<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 six months ended March 31, 2000 Commission file no. 0-11527
MPSI SYSTEMS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1064024
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4343 South 118th East Avenue, Tulsa Oklahoma 74146
- --------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 877-6774
------------------------------
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 March 31, 2000 - 2,911,783
----------------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I. FINANCIAL INFORMATION:
Financial Statements:
Consolidated Balance Sheets - March 31, 2000 and September 30, 1999 ....................... 3
Consolidated Statements of Operations - Three Months and Six Months
Ended March 31, 2000 and 1999 ........................................................ 5
Consolidated Statement of Stockholders' Equity - Six Months
Ended March 31, 2000 ................................................................. 6
Consolidated Statements of Cash Flow -
Six Months Ended March 31, 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>
MARCH 31, SEPTEMBER 30,
ASSETS 2000 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 253,000 $ 296,000
Short-term investments, at cost 3,000 3,000
Receivables:
Trade, net 4,182,000 3,849,000
Current portion of long-term receivables 1,405,000 1,307,000
Inventories 73,000 107,000
Prepayments 102,000 137,000
------------ -------------
Total current assets 6,018,000 5,699,000
Property and equipment, net of accumulated amortization 1,228,000 945,000
Long-term receivables, net of current portion
and unamortized discount 1,247,000 1,756,000
Capitalized product development costs, net 1,988,000 1,933,000
Other assets 184,000 185,000
------------ -------------
Total assets $ 10,665,000 $ 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>
MARCH 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Note payable to bank (Note 3) $ 1,907,000 $ 1,575,000
Accounts payable 1,221,000 686,000
Accrued liabilities 1,036,000 1,617,000
Deferred revenue 2,220,000 1,562,000
------------ -------------
Total current liabilities 6,384,000 5,440,000
Noncurrent deferred revenue 843,000 1,146,000
Noncurrent deferred income taxes 85,000 86,000
Other noncurrent liabilities 125,000 133,000
------------ -------------
Total liabilities 7,437,000 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 March 31, 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 (10,822,000) (10,272,000)
Other accumulated comprehensive income 759,000 764,000
------------ -------------
Total stockholders' equity 3,228,000 3,713,000
------------ -------------
Total liabilities and stockholders' equity $ 10,665,000 $ 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 MARCH 31, SIX MONTHS ENDED MARCH 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software maintenance/information services $ 4,597,000 $ 5,226,000 $ 8,383,000 $ 9,659,000
Software licensing 106,000 144,000 121,000 264,000
------------ ------------ ------------ ------------
Total revenues 4,703,000 5,370,000 8,504,000 9,923,000
------------ ------------ ------------ ------------
Cost of Sales:
Software maintenance/information services 1,786,000 2,189,000 3,161,000 4,000,000
Software licensing 137,000 5,000 216,000 56,000
------------ ------------ ------------ ------------
Total cost of sales 1,923,000 2,194,000 3,377,000 4,056,000
------------ ------------ ------------ ------------
Gross profit 2,780,000 3,176,000 5,127,000 5,867,000
Operating expenses:
General and administrative 816,000 798,000 1,775,000 1,531,000
Marketing 1,691,000 1,669,000 3,173,000 3,147,000
Research and development 339,000 330,000 657,000 666,000
------------ ------------ ------------ ------------
Total operating expenses 2,846,000 2,797,000 5,605,000 5,344,000
------------ ------------ ------------ ------------
Operating income (loss) (66,000) 379,000 (478,000) 523,000
Other income (expense):
Interest income 45,000 58,000 83,000 114,000
Interest expense (120,000) (101,000) (172,000) (114,000)
Foreign exchange (10,000) (63,000) 13,000 (36,000)
Other, net 2,000 11,000 3,000 17,000
------------ ------------ ------------ ------------
Income (loss) before income taxes (149,000) 284,000 (551,000) 504,000
Provision for income taxes 33,000 19,000 (1,000) 144,000
------------ ------------ ------------ ------------
Net income (loss) $ (182,000) $ 265,000 $ (550,000) $ 360,000
============ ============ ============ ============
Per Share:
Basic and diluted income (loss)
per common share $ (.06) $ .09 $ (.19) $ .12
Shares Outstanding:
Basic 2,866,000 2,849,000 2,857,000 2,849,000
Diluted 2,866,000 2,891,000 2,857,000 2,879,000
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 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 loss -- -- -- (550,000) -- (550,000)
Other accumulated
comprehensive
income:
Foreign currency
translation adjustment -- -- -- -- (5,000) (5,000)
-------------
Total comprehensive loss $ (555,000)
Stock options exercised 63,000 4,000 66,000 -- -- 70,000
----------- ----------- ----------- ------------ ------------- -------------
Balance,
March 31, 2000 2,912,000 $ 146,000 $13,145,000 $(10,822,000) $ 759,000 $ 3,228,000
=========== =========== =========== ============ ============= =============
</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>
SIX MONTHS ENDED MARCH 31,
------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Net income (loss) $ (550,000) $ 360,000
Adjustments to reconcile net income (loss) to cash provided (used) by
operations:
Depreciation and amortization of property and equipment 223,000 202,000
Amortization of product development costs 280,000 56,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables 74,000 295,000
Inventories 34,000 (99,000)
Other assets 37,000 (37,000)
Increase (decrease) in liabilities:
Trade payables and accruals 39,000 225,000
Taxes payable (97,000) (80,000)
Deferred revenue 355,000 (345,000)
---------- ----------
Net cash provided by operating activities 395,000 577,000
---------- ----------
Cash flows from investing activities:
Purchase equipment (54,000) (194,000)
Product development (786,000) (355,000)
---------- ----------
Net cash used by investing activities (840,000) (549,000)
---------- ----------
Cash flows from financing activities:
Proceeds from debt 332,000 (75,000)
Exercise of stock options 70,000 --
---------- ----------
Net cash provided (used) by financing activities 402,000 (75,000)
---------- ----------
Decrease in cash and cash equivalents (43,000) (47,000)
Cash and cash equivalents at beginning of period 296,000 224,000
---------- ----------
Cash and cash equivalents at end of period $ 253,000 $ 177,000
========== ==========
</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 six months ended March 31, 2000.
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 March 31, 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 market study
orders and software license agreements can significantly impact quarterly
results of operations and, accordingly, the results of operations for the
six months ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
================================================================================
2. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $172,000 and $114,000 during the six months
ended March 31, 2000 and 1999, respectively. Income taxes of $97,000 and
$224,000 were paid during the six months ended March 31, 2000 and 1999,
respectively.
================================================================================
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
9.75% and matures in June 2000. The weighted average interest rates were
9.59% for the six months ended March 31, 2000 and 8.94% for the six months
ended March 31, 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. At March 31, 2000, $1,907,000 was outstanding. Although at
March 31, 2000 the Company was below the minimum Tangible Net Worth
provision in the loan Agreement by $272,000, the bank has agreed to waive
that provision until the June 2000 renewal discussions.
================================================================================
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
completed as of January 31, 2000 and, therefore, amortization of $66,000
was
8
<PAGE> 9
recorded during the second quarter of fiscal 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 March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
S E G M E N T S
---------------------------------------------------------------------
CONVENIENCE
RETAILING PRICING POSTAL DATAMETRIX TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
QUARTER ENDED MARCH 31, 2000
Revenues:
Information services and
software maintenance ................ $ 3,600,000 $ 733,000 $ -- $ 264,000 $ 4,597,000
Software licensing ..................... 14,000 91,000 -- 1,000 106,000
----------- ----------- ----------- ----------- -----------
Total revenues .................... $ 3,614,000 $ 824,000 $ -- $ 265,000 $ 4,703,000
=========== =========== =========== =========== ===========
Operating income (loss) ................ $ 294,000 $ 144,000 $ (120,000) $ (384,000) $ (66,000)
=========== =========== =========== ===========
Other income (expense) ................. (83,000)
-----------
Loss before income tax ................. $ (149,000)
===========
Amortization ........................... $ 130,000 $ 7,000 $ -- $ 66,000 $ 203,000
Depreciation ........................... 109,000 4,000 2,000 18,000 133,000
Identifiable assets .................... 9,284,000 -- -- 1,381,000 10,665,000
Additions to property/equipment ........ 492,000 -- -- -- 492,000
QUARTER ENDED MARCH 31, 1999
Revenues:
Information services and
software maintenance ................ $ 4,602,000 $ 593,000 $ 30,000 $ 1,000 $ 5,226,000
Software licensing ..................... 144,000 -- -- -- 144,000
----------- ----------- ----------- ----------- -----------
Total revenues .................... $ 4,746,000 $ 593,000 $ 30,000 $ 1,000 $ 5,370,000
=========== =========== =========== =========== ===========
Operating income (loss) ................ $ 790,000 $ 97,000 $ (128,000) $ (380,000) $ 379,000
=========== =========== =========== ===========
Other income (expense) ................. (95,000)
-----------
Income before income tax ............... $ 284,000
===========
Amortization ........................... $ -- $ 5,000 $ -- $ -- $ 5,000
Depreciation ........................... 83,000 3,000 2,000 14,000 102,000
Identifiable assets .................... 9,493,000 -- -- 71,000 9,564,000
Additions to property/equipment ........ 110,000 -- -- -- 110,000
</TABLE>
9
<PAGE> 10
Information on segments and a reconciliation to income (loss) before taxes
for the six months ended March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
S E G M E N T S
---------------------------------------------------------------------
CONVENIENCE
RETAILING PRICING POSTAL DATAMETRIX TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED MARCH 31, 2000
Revenues:
Information services and
software maintenance ........... $ 6,871,000 $ 1,192,000 $ 25,000 $ 295,000 $ 8,383,000
Software licensing ................ 14,000 106,000 -- 1,000 121,000
----------- ----------- ----------- ----------- -----------
Total revenues ............... $ 6,885,000 $ 1,298,000 $ 25,000 $ 296,000 $ 8,504,000
=========== =========== =========== =========== ===========
Operating income (loss) ........... $ 413,000 $ 101,000 $ (208,000) $ (784,000) $ (478,000)
=========== =========== =========== ===========
Other income (expense) ............ (73,000)
-----------
Loss before income tax ............ $ (551,000)
===========
Amortization ...................... $ 203,000 $ 11,000 $ -- $ 66,000 $ 280,000
Depreciation ...................... 181,000 7,000 4,000 31,000 223,000
Identifiable assets ............... 9,284,000 -- -- 1,381,000 10,665,000
Additions to property/equipment ... 505,000 -- -- -- 505,000
SIX MONTHS ENDED MARCH 31, 1999
Revenues:
Information services and
software maintenance ........... $ 8,187,000 $ 1,194,000 $ 277,000 $ 1,000 $ 9,659,000
Software licensing ................ 264,000 -- -- -- 264,000
----------- ----------- ----------- ----------- -----------
Total revenues ............... $ 8,451,000 $ 1,194,000 $ 277,000 $ 1,000 $ 9,923,000
=========== =========== =========== =========== ===========
Operating income (loss) ........... $ 645,000 $ 314,000 $ 4,000 $ (440,000) $ 523,000
=========== =========== =========== ===========
Other income (expense) ............ (19,000)
-----------
Income before income tax .......... $ 504,000
===========
Amortization ...................... $ 45,000 $ 11,000 $ -- $ -- $ 56,000
Depreciation ...................... 164,000 6,000 4,000 28,000 202,000
Identifiable assets ............... 9,493,000 -- -- 71,000 9,564,000
Additions to property/equipment ... 194,000 -- -- -- 194,000
</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 $(219,000) and $256,000 for the quarters
ended March 31, 2000 and 1999, respectively. For the six months ended
March 31, 2000 and 1999, comprehensive income (loss) was $(555,000) and
$429,000, respectively.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND QUARTERLY RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CONSOLIDATED OPERATIONS. MPSI reported a net loss of $182,000 or $.06 per share
on revenues of $4.7 million for the quarter ended March 31, 2000 compared with
net income of $265,000 or $.09 per share on revenues of $5.4 million for the
comparable quarter last year. For the six months ended March 31, 2000 MPSI
reported a net loss of $550,000 or $.19 per share on revenues of $8.5 million.
This compared with net income of $360,000 or $.12 per share on revenues of $9.9
million for the comparable six months of last fiscal year. As discussed in more
detail below, revenues for the quarter and six months ended March 31, 2000 were
down, while operating expenses increased slightly due to downsizing costs
incurred in the U.S. offices and an increased emphasis on new product offerings.
CONVENIENCE RETAILING SEGMENT. This business unit accounted for revenues of
$3,614,000, and $4,746,000 for the fiscal quarters ended March 31, 2000 and
1999, respectively, with corresponding operating profits of $294,000 and
$790,000. The decline in revenues and profitability for the second fiscal
quarter of 2000 as compared with 1999 is partially attributable to continuing
pricing pressures and amortization of $63,000 related to the completion of the
U.S. Retail Explorer ("REX")(TM) software, but principally, the decline is the
result of delays in placement of market study orders by several historically
significant clients who have recently completed major merger transactions. As
these clients sort out their combined organizations, management expects MPSI
will receive an influx of orders during the last half of fiscal 2000, although
management cannot guarantee such activity. 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.
Revenues for the six months ended March 31, 2000 and 1999 were $6,885,000
and $8,451,000, respectively. Operating income for the six months ended March
31, 2000 was $413,000 as compared to an operating income of $645,000 for the
comparable fiscal quarter last year. Although revenues decreased for the reasons
stated above, gross margins have improved as compared with last fiscal year due
to process improvements which were implemented during the first fiscal quarter
of 2000 as the result of the release of the Retail Explorer software to U.S.
clients. These process changes in market study database development reduced the
overall cost of U.S. database construction. The decline in operating income for
the six months ended March 31, 2000, as compared to the same period last year,
resulted from revenue reductions without corresponding reductions in operating
expenses. The Company is currently evaluating all costs of the organization to
determine where further reductions can be implemented as the generic global
versions of REX become available (anticipated by September 30, 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. 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. During the second fiscal quarter of 2000, $66,000 was amortized to
cost of sales. Although revenues in this business segment are not sufficient to
cover related expenses through March 31, 2000, management anticipates profitable
monthly operations will be achieved during the June 30, 2000 quarter.
The unit generated revenues of $274,000 during the fiscal quarter ended
March 31, 2000 as compared with $1,000 during the initial start up during the
comparable period last fiscal year. DataMetrix incurred an operating loss of
$374,000 for the quarter ended March 31, 2000 as compared with an operating loss
of $380,000 during the same fiscal quarter last year in which DataMetrix was
first getting started.
For the six months ended March 31, 2000 and 1999, respectively, DataMetrix
generated revenues of $305,000 and $1,000 with related operating losses of
$774,000 and $440,000.
11
<PAGE> 12
POSTAL SEGMENT. Although MPSI has undertaken projects directed at postal
agencies (primarily the United States Postal Service) for several years, this
business tends to be cyclical and has not yet reached critical mass. This unit
did not generate revenue during the second fiscal quarter of 2000 as compared to
$30,000 in the comparable quarter of last fiscal year. Corresponding operating
losses for the quarters ended March 31, 2000 and 1999 were $130,000 and
$128,000, respectively.
Revenues for the six months ended March 31, 2000 and 1999 were $15,000 and
$277,000, respectively. Operating loss for the six months ended March 31, 2000
was $218,000 as compared to an operating income of $4,000 for the comparable
fiscal quarter 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"
software will allow MPSI to target additional needs in this market segment.
PRICING SEGMENT. Revenues of $824,000 for the quarter ended March 31, 2000,
as compared to $593,000 during the same quarter last fiscal year are up
approximately $140,000 primarily due to new customers and project timing.
Operating income of $144,000 for the second fiscal quarter of 2000 results from
the timing of orders as discussed above and therefore shows improvement over the
operating income of $97,000 during the comparable quarter last year.
Revenues for the six months ended March 31, 2000 and 1999 were $1,192,000
and $1,194,000, respectively. Operating income for the six months ended March
31, 2000 was $101,000 as compared to an operating income of $314,000 for the
comparable fiscal quarter last year. The decline in operating income for the six
months ended March 31, 2000 resulted from increased staff in anticipation of new
geographic business and internal allocations relating to utilization of shared
corporate resources. Although revenues through the first six months of fiscal
2000 are comparable with the same period for last year, the Company anticipates
that this segment will continue to be profitable during the remainder of fiscal
2000 and will exhibit revenue growth.
The Company does not believe that inflation has significantly impacted the
results of operations of any business segment during the quarters ended March
31, 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 revenues this fiscal quarter and for the six
months ended March 31, 2000, but MPSI's new Retail Explorer coupled with the
lower prices should generate increased customer penetration, such new business
should more than offset the effect of price adjustments.
CONSOLIDATED OPERATING EXPENSES. Consolidated operating expenses were
$2,846,000 for the quarter ended March 31, 2000 as compared with $2,797,000
during the same quarter last fiscal year. For the six months ended March 31,
2000, consolidated operating expenses were $5,605,000 as compared with
$5,344,000 for the same period last fiscal year.
Consolidated general and administrative expenses for the quarter ended March
31, 2000 were comparable to the same fiscal quarter of last year. General and
administrative expenses for the six months ended March 31, 2000 were up
approximately $244,000 as compared to the same period last fiscal year primarily
as a result of severance costs associated with a 15% reduction in staff that
occurred during the six months ended March 31, 2000. The Company anticipates
further cost reduction measures to be implemented during the remainder of this
fiscal year in an effort to (a) properly align costs with anticipated revenues
and (b) further streamline the database production process for foreign customers
as REX software is released into international markets later this fiscal year.
Consolidated sales, marketing, and client service expenses for the quarter
and six months ended March 31, 2000 were comparable with the same fiscal periods
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) for the quarter and six months ended March 31, 2000, were
comparable with the same fiscal periods last year. Approximately $37,000 of cost
was capitalized during the six months ended March 31, 2000 for the Huff Market
Area Planner 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).
12
<PAGE> 13
OTHER INCOME AND EXPENSES. Interest expense of $120,000 and $172,000 was
higher during the quarter and six months ended March 31, 2000, respectively, as
compared to $101,000 and $114,000, 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 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 and partially as the result of lower market
study orders by certain clients undergoing merger as discussed above.
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 (losses) of approximately
$(10,000) and $13,000 during the quarter and six months ended March 31, 2000,
respectively, as compared to $(63,000) and $(36,000) 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. The Company does not
utilize derivative financial instruments to hedge their foreign currency risks.
INCOME TAXES. Income taxes for the quarter and six months ended March 31,
2000 were $33,000 and $(1,000), respectively, as compared to $19,000 and
$144,000 for the same fiscal periods last year. The changes in income taxes are
primarily due to (a) losses incurred during fiscal 2000, (b) 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 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 $(366,000)
at March 31, 2000 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) losses in the new DataMetrix segment. The
comparative decrease of $625,000 reflects a $332,000 increase in corporate
working capital debt (which was utilized to reduce trade liabilities by
approximately $46,000) and an increase of $658,000 (42%) in the deferred revenue
component at March 31, 2000 as compared with September 30, 1999 offset primarily
by increased cash and receivables aggregating approximately $388,000. The
deferred revenue increase was the result of a large order received from, and
billed to, a major client late in the second 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
March 31, 2000, approximately $93,000 of additional borrowing capacity remains
available under the bank credit line, although losses to date in fiscal 2000
have resulted in the Company's net equity of $3,228,000 being 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.
13
<PAGE> 14
Expenditures for the acquisition/upgrade of computer equipment were $54,000
during the six months ended March 31, 2000 as compared with $194,000 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 (of which
$98,000 was capitalized during the six months ended March 31, 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 six months ended March
31, 2000 were $786,000 (including $98,000 expended on software developed for
internal use) compared with $355,000 in the same period last year. The fiscal
year 2000 capitalized costs principally reflect completion of the U.S. version
of REX, initial work on the generic global REX software to be used in
international applications, development of the Huff Market Area Planner,
software to be used internally 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. The first of these data and software
products is expected to be released early in the fourth fiscal quarter. Fiscal
2000 development costs are expected to be funded principally out of operating
cash flows.
MPSI's backlog of market studies at March 31, 2000 in the amount of
approximately $8.1 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 March 31, 2000, there have been no problems related to the date
change. The Company continues to evaluate all computer equipment and software
systems applicable to client deliveries and internal use. All necessary
correcting actions were 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. As of March 31, 2000, there
have been no Y2K issues negatively impacting the Company.
- -------------------
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.
14
<PAGE> 15
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) Exhibits:
11.1 Earnings per share computation
27.1 Financial Data Schedule
(b) Reports on Form 8-K - None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned hereunto duly authorized.
MPSI SYSTEMS INC.
Date May 10, 2000 By /s/ Ronald G. Harper
---------------------------- ---------------------------------
Ronald G. Harper, President
(Chief Executive Officer) and
Director
Date May 10, 2000 By /s/ James C. Auten
---------------------------- ---------------------------------
James C. Auten, Vice President
(Chief Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
<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 average number of
shares outstanding and earnings per share using the treasury-stock method.
SHARE INFORMATION
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common stock outstanding throughout the period 2,849,000 2,849,000 2,849,000 2,849,000
Exercised options 17,000 - 8,000 -
---------- ---------- ---------- ----------
Average shares outstanding 2,866,000 2,849,000 2,857,000 2,849,000
---------- ---------- ---------- ----------
Dilutive unexercised stock options:
Shares presumed issued at exercise
($1.00 to $1.50 per share in 1999) * 82,000 * 82,000
Less: Shares repurchased with presumed
proceeds at average per share price
($2.06 per share in 1999) * (40,000) * (52,000)
---------- ---------- ---------- ----------
Average shares and share equivalents 2,866,000 2,891,000 2,857,000 2,879,000
========== ========== ========== ==========
</TABLE>
* Not applicable in periods noted, as the effect of these items would be
antidilutive.
PER SHARE COMPUTATION
<TABLE>
<CAPTION>
(a) (b)
Shares Outstanding Per Share
--------------------------- --------------------
Results of Full Full
Operations Primary Dilution Primary Dilution
---------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Net loss -Three Months Ended March 31, 2000 $ (182,000) 2,866,000 2,866,000 $ (.06) $ (.06)
Six Months Ended March 31, 2000 $ (550,000) 2,857,000 2,857,000 $ (.19) $ (.19)
Net income -Three Months Ended March 31, 1999 $ 265,000 2,849,000 2,891,000 $ .09 $ .09
Six Months Ended March 31, 1999 $ 360,000 2,849,000 2,879,000 $ .12 $ .12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 253
<SECURITIES> 3
<RECEIVABLES> 5,587
<ALLOWANCES> 0
<INVENTORY> 73
<CURRENT-ASSETS> 6,018
<PP&E> 5,888
<DEPRECIATION> 4,660
<TOTAL-ASSETS> 10,665
<CURRENT-LIABILITIES> 6,384
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 3,082
<TOTAL-LIABILITY-AND-EQUITY> 10,665
<SALES> 8,504
<TOTAL-REVENUES> 8,504
<CGS> 3,377
<TOTAL-COSTS> 5,605
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> (551)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (550)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (550)
<EPS-BASIC> (.19)
<EPS-DILUTED> (.19)
</TABLE>
