<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                -----------------


                                    FORM 10-K

(Mark One)

[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934  (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997

                                       OR

[ ]             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934  (NO FEE REQUIRED)

For the transition period from ____________ to ____________

Commission file number 0-11527

                               MPSI SYSTEMS INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                                             73-1064024
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                             Identification No.)

                8282 SOUTH MEMORIAL DRIVE, TULSA, OKLAHOMA 74133
             (Address of principal executive offices and zip code)

        Registrant's telephone number, including area code (918) 250-9611

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          COMMON STOCK, $.05 PAR VALUE
                                (Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes   X     No
                                               -----      ------

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements or
any amendment to this Form 10-K. [ X ]

     The aggregate market value of common stock held by non-affiliates of the
registrant on December 5, 1997 was approximately $3,980,000.

     The number of shares outstanding of the registrant's common stock was
2,841,455 shares of $0.05 Par Value Common Stock as of December 5, 1997.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders presently anticipated to be held in February 1998, are incorporated
by reference into Part III.

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                               MPSI SYSTEMS INC.
                                   FORM 10-K

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                           PAGE
                                                                                                           ----
<S>              <C>                                                                                     <C>
PART I

         ITEM 1.     Business....................................................................            3

         ITEM 2.     Properties..................................................................           11

         ITEM 3.     Legal proceedings...........................................................           11

         ITEM 4.     Submission of matters to a vote of security holders.........................           11


PART II

         ITEM 5.     Market for the registrant's common equity and related
                     stockholder matters.........................................................           11

         ITEM 6.     Selected financial data.....................................................           12

         ITEM 7.     Management's discussion and analysis of financial
                     condition and results of operation..........................................           12

         ITEM 8.     Financial statements and supplementary data.................................           17

         ITEM 9.     Changes in and disagreements with accountants on accounting and
                     financial disclosure........................................................           32


PART III

         ITEM 10.    Directors and executive officers of the registrant.........................            32

         ITEM 11.    Executive compensation......................................................           32

         ITEM 12.    Security ownership of certain beneficial owners and management..............           32

         ITEM 13.    Certain relationships and related transactions..............................           32


PART IV

         ITEM 14.    Exhibits, financial statement schedules, and
                     reports on Form 8-K.........................................................           33


Signatures           ............................................................................           40

Index to Exhibits    ............................................................................           41

</TABLE>


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                                     PART I

All statements other than statements of historical fact included in this Form
10-K, including without limitation statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations, are
forward-looking statements. When used in this Form 10-K, words such as
"anticipate," "believe," "estimate," "expect" "intend," and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to technological change, product development
risks, competitive factors and pricing pressures and general economic
conditions. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks,
uncertainties, and assumptions relating to the operations, results of
operations, growth strategy, and liquidity of the Company.


ITEM 1. BUSINESS

GENERAL

     The operations of MPSI are confined to one business segment wherein it
provides decision support products and services in the form of (1) proprietary
computer software, (2) geographically specific information databases (market
studies), and (3) consulting services. These products and services are designed
to meet retail business planning requirements of its clients.

     From its inception in 1970 until it became a publicly-held company in 1983,
the Company's decision support services were directed primarily at planning
requirements for petroleum companies and other multi-outlet retailers who were
concerned with retail site selection and retail network optimization. MPSI
products provided computerized models of specified retail markets which enabled
its clients to predict sales volumes at proposed new retail sites, while at the
same time indicating the effects of each new outlet on sales volumes at both the
client's and competitors' existing outlets. During this period, the Company's
operations were characterized by limited geographic diversification, centralized
management, centralized market study production and significant dependence on
the petroleum industry.

     With the 1983 capital infusion from its initial public offering, the
operating plan of the Company expanded. In order to diversify and maintain
growth, management initiated programs intended to expand the Company's
geographic presence and its client mix. Such programs sought to reduce MPSI's
exposure to economic factors in a particular country and to lessen the
percentage of its total revenues which were attributable to the petroleum
industry (while maintaining steady growth in that core business). Accordingly,
during the period from 1983 to 1987, MPSI expanded its European operations and
opened new offices in Singapore, Japan and Brazil. This expansion led to
decentralization of management and the market study production operations. In
1986, the Company acquired RSI, a company headquartered in Minneapolis,
Minnesota, which offered products to retail food clients that were similar to
those offered by MPSI to the petroleum industry. This acquisition combined with
expanded retail planning software for banks, restaurants and governmental
clients, enabled MPSI to diversify its revenue portfolio such that revenues from
the petroleum industry, as a percent of total revenues, dropped from 90% in 1985
to 75% in 1988. During this period, MPSI's products continued to be directed
toward site selection, although enhancements such as artificial intelligence
technology moved the Company's products toward operational decision support
capabilities.

     In 1988 MPSI undertook significant changes aimed at accelerating the
Company's revenue growth, product expansion and diversification of its customer
base. MPSI reorganized its existing business unit and acquired Execucom Systems
Corporation ("ESC"). The ESC acquisition resulted in (1) a more diverse family
of products including financial planning and executive information systems, (2)
a greater number of client industries, and (3) an expanded international
presence. Although revenues from petroleum clients continued to be important to
the Company, they accounted for approximately 53% of consolidated revenues in
1990 because of the dilutive effect of ESC's non-petroleum revenues. The
concurrent restructuring of the MPSI business unit resulted in the realignment
of managerial responsibilities to correspond with the distinct client industries
it served. This realignment centralized management responsibilities such that
functional units were again controlled from the United States, regardless of
where the personnel might be located. Although not brought about directly as the
result of the changes noted above, in 1989 management also decided that the
computer workstation should replace the mainframe computer as the Company's
principal product delivery and 



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product development hardware. This action was taken in order to reduce internal
operating costs associated with the mainframe, facilitate product development
and communications using workstation networks and enhance product distribution.

     The period from 1988 to 1991 was characterized by significant product
development. The development activities were driven by two principal needs. The
MPSI unit needed new products and services which went beyond site selection to
operational decision support. The ESC unit, being in a highly competitive
environment, needed to regularly upgrade existing products incorporating new
technology in order to retain its maintenance revenue stream. These requirements
coupled with additional marketing personnel and programs contributed to a
substantial increase in the Company's debt through early 1991.

     In March 1991, effective for accounting purposes at February 28, 1991, the
Company sold substantially all of the net operating assets of ESC to Comshare,
Incorporated. This action was necessitated because of poor performance by the
ESC unit, the weakening U.S. economy, declines in MPSI revenues due to the
effects of the Persian Gulf conflict and limitations on the Company's cash
resources. The sale resulted in a substantial loss on disposition, but generated
approximately $4.5 million of cash which was used to reduce debt.

     Concurrent with the ESC sale, management scaled back the MPSI business unit
to refocus on the core petroleum industry products and clients in order to begin
liquidating the remaining debt. Additionally, the Company wrote down certain
capitalized software development costs previously carried in the consolidated
balance sheet which related to products developed for industries that had not
met profit goals.

     The corporate restructuring initiated in 1991 eventually encompassed
further restructuring throughout the three-year period ended September 30, 1993.
The initial 1991 restructuring involved a 30% reduction of the work force in
England, closure of the Singapore production center with termination of
virtually all employees in that facility, and reduction of management personnel
in the United States. Substantially all market study production and software
development activities were consolidated back into the United States. Portions
of these activities had been previously performed in the Company's Singapore and
England offices, in addition to the U.S. corporate headquarters. In spite of the
cost reductions and production streamlining achieved as the result of 1991
actions discussed above, consolidated revenues continued to decline during
fiscal year 1992 forcing the Company to further reduce its work force in the
United States and in England. Economic conditions continued to worsen for MPSI
during fiscal year 1993. The Company again reduced its work force and overhead
expenses throughout the fiscal year. Approximately 106 employees (30% of work
force) were terminated or resigned, and the Company negotiated a reduction in
the space occupied by its corporate headquarters. Further, the Company closed
certain foreign sales offices and moved to less expensive office space in
several satellite offices.

     During the fourth quarter of fiscal year 1993, the Company completed a
significant recapitalization transaction and eliminated its corporate debt
(other than trade payables and accrued liabilities). Among other benefits, the
recapitalization allowed the Company to redirect funding from debt service to
product development. Beginning in 1994 and in response to client input, MPSI
committed substantial funding and development efforts toward release of a new
generation of MPSI decision support products. Early versions of these products
were completed for commercial release in fiscal year 1995 (see discussion of
CAPS(TM), OPS(R) and PVO(R) software under "Product Development").

     During fiscal years 1994 and 1995, the Company experienced increased
stability in its regional petroleum industry markets as clients, except in
Europe, generally completed restructuring and focused on the retail aspects of
their businesses. Although European operations continued to be sluggish,
revenues in North America, South America and the Pacific Rim grew. Several U.S.
oil companies who had been recently inactive with MPSI placed significant market
study orders in 1994 and 1995 indicating interest in MPSI's new software
products which targeted operational and pricing decision support.

     Although the petroleum industry utilization of MPSI's products had been
somewhat revitalized, the Company's retail food line of business, which was
serviced by RSI, never developed to the point of being a profitable endeavor and
had sustained losses regularly since its acquisition. As a result, on September
1, 1994, RSI sold all of its noncash assets to Dakota Worldwide Corporation
("Dakota"), an unaffiliated third party, and the Company discontinued its
services and products to that class of customer.

     Although MPSI successfully launched initial versions of new products in
1994 and 1995, such products principally were directed at the North American
market. New versions of CAPS for European and South American clients were
scheduled for release 


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in the first quarter of fiscal year 1996 but were ultimately delayed
approximately eight months until June 1996. The delay in release was partially
attributable to MPSI's desire to accommodate client requests for additional
functionality and multi-product modeling capabilities. However, a portion of the
delay was attributable to MPSI's software development methodology and
organizational structure. The delayed release of the two new CAPS versions
significantly hampered MPSI's sales activities in the European and South
American regions and contributed to the lower 1996 revenues and profitability
compared to 1995. In order to address the organizational implications indicated
above, MPSI undertook a significant reorganization in July 1996. The primary
objectives of the reorganization were to (1) promote interdepartmental
cooperation in software development, (2) improve accountability and teamwork,
and (3) insure timely delivery of future software versions. Although not
undertaken specifically in order to reduce staffing, the reorganization resulted
in approximately an 8% staff reduction for which MPSI took a $215,000 charge
against its 1996 fourth quarter earnings. Management believes that the new
organizational structure positioned MPSI for better quality, more timely
delivery and better client service, and is in part responsible for the Company's
revenue growth and return to profitability in fiscal year 1997.

PRODUCTS AND SERVICES

     The Company markets its services in the United States, Europe, Africa,
Canada, South America, Central America, the Caribbean Basin and the Pacific Rim.
See Note 7 to the Consolidated Financial Statements for financial information
addressing foreign and domestic operations and export sales. Generally, the
Company's marketing activities center on personal presentations to existing and
prospective clients, client referrals, proposal submissions, selective mailings,
limited print advertising, seminars and trade show participation. Most of the
Company's clients are identified by the Company's direct sales force.

     The Company's operating cycle and cash flow are driven principally by the
timing of client orders for market studies. The timing of market study
production and the resulting revenues are subject to a degree of fluctuation.
Quarterly revenues can also be impacted by the timing of software license
agreements. Accordingly, management believes that quarterly results may not be
indicative of results for full fiscal years and that the comparability of annual
revenues and profitability should also be evaluated giving effect to the
potential impact of contract timing.

     Economic conditions throughout the world have varying degrees of impact on
the Company's products. Volatile oil prices, unsettled economic conditions and
retail consolidation affected the Company's volume of new business in fiscal
1997. The Company is unable to predict the extent to which these conditions will
continue to affect its business during 1998.

     Approximately 97%, 97%, and 96% of revenues were derived from the petroleum
industry during the fiscal years ended September 30, 1997, 1996, and 1995,
respectively. In each of the fiscal years 1997, 1996, and 1995, MPSI derived
revenues representing 10% or more of consolidated revenues from certain clients,
together with their affiliates, as set forth below (in millions of dollars):

<TABLE>
<CAPTION>
                                        1997             1996            1995
                                     -----------     -----------     -----------
                                     AMOUNT    %     AMOUNT    %     AMOUNT    %
                                     ------   --     ------   --     ------   --
<S>                                 <C>      <C>    <C>      <C>    <C>      <C>
Exxon/Esso/Imperial ............     $  5.6   24     $  6.3   29     $  4.4   19
Texaco/Caltex ..................     $  2.6   11     $  2.7   12     $  1.3    6
Shell ..........................     $  1.6    7     $  1.5    7     $  2.8   12
Amoco ..........................     $  2.0    8     $  2.1   10     $  2.5   11

</TABLE>

     The Company would be adversely affected if several petroleum industry
clients curtailed their long-term usage of MPSI products. The following table
shows the percentage of total revenue from continuing operations that the
Company derived from various sources during each of the last three fiscal years.

               REVENUE DERIVED FROM KEY PRODUCTS AND SERVICES (%)

<TABLE>
<CAPTION>
                                                      1997      1996      1995
                                                      ----      ----      ----
<S>                                                  <C>       <C>       <C>
Database construction (market studies) ...........     63        71        70
Software licenses ................................      8         2         5
Software maintenance agreements ..................      4         6         5
Consulting, educational, and other services.......     25        21        20

</TABLE>



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     Described below are the computer applications software, information
databases and other services currently provided by the Company.

Retail Planning

     Until 1995, the Company's primary retail planning applications software was
the Retail Planning System(R) ("RPS"). See "Product Development" for discussion
of major enhancements of RPS commercially released in fiscal years 1996 and
1997. The enhanced systems support client needs in three areas:

          Short-term pricing issues are addressed using PVO(R) and Price
     Zones(TM) which assist the client with daily pricing decisions at retail
     outlets so as to optimize profit while maintaining target sales volumes.
     The system also aids with the establishment of supply/demand-balanced trade
     zones to reduce rapid geographic deterioration in pricing.

          Medium-term operational issues are addressed using OPS(R) which aids
     in systematic forecasting of retail sales volume changes resulting from
     operational changes (such as hours of operation and merchandising
     practices), counselling dealers as to pricing, evaluating merchandising and
     operational practices and providing territory-wide planning for anticipated
     retail sales volumes, pricing and operations.

          Long-term capital investment issues are addressed using CAPS in the
     areas of (1) new retail site location where the system provides an
     objective measure for comparing available sites based on competition and
     convenience to demand, (2) identification of outlets to divest where the
     system isolates and evaluates client locations that have poor performance,
     (3) identification of outlets to be rebuilt by identifying sales potential
     to be realized by remodeling or reformatting specified outlets and (4)
     assessing multiple profit centers by forecasting the potential benefits of
     retailing complementary products and services.

     Software licensing agreements for the RPS, CAPS and OPS software (including
ancillary products) generally have multi-year (generally five year agreements)
noncancellable terms. These agreements offer the client an installment payment
option requiring a payment upon execution and annual payments on the succeeding
anniversary dates of the agreement. The software can be used by the client for a
particular industry (such as petroleum) and a particular geographic market (such
as Japan). Also, the agreement contains broad restrictions on the use and
disclosure of the software by the client. See "Trademarks, Copyrights, and
Licenses" below. Modifying the software typically involves changes in the
weighting of various supply and demand factors or the addition of a new factor
as the result of changes in the marketplace.

     MPSI provides full maintenance (postcontract customer support) services for
the RPS, CAPS and OPS and, where necessary, training of and consultation with
client staff. Software licenses, maintenance and optional consulting services
are set out separately in each multi-year license agreement. The agreement
states that any company-sponsored modification to the software during the
postcontract customer support period will be provided to the client at no
additional cost. Prices for these software products in the United States are
based upon formulas which address geographical boundaries, population, number of
automobiles and other factors. Prices for such software applicable to foreign
countries are based on a percentage of the United States pricing.

     PVO and/or Price Zones(TM) software is generally licensed on a perpetual
basis. The contracts provide that subsequent upgrades will be provided as MPSI
determines them to be necessary for a given geographic region and that the
client will receive such upgrades upon payment for the enhanced modules, albeit
at a discount for licensed users. The license agreements also provide for
post-installation maintenance and support services, which terms are generally
similar to those related to RPS and CAPS.

Information Databases

     The Company also constructs the market study databases that are the primary
informational sources used by the retail planning software. The database
construction process involves acquisition of geographic digitized mapping,
traffic counts, and demographic demand data from governmental agencies or
independent suppliers, on-site survey of retail outlet supply information by
MPSI personnel or contract surveyors, collation of all demographic demand and
supply information into specified data layout, data editing and quality control
checking, and preparation of the client-specific deliverables. Separate
contracts govern each database order by a client and generally require advance
payments ranging from 35 percent to 70 percent of the total sales value. The
amount of the 



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required prepayment is determined principally by the client's delivery
requirements. There is no retainage provision relative to these production-type
contracts. These databases are arranged and presented in six types of studies.

          Constantly Current Market Studies ("CCMS"). These multi-year,
     noncancelable studies are used by clients who possess a large number of
     retail sites and who wish to analyze market conditions and evaluate site
     locations in metropolitan areas on a regular basis. The supply and demand
     data used in this type of study is collected by the Company. This type of
     study provides clients with a series of consecutive database updates over a
     specific time period, generally five years. Clients agree to pay for the
     CCMS in periodic installments. It is tailored to individual client needs,
     and pricing is determined in part by the number of subscribers to a
     particular market during the commitment period and offers clients discounts
     for their multi-year commitments.

          Quality Partnership Studies ("QP"). These multi-year, noncancelable
     study programs, like the CCMS studies, offer clients the opportunity to
     regularly update market study information on an annual basis. However, in
     the QP program, clients may participate in the updating process by
     providing regular information about changes (new outlets, new brands,
     rebuilt outlets, etc.) in the market. MPSI gathers information relative to
     these changes and updates the database which otherwise remains unchanged.
     The lower update costs are passed on to the client participants in the form
     of lower annual update prices. Although the updates are not as extensive as
     full CCMS updates, clients are able to track the effects of major market
     changes using QP's.

          Scheduled Market Area Studies ("SMAS"). These studies are similar to
     the CCMS except that the clients do not commit to a series of consecutive
     database updates over a specific time period. These studies are usually
     scheduled by one client and offered to additional clients on a subscription
     basis. While each study uses a common demand-side database, because of
     customized supply-side information, the final database provided to each
     client is unique.

          Market Area Studies ("MAS"). These studies are similar to the SMAS
     except they are sold to a single client and generally carry a higher price
     than a multi-client SMAS of the same market. Portions of the demographic
     data can generally be used as a major part of other studies in the same
     market for clients in the same or comparable retail industries.

          Mini-Market Area Studies. These studies are similar to the MAS except
     the area studied does not contain more than 75 outlets. Likewise, the
     accompanying study deliverables are scaled down.

          Single Site Studies. These studies are used to evaluate market
     conditions or the effects of various operating decisions at a specific
     location within a specified geographic area.

Other Products and Services

     Licensed software clients may utilize the retail planning software and
information databases on their own computer facilities, may dial in to MPSI's
computers and use the software interactively (subject to certain usage
restrictions), or may elect to have MPSI run tactics (that is, pose "what if"
questions) on MPSI's computers. In cases where software is installed on client
computers, the Company charges for installation of the software and training the
client's personnel. A client may then run unlimited tactics on its own
equipment. If tactics are run on the Company's computers, the client pays a fee
per tactic. Clients who have entered into long-term user agreements are entitled
to discounts on databases and on tactics or support services.

     MPSI introduced two new "data" products during fiscal year 1995 which were
designed to leverage market information already in MPSI's inventory or allow
clients to contract for customized data collection by MPSI. The Market Monitor
product allows MPSI clients to obtain supply trend information in a given
geographic market or to establish specialized market boundaries or specialized
data requirements for an additional fee. MPSI's PriceTracker(TM) product allows
clients to obtain high quality, timely retail pricing information on a recurring
basis in order to track pricing trends in the marketplace. Such products were
introduced partially in response to competitors who attempt to infiltrate MPSI's
client base by initially providing low-cost market data. These products are
currently utilized by clients only in the United States. These products, while
not intended to be a material portion of MPSI's business, have been well
received by clients needing lower cost data.

     Other products and services provided by the Company include litigation
support; determination of key competitors; regular tracking of petroleum prices
using geographic information systems for user analyses; retail consulting;
consumer research; and customized retail outlet surveys. Certain services are
complementary to retail planning services. For example, the databases 



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provided as part of the retail planning services may be linked with other data
supplied by the client. This data could then be processed interactively through
geographic information system software which manages and displays information in
a variety of graphic and map formats.

COMPETITION

     Since its inception in 1970 the Company has provided comprehensive
applications software and database systems, primarily to the retail petroleum
industry, and currently has more than 138 multinational clients in 76 countries.
There has recently been a worldwide trend toward competitive product development
of this type due to the availability of computer resources and acceptance of
retail modeling theory. The Company believes its competition lies in two areas:
first, in the market research staffs of petroleum companies or potential
customers who develop and manage their own software and data; and second, in
consulting and research companies which compete for portions of the Company's
business.

     The Company has found that the market research staffs of some large
petroleum companies continue to concentrate on in-house data gathering and site
selection methods, while other companies with more limited resources must
consider low cost alternatives for obtaining market information. It has been
MPSI's experience that clients often encounter substantial cost barriers
relative to internally developed systems. Without the economies of scale, data
gathering expertise and modelling sophistication that MPSI has obtained during
its 27-year existence, clients often find that systems developed in house are
expensive to develop, expensive to maintain given changing market conditions,
require market information with an inherent degree of accuracy which is
difficult to obtain, and that the results of such systems do not justify the
associated costs and effort. Additionally, as clients or potential clients
struggle to manage operating costs and consider outsourcing certain activities
where economically feasible, the capabilities of companies like MPSI offer an
attractive alternative to internal systems. Because of the trend in large
companies to outsource certain functions and because of the growth in business
consulting generally, independent consulting and research companies have
challenged certain products the Company offers such as demographic data
collection, geographic databases, retail outlet surveys, retail consulting,
pricing applications, and single site studies. Occasionally, such consultants
are engaged to develop a proprietary internal model for their clients. Often
competitive services of this type are offered by independent consultants as part
of a larger consulting project wherein pricing for the retail planning segment
can be very competitive with MPSI's pricing. Certain of such companies are
offering computerized tools and services which, the Company believes are not as
sophisticated as MPSI products, but may be attractive to customers willing to
sacrifice accuracy for a lower cost solution to their business needs.

     The Company believes it competes with these various market alternatives by
providing high-quality, sophisticated software and reliable, accurate databases
at a reasonable cost. MPSI further believes its historical expertise and success
in the areas of volume projections and retail network planning provide a
substantial barrier to entry for competitors. Further, MPSI's maintenance
programs and its commitment to more than one client in a given market results in
regular updates of existing software in line with changes in a given market. The
Company attributes its ability to provide these quality products and services to
the expertise and experience of its personnel.

     By focusing on PC-oriented products and services, the Company believes it
is better equipped to challenge "lower cost competitors". New data collection
techniques will allow more timely and regular updating of market data using
handheld data collection technology and PC-based data transmission and delivery
technology. These processes are expected to reduce MPSI's data collection costs
relative to market studies and thereby allow the Company to leverage data
already collected or to collect custom data for clients who may not require full
market study information. The Company believes it can thereby be competitive
with potential competitors who have targeted customers with limited retail
market resources.

     In addition to addressing low-cost competitors, MPSI regularly evaluates
potential strategic alliances with independent companies who will allow MPSI to
offer a wider variety of integrated products and/or provide a wider product
distribution system. The target firms will be those who service industries in
which MPSI has historical expertise (e.g., petroleum, government/postal, and
banking). Such alliances can also provide MPSI the opportunity to sub-contract
portions of larger consulting projects thereby establishing MPSI's credibility
with the client and allowing interface with customer personnel who are
potentially valuable sales contacts for future business. By positioning itself
as an integrated service provider and trusted advisor that can meet a client's
needs for a variety of retail decision support information and services, MPSI
can combat both the small competitor's pricing pressure (because the client can
identify added value of MPSI's multi-purpose data and software, thereby
comparing the value of MPSI's full range of services when evaluating individual
product or service pricing by a competitor) and the larger consulting firm's



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encroachment on retail business segments (by offering particular industry
expertise and a proven track record in our retail planning niche which the
larger firms cannot equal).

BACKLOG

     The Company's September 30, 1997 and 1996 backlog consisted principally of
orders for market information databases (1997 -- $12,928,000, 1996 --
$16,338,000) and multi-year commitments by customers for software maintenance
and support services (1997 -- $2,327,000, 1996 -- $2,194,000). The Company
expects that the market information databases in backlog at September 30, 1997
will be recognized in fiscal year revenues as follows: 1998 -- $7,380,000, 1999
-- $3,321,000, 2000 -- $1,843,000 and 2001 -- $384,000. Maintenance and support
services in backlog are the result of noncancelable client contractual
obligations to purchase support services generally over periods of three to five
years. Such revenues will be recognized, and backlog accordingly reduced, on a
ratable basis over the life of each underlying agreement. Of the aggregate
maintenance and support backlog at September 30, 1997, future fiscal year
revenues are expected to be recognized as follows: 1998 -- $687,000; 1999 --
$567,000, 2000 -- $469,000, 2001 -- $383,000, and 2002 -- $221,000.

EMPLOYEES

     As of September 30, 1997, the Company employed 211 people, including 77 in
marketing (which includes sales and client services); 30 in research and
development (which includes software development and system support); 70 in
database analysis, consulting, and production; and 34 in management,
administration, and finance. Of these, 172 are employed in the United States and
39 are employed in foreign countries.

PRODUCT DEVELOPMENT

     Since 1970, the foundation of the Company's business has been its developed
software which helps retailers select sites, improve operations and make product
pricing decisions. Over the last five years, the major development efforts of
the Company have been directed toward (1) enhancement of these core retail
planning products in order to extend petroleum utilization around the world, (2)
portation of the software from mainframe to workstation/PC platforms, and (3)
incorporation of third party software in order to enhance the user interface,
speed and efficiency of this software. Currently, the Company has several
development efforts underway that address the aforesaid areas.

     MPSI's product development cycle consists of four primary stages. During
the product specification phase the Company identifies the initial requirements
of the software, determines the functional requirements and begins the initial
design. During this stage, the Company sets forth the database requirements as
well as the hardware, operating systems, third-party imbedded software and
general functional requirements. From this information a business plan,
conceptual prototype and a project plan are developed. The prototypes developed
during this stage are not fully functional prototypes, but are designed to
present the "look and feel" of the end product. Upon completion of this phase,
the Company has generally completed a detailed program design and, accordingly,
established the technological feasibility of the project. Following the product
specification phase, the project enters the build phase where actual software
programming takes place. Once coding is complete the project enters the quality
assurance phase which encompasses various internal systems testing and user
acceptance testing. Once testing is completed the project enters the
implementation phase where hardware and software installation procedures and
user documentation are finalized.

     Software development costs incurred prior to completion of the detailed
program design are expensed as research and development costs. Costs incurred
during the build, quality assurance and implementation phases are generally
capitalized. At the point where the software product is ready for general
release to the customers, capitalization of costs ceases.

     Beginning in fiscal year 1993, MPSI undertook a major internally funded
rewrite of its retail planning software. The new systems were designed to meet
the three primary operational requirements of clients through PC-based products
including the Capital Performance System ("CAPS") for site selection and capital
planning, the Operational Performance System ("OPS") for use in the field by
retail managers in order to optimize outlet and territory performance and the
Price Volume Optimizer ("PVO") for retail fuel pricing decisions. The CAPS
software for North America was released in January 1995, and from that time to
the present, MPSI has developed and released CAPS, OPS, and PVO capable of
serving all MPSI operating regions except portions of the Pacific Rim. CAPS for
Japan is scheduled for release in fiscal year 1998.




                                       9
<PAGE>   10

     Development of the initial PVO product was the result of a contract that
was signed with a North American client during 1993 for the nonexclusive
development of a volume prediction model for a petroleum related product and
service facility. The commercial version of PVO was completed in August of 1995
and has been successfully tested and installed for clients in the Pacific Rim
and the United States. It is anticipated this product will not only result in
contracts for additional client databases in 1998, but also will lead to further
business with other clients through the adaptation of the model to other
petroleum client ancillary product/service needs. The Company intends to add
both sales and client support resources for this product set in fiscal year
1998. Utilizing information from Company produced CAPS/RPS databases or from
other MPSI studies, PVO is designed to give retailers an easy to use decision
tool for optimizing petroleum outlet profits through price or volume level
determinations.

     The PC-based OPS software utilizing CAPS/RPS database information is
currently installed with clients in the United States, Europe and the Pacific
Rim. During fiscal year 1998, the Company intends to continue making the model
available to existing clients at a nominal cost for the purpose of increasing
Company-produced databases, MPSI's principal revenue source.

     During the years ended September 30, 1997, 1996, and 1995, the Company
spent $2,132,000, $2,610,000, and $2,789,000, respectively, on research and
development or enhancement of new products and the maintenance of existing
products. The amounts spent on research and development were primarily Company
sponsored, meaning there was no material amount of direct recoupment of expenses
from clients.

TRADEMARKS, COPYRIGHTS, AND LICENSES

     The Company holds a number of trademarks, some of which are registered at
the U.S. Patent and Trademark Office. To date, registrations have been sought
only in the United States and Mexico. Set forth below are the Company's
trademarks and related registration expiration dates.

<TABLE>
<CAPTION>
                                            TYPE OF
               PRODUCT                        MARK      STATUS/EXPIRATION
---------------------------------------    ----------  -------------------
<S>                                       <C>          <C> 
MPSI's Site Evaluation System..........    Registered                  2001
MPSI and Design........................    Registered                  2002
MPSI's OPS.............................    Registered                  2002
MPSI...................................    Registered                  2004
Retail Planning System.................    Registered                  2005
PVO....................................    Registered                  2006
Location Volume........................    Registered                  2006
Facility/Location Volume...............    Registered                  2006
MPSI's CAPS............................    Registered                  2006
MPSI's Market Monitor..................    Trademark      Common Law Rights
PriceTracker...........................    Trademark      Common Law Rights
The Intelligent Approach to Retail         
Marketing..............................    Trademark      Common Law Rights

</TABLE>

     The Company does not hold any patents or registered copyrights. The
Company's long-term software license agreements require customer acknowledgment
of the proprietary nature of the Company's software. The Company relies on these
agreements, together with trade secret laws and internal nondisclosure
safeguards, to protect its products. To date, the Company has had no indication
of any material breach in the security of its products. Should a material breach
in the security of the Company's software products occur, it might have the
impact of reducing the current barriers to entry for competitors and thus
materially adversely affect long-term results of Company operations. The
Company's modeling methodology, mathematical modeling algorithms and data
gathering processes have been developed over an extensive period of time and
would, in the absence of a material breach in the security, require potential
competitors a substantial period of time to duplicate. Even in the event that a
material breach did occur, such as a reverse engineering of an MPSI software
product, the Company believes that because of the annual change in technology,
the retail markets served, and the regular software upgrades required thereby,
such breach would not result in a material adverse effect on the Company's
short-term business because new versions of its products would likely reduce the
competitive value of older versions breached by potential competitors.



                                       10
<PAGE>   11


ITEM 2. PROPERTIES

     The Company's principal facility and corporate headquarters in Tulsa,
Oklahoma (42,500 square feet) is the primary location for software development
and market study production. The Bristol, England facility encompasses 10,000
square feet until April 1998, and the Rio de Janeiro, Brazil office encompasses
3,000 square feet. Both foreign offices do single site and special project work
in addition to their primary marketing role. Regional sales offices in
Singapore; Johannesburg, South Africa (established in 1996); Melbourne,
Australia; Tokyo, Japan; and Seoul, South Korea (established in 1997) remained
the Company's principal client liaison facilities in those areas at September
30, 1997. Management believes that the various facilities are properly sized to
meet anticipated business levels with the exception of the Bristol office which
will be housed in a smaller facility beginning in approximately May of 1998.
Additional space may be required to accommodate business expansion, particularly
in Tulsa where the present headquarters lease expires in April 1998. The Company
is currently evaluating alternative facility options. All office facilities are
and will be leased.

ITEM 3. LEGAL PROCEEDINGS

     There are no material pending legal proceedings at September 30, 1997 which
meet the criteria for disclosure under this item.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the fourth
quarter ended September 30, 1997.


                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


     The Company's Common Stock is listed on The NASDAQ SmallCap Market tier of
The Nasdaq Market (hereafter NASDAQ). The trading symbol is "MPSI." Information
in the table below reflects the high and low sales prices reported by NASDAQ.


<TABLE>
<CAPTION>
                                                              LOW          HIGH
                                                             -----        ------
<S>                                                         <C>          <C>
Fiscal 1996
  First Quarter Ended December 31, 1995 ............         4 3/4             7
  Second Quarter Ended March 31 ....................             3         5 1/4
  Third Quarter Ended June 30 ......................         2 3/4         3 1/2
  Fourth Quarter Ended September 30  ...............           5/8         4 1/4

Fiscal 1997
  First Quarter Ended December 31, 1996 ............         29/64         3 1/2
  Second Quarter Ended March 31 ....................         1 3/4         3 3/4
  Third Quarter Ended June 30 ......................             2         3 1/2
  Fourth Quarter Ended September 30  ...............         2 3/8         9 1/2

</TABLE>

     The 2,841,000 shares of Common Stock outstanding at December 5, 1997, were
held by 904 stockholders of record. At that date, an additional 204,000 shares
were subject to options to purchase Common Stock as discussed more fully in Note
8 to the Consolidated Financial Statements. The per share bid and offer prices
on December 5, 1997, were $4.25 and $4.88, respectively. Common Stock that could
be sold pursuant to Rule 144 under the 1933 Act totals 840,000 shares as of
December 5, 1997.

     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.



                                       11

<PAGE>   12


ITEM 6. SELECTED FINANCIAL DATA

                            SELECTED FINANCIAL DATA*
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED SEPTEMBER 30,
                                                      ----------------------------------------------------------
                                                        1997        1996         1995        1994         1993
                                                      --------    --------     --------    --------     --------
<S>                                                   <C>         <C>          <C>         <C>          <C>     
OPERATING DATA:
Revenues .........................................    $ 23,438    $ 21,745     $ 23,437    $ 19,872     $ 19,524
Income (loss) from continuing operations .........       1,103        (623)       2,029       1,956         (939)
Income (loss) from discontinued operations .......          --          --           --        (482)       2,149
Extraordinary gain on debt extinguishment ........          --          --           --          --          350
Net income (loss) ................................       1,103        (623)       2,029       1,474        1,560
Per share:
  Income (loss) per common and common
     equivalent share:
     Continuing operations .......................    $    .39    $   (.23)    $    .72    $    .71     $   (.94)
     Discontinued operations .....................          --          --           --        (.18)        2.15
     Extraordinary item ..........................          --          --           --          --          .35
     Net income (loss) ...........................         .39        (.23)         .72         .53         1.56
Weighted average shares of common stock
  and common stock equivalents outstanding .......       2,820       2,756        2,802       2,766          998


BALANCE SHEET DATA:
Total assets .....................................    $ 11,638    $ 10,319     $ 12,924    $  9,734     $ 10,040
Noncurrent deferred revenue ......................       1,634       1,342        1,961       1,068        1,453
Noncurrent deferred income taxes .................         442          98           --          --           --
Other noncurrent liabilities .....................          37          79          220         349          252

</TABLE>

----------

*    Operating data prior to fiscal year 1994 has been restated giving effect to
     the September 1994 sale of RSI .


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

     The following table sets forth (in thousands), for the periods indicated,
certain items in the consolidated statements of operations and the change of
such items as compared with the indicated prior period.

<TABLE>
<CAPTION>
                                                                                         CHANGE        
                                                                                 --------------------- 
                                                YEAR ENDED SEPTEMBER 30            1997         1996   
                                            ---------------------------------       VS.          VS.   
                                              1997        1996         1995        1996         1995
                                            --------    --------     --------    --------     --------
<S>                                         <C>         <C>          <C>         <C>          <C>      
Revenues ...............................    $ 23,438    $ 21,745     $ 23,437    $  1,693     $ (1,692)
Cost of sales ..........................       9,603      11,014       10,432      (1,411)         582
                                            --------    --------     --------    --------     --------
  Gross profit .........................      13,835      10,731       13,005       3,104       (2,274)
                                            --------    --------     --------    --------     --------
Operating expenses:
  General and administrative ...........       3,763       3,005        2,571         758          434
  Marketing and client services ........       6,834       6,928        6,993         (94)         (65)
  Research and development .............       1,598       1,382        1,794         216         (412)
                                            --------    --------     --------    --------     --------
          Total operating expenses .....      12,195      11,315       11,358         880          (43)
                                            --------    --------     --------    --------     --------
Operating income (loss) ................       1,640        (584)       1,647       2,224       (2,231)
Other income (expense), net ............          92         332          836        (240)        (504)
                                            --------    --------     --------    --------     --------
Income (loss)  before income taxes .....       1,732        (252)       2,483       1,984       (2,735)
Income taxes ...........................         629         371          454         258          (83)
                                            --------    --------     --------    --------     --------
Net income (loss) ......................    $  1,103    $   (623)    $  2,029    $  1,726     $ (2,652)
                                            ========    ========     ========    ========     ========

</TABLE>



                                       12
<PAGE>   13


RESULTS OF OPERATIONS

     Net income of $1.1 million in fiscal year 1997 represented a significant
improvement over 1996, in spite of a substantial increase in income taxes
between the two years. As discussed below, this improvement was principally
attributable to an 8% growth in revenues (spearheaded by MPSI's largest client
renewing its worldwide software license for five more years), and to improved
gross profit margins on data services, but offset with additional resources
allocated or acquired in order to continue ongoing client service initiatives.
In contrast with the positive results in fiscal year 1997, the fiscal year 1996
results reflected a 7% decline in revenues compared with 1995 and were further
adversely affected by delays in rolling out new retail planning software for
MPSI clients in Europe and South America which impacted productivity.

     Set forth below (in thousands of dollars) is an analysis of MPSI's revenue
fluctuations over the last three fiscal years.

<TABLE>
<CAPTION>
                                      1997 VS. 1996          1996 VS. 1995
                                    -----------------      ------------------
                                     AMOUNT       %        AMOUNT          % 
                                     ------      ---       ------         ---
<S>                                 <C>       <C>          <C>           <C> 
          Pacific Rim ........    $ 1,942        22        $(1,193)       (12)
          North America ......        (78)       (1)           336          4 
          Europe/Africa ......        295        19           (824)       (34)
          Latin America ......       (466)      (22)           (11)        (1)
                                  -------                  -------            
          Totals .............    $ 1,693         8        $(1,692)        (7)
                                  =======                  =======           

</TABLE>

     The 1997 revenues in all regions were positively impacted by MPSI's largest
customer continuing its commitment to MPSI by renewing its world-wide CAPS(TM)
software license for five more years. This transaction principally accounts for
the significant increase in 1997 revenue from software licensing compared with
1996 and 1995. See Note 7 to the Consolidated Financial Statements which sets
forth the historical impact of that client on MPSI's annual revenues. Revenues
in 1996 declined compared with 1995 due to several factors including lower
software licensing and renewal rates brought about by (1) uncertainty in
countries such as Japan related to the effects of deregulation, and (2) delays
in rolling out MPSI software upgrades reflecting new technology and market
conditions for the European and South American target markets. The timing of new
or renewed long-term software license agreements, and the normally attendant
market study orders which often accompany them, can have a substantial impact
upon reported revenues and net income between accounting periods

     In addition to recurring revenues from traditional sources, management is
also pleased that a number of clients in North America and the Pacific Rim have
licensed and/or are testing the Company's Price Zones, PriceTracker and
Price-Volume Optimizer products which first became commercially available in
1996. During 1997, revenues of approximately $1 million were realized from those
products and services in North America, representing a 111% increase over 1996.
Additional revenues of approximately $380,000, virtually all of which
represented new business, were realized from the Pacific Rim in 1997. The
Company will commit additional resources toward the growth of retail pricing
revenues both from additional installation of these products, as well as from
consultation with clients concerning the establishment of price monitoring
infrastructure.

     On a regional basis, revenues in North America declined slightly compared
with 1996, primarily as the result of alternate year cycling of certain market
studies for some clients and of pricing pressures in this most competitive MPSI
region. The Pacific Rim continued to be a substantial source of revenue for the
Company. In addition to the 1997 revenue generated from pricing products as
discussed above, the Company increased its traditional services in several
Pacific Rim countries which allowed the opportunity to leverage market study
production costs in the region and thereby improve gross profit. The Company is
unable to predict the effect on fiscal year 1998 or thereafter of unsettled
economic conditions in the Pacific Rim but has identified several potentially
adverse effects, including (1) pressure on MPSI pricing and/or delay in placing
orders due to higher costs of projects associated with weaker foreign currencies
versus the U.S. dollar, (2) longer payment cycles by customers in the region,
and (3) pressure to denominate contracts in foreign currencies which may
increase the Company's exposure to gains or losses based on currency
fluctuations. Fiscal year 1997 saw a significant turnaround in the revenue trend
in Europe, principally attributable to the 1996 roll-out of CAPS software for
that region. Revenues in Europe declined in fiscal 1996 primarily due to a delay
in the introduction of the CAPS software version for that region. European
petroleum companies have been under considerable profit pressure over the last
several years and have consequently reduced their focus on retail planning
issues. The Company believes that recent oil company consolidations in Europe
have refocused the European petroleum industry on the necessity to maximize
profits from existing facilities through ancilliary product offerings in order
to remain competitive. Consolidations also have the effect of requiring retail
network outlet rationalization for those companies who do combine. These market
driven fundamentals should allow the Company to continue the European revenue
growth demonstrated in fiscal 1997. South American revenue declined in 1997 as
the result of 



                                       13
<PAGE>   14

two primary factors: clients have been slower in that region to undertake the
installation and use of MPSI's new CAPS software, which was delayed in roll-out
during 1996 for the same reasons set forth in Europe above, and privatization of
the petroleum industry in certain countries has diverted client focus to more
long-range strategic issues. The Company expects improved revenues from South
America in fiscal 1998.

     The Company does not believe that inflation has significantly impacted the
results of operations during the three years ended September 30, 1997. Lower
prices in all regions except the Pacific Rim aided revenue generation during
1996 and 1995, but no substantial pricing changes impacted fiscal 1997. The
Company attributes the 1997 revenue growth, where it occurred, primarily to the
ongoing technological improvements and additions to its products and services.
As the result of cost containment measures and smaller retail planning staff,
portions of the retail sector of the petroleum industry, which is the Company's
principal vertical market, are increasingly interested in initial delivery of
the "solution" to their retail network planning concerns and perhaps secondarily
interested in the "tools" to address the issues internally. Although MPSI has
traditionally undertaken a variety of special consultation projects, management
anticipates a greater focus of corporate resources toward delivery of consulting
solutions, thereafter relying on our tools and data as a means of generating
ongoing revenues from such clients. This focus on a more integrated role with
our customers should not only reduce client price sensitivity, but should also
strengthen the barriers to competition.

     The Company realized significant improvement in gross profit during 1997
compared with prior years. Gross profit (loss) attributable to software
licensing was approximately $1,042,000, ($217,000) and $757,000 in fiscal years
1997, 1996 and 1995, respectively. These percentages can be significantly
impacted by the timing of software license revenues as noted previously. On a
cost comparison basis, cost of sales from software licensing increased
approximately 26% in 1997 compared with 1996 as amortization was recorded for
the European and South American CAPS software development. Similarly, such costs
increased approximately 83% in 1996 compared with 1995 as the Company amortized
the costs associated with CAPS versions related to North America, Africa and
Australia. Gross profit on market study data services, the largest component of
revenues, increased approximately 4% in 1997 (declined 10% in 1996 compared with
1995). The 1997 improvement was attributable to additional new client
participants in certain market studies, most notably in the Pacific Rim, and to
improved market study production processes. The 1996 decline compared to 1995
was the result of timing related to certain multi-year market study updates
(which carry acceptable gross profit margins over the entire commitment period
but may result in reduced margins in certain fiscal year components) and rework
during the transition between RPS and CAPS software for Europe and South
America.

     Overall, the reduction in cost of sales components by $1.4 million in 1997
allowed the Company to commit additional resources to client service. Enhanced
commitment to client service, in addition to a need to address timely product
development, was one of the reasons for a corporate restructuring undertaken in
July 1996. MPSI was able to utilize personnel previously in production and
marketing to (1) organize new business units focused on specific strategic
initiatives and (2) add additional client service personnel to our marketing
group. These personnel re-allocations resulted in growth of approximately
$350,000 in both general & administrative and marketing expenses. General and
administrative expenses further increased by approximately $350,000 due to
incremental employee incentive accruals, legal and accounting fees associated
with evaluation of strategic alliance opportunities, and termination costs
relative to the Bristol subsidiary's offices to be moved in April 1998. The
internal allocation of personnel to client service (marketing) functions was
offset by reduced headcount in Europe and retirement of a senior officer in
Japan (slated for replacement during fiscal 1998). Overall, marketing expenses
declined approximately 1% in 1997 compared with 1996. Research and development
expenses were relatively unaffected by the resource allocation in 1997. The
increase of $216,000 (16%) in 1997 compared with 1996 is attributable to less
capitalizable software development work as opposed to pure research. This ratio
is the result of the Company having completed most of its regional CAPS software
development except for the Japanese version due for release in fiscal 1998.
Management expects capitalized software development to increase somewhat in
fiscal 1998 as the Company undertakes development of new software to address
product category management issues applicable to convenience stores and
eventually to large format retailers.

     Operating expenses declined slightly in 1996 compared with 1995.
Development of the South American and European CAPS versions in 1996 resulted in
a higher level of capitalizable work than in 1995. General and administrative
expenses were higher in 1996 than in 1995 due to certain severance costs in
Europe associated with the restructuring and with opening new offices in South
Korea and South Africa.

     MPSI enters into multi-year contracts for market studies, some of which are
denominated in foreign currencies (principally the Singapore Dollar and the
British Pound Sterling). This exposes MPSI to exchange gains or losses depending
upon the periodic value 




                                       14
<PAGE>   15

of the U.S. Dollar relative to the respective foreign currencies. The Company
experienced exchange losses of approximately $98,000 in fiscal 1997. During
fiscal years 1996 and 1995, MPSI benefited from foreign currency exchange gains
in the amount of $146,000 and $638,000, respectively. The gains in 1996 and 1995
were generally the result of multi-year database contracts denominated in
Singapore Dollars which were booked by clients in prior years and partially
collected in 1996 or 1995. By the time the collections were effected, the
contract values had increased relative to the U.S. Dollar reporting currency.
Foreign currency valuation changes led to opposite results in 1997. Although
MPSI anticipates continuing exposure from the same source in fiscal year 1998,
the magnitude is not expected to materially increase as the Company denominates
a limited number of contracts in foreign currencies.

     Income taxes increased $258,000 (70%) in 1997 compared with 1996 as the
company utilized its remaining tax credit carryforwards for U.S. income tax
purposes (in which jurisdiction of most of the Company's consolidated operations
are reported) and thus began to record book tax expense at an effective rate of
approximately 34%. The income taxes reported in 1996 declined 18% compared with
1995, principally as the result of a change in estimate for 1995 in the amount
of approximately $210,000 recorded during 1996 when the 1995 returns were
actually completed and filed. Reflected in income tax expense for 1997 was
$212,000 of foreign income taxes ($412,000 in 1996 and $171,000 in 1995). Such
tax related to foreign income tax withheld at the source from payments by
foreign customers ($188,000, $343,000 and $53,000 in 1997, 1996 and 1995,
respectively) and to income taxes applicable to the Company's foreign
subsidiaries ($24,000, $69,000 and $118,000 in 1997, 1996 and 1995,
respectively). The amount of foreign incomes withheld can fluctuate
significantly between fiscal periods based upon not only the geographic areas in
which the Company operates, but on the particular products and services
delivered within an individual country.

     In March 1996, the Internal Revenue Service initiated an examination of tax
years 1993 through 1995. The Company has not yet received a final report of the
results, and believes that the resolution of issues raised will not have a
material effect on its financial position.

FINANCIAL CONDITION AND LIQUIDITY

     Working capital, the Company's primary measure of liquidity, was $3 million
at September 30, 1997 compared with $1.4 million at September 30, 1996. The 1997
increase of $1.6 million (114%) reflects a 68% ($648,000) increase in cash
reserves, a 16% ($742,000) increase in receivables and 7% ($183,000) lower trade
payables and accruals. Additionally, the Company's production throughput
resulted in a 19% ($443,000) lower deferred revenue component at September 30,
1997 compared with 1996. In contrast, the $1.4 million working capital at
September 30, 1996 represented a $558,000 (29%) decline compared with September
30, 1995, principally driven by lower receivables and cash reserves brought
about in part by delays in the delivery of European and South American software
as previously discussed.

     On the strength of the Company's business fundamentals and improved results
of operations, MPSI obtained a bank line of credit in June 1997 (see Note 5 to
the Consolidated Financial Statements). The initial amount of the line is
$500,000 of which approximately $147,000 was in use at September 30, 1997. As
the Company's strategic plans indicate a requirement for additional financing in
order to (1) bring on board supplemental convenience retailing expertise and
consulting personnel, (2) upgrade computer equipment and worldwide
communications, and (3) fund the requirements associated with streamlining
MPSI's data acquisition processes, management expects to explore additional
funding through a combination of an increased bank line and/or issuance of
additional stock either through private placement or through an additional
offering to the public. With improved results of operations in 1997, the Company
can also now take advantage of lease financing, particularly with respect to
computer equipment.

     As set forth in the statements of cash flow, the Company generated cash
flow from operations of $785,000 in 1997 which represented a $190,000 (20%)
decrease as compared with $1.0 million in 1996 ($0.7 million or 41% decline
compared with 1995). In each of the years 1996 and 1995, MPSI committed
substantial resources to acquisition/upgrade of computer equipment and to
development of new software products. Expenditures for such purposes declined to
$434,000 in 1997 ($1.4 million in 1996 and $1.0 million in 1995) as software
releases moved into the maintenance stage and equipment requirements stabilized.
The Company anticipates costs in both areas to increase in 1998 but has no
commitments for equipment expenditures at September 30, 1997. Capitalized
software expenditures are anticipated both for the forthcoming regional version
of Japanese CAPS software and for a new category management product offering.
Such costs are expected to be funded entirely out of operating cash flows.

     The trends in software licensing discussed under "Results of Operations"
above impacted the relative levels of both the long-term receivables and
deferred revenues. The net current and noncurrent balances in long-term
receivables (totaling $3.8 million and 




                                       15
<PAGE>   16

$3.0 million at September 30, 1997 and 1996, respectively) increased in 1997
compared with 1996 primarily due to the effect of a five-year license renewal by
MPSI's largest customer. This transaction also increased deferred maintenance in
1997 (although revenue recognition of maintenance income from all contracts
masks the increase). In 1996 receivables and deferred revenue from new software
contracts were less than the collections and maintenance revenue recognized
during 1996 resulting in declines of $1.1 million and $800,000 in long-term
receivables and deferred maintenance, respectively, as compared with September
30, 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. In accordance with contractual cancellation options, certain clients
canceled portions of their software licenses aggregating $435,000 in 1996 and
$65,000 during 1995 (none in 1997). As the number of contracts with cancellation
clauses are few, the Company does not expect a significant impact from
cancellations in 1998.

     Noncurrent deferred income tax liabilities increased to $442,000 at
September 30, 1997, reflecting recognition of deferred U.S. income taxes
entirely offset in previous years by income tax credits and net operating loss
carryforwards. The decrease in other noncurrent liabilities to $37,000 ($79,000
at September 30, 1996 from $220,000 at September 30, 1995) is the result of
reclassifying 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 and desires to occupy the building that MPSI will be required to vacate
at the end of the lease. The Company is presently evaluating facility
alternatives but does not expect to move before lease expiration. The Company
does not expect to materially increase its overall headquarters occupancy costs
in 1998 as a result of the move.

     MPSI's backlog of market studies at September 30, 1997 in the amount of
approximately $12.9 million, ($16.3 million at September 30, 1996), contained a
substantial number of recurring studies under multi-year client commitments.
Such studies represent approximately 30% of the estimated revenues for fiscal
year 1998. Because customer commitments for market studies may entail multi-year
terms, the number of such agreements in force may have significant implications
on the conclusions to be drawn concerning fluctuations in backlog between
accounting periods. For example, if a customer commits to a five-year series of
market studies in year one, backlog of that year would substantially increase.
Thereafter, as the Company delivers successive market studies, backlog would
decline in years 2 - 4. An analysis which identifies a declining backlog might
lead one to incorrectly assume that the Company's business is declining, when in
fact it is servicing its customers satisfactorily and can rightfully expect
renewed study commitments in the future,



                                       16
<PAGE>   17



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                              PAGE NO.
                                                                              --------
<S>                                                                              <C>
Report of Independent Auditors............................................       18

Consolidated Statements of Operations for the Years Ended September 30,
  1997, 1996 and 1995.....................................................       19

Consolidated Balance Sheets at September 30, 1997 and 1996................       20

Consolidated Statements of Cash Flow for the Years Ended September 30,
  1997, 1996 and 1995.....................................................       21

Consolidated Statements of Stockholders' Equity - Fiscal Years Ended
  September 30, 1995, 1996 and 1997.......................................       22
  
Notes to Consolidated Financial Statements................................       23

</TABLE>



                                       17
<PAGE>   18



                         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, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flow for
each of the three years in the period ended September 30, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.


                                                     ERNST & YOUNG LLP


Tulsa, Oklahoma
November 21, 1997



                                       18
<PAGE>   19



                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      YEAR ENDED SEPTEMBER 30,
                                                           ----------------------------------------------
                                                              1997              1996             1995
                                                           ------------     ------------     ------------
<S>                                                        <C>              <C>              <C>         
Revenues:
  Information services and software maintenance .......    $ 21,630,000     $ 21,354,000     $ 22,348,000
  Software licensing ..................................       1,808,000          391,000        1,089,000
                                                           ------------     ------------     ------------
     Total revenues ...................................      23,438,000       21,745,000       23,437,000
                                                           ------------     ------------     ------------
Cost of sales:
  Information services and software maintenance .......       8,837,000       10,406,000       10,100,000
  Software licensing (Note 4) .........................         766,000          608,000          332,000
                                                           ------------     ------------     ------------
     Total cost of sales ..............................       9,603,000       11,014,000       10,432,000
                                                           ------------     ------------     ------------
     Gross profit .....................................      13,835,000       10,731,000       13,005,000
Operating expenses:
  General and administrative ..........................       3,763,000        3,005,000        2,571,000
  Marketing and client services .......................       6,834,000        6,928,000        6,993,000
  Research and development ............................       1,598,000        1,382,000        1,794,000
                                                           ------------     ------------     ------------
     Total operating expenses .........................      12,195,000       11,315,000       11,358,000
                                                           ------------     ------------     ------------
     Operating income (loss) ..........................       1,640,000         (584,000)       1,647,000
Other income (expense):
  Interest income .....................................         197,000          204,000          195,000
  Interest expense ....................................        (154,000)         (17,000)         (12,000)
  Gain (loss) on foreign exchange .....................         (98,000)         146,000          638,000
  Other, net ..........................................         147,000           (1,000)          15,000
                                                           ------------     ------------     ------------
  Income (loss) before income taxes ...................       1,732,000         (252,000)       2,483,000
Income taxes ..........................................         629,000          371,000          454,000
                                                           ------------     ------------     ------------
Net income (loss) .....................................    $  1,103,000     $   (623,000)    $  2,029,000
                                                           ============     ============     ============
Per share (Note 1):
  Income (loss) per common and common equivalent
     share ............................................    $        .39     $       (.23)    $        .72

</TABLE>



          See accompanying notes to consolidated financial statements.



                                       19
<PAGE>   20



                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                 ASSETS
                                                                                  SEPTEMBER 30,
                                                                          -----------------------------
                                                                              1997             1996
                                                                          ------------     ------------
<S>                                                                       <C>              <C>         
Current assets:
  Cash and cash equivalents ..........................................    $  1,599,000     $    951,000
  Short-term investments, at cost ....................................           3,000           49,000
  Receivables (Notes 2 and 5):
     Trade ...........................................................       4,210,000        3,413,000
     Current portion of long-term receivables, net of unamortized
      discount .......................................................       1,122,000        1,177,000
  Work in process inventory ..........................................         197,000          361,000
  Prepayments ........................................................         161,000          174,000
                                                                          ------------     ------------
     Total current assets ............................................       7,292,000        6,125,000
Long-term receivables, net of unamortized discount (Note 2) ..........       2,642,000        1,779,000
Property and equipment, net (Note 3) .................................       1,165,000        1,325,000
Software products, net (Note 4) ......................................         393,000          843,000
Other assets .........................................................         146,000          247,000
                                                                          ------------     ------------
     Total assets ....................................................    $ 11,638,000     $ 10,319,000
                                                                          ============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Note payable to bank  (Note 5) .....................................    $    147,000     $         --
  Accounts payable ...................................................         882,000        1,241,000
  Accrued liabilities (Notes 6 and 8) ................................       1,390,000        1,214,000
  Deferred revenue ...................................................       1,837,000        2,280,000
                                                                          ------------     ------------
     Total current liabilities .......................................       4,256,000        4,735,000
Noncurrent deferred revenue ..........................................       1,634,000        1,342,000
Noncurrent deferred income taxes (Note 6) ............................         442,000           98,000
Other noncurrent liabilities .........................................          37,000           79,000
                                                                          ------------     ------------
          Total liabilities ..........................................       6,369,000        6,254,000
                                                                          ------------     ------------
Commitments and contingencies (Note 9) ................................             --               --
Stockholders' equity (Note 8):
  Preferred Stock, $.10 par value, 1,000,000 shares authorized,
     none issued or outstanding ......................................              --               --
  Common Stock, $.05 par value, 20,000,000 shares authorized,
     2,833,000 and 2,794,000 shares issued and outstanding at
     September 30, 1997 and 1996, respectively .......................         142,000          140,000
  Junior Common Stock, $.05 par value, 500,000 shares authorized,
     none issued or outstanding ......................................              --               --
  Additional paid-in capital .........................................      13,030,000       12,934,000
  Deficit ............................................................      (8,860,000)      (9,963,000)
  Foreign currency translation adjustment ............................         957,000          954,000
                                                                          ------------     ------------
          Total stockholders' equity .................................       5,269,000        4,065,000
                                                                          ------------     ------------
          Total liabilities and stockholders' equity .................    $ 11,638,000     $ 10,319,000
                                                                          ============     ============

</TABLE>

          See accompanying notes to consolidated financial statements.



                                       20
<PAGE>   21



                       MPSI SYSTEMS INC. AND SUBSIDIARIES

             CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTE 10)

<TABLE>
<CAPTION>
                                                                    YEAR ENDED SEPTEMBER 30,
                                                              1997            1996            1995
                                                           -----------     -----------     -----------
<S>                                                      <C>             <C>             <C>        
Income (loss) from operations .........................    $ 1,103,000     $  (623,000)    $ 2,029,000
Adjustments to reconcile income (loss) from
  operations to cash provided by operations:
  Depreciation and amortization of property and
     equipment ........................................        419,000         450,000         405,000
  Amortization of software products ...................        617,000         592,000         294,000
  Deferred income taxes ...............................        312,000              --              --
  Loss on sale of assets ..............................             --           5,000           7,000
  Write off of capitalized software development
     costs ............................................             --              --          30,000
Changes in assets and liabilities:
  Decrease (increase) in assets:
     Receivables ......................................     (1,602,000)      1,970,000      (2,436,000)
     Inventories ......................................        164,000         (57,000)        228,000
     Prepayments and Other Assets .....................        114,000         189,000         138,000
  Increase (decrease) in liabilities:
     Trade payables and accruals ......................       (365,000)        388,000        (214,000)
     Taxes payable ....................................        178,000        (438,000)        234,000
     Deferred revenue .................................       (155,000)     (1,501,000)        924,000
                                                           -----------     -----------     -----------
          Net cash provided by operations .............        785,000         975,000       1,639,000
                                                           -----------     -----------     -----------
Cash flows from investing activities:
  Decrease in short-term investment ...................         46,000              --              --
  Purchase equipment ..................................       (267,000)       (601,000)       (634,000)
  Software development ................................       (167,000)       (762,000)       (396,000)
  Proceeds from disposition of assets .................          6,000          16,000          16,000
                                                           -----------     -----------     -----------
          Net cash used by investing activities .......       (382,000)     (1,347,000)     (1,014,000)
                                                           -----------     -----------     -----------
Cash flows from financing activities:
  Net proceeds from bank line of credit ...............        147,000              --              --
  Proceeds from exercised stock options ...............         98,000          53,000          10,000
                                                           -----------     -----------     -----------
          Net cash provided by financing activities....        245,000          53,000          10,000
                                                           -----------     -----------     -----------
Increase (decrease) in cash and cash equivalents ......        648,000        (319,000)        635,000
Cash and cash equivalents at beginning of period ......        951,000       1,270,000         635,000
                                                           -----------     -----------     -----------
Cash and cash equivalents at end of period ............    $ 1,599,000     $   951,000     $ 1,270,000
                                                           ===========     ===========     ===========

</TABLE>

          See accompanying notes to consolidated financial statements.



                                       21
<PAGE>   22



                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997

<TABLE>
<CAPTION>
                                             COMMON STOCK                                              FOREIGN
                                     ----------------------------     ADDITIONAL                       CURRENCY
                                                       CARRYING        PAID-IN                        TRANSLATION      STOCKHOLDERS'
                                        SHARES          VALUE          CAPITAL         DEFICIT         ADJUSTMENT         EQUITY
                                     ------------    ------------    ------------    ------------     ------------     ------------
<S>                                <C>               <C>          <C>            <C>                  <C>            <C>      
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
  Net loss ......................              --              --              --        (623,000)              --         (623,000)
  Stock options exercised .......          20,000           1,000          52,000              --               --           53,000
  Stock issued to 401(k) Plan ...          41,000           2,000         131,000              --               --          133,000
  Translation adjustment ........              --              --              --              --           16,000           16,000
                                     ------------    ------------    ------------    ------------     ------------     ------------
Balance, September 30, 1996 .....       2,794,000         140,000      12,934,000      (9,963,000)         954,000        4,065,000
  Net  income ...................              --              --                       1,103,000               --        1,103,000
  Stock options exercised .......          39,000           2,000          96,000              --               --           98,000
  Translation adjustment ........              --              --              --              --            3,000            3,000
                                     ------------    ------------    ------------    ------------     ------------     ------------
Balance, September 30, 1997 .....       2,833,000    $    142,000    $ 13,030,000    $ (8,860,000)    $    957,000     $  5,269,000
                                     ============    ============    ============    ============     ============     ============

</TABLE>

          See accompanying notes to consolidated financial statements.



                                       22
<PAGE>   23


                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     Nature of Operations: MPSI Systems Inc. is a United States-based
multinational corporation whose principal line of business is providing decision
support software, information databases and consulting services to businesses
which have an investment in retail outlet networks. The Company markets its
products and services in North America, the Pacific Rim, Latin America, Europe
and South Africa through a direct sales force located in various foreign
countries. As discussed more fully in Note 7, over 63% of consolidated revenues
are generated from foreign customers, and substantial portions of such revenues
are billed in foreign currencies. Most of the Company's business comes from the
petroleum industry, including several customers who individually account for a
significant portion of consolidated revenues. Services are also provided for
clients in the banking, convenience food, quick service restaurant and
government postal industries. All software development and substantially all of
the information database preparation is performed at the Company's headquarters
facility in Tulsa, Oklahoma.

     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.

     Revenue Recognition: Revenues and costs related to production of market
information databases 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 deferred. 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 straightline 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, 



                                       23
<PAGE>   24

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 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. 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. The adjusted weighted average shares utilized in determining
income (loss) per share were 2,820,000 for fiscal year 1997, 2,756,000 for
fiscal year 1996, and 2,802,000 for fiscal year 1995.

     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 



                                       24
<PAGE>   25

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 October 1995, the Financial Accounting
Standards Board adopted Statement No. 123, "Accounting for Stock Based
Compensation," (FAS 123) effective for fiscal years beginning after December 15,
1995. MPSI continues to account for its stock option plans under the provisions
of APB 25, "Accounting for Stock Issued to Employees" as permitted by FAS 123.
MPSI has incorporated the disclosures required by FAS 123 herein (See Note 8).

     In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings Per Share," effective for financial statement reporting periods
ending after December 15, 1997. Earnings per share calculated under this
standard would not differ significantly from amounts reported in the
Consolidated Statements of Income.

     In June 1997, the Financial Accounting Standards Board issued two
additional accounting standards, FAS No. 130, "Reporting Comprehensive Income,"
("FAS 130") and FAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information " ("FAS 131") effective for fiscal years beginning after
December 15, 1997. FAS 130 establishes standards for the reporting and display
of comprehensive income. While the Company does have certain comprehensive
income items, primarily translation adjustments, adopting FAS 130 will not
materially change the Company's financial reporting and disclosures. FAS 131
establishes standards for reporting financial and descriptive information about
a company's operating segments. Management is currently analyzing the impact of
FAS 131, but does not expect the standard to materially change its current
segment reporting disclosures.

     In November 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2 ("SOP 97-2") entitled "Software Revenue Recognition."
SOP 97-2 is effective for fiscal years beginning after December 15, 1997. The
SOP provides revised and expanded guidance on when software revenue should be
recognized and in what amounts for licensing, selling, and leasing, or otherwise
marketing computer software. Management is currently evaluating the impact of
the SOP but presently does not believe that the impact of adoption will
materially impact the current revenue recognition methods.

     Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.

2.   RECEIVABLES:

     Trade accounts receivable include unbilled amounts of $1,630,000 at
September 30, 1997 and $1,423,000 at September 30, 1996. 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
$4,196,000 at September 30, 1997 and $2,987,000 at September 30, 1996 (before
present value discount and excluding $74,000 and $194,000 which had been billed
at September 30, 1997 and 1996, 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,
1997 unbilled amounts, $1,294,000 (compared with $1,099,000 at September 30,
1996) 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 $247,000 and $116,000 at September 30,
1997 and 1996, respectively. Noncurrent long-term 



                                       25
<PAGE>   26

receivables are presented net of unamortized present value discount in the
amount of $259,000 and $122,000 at September 30, 1997 and 1996, 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 $177,000, $160,000, and $171,000 in fiscal years 1997, 1996 and 1995,
respectively.

     A significant portion of the Company's business activity is with the major
multinational oil companies. At September 30, 1997, 97% ($8,198,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($6,341,000 or 96% at September 30, 1996). 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.

3.   PROPERTY AND EQUIPMENT:

     Property and equipment consists of:

<TABLE>
<CAPTION>
                                                                        SEPTEMBER 30,
                                                                 ---------------------------
                                                    USEFUL LIFE
                                                     IN YEARS        1997            1996
                                                    -----------  -----------     -----------
<S>                                                <C>          <C>             <C>      
          Leasehold improvements .................    Various    $   679,000     $   702,000
          Computer equipment and software ........    4-5          6,202,000       5,955,000
          Office furnishings and equipment .......    3-10         1,586,000       1,637,000
                                                                 -----------     -----------
                                                                   8,467,000       8,294,000
          Accumulated depreciation ...............                (7,302,000)     (6,969,000)
                                                                 -----------     -----------
               Net property and equipment ........               $ 1,165,000     $ 1,325,000
                                                                 ===========     ===========

</TABLE>

     The provision for depreciation was $419,000, $450,000, and $405,000 for the
years ended September 30, 1997, 1996 and 1995, respectively. At September 30,
1997, fully depreciated assets with an aggregate original cost of approximately
$5,262,000,000 remain in use.

4.   SOFTWARE PRODUCTS:

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,
                                                           ---------------------------
                                                              1997            1996
                                                           -----------     -----------
<S>                                                        <C>             <C>        
          Capitalized software development costs ......    $ 4,098,000     $ 3,931,000
          Accumulated amortization ....................     (3,705,000)     (3,088,000)
                                                           -----------     -----------
                    Net software products .............    $   393,000     $   843,000
                                                           ===========     ===========

</TABLE>

The provision for amortization, reflected in Software Licensing cost of sales,
was $617,000, $592,000, and $294,000 for the years ended September 30, 1997,
1996 and 1995, respectively. Based upon current sales forecasts, capitalized
software costs are projected to be recoverable. However, these sales forecasts
are subject to certain vulnerabilities which could potentially affect the
recoverability of those costs.

5.   NOTE PAYABLE TO BANK:

     In May 1997, the Company obtained a bank line of credit through April 1998
in the aggregate amount of $500,000 which is secured by billed accounts
receivable applicable to North American customers; $147,000 was outstanding at
September 30, 1997. Outstanding balances bear interest at 9.5%. The Agreement
requires that the Company shall maintain Tangible Net Worth of not less than
$4.5 million, shall maintain reasonable and customary insurance, and shall not,
without authorization of lender, undertake to lend money, invest in other
entities or guarantee debt of others during the term of the Agreement.



                                       26
<PAGE>   27


6.   INCOME TAXES:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED SEPTEMBER 30,
                                                        ------------------------------------------
                                                           1997           1996            1995
                                                        -----------    -----------     -----------
<S>                                                     <C>            <C>             <C>        
     Income (loss) from continuing operations
       before income taxes:
       Domestic ....................................    $ 1,682,000    $    27,000     $ 3,515,000
       Foreign .....................................         50,000       (279,000)     (1,032,000)
                                                        -----------    -----------     -----------
               Total ...............................    $ 1,732,000    $  (252,000)    $ 2,483,000
                                                        ===========    ===========     ===========
     Income taxes (benefits):
       Current:
          Federal ..................................    $    27,000    $    15,000     $    80,000
          State ....................................         81,000        (56,000)        203,000
          Foreign ..................................        209,000        412,000         171,000
                                                        -----------    -----------     -----------
               Current income taxes ................        317,000        371,000         454,000
       Deferred:
          Federal ..................................        285,000             --              --
          State ....................................         24,000             --              --
          Foreign ..................................          3,000             --              --
                                                        -----------    -----------     -----------
          Deferred income taxes ....................        312,000             --              --
                                                        -----------    -----------     -----------
               Provision for total income taxes ....    $   629,000    $   371,000     $   454,000
                                                        ===========    ===========     ===========

</TABLE>

     A reconciliation of the provision for income taxes at the applicable
Federal statutory income tax rate to the actual provision for income taxes
follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED SEPTEMBER 30,
                                                      -------------------------------------
                                                        1997          1996          1995
                                                      ---------     ---------     ---------
<S>                                                   <C>           <C>           <C>      
          Expense (benefit) at statutory rate ....    $ 607,000     $ (88,000)    $ 869,000
          Alternative minimum tax (credit) .......     (188,000)       15,000        80,000
          Foreign income and taxes, net ..........        9,000       295,000      (201,000)
          Loss carryforwards generated ...........       68,000       156,000       418,000
          Federal loss carryforwards utilized.....           --            --      (813,000)
          State income taxes .....................       71,000       (36,000)      132,000
          Other, net .............................       62,000        29,000       (31,000)
                                                      ---------     ---------     ---------
            Income taxes .........................    $ 629,000     $ 371,000     $ 454,000
                                                      =========     =========     =========

</TABLE>

     Income taxes of $35,000 were receivable at September 30, 1997 ($210,000
refundable at September 30, 1996). The Company does not accrue income taxes on
undistributed earnings of certain foreign subsidiaries which are permanently
invested. At September 30, 1997 and 1996, the amount of undistributed earnings
for which taxes have not been accrued was insignificant.

     In March 1996, the Internal Revenue Service initiated an examination of tax
years 1993 through 1995. The Company has not yet received a final report of the
results, and believes that the resolution of items raised will not have a
material effect on its financial position.

     At September 30, 1997, the Company has various U.S. tax credits of $652,000
which expire between 1998 and 2002. At September 30, 1997, certain foreign
subsidiaries have net operating loss carryforwards of approximately $8,203,000
which may be utilized in future years.




                                       27
<PAGE>   28


     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:

<TABLE>
<CAPTION>
                                                                     SEPTEMBER 30,
                                                                ------------------------
                                                                   1997          1996
                                                                ----------    ----------
<S>                                                             <C>           <C>       
          Deferred tax liabilities:
            Software revenue ...............................    $  873,000    $  699,000
            Depreciation ...................................        79,000        58,000
            Other ..........................................       130,000        98,000
                                                                ----------    ----------
                    Total deferred tax liabilities .........     1,082,000       855,000
                                                                ----------    ----------
          Deferred tax assets:
            Accrued liabilities ............................       295,000       287,000
            U.S. and foreign loss carryforwards ............     2,451,000     2,413,000
            U.S. tax credit carryforwards ..................       652,000       633,000
                                                                ----------    ----------
                    Total deferred tax assets ..............     3,398,000     3,333,000
            Valuation allowance for deferred tax assets ....     2,758,000     2,576,000
                                                                ----------    ----------
               Net deferred tax assets .....................       640,000       757,000
                                                                ----------    ----------
                    Net deferred tax liabilities ...........    $  442,000    $   98,000
                                                                ==========    ==========

</TABLE>

    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.

7.   BUSINESS SEGMENT AND REVENUE FROM MAJOR CUSTOMERS:

     Approximately 97% of total revenues from continuing operations were derived
from the petroleum industry during the year ended September 30, 1997 (97% and
96% during 1996 and 1995, respectively). Individual customers accounted for MPSI
revenues which were in excess of 10% of consolidated revenues in 1997, 1996 or
1995 as follows:

<TABLE>
<CAPTION>
                            1997              1996              1995
                        -------------    --------------    --------------
                        AMOUNT     %     AMOUNT      %     AMOUNT      %
                        ------    ---    ------     ---    ------     ---
<S>                      <C>       <C>    <C>        <C>    <C>        <C>
Exxon/Esso/Imperial      $5.6      24     $6.3       29     $4.4       19
Texaco/Caltex......      $2.6      11     $2.7       12     $1.3        6
Shell..............      $1.6       7     $1.5        7     $2.8       12
Amoco..............      $2.0       8     $2.1       10     $2.5       11

</TABLE>

     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.

     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 or representatives are currently
maintained in Australia, Brazil, Canada, Japan, Italy, South Africa, South
Korea, Shanghai, 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.



                                       28
<PAGE>   29

<TABLE>
<CAPTION>
                                                                  YEAR ENDED SEPTEMBER 30,
                                                      ----------------------------------------------
                                                          1997             1996             1995
                                                      ------------     ------------     ------------
<S>                                                   <C>              <C>              <C>         
Revenues:
Unaffiliated customers:
  United States ..................................    $ 21,845,000     $ 20,248,000     $ 21,839,000
  Europe .........................................         908,000          780,000        1,369,000
  Brazil .........................................         685,000          717,000          229,000
Between geographic areas(1):
  United States ..................................              --          237,000          300,000
  Europe .........................................          63,000          673,000          284,000
  Asia/Pacific Rim ...............................       2,097,000        2,228,000        2,222,000
  Brazil .........................................         383,000          387,000               --
Eliminations .....................................      (2,543,000)      (3,525,000)      (2,806,000)
                                                      ------------     ------------     ------------
          Total revenues .........................    $ 23,438,000     $ 21,745,000     $ 23,437,000
                                                      ============     ============     ============
Operating income (loss):
  United States ..................................    $  2,383,000     $    795,000     $  2,868,000
  Europe .........................................        (426,000)        (891,000)        (649,000)
  Brazil .........................................        (317,000)        (488,000)        (572,000)
                                                      ------------     ------------     ------------
          Total operating income (loss) ..........    $  1,640,000     $   (584,000)    $  1,647,000
                                                      ============     ============     ============
Identifiable assets:
  United States ..................................    $ 10,714,000     $  9,276,000     $ 11,581,000
  Europe .........................................         627,000          436,000          891,000
  Brazil .........................................         297,000          607,000          452,000
                                                      ------------     ------------     ------------
          Total assets ...........................    $ 11,638,000     $ 10,319,000     $ 12,924,000
                                                      ============     ============     ============
Export sales from U.S.:
  Canada .........................................    $    462,000     $    952,000     $    749,000
  Central America ................................         408,000          358,000          154,000
  South America ..................................         572,000        1,055,000        1,554,000
  Europe .........................................         788,000          521,000          903,000
  Asia/Pacific Rim ...............................      10,815,000        8,873,000       10,066,000
  Africa .........................................         188,000          289,000          143,000
                                                      ------------     ------------     ------------
          Total export sales .....................    $ 13,233,000     $ 12,048,000     $ 13,569,000
                                                      ============     ============     ============
Consolidated revenues from foreign customers
  by geographic area are as follows:
  Canada and Central America .....................    $    870,000     $  1,310,000     $    903,000
  Singapore, Australia and Japan .................      10,815,000        8,873,000       10,066,000
  Europe and United Kingdom ......................       1,384,000        1,172,000        2,271,000
  Africa .........................................         501,000          418,000          143,000
  South America ..................................       1,256,000        1,772,000        1,783,000
                                                      ------------     ------------     ------------
          Consolidated foreign revenues ..........    $ 14,826,000     $ 13,545,000     $ 15,166,000
                                                      ============     ============     ============
Depreciation and amortization of property and
  equipment:
  United States ..................................    $    379,000     $    402,000     $    366,000
  Europe .........................................          35,000           36,000           24,000
  Brazil .........................................           5,000           12,000           15,000
Capital expenditures:
  United States ..................................    $    262,000     $    563,000     $    565,000
  Europe .........................................              --           20,000           64,000
  Brazil .........................................           5,000           18,000            5,000

</TABLE>

----------
(1)  Sales between geographic areas are made at prices that generally
     approximate the prices of similar charges to unaffiliated customers.

8.   EMPLOYEE BENEFITS:

     Under an employee stock ownership and investment plan, all qualifying U.S.
employees 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. The Company recorded expense related to its
matching contribution of $153,000, $143,000, and $132,000 in fiscal years 1997,
1996 and 1995, respectively. At 




                                       29
<PAGE>   30


September 30, 1997 and 1996, the Company had accrued $122,000 and $114,000 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). During fiscal
year 1997, the Company liquidated its matching contribution liability for the
Plan year ended December 31, 1996 by contributing $138,000 in cash. During
fiscal year 1996, the Company contributed previously unissued Common Stock at a
value of $133,000 applicable to the Plan year ended December 31, 1995. The
matching contribution for Plan year 1997 will be paid during fiscal year 1998.

     The Company has reserved 750,000 shares of Common Stock for issuance of
stock options under a 1988 stock option plan covering all employees which
expires in 1998. Options granted under the plan vest one-third annually over a
three-year period. An additional 62,000 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 are fully vested. No further options may be granted under that plan.

     The Company has elected to follow Accounting Principals Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement 123, "Accounting
for Stock-Based Compensation," requires the use of option valuation models that
were not developed for use in valuing stock options. Under APB 25, because the
exercise price of the Company's employee stock options equal the market price of
the underlying stock on the date of the grant, no compensation expense is
recognized.

     Pro forma information regarding net income and earnings per share is
required by FASB 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model. The fair value of the options was estimated
at the date of the grants with the following average assumptions: expected life
of the stock options 4 years; volatility of the expected market price of the
Company's common stock price of 114%; risk-free interest rate of 6.2% and a
no-dividend yield.

     The Black-Scholes option valuation model was developed for use in
estimating fair value of traded options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):

<TABLE>
<CAPTION>
                                             1997                            1996
                                  ----------------------------    ---------------------------
                                   PRO FORMA        REPORTED       PRO FORMA       REPORTED
                                  -----------    -------------    -----------     -----------
<S>                               <C>            <C>              <C>             <C>         
     Net income (loss)            $   941,000    $   1,103,000    $  (771,000)    $  (623,000)
     Earnings (loss) per share    $       .33    $         .39    $      (.28)    $      (.23)

</TABLE>


                                       30
<PAGE>   31



     A summary of the Company's stock option activity and related information
for the years ended September 30 follows:

<TABLE>
<CAPTION>
                                                              WEIGHTED-AVERAGE
                                              OPTIONS          EXERCISE PRICE   EXERCISABLE
                                              -------          --------------   -----------
<S>                                         <C>               <C>               <C>   
     At September 30, 1994                    112,100              $ 2.79         32,900
         Granted                               68,900                3.00
         Exercised                             (4,333)               2.25
         Forfeited                             (8,050)               4.04
     At September 30, 1995                    168,617                2.83         62,912
         Granted                              139,050                5.36
         Exercised                            (19,500)               2.72
         Forfeited                             (7,984)               3.06
         Expired                                 (900)              17.50
     At September 30, 1996                    279,283                4.04         98,288
         Granted                                3,000                3.25
         Exercised                            (38,782)               2.53
         Forfeited                            (28,866)               4.53
         Expired                               (1,100)               8.75
     At September 30, 1997                    213,535                4.21        117,810

</TABLE>

     The weighted average grant date fair value for options granted during the
fiscal years ended September 30, 1997 and 1996 were $2.52 and $4.16,
respectively. The exercise price for options outstanding as of September 30,
1997 ranged from $2.25 to $5.50. The weighted average remaining contractual life
of those options is 2.5 years.

     The Company accrued $308,000 at September 30, 1997 ($92,000 accrued at
September 30, 1996); in connection with incentive award programs for certain
employees. The awards were accrued based upon the Company's achievement of
certain revenue 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, 1997.

     At September 30, 1995, the Company approved discretionary employee
performance awards in the form of deferred compensation. Such amount was earned
based on the employee's performance during the year ended September 30, 1994.
Under related deferred compensation agreements with certain key employees as
approved by the Compensation Committee, the Company agreed to 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
and upon exercise of the underlying options. Such payments could be made at any
point after November 29, 1995, assuming stock price and other vesting
requirements have been met. Based upon the stock price at September 19, 1997,
which triggered the Company's obligation under the plan, approximately $102,000
of compensation expense was accrued and reflected in G&A expense.

     At September 30, 1997 and 1996, the Company had accrued $607,000 related to
employee vacations earned but not yet taken.

9.   COMMITMENTS AND CONTINGENCIES:

     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 $929,000 was
recorded during the year ended September 30, 1997 ($1,040,000 and $1,095,000 in
1996 and 1995, respectively). Aggregate future rentals under these commitments
are as follows: 1998 -- $442,000, 1999 -- $85,000, 2000 -- $28,000 and 2001 --
$0.




                                       31
<PAGE>   32



10.  SUPPLEMENTAL CASH FLOW INFORMATION:

     The following information concerning noncash transactions is provided to
supplement the Consolidated Statements of Cash Flow.

     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 $435,000 during
fiscal year 1996.

     The Company satisfied its 401(k) matching contribution for the Plan year
ended December 31, 1995 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 $133,000 in fiscal year 1996.

     The Company paid interest of $154,000 during fiscal year 1997, $17,000
during fiscal year 1996, and $12,000 during fiscal year 1995. Income taxes of
$132,000, $809,000, and $220,000 were paid during fiscal years 1997, 1996 and
1995, respectively.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     There were no changes in accountants or disagreements with accountants on
matters related to accounting or financial disclosure during the fiscal years
ended September 30, 1997 and 1996.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Reference is made to the information appearing under the caption "Directors
and Executive Officers" in the Company's Proxy Statement which will be filed
pursuant to Regulation 14A not later than 120 days after the end of the
Company's fiscal year ended September 30, 1997 and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

     Reference is made to the information appearing under the caption
"Compensation of Directors and Officers" in the Company's Proxy Statement which
will be filed pursuant to Regulation 14A not later than 120 days after the end
of the Company's fiscal year ended September 30, 1997 and is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Reference is made to the information appearing under the caption "Stock
Ownership" in the Company's Proxy Statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year ended September 30, 1997 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Reference is made to the information appearing under the caption "Certain
Transactions" in the Company's Proxy Statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year ended September 30, 1997 and is incorporated herein by reference.



                                       32
<PAGE>   33

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  (1)  The response to this portion of ITEM 14 is submitted as a separate
          section of this report under ITEM 8.

     (2)  The response to this portion of ITEM 14 is set forth in ITEM 14(d)
          below.

     (3)  Exhibits.

EXHIBIT
NUMBER                           DESCRIPTION

     *3.1 --   Certificate of Incorporation of MPSI Systems Inc., as amended,
               filed as the same numbered exhibit with the Company's Form 10-Q
               dated March 31, 1987, File No. 0-11527.

     *3.2 --   By-laws, as amended, filed as Exhibit 3.1 with the Company's Form
               10-Q dated June 30, 1987, File No. 0-11527.

     *3.3 --   Certificate of Designation dated September 23, 1993 establishing
               the rights conferred on $.10 Par Value Convertible Preferred
               Stock, Series 1993, filed as the same numbered exhibit with the
               Company's 1993 Form 10-K, File No. 0-11527.

     *3.4 --   Amendment to Certificate of Incorporation dated November 16, 1993
               to reflect a one-for-ten reverse stock split, filed as the same
               numbered exhibit with the Company's 1993 Form 10-K, File No.
               0-11527.

     *3.5 --   Certificate dated November 18, 1993 whereby the $.10 Par Value
               Preferred Stock, Series 1993, and the rights previously set forth
               in the Certificate of Designation were eliminated, filed as the
               same numbered exhibit with the Company's 1993 Form 10-K, File No.
               0-11527.

     *4.1 --   Stock Purchase Agreement dated September 3, 1993 between MPSI
               Systems Inc. and various private investors (excluding exhibits
               thereto which are included herewith as Exhibits 4.2 and 4.3)
               which sets forth the terms of an equity recapitalization of the
               registrant, filed as the same numbered exhibit with the Company's
               1993 Form 10-K, File No. 0-11527.

     *4.2 --   Stockholder Agreement dated September 29, 1993 between MPSI
               Systems Inc. and certain private investors which regulates
               certain stockholder relationships with respect to voting,
               ownership, transfer or other disposition of MPSI stock, filed as
               the same numbered exhibit with the Company's 1993 Form 10-K, File
               No. 0-11527.

     *4.3 --   Registration Rights Agreement dated September 29, 1993 between 
               MPSI Systems Inc. and certain private investors which sets forth
               the rights of the parties with respect to future registrations of
               stock of the registrant, filed as the same numbered exhibit with
               the Company's 1993 Form 10-K, File No. 0-11527.

     *4.4 --   Supplemental Agreement dated October 7, 1993 which revised the
               requirements and procedures related to the proposed reverse stock
               split and the conversion of preferred stock, filed as the same
               numbered exhibit with the Company's 1993 Form 10-K, File No.
               0-11527.



                                       33
<PAGE>   34

     (3)  Exhibits. (Continued)

EXHIBIT
NUMBER                           DESCRIPTION

     *4.5   -- Stock Purchase Agreement dated September 23, 1993 among MPSI
               Systems Inc. and Selling Stockholders other than the Principal
               Investors, filed as the same numbered exhibit with the Company's
               1994 Registration Statement on Form S-1, Registration No.
               33-76286.

     *4.6   -- Registration Agreement dated July 1, 1994 among MPSI Systems Inc.
               and the Selling Stockholders (final form), filed as the same
               numbered exhibit with the Company's 1994 Registration Statement
               on Form S-1, Registration No. 33-76286.

     *10.3  -- MPSI Systems Inc. 1984 Stock Option Plan as amended effective
               January 1, 1987, filed as the same numbered exhibit with the
               Company's 1987 Form 10-K, File No. 0-11527.

     *10.4  -- Stock Option Agreement pursuant to MPSI Systems Inc. 1984 Stock
               Option Plan, filed as the same numbered exhibit with the
               Company's 1984 Form 10-K, File No. 0-11527.

     *10.7  -- Real property lease dated August 7, 1981, between MPSI Centre
               Joint Venture, as lessor, and the Company, as lessee, relating to
               the Company's Tulsa, Oklahoma facility, filed as Exhibit 10.5
               with the Company's Registration Statement on Form S-1, File No.
               2-81641, which became effective on March 2, 1983.

     *10.14 -- Stipulation Providing For Settlement, Mutual Release and Transfer
               of Certain Assets of the Estate of Comarc Systems, Inc. (Debtor),
               filed as the same numbered exhibit with the Company's 1986 Form
               10-K, File No. 0-11527.

     *10.15 -- Indemnification Agreements with Directors and Officers of MPSI
               Systems Inc. filed as the same numbered exhibit with the
               Company's 1986 Form 10-K, File No. 0-11527.

     *10.16 -- MPSI Systems Inc. Amended and Restated 1988 Stock Option Plan,
               effective November 29, 1988, filed as Exhibit 4.5 with the
               Company's 1994 Form S-8, File No. 0-11527.

     *10.17 -- Stock Option Agreement pursuant to MPSI Systems Inc. Amended and
               Restated 1988 Stock Option Plan, filed as Exhibit 4.6 with the
               Company's 1994 Form S-8, File No. 0-11527.

     *10.20 -- MPSI Systems Inc. Matching Investment Plan, effective January 1,
               1990, filed as Exhibit 4(c) with Pre-effective Amendment No. 1 to
               the Company's Form S-8, filed on December 29, 1989, File No.
               0-11527.

     *10.22 -- Asset Purchase Agreement dated March 11, 1991 between Comshare,
               Incorporated (Buyer), Execucom Systems Corporation (Seller) and
               MPSI Systems Inc. (Seller's Parent); and Amendment to Asset
               Purchase Agreement effective March 22, 1991, filed as Exhibit 2.1
               to Form 8-K dated March 22, 1991, File No. 0-11527.

     *10.23 -- Amendment dated March 19, 1991 to real property lease between
               MPSI Centre Joint Venture, as lessor, and MPSI Systems Inc., as
               lessee, filed as the same numbered exhibit with the Company's
               1991 Form 10-K, File No. 0-11527.

     *10.25 -- Amendment dated March 31, 1993 to real property lease between
               MPSI Centre Joint Venture, as lessor, and MPSI Systems Inc., as
               lessee, filed as the same numbered exhibit with the Company's
               1993 Form 10-K, File No. 0-11527. 



                                       34
<PAGE>   35

     (3)  Exhibits. (Continued)

EXHIBIT
NUMBER                           DESCRIPTION

     *10.26 -- Asset Purchase Agreement dated August 29, 1994 between the
               Registrant, its wholly-owned Subsidiary, Retail Systems, Inc.,
               and Dakota Worldwide Corporation filed as Exhibit 10.1 to Form
               8-K filed September 15, 1994.

      11.1  -- Computation of Earnings Per Share.

      21.1  -- List of Subsidiaries.

      23.1  -- Consent of Independent Auditors -- Ernst & Young LLP.

      27.1  -- Financial Data Schedule.
----------
* Incorporated by reference.

(b)  No report on Form 8-K was filed by the Company during or applicable to the
     quarter ended September 30, 1997.

(c)  Exhibits - The response to this ITEM is submitted as a separate section of
     this report.

(d)  Financial Statement Schedules - Set forth below are the required financial
     statement schedules together with the Report of Independent Auditors on
     Financial Statement Schedules. All other schedules are omitted because they
     are not applicable or the information is shown in the financial statements
     or notes thereto.



                                       35
<PAGE>   36

         REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES



We have audited the consolidated financial statements of MPSI Systems Inc. and
subsidiaries as of September 30, 1997 and 1996, and for each of the three years
in the period ended September 30, 1997, and have issued our report thereon dated
November 21, 1997 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedules included in this Form 10-K. These
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.

In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.



                                              ERNST & YOUNG LLP



Tulsa, Oklahoma
November 21, 1997



                                       36
<PAGE>   37


                                                                   SCHEDULE VIII


                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS

                      THREE YEARS ENDED SEPTEMBER 30, 1997


<TABLE>
<CAPTION>
              COLUMN A                           COLUMN B             COLUMN C                  COLUMN D         COLUMN E
---------------------------------------------   -----------    ------------------------       ------------      -----------
                                                                      ADDITIONS
                                                               ------------------------
                                                 BALANCE AT    CHARGED TO                        OTHER            BALANCE
                                                 BEGINNING     COSTS AND   REDUCTION OF       (DEDUCTIONS)       AT END OF
             DESCRIPTION                         OF PERIOD     EXPENSES      REVENUES          ADDITIONS          PERIOD
---------------------------------------------    ----------    ----------    ----------       -----------       ----------
<S>                                              <C>           <C>           <C>              <C>              <C>       
For the year ended September 30, 1995:
  Accumulated depreciation ..................    $7,104,000    $  405,000    $       --       $  (89,000)(2)    $7,420,000
  Accumulated amortization ..................     2,204,000       294,000            --               --         2,498,000
  Unamortized discount on software
     license agreements .....................       188,000            --       304,000(1)      (171,000)(1)       321,000
For the year ended September 30, 1996:
  Accumulated depreciation ..................    $7,420,000    $  450,000    $       --       $ (901,000)(2)    $6,969,000
  Accumulated amortization ..................     2,498,000       592,000            --           (2,000)        3,088,000
  Unamortized discount on software
     license agreements .....................       321,000            --        77,000(1)      (160,000)(1)       238,000
For the year ended September 30, 1997
  Accumulated depreciation ..................    $6,969,000    $  419,000    $       --       $  (86,000)       $7,302,000
  Accumulated amortization ..................     3,088,000       617,000            --               --         3,705,000
  Unamortized discount on software
    license agreements ......................       238,000            --       445,000         (177,000)(1)       506,000

</TABLE>

----------
(1)  Reduction of unamortized discount on long-term receivables represents
     current period interest income recognition (see Note 2 to Consolidated
     Financial Statements). Increases to unamortized discount represent the
     present-value-discount on new software license agreements net of adjustment
     for any contract cancellations or revisions.

(2)  Reduction is due to retirement of fully amortized assets and to assets sold
     or otherwise disposed.



                                       37
<PAGE>   38



                                                                     SCHEDULE IX

                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                              SHORT-TERM BORROWINGS
                      THREE YEARS ENDED SEPTEMBER 30, 1997



<TABLE>
<CAPTION>
          COLUMN A                  COLUMN B             COLUMN C            COLUMN D            COLUMN E            COLUMN F
          --------                  --------             --------            --------            --------            --------
                                                                              MAXIMUM             AVERAGE            WEIGHTED
                                                         WEIGHTED             AMOUNT              AMOUNT             AVERAGE
  CATEGORY OF AGGREGATE            BALANCE AT            AVERAGE            OUTSTANDING         OUTSTANDING        INTEREST RATE
  SHORT-TERM BORROWINGS           END OF PERIOD       INTEREST RATE(2)     DURING PERIOD       DURING PERIOD     DURING PERIOD(2)
  ---------------------           -------------       ----------------     -------------       -------------     ----------------
<S>                               <C>                  <C>                 <C>                 <C>               <C> 
Note payable to bank (1)              $147,000             9.5%                $347,000           $267,000            9.5%

</TABLE>

(1)  Note payable originated in May 1997. There were no such borrowings during
     fiscal years 1996 or 1995.

(2)  Calculated by multiplying the number of days applicable to each interest
     rate change times the applicable interest rate and dividing the results by
     365 days.



                                       38
<PAGE>   39


                                                                      SCHEDULE X


                       MPSI SYSTEMS INC. AND SUBSIDIARIES

                   SUPPLEMENTARY INCOME STATEMENT INFORMATION

                      THREE YEARS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
                COLUMN A                                          COLUMN B
--------------------------------------------------    --------------------------------
                                                             FISCAL YEAR ENDED
                                                                SEPTEMBER 30,
                                                      --------------------------------
                  ITEM                                  1997        1996        1995
--------------------------------------------------    --------    --------    --------
<S>                                                   <C>         <C>         <C>     
Maintenance and repairs ..........................    $214,000    $172,000    $155,000
Amortization of internally developed software ....     617,000     592,000     294,000
Royalties ........................................      93,000     125,000      28,000
Advertising costs ................................     112,000     114,000      99,000

</TABLE>



                                       39
<PAGE>   40





                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, a corporation organized and existing under
the laws of the State of Delaware, has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
State of Oklahoma, on the 4th day of December, 1997.

                                                   MPSI SYSTEMS INC.


                                                   By    /s/ Ronald G. Harper
                                                     --------------------------
                                                          Ronald G. Harper
                                                         Chairman of the Board,
                                                          President and Chief
                                                           Executive Officer

     Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant, in the
capacities and on the date indicated.

<TABLE>
<S>                                       <C>                              <C>
  /s/ Ronald G. Harper                    Chairman of the Board,           December 4, 1997
----------------------------------          President and Chief            
      Ronald G. Harper                      Executive Officer              
                                                                     
                                                                     
  /s/ James C. Auten                      Vice President and Chief--       December 4, 1997
----------------------------------          Financial Officer              
      James C. Auten                                                   
                                                                     
                                                                     
  /s/ John C. Bumgarner, Jr               Director                         December 4, 1997
----------------------------------
      John C. Bumgarner, Jr                                            
                                                                     
                                                                     
  /s/ David L. Huff                       Director                         December 4, 1997
----------------------------------
      David L. Huff                                                 
                                                                     
                                                                     
  /s/ Joseph C. McNay                     Director                         December 4, 1997
----------------------------------
      Joseph C. McNay                                                
                                                                     
                                                                     
  /s/ John J. McQueen                     Director                         December 4, 1997
----------------------------------
      John J. McQueen                     

</TABLE>


     The date for the Company's Annual Meeting of Stockholders has not yet been
fixed and, accordingly, the Company's Proxy Statement has not yet been sent to
stockholders. Copies of such materials will be furnished to the Commission at
such time as they are sent to stockholders.



                                       40
<PAGE>   41


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

EXHIBIT
NUMBER                 EXHIBIT
-------                -------
<S>        <C>                                 
 11.1      -- Earnings Per Share Computation

 21.1      -- List of Subsidiaries

 23.1      -- Consent of Independent Auditors -- Ernst & Young LLP

 27.1      -- Financial Data Schedule

</TABLE>


                                       41