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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of shares of common stock outstanding at December 31, 1999 - 2,852,351
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INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - December 31, 1999
and September 30, 1999 ................................................................... 3
Consolidated Statements of Operations -
Three Months Ended December 31, 1999 and 1998............................................. 5
Consolidated Statement of Stockholders' Equity -
Three Months Ended December 31, 1999 ..................................................... 6
Consolidated Statements of Cash Flow -
Three Months Ended December 31, 1999 and 1998 ............................................ 7
Notes To Consolidated Financial Statements..................................................... 8
Management's Discussion and Analysis of Financial Condition and
Quarterly Results of Operations ............................................................... 10
Part II. OTHER INFORMATION (Including Index to Exhibits)................................................. 14
SIGNATURES ............................................................................................... 15
</TABLE>
2
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 508,000 $ 296,000
Short-term investments, at cost 3,000 3,000
Receivables:
Trade 3,760,000 3,849,000
Current portion of long-term receivables 1,567,000 1,307,000
Work in process inventory 75,000 107,000
Prepayments 103,000 137,000
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Total current assets 6,016,000 5,699,000
Long-term receivables, net of current portion
and unamortized discount 1,435,000 1,756,000
Property and equipment, net of accumulated amortization 869,000 945,000
Capitalized product development costs, net 2,397,000 1,933,000
Other assets 201,000 185,000
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Total assets $ 10,918,000 $ 10,518,000
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</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>
December 31, September 30,
1999 1999
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(unaudited)
<S> <C> <C>
Current liabilities:
Note payable to bank (Note 3) $ 1,907,000 $ 1,575,000
Accounts payable 819,000 686,000
Accrued liabilities 1,305,000 1,617,000
Deferred revenue 2,292,000 1,562,000
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Total current liabilities 6,323,000 5,440,000
Noncurrent deferred revenue 996,000 1,146,000
Noncurrent deferred income taxes 88,000 86,000
Other noncurrent liabilities 125,000 133,000
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Total liabilities 7,532,000 6,805,000
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Commitments and contingencies -- --
Stockholders' equity:
Preferred Stock, $.10 par value, 1,000,000
shares authorized, none issued or
outstanding -- --
Common Stock, $.05 par value, 20,000,000 shares
authorized, 2, 852,000 and 2,849,000 shares
issued and outstanding at December 31, 1999
and September 30, 1999, respectively 143,000 142,000
Junior Common Stock, $.05 par value, 500,000
shares authorized, none issued or
outstanding -- --
Additional paid-in capital 13,087,000 13,079,000
Deficit (10,640,000) (10,272,000)
Other accumulated comprehensive income 796,000 764,000
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Total stockholders' equity 3,386,000 3,713,000
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Total liabilities and stockholders' equity $ 10,918,000 $ 10,518,000
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</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31,
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1999 1998
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<S> <C> <C>
Revenues:
Software maintenance and information services $ 3,786,000 $ 4,433,000
Software 15,000 120,000
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Total revenues 3,801,000 4,553,000
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Cost of Sales:
Software maintenance and information services 1,375,000 1,811,000
Software 79,000 51,000
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Total cost of sales 1,454,000 1,862,000
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Gross profit 2,347,000 2,691,000
Operating expenses:
General and administrative 959,000 733,000
Marketing 1,482,000 1,478,000
Research and development 318,000 336,000
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Total operating expenses 2,759,000 2,547,000
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Operating income (loss) (412,000) 144,000
Other income (expense):
Interest income 38,000 56,000
Interest expense (52,000) (13,000)
Gain on foreign exchange 23,000 27,000
Other, net 1,000 6,000
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Income (loss) before income taxes (402,000) 220,000
Provision for income taxes (34,000) 125,000
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Net income (loss) $ (368,000) $ 95,000
============ ============
Per Share: Basic and diluted income (loss) per common share $ (.13) $ .03
</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<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, 1999 2,849,000 $ 142,000 $ 13,079,000 $(10,272,000) $ 764,000 $ 3,713,000
Net loss -- -- -- (368,000) -- (368,000)
Other accumulated
comprehensive income:
Foreign currency
translation adjustment -- -- -- -- 32,000 32,000
------------
Total comprehensive income $ (336,000)
Stock options exercised 3,000 1,000 8,000 -- -- 9,000
------------ ------------ ------------ ------------ ------------ ------------
Balance,
December 31, 1999 2,852,000 $ 143,000 $ 13,087,000 $(10,640,000) $ 796,000 $ 3,386,000
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(NOTE 2)
<TABLE>
<CAPTION>
Three Months Ended December 31,
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1999 1998
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<S> <C> <C>
Income (loss) from operations $ (368,000) $ 95,000
Adjustments to reconcile income (loss) from operations
to cash used by operations:
Depreciation and amortization of property and equipment 91,000 100,000
Amortization of software products 78,000 50,000
Changes in assets and liabilities:
Increase (decrease) in assets:
Receivables 148,000 (484,000)
Inventories 32,000 (108,000)
Other 27,000 (130,000)
Increase (decrease) in liabilities:
Trade payables and accruals (58,000) (221,000)
Taxes payable (93,000) (88,000)
Deferred revenue 580,000 401,000
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Net cash provided (used) by operations 437,000 (385,000)
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Cash flows from investing activities:
Purchase equipment (15,000) (84,000)
Software development (542,000) (105,000)
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Net cash used by investing activities (557,000) (189,000)
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Cash flows from financing activities:
Proceeds from debt 332,000 830,000
Exercise of stock options -- --
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Net cash provided by financing activities 332,000 830,000
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Increase in cash and cash equivalents 212,000 256,000
Cash and cash equivalents at beginning of period 296,000 224,000
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Cash and cash equivalents at end of period $ 508,000 $ 480,000
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</TABLE>
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 three months ended December 31,
1999. Accordingly, reference should be made to the audited financial
statements at September 30, 1999.
In the opinion of the Company, the unaudited consolidated financial
statements as of December 31, 1999 contain all adjustments (including
normal recurring accruals) necessary to fairly present the financial
position and the results of operations of the Company. The results of
operations for the three months ended December 31, 1999 are not
necessarily indicative of the results to be expected for the full year.
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2. Supplemental Cash Flow Information
The Company paid interest of $52,000 and $13,000 during the three months
ended December 31, 1999 and 1998, respectively. Income taxes of $44,000
and $196,000 were paid during the quarters ended December 31, 1999 and
1998, respectively, including foreign income taxes withheld at the source
from remittances by customers.
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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
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. At December 31, 1999,
$1,907,000 was outstanding. Although at December 31, 1999 the Company was
below the minimum Tangible Net Worth provision in the loan Agreement by
$114,000, the bank has agreed to waive that provision until the June 2000
renewal discussions.
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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
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 December 31, 1999 and, therefore, no amortization was
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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 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 before taxes are as
follows:
<TABLE>
<CAPTION>
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S E G M E N T S
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CONVENIENCE
RETAILING PRICING POSTAL DATAMETRIX TOTAL
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<S> <C> <C> <C> <C> <C>
QUARTER ENDED DEC 31, 1999
Revenues:
Information services and
software maintenance.... $ 3,271,000 $ 459,000 $ 25,000 $ 31,000 $ 3,786,000
Software licensing......... -- 15,000 -- -- 15,000
------------ ------------ ------------ ------------ ------------
Total revenues........ $ 3,271,000 $ 474,000 $ 25,000 $ 31,000 $ 3,801,000
============ ============ ============ ============ ============
Operating income (loss).... $ 119,000 $ (43,000) $ (88,000) $ (400,000) $ (412,000)
============ ============ ============ ============
Other income (expense)..... 10,000
------------
Income before income tax... $ (402,000)
============
Amortization............... $ 72,000 $ 6,000 $ -- $ -- $ 78,000
Depreciation............... 73,000 3,000 2,000 13,000 91,000
Identifiable assets........ 9,700,000 -- -- 1,218,000 10,918,000
Additions to property/
equipment............... 15,000 -- -- -- 15,000
QUARTER ENDED DEC 31, 1998
Revenues:
Information services and
software maintenance.... $ 3,585,000 $ 601,000 $ 247,000 $ -- $ 4,443,000
Software licensing......... 120,000 -- -- -- 120,000
------------ ------------ ------------ ------------ ------------
Total revenues........ $ 3,705,000 $ 601,000 $ 247,000 $ -- $ 4,553,000
============ ============ ============ ============ ============
Operating income........... $ (145,000) $ 17,000 $ 132,000 $ (60,000) $ 144,000
============ ============ ============ ============
Other income (expense)..... 76,000
------------
Income before income tax... $ 220,000
============
Amortization............... $ 44,000 $ 6,000 $- $ -- $ 50,000
Depreciation............... 81,000 3,000 9,000 14,000 100,000
Identifiable assets........ 10,518,000 -- -- -- 10,518,000
Additions to property/
equipment............... 84,000 -- -- -- 84,000
</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 was ($337,000) and $173,000 for the quarters ended
December 31, 1999 and 1998, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATION
FOR THE QUARTER ENDED DECEMBER 31, 1999
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS. MPSI reported a net loss of $368,000 for the first
fiscal quarter of 2000 as compared with net income of $95,000 for the same
fiscal quarter of 1999. 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 discussed in more detail below include industry diversification through
bundled retail data products (DataMetrix), retail services to postal agencies
and retail pricing services.
CONVENIENCE RETAILING SEGMENT. This business unit accounted for revenues of
$3,271,000 for the quarter ended December 31, 1999 as compared with revenues of
$3,705,000 for the fiscal quarter ended December 31, 1998. Corresponding
operating profit (loss) was $119,000 and $(145,000), respectively. Although
revenues decreased as a result of pricing pressures, the increase in
profitability for the first fiscal quarter of 2000 compared with 1999 is
attributable to (a) accelerated market study orders by a major client which
allowed the Company to leverage its data costs and (b) process improvements
which were implemented during the first fiscal quarter as the result of the
release of the Retail Explorer ("REX")(TM) software to U.S. clients. These
process changes in market study database development reduced the overall cost of
U.S. database construction. 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.
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 applications. 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). Costs of
approximately $1.1 million have been capitalized in connection with development
of the U.S. geographic database through December 31, 1999 (see the Consolidated
Statement of Cash Flow for quarterly capitalization.) Although some sales did
occur in late fiscal 1999, with the 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 $31,000 during the fiscal quarter ended December 31, 1999
as compared with no revenue during the initial start up during the comparable
period last fiscal year. DataMetrix incurred an operating loss of $400,000 for
the quarter ended December 31, 1999 as compared with an operating loss of
$60,000 during the same fiscal quarter last year in which DataMetrix was first
getting started.
POSTAL SEGMENT. Although MPSI has undertaken projects directed at postal
agencies (primarily the United States Postal Service) for a number of years,
this business tends to be cyclical and has not yet reached critical mass. This
unit generated revenues of $25,000 and $247,000, respectively, for the quarters
ended December 31, 1999 and 1998, with attendant operating income (losses) of
$(88,000) and $132,000 in the first fiscal quarter of 2000 and 1999,
respectively. Introduction of new Huff Market Area Planner software is expected
to positively impact fiscal 2000.
PRICING SEGMENT. MPSI has experienced growth in this business segment since
it was separately staffed in 1997; however, revenues of $474,000 for the quarter
ended December 31, 1999 are down approximately $127,000 from the first quarter
of last fiscal year primarily due to project timing. The operating loss of
$43,000 incurred during the first fiscal quarter of 2000
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results from the timing of orders as discussed above and increased internal
allocations relating to utilization of shared corporate resources. The Company
anticipates that this segment will be profitable during the remainder of fiscal
2000 and will exhibit significant revenue growth.
The Company does not believe that inflation has significantly impacted the
results of operations during the quarters ended December 31, 1999 and 1998. The
Company has adjusted prices downward for certain portions of its U.S. business
in response to increased competition. These price reductions contributed to the
lower revenues this fiscal quarter, but MPSI's new Retail Explorer coupled with
the lower prices should generate increased customer penetration, which new
business should more than offset the effect of price adjustments.
CONSOLIDATED OPERATING EXPENSES. Consolidated operating expenses were
$2,759,000 for the quarter ended December 31, 1999 as compared with $2,547,000
during the same quarter last fiscal year.
General and administrative expenses increased $226,000 as compared to the
first fiscal quarter of last year primarily as a result of severance costs
associated with an 8% reduction in staff that occurred during the quarter ended
December 31, 1999. The Company anticipates further cost reduction measures to be
implemented during the second fiscal quarter, and perhaps thereafter, in an
effort to (a) properly align costs with anticipated revenues and (b) streamline
the database production process for foreign customers as REX software is
released later this fiscal year.
Consolidated sales, marketing, and client service expenses were comparable
with the first fiscal quarter of last 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) increased $419,000 (95%) in the quarter ended December 31, 1999
as compared with the same fiscal quarter last year. The 1999 increase reflects
approximately $311,000 for costs incurred in the DataMetrix segment to develop
their U.S. geographic database. Additionally, $117,000 was expended in final
completion of the U.S. Retail Explorer software, and costs of $41,000 were
incurred in the development of the generic REX software system which will be
utilized by our international clients. Approximately $37,000 of cost was
capitalized during the quarter ended December 31, 1999 for the Huff Market Area
Planner software, which is expected to be completed during fiscal 2000. This
software tool facilitates client analysis of their retail customer from a
marketing perspective (as opposed to MPSI's traditional "site" orientation).
Comparatively, the only major project under development during the quarter ended
December 31, 1998 was the Japanese CAPS model for which approximately $105,000
was capitalized.
OTHER INCOME AND EXPENSES. Interest expense of $52,000 was higher during
the quarter ended December 31, 1999 as compared to $13,000 last fiscal year as a
result of increased borrowings on the Company's line of credit. The Company
typically generates less cash during its first fiscal quarter as a result of
reduced client orders during the last calendar quarter of a year. Additionally,
the Company carried higher working capital balances throughout 1999, partially
due to funding needs attributable to new business start up of DataMetrix.
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 gains of approximately $23,000 and
$27,000 during the quarters ended December 31, 1999 and 1998, respectively.
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. The Company does not utilize derivative
financial instruments to hedge their foreign currency risks.
INCOME TAXES. Income taxes for the quarter ended December 31, 1999 as
compared to the same period last year decreased $159,000 primarily due to (a)
losses incurred during the quarter, (b) lower foreign taxes withheld at the
source by customers and (c) 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 present 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.
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FINANCIAL CONDITION AND LIQUIDITY
Working capital, the Company's primary measure of liquidity, was $(307,000)
at December 31, 1999 as compared with $259,000 at September 30, 1999. Generally,
the decrease in liquidity is principally attributable to (a) substantial new
product development and (b) the new DataMetrix segment established in early
fiscal 1999. The comparative decrease of $566,000 reflects a $332,000 increase
in corporate working capital debt (which was utilized to reduce trade
liabilities by approximately $179,000) and an increase of $730,000 (47%) in the
deferred revenue component at December 31, 1999 as compared with September 30,
1999 offset primarily by increased cash and receivables aggregating
approximately $380,000. The deferred revenue increase was the result of a large
order received from, and billed to, a major client late in the first fiscal
quarter of 2000. While increases in deferred revenue have the effect of lowering
working capital, such increases do not require commensurate cash outflows (due
to included profit component) as is the case with other current liability
accounts.
Based primarily on the product re-engineering activities and the 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 DataMetrix business initiative and
REX product development costs have negatively impacted 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. At
December 31, 1999, approximately $93,000 of additional borrowing capacity
remains available under the bank credit line, although the Company's net equity
of $3,386,000 is below the $3,500,000 covenant requirement set forth in the loan
Agreement. The bank has, however, agreed to waive this provision until the June
2000 renewal negotiations, in view of cost reduction actions being undertaken by
the Company. 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 available bank line of
credit to be sufficient for the remainder of fiscal 2000 operations, although
cash resources will continue to be tight through much of the fiscal year.
Management further believes that additional funding could be attracted through
equity channels and is exploring such options in connection with a third
business initiative yet to be implemented, expansion of the retail consulting
group.
Expenditures for the acquisition/upgrade of computer equipment were $15,000
in the first fiscal quarter of 2000 as compared with $84,000 in 1999. 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 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 software expenditures for the quarter ended December 31, 1999
were $542,000 compared with $105,000 in the December 1998 quarter (wherein only
the CAPS version for Japan was under development during the first quarter of
last fiscal year). The fiscal year 2000 capitalized costs principally reflect
completion of the U.S. version of REX, initial work on the generic REX software
to be used in international applications, development of the Huff Market Area
Planner and continued work on the DataMetrix product . 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 are expected to be funded principally
out of operating cash flows.
MPSI's backlog of market studies at December 31, 1999 in the amount of
approximately $9.2 million, ($9.3 million at September 30, 1999), contained a
substantial number of recurring studies under multi-year client 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 IMPACT
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The Company has completed its evaluation of all computer equipment and
software systems applicable to client deliveries and internal use. Further, all
necessary correcting actions have been taken where significant issues were
identified in MPSI products. Relative to third party software, MPSI has
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.
- -------------------
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.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings - None.
Item 2 -- Changes in Securities - None.
Item 3 -- Defaults Upon Senior Securities - None.
Item 4 -- Submission of Matters to a Vote of Security Holders - None
Item 5 -- Other Information - None
Item 6 -- Exhibits and Reports on Form 8-K.
(a) Exhibit:
11.1 Earnings per share computation
27.1 Financial Data Schedule
(b) Reports on Form 8-K - No reports
on such form were filed during the
quarter ended December 31, 1999.
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 February 8, 2000 By /s/ Ronald G. Harper
----------------------------- -------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date February 8, 2000 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 Company's stock option plan. The granting of these options may have a
dilutive effect on earnings per common and common equivalent share. Following is
a summary computation of the weighted average number of shares outstanding and
earnings per share using the treasury-stock method. Primary and diluted earnings
per share are the same for each period presented.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended December 31,
--------------------------------
Weighted Average Shares Outstanding 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock outstanding throughout the period 2,849,000 2,841,000
Weighted average exercised options 3,000 --
Dilutive unexercised stock options (Treasury Stock Method):
Shares presumed issued at exercise ($1.00 in 1998) -- 81,000
Less: Shares repurchased with presumed proceeds at average per
share price ($1.09 in 1998) -- ( 74,000)
- --------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 2,852,000 2,848,000
==========================================================================================================================
</TABLE>
Antidilutive options for 246,000 shares were outstanding at exercise prices
ranging from $1.00 to $5.50 at December 31, 1999 (160,000 shares at option
prices from $3.00 to $5.50 at December 31, 1998).
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b)
Weighted Per Share (a / b)
PER SHARE COMPUTATIONS Results of Average ----------------------
Operations Shares 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss - Three Months Ended
December 31, 1999 $ (368,000) 2,852,000 $(.13)
Net income - Three Months Ended
December 31, 1998 $ 95,000 2,848,000 $ .03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 508
<SECURITIES> 3
<RECEIVABLES> 5,327
<ALLOWANCES> 0
<INVENTORY> 75
<CURRENT-ASSETS> 6,016
<PP&E> 5,896
<DEPRECIATION> 5,027
<TOTAL-ASSETS> 10,918
<CURRENT-LIABILITIES> 7,532
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 3,243
<TOTAL-LIABILITY-AND-EQUITY> 10,918
<SALES> 3,801
<TOTAL-REVENUES> 3,801
<CGS> 1,454
<TOTAL-COSTS> 2,759
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (402)
<INCOME-TAX> 34
<INCOME-CONTINUING> (368)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (368)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
