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:

    For the fiscal year ended September 30, 1996 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: (201) 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 stock held by non-affiliates
of the  registrant,  based on the  average  of high  and low  sales  prices  for
November 29, 1996:  $45,424,002.  The number of shares of Common Stock ($.01 par
value) outstanding as of November 29, 1996: 4,603,206.

                       DOCUMENTS INCORPORATED BY REFERENCE

               The Proxy  Statement  in  respect of the 1997  Annual  Meeting of
Stockholders  is  incorporated  by reference  into Part III hereof to the extent
indicated in that Part. The Form 10Q/A-1 dated August 8, 1996 is incorporated by
reference  into Part IV hereof to the extent  indicated in that Part.  This Form
10-K consists of 46 pages. Index to exhibits is located at page 37.
<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,
                                                 -------------------------------
                                                  1996        1995        1994
                                                  ----        ----        ----
<S>                                                <C>         <C>         <C>
Fulfillment services .......................       37%         39%         30%
Computer services ..........................       19%         13%         15%
List marketing services ....................       44%         48%         55%
</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,  subject to
early  termination  provisions.  Revenues and earnings  under the contract  were
recorded  during the fourth quarter of the fiscal year ended September 30, 1995.
Revenues recognized under the contract amounted to 14% of consolidated sales for
the fiscal year ended September 30, 1996.

               On  September   11,  1995,   the  Company   announced   that  its
wholly-owned subsidiary, Catalog Resources, Inc. (CRI), had reached an agreement
to  continue  to  provide  fulfillment  services  to a major  consumer  products
corporation.  The new  agreement  provides  for  approximately  $4.4  million in
guaranteed  revenues  over  a  two  year  period  for  base  processing  levels.
Additional  revenues  will be derived  over and above that amount based upon the
volume of transactions processed and other services provided.

               On April 1, 1993, the Company acquired all the outstanding  stock
of CRI. The initial  purchase  price was  $3,500,000  and, in addition,  certain
additional  payments  could have been earned by the former CRI  shareholders  if
CRI's pretax income,  as defined,  reached  certain amounts during the next five
years.  Of this  amount,  $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.
<PAGE>
               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  will be paid in
January of the  following  year,  which amount is subject to a dollar for dollar
reduction based on 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 the above  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 and 1996. As of September 30, 1996,  499,525
shares had been  delivered  under the provisions of the purchase  agreement,  as
amended.

               As a result of the operating results achieved for the fiscal year
ended September 30, 1995, the September, 1995 signing of a two year extension of
a contract  to provide  fulfillment  services  to a major  customer,  forecasted
operating  results for the 1996 fiscal year and the  evaluation  of  anticipated
future  operating  results beyond fiscal 1996, it was  considered  probable 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,  1996,  the  January  1, 1997  scheduled  payment of
$1,012,000 will be paid.

               The numbers of shares  indicated above have been adjusted to give
effect to 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.


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

               During  the  current  fiscal  year,  the  outbound  telemarketing
operation  has  been  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
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.
<PAGE>
               Communications Database Development

               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
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.
<PAGE>
               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.
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.
<PAGE>
               Although,  during fiscal 1996,  revenues recognized in connection
with the  contract to provide  computer  services  to a non-U.S.  communications
company amounted to 14% 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, subject to early termination, 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  36% of  the  consolidated  trade
accounts  receivable  of the Company and its  subsidiaries  as of September  30,
1996,  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, 1996, 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
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.
<PAGE>
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 November 29, 1996, the Company  employed 1,630 persons,  of
whom 872 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.


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    Sept. 2000
1200 Harbor Blvd., Weehawken, NJ (2) ......     18,100    June  2003
100 Enterprise Place, Dover, DE (1)(5) ....     55,000    Month to Month
97 Commerce Way, Dover, DE (1) ............    124,000    Oct. 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
                                               -------
                        TOTAL                  397,037
                      

(1)            Office, warehouse, production
(2)            Office
(3)            Five year renewal option available
(4)            Warehouse
(5)            Sublease

</TABLE>
<PAGE>
Item 3.        Legal Proceedings

                             None.

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

                             None.


                                     Part II

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


Quarterly Stock Price Information

The Company's  common stock is traded on the Nasdaq  National Market tier of The
Nasdaq Stock Market(SM) 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
were paid.

As of December 2, 1996, there were 144 registered holders and an estimated 2,800
beneficial holders of record of the Company's common stock.
<TABLE>
<CAPTION>
                                               Fiscal Year Ended                Fiscal Year Ended
                                               September 30, 1996               September 30, 1995   
                                               ------------------               ------------------   
                                                     Price                             Price 
                                             High             Low               High            Low 
                                             ----             ---               ----            ---
<S>                                       <C>              <C>               <C>             <C>                              

         1st Quarter...................   $ 19 3/4         $ 13              $ 4 1/4         $ 3 3/8   
         2nd Quarter...................     28               12 3/8            6 3/8           3 7/8   
         3rd Quarter...................     27               10 1/4           12 1/8           5 1/4   
         4th Quarter...................     15 3/4            9 1/2           16 1/2          10 3/8   
</TABLE>

The prices above, for 1995,  reflect  retroactively the 2 for 1 stock split paid
as a 100% stock dividend on October 24, 1995.
<PAGE>
Item 6.        Selected Financial Data.
<TABLE>
<CAPTION>
Five Year Review
Income Statement Data
(In thousands, except per share amounts)
 
Years Ended September 30,                          1996        1995        1994       1993        1992
-------------------------                          ----        ----        ----       ----        ----
<S>                                             <C>         <C>         <C>        <C>         <C>                  
Sales .......................................   $ 95,570    $ 78,863    $ 62,690   $ 53,002    $ 46,786
Cost of sales ...............................     66,120      54,717      46,986     39,433      34,130
Gross profit ................................     29,450      24,146      15,704     13,569      12,656
Selling and administrative expenses .........     16,679      13,653      13,270     12,094      10,491
Dividend and interest (income) expense, net .       (553)       (167)         65         (3)       (125)
Other expense ...............................       --          --          --          385        --
Income before income taxes ..................     13,324      10,660       2,369      1,093       2,290
Net income ..................................      7,838       6,329       1,375        626       1,326
Per common and common equivalent share (Note)
Primary earnings ............................       1.53        1.33         .32        .16         .37
Weighted average number of shares outstanding      5,118       4,755       4,306      3,841       3,560
Fully diluted earnings ......................       1.53        1.25         .32        .16         .37
Weighted average number of shares outstanding      5,125       5,050       4,307      3,847       3,560
Dividends per share .........................       .094        .066        .045        .08        --

Note        - 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.

<CAPTION>
Balance Sheet Data
(In thousands)

September 30,                        1995      1994      1993      1992       1991
-------------                        ----      ----      ----      ----       ----
<S>                                <C>       <C>       <C>       <C>       <C>
Working capital ................   $19,359   $10,569   $ 4,673   $ 3,460   $ 6,351
Total assets ...................    64,970    49,737    31,815    28,983    20,708
Long-term debt and capital
      lease obligations - net of
       current portion .........     4,583     3,436     1,805     1,983       411
Stockholders' equity ...........    30,861    22,048    12,865    11,339     9,410

</TABLE>
<PAGE>
Item 7.        Management's Discussion and Analysis of Results of Operations and
               Financial Condition

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,                               1996       1995       1994
------------------------                               ----       ----       ----
<S>                                                   <C>        <C>        <C>
Sales ..........................................      100.0%     100.0%     100.0%
Cost of sales ..................................       69.2       69.4       74.9
                                                      -----      -----      -----
Gross profit ...................................       30.8       30.6       25.1
Selling and administrative .....................       17.4       17.3       21.2
Dividend and interest (income) expense, net ....        (.6)       (.2)        .1
                                                      -----      -----      -----
Income before income taxes .....................       14.0      13. 5        3.8
Provision for income taxes .....................        5.8        5.5        1.6
                                                      -----      -----      -----
Net income .....................................        8.2%       8.0%       2.2%
</TABLE>

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.
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.
<PAGE>
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.


Fiscal Year 1995 Compared to Fiscal Year 1994

Sales in 1995 increased  $16.2 million (26%)  compared to 1994  principally as a
result of a $11.5 million (61%) increase in fulfillment services, a $3.9 million
(11%)  increase in list  marketing  services and a $.7 million (8%)  increase in
computer services.  The increase in fulfillment  services' sales reflects a 150%
increase in the catalog fulfillment  operation, a 50% increase in the continuity
fulfillment operation partially offset by a 64% decline in inbound telemarketing
revenues. Increased transaction volume from an existing significant customer was
the  primary  reason  for the  catalog  fulfillment  increase.  Billings  to new
customers were the primary reason for the continuity  fulfillment increase.  The
decrease in inbound  telemarketing is part of the Company's plan to de-emphasize
this service.  The list marketing  increase resulted  generally from an expanded
customer  base and increased  volumes with  continuing  customers.  The computer
services' increase reflects the revenues of a new contract,  announced September
6, 1995,  to provide  computer  services  through  the  building  of a marketing
database for a major non-U.S. communications company offset by lower revenues in
other areas of computer  services.  Initial  revenues from the new contract were
recorded in the last quarter of fiscal 1995.

Gross profit was 31% of sales in 1995 compared to 25% in 1994.  The  improvement
in gross profit margin resulted primarily from the increased catalog fulfillment
revenues,  described  above,  which have a higher gross  profit  margin than the
margins derived from the other fulfillment operations of the Company, the effect
of the new marketing  database contract and the increased  revenues and improved
profit margins of the continuity fulfillment operation.
<PAGE>
Selling and administrative expenses in 1995 increased $.4 million ( 3%) compared
to  1994.   The  increase  in  selling  and   administrative   expenses  is  not
proportionate  to the 26%  revenue  gain  for the year  due  primarily  to minor
selling and administrative  expenses associated with the incremental revenues at
the catalog  fulfillment  operation and the new marketing  database contract and
the reassignment of selling personnel to operating units of the Company.

Net dividend and interest income in 1995 increased $233,000 from 1994.  Dividend
and  interest  income in 1995  increased  $176,000  (98%) from 1994.  During the
current  fiscal  year,  interest  earned on invested  funds  coupled with higher
interest rates more than offset interest expense incurred on both long-term debt
and capital lease obligations.  The line of credit was not used during the year.
In 1994,  net interest  expense was incurred due to utilizing the line of credit
for varying  amounts and periods and higher levels of long-term debt and capital
lease obligations outstanding.

The effective tax rate in 1995 was 41% compared to 42% in 1994.  The  provisions
for taxes for the two  fiscal  years  reflect  relatively  normal  relationships
between book income and taxes  thereon.  Effective  October 1, 1993, the Company
adopted the provisions of Statement of Financial Standards No. 109,  "Accounting
for  Income  Taxes".  The  cumulative  effect of  adopting  this  statement  was
immaterial.  Net income for 1995  increased 360% compared to 1994 primarily as a
result of the profitability of the catalog fulfillment operation,  the increased
revenues and improved profit margin of the continuity  fulfillment operation and
the initial profit derived from the new marketing database contract.


Liquidity and Capital Resources

Working capital at September 30, 1996 increased to $19,359,000  from $10,569,000
at the prior year end.  Current assets  increased  $13,981,000  principally from
increases  in cash  and  investments  -  held-to-maturity.  Current  liabilities
increased  $5,191,000  primarily as a result of an increase in deferred  revenue
and current  portion of  long-term  debt.  At September  30, 1996,  the ratio of
long-term debt and long-term capital lease obligations to equity was .15 to 1.

For the fiscal year ended  September  30, 1996,  cash  generated  by  operations
increased  $7,055,000  over such  amounts  generated  in 1995.  The increase was
primarily  attributable  to  increases  in  net  income  of  $1,509,000  and  in
adjustments  to net income and changes in operating  assets and  liabilities  of
$5,546,000.  This increase in adjustments to net income and changes in operating
assets was primarily the result of increased  depreciation  and  amortization of
$460,000, a decrease in accounts receivable of $5,253,000, a decrease in prepaid
expenses  and other  current  assets of  $956,000,  an increase in income  taxes
payable of $369,000,  an increase in deferred revenue of $911,000 and a decrease
in security  deposits of  $913,000  offset by a decrease in accounts  payable of
$3,431,000.

Cash used in investing  activities  increased  $13,141,000  over the prior year.
This    increase    was    primarily    attributed    to    an    increase    in
investments-held-to-maturity  of  $10,268,000  and an increase in  additions  to
property and  equipment of  $2,773,000  primarily for the expansion of warehouse
and office facilities at CRI.
<PAGE>
During the current fiscal year, funds provided by financing activities increased
$2,398,000,  primarily as a result of $2,500,000  borrowed  under the terms of a
five-year term loan to substantially  fund the expansion of warehouse and office
facilities at CRI.  Also  contributing  to the increase in financing  funds were
higher  receipts from the exercise of stock  options and  purchases  through the
Employee  Stock Purchase Plan and  employment  agreements of $174,000  partially
offset by higher dividend payments of $141,000.

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  (one-half in cash and one-half in stock) on January 1, 1997 bringing
the total  payments  to that date to  $4,937,500.  As  outlined in Note 2 to the
accompanying  consolidated  financial  statements,  the  present  value  of  the
remaining  obligation of $6,075,000 was recorded at September 30, 1995 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 and the five-year term loan
mentioned  above  will be  sufficient  to meet cash flow  needs  during the 1997
fiscal year,  including  the payment to former CRI  shareholders  due January 1,
1997.


Recently Issued Accounting Standards

In March,  1995, the Financial  Accounting  Standards Board issued  Statement of
Financial  Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" which requires
the adoption of the standard for fiscal years beginning after December 15, 1995.
This new accounting standard establishes the recognition and measurement of such
long lived assets and certain  identifiable  intangibles  to be held and used by
the Company which must be reviewed for impairment  whenever events or changes in
circumstances  indicate the carrying  amount of an asset may not be recoverable.
The Company has not yet  determined  the effect,  if any, this new standard will
have on the balance sheet,  net income and earnings per share upon its adoption.
Adoption of the new standard will have no effect on the Company's cash flows.

In October,  1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting  for  Stock-Based  Compensation,"  which  requires  adoption  of the
disclosure  provisions no later than fiscal years  beginning  after December 15,
1995 and adoption of the recognition and measurement  provisions for nonemployee
transactions  no later than after December 15, 1995.  Companies are permitted to
continue to account for such  transactions  under  Accounting  Principles  Board
Opinion  No.  25,  "Accounting  for  Stock  Issued to  Employees,"  but would be
required to disclose in a note to the financial  statements pro forma net income
and,  if  presented,  earnings  per share as if the  company had applied the new
method of  accounting,  as  outlined  in SFAS No.  123.  The Company has not yet
determined  if it will elect to change to the method  outlined  in SFAS No. 123,
nor has it  determined  the effect the new standard  will have on net income and
earnings  per share  should it elect to make such a change.  Adoption of the new
standard will have no effect on the Company's cash flows.
<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  as of  September  30,  1996 and 1995,  and the  related
consolidated statements of income,  stockholders' equity and cash flows for each
of the three years in the period  ended  September  30,  1996.  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,  1996 and  1995,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
September 30, 1996 in conformity with generally accepted accounting principles.




                                        /s/Deloitte & Touche LLP
                                        ------------------------
                                           Deloitte & Touche LLP


Parsippany, NJ
November 4, 1996
<PAGE>
<TABLE>
<CAPTION>
                              LCS INDUSTRIES, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF INCOME




For the Years Ended September 30,              1996            1995            1994
                                          ------------    ------------    ------------ 
<S>                                       <C>             <C>             <C>
Net sales .............................   $ 95,570,436    $ 78,863,443    $ 62,690,115
Cost of sales .........................     66,120,153      54,717,497      46,985,698
                                          ------------    ------------    ------------
Gross profit ..........................     29,450,283      24,145,946      15,704,417
Selling and administrative expenses ...     16,678,548      13,653,493      13,270,090
Other (income) expense:
   Dividend and interest income .......       (990,108)       (354,600)       (178,900)
   Interest expense ...................        437,198         187,461         244,457
                                          ------------    ------------    ------------
Income before income taxes ............     13,324,645      10,659,592       2,368,770
Provision for income taxes ............      5,487,000       4,331,000         994,000
                                          ------------    ------------    ------------
Net income ............................   $  7,837,645    $  6,328,592    $  1,374,770
                                          ============    ============    ============

Per common and common equivalent share:
Primary earnings ......................   $       1.53    $       1.33    $        .32
                                          ============    ============    ============

Fully diluted earnings ................   $       1.53    $       1.25    $        .32
                                          ============    ============    ============

Dividends .............................   $       .094    $       .066    $       .045
                                          ============    ============    ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                              LCS INDUSTRIES, INC. AND SUBSIDIARIES

                                   CONSOLIDATED BALANCE SHEETS


September 30,                                                           1996            1995
                                                                   -------------   ------------ 
<S>                                                                <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents ...................................   $ 11,893,982    $  8,630,831
   Investments - held-to-maturity ..............................     10,435,026         199,859
   Accounts receivable (less allowance
       for doubtful accounts: 1996 - $627,000
       and 1995 - $624,000) ....................................     24,519,050      23,815,919
   Prepaid expenses and other current assets ...................      1,596,819       1,891,837
   Deferred taxes ..............................................        338,000         263,250
                                                                   ------------    ------------
     Total current assets ......................................     48,782,877      34,801,696
                                                                   ------------    ------------

Investments - available-for-sale, net ..........................        369,722         797,583
Property and equipment, net ....................................      7,549,229       5,222,513
Goodwill (net of accumulated amortization:
    1996 - $519,855 and 1995 - $233,500) .......................      7,567,326       7,853,675
Other assets ...................................................        700,793       1,061,166
                                                                   ------------    ------------
                                                                   $ 64,969,947    $ 49,736,633
                                                                   ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ............................................   $ 14,726,387    $ 15,105,009
   Accrued salaries and commissions ............................      2,389,837       2,076,999
   Other accrued expenses ......................................      2,513,841       2,352,477
   Income taxes payable ........................................        215,635            --
   Current portion of long-term debt ...........................      1,047,989         567,294
   Current portion of capital lease obligations ................        390,399         516,989
   Deferred revenue ............................................      8,139,767       3,614,331
                                                                   ------------    ------------
     Total current liabilities .................................     29,423,855      24,233,099
                                                                   ------------    ------------
<PAGE>
<CAPTION>
September 30,                                                           1996            1995
                                                                   -------------   ------------ 
<S>                                                                <C>             <C>
Long-term debt, net of current portion .........................      4,331,542       2,804,790
Capital lease obligations, net of current portion ..............        250,997         631,475
Deferred taxes .................................................        103,000          19,750
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 1996 - 4,611,487
       shares and 1995 - 4,347,886 shares ......................         46,115          43,479
   Common stock issuable .......................................      1,945,983       2,407,521
   Additional paid-in capital ..................................      7,223,263       5,431,455
   Retained earnings ...........................................     21,887,737      14,451,854
                                                                   ------------    ------------
                                                                     31,103,098      22,334,309
   Less:  treasury stock, at cost, 187,766 shares ..............       (207,953)       (207,953)
          available-for-sale securities valuation adjustment,
             net of deferred income taxes ......................        (34,592)        (78,837)
                                                                   ------------    ------------
     Total stockholders' equity ................................     30,860,553      22,047,519
                                                                   ------------    ------------
                                                                   $ 64,969,947    $ 49,736,633
                                                                   ============    ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                                                                                                    
                                     Common Stock           
                                     $.01  Par Value           Common         Additional                          Treasury Stock-   
                               ------------------------         Stock          Paid-In        Retained                at Cost
Balance                          Shares         Amount         Issuable        Capital        Earnings          Shares      Amount 
                               ------------------------    ------------    ------------    ------------         -------------------
<S>                            <C>         <C>             <C>             <C>             <C>                  <C>       <C>
October 1, 1993 .........      1,863,555   $     18,635    $    831,136    $  1,991,957    $  8,704,995         187,766   ($207,953)

Acquisition of Catalog
  Resources, Inc. .......
  Common stock issued ...         26,172            262        (187,793)        187,531            --              --          --   
  Change in present value
    of future stock
    distributions, net ..           --             --           324,445            --              --              --          --   
Exercise of stock options         19,250            193            --            79,870            --              --          --   
Stock purchased through
  Employee Stock ........            360              3            --             2,139            --              --          --   
Purchase Plan
Dividends paid ..........           --             --              --              --          (166,829)           --          --   
Valuation adjustment ....           --             --              --              --              --              --          --   
Net income ..............           --             --              --              --         1,374,770            --          --   
                               ---------   ------------    ------------    ------------    ------------         -------   ---------
September 30, 1994 ......      1,909,337         19,093         967,788       2,261,497       9,912,936         187,766    (207,953)
                               ---------   ------------    ------------    ------------    ------------         -------   ---------

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      (1,529,396)           --          --   
Stock dividend - 100% ...      2,061,087         20,611            --           (20,611)           --              --          --   
Stock purchased through
  Employee Stock
Purchase Plan
  and employment ........          6,690             67            --            80,098            --              --          --   
agreements
Dividends paid ..........           --             --              --              --          (260,278)           --          --   
Valuation adjustment ....           --             --              --              --              --              --          --   
Tax benefit of exercise
of
  stock options .........           --             --              --           426,000            --              --          --   
Net income ..............           --             --              --              --         6,328,592            --          -- 
                               ---------   ------------    ------------    ------------    ------------         -------   ---------
September 30, 1995 ......      4,347,886         43,479       2,407,521       5,431,455      14,451,854         187,766    (207,953)
                               ---------   ------------    ------------    ------------    ------------         -------   ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(continued)

                                           Available-for-              
                                          Sale Securities             
                                             Valuation
                                             Adjustment        Total
                                             ----------        -----
<S>                                        <C>             <C>
October 1, 1993 ........................   $          0    $ 11,338,770

Acquisition of Catalog
  Resources, Inc. ......................
  Common stock issued ..................           --              --   
  Change in present value
    of future stock
    distributions, net .................           --           324,445
Exercise of stock options ..............           --            80,063
Stock purchased through
  Employee Stock .......................           --             2,142
Purchase Plan
Dividends paid .........................           --          (166,829)
Valuation adjustment ...................        (87,969)        (87,969)
Net income .............................           --         1,374,770
                                          -------------    ------------         
September 30, 1994 .....................        (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% ...................           --              --   
Stock dividend - 100% ..................           --              --   
Stock purchased through
  Employee Stock
Purchase Plan
  and employment .......................           --            80,165
agreements
Dividends paid .........................           --          (260,278)
Valuation adjustment ...................          9,132           9,132
Tax benefit of exercise
of
  stock options ........................           --           426,000
Net income .............................           --         6,328,592
                                          -------------    ------------         
September 30, 1995 .....................        (78,837)     22,047,519
                                          -------------    ------------         
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(continued)
                                     Common   Stock           
                                     $.01  Par Value           Common         Additional                          Treasury Stock-   
                               ------------------------         Stock          Paid-In        Retained                at Cost
Balance                          Shares         Amount         Issuable        Capital        Earnings          Shares      Amount 
                               ------------------------    ------------    ------------    ------------         -------------------
<S>                            <C>         <C>             <C>             <C>             <C>                  <C>       <C>

September 30, 1995 ......      4,347,886         43,479       2,407,521       5,431,455      14,451,854         187,766    (207,953)
                               ---------   ------------    ------------    ------------    ------------         -------   ---------

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 - ........            360              4            --               251            --              --          --   
converted shares
Stock purchased through
  Employee Stock
Purchase Plan
  and employment ........         11,717            117            --           153,861            --              --          --   
agreements
Dividends paid ..........           --         (401,762)           --              --   
Valuation adjustment, net           --             --              --              --              --              --          --   
Tax benefit of exercise
of
  stock options .........           --             --              --           559,000            --              --          --   
Net income ..............           --             --              --              --         7,837,645            --          --   
                               ---------   ------------    ------------    ------------    ------------         -------   ---------
September 30, 1996 ......      4,611,487   $     46,115    $  1,945,983    $  7,223,263    $ 21,887,737         187,766   ($207,953)
                               ---------   ------------    ------------    ------------    ------------         -------   ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(continued)

                                           Available-for-              
                                          Sale Securities             
                                             Valuation
                                             Adjustment        Total
                                             ----------        -----
<S>                                        <C>             <C>
September 30, 1995 .....................        (78,837)     22,047,519

Acquisition of Catalog
  Resources, Inc. ......................
  Common stock issued ..................           --              --   
Exercise of stock options ..............           --           619,673
Stock Dividend - .......................           --               255
converted shares
Stock purchased through
  Employee Stock
Purchase Plan
  and employment .......................           --           153,978
agreements
Dividends paid .........................           --          (401,762)
Valuation adjustment, net ..............         44,245          44,245
Tax benefit of exercise
of
  stock options ........................           --           559,000
Net income .............................           --         7,837,645
                                          -------------    ------------         
September 30, 1996 .....................   ($    34,592)   $ 30,860,553
                                          -------------    ------------         

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


For the Years Ended September 30,                                                   1996                1995               1994
                                                                               ------------        ------------        -------------
<S>                                                                            <C>                 <C>                 <C>
Increase  (Decrease)  in cash and cash  equivalents
  Cash flows  from  operating activities:

   Net income ..........................................................       $  7,837,645        $  6,328,592        $  1,374,770
   Adjustments  to  reconcile  net  income  to net cash
   provided  by  operating activities:
       Depreciation and amortization ...................................          2,321,718           1,861,883           1,598,746
       Deferred income taxes ...........................................            (21,000)            (95,000)            194,000
       Provision for doubtful accounts receivable ......................             65,000             121,625             160,487
       Gains on sales of equipment .....................................               --                (9,750)               --
       Gain on sale of available-for-sale securities, net ..............             (1,046)               --                  --
                                                                               ------------        ------------        ------------
       Total adjustments ...............................................          2,364,672           1,878,758           1,953,233
   Changes in operating assets and liabilities:
       Accounts receivable .............................................           (768,131)         (6,021,005)         (2,285,043)
       Prepaid expenses and other current assets .......................            295,018            (660,616)            157,678
       Accounts payable and accrued expenses ...........................            347,847           3,778,404           3,126,932
       Income taxes payable ............................................            215,635            (153,803)            147,737
       Deferred revenue ................................................          4,525,436           3,614,331                --
       Security deposits ...............................................            331,262            (581,846)             36,700
       Other, net ......................................................             29,111             (58,976)             24,503
                                                                               ------------        ------------        ------------
       Total adjustments and changes ...................................          7,340,850           1,795,247           3,161,740
                                                                               ------------        ------------        ------------
        Net cash provided by operating activities ......................         15,178,495           8,123,839           4,536,510
                                                                               ------------        ------------        ------------

Cash flows from financing activities:
   Changes in note payable, long-term debt and capital
       leases (including current portion):
       Borrowings ......................................................          2,500,000                --             1,350,000
       Repayments ......................................................         (1,251,888)         (1,117,273)         (3,802,210)
   Dividends paid ......................................................           (401,507)           (260,278)           (166,829)
   Exercise of stock options ...........................................          1,178,673           1,078,533              80,063
   Employee Stock Purchase Plan and employment
       agreement proceeds ..............................................            153,978              80,165               2,142
                                                                               ------------        ------------        ------------
   Net cash (used in) provided by financing activities .................          2,179,256            (218,853)         (2,536,834)
                                                                               ------------        ------------        ------------

Cash flows from investing activities:
   Additions to property and equipment .................................         (4,362,085)         (1,589,400)         (1,500,548)
   Net (purchases) sales of investments-held-to-maturity ...............         (9,732,515)            535,068             125,823
   Proceeds from sales of equipment ....................................               --               100,688                --
                                                                               ------------        ------------        ------------
   Net cash used in investing activities ...............................        (14,094,600)           (953,644)         (1,374,725)
                                                                               ------------        ------------        ------------
Continued on next page.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued from previous page.

For the Years Ended September 30,                                                   1996                1995               1994
                                                                               ------------        ------------        -------------

<S>                                                                            <C>                 <C>                 <C>
Cash and cash equivalents:
   Net increase in cash and cash equivalents ...........................          3,263,151           6,951,342             624,951
   Cash and cash equivalents at beginning of year ......................          8,630,831           1,679,489           1,054,538
                                                                               ------------        ------------        ------------
   Cash and cash equivalents at end of year ............................       $ 11,893,982        $  8,630,831        $  1,679,489
                                                                               ============        ============        ============

Supplementary disclosures of cash flow information: 
 Cash paid during the period for:
       Interest                                                                $    219,000        $    153,000        $    264,000
       Income taxes                                                            $  4,261,000        $  4,637,000        $    652,000

Supplemental disclosures of non-cash investing
   and financing activities:

   Acquisition of business:
       Fair value of assets acquired                                           $       ---         $  4,478,091        $    648,890
       Issuance of debt                                                                ---           (2,532,108)           (324,445)
       Common stock issuable                                                           ---           (1,945,983)           (324,445)
                                                                               ------------        ------------        ------------ 
       Liabilities assumed                                                     $       ---         $       ---         $        ---
                                                                               ============        ============        ============ 
</TABLE>
       For the years ended September 30, 1996, 1995 and 1994, $461,538, $506,250
       and $187,793 of common stock issuable was converted into 34,621,  139,948
       and  57,578  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 and 1994, capital lease obligations
       of $216,000, and $162,000, respectively, were incurred for the leasing of
       equipment.  There were no capital lease  obligations  entered into during
       the year ended September 30, 1996.

   Valuation adjustment:
       For the year ended  September  30,  1996,  the  account  was  adjusted to
       reflect an increase in market values of the available-for-sale securities
       portfolio of $44,245, net of deferred income taxes. A similiar adjustment
       of $9,132, net of deferred income taxes, was made at September 30, 1995.
<PAGE>
   Stock Dividends:
       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.

       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. (the "Company") and its subsidiaries.  All
material  intercompany   transactions  and  balances  have  been  eliminated  in
consolidation.  The Company provides  outsourced  direct marketing  services and
specializes in fulfillment,  list marketing 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.

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
$9,835,000 and $7,606,000 at September 30, 1996 and 1995, 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 -  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.

F - 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, 1996,  1995 and 1994 include  goodwill  amortization  of $286,355,
$123,500  and  $51,000,   respectively.   The  Company  regularly  assesses  the
recoverability of goodwill.
<PAGE>
G - 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.

H - Income taxes - The Company  records  income taxes based on the provisions of
Statement of Financial  Standards No. 109,  "Accounting for Income Taxes".  This
statement  required a change from the deferred  method of accounting  for income
taxes of APB  Opinion 11 to the asset and  liability  method of  accounting  for
income  taxes.  Under the asset and  liability  method,  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.

I - 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, 1996, 1995 and 1994, the weighted average number of shares used in
determining  primary  earnings per common  share was  5,118,085,  4,755,365  and
4,306,009,  respectively.  For the same periods,  the weighted average number of
shares  used  in  determining  fully  diluted  earnings  per  common  share  was
5,124,568,  5,049,958 and 4,307,184,  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 1996, 1995
and 1994  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 and 1994  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.

J - Reclassifications - Certain reclassifications have been made to the 1995 and
1994 financial statements to conform to the 1996 presentation.
<PAGE>
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 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 and 1996. As of September 30, 1996,  499,525  shares had been
delivered under the provisions of the purchase agreement, as amended.

As a  result  of the  operating  results  achieved  for the  fiscal  year  ended
September 30, 1995,  the  September,  1995 signing of a two year  extension of a
contract to provide fulfillment services to a significant  customer,  forecasted
operating  results for the 1996 fiscal year and the  evaluation  of  anticipated
future  operating  results  beyond  fiscal 1996, it was  considered  probable at
September 30, 1995 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, 1996, the January 1, 1997 scheduled  payment of
$1,012,000 will be paid.

Note 3 - Investments

During the years  ended  September  30,  1996 and 1995,  the  valuation  account
related to the  available-for-sale  marketable securities portfolio was adjusted
to reflect increases in market values of $44,245 and $9,132,  respectively,  net
of deferred taxes.
<PAGE>
The following  table sets forth the components of investments  held at September
30, 1996:
<TABLE>
<CAPTION>         
                                                                     Unrealized 
                                                           Market      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       (59,971)
                                        -----------   -----------   -----------
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.

The following  table sets forth the components of investments  held at September
30, 1995:
<TABLE>
<CAPTION>
                                                                      Unrealized 
                                                             Market     Holding
Available-for-sale:                                Cost       Value       Loss
-------------------                                ----       -----       ----
<S>                                           <C>         <C>         <C>
U.S. Government due January 31, 1999 ......   $  24,996   $  24,260   $    (736)
Equity securities .........................     903,924     773,323    (130,601)
                                              ---------   ---------   ---------
Total .....................................   $ 928,920   $ 797,583   $(131,337)
                                              =========   =========   ========= 

Held-to-maturity:

U.S. Government due May 15, 1996 ..........   $ 199,859   $ 199,020   $    (839)
                                              ---------   ---------   --------- 
</TABLE>

During  the  year  ended  September  30,  1995,  proceeds  from  redemptions  of
investments  were  $540,000.  No  realized  gains or  losses  resulted  from the
redemption of these securities.
<PAGE>
Note 4 - Allowance for Doubtful Accounts

Activity  in the  Allowance  for  Doubtful  Accounts  for the three  years ended
September 30, 1996 includes:
<TABLE>
<CAPTION>
Year Ended September 30,                      1996          1995          1994
------------------------                      ----          ----          ----
<S>                                       <C>           <C>           <C>
Balance at beginning of year .........    $ 624,000     $ 585,000     $ 560,000
Additions - charged to expense .......       65,000       121,625       160,467
Deductions ...........................      (62,000)      (82,625)     (135,467)
                                          ---------     ---------     ---------
Balance at end of year ...............    $ 627,000     $ 624,000     $ 585,000
                                          ---------     ---------     ---------
</TABLE>

Note 5 - Property and Equipment

The components of property and equipment include:
<TABLE>
<CAPTION>

September 30,                                              1996          1995
-------------                                              ----          ----
<S>                                                    <C>           <C>
Furniture and fixtures .............................   $ 2,845,137   $ 1,979,289
Leasehold improvements .............................     2,093,435     1,619,583
Computer equipment .................................     6,828,373     5,792,492
Computer equipment under capital leases ............     1,915,567     1,915,567
Other equipment ....................................     3,616,807     1,629,411
                                                       -----------   ----------- 
                                                        17,299,319    12,936,342
Less:  Accumulated depreciation and amortization ...     9,750,090     7,713,829
                                                       -----------   -----------
                                                       $ 7,549,229   $ 5,222,513
                                                       -----------   -----------
</TABLE>
Depreciation and amortization charged to operations was $ 2,035,000, $1,738,000,
and $1,547,000 for 1996, 1995 and 1994, respectively.


Note 6 - Unsecured Line of Credit

The Company has  available a $3,000,000  unsecured  bank line of credit  bearing
interest at the bank's  base rate (8.25% at  September  30,  1996).  The line of
credit  expires March 31, 1997.  During fiscal years 1996 and 1995,  the line of
credit was not used.

<PAGE>
Note 7 - Long-Term Debt

Long-term debt consists of:                   
<TABLE>
<CAPTION>
September 30,                                            1996            1995
-------------                                            ----            ----
<S>                                                   <C>             <C>
Payable to former shareholders of CRI ..........      $2,784,375      $2,993,646
Notes payable to banks .........................       2,595,156         378,438
                                                      ----------      ----------
                                                       5,379,531       3,372,084
Less: Current portion ..........................       1,047,989         567,294
                                                      ----------      ----------
                                                      $4,331,542      $2,804,790
                                                      ----------      ----------
</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 $261,604 as of September  30,
1996. 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, 1996 of $2,417,997.  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.
<TABLE>
<CAPTION>
Maturities of long-term debt include:

                    Fiscal Year Ended
                      September 30,                              Amount
                      -------------                              ------
<S>                    <C>                                   <C>           
                           1997                              $ 1,047,989
                           1998                                1,054,143
                           1999                                  974,205
                           2000                                  946,717
                           2001                                  698,454
                       Thereafter                                658,023
                                                             -----------
Total long-term debt                                         $ 5,379,531
                                                             ===========
</TABLE>
<PAGE>
Note 8 - Provision for Income Taxes

The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>

Year Ended September 30,                                1996           1995           1994
------------------------                                ----           ----           ----
<S>                                                 <C>            <C>            <C>
Current
      Federal ...................................   $ 4,292,000    $ 3,471,000    $   636,000
      State .....................................     1,216,000        955,000        164,000
                                                    -----------    -----------    -----------
        Total provision for current income taxes      5,508,000      4,426,000        800,000
                                                    -----------    -----------    -----------

Deferred
      Federal ...................................       (22,000)       (85,000)       146,000
      State .....................................         1,000        (10,000)        48,000
                                                    -----------    -----------    -----------
        Total provision for deferred income taxes       (21,000)       (95,000)       194,000
                                                    ===========    ===========    ===========
        Total provision for income taxes ........   $ 5,487,000    $ 4,331,000    $   994,000
                                                    ===========    ===========    ===========

</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,                              1996           1995           1994
------------------------                              ----           ----           ----
<S>                                               <C>            <C>            <C>
Federal income tax at statutory rate ..........   $ 4,564,000    $ 3,624,000    $   806,000
State income taxes - net of federal tax benefit       791,000        619,000        134,000
Non-deductible expenses .......................       148,000         85,000         39,000
Non-taxable income ............................       (16,000)       (15,000)       (21,000)
Other .........................................          --           18,000         36,000
                                                  -----------    -----------    -----------
        Total provision for income taxes ......   $ 5,487,000    $ 4,331,000    $   994,000
                                                  ===========    ===========    ===========
</TABLE>
<PAGE>
The components of deferred income tax assets and liabilities include:
<TABLE>
<CAPTION>
September 30,                                                               1996                                 1995
-------------                                                  --------------------------------      -------------------------------
                                                               Net Current      Net Non-current      Net Current     Net Non-current
                                                                  Asset            Liability            Asset           Liability
                                                               --------------------------------      -------------------------------
<S>                                                            <C>                <C>                 <C>               <C>
Property and equipment ..............................          $    --            $ 127,000           $    --           $  72,250
Allowance for doubtful accounts .....................            256,000               --               249,000              --
Unrealized holding loss on
      marketable securities .........................               --              (24,000)               --             (52,500)
Vacation accrual ....................................             82,000               --                48,000              --
Change to accrual accounting for CRI ................               --                 --               (33,750)             --
                                                               ---------          ---------           ---------         ---------
        Total .......................................          $ 338,000          $ 103,000           $ 263,250         $  19,750
</TABLE>

Note 9 - Stock Options

The  Company  has an  Incentive  Stock  Option 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.

The Company also has a non-qualified  Non-Employee  Directors Stock Option Plan.
The aggregate  number of shares which may be issued under the Directors  Plan is
220,000. Each non-employee director, who has been a non-employee director at all
times  during the fiscal  year,  shall be  granted an option to  purchase  5,000
shares of the  common  stock on the 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 this Plan are based on the market value on
the date of grant. At September 30, 1996, 32,000 options have been granted under
this plan at prices of $3.525 and $16.00 per share.  During  fiscal 1996,  9,800
options were  exercised,  10,600  options were  cancelled  and, at September 30,
1996, 1,000 options were exercisable.  Based on 1996's results, options covering
5,000 shares are issuable.

Non-employee  directors have been granted non-qualified  options, at fair market
value on the date of grant,  to purchase  65,000 shares of the Company's  common
stock at prices of $2.045 to $5.375 per share.  At  September  30,  1996,  4,400
options were exercisable.  During the current year, 9,500 options were exercised
and 5,500 options were cancelled.

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).  Of the total
options granted,  options covering 35,400 shares represent the excess over 1% of
the voting  outstanding shares at the date of grant. In March, 1996, the Company
was advised that, in accordance  with Schedule D of The Nasdaq Stock  Market(sm)
bylaws,  the  granting  of  such  options  in  excess  of  1% of  the  Company's
outstanding shares of common stock requires  shareholder  approval.  The Company
has restricted the  exercisability of these options until  shareholder  approval
can be obtained at the 1997 stockholders' meeting.
<PAGE>
The following  schedule sets forth the activity under the 1983  Incentive  Stock
Option Plan for the years ended September 30, 1996,  1995 and 1994.  Granting of
options under this plan ceased in May, 1994.
<TABLE>
<CAPTION>

Incentive options                             Number        Option Price
-----------------                             ------        ------------
<S>                                         <C>          <C>
September 30, 1993 .....................     397,810     $   2.75 - $   8.25
Exercised ..............................     (19,250)    $   3.25 - $   4.50
Expired or cancelled ...................      (3,500)    $   7.50 - $   9.25
                                            --------     -------------------
Outstanding September 30, 1994 .........     375,060     $   2.75 - $   8.25
Exercised ..............................    (120,767)    $   3.46 - $   7.50
Expired or cancelled ...................      (3,849)
Stock dividend - 10% ...................      32,506     $   2.50 - $   7.50
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
                                            --------     -------------------
Exercisable September 30, 1996 .........     356,700     $   1.25 - $   3.41
                                            --------     -------------------
</TABLE>
The  following  schedule  sets forth the  activity of the 1993  Incentive  Stock
Option Plan for the years ended September 30, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Incentive options                           Number         Option Price
-----------------                           ------         ------------
<S>                                       <C>            <C>

Granted in 1994 ......................       83,000      $    5.00- $   7.75
                                          ---------      -------------------
Outstanding September 30, 1994 .......       83,000      $    5.00- $   7.75
Granted ..............................      211,600      $    7.36- $  33.69
Exercised ............................       (6,463)     $    4.55- $   5.91
Expired or cancelled .................      (19,250)     $    4.55- $   5.91
Stock dividend - 10% .................        8,300      $    4.55- $   7.05
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      $    2.88- $  16.85
                                          ---------      -------------------
Exercisable September 30, 1996 .......      337,775      $    2.96- $  16.85
                                          ---------      -------------------
Available for grant September 30, 1996    1,539,198
                                          ---------       
</TABLE>
<PAGE>
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 was adopted.  The 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 Plan began  September 1, 1994. For the years
ended September 30, 1996, 1995 and 1994, share purchased total 9,968, 13,552 and
792, 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 1996 and 1995, a
total  of  1,749  and 143  shares,  respectively,  were  purchased  under  these
agreements.


Note 11 - Employee Retirement Savings Plan (401K)

The  Company  sponsors a tax  deferred  retirement  savings  plan which  permits
eligible employees to contribute varying percentages of their compensation up to
the limit allowed by the Internal  Revenue  Service.  The plan also provides for
discretionary Company  contributions.  No discretionary  contributions were made
for the years ended September 30, 1996, 1995 and 1994.

The  Company  matches  employees'  contributions  to a  maximum  of  25%  of the
employee's  first 6% contributed.  During the period January 1, 1996 to June 30,
1996, the Company's matching  contributions were temporarily increased to 35% of
eligible employee contributions.  Matching contributions charged to expense were
$196,000,  $154,000 and $128,000 for the fiscal years ended  September 30, 1996,
1995 and 1994, 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>                      <C>      
                                                 1997                  $ 427,091                $  2,602,130
                                                 1998                    256,071                   2,367,622
                                                 1999                        126                   1,961,075
                                                 2000                                              1,608,752
                                                 2001                                              1,171,788
                                             Thereafter                                            3,990,101
                                                                       ---------                ------------
                                                                         683,288                $ 13,701,468
Less: Imputed interest                                                    41,892
                                                                       ---------
Present value of capital lease obligations                             $ 641,396
                                                                       ---------
</TABLE>
<PAGE>
Real estate, equipment and software operating lease costs include:
<TABLE>
<CAPTION>

Year Ended September 30,                 1996            1995            1994
------------------------                 ----            ----            ----
<S>                                   <C>             <C>             <C>
Real estate ....................      $2,324,323      $1,227,000      $1,120,000
Equipment and software .........         788,173         774,000       1,159,000
                                      ----------      ----------      ----------
    Total ......................      $3,112,496      $2,001,000      $2,279,000
                                      ----------      ----------      ----------

</TABLE>

Note 13 - 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.

At  September  30,  1996,  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  $2,770,000.  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 14 - Major Customers

For the year ended September 30, 1996, revenues recognized under the contract to
provide computer services to a non-U.S.  communications  company amounted to 14%
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 1997 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 November 29,1996, 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>
Arnold J. Scheine..........                  58               President and Director-1969

Marvin Cohen................                 62               Senior Vice President and Secretary-1981,
                                                              Director-1969

Pat R. Frustaci..............                42               Vice President - Finance, Chief Financial Officer,
                                                              Treasurer and Assistant Secretary - 1995

Charlotte Griffiths..........                54               Vice President - Administration 1995
                                                              Vice President - 1985

James E. Quinlan.........                    58               Controller-1988

William Rella.................               54               President - Fulfillment Services - 1994

Gerry King.....................              47               President - Catalog Resources, Inc. - 1993

Lon Mandel...................                41               President and Chief Operating Officer - The SpeciaLISTS
                                                              Ltd. - 1987

Phyllis Stein...................             44               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, 1996, 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 one officer.  Such person was Kathryn  Barber,
former President of the Outbound  Telemarketing  Services  Division,  who filed,
however,  not on a timely basis,  three Form 4's relating to her beneficial sale
of 13,200 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                               

                             Report of Deloitte & Touche  LLP on
                             Financial Statements            

                             Consolidated Statements of Income
                             for the Years Ended September 30,
                             1996, 1995 and 1994 

                             Consolidated Balance Sheets as
                             of September 30, 1996 and 1995  

                             Consolidated Statements of Changes
                             in Stockholders' Equity for the
                             Years Ended September 30, 1996,
                             1995 and 1994               

                             Consolidated Statements of Cash Flows
                             for the Years Ended September 30,
                             1996, 1995 and 1994     

                             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           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 line of credit  commitment  letter
                         dated July 15, 1996

               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). (14)

               11        Computation of Earnings per Share and Common Equivalent
                         Share

               22        List of Subsidiaries
<PAGE>
               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  10-K  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.

                         (12) Incorporated   by  Reference  to  Exhibit  to  the
                              Company's   Current   Report  on  Form  8-K  dated
                              September 1, 1995, File No. 0-12329.
<PAGE>
                         (13) Incorporated   by  Reference  to  Exhibit  to  the
                              Company's  Current  Report on Form  10Q/A-1  dated
                              August 8, 1996, File No. 0-12329.

                         (14) Incorporated   by  Reference  to  Exhibit  to  the
                              Company's  Current  Report on Form  10Q/A-1  dated
                              August 8, 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,
                         1996.

<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/Arnold J. Scheine
                                              --------------------
                                                 Arnold J. Scheine
                                                 President


Date:          December 18, 1996

               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, 1996.

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

/s/Arnold J. Scheine        President (Principal Executive Officer) and Director
--------------------
Arnold J. Scheine


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


/s/Marvin Cohen             Senior Vice President, Secretary and Director
---------------
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, 1996




                                 E X H I B I T S

<PAGE>







INDEX TO EXHIBITS


     Exhibit
      No.                                Description                     
      ---                                -----------                           


     10.5                      The Bank of New York line of    
                               credit commitment letter dated
                               July 15, 1996

     11                        Computation of Earnings Per   
                               Share and Common Equivalent
                               Share

     22                        List of Subsidiaries     

     23                        Consent of Deloitte & Touche LLP