MPSI SYSTEMS INC - 10-K Annual Report

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In lieu of a separate annual report, this Form 10-K includes all financial
statements of the corporation.

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K
(Mark One)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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.)

4343 SOUTH 118TH EAST AVENUE, TULSA, OKLAHOMA 74146
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code (918) 877-6774

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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes No X
--- ---

The aggregate market value of common stock held by non-affiliates of the
registrant on December 31, 2002 was approximately $143,000.

The number of shares outstanding of the registrant's common stock was
2,911,781 shares of $0.05 Par Value Common Stock as of December 31, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the annual meeting of
shareholders presently anticipated to be held in June 2003 are incorporated by
reference into Part III.

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MPSI SYSTEMS INC.
FORM 10-K

CONTENTS

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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, 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 comprised of one principal business segment
wherein it provides decision support products and services to petroleum-oriented
convenience retailers This principal segment is supplemented by two smaller
developmental segments, Pricing, and Business Development. MPSI's core
competency spanning all business units is computer modeling, which encompasses
(a) the development of computer software to model consumer behavior in
convenience retail situations, and (b) the development of strategic geographic
information systems ("GIS") databases concerning specified markets ("Market
Studies") designated by clients. These products and services are designed to
meet retail network planning requirements of the Company's clients, who have
traditionally managed large multi-outlet retail networks.

From its inception in 1970, the Company's decision support services have
been 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. Although in its early years the Company's operations were diversified
geographically, the Company's operations have been recently characterized by
geographic sales diversification, centralized management, centralized market
study production and centralized product research and development.

Beginning in 1994 and in response to client input, MPSI committed
substantial funding and development efforts toward release of a then new
generation of MPSI decision support products. Early versions of these products
were completed for commercial release in North America during fiscal year 1995
(see discussion of CAPS(TM) and PVO(R) software under "Product Development").
New versions of CAPS for European and South American clients were released in
1996. While these products performed well in the marketplace, development costs,
global maintenance costs and high data acquisition costs contributed to high
price tags that ultimately penalized MPSI in its increasingly competitive market
niche.

In 1997, MPSI undertook a complete strategic re-evaluation of its product
direction, competitive position, pricing structure, and cost structure. This
strategic planning, headed by an expert external consultant identified several
key issues and corrective initiatives which management began to implement in
fiscal 1998 in accordance with a three-year transformation plan. Among other
things, the Company undertook to completely re-engineer its core "retail
planning" software suite such that a modular and generic software architecture
(Retail Explorer(TM) - REX) would reduce development/maintenance costs and open
new market segments for its software applications. Additionally the Company
sought new sales channels in order to leverage its considerable data warehouse
of business location and operational information. These initiatives were
designed to make MPSI the "one-stop" shop for clients whose retail planning
needs span the gamut from raw data through sophisticated applications software,
to the ultimate "solution" (rather than the tools and data to develop a solution
in house).

Economic factors such as deregulation in certain foreign petroleum markets
and merger activity among a number of MPSI's traditional clients over the last
three years have severely impacted the levels of orders for MPSI services as

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customers struggled with internal organization and profitability issues.
Management has been forced to deploy continuing technology upgrades to meet
competition in a period of declining order volume. Substantial pressure on
infrastructure and operating costs have lead to a series of downsizing actions
since 2000.

o The roll out of new Retail Explorer(TM) (REX) software for U.S.
customers in 1999, combined with the introduction of new price
management and modeling software for global use positioned MPSI to
combat competition in spite of significant price pressure and client
merger activities from 1999 through 2002. The modeling methodology
inherent in the REX and pricing software made it possible for MPSI to
reduce the amount/types of data necessary for model development. As a
result, the Company was able to streamline its retail database (market
studies) production process, which allowed for a 30% reduction in staff
during 2000.

o The October 1998 formation of DataMetrix Inc. (see further discussions
hereinafter) was intended to leverage MPSI's retail data warehouse as a
vehicle whereby the Company could begin serving a more diverse
population of clients outside its traditional petroleum-oriented
convenience retailing niche. Product and brand development occupied most
of the interval through January 2000, at which time the data suite of
products was commercially released. The revenue growth rate has been
disappointing for DataMetrix, and the burden on corporate liquidity
(both internally generated and from outside sources) was substantial
over the two-year start-up period. (See additional discussion regarding
liquidity and bank financing issues in Management's Discussion and
Analysis and Note 6 to the Consolidated Financial Statements.) In
response to these issues, MPSI significantly downsized this operation in
several phases from 2000 through 2002 with the last reductions occurring
in May 2002. MPSI expects to continue DataMetrix product sales as part
of the MPSI product suite going forward.

o Despite improvements in technology, more efficient production processes
and infrastructure cost reductions, MPSI sustained a significant
operating loss in fiscal 2001 and 2002 primarily because many of its key
historical customers were suffering through merger reorganizations, poor
petroleum margins and generally depressed economic situations, all of
which sent less business to MPSI (and its competition). Prospects going
into fiscal 2003 are difficult to evaluate, but it is clear that MPSI
will need to broaden its sales targeting beyond the traditional
multi-national sector.

PRODUCTS AND SERVICES

The Company markets its services in the United States, Europe, Africa,
Canada, South America, Central America, the Caribbean Basin, Japan, India, China
and Asia. See Note 8 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 presently identified by the
Company's direct sales force. In the future, use of the Internet and business
partnerships (value-added resellers) are expected to play an increasingly
significant role in sales and marketing (as well as product delivery)
activities.

The Company's operating cycle and cash flow are dependent upon the timing of
client orders for market studies. Many studies are high dollar projects and,
consequently, the timing of market study production and the resulting revenues
are subject to a degree of quarterly fluctuation. Quarterly/annual 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 had varying degrees of impact
on the Company's products. Volatile oil prices and unsettled economic conditions
in a number of MPSI's target markets negatively affected the Company's volume of
new business in fiscal 2001 and 2002. More than 97% of consolidated revenues
were derived from the petroleum industry during the fiscal years ended December
31, 2002, September 30, 2001, and September 30, 2000. In each of those fiscal
years, 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):

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*Below 10% for this period.

The Company would be adversely affected if certain petroleum industry
clients curtailed their long-term usage of MPSI products. For example, in
October 2001 ExxonMobil notified MPSI that it would explore alternatives to
certain MPSI convenience retailing products and ultimately elected to utilize
other modeling technology. MPSI was able to partially replace that business from
new customers, but the ExxonMobil decision is a significant component of the
revenue decline in 2001 and 2002. Recent developments may provide MPSI an
opportunity to again serve ExxonMobil in certain geographic regions, but the
near term impact on 2003 revenues may not be material.

The following table shows the percentage of total revenue from operations
that the Company derived from various sources during each of the last three
fiscal years.

REVENUE DERIVED FROM KEY PRODUCTS AND SERVICES (%)

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

Convenience Retailing Segment

Until 1995, the Company's primary convenience retailing applications
software was the mainframe computer-based Retail Planning System(R) ("RPS"). See
"Product Development" for discussion of major enhancements of RPS commercially
released beginning in fiscal year 1995. Long-term capital investment and retail
operational issues were traditionally addressed using the Capital Planning
System ("CAPS(R)"). This software was replaced with the Retail Explorer
("REX(TM)") software, the initial version of which was released in the U.S. in
September 1999. REX versions were released in all MPSI service regions by the
end of fiscal 2002. REX allows clients to maximize their investment planning 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. In 2002, MPSI released its first web-enabled retail
planning software - LocationXpert(R) (see Product Development).

Software licensing agreements for the retail planning software (including
ancillary products) generally have encompassed multi-year (primarily five-year
agreements), noncancellable terms. These agreements offered the client an
installment payment option requiring a payment upon execution and annual
payments on the succeeding anniversary dates of the agreement. Beginning in
fiscal 2001, MPSI changed its software licensing and maintenance contracting
methods. Henceforth, most software products will be perpetually licensed in a
fashion that parallels more traditional software companies and will generally
accelerate payment of license fees while giving the licensee more control over
the useful life of the software to their operations. Maintenance will henceforth
be an annual commitment by clients who wish to obtain future upgrades at a
discounted cost. The software can be used by the client for a particular
industry (such as petroleum) and a particular geographic market (such as Japan).
The Company's software license agreements contain 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.

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MPSI provides full maintenance (postcontract customer support) services for
its modeling software globally and, where necessary, training of and
consultation with client staff. Prices for these software products are based
upon formulas which address geographical boundaries, number of retail outlets,
number of software seats and other factors.

Information Databases for use with Convenience Retailing Software

The Company also constructs customized market study databases that are the
primary informational sources used by the retail planning and pricing software.
The database construction process involves (a) acquisition of digitized
geographic street maps, traffic counts, and demographic demand data from
governmental agencies or independent suppliers, (b) on-site field survey of
retail outlet supply information by MPSI personnel or contract surveyors, (c)
collation of all demographic demand and supply information into specified data
layout, (d) data editing and quality control checking, and (e) preparation of
the client-specific deliverables. Separate contracts govern each database order
by a client and generally require advance payments by the customer to fund field
survey and other start-up costs. There is no retainage provision relative to
these production-type contracts. These databases are available in the following
forms:

Multi-Year Study Program. 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. More recently, MPSI has undertaken national
databases in Japan and Korea, which databases include retail information
throughout the countries. Each deliverable is essentially a stand-alone
project with billing and revenue recognition handled in the same fashion
applicable to one-off market study projects. The multi-year commitment is
tailored to individual client needs, and pricing is determined in part by
the number of other client subscribers to the particular market during the
commitment period and offers clients discounts for their multi-year
commitments.

Market Area Studies ("MAS"). These studies are similar to the multi-year
studies except they may contain client-specific information and are
therefore sold only to a single client. They generally carry a higher price
than a multi-year study of the same market because MPSI has fewer leverage
opportunities. 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.

Licensed software clients generally use the PC-based software (as discussed
hereinafter) on laptop or desktop computers but may also utilize the models in
workstation environments to facilitate multi-user access. For this type of
activity, 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 networks, the Company
may charge for installation of the software and training of 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.
The Company also provides consulting services to its convenience retailing
clients which include specialized data acquisitions (e.g., consumer research);
competitive analyses to identify key competitors; brand value assessment; market
entry/exit strategies; and litigation support.

Pricing Segment

In the pricing segment, MPSI offers decision support software to meet
several client planning needs. Price Zones(R) software ("PZS") allows a client
to establish different pricing zones within major markets relative to supplying
its dealer networks with petrol fuels. PriceIt! Pro(R) allows a client to react
to competitive price changes on a daily/hourly basis at the individual outlet
level in order to set prices for the ultimate consumer. MPSI's newest product,
the StreetBack Pricing(R) ("SBP") system incorporates Price Zone methodology in
order to group outlets for the purpose of identifying competition. Once
competition is identified, the client selects representative outlets for price
tracking surveys and then formats that

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pricing data into a data set to feed the SBP software. Based on competitive
factors and the client's desired margins by product, SBP determines the price at
which desired sales volume to the dealers can be achieved.

Pricing software is generally licensed on a perpetual basis for each retail
outlet utilizing the software. Revenue on these perpetual licenses is recognized
upon delivery to the client. The contracts provide that subsequent upgrades will
be provided as MPSI determines them to be necessary for a given geographic
region and the client will receive such upgrades upon payment for the enhanced
modules, albeit at a discount for licensed users. Post-installation maintenance
and support services are offered to clients through separate optional
agreements. Revenue associated with annual maintenance agreements is recognized
ratably over the life of the agreement (generally one year). Revenue recognition
on support services, such as training, is recognized as completed.

As with convenience retailing products, MPSI provides not only the pricing
products geared to a client's needs, but in many cases, also provides portions
of the market information necessary for the pricing software to perform. MPSI's
PriceTracker(R) service is an example of customized data collection. MPSI
performs customized pricing surveys which allow clients to obtain high quality,
timely retail pricing information on a recurring basis in order to track pricing
trends in the marketplace.

Business Development Segment

The mission of this segment is to leverage MPSI products and data to new
categories of customers, both within and outside the petroleum industry.
Although still a development business, broader contacts, alternative sales
approaches and new business partner development will be key to future MPSI
success.

During fiscal year 1999, MPSI began the development of a new suite of GIS
database products. This suite of market information data products contains many
of the data components inherent in MPSI's traditional market study databases,
but was designed to go significantly beyond those traditional products in the
scope of geographic coverage. MPSI initially concentrated development on a
national GIS database for the U.S. This initiative was undertaken in an effort
to (a) leverage the customized data sets the Company already had available in
major markets by repackaging them with other information into a data product
which will be amenable in both price and content to a broader segment of the
Company's traditional petroleum-oriented convenience retailing target market,
and (b) allow the Company to attract customers in other industries who may also
be retail oriented.

The principal product offered by this segment (marketed under the
DataMetrix brand) is StreetMetrixPlus(R), which encompasses the entire U.S. and
contains, among other things, the latest road network, consumer demographics,
automobile traffic counts, and key topographical features. All of the basic
geophysical information required by a spatially oriented business client is
contained in this database. If a client only wants the traffic information or
the geophysical information, they can obtain a subset of StreetMetrixPlus.
Should a customer be involved in petroleum or convenience retailing, an add-on
data set called PointMetrix(TM) gives them geocoded and plotted information
about existing petroleum retail outlets and convenience stores in many major
markets. Late in fiscal 2000, MPSI released an interactive Internet product,
SiteMetrix Plus, which allowed subscribers to customize a geographic area of
interest (state, county, trade area, etc.) and obtain detailed road network,
demographic, traffic and retail outlet information anywhere in the U.S. That
product was replaced in 2002 by a more robust LocationXpert(R) product. Revenue
is recognized on these products ratably over the life of the subscription.

COMPETITION

Since its inception in 1970 the Company has provided comprehensive
applications software and database systems, primarily to the retail petroleum
industry. 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 and foremost, in the information technology and market
research staffs of petroleum companies or potential customers who develop and
manage their own software and data; and second, in consulting firms and data
companies which compete for portions of the Company's business. More recently,
low-priced competition has arisen from traditional GIS data houses and other
smaller competitors who offer partial solutions to customer analysis needs.

The Company has found that the market research staffs of some large
petroleum companies, supported by their internal IT groups, continue to
concentrate on in-house data gathering and customized site selection methods,
while other companies with more limited resources must consider low cost
alternatives for obtaining market information. To be successful, MPSI must
overcome the desire of its customers for total control on the one hand and cost
sensitivity on the other. It has been

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MPSI's experience that clients often encounter substantial cost barriers
relative to internally-developed systems. Without the economies of scale, data
gathering expertise and modeling sophistication that MPSI has obtained during
its 32-year existence, clients often find that systems developed in house may be
more customized to their particular situation and may appear to cost less to
develop initially (i.e., incremental pricing methods do not generally include
costs of their internal development personnel), but are expensive to maintain
given changing market conditions, require market information with an inherent
degree of accuracy which is difficult to obtain with internal resources, and 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 the internal solution and the external
consulting firms by providing generic, 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 in the
petroleum and convenience retailing sectors. Further, MPSI's maintenance
programs and its service to multiple clients in multiple geography result in
products that reflect the most up-to-date decision support methodologies and
market information available. 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
also well positioned to challenge "lower cost competitors." New data collection
techniques, implemented in late 1999, allow more timely and regular updating of
market data using handheld data collection technology and PC-based data
transmission and delivery technology. These processes have reduced MPSI's data
collection costs relative to market studies and thereby allowed the Company to
leverage data already collected or to collect custom data for clients who may
not require full market study information. MPSI's ability to take on data
projects involving a single retail site or a national database (as demonstrated
in Japan and Korea) has been an effective weapon against smaller competitors.
The Company believes it is competitive with other companies 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. As an integrated
service provider and trusted advisor that can draw on both its own resources and
also bring to bear specific expertise of its business partners to 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 the added value of MPSI's multi-purpose data and
software as compared to the individual product or service pricing by a
competitor) and the larger consulting firm's 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 December 31, 2002 and September 30, 2001 backlog consisted
principally of orders for market information databases (2002 -- $6,163,000 and
2001 -- $9,541,000) and multi-year commitments by customers for software and
maintenance services (2002 -- $1,134,000 and 2001 -- $1,031,000). The Company
expects that the market information databases in backlog at December 31, 2002
will be recognized in fiscal year revenues as follows: 2003 -- $4,092,000, 2004
- -- $1,244,000, 2005 -- $518,000, 2006 -- $141,000 and beyond -- $168,000.
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

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underlying agreement. Of the aggregate software and maintenance backlog at
December 31, 2002, future fiscal year revenues are expected to be recognized as
follows: 2003 -- $341,000, 2004 -- $359,000, 2005 -- $259,000, 2006 -- $120,000
and 2007 -- $55,000.

EMPLOYEES

As of December 31, 2002, the Company employed 92 people principally engaged
in the Convenience Retail segment. Of the total employees, there are 41 in
sales/consulting; 23 in research and development (which includes software
development and system support); 13 in database analysis and production; and 15
in management, administration, and finance. Of these, 76 are employed in the
United States and 16 are employed in foreign countries.

PRODUCT DEVELOPMENT

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 complete, 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.

Over the last five years, the major development efforts of the Company have
been directed toward (1) enhancement of retail planning products in order to
extend petroleum utilization around the world, (2) portation of the software to
a variety of workstation/PC platforms, and (3) incorporation of internally
developed or third-party software in order to enhance the user interface, speed
and efficiency of this software.

From 1994 until 1999, the CAPS software and related databases were the
premier MPSI product set. The CAPS software for North America was released in
January 1995, and from that time until 1999, MPSI had developed and released
CAPS and PVO so that those products were capable of serving all MPSI operating
regions. In 1999, MPSI began to replace CAPS with new REX technology. In fiscal
2000, the Company began to develop PriceIt! Pro to replace PVO.

REX and PriceIt! Pro were released for all MPSI operating regions during
2001, except for Japan as previously noted. Implicit in the REX design is (1)
less expensive and less complex client deliverables, (2) modular architecture
which will yield maximum flexibility for interface with existing client
technology and maximum flexibility for MPSI to apply its technology to
industries other than retail petroleum, (3) a substantially reduced data
requirement thereby significantly reducing data gathering costs, (4) a higher
degree of predictive accuracy in geographic areas of sparse housing density
(high transient areas) and (5) improved predictive capabilities with respect to
convenience stores. As of December 31, 2002, the Company has capitalized
approximately $1.3 million of development costs related to the global versions
of REX. Additional development costs which may be associated with utilization of
this new technology to service industries other than retail petroleum may
require external funding beginning in fiscal year 2003.

REX and PriceIt! Pro represent a continuing opportunity for MPSI to leverage
its retail data warehouse and allow the Company to expand its services to other
management units within our clients' retail groups. Although acceptance of new
price-prediction technology was slow initially, the pricing segment was
profitable in 1998, and enjoyed revenue growth and profitability in fiscal 1999.
Revenues and profitability declined in fiscal 2000 and 2001 as the result of
general market conditions, principally associated with client merger activities.
During fiscal 1999, MPSI developed a spin-off product from PVO. StreetBack
Pricing software addresses wholesale price planning for petroleum franchisee
pricing. StreetBack Pricing contributed to international expansion in 2001 and
contributed to MPSI's pricing penetration during fiscal 2002.

9

In addition to the enhancements to retail planning and pricing product lines
noted above, the Company has undertaken development of two new products aimed at
(a) expanding usage of retail modeling within the petroleum industry by smaller
customers, and (b) positioning the Company to begin penetrating retail-oriented
industries other than petroleum. In February 1999, the Company acquired
exclusive rights to market the most recent retail/customer analysis software
product developed by Dr. David Huff. This new data mining tool allows clients to
analyze customer segments for target marketing, product segmentation and a
variety of other merchandising purposes. The first commercial roll out of the
Huff Market Area Planner software product ("Huff") took place in mid-2000. The
Company has also formed the DataMetrix business segment, whose primary mission
is to develop and market a suite of U.S.-market data products. These products
include road networks, traffic density, demographic and retail outlet
characteristics, which should allow clients in a variety of industries to
evaluate competition, analyze consumers and plan retail spending.

Management committed resources in fiscal 2001 to development of certain
software and data products for use and/or delivery via the Internet. The result
was LocationXpert(R), a web-enabled retail analysis tool with a less complex
retail model embedded in it. This product has been licensed in the US and Japan
(where it was principally responsible for revitalized business in that service
region). Not only has this initiative allowed the Company to revitalize business
with certain clients but has also provided an opportunity to reach a much
broader client base.

During the years ended December 31, 2002, September 30, 2001 and September
30, 2000, the Company spent $2,011,000, $2,055,000, and $2,467,000,
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 in
the United States, United Kingdom and Mexico. Set forth below are the Company's
trademarks and final filing dates required to renew trademark status.

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, internal nondisclosure safeguards,
and international treaties, 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

10

barriers to entry for competitors and thus 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
potentially associated therewith, 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.

ITEM 2. PROPERTIES

All office facilities are leased, including the headquarters lease that
expires in June 2003. The Company's principal facility and corporate
headquarters in Tulsa, Oklahoma (45,000 square feet) is the primary location for
software development and market study production. Due to a shift in geographic
concentration among MPSI's clientele, the Company closed its offices in Rio de
Janeiro, Brazil and Singapore during fiscal 2002. Offices in Bristol, England;
Johannesburg, South Africa; Tokyo, Japan; Seoul, South Korea and Shanghai, China
remained the Company's principal client liaison facilities in those areas at
December 31, 2002. Management believes that the various facilities are properly
sized to meet anticipated business levels.

ITEM 3. LEGAL PROCEEDINGS

None.

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

None.

PART II

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

The Company's Common Stock currently trades OTC on the pink sheets
(described in more detail below). The trading symbol is "MPSI." Information in
the table below reflects the high and low sales prices reported by Pink Sheets
LLC. Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual transactions.

The 2,911,781 shares of Common Stock outstanding at December 31, 2002 were
held by 892 stockholders of record. At that date, an additional 52,000 shares
were subject to options to purchase Common Stock (See Note 9 to the Consolidated
Financial Statements). The per share price on December 31, 2002 was $0.12.

11

The table below reflects the securities authorized for issuance under equity
compensation plans as of December 31, 2002.

EQUITY COMPENSATION PLAN INFORMATION

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.

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA

(1) On October 22, 2001, the Company changed its fiscal year end from September
30 to December 31; accordingly, results have been separately disclosed for
the three-month period ended December 31, 2001.

12

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

CRITICAL ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

See Notes to Consolidated Financial Statements.

The following table sets forth (in thousands), for the periods indicated,
certain items in the consolidated statements of operations.

ANNUAL FINANCIAL ANALYSIS

RESULTS OF OPERATIONS

CONSOLIDATED OPERATIONS. MPSI reported a net loss of $1,889,000 or $.65 per
share on revenues of $12,201,000 for fiscal year ended December 31, 2002. This
compared to a net loss of $1,091,000 or $.37 per share on revenues of
$15,411,000 for the fiscal year ended September 30, 2001 and a net loss of
$267,000 or $.09 per share on revenues of $18,283,000 in fiscal year 2000. The
trend of consolidated revenues has been impacted by reductions in retail
database prices implemented to meet competition, a general downturn in certain
of the global economies MPSI serves and disruptions of order patterns due to
mergers involving several of MPSI's most significant petroleum industry
customers. MPSI's traditional petroleum-oriented convenience retailers continue
to experience low margins in the downstream portion of their business. This has
translated to an economic detriment to MPSI the depth and duration of which has
surpassed management's expectations. Continuous efforts to adjust operating
costs have failed to keep pace with revenue fall-off. The probability of poor
economic influences continuing into 2003 will require MPSI to significantly
revise its business approach.

The Company presently operates in three business segments: Convenience
Retailing, Pricing and Business Development. Although MPSI has generally
experienced positive performance from the Convenience Retailing segment of its
business (traditional core operations which account for more than 80% of
consolidated revenues), that segment experienced an operating loss in fiscal
2002 of $465,000. This operating loss is a result of the continuing price
concessions brought about by competition and the economic uncertainties
confronting our major clients, especially in the United States. The Pricing
segment, dedicated to retail pricing products and services, has experienced
consistent revenue levels during fiscal 2001 and 2000 but was also negatively
impacted in 2002 by the generally unsettled merger events affecting the major
oil companies. The Company's newest business segment, Business Development, is
dedicated to leveraging sales from MPSI's extensive global data warehouse
(DataMetrix brand) and to the development of business partnerships that will
increase MPSI's sales penetration, potentially across a number of industries.
This is still very much a start-up initiative, but will likely receive more
emphasis as MPSI revises its business model.

13

CONVENIENCE RETAILING SEGMENT. This segment accounted for revenues of
$10,288,000, $12,857,000 and $15,337,000 in fiscal years 2002, 2001 and 2000,
respectively. During fiscal 2001 and the latter half of 2000, seven out of
MPSI's top ten customers were involved in merger activities, which have
continued to slow MPSI retail planning activities. While the initial release of
the Company's new premier retail modeling software, Retail Explorer ("REX") to
US customers in 1999, and the subsequent release of REX globally in the early
months of fiscal 2001, had a positive impact on the number of markets studied
for clients between 1999 and 2001, competitive price reductions, and more
importantly, the client mergers have limited leverage of production costs and
thereby caused revenues and profitability to decline over the three-year period
as reported. MPSI is evaluating alternative sales targeting and marketing
strategies for 2003 in an effort to seek petroleum-oriented and other
convenience retailers who are more aggressively and successfully weathering
these difficult economic circumstances.

The revenue decline of $2,569,000 (20%) from fiscal 2001 and $5,049,000
(33%) from fiscal 2000 is a result of the economic factors discussed above.
Consequently, gross margin dollars declined $1,056,000 and $2,372,000 as
compared to fiscal 2001 and fiscal 2000 respectively. As a percent of revenues,
the fiscal 2002 gross margins declined approximately 5% as compared to fiscal
2001 and 7% as compared to fiscal 2000. The decline in gross margin as a percent
of revenues is partially a result of the Company's effort to maintain production
personnel despite the economic downturn in anticipation of increased orders
during fiscal 2003. Absent an upturn in early 2003, MPSI will likely have to
reduce this cost base.

In October 2001, MPSI's largest customer notified the Company that it would
explore other convenience retailing technology. Although that customer
ultimately decided to change technology, which had a significant impact on
fiscal 2002 and 2001, MPSI has had positive feedback from this client (including
a nominal amount of new orders) indicating its interest in re-establishing its
relationship with our Company in certain selected markets.

PRICING SEGMENT. This segment accounted for revenues of $1,566,000,
$2,111,000 and $2,208,000 in fiscal years 2002, 2001 and 2000, respectively.
This business unit experienced a decline in revenues of 26% ($545,000) in fiscal
2002 as compared to fiscal 2001 and a flattening of revenues between fiscal 2001
and 2000, principally for the same environmental reasons noted above. Customer
focus during merger/transitions was not on implementation of new technologies.
Although operating results declined approximately $78,000 as a result of
decreased revenues, gross margin as a percent of revenues (46%) was comparable
with fiscal 2001 (47%) due to cost cutting measures implemented during the year.
Gross margins in fiscal 2000 (57%) were significantly higher primarily because
of the mix of product sales being weighted more heavily toward pure software
revenues. The costs associated with delivery of software are considerably less
than the costs associated with other pricing products.

BUSINESS DEVELOPMENT. This unit's mission, which in previous reports related
principally to the development, maintenance and sales of street files,
demographics and traffic information under the DataMetrix brand, was expanded at
the end of fiscal 2001 to focus on industry diversification opportunities into
fiscal 2002 (including the development of business partner relationships). This
action was taken not only to help MPSI become less "one-dimensional" but also in
recognition that leveraging MPSI's data warehouse by itself would not result in
the desired level of diversification. Revenue from this segment was $347,000 in
fiscal 2002 compared with revenues of $443,000 in fiscal 2001 and $738,000 in
2000. Despite the disappointing revenue trends, the unit continues to reduce its
operating losses ($495,000 in fiscal 2002 compared with losses of $719,000 in
fiscal 2001 and $2,047,000 in fiscal 2000). The unit's activities and headcount
continued to be scaled back as part of the general staffing reductions
implemented during fiscal 2002, leaving in place resources necessary to support
the Convenience Retailing data unit. Amortization of the segment's primary
geographic database product (approximately $396,000 in fiscal 2002 and 2001, and
$264,000 in 2000) has reduced the carrying value to $33,000 at December 31,
2002.

CONSOLIDATED OPERATING EXPENSES. Consolidated operating expenses were
$8,163,000, $9,728,000 and $10,767,000 in fiscal years 2002, 2001 and 2000
respectively. In total, operating expenses declined $1,565,000 or 16% in fiscal
2002 compared with 2001 and are down by $2,604,000 (24%) from fiscal 2000. This
is principally reflective of ongoing corporate sizing actions initiated to
properly align corporate costs to declining revenues. The downsizing efforts
initiated during the second fiscal quarter of 2002, in particular those related
to the closure of certain foreign offices, will not be fully realized until
fiscal 2003 due to the timing of office closures, severance and other related
reduction costs.

General and administrative expenses were $3,099,000, $3,195,000 and
$3,653,000 in fiscal years 2002, 2001 and 2000, respectively. The continued
reduction in costs is a direct result of corporate downsizing as discussed
above. In addition to the reduced staffing levels, MPSI has also benefited from
lower employee insurance costs and rent reduction in the headquarters facility
associated with the smaller headcount. The bulk of the savings associated with
the re-sizing efforts are reflected in marketing expenses which were $3,595,000,
$5,216,000 and $5,925,000 in fiscal years 2002, 2001 and 2000,

14

respectively. The overall reduction is a result of fewer personnel in the client
services and sales support areas, closure of certain foreign sales offices and
lower travel and advertising costs. Research and development expenses, including
capitalized development of new products and maintenance of existing offerings,
has remained relatively constant during fiscal 2002 and 2001 ($2,011,000 and
$2,055,000) but has decreased from $2,467,000 in fiscal year 2000. The decrease
from the fiscal 2000 level is reflective of the overall cost cutting measures
implemented by the Company and the completion of the initial Retail Explorer
("REX") project. The Company continues to focus on both new product offerings
and quality support to its existing client base.

OTHER INCOME / EXPENSE. For fiscal years 2002, 2001 and 2000, respectively,
other income / (expense) was ($247,000), ($438,000) and ($53,000). The primary
reduction in expenses during fiscal 2002 as compared to 2001 is related to
interest expense. During fiscal 2002 the Company was able to liquidate its bank
debt and subsequently reduced interest expense by $132,000. In fiscal 2001, the
Company incurred approximately $385,000 more net expenses in this category than
it experienced in fiscal 2000. The principal difference was a $440,000 swing in
exchange transactions (net loss of $160,000 in fiscal 2001 versus net gain of
$337,000 in fiscal 2000). MPSI closed its Australian operation in fiscal 2000,
which was principally responsible for the transaction gains then reported. Other
than that associated with the office closure, exchanges gains and losses result
from MPSI transactions denominated in currencies other than US Dollars to
accommodate clients in certain markets (principally denominated in Japanese Yen,
Singapore Dollars or British Pounds). Although MPSI anticipates continuing
exposure from these sources in fiscal 2003, the incremental change is not
expected to materially increase as the Company now limits the number of
contracts denominated in foreign currencies.

Additionally, MPSI continues to experience declines in interest income
related to present value presentation of long-term software license agreements
($18,000, $96,000 and $179,000 for fiscal years 2002, 2001 and 2000,
respectively). In fiscal 2001, MPSI adopted new perpetual licensing contract
methods which, over time, will curtail multi-year software agreements and the
associated interest income but will reflect higher up-front software revenues as
new perpetual licenses are executed.

INCOME TAXES. Income taxes in fiscal 2002 increased $79,000 as compared to
fiscal 2001 primarily due to foreign withholding from certain international
transactions. The mix of foreign source income as well as the specific location
of an international client can have a significant impact on foreign withholding.
Income taxes in fiscal 2001 declined $71,000 compared to 2000 because the
Company experienced an operating pretax loss in fiscal 2001 for which no
provisions were required (although net operating loss carryforwards increased -
see Note 7 to Consolidated Financial Statements). Further, foreign income tax
withholding by customers was lower as the result of the specific mix of the 2001
revenue decline.

FINANCIAL CONDITION AND LIQUIDITY

Working capital decreased to ($1,465,000) at December 31, 2002 compared with
$90,000 at September 30, 2001. Primarily, the change is attributable to an
increase in deferred revenue ($1,408,000) resulting from large contracts that
will be completed during fiscal 2003. During fiscal 2002 the Company was able to
liquidate its remaining bank debt of $900,000 ($350,000 classified as current)
and reduce current payables and accruals by $378,000. This was partially
accomplished through a decrease of $770,000 or 30% in outstanding receivable
balances at year-end 2002 compared with the fiscal year ended September 30,
2001. The decline in receivables reflects the reduction in revenues during
fiscal 2002, as previously discussed, as well as improved collections near the
end of fiscal 2002.

Despite the net loss in 2002 of $1,889,000, the company generated
approximately $1,651,000 of cash flow from operations and was able to reduce
trade payable obligations and eliminate its bank debt. Comparatively, MPSI also
generated positive cash flow from operations in fiscal 2001 and 2000 ($1,943,000
and $1,353,000, respectively). It should be noted that operating results
included non-cash charges for depreciation and amortization of $1,083,000 in
fiscal 2002 compared with $1,238,000 and $1,215,000 in fiscal 2001 and 2000,
respectively. In large measure, the generation of substantial cash flow from
operations was attributable to the cost saving measures implemented during the
periods presented (as previously discussed) and improved collection of accounts
receivable.

MANAGEMENT'S PLAN. MPSI's revenues have declined over the past several years
due mainly to (a) poor retail petroleum margins limiting discretionary spending
in several key geographies which the Company serves, (b) the consolidation of
the oil and gas industry and the resulting loss of customers, and (c) the
emergence of lower cost, albeit lower service quality competitors. Management
has responded during 2002 and 2001 by re-engineering products and services to be
more flexible in meeting the needs of a more diverse customer base. Management
has also acted to conserve liquidity by closing certain offices, reducing
employee costs and controlling research and development expenditures.

15

Despite these actions, the depth and duration of economic pressures on
MPSI's primary customers has continued the negative trends in orders and
revenues through 2002 and will likely impact at least the first half of 2003.
Subsequent to December 31, 2002 and in response to the potential continuation
into fiscal 2003 of lower than traditional orders and revenues, management
implemented new programs designed to allow the Company to better match operating
costs with revenue.

In order to position the Company to increase its revenues, management
reorganized a portion of its sales force to target new customer segments within
the retail petroleum sector, which customer segments had only been served
passively by the Company heretofore. Although the average unit sale from the new
target customers will likely be smaller, the number of potential customers far
exceeds the market sector the Company presently serves. This partial shift in
customer focus should not require any substantial product re-tooling.

In order to give the Company time to ramp up revenue from both traditional
and new customer targets, in March 2003 MPSI initiated a reduction in operating
costs expected to save approximately $1.8 million annually ($1.3 million over
the remaining nine months of fiscal 2003). MPSI's ability to continue delivering
high quality retail technology and services has not been diminished. The Company
is further reviewing its investment in fixed facilities and equipment in order
to increase the savings.

Management's plan is intended to produce revenues at a level comparable to
2002, while cutting costs significantly with the objective of returning MPSI to
profitability. Achievement of this plan depends on the accomplishment of matters
both within and outside MPSI's control, including the strength of the economy
and the timing of customer decisions. There is risk that adverse economic
conditions could persist to the point where management's plan cannot overturn
the recent trends.

EXTERNAL FINANCING. In June 2000, the Company's principal bank, Bank of
America, announced its internal plans to substantially reduce its lending
exposures in certain industries and to certain customer categories. MPSI fell
within the criteria and, accordingly, was notified effective June 30, 2000 that
it must either liquidate or move its line of credit. The outstanding balance at
that time was $2,000,000, and the Company was given 120 days to effect a change.
Subsequent to that notice, MPSI diligently worked this issue on two fronts: (1)
investigation of alternative financing sources, and (2) regular pay down of the
debt from operating cash flows. Although no acceptable financing alternative was
identified, the outstanding balance has been steadily reduced from $2,000,000 at
September 30, 2000 to $900,000 at September 30, 2001, and completely liquidated
as of December 31, 2002. This was accomplished as a result of (1) cash generated
from operations, (2) installment payments received on long-term software license
agreements (where revenue had been recognized in previous years), and (3) lower
capital software development costs following the release of REX globally in the
first half of fiscal 2001. The debt liquidation continually pressured MPSI's
operating liquidity and prevented accumulation of cash reserves even though the
Company had generated positive cash flow from operations of more than $1.6
million in fiscal 2002 and $1.9 million in fiscal 2001.

In the absence of an alternative banking solution that provided some measure
of working capital draw capability, MPSI had to deal with peaks and valleys in
cash flow by adjusting payments to suppliers and other creditors. On occasion
this situation caused the Company to fall behind with timely payment of
operational expenses. Thus far, MPSI has been able to manage these situations
satisfactorily such that no significant exposure or loss of critical suppliers
has resulted. Additionally, the Company had significantly improved the payment
timing to its suppliers and other creditors by the end of 2002. Management
expects that cash flow from operations will be sufficient to meet operating
requirements in fiscal 2003. Although the Company currently has no short-term
borrowing sources, management will continue to seek cost-effective financing
sources to provide back-up working capital availability.

NONCURRENT ASSETS AND LIABILITIES. Long-term receivables related to
five-year software license agreements were $595,000 at December 31, 2002 as
compared to $539,000 at September 30, 2001. Although this represents a small
increase over fiscal 2001, the overall reduction in long term agreements from
their historical balances is reflective of market conditions that caused the
Company to re-tool its software technology (REX development in 1999/2000). This
re-tooling has resulted in more contracts being negotiated with perpetual
software components in which the software revenue is recorded at point of
delivery.

Property and Equipment of $652,000, net of accumulated depreciation at
December 31, 2002, declined $352,000 compared with $1,004,000 at September 30,
2001. The net decline was primarily composed of $357,000 depreciation taken

16

in 2002, offset by new additions and write off of assets during the closure of
certain foreign offices. The Company has routinely cycled its computer equipment
each year as necessary to meet operational and technical demands. The Company
anticipates that future needs will be funded out of operating cash flow.

Capitalized product development (net of accumulated amortization) declined
$428,000 from $1,504,000 at September 30, 2001 as compared to $1,076,000 at
December 31, 2002. As set forth in the Consolidated Statements of Cash Flow,
amortization of previously capitalized product development (initial REX versions
and certain pricing software) decreased by $204,000 to $726,000 in fiscal 2002
compared with $930,000 in fiscal 2001. This reflects certain development
products that have been fully amortized during the current fiscal year. Costs
expended on new development projects during fiscal 2002 were $436,000 as
compared to $667,000 in fiscal 2001. This decrease is indicative of management's
belief that MPSI's technology holds a commanding edge over competitors'
offerings thus allowing the Company to leverage its previous development costs
for a longer period of time before re-tooling.

EQUITY. In December 2000, management delayed filing its Form 10-K for fiscal
year 2000 due to a material uncertainty, which then existed relative to the
ultimate intentions of its principal bank regarding the upcoming maturity of $2
million in bank debt. The filing deferral ultimately led to the February 2001
de-listing of MPSI's stock by NASDAQ. While the de-listing had no direct impact
on MPSI's operations, it did have the effect of reducing visibility of MPSI
stock in the market place (subsequently traded over the counter via the "pink
sheets") and exacerbating the daily susceptibility of the stock to market
fluctuations based on nominal trading volume. MPSI is exploring alternative
scenarios wherein MPSI stock might be listed on an exchange in 2003.

BACKLOG. MPSI's backlog was approximately $7.3 million at December 31, 2002
compared with $10.6 million at September 2001. The decrease is principally
attributable to reduced orders resulting from the unfavorable economic
environment discussed earlier. The backlog contains a number of recurring future
studies under multi-year client commitments. Management believes that its
backlog continues to indicate substantial commitment to MPSI technology on the
part of its customers.

TRANSITIONAL PERIOD ANALYSIS

RESULTS OF OPERATIONS

CONSOLIDATED OPERATIONS. MPSI reported a net quarterly profit of $62,000 or
$.02 per share on revenues of $4.1 million for the three months ended December
31, 2001 compared with a net profit of $123,000 or $.04 per share on revenues of
$4.1 million for the comparable quarter ended December 31, 2000. With nearly
identical revenues compared with the December 2000 quarter, the lower net income
for the December 31, 2001 quarter principally relates to a decline in margins
from certain products. Cost of sales increased $194,000 due to certain Pricing
segment activity that shifted to new foreign geography wherein the Company could
not leverage its U.S. national database.

CONVENIENCE RETAILING SEGMENT. This business unit accounted for revenues of
$3,392,000, and $3,416,000 for the fiscal quarters ended December 31, 2001 and
2000, respectively, with corresponding operating profits of $491,000 and
$370,000. Although revenues for the quarter ended December 31, 2001 were
consistent with the same period last fiscal year, there was an increase in
operating income of $121,000. This increase in operating income is directly
related to lower amortization expense as certain capitalized product development
projects reached the end of their estimated economic life. Although these
projects are now fully amortized, they will continue to generate revenue while
the Company moves forward to develop new products.

PRICING SEGMENT. Revenues of $627,000 for the quarter ended December 31,
2001, as compared to $563,000 during the same quarter last fiscal year are up
$64,000 primarily due to the timing of orders. Because this segment deals with a
relatively small number of high dollar projects, timing of client pilot tests
and orders can substantially affect period results. This segment experienced an
operating loss of $156,000 for the quarter ended December 31, 2001 compared to
an operating loss of $2,000 during the comparable quarter in 2000. The increased
operating loss is a result of certain activity occurring in new areas not
covered by the Company's geographic database, requiring substantial expenditures
to obtain the necessary data.

BUSINESS DEVELOPMENT SEGMENT. This unit (which continues to market mapping
products under the DataMetrix brand and is in the process of developing products
which will be marketed through the internet) generated revenues of

17

$72,000 during the fiscal quarter ended December 31, 2001 as compared with
$108,000 during the comparable period last fiscal year. Business Development
incurred an operating loss of $211,000 for the quarter ended December 31, 2001
as compared with an operating loss of $182,000 during the same fiscal quarter in
2000.

One of the major costs associated with this segment is the amortization and
maintenance of the U.S. geographic database used to generate the unit's product
offerings. Although there is no formal interdivisional transfer pricing
mechanism, both the Convenience Retailing and Pricing units benefit from the
availability of this national database. Amortization of this database will
continue throughout fiscal 2002. This unit has not yet achieved critical mass.
New products released in the summer of 2002 benefited all business units but
worked most to the benefit of Business Development's industry diversification
initiatives.

CONSOLIDATED OPERATING EXPENSES. Consolidated operating expenses were
$2,384,000 for the quarter ended December 31, 2001 as compared with $2,512,000
during the same quarter in 2000. This reduction of $128,000 (5%) is a result of
cost cutting measures previously implemented by the company.

Consolidated general and administrative expenses for the quarter ended
December 31, 2001 were down approximately $121,000 (13%) as compared to the same
fiscal quarter in 2000. The decline in costs for the quarter were the result of
reduced costs associated with severance which was accrued during the first
fiscal quarter of fiscal 2001 offset by increased audit fees of approximately
$131,000 related to updating and finalizing certain SEC filings for fiscal years
2001 and 2000.

Consolidated marketing and client service expenses for the quarter ended
December 31, 2001 were down $53,000 (4%) as compared to the same fiscal quarter
of last year. Consolidated marketing expenses have been reduced as a result of
(1) focused target marketing on major global petroleum marketers, and (2)
increased reliance on value-added resellers to service smaller customers.
Additionally, the Company has adjusted its selling and marketing objectives to
accommodate for changes in product offerings and the marketplace, and has
realigned personnel to meet those objectives.

Consolidated research and development expenses (excluding amounts
capitalized for product development as discussed under Financial Condition and
Liquidity below) for the quarter ended December 31, 2001, were up $46,000 as
compared with the same fiscal period last year. This increase is a result of
resource allocation and the timing of new capital development. During the
quarter ended December 31, 2001, more staff were engaged in the initial
non-capitalized planning stages for new product development. Total costs,
including amounts capitalized for product development and maintenance of
existing products, are comparable between the two periods presented. The Company
continues to seek cost reductions through new technologies which seek to produce
modular products which are easier to develop, less costly to customize and
maintain, and can more readily be transported to other vertical market
applications.

OTHER INCOME AND EXPENSES. Interest expense of $63,000 and $66,000 was
comparable for the quarters ended December 31, 2001 and 2000, respectively. The
Company's bank debt of $900,000 was reduced from $1,940,000 at December 31, 2000
as the result of an aggressive debt reduction policy during fiscal 2001.
However, during that same period, the bank processed a number of short-term
extensions and steadily raised the interest rate each time. The increase in
interest rate was offset by the decline in outstanding balance.

MPSI enters into multi-year contracts for market studies, some of which are
denominated in foreign currencies (principally the Singapore Dollar and the
British Pound Sterling ). This exposes MPSI to exchange gains or losses
depending upon the periodic value of the U.S. Dollar relative to the respective
foreign currencies. The Company experienced exchange losses of approximately
$7,000 and $22,000 during the quarters ended December 31, 2001 and 2000
respectively. Although MPSI anticipates continuing exposure to exchange
fluctuations, no material adverse effect is expected as the Company denominates
a limited number of contracts in foreign currencies. The Company does not
utilize derivative financial instruments to hedge their foreign currency or
interest rate risks.

INCOME TAXES. Because of significant net operating loss carryforwards, there
were no income taxes recorded for the quarters ended December 31, 2001 and 2000.
Income taxes in fiscal 2000 are primarily due to foreign taxes withheld at the
source by customers. The amount of foreign income taxes withheld can fluctuate
significantly between fiscal periods based upon not only the geographic areas in
which the Company operates, but on the particular products and services
delivered within an individual country.

18

FINANCIAL CONDITION AND LIQUIDITY

Working capital, the Company's primary measure of liquidity, was $(165,000)
at December 31, 2001 as compared with $190,000 at September 30, 2001. The change
in liquidity is principally attributable to reclassification to current of
$650,000 bank debt classified noncurrent at September 30, 2001 based upon the
maturity date of the debt (October 1, 2002). Although cash at December 31, 2001
decreased by approximately $230,000 compared with September 30, 2001, net trade
receivables increased $812,000 as a result of orders received and invoices
prepared during the interim period ended December 31, 2001.

Accounts payable and accrued liabilities were reduced by approximately
$264,000 during the interim period ended December 31, 2001. This reduction in
current liabilities was offset by an increase in deferred revenue of
approximately $458,000 as a result of billings on active projects that exceeded
revenues recognized. While increases in deferred revenue have the effect of
lowering working capital, such increases do not require commensurate cash
outflows as is the case with other current liability accounts due to the
inherent profit factors associated with the underlying projects.

In June 2000, the Company's principal bank, Bank of America, announced its
internal plans to substantially reduce its lending exposures in certain
industries and to certain customer categories. MPSI fell within the criteria
and, accordingly, was notified effective June 30, 2000 that it must either
liquidate or move its line of credit. The outstanding balance at that time was
$2,000,000, and the Company was given 120 days to effect a change. Subsequent to
that notice, MPSI has diligently worked this issue on two fronts: (1)
investigation of alternative financing sources, and (2) regular pay down of the
debt from operating cash flows. Although no acceptable financing alternative has
been identified, the outstanding balance was steadily reduced from $2,000,000 at
September 30, 2000 to $900,000 at September 30, 2001. Largely on the basis of
the Company's diligent efforts at liquidation, Bank of America has granted
extensions of the credit maturity effective October 2000, January 2001, April
2001, May 2001 and October 2001. With each extension, except October 2001, the
Bank also waived the minimum equity covenant requirement. The latest extension
by Bank of America, effective January 6, 2002, was granted concurrently with a
$250,000 pay down by the Company and set the new maturity date at October 1,
2002. A further payment of $100,000 was made before April 1, 2002. This action
significantly lengthened the Bank's commitment to MPSI when compared with
previous extension periods and provided for an adjustment of the minimum net
worth covenant, with which the Company had not been in compliance, down to $1.7
million.

In the absence of a working capital line of credit, MPSI continues to deal
with peaks and valleys in cash flow by adjusting payments to suppliers and other
creditors as required. However, if the Company is unable to maintain the minimum
net worth covenant or to maintain an adequate collateral level as determined
through a defined borrowing base computation, the bank could call the note
before its maturity date. The bank has not taken such action to date. If this
were to occur, the Company may not have sufficient cash to repay the note
requiring management to take such actions as delaying payments to suppliers or
reducing operating expenditures. Such actions, if necessary, could have an
adverse effect on the Company's operations or financial condition. Management
will continue to seek cost-effective alternate financing sources, not only as a
means of accelerating liquidation of the current note, but also to provide
back-up working capital availability.

MPSI's backlog of market studies at December 31, 2001 in the amount of
approximately $8.2 million, ($9.5 million at September 30, 2001), contained a
substantial number of recurring studies under multi-year client commitments.
Such studies represent a significant amount of the estimated revenues for fiscal
year 2002. 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.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

USE OF ESTIMATES

The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States (herein after
referred to as "GAAP") and the application of GAAP requires management to make
estimates that affect the Company's reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. In many instances, the Company could have reasonably used different

19

accounting estimates, and in other instances changes in the accounting estimates
are reasonably likely to occur from period to period. Accordingly, actual
results could differ significantly from the estimates made by management. To the
extent that there are material differences between these estimates and actual
results, the Company's future financial statement presentation of its financial
condition or results of operations will be affected.

On an ongoing basis, the Company evaluates its estimates, including those
related to revenue recognition, provision for doubtful accounts, recovery of
capitalized product development costs, useful lives of property and equipment,
income taxes, contingencies and litigation, among others. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.

In addition to these estimates and assumptions that are utilized in the
preparation of historical financial statements, the inability to properly
estimate the timing and amount of future revenues could significantly impact the
Company's future operations. While the Company's software allows it to monitor
potential revenues and aids in its ability to manage the size of its operations,
management must make assumptions and estimates as to the timing and amount of
future revenue. Specifically, the Company's sales personnel monitor the status
of all proposals, including the estimated closing date and potential dollar
amount of such transaction. The Company aggregates these estimates periodically
to generate a sales pipeline and then evaluates the pipeline to identify trends
in the Company's business. This pipeline analysis and related estimates of
revenue may differ significantly from actual revenues in a particular reporting
period as the estimates and assumptions were made using the best available data
at the time, which is subject to change. Specifically, the slowdown in the
global economy and information technology spending has caused and may continue
to cause customer purchasing decisions to be delayed, reduced in amount or
canceled, all of which have reduced and could continue to reduce the rate of
conversion of the pipeline into contracts. A variation in the pipeline or in the
conversion rate of the pipeline into contracts could cause the Company to plan
or budget inaccurately and thereby could adversely affect the Company's
business, financial condition or results of operations. In addition, because of
unpredictable timing of high-dollar contracts, management may not be able to
adjust the Company's cost structure to respond to a variation in the conversion
of the pipeline in a timely manner, and thereby the delays may adversely and
materially affect the Company's business, financial condition or results of
operations.

CRITICAL ACCOUNTING POLICIES

In addition to making critical accounting estimates, the Company must ensure
that its financial statements are properly stated in accordance with GAAP. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management's judgment in its application,
while in other cases, management's judgment is required in selecting among
available alternative accounting standards that allow different accounting
treatment for similar transactions (e.g., revenue recognition, stock-based
compensation, depreciation methodology, etc.). The Company believes that the
following accounting policies are critical to understanding the Company's
historical and future performance, as these policies relate to the more
significant areas involving management's judgments and estimates: revenue
recognition, stock-based compensation, the provision for doubtful accounts,
capitalized product development costs, income taxes, and foreign currency
transactions.

The Company's management has reviewed its critical accounting policies, its
critical accounting estimates, and the related disclosures with its Audit
Committee. These policies, and the Company's procedures related to these
policies, are described in detail below.

o 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 recognizes software revenue under the provisions of the
Accounting Standards Executive Committee's Statement of Position 97-2
("SOP 97-2") entitled "Software Revenue Recognition" (as amended by SOP
98-9). Under the terms of SOPs 97-2 and 98-9, companies are required to
defer all revenue from multiple-element software arrangements if
sufficient vendor specific objective evidence does not exist for the
allocation of revenue to the various elements of the arrangement. As a
result, the Company recognizes revenue on multi-year software license
agreements ratably over the life of the arrangement.

Revenue is recognized when the Company has no remaining obligations
under the software license and maintenance contracts other than
providing post-contract 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 are recognized ratably over the term of the
contracts as the post-contract customer support services are provided
and the related costs incurred are recognized. Optional training and
consulting represents service transaction on which revenue and expense
are recognized when the earnings process is substantially complete.

Beginning in fiscal 2001, MPSI changed its software licensing and
maintenance contracting methods. Following the change, most software
products are perpetually licensed in a fashion that mandates up-front
payment of the license fees. Maintenance is an optional annual
commitment by clients who wish to obtain future upgrades without
additional cost. This change in licensing did not materially impact
fiscal 2001.

o Stock-Based Compensation: At December 31, 2002, the Company has one
stock-based employee compensation plan, which is described more fully
in Note 9. The Company accounts for the plan under the recognition and
measurement principles of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected
in net income (loss), as all options granted under the plan had an
exercise price equal to or greater than the market value of the
underlying common stock on the date of grant. The following table
illustrates the effect on net income (loss) and earnings per share if
the Company had applied the fair value recognition provisions of
Financial Accounting Standards Board ("FASB") Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee
compensation.

All other schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.

21

REPORT OF INDEPENDENT AUDITORS - CURRENT

The Board of Directors and Stockholders MPSI Systems Inc.

We have audited the accompanying consolidated balance sheet of MPSI Systems
Inc. and subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 2002 and the three-month period ended December 31, 2001.
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 auditing standards generally
accepted in the United States of America. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MPSI Systems
Inc. and subsidiaries at December 31, 2002, and the consolidated results of
their operations and their cash flows for the year ended December 31, 2002 and
the three months ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.

TULLIUS TAYLOR SARTAIN & SARTAIN LLP

Tulsa, Oklahoma
April 2, 2003

22

REPORT OF INDEPENDENT AUDITORS - FORMER

The Board of Directors and Stockholders MPSI Systems Inc.

We have audited the accompanying consolidated balance sheet of MPSI Systems
Inc. and subsidiaries as of September 30, 2001, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the two years
ended September 30, 2001 and 2000. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MPSI Systems
Inc. and subsidiaries at September 30, 2001, and the consolidated results of
their operations and their cash flows for the two years ended September 30, 2001
and 2000 in conformity with accounting principles generally accepted in the
United States.

ERNST & YOUNG LLP

Tulsa, Oklahoma
February 25, 2002

23

MPSI SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements.

24

MPSI SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)
ASSETS

See accompanying notes to consolidated financial statements.

25

MPSI SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTES 1 AND 11)

(IN THOUSANDS)

See accompanying notes to consolidated financial statements.

26

MPSI SYSTEMS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2002, THREE MONTHS ENDED DECEMBER 31, 2001 AND
YEARS ENDED SEPTEMBER 30, 2001 AND 2000

(IN THOUSANDS)

See accompanying notes to consolidated financial statements.

27

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 8, over 41% of consolidated revenues
are generated from foreign customers, and 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 are performed at the Company's headquarters facility in
Tulsa, Oklahoma.

Change of Fiscal Year: In October 2001, the Company's Board of Directors
authorized a change in MPSI's fiscal year from the traditional September 30 to
December 31. Accordingly, these financial statements include the audited
transition period from October 1, 2001 to December 31, 2001.

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 recognizes software revenue under the provisions of the
Accounting Standards Executive Committee's Statement of Position 97-2 ("SOP
97-2") entitled "Software Revenue Recognition" (as amended by SOP 98-9). Under
the terms of SOPs 97-2 and 98-9, companies are required to defer all revenue
from multiple-element software arrangements if sufficient vendor specific
objective evidence does not exist for the allocation of revenue to the various
elements of the arrangement. As a result, the Company recognizes revenue on
multi-year software license agreements ratably over the life of the arrangement.

Revenue is recognized when the Company has no remaining obligations under
the software license and maintenance contracts other than providing
post-contract 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 are recognized
ratably over the term of the contracts as the post-contract customer support
services are provided and the related costs incurred are recognized. Optional
training and consulting represents service transaction on which revenue and
expense are recognized when the earnings process is substantially complete.

Beginning in fiscal 2001, MPSI changed its software licensing and
maintenance contracting methods. Following the change, most software products
are perpetually licensed in a fashion that mandates up-front payment of the
license fees. Maintenance is an optional annual commitment by clients who wish
to obtain future upgrades without additional cost. This change in licensing did
not materially impact fiscal 2001.

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.

28

Receivables: Trade receivables are carried at original invoice amount less
an estimate made for doubtful receivables based on a review of all outstanding
amounts on a monthly basis. Management determines the allowance for doubtful
accounts by regularly evaluating individual customer receivables and considering
a customer's financial condition, credit history, and current economic
conditions. Trade receivables are written off when deemed uncollectible.
Recoveries of trade receivables previously written off are recorded when
received.

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.

Property and Equipment: Property and equipment, including the capitalized
cost of software developed for internal use, is stated at cost. Depreciation is
provided using the straight-line method, over the estimated useful lives of the
respective assets, except for leasehold improvements which are amortized over
the lesser of the lease term or the economic life of the underlying asset. Since
such assets are employed in all facets of the Company's operations, depreciation
expense is reflected in cost of sales as well as in each category of operating
expenses. The Company charges the cost of repairs and maintenance to expense as
incurred and capitalizes the cost of replacements, renewals and betterments.
When property or equipment is retired, the cost and accumulated depreciation are
removed from the accounts, and the resulting gain or loss on the disposition is
reflected in other income (expense).

Capitalized Product Development Costs: Cost of software held for resale
(which was either purchased with the intent to incorporate the acquired software
in MPSI products or developed internally) are presented net of accumulated
amortization.

The costs of internally developed software held for resale 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 product 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.

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: Basic earnings per share is based upon the average
number of common shares outstanding. Diluted earnings per share consider the
dilutive effect of common stock equivalents.

29

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 other comprehensive income. 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. Brazil transactions and accounting
records are maintained in U.S. Dollar equivalents. During fiscal 2000, the
Company substantially liquidated its Australian subsidiary and reported the net
effect of accumulated translation adjustments of $330,000 in other income. When
final closure is achieved in 2003 for the Brazil and Singapore offices, the
effect on net income will include an accumulated translation adjustment.

Advertising: Costs of advertising were $65,000, $147,000, and $292,000 in
fiscal years ended December 31, 2002, September 30, 2001 and September 30, 2000,
respectively, and $53,000 for the three months ended December 31, 2001, and are
expensed as incurred.

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.

Stock-Based Compensation: At December 31, 2002, the Company has one
stock-based employee compensation plan, which is described more fully in Note 9.
The Company accounts for the plan under the recognition and measurement
principles of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net income (loss), as all options granted
under the plan had an exercise price equal to or greater than the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net income (loss) and earnings per share if the
Company had applied the fair value recognition provisions of Financial
Accounting Standards Board ("FASB") Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.

Pro forma information regarding net income and earnings per share has been
estimated at the date of the grant using the 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
123% in 2000; risk-free interest rate of 5.73% in 2000 and a no-dividend yield.
There were no grants issued in the fiscal year ended September 30, 2001, three
months ended December 31, 2001 or fiscal year ended December 31, 2002.

30

New Accounting Pronouncements: The Financial Accounting Standards Board
("FASB") periodically issues new accounting standards in a continuing effort to
improve standards of financial accounting and reporting. Management has reviewed
the recently issued pronouncements and concluded that the following new
accounting standards are potentially applicable to the Company.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 supersedes Accounting Principles Board ("APB") Opinion No.
17, Intangible Assets, and primarily addresses accounting for goodwill and
intangible assets subsequent to acquisition. Under SFAS No. 142, goodwill and
separately identified intangible assets with indefinite lives will no longer be
amortized but reviewed annually (or more frequently if impairment indicators
arise) for impairment. Separately identified intangible assets not deemed to
have indefinite lives will continue to be amortized over their useful lives. At
December 31, 2002 and September 30, 2001, the Company did not have any recorded
goodwill or intangible assets.

In August 2001, the FASB issued SFAS No. 144, Accounting For The Impairment
Or Disposal Of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting For The Impairment of Long-Lived Assets And For Long-Lived Assets To
Be Disposed Of, and APB Opinion No. 30, Reporting The Results Of Operations -
Reporting The Effects Of Disposal Of A Segment Of A Business, And Extraordinary,
Unusual And Infrequently occurring Events And Transactions. SFAS No. 144
establishes an accounting model based on SFAS No. 121 for long-lived assets to
be disposed of by sale, previously accounted for under APB Opinion No. 30. The
Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No.
144 did not have a material impact on the Company's consolidated financial
condition, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, Accounting For Costs Associated
With Exit Or Disposal Activities. This standard requires entities to recognize a
liability, at its fair value, associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. SFAS No. 146 applies to exit or disposal activities initiated after
December 31, 2002.

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

2. LIQUIDITY AND MANAGEMENT'S PLAN

In 2002, MPSI produced $1,651,000 of cash flow from operations and achieved
a significant milestone by using this cash flow, in part, to eliminate the
remaining $900,000 of its bank debt. However, the Company also incurred a net
loss of $1,889,000, which reduced stockholders' equity to $60,000 and, when
combined with the debt liquidation, has contributed to a working capital deficit
of $1,465,000. The operating losses in 2002 and 2001 are indicative of very
unsettled economic conditions generally and to the effects of such conditions on
the petroleum convenience retailing customers that provide most of MPSI's annual
revenues.

MPSI's revenues have declined over the past several years due mainly to (a)
poor retail petroleum margins limiting discretionary spending in several key
geographies which the Company serves, (b) the consolidation of the oil and gas
industry and the resulting loss of customers, and (c) the emergence of lower
cost, albeit lower service quality competitors. Management has responded during
2002 and 2001 by re-engineering products and services to be more flexible in
meeting the needs of a more diverse customer base. Management has also acted to
conserve liquidity by closing certain offices, reducing employee costs and
controlling research and development expenditures.

Despite these actions, the depth and duration of economic pressures on
MPSI's primary customers has continued the negative trends in orders and
revenues through 2002 and will likely impact at least the first half of 2003.
Subsequent to December 31, 2002 and in response to the potential continuation
into fiscal 2003 of lower than traditional orders and revenues, management
implemented new programs designed to allow the Company to better match operating
costs with revenue.

In order to position the Company to increase its revenues, management
reorganized a portion of its sales force to target new customer segments within
the retail petroleum sector, which customer segments had only been served
passively by the Company heretofore. Although the average unit sale from the new
target customers will likely be smaller, the number of potential customers far
exceeds the market sector the Company presently serves. This partial shift in
customer focus should not require any substantial product re-tooling.

31

In order to give the Company time to ramp up revenue from both traditional
and new customer targets, in March 2003 MPSI initiated a reduction in operating
costs expected to save approximately $1.8 million annually ($1.3 million over
the remaining nine months of fiscal 2003). MPSI's ability to continue delivering
high quality retail technology and services has not been diminished. The Company
is further reviewing its investment in fixed facilities and equipment in order
to increase the savings.

Management's plan is intended to produce revenues at a level comparable to
2002, while cutting costs significantly with the objective of returning MPSI to
profitability. Achievement of this plan depends on the accomplishment of matters
within and outside MPSI's control, including the strength of the economy and the
timing of customer decisions. There is risk that adverse economic conditions
could persist to the point where management's plan cannot overturn the recent
trends.

- --------------------------------------------------------------------------------
3. RECEIVABLES:

Trade accounts receivable include unbilled amounts of $156,000 and $400,000
at December 31, 2002 and September 30, 2001, respectively. 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 $875,000
at December 31, 2002 and $1,030,000 at September 30, 2001 (before present value
discount and excluding $181,000 and $108,000 which had been billed at December
31, 2002 and September 30, 2001, 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 December 31,
2002 unbilled amounts, $341,000 (compared with $519,000 at September 30, 2001)
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 software and maintenance 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 $1,000 and $20,000 at December 31, 2002 and September 30,
2001, respectively. Noncurrent long-term receivables are reduced by unamortized
present value discount in the amount of $0 and $2,000 at December 31, 2002 and
September 30, 2001, 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 $14,000, $66,000, and $149,000 in fiscal
years ended December 31, 2002, September 30, 2001, and September 30, 2000,
respectively, and $5,000 for the three months ended December 31, 2001.

A significant portion of the Company's business activity is with the major
multinational oil companies. At December 31, 2002, 93% ($2,245,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($2,979,000 or 95% at September 30, 2001). 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.

32

- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT:

Property and equipment consists of:

The provision for depreciation and amortization was $357,000, $308,000, and
$416,000 for the years ended December 31, 2002, September 30, 2001, and
September 30, 2000, respectively, and $93,000 for the three months ended
December 31, 2001. At December 31, 2002, fully depreciated assets with an
aggregate original cost of approximately $3,448,000 remain in use.

- --------------------------------------------------------------------------------
5. CAPITALIZED PRODUCT DEVELOPMENT COSTS:

Amortization of capitalized product development costs is generally based
upon useful lives of 18 to 36 months. The provision for amortization totaling
$726,000, $930,000, and $799,000 for the fiscal years ended December 31, 2002,
September 30, 2001 and September 30, 2000, respectively, and $196,000 for the
three months ended December 31, 2001, is reflected in cost of sales-software
licensing (fiscal years 2002 - $330,000, 2001 - $534,000, and 2000 - $535,000,
and $97,000 for the three months ended December 31, 2001) and cost of
sales-information services and software maintenance (fiscal years 2002 -
$396,000, 2001 - $396,000 and 2000 - $264,000, and $99,000 for the three months
ended December 31, 2001). Based upon current sales forecasts, capitalized
product development costs are projected to be recoverable. However, these sales
forecasts are subject to certain vulnerabilities which could potentially affect
the recoverability of those costs.

- --------------------------------------------------------------------------------
6. NOTE PAYABLE TO BANK:

At December 31, 2002, the Company had fully liquidated the long-term debt
to Bank of America. At September 30, 2001, the Company owed $900,000 to Bank of
America under a revolving line of credit arrangement secured by accounts and
contracts receivable, general intangibles, and certain cash accounts. In
November 2002, the Company made the final payment and completed a debt
liquidation objective initiated in 2000.

33

- --------------------------------------------------------------------------------
7. INCOME TAXES:

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

Income taxes of $43,000 were payable at December 31, 2002 ($45,000 payable
at December 31, 2001 and $14,000 payable at September 30, 2001). The Company
does not accrue income taxes on undistributed earnings of certain foreign
subsidiaries which are permanently invested. At December 31, 2002, December 31,
2001 and September 30, 2001, the amount of undistributed earnings for which
taxes have not been accrued was insignificant.

At December 31, 2002, the Company has foreign tax credits of $341,000 which
expire between 2003 and 2005. The Company also has minimum tax credits of
$213,000 which carry forward indefinitely. At December 31, 2002, certain foreign
subsidiaries have net operating loss carryforwards of approximately $5,099,000
which may be utilized in future years.

34

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:

Utilization of the Company's tax credit and loss carryforwards is dependent
on realizing taxable income in the appropriate tax jurisdiction. Deferred tax
assets for these carryforwards have been reduced by the valuation allowance to
an amount that is more likely than not to be realized.

- --------------------------------------------------------------------------------
8. BUSINESS SEGMENT AND REVENUE FROM MAJOR CUSTOMERS:

The Company identifies segments based upon line of business that results in
three reportable segments: Convenience Retailing, Pricing, and Business
Development segments. (Due to the reduced postal activity and overlapping skill
sets, the previous Postal and DataMetrix segments were combined during fiscal
year 2000 into the Business Development segment.) The Convenience Retailing
segment derives its revenues from providing decision support software,
information databases and consulting services to businesses which have an
investment in retail outlet networks, primarily in the petroleum industry. In
many cases, pricing products are sold within the same customer base applicable
to Convenience Retailing. However, Pricing services are directed more towards
operational issues rather than retail site location or operation. The Business
Development segment derives its revenues primarily from the sales of visual
mapping information for cities in the United States. The Company's measure of
segment profit is operating income. Amortization is specifically assigned to
each reported segment as capitalized development costs are written off to
segmented cost of sales over their useful economic lives. Depreciation is
allocated to each reported segment through pre-determined corporate percentages.
Identifiable assets in the Convenience Retailing, Pricing, and Business
Development segments, which are recorded in the Convenience Retailing segment,
are shared resources which are not specifically allocated. All assets acquired
are managed as shared resources and are not identifiable to specific reporting
segments.

Information on segments and a reconciliation to income before taxes are as
follows:

35

The Company's principal production facility in the United States is
supported by satellite facilities in England, Japan, South Africa, South Korea,
and China. The following table sets forth the revenues by each of the Company's
primary production centers, export sales from the United States and long-lived
assets.

37

More than 97% of total revenues from continuing operations were derived from
the petroleum industry during each of the years ended December 31, 2002,
September 30, 2001, and September 30, 2000. Individual customers accounted for
MPSI revenues that were in excess of 10% of consolidated revenues in those years
as follows (in millions of dollars):

*Below 10% for this period.

Although the Company would be adversely affected if certain 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.

- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFITS:

Under an employee stock ownership and investment plan, all qualifying U.S.
employees may contribute up to 75% but not to exceed IRS maximum contribution
limitation 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 various equity or fixed-income funds. The Company recorded expense
related to its matching contribution of $112,000, $123,000, and $138,000 in the
fiscal years ended December 31, 2002, September 30, 2001 and September 30, 2000,
respectively, and $28,000 for the three months ended December 31, 2001. At
December 31, 2002 and September 30, 2001, the Company had accrued $128,000 and
$238,000, respectively, of liabilities for matching contributions to the 401(k)
plan (which in the case of September 30, 2001, included the unfunded matching
contribution of $109,000 for the Plan year ended December 31, 2001 and $129,000
for the Plan year ended December 31, 2000). During fiscal year 2001, the Company
liquidated its matching contribution liability for the Plan year ended December
31, 1999 in cash. The matching contribution for Plan year 2000 was paid before
December 31, 2001 and the matching contribution for Plan year 2001 was paid
before December 31, 2002.

The Company has reserved 750,000 shares under a 1998 stock plan. Options of
52,000 are outstanding under the 1998 plan, expire from 2003 to 2005, and also
vest one-third annually over a three-year period.

38

A summary of the Company's stock option activity and related information for
the year ended December 31, 2002, three months ended December 31, 2001 and years
ended September 30, 2001 and September 30, 2000 follows:

The weighted average grant date fair value for options granted during 2000
was $1.16.

The following table summarizes information about stock options outstanding
as of December 31, 2002:

The Company had accruals of $15,000 at December 31, 2002 ($50,000 at
September 30, 2001); 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.

At December 31, 2002 and September 30, 2001, the Company had accrued
$326,000 and $442,000, respectively, related to employee vacations earned but
not yet taken.

- --------------------------------------------------------------------------------
10. COMMITMENTS AND CONTINGENCIES:

The Company leases 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 $788,000 was recorded during
the year ended December 31, 2002 ($1,032,000 in 2001 and $1,123,000 in 2000, and
$204,000 for the three months ended December 31, 2001). Aggregate future rentals
under these commitments are as follows: 2003 -- $656,000, 2004 -- $278, 000,
2005 -- $11,000, 2006 -- $1,000, 2007 -- $1,000 and thereafter -- $0.

39

- --------------------------------------------------------------------------------
11. SUPPLEMENTAL CASH FLOW INFORMATION:

The Company paid interest of $257,000 during fiscal year ended December 31,
2002, $389,000 and $414,000 during fiscal years ended September 30, 2001 and
2000, respectively, and $63,000 for the three months ended December 31, 2001.
Income taxes of $194,000, $114,000, and $179,000 were paid during fiscal years
2002, 2001, and 2000, respectively, and $12,000 for the three months ended
December 31, 2001.

- --------------------------------------------------------------------------------
12. BASIC AND DILUTED EARNINGS PER SHARE:

The following sets forth the computation of basic and diluted earnings
(loss) per share for the year ended December 31, 2002, three months ended
December 31, 2001 and years ended September 30, 2001 and September 30, 2000:

Exercisable antidilutive options for 48,000 and 43,000 shares were
outstanding at December 31, 2002 and September 30, 2001, respectively.

- --------------------------------------------------------------------------------
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

40

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

Effective April 19, 2002, Ernst & Young LLP declined to stand for
reelection as auditors of the Company. The reports of Ernst & Young LLP on the
Company's financial statements for the past two fiscal years did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles. In connection with the
audits of the Company's financial statements for each of the two fiscal years
ended September 30, 2001, and in the subsequent interim period, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Ernst & Young LLP would have
caused Ernst & Young LLP to make reference to the matter in their report. The
Company has requested Ernst & Young LLP to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements. A copy of that
letter, dated April 19, 2002 is filed as Exhibit 1 to the Company's Form 8-K
filed with the SEC on April 19, 2002.

On May 1, 2002, the Company filed a Form 8-K stating that the Audit
Committee of the Board of Directors had appointed Tullius Taylor Sartain &
Sartain LLP to act as the Company's independent auditors effective May 1, 2002.
This appointment was ratified by a majority of the shareholders at the annual
meeting held June 20, 2002.

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 December 31, 2002 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 December 31, 2002 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 December 31, 2002 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 December 31, 2002 and is incorporated herein by reference.

41

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, MPSI carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive officer and the Company's
Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures, as such term is defined in Rules 13a-14 and 15d-14
promulgated under the Securities Exchange Act of 1934, as amended. Based upon
the evaluation, the Company's Chief Executive Officer and the Company's Chief
Financial Officer concluded that MPSI's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) that is required to be
included in MPSI's periodic SEC filings.

There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls subsequent to
the date of such evaluation. There were no significant deficiencies or material
weaknesses identified in the evaluation and therefore, no corrective actions
were taken.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) The response to this portion of ITEM 15 is submitted as a separate
section of this report under ITEM 8.

(2) The response to this portion of ITEM 15 is set forth in ITEM 15(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.

*10.1 -- MPSI Systems Inc. 1998 Stock Plan, filed as the same numbered
exhibit with the Company's 1998 Form 10-K, File No. 0-11527.

*10.7 -- Real property lease dated February 11, 1998, between American
Southwest Properties, Inc., as lessor, and the Company, as
lessee, relating to the Company's Tulsa, Oklahoma facility,
filed as the same numbered exhibit with the Company's 1998 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.

42

- ----------

Incorporated by reference.

(b) Form 8-K - No Form 8-K was filed by the Company during or applicable to
the quarter ended December 31, 2002.

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

(d) Financial Statement Schedules - The response to this ITEM is submitted
as a separate section of this report.

43

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE - CURRENT

We have audited the consolidated financial statements of MPSI Systems Inc. and
subsidiaries as of December 31, 2002 and 2001, and for the year ended December
31, 2002 and for the three-month period ended December 31, 2001, and have issued
our report thereon dated April 2, 2003, (included elsewhere in this Form 10-K).
Our audits also included the financial statement schedule included in this Form
10-K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.

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

TULLIUS TAYLOR SARTAIN & SARTAIN LLP

Tulsa, Oklahoma
April 2, 2003

44

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULE - FORMER

We have audited the consolidated financial statements of MPSI Systems Inc. and
subsidiaries as of September 30, 2001 and 2000, and for the two years in the
period ended September 30, 2001, and have issued our report thereon dated
February 25, 2002, (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedule included in this Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.

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

ERNST & YOUNG LLP

Tulsa, Oklahoma
February 25, 2002

45

SCHEDULE VIII

MPSI SYSTEMS INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

THREE YEARS ENDED DECEMBER 31, 2002

- ----------

(1) Reduction of unamortized discount on long-term receivables represents
current period interest income recognition (see Note 3 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.

46

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 15th day of April, 2003.

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.

/s/ Ronald G. Harper Chairman of the Board, April 15, 2003
- --------------------------------------------- President and Chief
Ronald G. Harper Executive Officer

/s/ James C. Auten Vice President and Chief April 15, 2003
- --------------------------------------------- Financial Officer
James C. Auten

/s/ John C. Bumgarner, Jr. Director April 15, 2003
- ---------------------------------------------
John C. Bumgarner, Jr.

/s/ Joseph C. McNay Director April 15, 2003
- ---------------------------------------------
Joseph C. McNay

/s/ John J. McQueen Director April 15, 2003
- ---------------------------------------------
John J. McQueen

/s/ Bryan D. Porto Director April 15, 2003
- ---------------------------------------------
Bryan D. Porto

47

CERTIFICATIONS

I, Ronald G. Harper, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of MPSI Systems Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: April 15, 2003

/s/ Ronald G. Harper
-----------------------------------
Ronald G. Harper
Chief Executive Officer

48

I, James C. Auten, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of MPSI Systems Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: April 15, 2003

/s/ James C. Auten
----------------------------------
James C. Auten,
Chief Financial Officer

49

INDEX TO EXHIBITS