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EXHIBIT 13.1
[FRONT COVER]
MPSI SYSTEMS INC.
1995 ANNUAL REPORT
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[INSIDE FRONT COVER]
ABOUT THE COMPANY
MPSI Systems Inc., headquartered in Tulsa, Oklahoma, was founded more than
two decades ago as a company focused on providing site analysis services to the
petroleum industry. Today, we are an international company that provides
decision support systems, consulting services, and market information databases
to clients in many retail environments such as petroleum, food, banking, and
postal services.
MPSI has regional offices strategically located around the world and employs
more than 250 highly skilled professionals. Our products and services
incorporate the most modern, proven technologies and are designed to meet a
variety of business planning requirements, including retail site location,
retail network operations, short-term pricing, and much more. With the
comprehensive mix of offerings from MPSI, clients can develop strategies, solve
problems, identify opportunities, and increase the decision-making
effectiveness for their retail business.
[LOGO]
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SELECTED FINANCIAL DATA*
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
OPERATING DATA:
Revenues . . . . . . . . . . . . . . . . . $ 23,437 $ 19,872 $ 19,524 $25,313 $31,966
Income (loss) from continuing operations . . 2,029 1,956 (939) (5,567) (6,014)
Income (loss) from discontinued operations . -- (482) 2,149 (14) (7,297)
Extraordinary gain on debt extinguishment . -- -- 350 -- --
Net income (loss) . . . . . . . . . . . . . . 2,029 1,474 1,560 (5,581) (13,311)
Per share:
Income (loss) per common and common
equivalent share:
Continuing operations . . . . . . . . . $ .72 $ .71 $ (.94) $ (6.53) $ (7.11)
Discontinued operations . . . . . . . . -- (.18) 2.15 (.01) (8.62)
Extraordinary item . . . . . . . . . . -- -- .35 -- --
Net income (loss) . . . . . . . . . . . .72 .53 1.56 (6.5) (15.73)
Weighted average shares of common stock and
common stock equivalents outstanding . 2,802 2,766 998 853 846
AT SEPTEMBER 30,
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . . . . . $12,924 $ 9,734 $10,040 $14,861 $22,849
Long-term debt . . . . . . . . . . . . . . . -- -- -- 2,620 --
Noncurrent deferred revenue . . . . . . . . . 1,961 1,068 1,453 2,602 4,054
Other noncurrent liabilities . . . . . . . . 220 349 252 2,429 2,691
__________
* Operating data prior to fiscal year 1994 has been restated giving effect to
the September 1994 sale of the Retail Systems, Inc. subsidiary. See Note 2 to
Consolidated Financial Statements regarding discontinued operations. All
share and per share data for fiscal years prior to 1995 reflect the
effect of a reverse stock split described in Note 11 to Consolidated
Financial Statements.
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TO OUR STOCKHOLDERS:
MPSI experienced a successful 1995 fiscal year financially as well as in
product development and marketplace introductions. Trends in net income and
cash reserves continued upward. Revenues grew at a high rate compared with our
peer companies. Much of this growth, particularly in North America, was fueled
by the introduction of MPSI's CAPS(TM) software (Capital Planning System --
hereafter "CAPS") in late 1994.
CAPS software, now available in the United States, Canada and Africa, will roll
out to other operating regions in 1996. We expect to release the South American
and European versions in the second quarter of 1996, followed by the Pacific
Rim region late in the year. CAPS is attracting renewed interest from less
active clients as well as new prospects. In addition to analyzing networks and
providing retail petroleum potentials, CAPS enables clients to evaluate
ancillary sales potential from convenience food and car wash services.
In addition to CAPS, MPSI introduced several new products and services during
the year. The commercial version of Price Volume Optimizer(TM) (PVO(TM)) was
introduced and tested in the United States, Europe and South America. Results
showed significant profit improvement for clients compared with more
traditional retail pricing methodologies. We anticipate PVO will generate major
client interest in retail price-sensitive countries and produce revenue for
MPSI from another area of the retail petroleum industry. The company also
introduced Quest, PriceTracker(TM) and Market Monitor(TM). These services offer
clients valuable market information about brand and competitive positions,
operations, pricing, and market dynamics at a lower price and with more
flexibility than ever before. With them, we are better positioned to meet the
challenges of competitors who have targeted the retail petroleum industry by
offering limited data at low prices.
Also formalized in 1995 was MPSI Consulting Services. For most of its 25 years,
MPSI has consulted with clients on a variety of retail petroleum issues. With
clients downsizing and outsourcing more services, MPSI offers clients a wealth
of knowledge and experience in areas such as market entry and exit strategies,
privatization of government- controlled petroleum networks, and
facility/network optimization. During 1995, we were awarded a substantial
consulting and network planning contract in Asia that continues through 1996.
In the current year, that business will provide a springboard to expand retail
consulting services and increase its contribution to revenue. I plan to play an
active part in developing consulting opportunities and generating contracts.
Global industry trends in deregulation, privatization and improved
profitability are prompting retailers to improve and expand their networks and
product offerings. In this environment, MPSI's products and services continue
to be used around the world. By the end of fiscal 1995, our products and
services were being used in 75 countries. MPSI anticipates this expansion to
continue in 1996 into such countries as India, Vietnam and Indonesia -- all of
which hold high growth potential for the retail petroleum industry. The outlook
for new business in China is improving. As we expanded MPSI's offerings to our
core retail petroleum business, we continued to respond to clients in the
banking and postal industries, providing proprietary software, market studies
and network planning services in North America and Europe.
Along with new product and service offerings, MPSI continued to reduce costs by
improving production processes and automating procedures through software tools
and newer equipment. A major effort was directed at incorporating desktop
mapping into market database construction. This, coupled with the move to a
personal computer/workstation environment, increased efficiency in production
and improved project margins. These changes challenged employees to acquire new
skills and master new products and processes, while maintaining schedules and
quality standards expected by our clients. The challenges were met by a
dedicated and motivated work force who not only made the extra effort but also
offered suggestions for improvements to make products and processes even
better. Today, our staff is skilled with personal computers and proficient with
new products, including the desktop geographic information system.
Based on the results of our operations in the last couple of years and the vast
opportunities for business expansion that I see before us, I am very
enthusiastic about MPSI's future. I expect MPSI to grow revenues, profits and
cash in 1996 and beyond, based upon opportunities in our strong core business.
As we continue to roll out CAPS and PVO during 1996 and expand the retail
consulting business, we will reduce our dependence on a single segment of the
retail petroleum industry. We thank our clients, employees and stockholders for
their continuing support as we look forward to continued growth and success.
Sincerely,
Ronald G. Harper
Chairman of the Board and President
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth (in thousands), for the periods indicated,
certain items in the consolidated statements of continuing operations and the
change of such items as compared with the indicated prior period. See Note 2 to
the Consolidated Financial Statements which sets forth the effect of the
September 1994 sale of RSI. All information below reflects RSI as discontinued
operations.
CHANGE
----------------
YEAR ENDED SEPTEMBER 30 1995 1994
-------------------------------- VS. VS.
1995 1994 1993 1994 1993
---- ---- ---- ---- ----
Revenues . . . . . . . . . . . . . $23,437 $19,872 $19,524 $ 3,565 $ 348
Cost of sales . . . . . . . . . . . . 10,432 7,614 9,409 2,818 (1,795)
------- ------- ------- -------- --------
Gross profit . . . . . . . . . . . . 13,005 12,258 10,115 747 2,143
------- ------- ------- -------- --------
Operating expenses:
General and administrative . . 2,571 2,388 1,930 183 458
Marketing and client services . 6,993 5,578 6,219 1,415 (641)
Research and development . . . 1,794 2,331 2,159 (537) 172
Restructuring expenses . . . . -- -- 488 -- (488)
------- ------- ------- -------- --------
Total operating expenses . 11,358 10,297 10,796 1,061 (499)
------- ------- ------- -------- --------
Operating income (loss) . . . . . . . 1,647 1,961 (681) (314) 2,642
Other income (expense), net . . . . . 836 289 (136) 547 425
------- ------- ------- -------- --------
Income (loss) from continuing
operations before income taxes 2,483 2,250 (817) 233 3,067
Income taxes . . . . . . . . . . . . (454) (294) (122) (160) (172)
------- ------- ------- -------- --------
Income (loss) from continuing
operations . . . . . . . . . . $ 2,029 $ 1,956 $ (939) $ 73 $ 2,895
======= ======= ======= ======== ========
RESULTS OF OPERATIONS
MPSI reported net income for the fiscal year ended September 30, 1995, of
$2.0 million or $.72 per share on revenues of $23.4 million compared with net
income of $1.5 million or $.53 per share and $1.6 million or $1.56 per share on
revenues of $19.9 million and $19.5 million in fiscal years 1994 and 1993,
respectively. The 1995 increase in gross profit over 1994 was primarily
attributable to higher margins on market studies (the largest revenue component
of Information Services), and an increase of $3.6 million or 18% in revenues.
The increase in gross profits was offset by higher marketing expenses
(attributable largely to new products introduced as discussed below) which
lowered Operating Income compared with 1994. Higher 1995 net income was
attributable in part to foreign exchange gains as discussed below. The Company
does not believe that inflation has significantly impacted the results of
operations during the three years ended September 30, 1995. The 1994
implementation of lower pricing in North America, South America and Europe
resulted in increased client interest in those regions. While the Company
believes that pricing has contributed to improved revenues in 1994 and 1995,
the Company attributes the increased revenues primarily to the attractiveness
of its new products. The positive results for fiscal year 1995 were affected
by strong fourth quarter revenues and earnings. The Company reported net
income of $878,000 or $.31 per share on revenues of $7.1 million compared with
net income of $45,000 or $.02 per share on revenues of $4.8 million in the 1994
fourth quarter. The increase in revenues for 1995, during the last six months
of the fiscal year, resulted in a drop of approximately $4.1 million in
backlog. MPSI expects to replenish the backlog through 1996 sales.
Although overall revenues increased in 1995 compared with 1994 and 1993,
revenues from software licensing declined $1.2 million or 52% compared with
1994 but were $312,000 or 40% higher than in 1993. The timing of new or
renewed long-term software license agreements can have a substantial impact
upon reported revenues and gross profits from software licensing for any
interim or annual fiscal period. The 1994 software licensing revenues reflect,
among other things, a software license renewal by a single worldwide licensee
in the amount of $1.5 million. While MPSI regularly
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records software license renewals and recorded software renewals in both 1995
and 1993, the surge in 1994 software revenues was attributable to the single
large renewal transaction which affects comparability between the periods.
Excluding the one transaction in 1994, both 1994 and 1993 software revenues
were comparable, and MPSI's 1995 software revenues favorably compared with both
previous fiscal years.
With the exception of the Company's European operations which are still
sluggish, MPSI has generally experienced growth in regional revenues (in
thousands of dollars) as set forth below:
1995 vs. 1994 1994 vs. 1993
------------- -------------
Amount & Amount %
------ - ------ -
North America . . . . . . . . . . $ 2,455 35 $ 1,939 38
South America . . . . . . . . . . 394 31 111 10
Pacific Rim . . . . . . . . . . . 1,342 15 (365) (4)
Europe/Africa . . . . . . . . . . (626) (21) (1,337) (31)
------ ------
Totals . . . . . . . . . . . . $ 3,565 18 $ 348 2
====== ======
The revenue growth trend in North America represents a revitalization of that
geographic market which can be principally attributable to the release during
1994 of the new MPSI's CAPS software. CAPS software versions for the three
remaining MPSI regions will be released during fiscal year 1996. The revenue
growth in South America and the Pacific Rim is principally attributable to
MPSI's entry into new geographic markets. The Company hopes for a turnaround
in the European revenue trend for fiscal year 1996 as a number of inactive
clients are very interested in MPSI's new product offerings.
While MPSI is projecting continued revenue and earnings growth with respect
to its core CAPS/RPS software and market study products, several new products
have been under development. Although they were not profit contributors in
fiscal year 1995 due to development and start-up costs, they are expected to
positively impact fiscal years 1996 and beyond. MPSI completed development and
released its enhanced commercial version of PVO software in August 1995. This
short-term pricing decision support software was released in an initial version
in late fiscal 1993. While client response to the concepts in that initial
version were favorable, MPSI has now substantially enhanced that product in
release 2.0. Clients in North America, South America and Europe are presently
evaluating acquisition of the PVO software.
In addition to PVO, MPSI undertook the introduction of two "data" products
during fiscal year 1995 which were designed to leverage market information
already in MPSI's inventory and to combat the competitive challenge from data
providers. The Quest product allows clients to obtain point-in-time retail
outlet information either relative to MPSI's standard market study boundaries
in a given geographic market or to establish specialized market boundaries or
specialized data requirements for an additional fee. PriceTracker allows
clients to obtain high quality, timely retail pricing information on a
recurring basis in order to track trends in the marketplace. The start-up and
survey coordination costs on these products exceeded revenues in fiscal year
1995, but these products are expected to attain profitability in fiscal year
1996.
In addition to higher revenues, MPSI experienced better gross profit margins
on its software and market studies in 1995 compared with 1994 (excluding the
impact of the $1.5 million license renewal discussed above) and 1993. Software
cost of sales reflects amortization of capitalized software development costs
generally over product lives of 18 months from product release. The Company
expects fiscal year 1996 amortization to increase as its new CAPS software,
currently under development for Europe and South America, is completed and
released for customer use in the second fiscal quarter. Software cost of sales
was lower in 1994 than in 1993 and 1995 as substantial non- capitalized
research and specification work was undertaken in preparation for actual
development of the CAPS software which began late in fiscal year 1994 (see
discussion of research and development expenses below). Gross profit on market
studies, the largest component of Information Services, was approximately $9.9
million in 1995 compared with $7.5 million in 1994 and $6.3 million in 1993,
and increased as a percent of market study revenues (60% in 1995 compared with
58% and 47% in 1994 and 1993, respectively). The higher market study gross
profits in 1995 were attributable to production efficiencies implemented during
the year and to a higher number of studies prepared for multiple client users,
thus allowing MPSI to leverage its
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costs. The higher gross profit on market studies in 1995 was offset by lower
margins on special projects and other services such that overall margins for
Information Services and Software Maintenance were lower than in 1994.
The 1995 increases in operating expenses compared with 1994 included higher
general and administrative costs in the amount of $183,000 (8%) related
principally to accrual of incentive bonuses and awards for employees where no
similar amounts were accrued or paid for fiscal years 1994 or 1993. Marketing
and client services expenses grew in 1995 by $1.4 million (25%) reflecting
primarily the start-up costs for the new products mentioned above. Research
and development expenses in the consolidated statements of operations declined
$537,000 (23%) in fiscal year 1995 compared with 1994 as the Company's overall
expenditures were less in respect of contract programming resources and because
a higher proportion of such expenses were capitalized in connection with
development of PVO version 2.0 and the CAPS versions for Europe and South
America as these products achieved technological feasibility.
The Company's operating expenses declined $499,000 (5%) in 1994 compared with
1993, principally due to 1993 restructuring expenses for which there was no
1994 counterpart. General and administrative expenses increased $458,000 (24%)
in 1994 compared with 1993 principally as the result of costs associated with
registration of securities. This increase was, however, offset by a $641,000
(10%) decline in marketing and client services which was attributable to the
lower number of such personnel as the result of the Company's 1993 downsizing
and refocused attention on its core business and products. Research and
development expenses increased $172,000 in 1994 compared with 1993 principally
due to the additional resources brought on board during the specification and
research phases of CAPS development. Actual CAPS programming and product
development began late in fiscal year 1994 and carried into fiscal year 1995.
MPSI enters into multi-year contracts for market studies, some of which are
denominated in foreign currencies. This exposes MPSI to exchange gains or
losses depending upon the periodic value of the U.S. Dollar relative to the
respective foreign currencies. As noted above, during fiscal year 1995, MPSI
benefited from foreign currency exchange gains in the amount of $638,000.
These gains were the result of contract commitments booked by clients in prior
years, performed and earned in 1995, and denominated and billed in Singapore
Dollars which substantially increased in value relative to the U.S. Dollar
reporting currency. Although MPSI anticipates continuing benefit from the same
source in fiscal year 1996, the magnitude should be considerably lower. In the
longer term, these multi-year commitments could result in exchange losses if
the current currency trends were to reverse.
Income taxes increased $160,000 and $172,000 in fiscal years 1995 and 1994,
respectively, compared with the applicable prior year. The 1993 and 1994
income taxes were primarily foreign income taxes either applicable to the
Company's foreign subsidiaries or withheld at the source from payments by
foreign clients. Income taxes in 1995, however, reflect a larger component of
U.S. Federal and state income taxes (see Note 7 to the Consolidated Financial
Statements). The profits generated in fiscal years 1995, 1994 and 1993 from
U.S. operations resulted in utilization of virtually all net operating loss
carryforwards available for income tax purposes in the U.S. (except for some
foreign tax credits carried forward to fiscal year 1996 as set forth in Note
7). As a result, the Company expects to pay higher U.S. income taxes in 1996
and beyond.
The results of operations in fiscal year 1995 allowed the Company to meet the
various thresholds for listing on the NASDAQ SmallCap MarketSM. The Company's
Common Stock began trading on the SmallCap Market effective September 26, 1995
under the trading symbol "MPSI".
FINANCIAL CONDITION AND LIQUIDITY
The Company's working capital improved to a positive balance of $1.9 million
at September 30, 1995 from deficits of $5,000 and $1.3 million at September 30,
1994 and 1993, respectively. The 1995 improvement was a combination of the
Company's continued generation of operating cash flow ($1.6 million as
reflected in the statement of cash flow) and the higher balance in current
receivables at September 30, 1995 ($6.4 million) compared with September 30,
1994 ($4.4 million). The increase in trade receivables is principally
attributable to increased market study activity. The 1994 improvement was
primarily the result of utilization of operating cash flows to reduce current
liabilities.
Since its inception in 1970, the Company has historically placed significant
reliance on customer deposits and prepayments as a source of ongoing liquidity
and operating capital. Should substantial direct competitors gain market share
and offer price concessions or favorable payment terms, the Company's liquidity
could be negatively impacted. The
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Company relies on its long-term client relationships and the quality of its
products and services to mitigate this potential negative impact on liquidity.
As set forth in the statements of cash flow, the Company generated cash flow
from continuing operations of $1.6 million in 1995 which was comparable with
1994. Cash flow from continuing operations in 1994 was 63% higher than the
$966,000 in 1993. During both 1994 and 1995, MPSI committed substantial
resources to acquisition of additional computer equipment and to development of
new software products, as previously discussed. The Company expended $1.0
million in both 1994 and 1995 (only $231,000 in 1993) for such purposes. The
Company anticipates comparable expenditures in 1996 for similar purposes but
has no commitments for capital expenditures other than those related to the
regional versions of CAPS software which are expected to be funded entirely out
of operating cash flows. In the event external funding is required, the
Company has a bank line of credit in the amount of $300,000 at September 30,
1995. As discussed more fully in Note 6 to the Consolidated Financial
Statements, the line of credit arrangement established certain limitations on
capital acquisitions and other indebtedness and established certain financial
tests related to net worth. Additionally it contains formulae for determining
borrowing limits based upon the Company's accounts receivable. The Company is
in full compliance with all covenants of the agreement, and the full amount of
the line is available, subject to regular $25,000 quarterly reductions in the
maximum borrowing limit. The line of credit expires in September 1996, and the
Company expects to establish an extension or replacement line of credit in the
amount of at least $500,000.
The trends in software licensing discussed under "Results of Operations"
above impacted the relative levels of both the related receivables and deferred
revenues. The current and noncurrent balances in long-term receivables
(totaling $4.3 million and $4.1 million at September 30, 1995 and 1994,
respectively) and the deferred maintenance component of deferred revenue
(totaling $3.0 and $2.3 million at September 30, 1995 and 1994, respectively)
increased in 1995 as the receivables and deferred revenue from new software
contracts exceeded the collections and maintenance revenue recognized during
1995. MPSI's license agreements generally are noncancelable, although a few
contracts include provisions for cancellation of portions of the client's
commitment upon occurrence of certain negative economic events in the clients'
geographic areas of operations. In accordance with its policy, the Company
does not recognize revenues on such contingent portions of agreements, so that
in the event of cancellation, only receivables and deferred revenue are
generally adjusted. No substantial cancellations occurred during 1995
($226,000 and $676,000 occurred during 1994 and 1993, respectively). As the
number of contracts with cancellation clauses are few, the Company does not
expect significant impact from cancellations in 1996.
The decrease in other noncurrent liabilities to $220,000 at September 30,
1995 from $349,000 at September 30, 1994 is the result of reclassifying a
deferred compensation liability and certain U.S. headquarters lease obligations
to current accrued liabilities. The Company's present lease on its
headquarters facility expires in April 1998, and the Company has been informed
by a new landlord who recently acquired the building that MPSI will be required
to vacate at the end of the lease. The landlord has offered to release MPSI
from all present lease obligations in the event that MPSI moves before the
lease expiration. The Company is presently evaluating facility alternatives
and does not anticipate a substantial increase in its U.S. facility costs in
the event a decision is made to move before lease expiration.
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REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MPSI SYSTEMS INC.
We have audited the accompanying consolidated balance sheets of MPSI Systems
Inc. and subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flow for
each of the three years in the period ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MPSI
Systems Inc. and subsidiaries at September 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1995 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 13, 1995
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1994 1993
----------- ----------- ------------
Revenues:
Information services and software maintenance . . . . . . . $22,348,000 $17,593,000 $18,747,000
Software licensing . . . . . . . . . . . . . . . . . . . . . 1,089,000 2,279,000 777,000
----------- ----------- ------------
Total revenues . . . . . . . . . . . . . . . . . . . . . 23,437,000 19,872,000 19,524,000
----------- ----------- ------------
Cost of sales:
Information services and software maintenance . . . . . . . 10,100,000 7,368,000 8,854,000
Software licensing (Note 5) . . . . . . . . . . . . . . . . 332,000 246,000 555,000
----------- ----------- ------------
Total cost of sales . . . . . . . . . . . . . . . . . . . 10,432,000 7,614,000 9,409,000
----------- ----------- ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 13,005,000 12,258,000 10,115,000
Operating expenses:
General and administrative (net of a
$280,000 discount of rent in arrears
by a related party in 1993 -- Note 10) . . . . . . . . . 2,571,000 2,388,000 1,930,000
Marketing and client services . . . . . . . . . . . . . . . 6,993,000 5,578,000 6,219,000
Research and development . . . . . . . . . . . . . . . . . . 1,794,000 2,331,000 2,159,000
Restructuring expenses (Note 13) . . . . . . . . . . . . . . -- -- 488,000
----------- ----------- ------------
Total operating expenses . . . . . . . . . . . . . . . . 11,358,000 10,297,000 10,796,000
----------- ----------- ------------
Operating income (loss) . . . . . . . . . . . . . . . . . 1,647,000 1,961,000 (681,000)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . . 195,000 205,000 346,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . (12,000) (16,000) (398,000)
Gain (loss) on foreign exchange . . . . . . . . . . . . . . 638,000 8,000 (33,000)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 92,000 (51,000)
----------- ----------- ------------
Income (loss) from continuing operations
before income taxes . . . . . . . . . . . . . . . . . . . 2,483,000 2,250,000 (817,000)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (454,000) (294,000) (122,000)
----------- ----------- ------------
Income (loss) from continuing operations . . . . . . . . . . . 2,029,000 1,956,000 (939,000)
Discontinued operations (Note 2):
Operating loss of RSI before disposition . . . . . . . . . . -- (431,000) (266,000)
Loss on RSI disposition . . . . . . . . . . . . . . . . . . -- (51,000) --
Gain on ESC lease settlement . . . . . . . . . . . . . . . . -- -- 2,415,000
----------- ----------- ------------
Income before extraordinary item . . . . . . . . . . . . . . 2,029,000 1,474,000 1,210,000
Extraordinary gain on extinguishment of debt
(net of $7,000 income taxes) (Note 6) . . . . . . . . . . . -- -- 350,000
----------- ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,029,000 $ 1,474,000 $ 1,560,000
=========== =========== ============
Per share (Note 11):
Income (loss) per common and common
equivalent share:
Continuing operations . . . . . . . . . . . . . . . . . . $ .72 $ .71 $ (.94)
Discontinued operations . . . . . . . . . . . . . . . . . $ -- $ (.18) $ 2.15
Extraordinary item . . . . . . . . . . . . . . . . . . . $ -- $ -- $ .35
Net income . . . . . . . . . . . . . . . . . . . . . . . $ .72 $ .53 $ 1.56
See accompanying notes to consolidated financial statements.
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MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30,
--------------------------------
1995 1994
------------ ------------
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 1,270,000 $ 635,000
Short-term investments, at cost . . . . . . . . . . . . . . . . . . . 41,000 44,000
Receivables (Notes 3 and 6):
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,522,000 2,089,000
Current portion of long-term receivables, net of
unamortized discount . . . . . . . . . . . . . . . . . . . . 1,893,000 2,313,000
Work in process inventory . . . . . . . . . . . . . . . . . . . . . . 304,000 532,000
Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000 216,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 8,205,000 5,829,000
Long-term receivables, net of unamortized discount (Notes 3 and 6) . . . . 2,421,000 1,790,000
Property and equipment, net (Notes 4 and 6) . . . . . . . . . . . . . . . . 1,191,000 987,000
Software products, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . 673,000 601,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 434,000 527,000
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $12,924,000 $ 9,734,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 905,000 $ 1,224,000
Accrued liabilities (Notes 7 and 9) . . . . . . . . . . . . . . . . . 1,738,000 1,160,000
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 3,614,000 3,392,000
Net current liabilities of discontinued operations (Note 2) . . . . . -- 58,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . 6,257,000 5,834,000
Noncurrent deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . 1,961,000 1,068,000
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . 220,000 349,000
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 8,438,000 7,251,000
------------ ------------
Commitments and contingencies (Note 10) . . . . . . . . . . . . . . . . . . -- --
Stockholders' equity (Notes 9 and 11):
Preferred Stock, $.10 par value, 1,000,000 shares authorized,
none issued or outstanding . . . . . . . . . . . . . . . . . . . -- --
Common Stock, $.05 par value, 20,000,000 shares authorized,
2,733,000 and 2,728,000 shares issued and outstanding
at September 30, 1995 and 1994, respectively . . . . . . . . . . 137,000 136,000
Junior Common Stock, $.05 par value, 500,000 shares
authorized, none issued or outstanding . . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 12,751,000 12,742,000
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,340,000)
(11,369,000)
Foreign currency translation adjustment . . . . . . . . . . . . . . . 938,000 974,000
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 4,486,000 2,483,000
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . . . $12,924,000 $ 9,734,000
============ ============
See accompanying notes to consolidated financial statements.
32
12
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTE 12)
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1995 1994 1993
----------- ---------- -----------
Income (loss) from continuing operations . . . . . . . . . . . . $ 2,029,000 $1,956,000 $ (939,000)
Adjustments to reconcile income (loss) from continuing
operations to cash provided by continuing operations:
Provision for loss on receivables in excess of write-offs . -- -- (17,000)
Depreciation and amortization of property and equipment . . 405,000 406,000 539,000
Amortization of software products . . . . . . . . . . . . . 294,000 246,000 546,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . -- 26,000 (33,000)
Loss (gain) on sale of assets . . . . . . . . . . . . . . . 7,000 (1,000) 36,000
Write off of capitalized software development costs . . . . 30,000 -- --
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables . . . . . . . . . . . . . . . . . . . . . (2,436,000) (715,000) 1,963,000
Inventories . . . . . . . . . . . . . . . . . . . . . 228,000 (254,000) 174,000
Prepayments . . . . . . . . . . . . . . . . . . . . . 138,000 191,000 364,000
Increase (decrease) in liabilities:
Trade payables and accruals . . . . . . . . . . . . . (214,000) (699,000) (505,000)
Taxes payable . . . . . . . . . . . . . . . . . . . . 234,000 (24,000) (327,000)
Deferred revenue . . . . . . . . . . . . . . . . . . . 924,000 440,000 (835,000)
----------- ---------- -----------
Net cash provided by continuing operations . . . 1,639,000 1,572,000 966,000
----------- ---------- -----------
Loss from discontinued operations . . . . . . . . . . . . . . . . -- (482,000) (266,000)
Adjustments to reconcile loss from discontinued operations
to cash provided (used) by discontinued operations:
Provision for loss on receivables in excess of write-offs . -- 2,000 (4,000)
Loss on sale of assets . . . . . . . . . . . . . . . . . . -- 51,000 3,000
Provision for income taxes . . . . . . . . . . . . . . . . -- (10,000) (5,000)
Depreciation and amortization . . . . . . . . . . . . . . . -- 27,000 54,000
Changes in noncash current assets and current liabilities . -- -- 147,000
----------- ---------- -----------
Net cash used by discontinued operations . . . . . . . -- (412,000) (71,000)
----------- ---------- -----------
Net cash provided by operating activities . . . . . . 1,639,000 1,160,000 895,000
----------- ---------- -----------
Cash flows from investing activities:
Increase in short-term investment . . . . . . . . . . . . . -- (28,000) (16,000)
Purchase equipment . . . . . . . . . . . . . . . . . . . . (634,000) (388,000) (163,000)
Software development . . . . . . . . . . . . . . . . . . . (396,000) (590,000) (68,000)
Proceeds from disposition of assets . . . . . . . . . . . . 16,000 7,000 27,000
Proceeds from sale of discontinued RSI unit . . . . . . . . -- 70,000 --
Net investment activities of discontinued operations . . . -- (11,000) (295,000)
----------- ---------- -----------
Net cash used by investing activities . . . . . . . . (1,014,000) (940,000) (515,000)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of capital stock . . . . . . . . . . 10,000 -- 2,033,000
Repayments of indebtedness . . . . . . . . . . . . . . . . -- -- (2,863,000)
Repayments under lease settlement arrangements . . . . . . -- -- (80,000)
----------- ---------- -----------
Net cash provided (used) by financing activities . . . 10,000 -- (910,000)
----------- ---------- -----------
Increase (decrease) in cash and cash equivalents . . . . . . . . 635,000 220,000 (530,000)
Cash and cash equivalents at beginning of period . . . . . . . . 635,000 415,000 945,000
----------- ---------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 1,270,000 $ 635,000 $ 415,000
=========== ========== ===========
See accompanying notes to consolidated financial statements.
33
13
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
FOREIGN TOTAL
COMMON STOCK ADDITIONAL RETAINED CURRENCY STOCK-
CARRYING PAID-IN EARNINGS TRANSLATION HOLDERS'
SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT EQUITY
--------- --------- ----------- ------------ ---------- -----------
Balance, September 30, 1992 . . . . 861,000 $ 43,000 $ 8,679,000 $(14,403,000) $1,075,000 $(4,606,000)
Stock issued to 401(k) Plan . . . 55,000 3,000 121,000 -- -- 124,000
Stock sold in private placement
(Note 11):
Cash sales . . . . . . . . . . 903,000 53,000 1,980,000 -- -- 2,033,000
Non-cash exchange for debt . 886,000 36,000 1,856,000 -- -- 1,892,000
Net income . . . . . . . . . . . -- -- -- 1,560,000 -- 1,560,000
Translation adjustment . . . . . -- -- -- -- (69,000) (69,000)
--------- --------- ----------- ------------ ---------- -----------
Balance, September 30, 1993 . . . . 2,705,000 135,000 12,636,000 (12,843,000) 1,006,000 934,000
Net income . . . . . . . . . . . -- -- -- 1,474,000 -- 1,474,000
Stock issued to 401(k) Plan . . . 23,000 1,000 106,000 -- -- 107,000
Translation adjustment . . . . . -- -- -- -- (32,000) (32,000)
--------- --------- ----------- ------------ ---------- -----------
Balance, September 30, 1994 . . . . 2,728,000 136,000 12,742,000 (11,369,000) 974,000 2,483,000
Net income . . . . . . . . . . . -- -- -- 2,029,000 -- 2,029,000
Stock options exercised . . . . . 5,000 1,000 9,000 -- -- 10,000
Translation adjustment . . . . . -- -- -- -- (36,000) (36,000)
--------- --------- ----------- ------------ ---------- -----------
Balance, September 30, 1995 . . . . 2,733,000 $137,000 $12,751,000 $ (9,340,000) $ 938,000 $ 4,486,000
========= ========= =========== ============ ========== ===========
See accompanying notes to consolidated financial statements.
34
14
MPSI SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of MPSI Systems Inc. and its wholly owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation. All shares and per share data appearing in the
consolidated financial statements and notes thereto reflect a one-for-ten
reverse stock split (see Note 11).
Revenue Recognition: Revenues and costs related to production of market
information data bases are recorded based upon the ratio of costs incurred to
total estimated completion costs (percentage-of-completion method). Revenues
and costs related to single site studies, mini-market studies and other
projects which are completed in a short time period are recognized at
completion. Anticipated losses on contracts are charged against earnings at the
time such losses are identified.
The Company's software products are generally licensed to customers through
noncancelable software license and maintenance contracts with terms of up to
five years. The corresponding long-term receivables and deferred maintenance
revenue from these installment contracts are stated at the discounted present
value of annual license and maintenance payments to be received over the
contract term based upon the prime rate of interest on the effective date of
each contract. The present value discount, related to installments due after
one year, is amortized to interest income using an accelerated method that
equates interest earnings with outstanding receivable balances. Software
license revenues, equal to the present value of the aggregate annual license
installments, are recognized at the latter of contract execution or software
delivery when collection is probable. When it cannot be determined that
collection is probable, or if a contract contains cancellation options,
software revenues are recognized as the annual installments are billed. At the
time revenue is recognized, the Company has no remaining obligations under the
software license and maintenance contracts other than providing postcontract
customer support services related to the maintenance portion of the contract
and performance obligations under any optional and separately priced training
or consulting arrangements. Maintenance revenues, equal to the present value of
annual installment payments, are recognized ratably over the term of the
contracts as the postcontract customer support services are provided and the
related costs are incurred and recognized. Optional training and consulting
represent service transactions as to which revenues and expense are recognized
when the earnings process is substantially complete.
Statement of Cash Flows: For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment: Property and equipment is stated at cost.
Depreciation is provided using the straight-line method, over the estimated
useful lives of the respective assets, except for leasehold improvements which
are amortized over the lesser of the lease term or the economic life of the
underlying asset. Since such assets are employed in all facets of the Company's
operations, depreciation expense is reflected in cost of sales as well as in
each category of operating expenses. The Company charges the cost of repairs
and maintenance to expense as incurred and capitalizes the cost of
replacements, renewals and betterments. When property or equipment is retired,
the cost and accumulated depreciation are removed from the accounts, and the
resulting gain or loss on the disposition is reflected in other income
(expense).
Software Products: Cost of software held for resale, which was either
purchased with the intent to incorporate the acquired software in MPSI products
or developed internally, is presented net of accumulated amortization. The
costs of internally developed software include direct labor, materials and
overhead, and relate to significant enhancements to existing software or to
development of new software products. All costs incurred to establish the
technological feasibility of internally developed software are charged to
research and development expense as incurred. Royalties, which may become
payable because of ongoing proprietary interests related to third-party
software imbedded in MPSI products, are charged to cost of sales-software
licensing as applicable software sales are recognized.
The annual amortization of software products is computed on a
product-by-product basis and is the greater of the amount determined using (1)
the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product or (2) the
straight-line method over the remaining economic life of the product.
Historically, the straight-line method has resulted in a greater amount of
amortization in each accounting period and has, therefore, been the basis
35
15
for amortization in the current period and in prior periods. Amortization
starts when a product is available for general release to customers and is
reflected in cost of sales-software licensing.
In the event that capitalized software development costs are subsequently
determined not to be fully recoverable from future operations, the carrying
value of such software is reduced to an amount equal to its net realizable
value less costs of marketing and distribution. The reduction in carrying value
is recorded in cost of sales- software licensing.
Inventory: Work-in-process is composed of direct labor, costs of gathering
demographic data, indirect costs and overhead. Indirect costs and overhead are
allocated to each contract based upon the direct labor incurred.
Income Taxes: The Company applies the liability method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards No.
109 which was adopted October 1, 1993 as required. Under this method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. The effect on deferred taxes of a change in
tax rates is recognized in the results of operations during the period that
includes the enactment date.
Earnings Per Share: Earnings per share computations are based upon the
weighted average number of common shares outstanding during each period,
including dilutive common stock equivalents related to unexercised stock
options. Earnings per share computations do not give effect to common stock
equivalents for any period in which their inclusion would have the effect of
increasing the earnings per share amount or decreasing the loss per share
amount otherwise computed.
Foreign Currency Translation: Assets and liabilities of the Company's foreign
operations, except Brazil, are translated from the foreign operating currency
to the U.S. Dollar equivalent for consolidated reporting purposes using the
applicable exchange rates at the balance sheet date. Revenues and expenses are
translated at average rates for the year. Exchange differences from these
translations are included in stockholders' equity. Where amounts denominated in
a foreign currency are or are expected to be converted into dollars by
remittance or repayment, the realized exchange differences are reflected in the
results of operations. Due to high rates of inflation in Brazil, transactions
and accounting records are maintained in U.S. Dollar equivalents.
Restructuring Expenses: Expenses associated with corporate restructuring are
recognized at the time that the underlying obligations are incurred. Severance
costs are accrued in the accounting period during which management, having
authority to do so, approves severance plans, provided that (1) the specific
individuals or positions to be terminated have been identified and the costs
thereof were reasonably quantifiable and probable of occurrence within the
succeeding twelve months, and (2) prior to release of the financial statements
for the affected period, the affected employees or positions are either
terminated or the general terms of the termination plan have been communicated,
including the benefits to which terminated employees are entitled or will
voluntarily receive. The net present value of remaining lease obligations
related to excess space is accrued in full at the time the space is abandoned,
net of sublease recoveries which are probable. The costs of other corporate
restructuring decisions are accrued at the time the obligations related thereto
are incurred and quantifiable.
New Accounting Pronouncements: In November 1992, the Financial Accounting
Standards Board adopted Statement No. 112, "Employers' Accounting for
Postemployment Benefits," effective for fiscal years beginning after December
15, 1993. In March 1995, the Financial Accounting Standards Board adopted
Statement No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective for fiscal years beginning
after December 15, 1995. Adoption of these new Statements had no material
effect on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board adopted Statement
No. 123, "Accounting for Stock Based Compensation," effective for fiscal years
beginning after December 15, 1995. FAS 123 provides MPSI the option to
continue present methods of accounting for stock-based compensation with
additional disclosure of the effects thereof had the accounting policies set
forth in the Statement been adopted. MPSI will incorporate the required
disclosure in future financial statements.
2. DISCONTINUED OPERATIONS:
On September 1, 1994, the Company's wholly owned subsidiary, RSI, sold all of
its noncash assets to an unaffiliated third party, Dakota Worldwide Corporation
("Dakota"). Dakota paid $70,000 cash, assumed trade accounts payable of
approximately
36
16
$97,000, assumed certain lease obligations of approximately $426,000 at the
date of sale (although RSI remains contingently liable on such leases in the
event Dakota fails to perform) and agreed to pay RSI future royalties equal to
10% of sales generated from RSI's client base through and including August 31,
1997. Dakota acquired trade accounts receivable, furnishings and equipment
(with a net book value of $52,000) and work in process inventory. Dakota
assumed all performance obligations related to contracts in force with RSI's
customers at the sale date.
Concurrent with this transaction, RSI and MPSI executed an agreement not to
compete with Dakota in North America. RSI terminated all of its employees,
subject to temporary retention of certain administrative staff, and RSI was
responsible for all severance costs related thereto. The Company has completed
a winding down of the corporate affairs of RSI and dissolved it effective
September 25, 1995.
Operating results of the discontinued RSI business unit were as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
1994 1993
---- ----
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,226,000 $1,945,000
Loss before income taxes . . . . . . . . . . . . . . . . . . (440,000) (271,000)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . 9,000 5,000
Loss from operations . . . . . . . . . . . . . . . . . . . . (431,000) (266,000)
The loss on disposal of RSI at September 30, 1994 included the following:
Gain on net assets sold . . . . . . . . . . . . . . . . . . $ 32,000
Accrued close-down costs . . . . . . . . . . . . . . . . . . (38,000)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . 1,000
Accrued employee severance . . . . . . . . . . . . . . . . . (46,000)
-----------
Loss on disposal of discontinued operations . . . . . . $ (51,000)
===========
During fiscal year 1995, MPSI settled net liabilities of $58,000 accrued at
September 30, 1994. No assets or liabilities related to discontinued operations
remained at September 30, 1995.
During fiscal year 1993, the Company settled all remaining liabilities
related to the business of Execucom Systems Corporation, discontinued in 1991,
including a facility's lease obligation. The Company paid the lessor a $206,000
cash settlement in March 1993 and was thereafter released from all remaining
liability under that lease. As a result of settling the remaining liabilities,
the Company reversed the remaining accrued lease liability resulting in a $2.4
million gain from discontinued operations (net of $20,000 income taxes, which
amount reflects substantial reduction from expected income taxes due to
application of net operating loss carryforwards) in the 1993 statement of
operations.
37
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3. RECEIVABLES:
Trade accounts receivable include unbilled amounts of $1,662,000 at September
30, 1995 and $947,000 at September 30, 1994. These amounts represent market
study revenues recognized under the percentage-of-completion method in excess
of amounts billed and will generally be billable during the succeeding twelve
months upon completion of the respective studies.
Current and noncurrent receivables also include unbilled amounts of
$4,254,000 at September 30, 1995 and $3,849,000 at September 30, 1994 (before
present value discount and excluding $381,000 and $442,000 which had been
billed at September 30, 1995 and 1994, respectively) related to multi-year
software license and maintenance agreements. Since these agreements contain
annual installment billing provisions, the unbilled receivable balance for some
contracts is as much as four years' future annual billings. Of the September
30, 1995 unbilled amounts, $1,656,000 (compared with $2,005,000 at September
30, 1994) will be billed in the succeeding twelve months, and the remainder
will be billed thereafter at such future dates as are specified in the
respective contracts. The portion of such future billings related to
maintenance and support services not yet performed is offset by corresponding
amounts in deferred revenue. The current portions of long-term receivables are
reduced by unamortized present value discount of $144,000 and $134,000 at
September 30, 1995 and 1994, respectively. Noncurrent long-term receivables are
presented net of unamortized present value discount in the amount of $177,000
and $54,000 at September 30, 1995 and 1994, respectively. The present value
discount is imputed based upon the New York prime rate on the effective date of
each agreement. Interest income related to these agreements was $171,000,
$196,000, and $338,000 in fiscal years 1995, 1994 and 1993, respectively.
A significant portion of the Company's business activity is with the major
multinational oil companies. At September 30, 1995, 93% ($8,556,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($6,167,000 or 97% at September 30, 1994). The receivable portfolio is
well diversified geographically which tends to mitigate the potential impact of
fluctuations in petroleum activities which may otherwise result if receivables
were confined to a particular geographic area. Software license agreements are
payable over several years (generally five-year agreements) and are expected to
be paid from operating cash flows of the customers. The Company does not
require collateral or other security to support these contractual receivables.
The carrying value of long-term receivables, net of unearned discount,
approximates market value.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
SEPTEMBER 30,
USEFUL LIFE --------------------------
IN YEARS 1995 1994
-------- ---- ----
Leasehold improvements . . . . . . . . . Various $ 713,000 $ 713,000
Computer equipment and software . . . . 4-5 6,243,000 5,706,000
Office furnishings and equipment . . . . 3-10 1,655,000 1,672,000
------------ -----------
8,611,000 8,091,000
Accumulated depreciation . . . . . . . . (7,420,000) (7,104,000)
------------ -----------
Net property and equipment . . . . . $ 1,191,000 $ 987,000
============ ===========
The provision for depreciation was $405,000, $406,000 and $539,000, for the
years ended September 30, 1995, 1994 and 1993, respectively. At September 30,
1995, fully depreciated assets with an aggregate original cost of approximately
$6.3 million remain in use.
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5. SOFTWARE PRODUCTS:
SEPTEMBER 30,
--------------------------------
1995 1994
----------- -----------
Capitalized software development costs . . . . . . . . . . . . $ 3,171,000 $ 2,805,000
Accumulated amortization . . . . . . . . . . . . . . . . . . . (2,498,000) (2,204,000)
----------- -----------
Net software products . . . . . . . . . . . . . . . . . . . . . $ 673,000 $ 601,000
=========== ===========
The provision for amortization, reflected in Software Licensing cost of sales,
was $294,000, $246,000, and $546,000 for the years ended September 30, 1995,
1994 and 1993, respectively.
6. DEBT:
The Company's chairman and chief executive officer extended a loan to the
Company and certain of its wholly owned subsidiaries in the amount of
$1,500,000 on July 30, 1990. The loan bore interest equal to the prime rate in
effect at the principal New York office of Chase Manhattan Bank, N.A. plus one
and one-half percent. The outstanding balance was liquidated in connection with
the September 1993 equity recapitalization transaction (see Note 11) by cash
payment of $150,000 and exchange of the remaining $1,350,000 for Common Stock
of the Company.
In fiscal year 1993 until September 29, 1993, the Company had a note payable
to Bank of Oklahoma, N.A. (the "Bank"). The Company was in default during that
period until a debt restructuring which took place effective January 19, 1993.
This restructuring arrangement provided for an extension of the Bank's
commitment to MPSI through November 30, 1993, waived previous defaults in
existence at that time, and amended weekly debt service and financial reporting
requirements. No gain or loss resulted from this restructuring transaction. The
Company complied with the restructuring agreement until the loan was liquidated
as the result of an equity recapitalization on September 29, 1993.
On September 29, 1993 the Company consummated an infusion of equity capital
as described more fully in Note 11. Approximately $1,725,000 and $150,000 of
the proceeds from that transaction were paid to the Bank and to the Company's
Chairman, respectively, as partial liquidation of the aforementioned debt
instruments. The remaining $1 million debt owing to the Bank was liquidated in
exchange for 286,000 shares of MPSI Common Stock, which had a market value at
September 29, 1993 of approximately $2.25 per share. This transaction, which
represented a concession by the Bank in connection with a restructuring of
troubled debt, resulted in a pre-tax extraordinary gain of $357,000
representing the difference between the $1 million owed to the Bank (after the
partial payment) and the $643,000 value of the Common Stock exchanged. As the
result of the recapitalization transaction, the Company had no further debt
obligation at September 30, 1993, except for normal trade payables and accrued
liabilities.
Concurrent with the equity transaction, the Company obtained a $500,000 line
of credit from the Bank which declines $25,000 in availability each quarter
(beginning December 31, 1993), matures in September 1996 and bears interest on
any outstanding balances at New York prime plus 1 1/2%. The line is secured by
receivables, property and equipment. Quarterly payments equal to 5% of the
outstanding balance plus accrued interest commence at the end of the first
calendar quarter during which the initial advance is made. No advances were
outstanding under this agreement at September 30, 1995, and $300,000 remained
available at that date. The agreement restricts the Company's external
financing and capital acquisitions during the commitment period as described
below:
- Leasing arrangements (excluding workstation computer equipment) must be
limited such that aggregate rentals during any consecutive twelve-month
period do not exceed $3.5 million.
- No more than $1,050,000 of expenditures may be made annually for
acquisition, construction, expansion or improvement of capital assets
(excluding computer workstations).
- Aggregate expenditures for computer workstation equipment may not
exceed $600,000 during the commitment period.
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- The Company must not permit to exist any borrowings except (a)
borrowings under this agreement, (b) borrowings in connection with
workstation computer equipment, (c) obligations related to trade
payables incurred in the ordinary course of business, or (d)
obligations under existing leases.
The Company is in compliance with these restrictions, and management is of
the opinion that these financial restrictions will not adversely affect the
Company's operations as they allow sufficient flexibility to meet anticipated
operating requirements.
7. INCOME TAXES:
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1994 1993
------------ ---------- ------------
Income (loss) from continuing operations
before income taxes:
Domestic . . . . . . . . . . . . . . . . . . $ 3,515,000 $2,977,000 $ 513,000
Foreign . . . . . . . . . . . . . . . . . . . (1,032,000) (727,000) (1,330,000)
------------ ---------- ------------
Total . . . . . . . . . . . . . . . . . . $ 2,483,000 $2,250,000 $ (817,000)
============ ========== ============
Income taxes (benefits):
Current:
Federal . . . . . . . . . . . . . . . . . $ 80,000 $ 56,000 $ 37,000
State . . . . . . . . . . . . . . . . . . 203,000 3,000 (10,000)
Foreign . . . . . . . . . . . . . . . . . 171,000 209,000 128,000
------------ ---------- ------------
Current income taxes . . . . . . . . 454,000 268,000 155,000
------------ ---------- ------------
Foreign deferred income tax (benefits) . . . -- 26,000 (33,000)
------------ ---------- ------------
Provision for total income taxes . . . . . . $ 454,000 $ 294,000 $ 122,000
============ ========== ============
A reconciliation of the provision for income taxes at the applicable Federal
statutory income tax rate to the actual provision for income taxes follows:
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1995 1994 1993
----------- ---------- ----------
Expense (benefit) at statutory rate . . . . . . $ 869,000 $ 787,000 $ (378,000)
Alternative minimum tax . . . . . . . . . . . . 80,000 56,000 37,000
Foreign income and taxes, net . . . . . . . . . (201,000) 177,000 35,000
Loss carryforwards . . . . . . . . . . . . . . . 418,000 311,000 537,000
Federal loss carryforwards utilized . . . . . . (813,000) (1,069,000) (124,000)
State income taxes . . . . . . . . . . . . . . . 132,000 2,000 (6,000)
Other, net . . . . . . . . . . . . . . . . . . . (31,000) 30,000 21,000
----------- ---------- ----------
Income taxes . . . . . . . . . . . . . . . . $ 454,000 $ 294,000 $ 122,000
=========== ========== ==========
Income taxes of $352,000 were payable at September 30, 1995 ($28,000 at
September 30, 1994). The Company does not accrue income taxes on undistributed
earnings of certain foreign subsidiaries which are permanently invested. At
September 30, 1995 and 1994, the amount of undistributed earnings for which
taxes have not been accrued was insignificant.
At September 30, 1995, the Company has various U.S. tax credits of $689,000
which expire between 1996 and 2007. As discussed in Note 11, should stock
transactions occur prior to September 28, 1996, which have the effect of
increasing the relative holdings of certain parties to the 1993
recapitalization by more than 3%, the Company's tax carryforwards would be
limited as to annual utilization thereafter. Such limitations might result in
the recognition of substantial deferred income taxes related to temporary
differences, the effects of which are currently offset by such carryforwards in
the financial statements. These carryforwards have eliminated the U.S. deferred
income tax liabilities at September 30, 1995 and 1994. At September 30, 1995,
certain foreign subsidiaries have net operating loss carryforwards of
approximately $7,693,000 which may be utilized in future years.
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20
Effective October 1, 1993, the Company adopted Statement of Accounting
Standard No. 109, "Accounting for Income Taxes". Adoption of the Statement had
no effect on the Company's financial position or results of operations.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
SEPTEMBER 30,
-----------------------------
1995 1994
----------- ----------
Deferred tax liabilities:
Software revenue . . . . . . . . . . . . . . . . . . . . . $ 825,000 $ 992,000
Depreciation . . . . . . . . . . . . . . . . . . . . . . . 49,000 27,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,000 98,000
----------- ----------
Total deferred tax liabilities . . . . . . . . . . . . . 972,000 1,117,000
----------- ----------
Deferred tax assets:
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 245,000 218,000
U.S. and foreign loss carryforwards . . . . . . . . . . . . 2,279,000 2,779,000
U.S. tax credit carryforwards . . . . . . . . . . . . . . . 689,000 1,176,000
----------- ----------
Total deferred tax assets . . . . . . . . . . . . . . . 3,213,000 4,173,000
Valuation allowance for deferred tax assets . . . . . . . . (2,339,000) (3,150,000)
----------- ----------
Net deferred tax assets . . . . . . . . . . . . . . . . 874,000 1,023,000
----------- ----------
Net deferred tax liabilities included in Other
Noncurrent Liabilities $ 98,000 $ 94,000
=========== ==========
Utilization of the Company's tax credit and loss carryforwards is dependent
on realizing taxable income in the appropriate tax jurisdiction. Deferred tax
assets for these carryforwards have been reduced by the valuation allowance to
an amount that is more likely than not to be realized.
8. BUSINESS SEGMENT AND REVENUE FROM MAJOR CUSTOMERS:
The Company operates in one business segment from its principal production
facility in the United States supported by satellite production facilities in
England and Brazil. Foreign sales offices are currently maintained in
Australia, Brazil, Japan, the United Kingdom and Singapore. The following table
sets forth the revenues and other information related to continuing services
provided by each of the Company's three production centers.
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21
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1995 1994 1993
----------- ----------- -----------
Revenues:
Unaffiliated customers:
United States . . . . . . . . . . . . . . . $21,839,000 $18,045,000 $16,888,000
Europe . . . . . . . . . . . . . . . . . . 1,369,000 1,428,000 2,194,000
Brazil . . . . . . . . . . . . . . . . . . 229,000 399,000 442,000
Between geographic areas (1):
United States . . . . . . . . . . . . . . . 300,000 391,000 957,000
Europe . . . . . . . . . . . . . . . . . . 284,000 384,000 595,000
Asia/Pacific Rim . . . . . . . . . . . . . 2,222,000 2,033,000 1,925,000
Eliminations . . . . . . . . . . . . . . . . . (2,806,000) (2,808,000) (3,477,000)
----------- ----------- -----------
Total revenues . . . . . . . . . . . $23,437,000 $19,872,000 $19,524,000
=========== =========== ===========
Operating income (loss):
United States . . . . . . . . . . . . . . . $ 2,868,000 $ 2,520,000 $ 821,000
Europe . . . . . . . . . . . . . . . . . . (649,000) (430,000) (1,177,000)
Brazil . . . . . . . . . . . . . . . . . . (572,000) (129,000) (325,000)
----------- ----------- -----------
Total operating income (loss) . . . . $ 1,647,000 $ 1,961,000 $ (681,000)
=========== =========== ===========
Identifiable assets:
United States . . . . . . . . . . . . . . . $11,581,000 $ 8,620,000 $ 9,109,000
Europe . . . . . . . . . . . . . . . . . . 891,000 860,000 643,000
Brazil . . . . . . . . . . . . . . . . . . 452,000 254,000 288,000
----------- ----------- -----------
Total assets . . . . . . . . . . . . $12,924,000 $ 9,734,000 $10,040,000
=========== =========== ===========
Export sales from U.S.:
Canada . . . . . . . . . . . . . . . . . . $ 749,000 $ 572,000 $ 1,185,000
Central America . . . . . . . . . . . . . . 154,000 418,000 524,000
South America . . . . . . . . . . . . . . . 1,554,000 790,000 648,000
Europe . . . . . . . . . . . . . . . . . . 903,000 1,475,000 2,175,000
Asia/Pacific Rim . . . . . . . . . . . . . 10,066,000 8,724,000 9,090,000
Africa . . . . . . . . . . . . . . . . . . 143,000 137,000 8,000
----------- ----------- -----------
Total export sales . . . . . . . . . $13,569,000 $12,116,000 $13,630,000
========== ========== ==========
Consolidated revenues from foreign customers by
geographic area are as follows:
Canada and Central America . . . . . . . . $ 903,000 $ 991,000 $ 1,709,000
Singapore, Australia and Japan . . . . . . 10,066,000 8,724,000 9,089,000
Europe and United Kingdom . . . . . . . . . 2,271,000 2,903,000 4,369,000
Africa . . . . . . . . . . . . . . . . . . 143,000 137,000 8,000
South America . . . . . . . . . . . . . . . 1,783,000 1,189,000 1,091,000
----------- ----------- -----------
Consolidated foreign revenues . . . . $15,166,000 $13,944,000 $16,266,000
=========== =========== ===========
Depreciation and amortization of property and
equipment:
United States . . . . . . . . . . . . . . . $ 366,000 $ 373,000 $ 416,000
Europe . . . . . . . . . . . . . . . . . . 24,000 18,000 102,000
Brazil . . . . . . . . . . . . . . . . . . 15,000 15,000 21,000
Capital expenditures:
United States . . . . . . . . . . . . . . . $ 565,000 $ 374,000 $ 160,000
Europe . . . . . . . . . . . . . . . . . . 64,000 14,000 1,000
Brazil 5,000 -- 2,000
- -----------
(1) Sales between geographic areas are made at prices that generally
approximate the prices of similar charges to unaffiliated customers.
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22
Approximately 96% of total revenues from continuing operations were derived
from the petroleum industry during the year ended September 30, 1995 (99% and
97% during 1994 and 1993, respectively). Individual customers accounted for
MPSI revenues which were in excess of 10% of consolidated revenues in 1993,
1994 or 1995 as follows:
1995 1994 1993
--------------- -------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Exxon/Esso/Imperial . . . . . . . . $4.4 19 $3.8 19 $3.2 16
Texaco . . . . . . . . . . . . . . $ .6 3 $2.2 11 $2.4 13
Shell . . . . . . . . . . . . . . . $2.8 12 $2.1 11 $2.1 11
Amoco . . . . . . . . . . . . . . . $2.5 11 $1.4 7 $ .2 1
Although the Company would be adversely affected if several petroleum
industry customers curtailed their long-term usage of MPSI products or in the
event of a significant long-term economic downturn in the petroleum industry
generally, the Company's petroleum clients are well diversified geographically
which reduces the long-term risk attendant with its industry dependence, and
MPSI has historically experienced high renewal rates for its software license
and maintenance agreements.
9. EMPLOYEE BENEFITS:
Under an employee stock ownership and investment plan, all participants may
contribute up to 16% of their annual earnings. Subject to certain limitations,
the Company will contribute in cash or Common Stock an amount equal to but not
less than 50% or more than 100% of a participant's salary deferral
contributions that are not in excess of 6% of the participant's earnings for
the year. Contributions may be invested in the Company's Common Stock or in
five other equity or fixed-income funds. At September 30, 1995 and 1994, the
Company had accrued $102,000 and $91,000 of liabilities for matching
contributions to the 401(k) plan (which in each case represented the estimated
Company match attributable to nine months of participant contributions since
the Plan year ends December 31). The Company liquidated its matching
contribution liability for the Plan year ended December 31, 1993 during fiscal
year 1994 by contributing previously unissued Common Stock at a value of
$107,000. During fiscal year 1995, the Company paid a $121,000 cash matching
contribution applicable to the Plan year ended December 31, 1994. The matching
contribution for Plan year 1995 will be paid during fiscal year 1996.
The Company has reserved 750,000 shares of Common Stock for issuance of stock
options under a 1988 stock option plan which expires in 1998. An additional
130,000 shares are potentially issuable if outstanding options under a 1984
stock option plan are exercised. The remaining options under the 1984 plan
expire from September 3, 1998 to November 28, 1999, and no further options may
be granted under that plan.
The following table summarizes the status of the plans at September 30, 1995:
NO. OF OPTION PRICE
SHARES PER SHARE
------- ---------------
Outstanding September 30, 1992 . . . . . . . 89,490 $ 5.60-$38.80
Granted . . . . . . . . . . . . . . . . . . 106,500 $ 2.25
Cancelled . . . . . . . . . . . . . . . . . (77,655) $ 5.60-$38.80
Expired . . . . . . . . . . . . . . . . . . (8,735) $ 22.50-$38.80
-------
Outstanding September 30, 1993 . . . . . . . 109,600 $ 2.25-$17.50
Granted . . . . . . . . . . . . . . . . . . 18,000 $ 3.00-$ 4.50
Cancelled . . . . . . . . . . . . . . . . . (15,500) $ 2.25
-------
Outstanding September 30, 1994 . . . . . . . 112,100 $ 2.25-$17.50
Granted . . . . . . . . . . . . . . . . . . 68,900 $ 3.00
Cancelled . . . . . . . . . . . . . . . . . (8,050) $ 2.25-$ 8.75
Exercised . . . . . . . . . . . . . . . . . (4,333) $ 2.25
-------
Outstanding September 30, 1995 . . . . . . . 168,617 $ 2.25-$17.50
=======
Exercisable September 30, 1995 62,912 $ 2.25-$17.50
=======
The Company accrued $140,000 at September 30, 1995 (none accrued at September
30, 1994), in connection with incentive award programs for certain employees.
The awards were accrued based upon the Company's achievement of certain revenue
43
23
and operating income objectives and the respective contributions of certain
employees to the achievement of those objectives. The various incentive plans
specify cash settlement of the accrued liability prior to December 31, 1995.
At September 30, 1994 and 1995, the Company had an accrual of approximately
$110,000 in connection with discretionary employee performance awards in the
form of deferred compensation. Such amount was earned and accrued based on the
employee's performance during the year ended September 30, 1994. Under deferred
compensation agreements with certain key employees as approved by the
Compensation Committee, the Company will pay future cash awards to the
specified employees upon the achievement, for thirty consecutive business days,
of a $6.00 per share market price for the Company's Common Stock. Such payments
could be made at any point after November 29, 1995, assuming stock price and
other vesting requirements have been met. The liability for these discretionary
bonuses is reflected in the consolidated balance sheets under the caption Other
Noncurrent Liabilities.
At September 30, 1995 and 1994, the Company had accrued $546,000 and
$482,000, respectively, related to employee vacations earned but not yet taken.
10. COMMITMENTS AND CONTINGENCIES:
In early fiscal year 1993 the Company was in arrears under the lease for its
corporate headquarters. The lessor was a joint venture in which the Company's
chairman had a noncontrolling financial interest and a director with nominal
shareholdings in the Company had a dominant financial interest. At March 31,
1993 the Company resolved its $600,000 rental arrearage with the lessor. The
lessor agreed to discount the arrearage by approximately $280,000, leaving
$320,000 owing, and to accept payment of the remaining balance in five annual
installments of $60,000 commencing September 15, 1993, together with a one-time
payment of $20,000 at March 31, 1993. As neither the Company nor its chairman
exercised significant influence over the joint venture, the discount to the
arrearage was recognized as a reduction of general and administrative expense
in 1993. Related party rent expense of $228,000 and $693,000 was paid in 1993
and 1992, respectively. The Company has made all payments required to date. New
leasing arrangements negotiated by the Company with the new owner of the
building, an unaffiliated third party, which took effect April 1, 1993, cover
40,000 square feet and expire April 1998.
During 1993 and 1994, the Company leased computer equipment from its chairman
and members of his family under various agreements which require aggregate
quarterly payments of approximately $16,000 and expire in 1995. Approximately
$45,000 was paid under such agreements during each of the years ended September
30, 1995 and 1994 ($24,000 in 1993).
The Company leases other office space and equipment under various agreements,
substantially all of which have been accounted for as operating leases. Rental
expense, including the leases described above, of $1,095,000 was recorded
during the year ended September 30, 1995 ($1,265,000 and $1,794,000 in 1994 and
1993, respectively). Aggregate future rentals under these commitments are as
follows: 1996 -- $834,000; 1997 -- $694,000; 1998 -- $329,000, and 1999 --
$3,000.
In connection with the discontinued RSI business unit and sale of its assets
as described in Note 2, the Company remains contingently liable until December
31, 1997, for certain lease obligations in the event that the purchaser does
not fully perform in accordance with the lease terms. The Company has received
no notices of non-performance on these obligations. At September 30, 1995, the
aggregate remaining lease obligations assumed by the purchaser were $2,000
related to equipment leases and $280,000 related to the office space which RSI
occupied prior to the sale. The annual amounts under such lease obligations
for which the Company might be liable in the event that Dakota fails to perform
are: 1996 -- $126,000; 1997 -- $124,000, and 1998 -- $32,000.
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11. EQUITY INFUSION:
Effective September 29, 1993, the Company completed a series of transactions
as part of a broad equity recapitalization plan which yielded total proceeds of
$4.4 million as set forth below. The plan involved not only injection of cash,
but a conversion of significant debt to equity. Unless otherwise indicated, all
transactions were based on a price of $2.25 per share. All shares and per share
data appearing in the consolidated financial statements and notes thereto
reflect a one-for-ten reverse stock split described below.
PROCEEDS TO REGISTRANT STOCK ISSUED
---------------------------- --------------------------------
COMMON EQUIVALENT
DEBT OF CONVERTIBLE
NAME OF STOCKHOLDER CASH CONVERSION COMMON PREFERRED SHARES
------------------- ----------- ---------- --------- -------------------
Investors acquiring more than 5% of
outstanding stock:
Ronald G. Harper . . . . . . . . . $ -- $1,350,000 -- 600,000
John C. Bumgarner, Jr . . . . . . . 500,000 -- 162,222 60,000
Joseph C. McNay . . . . . . . . . . 500,000 -- 162,222 60,000
The Robertson Stephens Orphan Fund 412,000 -- 182,890 --
Sanford Orkin . . . . . . . . . . . 500,000 -- 222,222 --
Bank of Oklahoma, N.A.(1) . . . . . -- 1,000,000 285,715 --
All other investors, each of whom
acquired less than 5% of outstanding
stock (12 persons) . . . . . . . . 121,000 -- 53,999 --
----------- ---------- --------- -------
Totals $ 2,033,000 $2,350,000 1,069,270 720,000
- ---------- =========== ========== ========= =======
(1) Conversion price was $3.50 per share which reflects the Bank's concession
in a troubled debt restructuring.
Preferred Stock was issued only as a temporary investment vehicle to
facilitate consummation of the equity transaction. It was utilized because,
until a reverse stock split could be accomplished, the Company did not have
sufficient authorized Common Stock to complete the transaction. Because of the
temporary nature of the Preferred Stock, it has been reflected herein as if
converted at September 30, 1993.
The Preferred Stock had been previously authorized by the Company's
shareholders, but the Board of Directors established its relative rights and
privileges upon issuance in this transaction. The 72 shares of Preferred Stock
issued were convertible into 720,000 shares of Common Stock. Even prior to
conversion, the Preferred Stockholders possessed the equivalent voting power to
holders of 720,000 shares of Common Stock. The agreements pursuant to which the
Preferred Stock was issued provide that one day after effectiveness of the
Reverse Stock Split described below, such shares automatically convert to
720,000 shares of Common Stock.
Of the total $2,033,000 cash proceeds from the transaction, $1,725,000 was
paid to Bank of Oklahoma, N.A., to discharge the remaining balance of the
Company's indebtedness to such bank. An additional $150,000 was used to satisfy
the remaining portion of an original $1,500,000 Company indebtedness to Ronald
G. Harper and family, a substantial portion of which is being converted to
equity, as set forth above. Remaining cash proceeds of approximately $158,000
were used to pay transaction costs associated with the private placements of
stock, entering into related agreements and for general working capital
purposes. The Company accrued approximately $101,000 of estimated transaction
costs with a corresponding charge to additional paid-in capital.
The Company made several agreements in connection with the private
placements. Among others, the principal investors, being John C. Bumgarner,
Jr., Ronald G. Harper, Joseph C. McNay, Sanford Orkin, The Robertson Stephens
Orphan Fund and Bank of Oklahoma, N.A. (collectively, the "Principal
Investors"), required the Company grant them demand registration rights for the
restricted securities received in the private placement. Specifically, upon
request of 30% of the stock subject to the agreements, and so long as 10% of
all Company Common Stock would be represented, the Principal Investors have a
right to require the Company to file and make effective with the Securities and
Exchange Commission one additional registration statement for their stock. In
addition, should the Company ever decide to file a registration statement for
its own account or for the benefit of stockholders other than the Principal
Investors, the Principal Investors nevertheless may elect to have their
securities included in such other registration statements collectively on up to
two occasions. Selling Stockholders, other than the
45
25
Principal Investors, were also accorded registration rights to be exercised at
the same time and on the same terms as those applicable to the Principal
Investors. All registration rights extended in the private placement expire on
September 29, 1998.
Other miscellaneous agreements were reached in connection with the private
placement as well. The Principal Investors are entitled to price protection
assuring that for a period of three years, the Company does not issue Common
Stock at a value of less than $2.25 per share, subject to certain exceptions,
or they will be permitted to receive additional shares as if they had purchased
at the lower price or prices. Further, certain holders of Common Stock received
in the private placement have agreed upon a disposition procedure for a
three-year term designed to not jeopardize the Company's credit carryforwards
for federal income taxes. However, because all stockholders are not subject to
such restrictions, and considering the new stock issued in the private
placement and the relatively small percentage of outstanding equity (less than
3%) which, if ownership changed or the Company issued a comparable amount of
new stock, could limit the tax credit carryforwards, this attractive tax
benefit is at risk. The Principal Investors have among themselves also agreed
to a pro rata co-sale right should any of the principal group of investors wish
to sell their stock. A part of the Principal Investors' agreements also assure
the existing slate of directors shall remain in office for the next three
years, and that during such period the Audit, Compensation and Nominating
Committees will be composed of the members serving as of September 29, 1993.
Other agreements reached provide for regular financial and budgetary reporting
to the Board of Directors, together with limitations upon operational authority
of the officers to incur indebtedness in excess of $100,000 on behalf of the
Company without prior Board approval. Another voting agreement entered into by
the Principal Investors requires 61% or greater approval of the Common Stock
for the Company to merge, consolidate, or enter into a transaction to sell or
lease all or substantially all of its assets, or to issue additional shares of
equity except to employment benefit or incentive plans. Lastly, John C.
Bumgarner, Jr. and Joseph C. McNay each have the right to advance the
nomination of another individual for a director's position, and the Principal
Investors have agreed to vote their shares in support of any such nomination.
The relative holdings of such persons assure that any nominee of Mr. Bumgarner
or Mr. McNay will be approved.
On November 16, 1993, stockholders, representing 78% of the combined voting
power of outstanding common and preferred stock, approved a reverse stock split
effective November 18, 1993. Holders of Common Stock outstanding at the
effective date ("Old Stock") received one share of Common Stock ("New Stock")
for each ten shares of Old Stock surrendered. The Company will pay cash for
incremental shares. On the effective date, all convertible preferred shares
automatically converted to New Stock at the rate of 10,000 common shares for
each preferred share. After the conversions and reverse split there were
2,704,735 shares of Common Stock outstanding. At September 30, 1995, the number
of shares outstanding has been adjusted downward by 35 shares as the result of
fractional shares resulting from the reverse stock split which were eliminated
by cash payment.
The adjusted weighted average shares utilized in determining income (loss)
per share were 2,802,000 for fiscal year 1995, 2,766,000 for fiscal year 1994
and 998,000 for fiscal year 1993. Earnings per share in 1993 reflect the pro
rata portion of the year during which new equity shares were outstanding.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
The following information concerning noncash transactions is provided to
supplement the Consolidated Statements of Cash Flow.
The equity recapitalization which took place September 29, 1993, resulted in
a noncash conversion of $2,350,000 debt into equity and a noncash extraordinary
gain of $350,000 net of income taxes. Concurrent with that transaction, the
Company accrued $101,000 for legal costs offset by a noncash charge to
additional paid-in capital.
During 1993, the Company negotiated various settlements related to lease
arrearages which resulted in (1) a noncash gain of $2,415,000 from discontinued
operations, (2) transfer of equipment and furnishings having an aggregate net
book value of $127,000 to a lessor in partial settlement, and (3)
reclassification of certain lease liabilities in the amount of $264,000 from
current to noncurrent. In addition, property and equipment having a net book
value of $32,000 were abandoned resulting in a noncash reduction in that asset
category.
In the normal course of business, certain clients exercised contract
cancellation options available in their software license agreements in response
to economic downturns in their operating regions. As the Company, in accordance
with its policy, had not recognized any revenues on such contingent portions of
those agreements, the cancellations resulted in noncash reductions of long-term
receivables and deferred revenues in the amount of approximately $65,000 during
fiscal year 1995 and $226,000 during fiscal year 1994.
46
26
The Company satisfied its 401(k) matching contribution for the Plan year
ended December 31, 1993 by subsequently issuing its Common Stock. This
transaction resulted in a noncash reduction of accrued liabilities and a
corresponding increase in Common Stock and additional paid-in capital of
approximately $107,000 in fiscal year 1994.
The Company paid interest of $12,000 during fiscal year 1995, $16,000 in
fiscal year 1994, and $380,000 in fiscal year 1993. Income taxes of $220,000,
$295,000, and $390,000 were paid during fiscal years 1995, 1994 and 1993,
respectively.
13. CORPORATE RESTRUCTURING:
During the three years ended September 30, 1993, the Company undertook
substantial downsizing in order to reduce operating expenses. The Company
refocused its sales and product development activities on its core products and
services which target the retail petroleum industry, which industry accounted
for more than 95% of the Company's revenues at September 30, 1995, 1994 and
1993. The downsizing and reorganization necessitated a reduction in personnel
as well as a smaller physical presence in certain foreign and domestic
locations.
In 1993, approximately 106 employees representing 30% of work force were
terminated or resigned (65 in the U.S. at a cost of $240,000, 29 in England at
a cost of $117,000 and 12 in various other foreign offices at a cost of
$13,000). The Company also negotiated a reduction in the space occupied by its
corporate headquarters at a cost of $88,000 to renovate retained space and
restore abandoned space (but resulted in annual rental savings of more than
$500,000 thereafter), and abandoned its office lease in Canada at a cost of
$30,000. No further reorganization costs were incurred during fiscal years 1994
and 1995.
47
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MARKET INFORMATION FOR MPSI COMMON STOCK
During fiscal 1993, 1994 and through September 25, 1995, the Company's Common
Stock was not listed with an established securities exchange and all purchases
and sales have occurred in direct negotiations or over the counter. Set forth
below for those periods are the high and low bid prices, as adjusted giving
effect to a one-for- ten reverse stock split on November 18, 1993. The trading
symbol is "MPSI". Bid prices reflect interdealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
On September 26, 1995, the Company's Common Stock was listed on the NASDAQ
SmallCap MarketSM. Information in the table below for the fourth quarter of
fiscal 1995 ended September 30, 1995, reflects the high and low sales prices
reported by NASDAQ.
HIGH LOW
---- ---
Fiscal 1993
First Quarter Ended December 31, 1992 . . . . . . . . . . 2 1/2 5/8
Second Quarter Ended March 31 . . . . . . . . . . . . . . 6 1/4 5/8
Third Quarter Ended June 30 . . . . . . . . . . . . . . . 2 1/2 5/8
Fourth Quarter Ended September 30 . . . . . . . . . . . . 5 5/8 5/8
Fiscal 1994
First Quarter Ended December 31, 1993 . . . . . . . . . . 7 5
Second Quarter Ended March 31 . . . . . . . . . . . . . . 7 4
Third Quarter Ended June 30 . . . . . . . . . . . . . . . 5 1/4 2
Fourth Quarter Ended September 30 . . . . . . . . . . . . 4 3/4
Fiscal 1995
First Quarter Ended December 31, 1994 . . . . . . . . . 2 5/8 1 1/2
Second Quarter Ended March 31 . . . . . . . . . . . . . 2 1/2 1
Third Quarter Ended June 30 .. . . . . . . . . . . . . . 7 1 1/2
Fourth Quarter Ended September 30 . 7 1/2 3
The 2,733,000 shares of Common Stock outstanding at September 30, 1995, were
held by 939 stockholders of record. At that date, an additional 168,617 shares
were subject to options to purchase Common Stock as discussed more fully in
Note 9 to the Consolidated Financial Statements. The per share bid and offer
prices on November 30, 1995, were $4.75 and $6.25, respectively. Common Stock
that could be sold pursuant to Rule 144 under the 1933 Act totals 575,738
shares as of November 30, 1995.
The Company intends to reinvest its earnings in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
Company has not paid cash dividends since its inception. Further, the Company
is restricted from paying any dividends if any outstanding borrowings exist
under its bank line of credit (no outstanding borrowings currently exist).
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[INSIDE BACK COVER] CORPORATE INFORMATION Corporate Headquarters:
MPSI Systems Inc.
BOARD OF DIRECTORS 8282 South Memorial Drive
Ronald G. Harper Tulsa, Oklahoma 74133
Chairman of the Board TEL: 918-250-9611
FAX: 918-254-8764
John C. Bumgarner, Jr.
Senior Vice President Auditors:
The Williams Companies Ernst & Young LLP
Tulsa, Oklahoma Tulsa, Oklahoma
Dr. David L. Huff Registrar and Transfer Agent:
Faculty Member Chemical Mellon Shareholder Services
The University of Texas Ridgefield Park, New Jersey
Joseph C. McNay Legal Counsel:
Chairman of the Board Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C.
Essex Investment Tulsa, Oklahoma
Management Company
Boston, Massachusetts Annual Meeting:
John J. McQueen 11:00 a.m. February 1, 1996
Attorney Warren Two Building
Tulsa, Oklahoma 18th Floor
6120 South Yale
OFFICERS Tulsa, Oklahoma
Ronald G. Harper
President and Chief Executive Officer Annual Reports:
Copies of the Form 10-K and Annual Report to
Roger A. Finn Stockholders filed with the Securities and Exchange
Vice President and Chief Operating Officer Commission are available without charge upon written
request to:
James C. Auten Linda Wells
Controller Investor Relations
MPSI Systems Inc.
Dorothy Y. Terhune 8282 South Memorial Drive
Corporate Secretary Tulsa, Oklahoma 74133
Jyo Umezawa Stock Listing:
Vice President, Pacific Rim NASDAQ SmallCapSM Symbol - MPSI
Mark R. Davis
Vice President, Europe/Africa
Bryan D. Porto
Vice President, Americas
MPSI is a registered trademark of MPSI Systems Inc.
The Intelligent Approach to Retail Marketing, MPSI's CAPS, Price Volume
Optimizer, PVO, and PriceTracker
are trademarks of MPSI Systems Inc.
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[OUTSIDE BACK COVER]
MPSI SYSTEMS INC.
8282 SOUTH MEMORIAL DRIVE
TULSA, OKLAHOMA 74133
PHONE: 1-800-727-6774
(918-250-9611 OUTSIDE THE U.S.)
FAX: 918-254-8764
MPSI is an Affirmative Action/Equal Opportunity Employer.
Printed in the United States of America.
All Rights Reserved.
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