDITY
Working capital, the Company's primary measure of liquidity, was $834,000
at June 30, 2000 as compared with $259,000 at September 30, 1999. The increase
in liquidity is principally attributable to a large contract received, and
substantially completed, late in the third fiscal quarter that is reflected in
trade accounts receivable. The working capital increase from September 30, 1999
of $575,000 reflects increased cash and receivables aggregating approximately
$1,073,000 offset by a $425,000 increase in corporate working capital debt and
an increase in trade liabilities of approximately $91,000.
The overall improvement is reflective of the substantial new business in
the U.S. where MPSI's REX software continues to be very positively received as
it is exposed to a broader cross section of the Company's traditional
petroleum-oriented convenience retail market. Strong orders, particularly in
June, portend improved cash flow for the fourth fiscal quarter, which is
imperative since the Company is fully utilizing its working capital credit line.
The Company's $2,000,000 line of credit matures October 30, 2000 as the
result of a recent extension effective July 1, 2000. Depending on the outcome of
certain pending transactions expected to be consummated in the interim, the bank
will then re-evaluate the amount and/or terms of future commitments they might
make to the Company. Management anticipates a significant reduction in both the
present outstanding debt and in the future debt needs for fiscal 2001.
Management further believes that additional funding could be attracted through
equity channels and is exploring such options in connection with a business
initiative yet to be implemented.
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<PAGE> 14
Expenditures for the acquisition/upgrade of computer equipment were $80,000
during the nine months ended June 30, 2000 as compared with $250,000 in the
comparable period of 1999. Additionally, $451,000 of software developed for
internal use (in conjunction with the new REX software) was transferred to
Plant, Property & Equipment during the second quarter of fiscal 2000. Except for
possible acquisition of equipment and software which might be necessary in
connection with an increased Internet initiative, management expects fiscal 2000
equipment/software acquisitions to be lower than the $386,000 expended 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 product development expenditures for the nine months ended June
30, 2000 were $987,000 (including $98,000 expended on software developed for
internal use) compared with $1,153,000 in the same period last year. The fiscal
year 2000 capitalized costs principally reflect completion of the North American
version of REX, initiation and completion of the generic global REX software to
be used in international applications, development of the Huff software and
completion of the DataMetrix U.S. geographic database. 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. As noted above, the first non-U.S. version of REX was released in
Latin America in July 2000. Management anticipates that REX versions for
Europe/Africa, Southeast Asia and Japan will become available by the end of
calendar 2000. The Company's first interactive Internet application went live in
June 2000. SiteMetrixPlus is the first application in a series of planned
releases over the next 12-18 months. SiteMetrixPlus allows Internet users to
access the Company's extensive U.S. retail information (street files,
demographics, outlet information, traffic flow, etc.) on line. MPSI will launch
its first Internet model later this year. Fiscal 2000 development costs are
expected to be funded principally out of operating cash flows.
MPSI's backlog of market studies at June 30, 2000 in the amount of
approximately $8.7 million, ($9.3 million at September 30, 1999), contained a
substantial number of recurring studies under multi-year client commitments.
Such studies represent a significant amount 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 IMPACT
As of June 30, 2000, there have been no problems related to the millennium
changes. The Company continues to evaluate all computer equipment and software
systems applicable to client deliveries and internal use. All necessary
correcting actions were taken prior to December 31, 1999 where significant
issues were identified in MPSI products. Relative to third party software, MPSI
had previously upgraded, where necessary, to Y2K compliant software versions. To
the extent it is within the Company's control, management believes the Company
has taken all measures necessary to prevent material Y2K problems and has
published all pertinent Y2K readiness information in such a manner as to allow
clients to determine the state of MPSI's Y2K readiness.
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 was 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, but as of June 30, 2000,
there have been no Y2K issues negatively impacting the Company.
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<PAGE> 15
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.
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.
(a) Exhibits:
11.1 Earnings per share computation
27.1 Financial Data Schedule
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
MPSI SYSTEMS INC.
Date August 2, 2000 By /s/ Ronald G. Harper
----------------------- --------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date August 2, 2000 By /s/ James C. Auten
----------------------- --------------------------------
James C. Auten
Vice President
(Chief Financial Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
11.1 Earnings Per Share Computation
27.1 Financial Data Schedule
</TABLE>
