SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-K

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

For the fiscal year ended September 30, 1997         Commission File No. 0-12329



                              LCS INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

      Delaware                                           13-2648333
(State of incorporation)                 (I.R.S. employer identification number)

         120 Brighton Road
         Clifton, New Jersey                               07012
(Address of principal executive offices)                (zip code)

                 Registrant's telephone number: (973) 778-5588

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock ($.01 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  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [  ]

               Aggregate market value of the voting and non-voting  Common Stock
held by non-affiliates  of the registrant,  based on the average of high and low
sales prices for December 1, 1997:  $70,719,894.  The number of shares of Common
Stock ($.01 par value) outstanding as of December 1, 1997: 4,810,714.

                       DOCUMENTS INCORPORATED BY REFERENCE

               The Proxy  Statement  in  respect of the 1998  Annual  Meeting of
Stockholders  is  incorporated  by reference  into Part III hereof to the extent
indicated in that Part.  This Form 10-K consists of 47 pages.  Index to exhibits
is located at page 38.
<PAGE>
                                     Part I

Item 1.        Business.

              LCS  Industries,   Inc.  ("LCS"  or  the  "Company"),  a  Delaware
corporation,  provides  outsourced direct marketing  services and specializes in
fulfillment,  list  marketing and computer  services.  LCS was  incorporated  in
November, 1969.

               Contribution  to total  sales for the three  most  recent  fiscal
years by the type of service described above is as follows:
<TABLE>
<CAPTION>
                                                 Fiscal Year Ended September 30,
                                                --------------------------------
                                                1997          1996          1995
                                                ----          ----          ----
<S>                                              <C>          <C>            <C>
Fulfillment services .................           38%          37%            39%
Computer services ....................           18%          19%            13%
List marketing services ..............           44%          44%            48%
</TABLE>

               On September 6, 1995,  the Company  announced that it had entered
into an  agreement  to provide  computer  services  through  the  building  of a
marketing  database  for a major  non-U.S.  communications  company.  The  total
expected  revenues  through June,  1998 will  approximate  $40 million.  Initial
revenues  under the  contract  were  recorded  during the fourth  quarter of the
fiscal year ended  September 30, 1995.  Revenues  recognized  under the contract
amounted to 15% of  consolidated  sales for the fiscal year ended  September 30,
1997.

               In June,  1997,  the  Company  recorded a loss on  investment  of
$954,000 (currently  $863,000 net of taxes) representing a non-recurring  charge
for the write-off of the Company's  investment in McIntyre & King, Ltd. ("M&K").
This charge represented $.17 per share in the current fiscal year. The Company's
Board of Directors  decided to sever the relationship with M&K due to unexpected
operating losses that would have required  unacceptable  demands on management's
time and financial  support required to attempt to return M&K to  profitability.
As a  result,  effective  April 5,  1997,  the  Company  agreed to  rescind  its
acquisition of M&K. The rescission agreement,  dated June 30, 1997, provides for
the return of a portion of the down payment in one year.  However,  recovery was
uncertain and,  therefore,  the Company expensed all payments,  advances and all
related costs. On November 28, 1997, the Company  received a payment from M&K of
approximately  $210,000 in final  settlement  of a portion of the down  payment,
which will be recorded in other income in the quarter ended December 31, 1997.

               On October 6, 1997,  the Company  announced  the  recording  of a
non-recurring  charge of $960,000  ($570,000  net of taxes or $.11 per share) in
the period ended  September  30, 1997 relating to death  benefits  payable under
employment  agreements  and other  severance  amounts due the  Company's  former
Chairman, the late Arnold J. Scheine who passed away on September 22, 1997.

<PAGE>
Fulfillment Services

               Continuity/Order Entry

               LCS'  continuity/order   entry  services  provide  computer-based
support to the membership  activities of book clubs,  similar  continuity  (mail
order) clubs and catalog companies.  Continuity clubs and catalog  companies,  a
large  part  of the  direct-response  industry,  make  repetitive  mailings  and
periodic  product  offerings  to their  members  or  customers.  The LCS  system
supports  these efforts by processing and providing  information  with regard to
orders, shipments,  billings, returns and credit criteria, cashiering (receiving
and depositing  customer  payments and related  updating of customer  files) and
providing personnel to respond to inquiries from club members.

               The  Company  also  provides   computer-generated  reports  which
clients  use in  measuring  profitability  and  in  evaluating  and  controlling
marketing efforts.

               During the 1996 fiscal year, the outbound telemarketing operation
was integrated into the customer service function within continuity fulfillment.

               Lead/Inquiry Fulfillment

               Leads and/or  inquiries are generated by clients'  advertisements
which  require a mailed or  telephoned  (to toll-free  "800"  numbers)  customer
response.  These leads are received by LCS and are computer-processed  using its
proprietary system which accommodates clients of varying sizes from any industry
and with differing volumes of activity.

               Processing  begins by converting  the lead into  machine-readable
form.  Then,  depending  on the  criteria  supplied by the  client,  the Company
processes  the  lead  in  a  variety  of  ways,  including  the  elimination  of
non-productive  leads and the mailing,  usually within 24 hours,  of fulfillment
packages containing the client's literature or product. At the same time, a lead
form  generated  by  computer  is  sent  to the  client's  local  sales  office,
warehouse,  branch or retail outlet so that a salesperson  can directly  contact
the prospective customer.

               Using codes identifying the sources of the lead, the LCS computer
system produces reports allowing the client to evaluate the effectiveness of the
advertising.  In addition,  upon return of the lead form containing the client's
disposition  of  the  lead,  LCS is  able  to  produce  reports  evaluating  the
performance  of the client's  sales force in handling  the lead.  The system may
also be customized in response to unique customer requirements.

               Catalog Fulfillment

               CRI provides fulfillment  services to the catalog industry.  This
service  encompasses  the maintaining of its clients'  inventory,  receiving its
clients'  customer  orders  and  payments  by  mail  as  well  as  by  dedicated
telemarketing  personnel via toll-free "800" numbers which are open  twenty-four
hours a day, year-round, and the subsequent shipping of the merchandise.  Orders
received are entered into CRI's  computer  system with  appropriate  validations
being performed prior to processing. This includes receiving payment, whether in
the form of check,  money order or credit card. The CRI system includes  various
<PAGE>
features which are intended to minimize credit losses to its clients.  The order
is then picked,  packed and shipped.  CRI also handles inventory returns for its
clients as well as  providing  dedicated  customer  service  representatives  to
handle customer  inquiries,  complaints,  etc. Various reports are developed and
provided to CRI's  clients to enable them to properly  analyze  their  marketing
efforts.


Computer Services

               Direct-response  marketing  consists of selective and  analytical
methods of  reaching  a specific  audience  for the sale of  clients'  goods and
services.  These  methods,  applied  singly or in  combination,  can  accurately
determine the most responsive audience for a particular direct marketing effort.
The Company's computer systems tabulate,  store and process this information for
future use by clients, resulting in the more efficient and cost-effective use of
their sales and advertising budgets.

               International Telecommunications

               The  Company is also  involved  in the  design,  development  and
implementation of marketing  databases for communications  companies both within
and outside the United States.  This entails  conversion of raw data on customer
billings and control data into marketing tools, the objective being retention of
customer  base,  increasing  market share or win back of previously  lost market
share.

               List Maintenance

               List maintenance involves the processing, updating and storing of
mailing lists and other demographic  information on the Company's  computers for
clients'  promotional and list rental activities.  Mailing lists may be combined
and enhanced with demographic  information to form databases,  which can be used
as the basis of  additional  client  promotions  or marketed to other list users
(see "Enhancement" below).

               The Company maintains lists and databases for its clients who use
them for  marketing  their own  products  and  services as well as for rental to
other  marketers.  The lists and databases  maintained by LCS presently range in
size from several thousand to approximately four million names.  Certain clients
have on-line access to lists and databases maintained for them by LCS. Each list
or database may be used to produce a variety of end-use formats, such as labels,
listings, index cards, computer letters and magnetic tapes, cartridges or disks.
Demographic  information  can be  customized  for  the  client  and  used as the
selection  criteria for a list or database  rental.  In  addition,  lists can be
presorted for maximum postal cost efficiencies.

               "Fastfax,"  the  Company's  proprietary  list  fulfillment  order
processing system,  provides clients with on-line database list segment counting
and order selection  capabilities  using their own personal computer  terminals.
List orders entered using this system can be fulfilled  within 24-48 hours after
authorization.

               Merge/Purge

               Merge/purge  is  a  computerized   system  which  recognizes  and
eliminates  duplicate  names when combining  large numbers of lists or databases
for mailing  programs.  It can also be used to identify names with high response
<PAGE>
potential by identifying  duplications between lists with similar  demographics.
Identification of these multiple prospects enables the direct-response client to
plan marketing strategy, including follow-up promotions.

               Because  clients  may  wish to  target  a  promotion  to a highly
segmented  audience,  merge/purge can be applied to attributes (such as location
or gender) in addition to names in a number of lists and  databases  and,  based
upon the clients'  criteria,  can generate refined lists  identifying the target
audience.

               LCS' software can also remove (suppress) the names of persons who
the client deems  inappropriate  or who have a low probability of ordering based
on past experience.

               Enhancement

               Enhancement is the overlay of demographic information to computer
lists and  databases  to  facilitate  targeted  mailing  programs,  sometimes in
combination with the list maintenance and merge/purge services. This information
added by LCS can include  profiles of time in present  residence,  dwelling unit
size, occupation, income estimate, age, gender, presence and number of children,
telephone number and other information.

               The Company has been selected by the U.S.  Postal  Service as one
of 24  licensees  for its  National  Change of Address  System.  As part of this
program  to reduce the  return  rate of  domestic  mail,  the Postal  Service is
furnishing  licensees every two weeks with changes of address on all recent U.S.
business and  household  moves.  Utilizing  this data,  LCS is able to offer its
clients the ability to enhance  existing  lists to reflect the Postal  Service's
most   current   change  of  address   information,   thereby   increasing   the
cost-effectiveness of mailings using such updated lists.

               Computer Personalization

               Computer  personalization  is the use of  computerized  lists  to
personalize mass mailings of various forms including  labels,  computer letters,
complex  insurance  applications and many other forms. The Company  subcontracts
this process.

List Marketing Services

               The Company,  through its consolidated subsidiary The SpeciaLISTS
Ltd., provides consumer list marketing services. These services include:

               --     List brokerage -- the  recommendation of lists or segments
                      of lists for specific  mailing  campaigns and the securing
                      of names  from  various  list  owners  for  mailings.  The
                      Company  consults  with  clients  to  determine  the  best
                      direct-mail strategy and optimal targeted markets.

               --     List management -- rental and promotion of proprietary and
                      client-owned lists for direct-mail
                      promotions.

               --     List  compilation -- creation of  proprietary  lists drawn
                      from numerous sources,  such as directories and attendance
                      rosters.
<PAGE>
Marketing

               The  Company   currently   markets  its   products  and  services
throughout the United States using in-house sales expertise. Leads are generated
by  personal  calls,  print  advertising  in trade  media,  referrals,  industry
meetings  and trade shows and  seminars.  LCS uses its own  direct-response  and
fulfillment services to generate leads, support sales and facilitate  follow-up.
The generally  close  working  relationship  between LCS and its clients  offers
opportunities for the sale of additional  related services.  The Company makes a
practice of identifying and designing services to meet special needs of clients.
The sales staff is compensated by salary plus commissions or bonuses.

               Although,  during fiscal 1997,  revenues recognized in connection
with the  contract to provide  computer  services  to a non-U.S.  communications
company amounted to 15% of consolidated sales,  management does not believe that
the loss of any  single  customer  would  have a severe  impact  (as  defined in
Statement  of  Position  94-6  "Disclosure  of  Certain  Significant  Risks  and
Uncertainties"  issued by the American Institute of Certified Public Accountants
in December,  1994) on the Company and its subsidiaries  taken as a whole.  This
contract contributes significantly to the profits of the Company.  Historically,
the Company has been  successful  in replacing  completed  contracts.  While the
current  contract  extends  through  June,  1998,  there is no assurance  that a
replacement project will be obtained.


Customer Trade Terms

               As the Company is in a service  business,  a large  proportion of
its  consolidated  current assets and a significant  portion of its consolidated
total assets are represented by trade accounts receivable.  Invoices for service
to clients of the Company and its subsidiaries are customarily  rendered monthly
for recurring matters and at the completion of special  projects.  For financial
statement purposes,  revenues and related costs are recognized when services are
performed.  Revenues under long-term  consulting contracts are recognized on the
percentage-of-completion  method of  accounting  measured by the  percentage  of
labor hours  incurred to date to the  estimated  total labor hours  required for
each contract.

               In the  case  of  approximately  34% of  the  consolidated  trade
accounts  receivable  of the Company and its  subsidiaries  as of September  30,
1997,  various  payment terms exist ranging from payable upon receipt of invoice
to 60 days from date of  invoice,  and in the case of  substantially  all of the
balance  (primarily those of  SpeciaLISTS),  payment terms are 60 days after the
client's mailing date.

               Management   believes  that  the   consolidated   trade  accounts
receivable of the Company and its  subsidiaries as of September 30, 1997, net of
the allowance for doubtful accounts reflected on the consolidated  balance sheet
as  at  such  date  included  in  the  Consolidated  Financial  Statements,  are
collectable in the ordinary course of business.

Product Protection and Proprietary Rights

               LCS uses several methods to ensure the protection of confidential
client  data  and  its  proprietary   systems.  The  Company's  computer  tapes,
cartridges and disks are accessible only to authorized  personnel.  LCS protects
<PAGE>
on-line  access  to data by  restricting  access  to  on-line  terminals  and by
utilizing a periodically changing,  segmented password system. To enhance safety
in case of fire or other natural  disasters,  duplicate tapes containing  client
data are stored at an off-site location.

               The Company  considers certain of its software to be proprietary.
It  currently  relies  upon  trade  secret  laws  and  internal   non-disclosure
agreements  to  protect  the  software.  LCS has no patents  or  copyrights.  In
management's  opinion,  no such patent or copyright  protection  is customary or
necessary.


Competition

               The segment of the  computer  services  industry  that serves the
direct-response marketing industry is highly competitive. Competition is related
primarily to technical  capability and expertise,  pricing,  quality of work and
ability to meet deadlines and is not confined to specific  geographic areas. The
industry in which LCS  operates  is subject to rapid  client  marketing  changes
requiring constant adaptation to provide competitive services.  Reliable data on
LCS's relative position in its market is not available.

               The Company competes not only with other independent  specialized
computer service companies but also with in-house  computer service  departments
of companies in the direct-response marketing industry.

               Some of the  companies  with which LCS  competes  have  access to
substantially  greater  financial and other resources and offer a wider range of
non-computer services than the Company.


Employees

               As of December 1, 1997, the Company  employed  1,346 persons,  of
whom 953 were employed on a full-time  basis.  LCS does not have any  collective
bargaining  agreements  with its employees  and believes its relations  with its
employees to be good.

<PAGE>
Item 2.        Properties.

               The Company and its subsidiaries lease or sublease  facilities at
the locations and under leases or subleases summarized as follows and in Note 12
of Notes to Consolidated Financial Statements:
<TABLE>
<CAPTION>


                                               Square             Expiration
          Location                              Feet                 Date
          --------                              ----                 ----
<S>                                           <C>                 <C>
120 Brighton Road, Clifton, NJ (1)             78,645             September 2000
1200 Harbor Blvd., Weehawken, NJ (2)           18,100             June  2003
Jonathan's Landing, Magnolia, DE (4)           17,000             Month to Month
100 Enterprise Place, Dover, DE (1)(5)         55,000             Month to Month
97 Commerce Way, Dover, DE (1)                124,000             October 2005
155 Commerce Way, Dover, DE (1) (3)            35,530             July  1999
2 McKee Road, Dover, DE (4)                    29,000             Month to Month
155 Commerce Way, Dover, DE (4)                56,762             April 1999
5725 S. University Dr., Davie, FL (2)          11,550             April 2002
555 Grove Street, Herndon, VA (2)               1,495             December 1998
European Economic Community (2)                 8,000             June 1998
                                             -------- 

                                  TOTAL       435,082
</TABLE>
---------------
(1)            Office, warehouse, production
(2)            Office
(3)            Five year renewal option available
(4)            Warehouse
(5)            Sublease




Item 3.        Legal Proceedings

               None.


Item 4.        Submission of Matters to a Vote of Security Holders.

               None.

<PAGE>
                                     Part II

Item 5.        Market for  Registrant's  Common  Equity  and Related Stockholder
               Matters.

Quarterly Stock Price Information

The Company's  common stock is traded on the Nasdaq  National Market tier of The
Nasdaq Stock MarketSM under the symbol LCSI. The following  table sets forth the
quarterly  high and low sales prices of the common  stock,  as quoted on Nasdaq.
Such  quotations  represent  prices  between  dealers and do not include  retail
mark-ups, mark-downs or commissions.

In the first  quarter of fiscal 1993, an initial cash dividend of $.10 per share
was paid.  Regular quarterly  dividends of $.025 share were paid from the second
quarter of fiscal 1993  through the first  quarter of fiscal 1995 and $.0375 per
share were paid  through the first  quarter of fiscal  1996.  Commencing  in the
second  quarter of fiscal 1996,  subsequent to the 2 for 1 stock split paid as a
100% stock dividend on October 24, 1995,  regular  quarterly  dividends of $.025
per share were paid.  Effective with the second quarter of fiscal 1997,  regular
quarterly dividends of $.0375 per share were paid.

As of December 1, 1997, there were 124 registered holders and an estimated 2,400
beneficial holders of record of the Company's common stock.
<TABLE>
<CAPTION>
                                                  Price                                                               Price
------------------------------------------------------------------------------------------------------------------------------------
                                            High        Low                                                     High          Low
------------------------------------------------------------------------------------------------------------------------------------
    Fiscal Year Ended                                            Fiscal Year Ended
    September 30, 1997                                           September 30, 1996
<S>                                       <C>         <C>             <C>                                      <C>          <C>
         1st Quarter...................   $15 1/2     $12 1/2         1st Quarter........................      $19 3/4      $13
         2nd Quarter...................    16 1/8      13 1/2         2nd Quarter........................       28           12 3/8
         3rd Quarter...................    17 1/4      13 3/4         3rd Quarter........................       27           10 1/4
         4th Quarter...................    20          14             4th Quarter........................       15 3/4        9 1/2

</TABLE>
<PAGE>
Item 6.                       Selected Financial Data.
<TABLE>
<CAPTION>

Five Year Review
Income Statement Data
(In thousands, except per share amounts)
-------------------------------------------------------------------------------------------------------------------------
Years Ended September 30,                              1997            1996           1995          1994           1993
-------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>            <C>           <C>
Sales .........................................     $ 100,627      $  95,570      $  78,863      $  62,690     $  53,002
Cost of sales .................................        69,384         66,120         54,717         46,986        39,433
Gross profit ..................................        31,243         29,450         24,146         15,704        13,569
Selling and administrative expenses ...........        17,906         16,679         13,653         13,270        12,094
Dividend and interest (income) expense, net ...        (1,000)          (553)          (167)            65            (3)
Other expense (Note 1) ........................         1,914           --             --             --             385
Income before income taxes ....................        12,423         13,324         10,660          2,369         1,093
Net income ....................................         6,987          7,838          6,329          1,375           626
Per common and common equivalent share (Note 2)
Primary earnings (Note 1) .....................          1.37           1.53           1.33            .32           .16
Weighted average number of shares outstanding .         5,104          5,118          4,755          4,306         3,841
Fully diluted earnings (Note 1) ...............          1.35           1.53           1.25            .32           .16
Weighted average number of shares outstanding .         5,180          5,125          5,050          4,307         3,847
Dividends per share ...........................          .138           .094           .066           .045           .08
-------------------
</TABLE>

Note 1 -       For 1997, includes write-off of the Company's investment
               in McIntyre and King, Ltd of $954,000 (currently
               $863,000 net of taxes or $.17 per share) and a
               non-recurring charge of $960,000 ($570,000 net
               of taxes or $.11 per share) related to the death
               benefits under employment agreements and other
               severance amounts due the Company's former
               Chairman.

Note 2 -       1995 and prior years have been retroactively
               restated to reflect the 10% stock dividend paid
               in January, 1995 and the 2 for 1 stock split paid
               as a 100% stock dividend on October 24, 1995.

<TABLE>
<CAPTION>
Balance Sheet Data
(In thousands)
--------------------------------------------------------------------------------------------
September 30,                         1997        1996        1995         1994        1993
--------------------------------------------------------------------------------------------
<S>                                  <C>         <C>         <C>         <C>         <C>
Working capital ................     $26,799     $19,359     $10,569     $ 4,673     $ 3,460
Total assets ...................      69,509      64,970      49,737      31,815      28,983
Long-term debt and capital
      lease obligations - net of
       current portion .........       3,445       4,583       3,436       1,805       1,983
Stockholders' equity ...........      38,276      30,861      22,048      12,865      11,339
-------------
</TABLE>
<PAGE>
Item 7.        Management's  Discussion and  Analysis of Financial Condition and
               Results of Operations
                             

Results of Operations

The following  table sets forth,  for the periods  indicated,  the percentage of
sales represented by data derived from the Company's Consolidated  Statements of
Income:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------- 
Year Ended September 30,                            1997        1996        1995
--------------------------------------------------------------------------------- 
<S>                                                <C>         <C>         <C>
Sales ......................................       100.0%      100.0%      100.0%
Cost of sales ..............................        69.0        69.2        69.4
                                                   -----       -----       -----
Gross profit ...............................        31.0        30.8        30.6
Selling and administrative .................        17.8        17.4        17.3
Dividend and interest (income) expense, net         (1.0)        (.6)        (.2)
Other expense ..............................         1.9          --          --
                                                   -----       -----       -----
Income before income taxes .................        12.3        14.0        13.5
Provision for income taxes .................         5.4         5.8         5.5
                                                   -----       -----       -----
Net income .................................         6.9%        8.2%        8.0%
                                                   =====       =====       =====
</TABLE>
 

Fiscal Year 1997 Compared to Fiscal Year 1996

Sales in 1997  increased  $5.1 million (5%)  compared to 1996  principally  as a
result of a $2.9  million  (8%)  increase  in  fulfillment  services  and a $2.1
million (5%) increase in list  marketing.  The increase in fulfillment  services
sales reflects 16% increases in both continuity and catalog fulfillment services
partially offset by a decrease of 82% in inbound telemarketing  revenues,  which
is in line  with the  Company's  program  to  de-emphasize  this  activity.  The
continuity  increase was primarily the result of increased  billings to existing
customers  while the catalog  increase  resulted from billings to new customers,
increased  billings  to  existing  customers  partially  offset  by the  loss of
billings to several customers upon their acquisition by third parties.  Computer
services revenues were comparable to the prior year and continue to benefit from
the revenues related to the previously announced $40 million contract to build a
marketing  database for a major non-U.S.  communications  company.  The contract
extends    through    June,    1998.    Revenue    is    recognized    on    the
percentage-of-completion  method of  accounting  measured by the  percentage  of
labor hours incurred to date to the estimated total labor hours required for the
contract.  Initial revenues from this contract were recorded in the last quarter
of fiscal 1995. The list marketing  increase resulted generally from an expanded
customer base and increased volume with continuing customers.

Gross profit in 1997 increased $1.8 million (6%) compared to 1996. Gross profit,
as percentage of sales,  was 31% in both fiscal 1997 and 1996. Both fiscal years
include  the  favorable  impact  from the margin  associated  with the  computer
services revenues, as described above.
<PAGE>
Selling and administrative expenses in 1997 increased $1.2 million (7%) compared
to 1996. Selling and administrative expenses, as a percentage of sales, were 18%
in the current year compared to 17% in the comparable prior period. The increase
in the amount of these expenses  reflects  increased  expenses  associated  with
incremental  revenues and higher outlays for professional fees primarily related
to investment banking, financial public relations and expansion activities.

Net dividend and interest income in 1997 increased $445,000 from 1996.  Dividend
and interest income in 1997 increased  $453,000 (46%) from 1996 as a result of a
higher level of funds available for reinvestment and marginally  higher interest
rates.  Interest expense was comparable in both fiscal years. The unsecured line
of credit held available for the Company was not used during either fiscal year.

Other expense  during the current  fiscal year includes the June,  1997 recorded
loss on investment of $954,000  (currently $863,000 net of taxes) representing a
non-recurring charge for the write-off of the Company's investment in McIntyre &
King, Ltd. ("M&K"). This charge represented $.17 per share in the current fiscal
year. The Company's Board of Directors  decided to sever the  relationship  with
M&K due to unexpected  operating  losses that would have  required  unacceptable
demands on management's time and financial support required to attempt to return
M&K to profitability.  As a result,  effective April 5, 1997, the Company agreed
to rescind its  acquisition  of M&K. The  rescission  agreement,  dated June 30,
1997,  provides  for the  return of a portion  of the down  payment in one year.
However,  recovery  was  uncertain  and,  therefore,  the Company  expensed  all
payments,  advances and all related  costs.  On November  28, 1997,  the Company
received a payment from M&K of  approximately  $210,000 in final settlement of a
portion of the down  payment,  which  will be  recorded  in other  income in the
quarter ended December 31, 1997. On October 6, 1997,  the Company  announced the
recording of a non-recurring  charge of $960,000  ($570,000 net of taxes or $.11
per share) in the period ended  September  30, 1997  relating to death  benefits
payable  under  employment  agreements  and  other  severance  amounts  due  the
Company's  former  Chairman,  the late  Arnold J.  Scheine  who  passed  away on
September 22, 1997.

The effective tax rate in 1997 was 44% compared to 41% in 1996.  The  provisions
for taxes for the two  fiscal  years  reflect  relatively  normal  relationships
between  book  income  and  taxes  thereon  with  the  exception  of the loss on
investment in M&K, as described above. The Company currently does not anticipate
realizing  sufficient capital gains during the tax carryforward period to offset
this capital loss and, accordingly, no tax benefit has been recorded.

Net income for 1997  decreased  $851,000  (11%)  compared to 1996 primarily as a
result of the other expense charges, described above, partially offset by higher
contribution  levels for the  continuity and catalog  operations.  Excluding the
impact of the other expense charges, net income would have increased $587,000 or
7%.


Fiscal Year 1996 Compared to Fiscal Year 1995

Sales in 1996 increased  $16.7 million (21%)  compared to 1995  principally as a
result of a $7.4 million  (72%)  increase in computer  services,  a $5.0 million
(17%) increase in fulfillment services and a $4.2 million (11%) increase in list
marketing.  Computer  services increase reflects the revenues related to the $40
million  contract  to  provide  computer  services  through  the  building  of a
marketing  database for a major non-U.S.  communications  company.  The contract
extends through June, 1998, subject to termination under certain  circumstances.
<PAGE>
Revenue  is  recognized  on the  percentage-of-completion  method of  accounting
measured  by the  percentage  of labor hours  incurred to date to the  estimated
total labor hours required for the contract. Initial revenues from this contract
were  recorded in the last quarter of fiscal 1995.  The increase in  fulfillment
services' sales reflects a 43% increase in continuity  services,  a 60% increase
in outbound  telemarketing  services  partially  offset by  decreases  of 43% in
inbound telemarketing revenues and 3% in the catalog fulfillment operation. Full
year  billings in fiscal  1996 to new  customers  in fiscal  1995 and  increased
billings  to  existing  customers  contributed  to  the  continuity  fulfillment
increase.  The outbound  telemarketing increase primarily resulted from billings
under   a   contract   to   provide   business-to-consumer    services   for   a
telecommunications  company.  Going forward, this service will be provided as an
integral part of the customer  service function within  continuity  fulfillment.
The decrease in inbound telemarketing is part of the Company's strategic plan to
de-emphasize this service. The catalog fulfillment operation decrease includes a
24%  decrease  in  revenues  from an  existing  significant  customer.  The list
marketing  increase  resulted  generally  from an  expanded  customer  base  and
increased volumes with continuing customers.

Gross  profit in 1996  increased  $5.3  million  (22%)  compared to 1995.  Gross
profit,  as  percentage  of sales,  was 31% in both  fiscal  1996 and 1995.  The
current year's margin includes the favorable  impact from the margin  associated
with the increased computer services revenues, as described above, offset by the
lower margins derived from the catalog fulfillment operation.

Selling and administrative  expenses in 1996 increased $3 million (22%) compared
to 1995. Selling and administrative expenses, as a percentage of sales, were 17%
in both fiscal  years.  The  increase in the amount of these  expenses  reflects
increased  expenses  associated  with  the  facility  expansion  at the  catalog
fulfillment  operation,   the  expenses  associated  with  both  the  continuity
fulfillment and list marketing services'  incremental  revenues partially offset
by the minimal incremental selling and administrative  costs associated with the
increase in computer services' revenues.

Net dividend and interest income in 1996 increased $386,000 from 1995.  Dividend
and interest income in 1996 increased $636,000 (180%) from 1995 as a result of a
higher level of funds  available  for  reinvestment,  partially  offset by lower
interest rates for much of the current year. Interest expense increased $250,000
in fiscal  1996  compared to 1995  primarily  as a result of the  $2,532,000  in
long-term debt recorded at September 30, 1995 for the future  payments  required
in connection  with the  acquisition  of Catalog  Resources,  Inc. (CRI) and the
$2,500,000  proceeds received in March and June, 1996 in conjunction with a five
year term loan entered into by CRI to fund expansion of its warehouse and office
facilities. The available line of credit was not used during either fiscal year.

The  effective tax rate in 1996 and 1995 was 41%. The  provisions  for taxes for
the two fiscal years reflect relatively normal relationships between book income
and taxes thereon.

Net income for 1996  increased 24% compared to 1995 primarily as a result of the
profit derived from computer services increased revenues,  improved contribution
of the continuity fulfillment operation partially offset by reduced contribution
from the catalog fulfillment operation.
<PAGE>
Liquidity and Capital Resources

Working capital at September 30, 1997 increased to $26,799,000  from $19,359,000
at the prior year end.  Current assets  increased  $5,555,000  principally  from
increases  in cash and  investments  -  held-to-maturity  partially  offset by a
decrease  in  accounts  receivable.  Current  liabilities  decreased  $1,884,000
primarily  as a result of a decrease in  deferred  revenue  partially  offset by
increases in accrued  salaries and  commissions and other accrued  expenses.  At
September 30, 1997, the ratio of long-term debt to equity was .09 to 1.

For the fiscal year ended  September  30, 1997,  cash  generated  by  operations
decreased  $6,526,000  over such  amounts  generated  in 1996.  The decrease was
primarily attributable to decreases in net income of $851,000 and in adjustments
to net income and changes in operating  assets and  liabilities  of  $5,675,000.
This decrease in adjustments  to net income and changes in operating  assets was
primarily  the result of a decrease in  deferred  revenue of  $8,541,000  and an
increase  in prepaid  expenses  of  $722,000  partially  offset by a decrease in
accounts  receivable of $2,004,000 and increases in accounts payable and accrued
expenses of $2,019,000.

Cash used in investing activities decreased $9,218,000 over the prior year. This
decrease was primarily  attributed to a decline in additions to  investments  of
$6,619,000 and a reduction in additions to property and equipment of $2,599,000.

During the current  fiscal year,  funds used by financing  activities  increased
$3,230,000,  primarily as a result of lower  borrowings of  $2,500,000,  reduced
funds from the  exercise of stock  options of $260,000 and lower  proceeds  from
Employee  Stock  Purchase  Plan and  employment  agreement  purchases of $47,000
combined with increased  repayments of debt of $197,000 and dividend payments of
$227,000.

Pursuant  to the  purchase  agreement,  as  amended,  with CRI,  the  Company is
obligated  to pay to  CRI's  selling  shareholders  in  cash or  stock  up to an
aggregate of $10,000,000.  Under such purchase  agreement,  the Company will pay
$1,012,500  on  January  1, 1998  bringing  the total  payments  to that date to
$5,950,000.  As outlined in Note 2 to the  accompanying  consolidated  financial
statements,  the present value of the remaining  obligation  of  $6,075,000,  at
September  30,  1995 was  recorded  at that time  resulting  in an  increase  in
goodwill at that date of $4,478,000.

Management  believes cash  generated  from current  operations  and other liquid
assets  combined with the available  bank credit line will be sufficient to meet
cash flow needs during the 1998 fiscal year, including the payment to former CRI
shareholders due January 1, 1998.

Recently Issued Accounting Standards

In March,  1997,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
share", which supersedes Accounting Principles Board Opinion No. 15. SFAS 128 is
effective for Financial  Statements issued for periods ending after December 15,
1997 and  simplifies  the  computation  of earnings per share by  replacing  the
presentation of primary earnings per share with a presentation of basic earnings
per  share.  The  Statement  requires  dual  presentation  of basic and  diluted
earnings per share by entities with complex capital  structures.  Basic earnings
per share includes no dilution and is computed by dividing  income  available to
<PAGE>
common stockholders by the weighted-average  number of common shares outstanding
for the period.  Diluted  earnings per share reflects the potential  dilution of
securities  that could  share in the  earnings  of an  entity,  similar to fully
diluted  earnings  per share.  Management  of the Company  does not believe that
there will be any material effect from adopting SFAS No. 128.

In June, 1997, the FASB issued SFAS No. 130, "Reporting  Comprehensive  Income."
SFAS No. 130 requires a reconciliation of net income to comprehensive  income in
the financial statements.  Comprehensive income includes items that are excluded
from net income and reported as  components  of  stockholders'  equity,  such as
unrealized  gains  and  losses  on  certain   investments  in  debt  and  equity
securities,  foreign currency items and minimum pension  liability  adjustments.
SFAS No. 130 is effective for fiscal years  beginning  after  December 15, 1997.
Management  of the Company does not believe  there will be any  material  effect
from adopting SFAS No. 130.

In June,  1997, the FASB issued SFAS No. 131,  "Disclosure  about Segments of an
Enterprise  and Related  Information."  SFAS No. 131 requires  the  reporting of
profit and loss,  specific  revenue and expense items and assets for  reportable
segments.  It also requires the reconciliation of total segment revenues,  total
segment  profit or loss,  total segment  assets and other amounts  disclosed for
segments  to  the  corresponding   amounts  in  the  general  purpose  financial
statements.  SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company has not yet fully  determined what additional  disclosures
may be required in connection with adopting SFAS No. 131.
<PAGE>
Item 8.        Financial Statements and Supplementary Data.


INDEPENDENT AUDITORS' REPORT






Board of Directors and Stockholders of
LCS Industries, Inc.
Clifton, New Jersey


We have audited the accompanying  consolidated balance sheets of LCS Industries,
Inc. and Subsidiaries (the "Company") as of September 30, 1997 and 1996, and the
related consolidated  statements of income,  stockholders' equity and cash flows
for each of the three  years in the  period  ended  September  30,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of LCS  Industries,  Inc.  and its
subsidiaries  as of  September  30,  1997 and  1996,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.




/s/Deloitte & Touche LLP
------------------------
Deloitte & Touche LLP
Parsippany, NJ
November 4, 1997
(November 28, 1997 as to Note 13)
<PAGE>
<TABLE>
<CAPTION>
                              LCS INDUSTRIES, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF INCOME



For the Years Ended September 30, .....          1997               1996               1995
                                            -------------      -------------      -------------
<S>                                         <C>                <C>                <C>
Net sales .............................     $ 100,627,292      $  95,570,436      $  78,863,443
Cost of sales .........................        69,383,846         66,120,153         54,717,497
                                            -------------      -------------      -------------
Gross profit ..........................        31,243,446         29,450,283         24,145,946
Selling and administrative expenses ...        17,905,852         16,678,548         13,653,493
Other (income) expense:
   Dividend and interest income .......        (1,442,707)          (990,108)          (354,600)
   Interest expense ...................           443,642            437,198            187,461
   Other expense ......................         1,914,000               --                 --
                                            -------------      -------------      -------------
Income before income taxes ............        12,422,659         13,324,645         10,659,592
Provision for income taxes ............         5,436,000          5,487,000          4,331,000
                                            -------------      -------------      -------------
Net income ............................     $   6,986,659      $   7,837,645      $   6,328,592
                                            =============      =============      =============

Per common and common equivalent share:
Primary earnings ......................     $        1.37      $        1.53      $        1.33
                                            =============      =============      =============

Fully diluted earnings ................     $        1.35      $        1.53      $        1.25
                                            =============      =============      =============

Dividends .............................     $        .138      $        .094      $        .066
                                            =============      =============      =============

</TABLE>
                        See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
                                    LCS INDUSTRIES, INC. AND SUBSIDIARIES
                                         CONSOLIDATED BALANCE SHEETS


September 30,                                                            1997               1996
                                                                     ------------      ------------
<S>                                                                  <C>               <C>
ASSETS
Current assets:
   Cash and cash equivalents ...................................     $ 14,619,271      $ 11,893,982
   Investments - held-to-maturity ..............................       14,410,101        10,435,026
   Accounts receivable (less allowance
       for doubtful accounts: 1997 - $496,000
       and 1996 - $627,000) ....................................       23,163,774        24,519,050
   Prepaid expenses and other current assets ...................        1,460,990         1,596,819
   Deferred taxes ..............................................          684,000           338,000
                                                                     ------------      ------------
     Total current assets ......................................       54,338,136        48,782,877
                                                                     ------------      ------------

Investments - available-for-sale, net ..........................          123,708           369,722
Property and equipment, net ....................................        7,093,790         7,549,229
Goodwill (net of accumulated amortization: 1997 -
    $806,204 and 1996 - $519,855) ..............................        7,280,977         7,567,326
Other assets ...................................................          672,656           700,793
                                                                     ------------      ------------
                                                                     $ 69,509,267      $ 64,969,947
                                                                     ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ............................................     $ 14,798,326      $ 14,726,387
   Accrued salaries and commissions ............................        3,127,141         2,389,837
   Other accrued expenses ......................................        3,899,876         2,513,841
   Income taxes payable ........................................          290,407           215,635
   Current portion of long-term debt ...........................        1,087,511         1,047,989
   Current portion of capital lease obligations ................          211,580           390,399
   Deferred revenue ............................................        4,124,699         8,139,767
                                                                     ------------      ------------
     Total current liabilities .................................       27,539,540        29,423,855
                                                                     ------------      ------------

Long-term debt, net of current portion .........................        3,444,533         4,331,542
Capital lease obligations, net of current portion ..............             --             250,997
Deferred taxes .................................................          249,000           103,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                    LCS INDUSTRIES, INC. AND SUBSIDIARIES
                                         CONSOLIDATED BALANCE SHEETS
                                                (continued)


September 30,                                                            1997               1996
                                                                     ------------      ------------
<S>                                                                  <C>               <C>

Stockholders' equity:
   Preferred stock $.01 par value; authorized
       1,000,000 shares; issued - none
   Common stock $.01 par value; authorized
       15,000,000 shares; issued 1997 - 4,854,847
       shares and 1996 - 4,611,487 shares ......................           48,548            46,115
   Common stock issuable .......................................        1,490,431         1,945,983
   Additional paid-in capital ..................................        8,702,971         7,223,263
   Retained earnings ...........................................       28,245,206        21,887,737
                                                                     ------------      ------------
                                                                       38,487,156        31,103,098
   Less:  Treasury stock, at cost, 187,766 shares ..............         (207,953)         (207,953)
          Available-for-sale securities valuation adjustment,
            net of deferred income taxes ....................              (3,009)          (34,592)
                                                                     ------------      ------------
     Total stockholders' equity ................................       38,276,194        30,860,553
                                                                     ------------      ------------
                                                                     $ 69,509,267      $ 64,969,947
                                                                     ============      ============

</TABLE>

                         See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                 Common Stock                                               
                                                $.01 Par Value                Common        Additional      
                                        -----------------------------------   Stock           Paid-in       
Balance                                    Shares            Amount          Issuable         Capital       
                                        ---------------------------------------------------------------  
<S>                                      <C>           <C>               <C>               <C>  
October 1, 1994 .................        1,909,337     $     19,093      $    967,788      $  2,261,497
Acquisition of Catalog
  Resources, Inc. ...............
  Common stock issued ...........           63,613              636          (506,250)          505,614
  Present value of future
    stock distributions .........             --               --           1,945,983              --   
Exercise of stock options .......          127,230            1,273              --             651,260
Stock dividend - 10% ............          179,929            1,799              --           1,527,597
Stock dividend - 100% ...........        2,061,087           20,611              --             (20,611)
Stock purchased through
  Employee Stock Purchase Plan
  and employment agreements .....            6,690               67              --              80,098
Dividends paid ..................             --               --                --                --   
Valuation adjustment ............             --               --                --                --   
Tax benefit of exercise of
  stock options .................             --               --                --             426,000
Net income ......................             --               --                --                --   
                                         ---------     ------------       -----------       -----------
September 30, 1995 ..............        4,347,886           43,479         2,407,521         5,431,455

Acquisition of Catalog
  Resources, Inc. ...............
  Common stock issued ...........           34,621              346          (461,538)          461,192
Exercise of stock options .......          216,903            2,169              --             617,504
Stock Dividend - converted shares              360                4              --                 251
Stock purchased through
  Employee Stock Purchase Plan
  and employment agreements .....           11,717              117              --             153,861
Dividends paid ..................             --           (401,762)             --                --   
Valuation adjustment, net .......             --               --                --                --   
Tax benefit of exercise of
  stock options .................             --               --                --             559,000
Net income ......................             --               --                --                --   
                                         ---------     ------------       -----------       -----------
September 30, 1996 ..............        4,611,487           46,115         1,945,983         7,223,263
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                 Treasury Stock -          Available-for-          
                                                                     at Cost               Sale Securities  
                                         Retained           ---------------------------        Valuation                          
Balance                                  Earnings           Shares            Amount          Adjustment          Total 
-------                                  --------           ------            ------          ----------          ----- 
<S>                                   <C>                   <C>           <C>               <C>               <C>
October 1, 1994 .................     $  9,912,936           187,766      ($   207,953)     ($    87,969)     $ 12,865,392   
Acquisition of Catalog
  Resources, Inc. ...............
  Common stock issued ...........             --                --                --                --                --
  Present value of future
    stock distributions .........             --                --                --                --           1,945,983
Exercise of stock options .......             --                --                --                --             652,533
Stock dividend - 10% ............       (1,529,396)             --                --                --                --
Stock dividend - 100% ...........             --                --                --                --                --
Stock purchased through
  Employee Stock Purchase Plan
  and employment agreements .....             --                --                --                --              80,165
Dividends paid ..................         (260,278)             --                --                --            (260,278)
Valuation adjustment ............             --                --                --               9,132             9,132
Tax benefit of exercise of
  stock options .................             --                --                --                --             426,000
Net income ......................        6,328,592              --                --                --           6,328,592
                                      ------------          --------      ------------      ------------      ------------
September 30, 1995 ..............       14,451,854           187,766          (207,953)          (78,837)       22,047,519

Acquisition of Catalog
  Resources, Inc. ...............
  Common stock issued ...........             --                --                --                --                --
Exercise of stock options .......             --                --                --                --             619,673
Stock Dividend - converted shares             --                --                --                --                 255
Stock purchased through
  Employee Stock Purchase Plan
  and employment agreements .....             --                --                --                --             153,978
Dividends paid ..................         (401,762)             --                --                --            (401,762)
Valuation adjustment, net .......             --                --                --              44,245            44,245
Tax benefit of exercise of
  stock options .................             --                --                --                --             559,000
Net income ......................        7,837,645              --                --                --           7,837,645
                                      ------------          --------      ------------      ------------      ------------
September 30, 1996 ..............       21,887,737           187,766          (207,953)          (34,592)       30,860,553
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                 Common Stock                                               
                                                $.01 Par Value                Common        Additional      
                                        -----------------------------------   Stock           Paid-in       
Balance                                    Shares            Amount          Issuable         Capital       
                                        ---------------------------------------------------------------  
<S>                                      <C>           <C>               <C>               <C>  
Acquisition of Catalog
  Resources, Inc. ...............
  Common stock issued ...........           38,762              388          (455,552)          455,164
Exercise of stock options .......          195,675            1,956              --             517,543
Stock Dividend - converted shares              318                3              --                 218
Stock purchased through
  Employee Stock Purchase Plan
  and employment agreements .....            8,605               86              --             106,783
Dividends paid ..................             --               --                --                --   
Valuation adjustment, net .......             --               --                --                --   
Tax benefit of exercise of
  stock options .................             --               --                --             400,000
Net income ......................             --               --                --                --   
                                         ---------     ------------       -----------       -----------
September 30, 1997 ..............        4,854,847     $     48,548      $  1,490,431      $  8,702,971
                                         =========     ============      ============      ============

<CAPTION>
                                                                 Treasury Stock -          Available-for-                    
                                                                     at Cost               Sale Securities                   
                                         Retained           ---------------------------        Valuation                     
Balance                                  Earnings           Shares            Amount          Adjustment          Total      
-------                                  --------           ------            ------          ----------          -----      
<S>                                   <C>                   <C>           <C>               <C>               <C>
Acquisition of Catalog
  Resources, Inc. ...............
  Common stock issued ...........             --                --                --                --                --
Exercise of stock options .......             --                --                --                --             519,499
Stock Dividend - converted shares             --                --                --                --                 221
Stock purchased through
  Employee Stock Purchase Plan
  and employment agreements .....             --                --                --                --             106,869
Dividends paid ..................         (629,190)             --                --                --             629,190
Valuation adjustment, net .......             --                --                --              31,583            31,583
Tax benefit of exercise of
  stock options .................             --                --                --                --             400,000
Net income ......................        6,986,659              --                --                --           6,986,659
                                      ------------          --------      ------------      ------------      ------------
September 30, 1997 ..............     $ 28,245,206           187,766      ($   207,953)     ($     3,009)     $ 38,276,194
                                      ============           =======      ============      ============      ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      LCS INDUSTRIES, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended September 30,                                   1997             1996               1995
                                                               ------------      ------------      ------------
<S>                                                            <C>               <C>               <C>
Increase  (Decrease)  in cash and cash  equivalents
Cash flows from operating activities:
   Net income ............................................     $  6,986,659      $  7,837,645      $  6,328,592
                                                               ------------      ------------      ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
       Depreciation and amortization .....................        2,504,699         2,321,718         1,861,883
       Deferred income taxes .............................         (220,600)          (21,000)          (95,000)
       Provision for doubtful accounts receivable ........          119,000            65,000           121,625
       Gains on sales of equipment .......................             --                --              (9,750)
       Gain on sale of available-for-sale securities, net              (474)           (1,046)             --
                                                               ------------      ------------      ------------
       Total adjustments .................................        2,402,625         2,364,672         1,878,758
   Changes in operating assets and liabilities:
       Accounts receivable ...............................        1,236,276          (768,131)       (6,021,005)
       Prepaid expenses and other current assets .........         (426,921)          295,018          (660,616)
       Accounts payable and accrued expenses .............        2,366,400           347,847         3,778,404
       Income taxes payable ..............................           74,450           215,635          (153,803)
       Deferred revenue ..................................       (4,015,068)        4,525,436         3,614,331
       Security deposits .................................           12,893           331,262          (581,846)
       Other, net ........................................           15,244            29,111           (58,976)
                                                               ------------      ------------      ------------
       Total adjustments and changes .....................        1,665,899         7,340,850         1,795,247
                                                               ------------      ------------      ------------
   Net cash provided by operating activities .............        8,652,558        15,178,495         8,123,839
                                                               ------------      ------------      ------------
Cash flows from financing activities:
   Changes in note payable, long-term debt and capital
       leases (including current portion):
       Borrowings ........................................             --           2,500,000              --
       Repayments ........................................       (1,448,425)       (1,251,888)       (1,117,273)
   Dividends paid ........................................         (628,969)         (401,507)         (260,278)
   Exercise of stock options .............................          919,499         1,178,673         1,078,533
   Employee Stock Purchase Plan and employment
       agreement proceeds ................................          106,869           153,978            80,165
                                                               ------------      ------------      ------------
   Net cash (used in) provided by financing activities ...       (1,051,026)        2,179,256          (218,853)
                                                               ------------      ------------      ------------
Cash flows from investing activities:
   Additions to property and equipment ...................       (1,762,911)       (4,362,085)       (1,589,400)
   Net (purchases) sales of investments ..................       (3,113,332)       (9,732,515)          535,068
   Proceeds from sales of equipment ......................             --                --             100,688
                                                               ------------      ------------      ------------
   Net cash used in investing activities .................       (4,876,243)      (14,094,600)         (953,644)
                                                               ------------      ------------      ------------
Cash and cash equivalents:
   Net increase in cash and cash equivalents .............        2,725,289         3,263,151         6,951,342
   Cash and cash equivalents at beginning of year ........       11,893,982         8,630,831         1,679,489
                                                               ------------      ------------      ------------
   Cash and cash equivalents at end of year ..............     $ 14,619,271      $ 11,893,982      $  8,630,831
                                                               ============      ============      ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                      LCS INDUSTRIES, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                          Continued from previous page.


For the Years Ended September 30,                                   1997              1996              1995
                                                                -----------       -----------       -----------     
<S>                                                             <C>               <C>               <C>
Supplementary disclosures of cash flow information:
Cash paid during the period for:
       Interest .........................................       $   273,000       $   219,000       $   153,000
       Income taxes .....................................       $ 5,337,000       $ 4,261,000       $ 4,637,000

Supplemental disclosures of non-cash investing
   and financing activities:

   Acquisition of business:
       Fair value of assets acquired ....................       $      --         $      --         $ 4,478,091
       Issuance of debt .................................              --                --          (2,532,108)
       Common stock issuable ............................              --                --          (1,945,983)
                                                                -----------       -----------       -----------
       Liabilities assumed ..............................       $      --         $      --         $      --
                                                                ===========       ===========       ===========
</TABLE>
       For the years ended September 30, 1997, 1996 and 1995, $455,552, $461,538
       and $506,250 of common stock issuable was converted  into 38,762,  34,621
       and  139,948  shares,  respectively,  of the  Company's  common  stock in
       accordance  with  the  terms  of the  Catalog  Resources,  Inc.  purchase
       agreement, as amended.

   Capital lease obligations:
       For the year ended  September  30, 1995,  capital  lease  obligations  of
       $216,000,  were  incurred  for the  leasing of  equipment.  There were no
       capital lease  obligations  entered into during the years ended September
       30, 1997 and 1996.

   Valuation adjustment:
       For the years ended  September 30, 1997,  1996, and 1995, the account was
       adjusted   to   reflect   an   increase   in   market   values   of   the
       available-for-sale  securities portfolio of $31,583, $44,245, and $9,132,
       net of deferred income taxes.

   Stock Dividends:
       During Fiscal 1997, 318 shares of the Company's common stock were paid as
       dividends  upon  exchange  of 133 shares of the  Company's  "old"  common
       stock.

       On January 5, 1996, 360 shares of the Company's common stock were paid as
       dividends  upon  exchange  of 150 shares of the  Company's  "old"  common
       stock.
<PAGE>
       On January 31, 1995,  179,929  shares of the Company's  common stock were
       paid as a 10% stock dividend.

       On October 24, 1995,  2,061,087 shares of the Company's common stock were
       issued  as a  result  of a 2 for 1  stock  split  paid  as a  100%  stock
       dividend.  The September 30, 1995 financial statements reflect this stock
       split.

                 See Notes to Consolidated Financial Statements.

<PAGE>
Notes to Consolidated Financial Statements


Note 1 - Summary of Significant Accounting Policies


A - Business and Consolidation - The consolidated  financial  statements include
the accounts of LCS Industries,  Inc. and its Subsidiaries (the "Company").  The
Company   provides   outsourcing   services    specializing   in   international
telecommunications,  fulfillment,  list and  computer  services.  The  Company's
services are performed within the United States and Canada except for a computer
services  contract  with  a  non-U.S.   communications   company.  All  material
intercompany transactions and balances have been eliminated in consolidation.

B - 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  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial  statements and revenue and expenses  during the period  reported.
Actual  results  could  differ  from those  estimates.  Estimates  are made when
accounting for allowance for doubtful accounts, sales adjustments,  depreciation
and  amortization,  carrying  value of  goodwill,  costs to  complete  long-term
contracts which are accounted for using the  percentage-of-completion  method of
accounting, taxes and contingencies.

C - Cash and cash  equivalents - Cash and cash  equivalents  include  short-term
cash investments with maturities of three months or less at date of acquisition.
Such investments are carried at cost, which approximates market, and amounted to
$12,931,369 and $9,835,000 at September 30, 1997 and 1996, respectively.

D - Investments - The Company records its investments based on the provisions of
Statement of Financial Standards No. 115, "Accounting for Certain Investments in
Debt  and  Equity  Securities".  In  accordance  with  the  provisions  of  this
Statement,  the Company has classified its  investments in debt  securities into
held-to-maturity,  trading or available-for-sale  based upon management's intent
with respect to such  investments and the Company's  ability to so hold.  Equity
securities  are  classified  as   available-for-sale  or  trading  depending  on
management's intent. Market values are based on publicly quoted market prices.

E - Long-Lived Assets - Effective October 1, 1996, the Company adopted Statement
of Financial  Accounting Standards ("SFAS 121") , "Accounting for the Impairment
of Long-lived  Assets and for Long-lived  Assets to Be Disposed Of".  Long-lived
assets  and  identifiable  intangibles  to be held  and used  are  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount may not be recoverable.  Impairment is measured by comparing the
carrying value of the  long-lived  assets to the estimated  undiscounted  future
cash  flows  expected  to  result  from use of the  assets  and  their  eventual
disposition.  The Company  determined  that as of September 30, 1997,  there had
been no impairment in the carrying value of long-lived assets.

F -  Property  and  equipment  -  Property  and  equipment  are  stated at cost.
Depreciation  and  amortization,  which  includes  the  amortization  of  assets
recorded under capital leases, are computed using the straight-line  method over
the  estimated  serviceable  lives of the  respective  assets or the  initial or
remaining  terms of leases.  Leasehold  improvements  are  amortized,  using the
straight-line method, over the shorter of the estimated useful life of the asset
or the life of the lease.
<PAGE>
G - Goodwill -  Represents  the  unamortized  excess cost of  acquiring  Catalog
Resources,  Inc.  over  the  fair  value  of  the  net  assets  received  at the
acquisition date. This asset is being amortized on the straight-line  basis over
30 years. The  consolidated  statements of operations for the fiscal years ended
September 30, 1997,  1996 and 1995 include  goodwill  amortization  of $286,300,
$286,400  and  $123,500,   respectively.  The  Company  regularly  assesses  the
recoverability of goodwill in accordance with the provisions of SFAS No.
121.

H - Revenue  recognition - Sales and related cost of sales are  recognized  when
services are  performed.  Revenues  under  long-term  consulting  contracts  are
recognized based on the  percentage-of-completion  method of accounting measured
by the percentage of labor hours  incurred to date to the estimated  total labor
hours required for each contract. Deferred revenue represents billings in excess
of revenues recognized as sales.

I - Income taxes - The Company  records  income taxes based on the provisions of
Statement  of  Financial  Standards  No.  109,  "Accounting  for Income  Taxes".
Deferred tax assets and liabilities are recognized for the estimated  future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those  temporary  differences are expected to be
recovered or settled.

J - Earnings  Per  Common  Share -  Earnings  per common  share are based on the
weighted  average  number of common and  common  equivalent  shares  outstanding
during the year. Stock options are common stock equivalents. For the years ended
September 30, 1997, 1996 and 1995, the weighted average number of shares used in
determining  primary  earnings per common  share was  5,103,838,  5,118,085  and
4,755,365,  respectively.  For the same periods,  the weighted average number of
shares  used  in  determining  fully  diluted  earnings  per  common  share  was
5,179,756,  5,124,568 and 5,049,958,  respectively.  Fully diluted  earnings per
common  share  is  presented  due to  the  effect  of  dilution  resulting  from
outstanding  options  calculated  using the year end stock  market  price  (such
market  price is higher  than the  average  quarterly  price  used in  computing
primary earnings per common share).

The weighted  average shares used in the computations of fiscal years 1997, 1996
and 1995  primary  and fully  diluted  earnings  per share  include  the  shares
issuable  in  accordance  with  the  agreement,  as  amended,  relating  to  the
acquisition of Catalog  Resources,  Inc. The weighted average shares used in the
computations  of fiscal 1995 primary and fully  diluted  earnings per share have
been restated to reflect the 10% stock  dividend paid January 31, 1995 and the 2
for 1 stock  split paid as a 100% stock  dividend  on October  24,  1995.  Other
references to shares and per share data, as appropriate,  reflect the effects of
these stock dividends.

K - Reclassifications - Certain reclassifications have been made to the 1996 and
1995 financial statements to conform to the 1997 presentation.


Note 2 - Acquisition

On April 1, 1993,  the Company  completed  the  purchase of all the  outstanding
stock of Catalog  Resources,  Inc.  ("CRI").  CRI's  results of  operations  are
included in the Company's Consolidated  Statements of Income from that date. The
initial purchase price was $3,500,000. In addition,  certain additional payments
<PAGE>
could have been earned by the former CRI shareholders if CRI's pretax income, as
defined by the agreement, reached certain amounts during the next five years. Of
the initial  purchase price,  $1,500,000 was paid at the closing,  consisting of
$750,000  in cash and  267,378  shares  of the  Company's  common  stock and the
balance  payable  in  amounts  of  $400,000  on April 1 of each of the next five
years,  with payments to be 50 percent in cash and 50 percent in stock. On April
1, 1994, $400,000 was paid,  consisting of $200,000 in cash and 57,578 shares of
the Company's common stock.

Effective  August 1,  1994,  the  purchase  agreement  was  amended  to limit to
$8,100,000 the aggregate amount of additional purchase  consideration to be paid
in addition to the $1,900,000  paid at such date.  The  additional  amount to be
paid is based upon the operating  performance  of CRI over the eight year period
beginning October 1, 1993. Based upon CRI's earnings for each fiscal year ending
on September 30, a maximum annual payment of $1,012,500 is payable in January of
the following  year,  which amount is subject to a  dollar-for-dollar  reduction
based on CRI's operating  results.  Such payments are calculated  separately for
each year.  Each  payment  will  consist of 50 percent in cash and 50 percent in
common  stock of the Company  with the maximum  number of shares to be delivered
under the purchase  agreement,  as amended,  not to exceed 660,000  shares.  The
portion of these  payments  not made in stock is payable in cash.  The number of
shares to be issued will be based on the market value, as defined, of the common
stock at the future payment dates.  Based on the terms of the amended  agreement
and the achievement of the required  operating  results for the preceding fiscal
year, payments of $1,012,500,  one half in cash and one half in stock, were made
on January 1, 1995, 1996 and 1997. As of September 30, 1997,  538,287 shares had
been delivered under the provisions of the purchase agreement, as amended.

Based  on an  evaluation  at  September  30,  1995  of  current  operations  and
anticipated  future operating results,  it was considered  probable at that date
that  future CRI  earnings  levels  would be attained  which  would  require the
maximum future payments of $6,075,000 to be made. As a result, the present value
(interest  at 8.75%) of those  payments  was  recorded at  September  30,  1995;
$2,532,108 as long-term  debt and  $1,945,983 as common stock  issuable,  with a
corresponding  increase in goodwill.  The common stock issuable  amount reflects
the maximum  number of shares  (660,000  less those shares  issued and delivered
prior to September 30, 1995) issuable under the terms of the purchase agreement,
as amended, based on the market price of the Company's common stock at September
30, 1995. This amount is subject to adjustment, based on the future movements in
the market price of the  Company's  common  stock.  No  adjustment  was recorded
during the current  fiscal year.  Based on the operating  results for the fiscal
year  ended  September  30,  1997,  the  January  1, 1998  scheduled  payment of
$1,012,000 will be paid.


Note 3 - Investments

During the years  ended  September  30,  1997 and 1996,  the  valuation  account
related to the  available-for-sale  marketable securities portfolio was adjusted
to reflect increases in market values of $31,583 and $44,245,  respectively, net
of deferred taxes.
<PAGE>
The following  table sets forth the components of investments  held at September
30, 1997:
<TABLE>
<CAPTION>
                                                              Market     Unrealized Holding
Available-for-sale:                           Cost            Value            Loss  
-------------------------------------------------------------------------------------------
<S>                                      <C>             <C>             <C>
U.S. Government due January 31, 1999     $    24,996     $    24,695     $      (301)
Equity securities                            103,799          99,013          (4,786)
-------------------------------------------------------------------------------------------
Total                                    $   128,795     $   123,708     $    (5,087)
-------------------------------------------------------------------------------------------
Held-to-maturity:
-------------------------------------------------------------------------------------------
Commercial paper-various issues          $14,410,101     $14,410,101     $         0
-------------------------------------------------------------------------------------------
</TABLE>

During  the  year  ended  September  30,  1997,  proceeds  from  redemptions  of
investments were  $24,445,993  resulting in a realized gain of $474. The Company
uses specific identification for securities sold.

The following  table sets forth the components of investments  held at September
30, 1996:
<TABLE>
<CAPTION>
                                                                 Market    Unrealized Holding
Available-for-sale:                              Cost            Value           Loss
---------------------------------------------------------------------------------------------
<S>                                         <C>               <C>              <C>
U.S. Government due January 31, 1999        $    24,996       $    24,375      $   (621)
Equity securities                               402,318           345,347       (56,971)
---------------------------------------------------------------------------------------------
Total                                       $   427,314       $   369,722      $(57,592)
---------------------------------------------------------------------------------------------

Held-to-maturity:
---------------------------------------------------------------------------------------------
Commercial paper-various issues             $10,435,026       $10,435,026      $      0
---------------------------------------------------------------------------------------------
</TABLE>


During  the  year  ended  September  30,  1996,  proceeds  from  redemptions  of
investments  were $702,511  resulting in a realized gain of $1,046.  The Company
uses specific identification for securities sold.
<PAGE>
Note 4 - Allowance for Doubtful Accounts

Activity  in the  Allowance  for  Doubtful  Accounts  for the three  years ended
September 30, 1997 includes:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Year Ended September 30,                             1997               1996              1995
-------------------------------------------------------------------------------------------------
<S>                                               <C>                 <C>                <C>
Balance at beginning of year                      $627,000            $624,000           $585,000
Additions - charged to expense                     119,000              65,000            121,625
Deductions                                        (250,000)            (62,000)           (82,625)
-------------------------------------------------------------------------------------------------
Balance at end of year                            $496,000            $627,000           $624,000
-------------------------------------------------------------------------------------------------
</TABLE>

Note 5 - Property and Equipment

The components of property and equipment include:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- 
September 30,                                           1997               1996
--------------------------------------------------------------------------------
<S>                                                 <C>              <C>
Furniture and fixtures                              $ 3,094,284      $ 2,845,137
Leasehold improvements                                2,207,228        2,093,435
Computer equipment                                    7,508,056        6,828,373
Computer equipment under capital leases               1,915,567        1,915,567
Other equipment                                       4,228,200        3,616,807
--------------------------------------------------------------------------------
                                                     18,953,335       17,299,319
Less:  Accumulated depreciation and amortization     11,859,545        9,750,090
--------------------------------------------------------------------------------
                                                    $ 7,093,790      $ 7,549,229
--------------------------------------------------------------------------------
</TABLE>

Depreciation and amortization charged to operations was $2,218,000,  $2,035,000,
and $1,738,000 for 1997, 1996 and 1995, respectively.


Note 6 - Unsecured Line of Credit

A bank holds available,  until March 31, 1998, a $5,000,000  unsecured bank line
of credit.  The line of credit has been renewed  annually.  During  fiscal years
1997 and 1996, the available line of credit was not used.
<PAGE>
Note 7 - Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of:
-------------------------------------------------------------------------------- 
September 30,                                     1997                   1996
--------------------------------------------------------------------------------
<S>                                            <C>                    <C>
Payable to former shareholders of CRI          $2,499,945             $2,784,375
Notes payable to banks                          2,032,099              2,595,156
--------------------------------------------------------------------------------
                                                4,532,044              5,379,531
Less: Current portion                           1,087,511              1,047,989
--------------------------------------------------------------------------------
                                               $3,444,533             $4,331,542
--------------------------------------------------------------------------------
</TABLE>

See Note 2 for a description  of the amounts due to the former  shareholders  of
CRI.

Notes  payable to banks  consist  of one note for a five year term loan  payable
through  December 15, 1998 with interest at 6.9%. The loan is secured by certain
equipment  located at CRI with a net book value of $180,314 as of September  30,
1997. A second note is for a five year term loan  payable  through June 27, 2001
with interest at 7.99%. This loan is secured by certain equipment located at CRI
with a net book value at September 30, 1997 of $2,024,905.  CRI must continue to
meet a financial ratio test and maintain net worth of at least  $5,000,000 after
September 30, 1996. The Company has guaranteed the repayment of this loan.

Maturities of long-term debt include:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- 
                   Fiscal Year Ended
                     September 30,                     Amount
--------------------------------------------------------------------------------
<S>                                                 <C>
                   1998                             $ 1,087,511
                   1999                               1,005,597
                   2000                                 982,489
                   2001                                 732,976
                   2002                                 723,471
-------------------------------------------------------------------------------- 
Total long-term debt                                $ 4,532,044
-------------------------------------------------------------------------------- 
</TABLE>
<PAGE>
Note 8 - Provision for Income Taxes

The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Year Ended September 30,                                     1997              1996                 1995
----------------------------------------------------------------------------------------------------------
<S>                                                      <C>                <C>                 <C>
Current
      Federal                                            $4,413,000         $4,292,000          $3,471,000
      State                                               1,244,000          1,216,000             955,000
----------------------------------------------------------------------------------------------------------
        Total provision for current income taxes          5,657,000          5,508,000           4,426,000
----------------------------------------------------------------------------------------------------------
Deferred
      Federal                                              (179,000)           (22,000)            (85,000)
      State                                                 (42,000)             1,000             (10,000)
 ---------------------------------------------------------------------------------------------------------
        Total provision for deferred income taxes          (221,000)           (21,000)            (95,000)
----------------------------------------------------------------------------------------------------------
        Total provision for income taxes                 $5,436,000         $5,487,000          $4,331,000
----------------------------------------------------------------------------------------------------------
</TABLE>

The total  provision  for income  taxes varies from the U.S.  federal  statutory
rate. The following  reconciliation shows the significant differences in the tax
at statutory and effective rates:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Year Ended September 30,                                       1997            1996                 1995
----------------------------------------------------------------------------------------------------------
<S>                                                        <C>              <C>                 <C>
Federal income tax at statutory rate                       $4,248,000       $4,564,000          $3,624,000
State income taxes - net of federal tax benefit               740,000          791,000             619,000
Non-deductible expenses                                       149,000          148,000              85,000
Non-taxable income                                             (5,000)         (16,000)            (15,000)
Valuation allowance against capital loss carryforward         298,000            ---                   ---
Other                                                           6,000            ---                18,000
----------------------------------------------------------------------------------------------------------
        Total provision for income taxes                   $5,436,000       $5,487,000          $4,331,000
----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The components of deferred income tax assets and liabilities include:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
September 30,                                             1997                                             1996
------------------------------------------------------------------------------------------------------------------------------------
                                            Net Current            Net Non-current            Net Current         Net Non-current
                                               Asset                  Liability                  Asset              Liability
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                      <C>                      <C>                   <C>
Property and equipment                       $     --                 $251,000                 $     --              $127,000
Allowance for doubtful accounts               201,000                       --                  256,000                    --
Non-deductible expenses                       392,000                       --                       --                    --
Unrealized holding loss on
      marketable securities                        --                   (2,000)                      --               (24,000)
Vacation accrual                               91,000                       --                    82,000                   --
Capital loss carryforward                     298,000                       --                    --                       --
Valuation allowance against capital
      loss carryforward                      (298,000)                      --                    --                       --
------------------------------------------------------------------------------------------------------------------------------------
        Total                                $684,000                 $249,000                  $338,000             $103,000
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Note 9 - Stock Options

The Company has an Incentive  Stock  Option Plan (the "Plan")  which was adopted
and became  effective in May, 1993. The Plan calls for granting  incentive stock
options to certain officers and other employees,  as defined,  under current tax
laws to purchase  shares of the Company's  common  stock.  The stock options are
exercisable at prices not less than the fair market value of the common stock on
the date the options are granted.  The  aggregate  number of shares which may be
issued under the Plan is 2,200,000.

Stockholders  at  the  1997  annual  meeting  approved  the  1996  non-qualified
Non-Employee  Directors Stock Option Plan ("1996 Plan"),  which provides for the
granting of options covering 250,000 shares. Each non-employee  director, who is
a  non-employee  director  at the  date of  grant  of the  option  and who was a
non-employee  at all times during the fiscal year  preceding  the date of grant,
shall be granted an option to purchase  11,000 shares of the common stock on the
date the 1996 Plan was approved by the stockholders and on each succeeding fifth
business day following the public release of the Company's  annual  earnings for
any fiscal year in which sales and net income per share of common stock increase
by more than 5% over the prior fiscal year.  Options granted under the 1996 Plan
are based on the market value on the date of grant.  During fiscal 1997,  22,000
shares were granted,  based on fiscal year 1996  results,  at a price of $15.00,
all of which are outstanding.  At September 30, 1997, 4,400 of these shares were
exercisable.   No  options  were   granted  for  fiscal  year  1997.   The  1993
non-qualified  Non-Employee  Directors  Stock  Option  Plan  ("1993  Plan")  was
terminated  as a result  of the  approval  of the 1996  Plan.  The 1993 Plan has
11,600 options which remain outstanding at prices of $3.53-$16.00.  At September
30, 1997, 4,200 shares were exercisable at prices of $3.53- $16.00. There was no
other activity in this plan during fiscal 1997.

Non-employee  directors  have been granted  non-qualified  options,  at the fair
market value on the date of grant,  to purchase  54,000  shares of the Company's
common  stock at prices of $2.05 to $5.38 per  share.  At  September  30,  1997,
44,000  options were  exercisable.  During the current year,  2,000 options were
exercised and no options were cancelled.
<PAGE>
During the year ended September 30, 1995,  certain  officers of the Company were
issued  non-qualified  options to purchase 75,000 shares of the Company's common
stock at a price of $5.75 per share (100% of fair market  value).  In accordance
with Nasdaq Stock Market(sm) rules, the required stockholders' approval covering
35,400 of those shares was obtained at the 1997 annual meeting.

The following  schedule sets forth the activity under the 1983  Incentive  Stock
Option Plan for the years ended September 30, 1997,  1996 and 1995.  Granting of
options under this plan ceased in May, 1994.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Incentive options                            Number                Option Price
----------------------------------------------------------------------------------
<S>                                        <C>                    <C>
Outstanding September 30, 1994              375,060               $1.25  - $  3.75
Exercised                                  (120,767)              $1.73  - $  3.75
Expired or cancelled                         (3,849)              $3.41  - $  3.75
Stock dividend - 10%                         32,506               $1.25  - $  3.75
Stock dividend - 100%                       282,950               $1.25  - $  3.75
----------------------------------------------------------------------------------
Outstanding September 30, 1995              565,900               $1.25  - $  3.75
Exercised                                  (165,200)              $2.05  - $  3.41
----------------------------------------------------------------------------------
Outstanding September 30, 1996              400,700               $1.25  - $  3.41
Exercised                                  (176,300)              $2.25  - $  3.41
----------------------------------------------------------------------------------
Outstanding September 30, 1997              224,400               $1.25  - $  2.69
----------------------------------------------------------------------------------
Exercisable September 30, 1997              224,400               $1.25  - $  2.69
---------------------------------------------------------------------------------- 
</TABLE>
<PAGE>
The  following  schedule  sets forth the  activity of the 1993  Incentive  Stock
Option Plan for the years ended September 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------- 
Incentive options                                  Number         Option Price
--------------------------------------------------------------------------------
<S>                                             <C>             <C>
Outstanding September 30, 1994                     83,000       $ 2.27  - $ 3.53
Granted                                           211,600       $ 3.18  - $16.85
Exercised                                          (6,463)      $ 2.27  - $ 2.95
Expired or cancelled                              (19,250)      $ 2.27  - $ 2.95
Stock dividend - 10%                                8,300       $ 2.27  - $ 3.52
Stock dividend - 100%                             277,187       $ 2.88  - $16.85
--------------------------------------------------------------------------------
Outstanding September 30, 1995                    554,374       $ 2.88  - $16.85
Granted                                           110,000                 $15.50
Exercised                                         (32,403)      $ 2.88  - $ 5.75
Expired or Cancelled                              (23,998)      $ 2.96  - $ 5.75
--------------------------------------------------------------------------------
Outstanding September 30, 1996                    607,973       $ 2.96  - $16.85
Granted                                           110,800       $12.75  - $15.00
Exercised                                         (17,375)      $ 2.96  - $15.50
Expired or Cancelled                             (117,448)      $ 2.96  - $15.50
--------------------------------------------------------------------------------
Outstanding September 30, 1997                    583,950      $  2.96  - $16.85
--------------------------------------------------------------------------------
Exercisable September 30, 1997                    358,475      $  2.96  - $16.85
--------------------------------------------------------------------------------
Available for grant September 30, 1997          1,553,346
--------------------------------------------------------------------------------
</TABLE>

The  following  schedule  sets forth the status of the  incentive  stock options
outstanding and exercisable at September 30, 1997:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                       Options Outstanding                     Options Exercisable
-------------------------------------------------------------------------------------------------------
                                                  Weighted-Average                            Weighted-
Range of                                                                                       Average
Exercise                       Number of      Remaining        Exercise        Number of       Exercise
Prices                          Shares        Life-Years        Price           Shares          Price
-------------------------------------------------------------------------------------------------------
<S>                            <C>               <C>           <C>             <C>             <C>
1983 Incentive Plan
$1.25 to $2.69                 224,400           4.7           $ 2.63          224,400         $ 2.63

1993 Incentive Plan
$2.96 to $5.50                 120,000           6.7             3.54           87,725           3.45
$12.75 to $16.85               463,800           8.2            15.47          270,750          16.48
-------------------------------------------------------------------------------------------------------
Total 1993 Plan                583,950                                         358,475
-------------------------------------------------------------------------------------------------------
Total Plans                    808,350                                         582,875
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting   Standards   ("SFAS")   No.   123,   "Accounting   for   Stock-Based
Compensation,"  issued in October,  1995. In accordance  with the  provisions of
SFAS No. 123, the Company applies APB Opinion 25 and related  interpretations in
accounting  for its stock  option  plans and,  accordingly,  does not  recognize
compensation  cost.  If the Company had elected to recognize  compensation  cost
based on the fair value of the options  granted at the various  grant dates,  as
prescribed  by SFAS No. 123,  net income and  earnings per share would have been
adjusted to the pro forma amounts indicated in the following table:
<TABLE>
<CAPTION>
Year Ended September 30,                                  1997           1996
-------------------------------------------------------------------------------- 
<S>                                                    <C>            <C>
Net income - as reported                               $6,986,659     $7,837,645
Net income - pro forma                                  6,751,871      7,726,185
Earnings per share - as reported - fully diluted             1.35           1.53
Earnings per share - pro forma - fully diluted               1.30           1.51
</TABLE>

The fair value of each option grant was estimated on the date of grant using the
Binery Option Pricing Model with the following assumptions:

                Expected dividend yield   -                               .80%
                Expected stock volatility -                             59.65%
                Risk free interest rates  -                       5.84 - 6.13%
                Expected life of options  -                       5 - 10 Years

The  effects  of  applying  SFAS No.  123 in this pro forma  disclosure  are not
necessarily  indicative of the effect on future  amounts.  SFAS No. 123 does not
apply to awards granted prior to the Company's 1996 fiscal year.

The Company's stock options are not  transferrable,  and the actual value of the
stock options that an employee may realize, if any, will depend on the excess of
the market price on the date of exercise  over the exercise  price.  The Company
has based its  assumption  for stock price  volatility on the variance of weekly
closing  prices of the Company's  stock for the last three years.  The risk-free
rate of return used equals the yield on zero-coupon U.S.  Treasury issues on the
grant date based on the grants estimated life.


Note 10 - 1994 Employee Stock Purchase Plan and Employment Agreements

At the annual meeting of  stockholders  in March,  1994, the 1994 Employee Stock
Purchase  Plan (the  "Purchase  Plan") was adopted.  The Purchase  Plan provides
eligible  employees  of the  Company and its  subsidiaries  the  opportunity  to
acquire up to 300,000  shares of common  stock.  Purchases are made on a monthly
basis through payroll deductions of 1% to 10% of eligible  compensation.  Shares
are offered at a 15% discount from the closing price on the last trading date of
each month with no brokerage  commissions.  Participation  in the Purchase  Plan
began  September 1, 1994. For the years ended September 30, 1997, 1996 and 1995,
shares purchased totaled 6,892, 9,968 and 13,552, respectively.

Employment  agreements  with officers of a subsidiary  include the provision for
the quarterly  purchase of the Company's common stock to the extent of 5% of any
bonus earned, as defined.  Shares are offered at a discount from the quarter end
closing  market price of the common stock.  During  fiscal years 1997,  1996 and
1995, a total of 1,713, 1,749 and 143 shares, respectively, were purchased under
these agreements.
<PAGE>
Note 11 - Employee Retirement Savings Plan (401K)

The Company sponsors a tax deferred  retirement savings plan ("401K Plan") which
permits  eligible   employees  to  contribute   varying   percentages  of  their
compensation up to the limit allowed by the Internal Revenue  Service.  The 401K
Plan also provides for  discretionary  Company  contributions.  No discretionary
contributions were made for the years ended September 30, 1997, 1996 and 1995.

The  Company  matches  employees'  contributions  to a  maximum  of  25%  of the
employee's  first 6%  contributed.  The Company's  matching  contributions  were
temporarily increased to 35% of eligible employee  contributions in fiscal years
1997 and 1996, during the period of January 1 to June 30. Matching contributions
charged to expense  were  $189,000,  $196,000  and $154,000 for the fiscal years
ended September 30, 1997, 1996 and 1995, respectively.

Note 12 - Operating and Capital Lease Commitments

The  Company  and its  subsidiaries  lease  certain  properties,  equipment  and
software  under  noncancellable  long-term  leases,  both operating and capital,
which expire at various dates.  Certain of the leases on real estate require the
payment of real estate taxes. Minimum rentals under the leases are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                         Fiscal Year              Capital Leases       Operating Leases
---------------------------------------------------------------------------------------
<S>                                                   <C>                   <C>
                                1998                  $218,746              $ 2,279,000
                                1999                                          1,907,000
                                2000                                          1,495,000
                                2001                                          1,172,000
                                2002                                          1,172,000
                          Thereafter                                          2,818,000
---------------------------------------------------------------------------------------
                                                       218,746              $10,843,000
Less: Imputed interest                                   7,166
---------------------------------------------------------------------------------------
Present value of capital lease obligations            $211,580
---------------------------------------------------------------------------------------
</TABLE>


Real estate, equipment and software operating lease costs include:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------
Year Ended September 30,                         1997          1996           1995
-------------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
Real estate                                  $2,535,000     $2,324,000     $1,227,000
Equipment and software                          740,000        788,000        774,000
-------------------------------------------------------------------------------------
    Total                                    $3,275,000     $3,112,000     $2,001,000
-------------------------------------------------------------------------------------

</TABLE>
<PAGE>
Note 13 - Other Expense

In June, 1997, the Company recorded a loss on investment of $954,000  (currently
$863,000 net of taxes) representing a non-recurring  charge for the write-off of
the  Company's  investment  in  McIntyre  &  King,  Ltd.  ("M&K").  This  charge
represented  $.17 per share in the current fiscal year.  The Company's  Board of
Directors decided to sever the relationship with M&K due to unexpected operating
losses that would have required  unacceptable  demands on management's  time and
financial  support  required  to attempt to return  M&K to  profitability.  As a
result,  effective  April 5, 1997, the Company agreed to rescind its acquisition
of M&K. The rescission  agreement,  dated June 30, 1997, provides for the return
of a portion of the down payment in one year.  However,  recovery was  uncertain
and,  therefore,  the Company  expended all  payments,  advances and all related
costs.  On  November  28,  1997,  the  Company  received  a payment  from M&K of
approximately  $210,000 in final  settlement  of a portion of the down  payment,
which will be recorded in other income in the quarter ended December 31, 1997.

On October 6, 1997,  the Company  announced  the  recording  of a  non-recurring
charge of $960,000 ($570,000 net of taxes or $.11 per share) in the period ended
September 30, 1997 related to death benefits payable under employment agreements
and other severance  amounts due the Company's former Chairman,  the late Arnold
J. Scheine who passed away on September 22, 1997.


Note 14 - Fair Value of Financial Statements

The following disclosure of the estimated fair value of financial instruments is
made in accordance with the  requirements  of Statement of Financial  Accounting
Standards No. 107, "Disclosure About Fair Value of Financial  Instruments".  The
carrying amounts of cash and cash equivalents,  investments -  held-to-maturity,
trade receivables,  other current assets,  accounts payable and amounts included
in investments  and accruals  meeting the  definition of a financial  instrument
approximate  fair value.  The carrying values and related  estimated fair values
for the  Company's  long-term  debt payable to banks is  estimated  based on the
current rates offered to the Company for debt of the same maturities as follows:

<TABLE>
<CAPTION>
September 30,                              1997                       1996

<S>                                      <C>                       <C>
Carrying value                           $2,032,000                $2,595,000
Fair value                                2,037,000                 2,602,000

</TABLE>


Note 15 - Commitments and Contingencies

The Company is involved in various legal claims and disputes that are normal and
incidental  to the  Company's  business.  In the  opinion of  management,  after
consultation  with legal counsel,  the amount of losses that might be sustained,
if any,  from such claims and disputes  would not have a material  effect on the
Company's financial statements.
<PAGE>
At  September  30,  1997,  the  Company  and its  subsidiaries  have  employment
agreements  with certain of their  officers with terms expiring at various times
through   September  30,  2002,  which  provide  for  aggregate  future  minimum
compensation  of  $1,050,000.  Certain  of these  agreements  also  provide  for
commissions  and  bonuses  based  on  results  of  the  respective  subsidiary's
operations.

During the current fiscal year, one of the Company's  subsidiaries had in effect
a $500,000 standby letter of credit agreement  securing the timely payments,  by
the subsidiary, of amounts owing to a customer. No claims were made against this
agreement during the year. The fair value of the standby agreement  approximates
the cost of the agreement.


Note 16 - Major Customers

For the years ended September 30, 1997 and 1996,  revenues  recognized under the
contract  to provide  computer  services  to a non-U.S.  communications  company
amounted to 15% and 14%, respectively, of consolidated sales. For the year ended
September 30, 1995,  sales to another  significant  customer  amounted to 11% of
consolidated sales.


                                   * * * * * *


Item 9.   Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure.

    None.
<PAGE>
                                    Part III

Item 10.       Directors, Executive  Officers and  Significant  Employees of the
               Registrant.

         The information appearing in the Company's Proxy Statement with respect
to its 1998 Annual Meeting of  Stockholders  (the "Proxy  Statement")  under the
caption "Election of Directors" is incorporated herein by reference.

         The  following is a list as of December 1, 1997,  showing the names and
ages of all  principal  executive  officers  and  significant  employees  of the
Company and its subsidiaries, all positions and offices with the Company held by
each of them and the year from  which  each said  office  has been  continuously
held.  All  executive  officers  are  elected  annually  and hold  office at the
pleasure of the Company's Board of Directors.
<TABLE>
<CAPTION>

                                           Position with the Company
Name                    Age                and Date from which Held
----                    ---                ------------------------
<S>                      <C>        <C>
William Rella            55         President, Chief Operating Officer and Director - 1997
                                    President - Fulfillment Services - 1994

Marvin Cohen             63         Senior Vice President and Secretary-1981,
                                    Director-1969-1997

Pat R. Frustaci          43         Vice President - Finance, Chief Financial Officer,
                                    Treasurer and Assistant Secretary - 1995

James E. Quinlan         59         Controller-1988

Gerry King               48         President - Catalog Resources, Inc. - 1993

Lon Mandel               42         President and Chief Operating Officer - The SpeciaLISTS
                                         Ltd. - 1987

Phyllis Stein            45         President - List Brokerage Division, The SpeciaLISTS
                                         Ltd. - 1987

</TABLE>

All executive  officers of the Company and other  significant  employees,  other
than Mr. King and Mr.  Frustaci,  have,  as their  principal  occupations,  been
employed in positions as officers with the Company or its  subsidiaries for more
than the last five years.  Prior to joining the company,  Mr. King was President
of Catalog Resources,  Inc. prior to its acquisition by the Company from July 1,
1988 to March 31, 1993.  Mr.  Frustaci was Chief  Executive  Officer of Turn-Key
Solutions,  Inc. in 1991,  an  independent  consultant  providing  financial and
system consulting services during 1992 and 1993 and was Vice President and Chief
Financial Officer for Image Business Systems, Inc. during 1994.
<PAGE>
Based solely upon a review of Forms 3 and 4 and amendments thereto, furnished to
the Company  pursuant  to Rule 16a- 3(e) during its fiscal year ended  September
30,  1997,  and Forms 5 and  amendments  thereto  furnished  to the Company with
respect to such fiscal year,  there was no officer,  director or 10% stockholder
of the Company who failed to file, on a timely basis,  as disclosed in the above
Forms,  reports  required by Section 16(a) of the Securities and Exchange Act of
1934, as amended,  during such fiscal year or prior fiscal years, except for two
officers.  These persons were Arnold J. Scheine,  former  President,  who filed,
however,  not on a timely basis,  two Forms 4 relating to the transfer of 80,162
shares of Common Stock, to Scheine Holdings,  Inc. and William Rella, President,
who filed,  however, not on a timely basis, a Form 4 relating to the award of an
incentive stock option covering 40,000 shares of Common Stock.


Item 11.       Executive Compensation

The information  appearing in the Proxy  Statement under the caption  "Executive
Compensation" is incorporated herein by reference.


Item 12.       Security Ownership of Certain Beneficial Owners and Management.

The information  appearing in the Proxy  Statement  under the caption  "Security
Ownership of Certain Beneficial Owners and Management" is incorporated herein by
reference.

Item 13.       Certain Relationships and Related Transactions.

The information  appearing in the Proxy Statement under the caption "Election of
Directors" is incorporated herein by reference.
<PAGE>
                                    Part IV.

Item 14.        Exhibits, Financial Statement Schedules and Reports on Form 8-K.

         (a)1.  Financial Statements                                    

                Independent Auditors' Opinion................           

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

                Consolidated Balance Sheets as
                of September 30, 1997 and 1996......                    

                Consolidated Statements of Changes
                in Stockholders' Equity for the
                Years Ended September 30, 1997,
                1996 and 1995......................                     

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

                Notes to Consolidated Financial Statements              

         (a)2.  Financial Statement Schedules

         Schedules  have been  omitted  because they are not  applicable  or the
         required  information  is shown in the  financial  statements  or notes
         thereto.

<PAGE>
                                    Exhibits


(a)      3.1            Restated Certificate of Incorporation of the Company (1)

         3.2            By-laws, as amended, of the Company (2)

         10.1           Lease Agreement dated April 11, 1980, as
                        amended, between the Company and Saul
                        Rachmiel, with respect to premises located
                        at 120 Brighton Road, Clifton, New Jersey (3)

         10.2           1983 Stock Option Plan as Amended and
                        Restated (4)

         10.3           1993 Incentive Stock Option Plan as Amended
                        and Restated (11)

         10.4           1993 Non-Employee Directors Stock Option Plan (8)

         10.5           The Bank of New York letter dated April 14, 1997 related
                        to the holding available of a line of credit

         10.6           Master Equipment Lease Agreement dated
                        December 8, 1989 between the Company and
                        Forsythe/McArthur Associates, Inc. (5)

         10.7           Agreement of Purchase and Sale of Stock dated
                        April 1, 1993 among the Company,
                        Catalog Resources, Inc. and the sellers of
                        all of the outstanding shares of Catalog
                        Resources, Inc. (6)

         10.8           1994 Employee Stock Purchase Plan (7)

         10.9           Form of Software Development Agreement
                        between LCS Industries, Inc. and a major
                        non-U.S. communications company (9)

         10.10          Amendment No.1 dated as of August 1, 1994, to
                        Agreement of Purchase and Sale of Stock dated
                        April 1, 1993, among LCS Industries, Inc.,
                        Catalog Resources, Inc., and the stockholders
                        of Catalog Resources, Inc. (10)

         10.11          Form of Marketing Database Agreement
                        between LCS Industries, Inc. and a major
                        non-U.S. communications company (12)

         10.12          Employment agreement between Arnold J. Scheine
                        and LCS Industries, Inc. (13)

         10.13          Employment agreement between Arnold J. Scheine
                        and LCS Industries, XXX (a group company). (13)

         10.14          1996 Non-Employee Directors Stock Option Plan (14)
<PAGE>
         11             Computation of Earnings Per Share and Common
                        Equivalent Share

         22             List of Subsidiaries

         23             Consent of Deloitte & Touche LLP

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

                    (1)        Incorporated  by reference to Exhibit filed
                                    with the Company's Registration Statement on
                                    Form 8-A, File No.  0-12329,  filed with the
                                    Commission on June 27, 1983.

                    (2)        Incorporated by reference to Exhibit to
                                    the Company's Registration Statement on
                                    Form S-18, Registration No. 3-87557-N.Y.

                    (3)        Incorporated by reference to Exhibit to
                                    the Company's Registration Statement on
                                    Form S-18, Registration No. 2-79941-N.Y.

                    (4)        Incorporated by reference to Exhibit to
                                    the Company's Registration Statement on
                                    Form S-8, Registration No. 33-12508.

                    (5)        Incorporated  by reference to Exhibit to the
                                    Company's Annual Report on Form 10-K for the
                                    fiscal year ended  September 30, 1990,  File
                                    No. 0-12329.

                    (6)        Incorporated  by reference to Exhibit to the
                                    Company's  Current  Report on Form 8-K dated
                                    April 1, 1993, File No. 0-12329.

                    (7)        Incorporated by reference to Exhibit
                                    to the Company's Registration Statement
                                    on Form S-8, Registration No. 33-83058.

                    (8)        Incorporated  by reference to Exhibit to the
                                    Company's  Annual Report on Form 10K for the
                                    fiscal year ended  September 30, 1993,  File
                                    No. 0-12329.

                    (9)        Incorporated  by reference to Exhibit to the
                                    Company's  Current  Report on Form 8-K dated
                                    January 18, 1994, File No. 0-12329.

                    (10)       Incorporated  by reference to Exhibit to the
                                    Company's  Current  Report on Form 8-K dated
                                    September 13, 1994, File No. 0-12329.

                    (11)       Incorporated  by Reference to Exhibit to the
                                    Company's Annual Report on Form 10-K for the
                                    fiscal year ended  September 30, 1994,  File
                                    No. 0-12329.

<PAGE>



                    (12)       Incorporated  by Reference to Exhibit to the
                                    Company's  Current  Report on Form 8-K dated
                                    September 1, 1995, File No. 0-12329.

                    (13)       Incorporated  by Reference to Exhibit to the
                                    Company's  Quarterly  Report on Form 10Q/A-1
                                    dated August 8, 1996, File No. 0-12329.

                    (14)       Incorporated by Reference to the Company's
                                    Proxy Statement dated December 30, 1996,
                                    File No. 0-12329.



(b)      Reports on Form 8-K

                    LCS  Industries,  Inc. did not file any Forms 8-K during the
                    last quarter of its fiscal year ended September 30, 1997.

<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                            LCS INDUSTRIES, INC.


                                                            By: /s/William Pella
                                                                ----------------
                                                                William Rella
                                                                President
Date:    December 18, 1997

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated on December 18, 1997.

    Signature                              Title
    ---------                              -----


/s/William Rella            President (Principal Executive Officer) and Director
-----------------
   William Rella



/s/Pat R. Frustaci          Vice President - Finance, Chief Financial Officer,
------------------
   Pat R. Frustaci          Treasurer and Assistant Secretary (Principal
                            Accounting Officer)



/s/Marvin Cohen             Senior Vice President and Secretary
---------------
   Marvin Cohen



/s/Joseph R. Barbaro        Director
--------------------
   Joseph R. Barbaro



/s/Bernard Ouziel           Director
-----------------
   Bernard Ouziel

<PAGE>


















                              LCS INDUSTRIES, INC.

                           Commission File No. 0-12329


                                     -------


                           Annual Report on Form 10-K

                                     for the

                      Fiscal Year Ended September 30, 1997




                                 E X H I B I T S
















<PAGE>
                               INDEX TO EXHIBITS


Exhibit
   No.                                     Description         


  10.5                            The Bank of New York letter dated         
                                  April 14, 1997 related to the
                                  holding available of a line of credit

  11                              Computation of Earnings Per               
                                  Share and Common Equivalent
                                  Share

  22                              List of Subsidiaries                      

  23                              Consent of Deloitte & Touche LLP