UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K
   (Mark One)

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

              For the fiscal year ended December 31, 1997

                                       or

( )  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

              For the transition period from _________  to  _________

Commission File Number: 0-26622

                         COMPUTER MANAGEMENT SCIENCES, INC.
              (Exact name of registrant as specified in its charter)

       Florida                                         59-2264633
(State or other jurisdiction             (I.R.S. Employer Identification Number)
 of incorporation or organization)

8133 Baymeadows Way, Jacksonville, Florida                           32256
 (Address of principal executive offices)                          (Zip Code)


Registrant's telephone number, including area code: (904) 737-8955

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

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

                          Common Stock, $0.01 par value

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. [ ]

The aggregate  market value of shares of the  registrant's  common stock held by
non-affiliates  of the  registrant  as of February 28, 1998,  was  approximately
$225,209,000.

The number of shares of the registrant's  common stock issued and outstanding as
of February 28, 1998 was 14,567,468.

Documents  Incorporated by Reference:  Parts of the Company's  definitive  proxy
statement  for the Annual  Meeting of the Company's  Shareholders  to be held on
June 19, 1998 are incorporated by reference into Part III of this Form.



<PAGE>



                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997



                               Table of Contents


Item Number in
  Form 10-K                                                                 Page



                                     PART I

Item 1.  Business............................................................. 1

Item 2.  Properties...........................................................11

Item 3.  Legal Proceedings....................................................11

Item 4.  Submission of Matters to a Vote of Security Holders..................11



                                     PART II

Item 5.  Market For Registrant's Common Equity and Related Stockholder
         Matters..............................................................12

Item 6.  Selected Financial Data............................................. 14

Item 7.  Management's Discussion & Analysis of Financial Condition and
         Results of Operations............................................... 16

Item 8.  Financial Statements and Supplementary Data......................... 22

Item 9.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure................................................ 22



                                    PART III

Item 10.  Directors and Executive Officers of the Registrant................. 23

Item 11.  Executive Compensation............................................. 23

Item 12.  Security Ownership of Certain Beneficial Owners and Management..... 23

Item 13.  Certain Relationships and Related Transactions..................... 23



                                     PART IV

Item 14.  Exhibits, Financial Statements, Schedules, and Reports on
          Form 8-K........................................................... 24





<PAGE>


                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997




                                     PART I

Item 1.  Business

General

      Computer  Management  Sciences,  Inc.  ("CMSI" or the "Company")  provides
information  technology consulting and custom software development services to a
diverse  group  of  clients,  primarily  Fortune  1000  companies,  other  large
organizations  and state and local  governments  located  throughout  the United
States. The Company's services are generally an outside resource supplementing a
client's  internal  information  technology ("IT")  capabilities,  and include a
broad range of technical  services,  such as  technology  support  services,  IT
solutions  services and strategic IT  consulting.  Technology  support  services
include  systems support and  maintenance  and contract  programming.  Solutions
services include software application design, development and implementation, as
well as systems integration.  Strategic consulting services include planning and
designing    enterprise-wide    information   systems   and   business   process
re-engineering  which allow clients to maximize the strategic  value of business
information.

      The Company was  founded in 1983 as a provider of  technology  support and
contract  programming.  In late 1992 and early  1993,  in  response  to industry
trends,  the  Company  decided to seek more  profitable  and higher  value-added
engagements,  particularly  client/server solutions engagements and strategic IT
consulting. Today, CMSI's services typically are delivered by a "Solutions Team"
consisting  of technical  professionals  having an  appropriate  combination  of
support, solutions and strategic consulting expertise. The Company believes this
Solutions  Team  approach   differentiates   CMSI  from   competitors   offering
conventional  contract staffing services because this service delivery structure
allows  CMSI to  cross-market  a broader  range of skills to  existing  clients.
Solutions  Teams are often  organized  within the Company's  System  Outsourcing
Centers ("SOCs") and employ the "Software Factory Process"  ("SFP"),  which is a
standardized   process,   developed  by  the   Company,   for  the  creation  of
documentation  and the  development  of custom  software.  The SFP  utilizes the
Company's  proprietary   Evolution(R)   methodology,   which  is  a  structured,
step-by-step  approach to  application  development  that  facilitates  both the
design  of  systems  and  the  integration  of  these  systems  with a  client's
organizational  objectives.  Also,  the Company has strategic  alliances  with a
number of major technology companies, including DBStar, Inc., Logic Works, Inc.,
Lotus Development  Corporation,  MatriDigm Corporation,  MicroFocus Corporation,
Microsoft Corp.,  Oracle  Corporation,  Proforma,  Inc. and Sybase,  Inc., which
provide access to technical and marketing information,  specialized training and
cooperative marketing efforts.

      The Company provides services through its corporate  headquarters  located
in  Jacksonville,  Florida and its network of six SOCs and eight branch  offices
located  in  Jacksonville,   Hartford,  Atlanta,  Greenville,  Boston,  Portland
(Oregon),  Chicago,   Cleveland,   Tallahassee,   Charlotte,   Detroit,  Denver,
Washington,  D.C. and Winston-Salem (North Carolina).  At December 31, 1997, the
Jacksonville  SOC,  which serves as the prototype for the other  locations,  was
staffed  by   approximately   184  professional   consultants.   The  number  of
professional  consultants  at the  other  branches  ranged  from 3 to  108,  and
averaged  approximately  47. The Company  believes  that its network of SOCs and
branch  offices  provides  clients  with the local  contact and a broad range of
skill sets necessary to establish and maintain  long-term client  relationships.
Each branch  office is managed by a branch or business  unit manager who reports
directly to a Company Vice President.

      In October 1995,  the Company  opened its first SOC in  Jacksonville.  The
Company  subsequently  opened five  additional  SOCs;  Atlanta in December 1996,
Tallahassee in February 1997, Greenville in April 1997, Charlotte in August 1997
and Denver in December 1997. A SOC is a modern,  highly secure facility equipped
with  a  variety  of  advanced  computer  hardware,   software,  and  networking
technologies  (Windows N/T) and systems. A SOC is designed to enable the Company
to provide  its full range of services in a  state-of-the-art  Company  facility
rather than on-site at the client's facility.  The Company believes that the SOC
architecture is a major  differentiating asset among its competitors and will be
an important factor in attracting  outsourcing  engagements and marketing its IT
consulting services. The Company intends to open additional SOCs during 1998.

                                       1
<PAGE>

                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997


Forward Looking Statements

      This Annual Report on Form 10-K  contains  certain  information  and trend
statements that constitute  "forward-looking  statements"  within the meaning of
the  Private   Securities   Litigation  Reform  Act,  which  involve  risks  and
uncertainties.  Actual results may differ  materially from the results described
in the  forward-looking  statements.  When  used in  this  document,  the  words
"anticipate", "believe", "estimate", "expect", "intend", "project", "target" and
other  similar  expressions,  as they  relate to the  Company,  are  intended to
identify forward-looking  statements.  Such statements reflect the current views
of the Company with respect to future  events and are subject to certain  risks,
uncertainties  and  assumptions  that  include,  but are not limited to,  growth
through business  combinations and internal expansion,  the Company's ability to
attract   and  retain   qualified   consultants,   dependence   on   significant
relationships  and  the  absence  of  long-term  contracts,  project  risk,  the
Company's ability to effectively  manage a large and rapidly changing  business,
pricing and margin  pressures,  and competition.  Please refer to discussions of
these and other  factors in this Annual  Report and other  Company forms on file
with the Securities and Exchange Commission. The Company disclaims any intent or
obligation to update  publicly these  forward-looking  statements,  whether as a
result of new information, future events or otherwise.

Mergers and Acquisitions

      CMSI is actively  pursuing mergers or acquisitions of companies that offer
synergistic  technological  capabilities  not  currently  possessed  by  CMSI or
similar companies in desirable geographic markets.

      In December  1995,  the Company  exchanged  approximately  343,991  shares
(adjusted for subsequent  stock splits) for all the outstanding  common stock of
MIS Software Development, Inc. ("MSD"), a software development company, based in
Tallahassee, Florida, that provides information technology services to state and
local  governments  in the form of on-line  data  bases  accessed  and  up-dated
directly by the user through its computer  terminals.  CMSI has  identified  the
state  and  local  government  market  as a  growth  sector  in the  process  of
converting to client/server  technologies.  MSD is a wholly-owned  subsidiary of
CMSI  and its  acquisition  was  accounted  for as a  pooling-of-interests  and,
accordingly,  the consolidated  financial  statements for all periods  presented
have been restated to include the accounts and results of operations of MSD.

      On January 30, 1996, the Company  acquired  certain assets,  contracts and
personnel  of  Weldon   Systems,   Inc.,  a  company   located  in  Springfield,
Massachusetts that develops customized computer software  applications for firms
in the  financial  services and  insurance  industries.  The purchase  price was
$225,000 and the acquisition was accounted for under the purchase method.

      On April 30, 1996,  the Company  exchanged  approximately  945,907  shares
(adjusted  for  subsequent  stock  splits)  of its  common  stock for all of the
outstanding common stock of Summit Computer  Services,  Inc. ("SCS"), a computer
consulting firm, based in Charlotte, North Carolina, with concentrated expertise
in client/server technology. This business combination has been accounted for as
a pooling-of-interests  and, accordingly,  the consolidated financial statements
for all periods presented have been restated to include the accounts and results
of operations of SCS. SCS is a wholly-owned subsidiary of CMSI.

      On July 31,  1996,  the  Company  acquired  all of the assets of  Pathways
Consulting, Inc. ("Pathways"), an information technology firm, based in Atlanta,
Georgia,  specializing in providing systems  integration  consulting services to
the public utility  industry.  The  acquisition was accounted for as a purchase,
with a total  purchase  price of $4.4  million in cash of which $2.3 million was
paid at closing  and the  balance,  $2.1  million,  is  payable in equal  annual
installments over an approximate three year period subject to the achievement of
certain revenue goals.  Subsequent to December 31, 1996,  Pathways  exceeded its
first two revenue goals and as a result $700,000 of contingent consideration was
paid in the first  quarter of 1997 and an  additional  payment  $700,000 will be
made in the first quarter of 1998.

                                       2
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

      On January 17, 1997,  the Company  exchanged  584,080 shares of its common
stock for all of the outstanding common stock of Miaco Corporation  ("Miaco"), a
computer consulting firm, based in Denver, Colorado,  specializing in relational
database and client/server technologies. Miaco also has an office in Washington,
D.C. This business combination was accounted for as a pooling-of-interests  and,
accordingly,  the Company's  historical  consolidated  financial statements have
been restated to include the accounts and results of operations of Miaco for all
periods presented.  Miaco will continue to operate as a wholly-owned  subsidiary
of the  Company.  For 1996 and 1995,  Miaco  contributed  $11.3 and $9.5 million
towards CMSI's total revenue of $57.4 and $41.5 million, respectively.

Industry Background

      Historically,  computing was conducted on proprietary  host-based  systems
operating on mainframes or minicomputers supplied by a single vendor.  Operation
of these  centralized  "legacy" systems (i.e.,  established  applications run on
mainframes  that  require  frequent  enhancements)  typically  was  managed by a
Management  Information  Systems  ("MIS")  department  that  dictated  the  data
processing services available to the end-user.  In the 1980's, the proliferation
of  end-user  software,  such as  financial  spreadsheets,  databases  and  word
processing  packages,  resulted in rapid growth in the numbers of end-users  and
other systems, including some local area networks (LANs), not under MIS control.
Accordingly,  the  demand  for  more  cost-effective,  responsive  and  flexible
computing  systems  also grew.  Organizations  began  implementing  increasingly
varied  computing  environments  made up of personal  computers,  work stations,
minicomputers  and mainframes  interconnected  in local and wide-area  networks.
This move to open, distributed "client/server" systems (i.e., a configuration of
interconnected  personal  computers  or  workstations  and a  server,  such as a
minicomputer, which stores data and applications and distributes them across the
network)  continues as organizations  seek to take advantage of the improvements
in price/performance ratios offered by client/server  architectures and enabling
technologies.

      The Company believes this  technological  transition toward  client/server
systems  and  the  corresponding   expansion  of  technological  options  offers
significant  opportunities to the Company because,  in many cases,  clients have
found it prohibitively  expensive to maintain an in-house MIS staff sufficiently
well-versed in emerging technologies.  Moreover,  many organizations are finding
it  increasingly  difficult  and costly to support and maintain  their  existing
legacy systems because,  as providers of IT services focus on the  client/server
segment of the  market,  fewer IT  professionals  will  maintain  the skill sets
necessary to support legacy systems.

Strategies

      The Company's  objective is to be a leading  provider of IT consulting and
custom  software  development  services.  To achieve this  objective,  CMSI will
continue to pursue the following strategies:

      Provide  Differentiated  Value-Added Services. The Company is committed to
continuously expanding its services to meet the needs of its clients. In keeping
with this strategy, the Company will continue to provide network maintenance and
support  services to its numerous  legacy  system  clients,  while  increasingly
seeking more  value-added  IT solutions and  strategic IT  consulting  projects,
which are typically  billed at higher rates.  The Company intends to continue to
capitalize on its  proprietary  Evolution(R)  methodology to attract  additional
high-value business,  particularly engagements involving strategic IT consulting
services.  In  addition,  the SOCs will  enable the  Company to compete for more
lucrative  fixed-bid  and  outsourcing  engagements  and to  demonstrate  CMSI's
credentials and solutions capabilities.

      Focus on  Margins.  CMSI  seeks to  continuously  improve  its  gross  and
operating margins.  One initiative designed to enhance margins is to secure more
high-value  IT  solutions  and  strategic  IT  consulting  engagements,  such as
client/server  projects,  which  constitute  more than one-half of the Company's
current engagements.  Another initiative to increase  profitability is to obtain
more fixed-bid engagements which offer the opportunity to achieve higher margins
if projects are managed effectively. The Company also considers its current rate
of consultant  utilization (99%) and its emphasis on evaluating and compensating
employees on the basis of profitability  important components of its strategy to
improve its margins.

                                       3
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

      Exploit Middle Market Project  Focus.  The Company  intends to continue to
focus on becoming  the  dominant IT services  firm  dedicated  to middle  market
projects  ranging  in  size  from  $250  thousand  to $10  million.  While  many
competitors  claim to target  the middle  market,  most  competitors  define the
middle market based on the size of the client's  revenue.  The Company  believes
that the most  relevant  competitive  delineation  occurs  on the  project  size
dimension  and not the client  size.  The Company  believes  that its ability to
deploy it resources in a flexible  manner (time & materials or fixed bid, client
site or Company  SOC)  combined  with the cost  advantages  provided via its SOC
model allow the Company to provide  high  quality  work at  significantly  lower
rates than many of its competitors.  All of the Company's strategic  initiatives
are  directed  toward  becoming  the  dominant  IT firm  serving  middle  market
projects.

      Expand Client Base through  Incremental Growth, New Branches and Strategic
Alliances.  The Company intends to continue a  three-pronged  growth strategy to
expand its client base.  The Company  believes  that it can sustain the internal
growth  currently   underway  in  its  existing  branches  by  establishing  and
maintaining  long-term client  relationships  through the continuous delivery of
differentiated  value-added  services  that  address a  client's  IT needs.  The
Company also intends to continue to expand  horizontally  by opening  additional
branches  in  new  geographic  locations.  The  Company  believes  that  it  has
established a successful  operating model for establishing new branches that can
be  replicated in other  markets.  Finally,  the Company  intends to continue to
expand  vertically  by  acquiring  firms  that offer  synergistic  technological
capabilities  not  currently  possessed  by CMSI as well as  marketing  vertical
industry/technology expertise to prospective clients.

      Continue Technology Leadership.  The Company is determined to continuously
provide  state-of-the-art IT solutions to its clients. For instance, the Company
has  assisted  many of its  clients  in  smoothly  making  the  transition  from
legacy-based  systems to  client/server  systems.  In addition,  the Company has
established  strategic alliances with organizations such as DBStar,  Inc., Logic
Works, Inc., Lotus Development  Corporation,  MatriDigm Corporation,  MicroFocus
Corporation,  Microsoft Corp.,  Oracle Corporation,  Proforma,  Inc. and Sybase,
Inc. that enable CMSI to implement the latest in advanced  hardware and software
technology.  The Company  believes its strategic  alliances with vendors will be
enhanced by the SOCs, which are available to display additional vendor hardware,
utilize tools and profile new applications.

      Attract,  Develop,  Motivate  and Retain  Quality  People.  One of the key
elements  to the  Company's  continued  success is its  ability  to hire  highly
skilled  consultants.   Accordingly,   CMSI  devotes  significant  resources  to
recruiting,  maintaining  at least one  full-time  recruiter  in each branch and
full-time recruiting staff at corporate headquarters. To help attract and retain
consultants,  the Company has established  several  employee  benefit plans. The
Company's Employee Stock Ownership Plan (ESOP), established in 1989, has enabled
the  Company's  employees to acquire  approximately  1,494,000  shares of Common
Stock of the  Company as of  December  31,  1997.  The  Company  also  motivates
employees by  compensating  them on the basis of their  performance  rather than
their  position or tenure.  For  instance,  each employee is eligible for a cash
bonus  or  incentive  stock  options  based  on his or her  contribution  to the
Company's  profitability.  Development  of  Company  employees  is  fostered  by
in-house  peer-to-peer  training and mentoring programs that are conducted after
hours in the SOCs.  In  addition,  the Company  facilitates  development  of its
employees'  technical  skills by providing a  low-interest  loan  program  which
allows employees to finance hardware and software purchases for personal use and
provides free internet computer based training to employees.  In response to the
industry shortage of qualified technology consultants, the Company established a
Resource Development Program ("RDP"),  which is an intensive,  ten week training
program  that  targets  liberal  arts  candidates  who possess  the  appropriate
analytical  ability and  aptitude to become  computer  programmers.  The Company
utilizes its SOCs for the RDP and develops  consultants in the  languages/skills
that is currently in demand in the particular location that hosts the class. Via
the RDP, the Company developed twelve new consultants in 1997 and anticipates on
graduating approximately one hundred students during 1998.


                                       4
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

Company Services

      CMSI  provides a broad  range of IT  consulting  services,  including  (i)
technology  support  services  designed  to provide  professional  personnel  to
augment a client's internal  information  systems  management and staff; (ii) IT
solutions  services  designed to solve a client's  complex  information  systems
problems or to satisfy a client's technological objectives;  and (iii) strategic
consulting  services targeted at the  enterprise-wide or business function level
and designed to enable a client to effectively integrate information systems and
strategic organizational goals.  Historically,  technology support services were
the  Company's  primary line of business,  accounting  for  virtually all of the
Company's  revenues  in 1992.  Since  1992,  the  Company  has  concentrated  on
developing the technical and managerial expertise required to deliver high-level
IT solutions services and strategic IT consulting  services to its clients.  The
following is a description of the Company's principal services.

      Technology   Support   Services.   The  Company  provides  highly  skilled
professionals to augment the internal  information  systems management and staff
of its clients.  Increasing  costs of MIS personnel and  facilities and hardware
constraints are the most  significant  competitive  factors driving this area of
the Company's  business.  The Company can provide these  services  either at the
client's site or by outsourcing, in whole or in part, to a Company facility. The
Company  believes  implementation  of SOCs will  greatly  enhance its ability to
provide   cost-effective   technology   support  services.   Technology  support
engagements,  with the exception of some data processing projects, generally are
billed on a time and materials basis.  Typical  technology  support  engagements
include the following:

           Systems Support,  Maintenance and Contract  Programming.  The Company
offers a variety of services  designed to support and maintain legacy,  midrange
(e.g., IBM AS/400),  and client/server  systems.  These services include systems
maintenance  and  management  support,  contract  programming  and  applications
enhancement,  training and help desk services.  The Company generally utilizes a
Service  Level  Agreement  to  define  the  scope  of the  various  support  and
maintenance services that will be provided in a client engagement.

           Data  Processing.  The  Company  offers a diverse  set of services to
clients  seeking cost  reductions and quality  improvement  in data  processing.
Clients  typically seek the Company's data processing  services because they are
constrained  by space or computing  asset  limitations.  The Company can address
these problems by outsourcing a client's in-house data processing operation,  in
whole or in part, to one of the Company's  facilities.  The Company believes the
SOCs have enhanced its ability to compete in the data processing  segment of the
IT services  market because they enable the Company to  efficiently  migrate the
client's data processing needs to the SOCs.

           Training.  The Company  offers  client/server  training  encompassing
various programming languages, software applications and methodologies. The goal
of  training  services  is  to  enhance  the  client's  satisfaction  with,  and
utilization  of, the systems and  applications  developed for the client through
education in the  technologies  and methods used to design and to develop  those
systems and applications.  The Company believes that proper training is critical
to end-user  "buy-in" to the  Company's  work  product  and the  maintenance  of
long-term  client   relationships.   The  Company  currently  supports  training
activities  at the SOCs  which has  strengthened  this  aspect of the  Company's
services.

      IT Solutions Services. The Company provides complex technical solutions to
the information  technology needs and goals of its clients. The Company believes
that one of the primary  factors  behind the growth in the solutions  segment of
the IT services market is the continuing  migration by large  organizations from
centralized,  mainframe systems to open, distributed computer networks utilizing
client/server architectures.  As a result, demand for the Company's IT solutions
services continues to grow. IT solutions services typically are billed on a time
and material basis, although the number of fixed-bid  engagements  undertaken by
the Company has recently  increased.  IT solutions  services  engagements  often
involve one or more of the following services:

                                       5
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

           Software  Application  Design.  The  Company's  software  application
design services  result in a functional and technical  blueprint of the software
application  to be developed.  Such  applications  allow a client to enhance the
efficiency  and   functionality   of  specific   business   processes,   support
organizational goals, and achieve competitive advantage.  To enhance the quality
of the design,  a Solutions  Team  identifies all potential  business  processes
supported by the  application  and their related  functions,  prioritizes  these
processes,   identifies  end-user   requirements  and  details  the  application
specifications.  The  Solutions  Team then  delivers  a  comprehensive  plan for
developing and implementing the application.  In order to improve the efficiency
and quality of this process,  the Company maintains a library of object-oriented
software components to be re-used in software application  development.  In some
cases, the Solutions Team may employ the Company's  Evolution(R)  methodology in
applications  design,  which includes rapid application  development  techniques
such  as  parallelism,   reusable   components   repositories,   graphical  user
interfaces,   and  time-boxing  to  enable  the  Company  to  design  efficient,
cost-effective applications.

           Development,  Integration and Implementation.  These services include
development  of  the  custom  application  software  necessary  to  operate  the
application,  integration  of the  application  into  the  existing  information
processing architecture,  and testing the functionality of the application. Upon
completion of the development  process,  the Company helps the client  implement
the use of the application by the organization.  The Company typically  provides
training in advance of each stage of  application  roll-out so that end-users of
the  application  have the skills  required  to utilize  the  application.  This
facilitates   acceptance  of  the  application  and  any  new  related  business
processes, and enhances utilization of the application by client personnel.

      Strategic IT Consulting  Services.  The Company's  strategic IT consulting
services are  targeted at either the  enterprise-wide  or the business  function
level, and may include the re-engineering of certain business  processes.  These
services assist clients in identifying strategic  organizational  objectives and
in designing an IT  infrastructure  that will support  them.  From the Company's
perspective,   management   consulting  firms  typically   attempt  to  optimize
performance through improved strategic initiatives,  but often fail to integrate
these initiatives with the clients  information  technology system.  Conversely,
systems integrators tend to optimize  information systems, but often do not link
the system to the achievement of organizational  objectives.  CMSI,  through the
use  of  its  Evolution(R)  methodology,  provides  an  integrated  solution  by
identifying  strategic  objectives,  either at the  organizational  or  business
function level,  and designing a system that enables the end-user to achieve the
defined objectives.

      Using its Evolution(R) methodology,  the Company delivers its strategic IT
consulting  services  through a series of phases,  each of which  begins  with a
"facilitated  workshop" (a Company term referring to a group discussion designed
to develop ideas),  and results in a "deliverable"  (a Company term referring to
either a document or  prototype  that  details the results of the last phase and
guides the direction of the next phase). The facilitated  workshops are led by a
Company  team  consisting  of a session  leader,  who  focuses  and  directs the
session,  and a scribe,  who prepares the current phase's  deliverable.  Clients
participate   in  the   facilitated   workshops   through   a  team  of   client
representatives,  ranging from executive officers to entry-level  end-users.  At
each phase of the process,  the session leader ensures that group  consensus and
buy-in is reached  regarding the harmony  between the proposed system design and
the  organizational  objectives  by  requiring  the group to endorse the phase's
deliverable  before  proceeding  to the next  phase.  This  process  ensures  an
information system design that achieves organizational objectives.  Strategic IT
consulting services are billed on both a time and materials and fixed-bid basis.
The various  stages of the typical  strategic IT consulting  project,  using the
Evolution(R) methodology, are described below:

           Planning and Requirements Analysis.  CMSI provides expert analysis of
the potential and limitations of a client's  current  computing  system prior to
beginning  design of a new system.  A detailed  requirements  analysis  allows a
client to fully  understand the  capabilities  of its current system and enables
the client to determine  whether its current  configuration  will support its IT
needs and goals.  Analysis  services  also  include a review and analysis of the
architecture,  security,  risks  and  costs of the  client's  current  computing
system.

                                       6
<PAGE>
                      COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

           Project  Definition.  The focus of the  analysis  (e.g.,  a  specific
business  function,  an  interrelated  set of functions,  or an  enterprise-wide
system) is addressed at the project  definition  stage.  The  parameters  of the
project are defined in a facilitated  workshop involving  high-level  executives
and   functional   end-users  who  consider  the  strategic   direction  of  the
organization in conjunction  with the scope of the project.  Once the boundaries
of the project are defined,  the scribe and the session  leader produce a system
plan that is endorsed by the project definition stage participants.

           Business  Process   Re-engineering.   After  completing  the  project
definition stage  previously  described,  clients  sometimes decide that certain
business processes must be completely re-engineered.  The Company attributes its
success in re-engineering business processes primarily to two factors: (i) it is
continuously  experimenting with leading edge technology that can be implemented
to  achieve  client  goals in an  innovative  fashion;  and (ii) as an  unbiased
observer,  the  Company is not bound by  organizational  constraints  that often
inhibit  creative  problem  solving.   The  Company  utilizes  its  Evolution(R)
methodology   to   combine   enabling   technologies,   such  as   client/server
architectures and graphical user interfaces,  with the client's knowledge of its
business to achieve  significant,  and sometimes  breakthrough,  improvements of
business processes.

           Systems Design.  The Company's systems design services assist clients
in  identifying  and  designing a network  infrastructure  that will support the
interrelated  strategic business  objectives and information needs identified in
previous stages.  Design services include selection of viable systems platforms,
creation  of  migration  plans  from  the  existing  to  the  proposed   system,
integration of systems,  applications and databases and project management. Once
the system is designed,  the Company  works with the client to develop  plans to
implement and manage the improved system.

Delivery of Services

      Solutions Teams. The  organizational  structure of the Company has evolved
as the  complexity  and  breadth of the IT  consulting  services  offered by the
Company have expanded.  To better serve client needs, the Company's services are
delivered by a Solutions  Team  consisting  of Company  professionals  who offer
expertise spanning the full range of the Company's services.  The Solutions Team
is important because it results in comprehensive, integrated solutions to client
needs,  regardless  of whether  those needs  involve a single  Company  service,
multiple unrelated services or an overlapping series of services.  The Solutions
Team is also  important  because  it  facilitates  cross-marketing  of  multiple
Company  services,  which furthers the Company's  objective of establishing  and
maintaining long-term  relationships with its clients. For instance, many of the
Company's current legacy system clients  eventually may migrate,  in whole or in
part,  to  client/server  systems.  Because the  Solutions  Team  already has an
established  relationship  with the client,  it has an advantage in securing the
higher-margin  solutions and consulting  services resulting from such migration.
The  organizational  structure  of the Company is  designed  to provide  clients
across the United States with a range of responsive, efficient, state-of-the-art
solutions to virtually all of their IT needs.

      Systems  Outsourcing  Centers.  CMSI opened its first Systems  Outsourcing
Center in  Jacksonville  during  October of 1995 and five  additional  SOCs were
brought on-line during December 1996, February,  April, August and December 1997
in Atlanta,  Tallahassee,  Greenville,  Charlotte and Denver, respectively.  The
SOCs are modern,  highly secured facilities  equipped with a variety of advanced
computer hardware,  software,  and networking  technologies and systems, and are
designed  to enable  CMSI to  provide  its full range of  services  in a Company
facility  rather than  on-site at the  client's  facility.  Because of computing
asset and  facilities  constraints  at client's  locations,  it is  increasingly
difficult  for the  Company  to  complete  large  scale  application  or systems
development  using  client  hardware  while the client's  old  applications  and
systems  continue to operate.  The SOCs address this problem by enabling CMSI to
simulate many hardware environments and thereby to complete projects at the SOCs
before they are implemented at the client's facility.  An added advantage of the
SOCs is that they allow the Company to assume project management responsibility,
which can improve the Company's margins if managed effectively and increases the
Company's ability to confidently seek fixed-bid  engagements.  Accordingly,  the
Company is actively pursuing outsourcing  engagements and believes that the SOCs
will provide a significant competitive advantage in securing them.

                                       7
<PAGE>
                     COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

      The SOCs  also  serve an  important  marketing  function  for the  Company
because they are visually and  technically  designed to make an effective  first
impression on clients  evaluating  the Company for a potential  engagement.  The
client conference and demonstration center is used to introduce CMSI credentials
and, more  importantly,  exhibit  similar  solutions  previously  developed in a
multi-media,  high  impact  presentation.  After  the  demonstration,  potential
clients tour the facility,  including the multi-seat fully equipped training and
education  center,  the open,  work-flow-oriented  office and projects area, and
conference  rooms. This escorted tour is designed to highlight that CMSI has (i)
the  resources to handle a broad range of  projects;  (ii)  technically  similar
solutions  already  developed;  (iii) the  infrastructure  required  for a rapid
response  to customer  needs;  and (iv) the  management  and  technical  support
required to effectively  implement a potential  project.  The SOCs also serve as
the  backbone  of  CMSI-NET,  a  nationwide  communications  network  connecting
multiple Company locations and on-line clients.  The Company anticipates opening
additional SOCs during 1998.

      Software  Factory  Process.  The  Software  Factory  Process  ("SFP") is a
standardized   process,   developed  by  the   Company,   for  the  creation  of
documentation  and  development  of  custom  software  utilizing  the  Company's
proprietary Evolution(R)  methodology within the SOC infrastructure.  The SFP is
written to be compliant with  International  Standards  Organization  (ISO) 9001
requirements.  A standardized product description produced using guidelines from
Evolution(R) is the critical  starting point to enable a smooth flow through the
software factory (i.e. SOC). This standardized  product  description  provides a
complete   computer-interpretable   definition  of  the   product's   functional
capabilities.  This  standard,  called the System Job Order (SJO),  provides the
complete  definition  of the product in standard  format that is easily read and
comprehended  by the  factory  personnel.  The first  stop in the  manufacturing
process for the SJO is Production  Control.  The SJO provides a definition  that
categorizes  the  overall  product  functionality  into  functional  blocks  and
potentially some early  identification of components.  The functional  component
descriptions are used by production control to check the component repository to
determine what  functional  components,  if any, match the SJO and can be pulled
from the component inventory warehouse.  The component inventories of other SOCs
are also on-line  accessible to determine if the required  components  reside in
another SOC. After component  requirements  review,  Production Control develops
the assembly instructions and/or component development specifications and routes
them to Production  Planning to start the resource allocation process. To comply
with ISO 9001  requirements the SFP is used in the creation of the documentation
for all procedures  followed in implementing  each SJO. The SJO and its updates,
including actions by all factory  personnel  relative to the SJO, are tracked in
CMSI's electronic  document management system.  Additionally,  periodic internal
audits are  performed  to maintain  and ensure  compliance  with the SFP and ISO
9001.

      Evolution(R)  Methodology.  Delivery of many of the IT consulting services
offered  by  CMSI  are  supported  by  the  Company's  proprietary  Evolution(R)
methodology.  Evolution(R)  methodology is an integrated  set of stages,  tasks,
work products,  techniques, tools and project management guidelines that provide
a  standard   (reproducible)  approach  for  the  planning,   development,   and
maintenance  of  systems  targeted  for  the  client/server  architecture.  CMSI
developed the  Evolution(R)  methodology in response to the computing  evolution
from centralized mainframe systems to distributed  client/server  networks.  The
Company recognized that, although a network of personal computers provides great
benefits by putting accessible, understandable and affordable computing power on
the desktop of the end-user,  it often results in locally-optimized  information
technology decisions (point solutions) that are not optimal for the organization
as a whole. For instance,  applications and databases are increasingly  built by
paraprofessionals  (i.e.,  end-users  programming  with  spreadsheets and fourth
generation  language  and who  sometimes  have little or no  training)  who make
technical  choices  only  in the  context  of a  particular  application,  often
resulting  in  incompatibilities   and  crippling   after-the-fact   efforts  at
integrating  systems across  different  departments and locations.  These poorly
planned   decisions   often   substantially   increase  the  cost  to  integrate
incompatible  systems  and  reduce  overall  efficiency  and  productivity.   By
employing  its  Evolution(R)  methodology,  CMSI is able to help clients  either
avoid or correct these mistakes.

                                       8
<PAGE>
                    COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

Markets and Clients

      CMSI provides  services to a diverse group of clients,  primarily  Fortune
1000  companies,  other  large  organizations  and state  and local  governments
located throughout the United States. Because of the diverse range of industries
in which the  Company's  clients  operate,  the Company  believes that it is not
dependent  upon any single  industry  or market.  CMSI  intends to  continue  to
differentiate  by  focusing  on middle  market  projects  ($250  thousand to $10
million) because competitive  boundaries exist mainly on the project size rather
than on client size.  CMSI's business model is designed to execute middle market
projects  for clients of any size.  Moreover,  because  many of the  engagements
undertaken by the Company are  long-term  (in excess of one year),  they tend to
occur  irregularly and the revenue derived from any particular client engagement
can vary from year to year. The broad range of Company  services is demonstrated
by the  diversity of the  Company's  client  base,  which  includes,  among many
others, the following  customers in selected  industries  currently engaging the
Company's services:
<TABLE>

<S>                                <C>                         <C>                          <C>
Financial Services                 Insurance                   Industrial                   Transportation

American Express Company           Aetna Life and Casualty     Flour Daniel, Inc.           CSX Corporation
AT&T Universal Card Services       Blue Cross Blue Shield of   General Electric Company     Landstar Corporate
Merrill Lynch & Co., Inc.             Florida, Inc.            GE Electrical Distribution      Services, Inc.
Wachovia Operational Services      Health Alliance Plan           & Control                 The Graebel
   Corporation                     The Hartford Financial      Westinghouse Group W            Companies, Inc.
                                      Services Group, Inc.        Information Services

State & Local Government           Utilities                   Communications               Other Industries

Florida Department of              Atlanta Gas & Light         Bell Atlantic Corporation    Lockheed Aeronautical
   Transportation                     Company                  BellSouth Corporation          Systems Company
Florida Department of              Central Illinois Light      Sprint Corporation           Unisys Corporation
   Corrections                        Company                  US WEST, Inc.                MATRIXX Marketing,
North Carolina Department of       The Detroit Edison                                          Inc. (formerly AT&T
   Corrections                        Company                                                  American Transtech)
</TABLE>

         Based  on 1997  revenue,  the top five  Company  clients  (in  terms of
revenue to the Company) accounted for approximately 27% of revenue,  with no one
client  accounting for more than 10% of revenue.  As is typical in the industry,
most of the Company's  contracts  governing client engagements are terminable at
will upon two weeks written notice. The Company does not believe that backlog or
any contract or engagement with a single client is material to its business.

Marketing and Sales

         The Company  markets its  services  directly  through its  professional
staff of  consultants  operating out of its  Jacksonville  headquarters  and its
fourteen branches.  The Company believes that the key to success in its industry
is the  creation of long-term  client  relationships  that are  sustained by the
delivery of IT consulting services in an efficient and cost-effective manner.

         Relationship-Based  Marketing.  The  Company  believes  there  are  two
primary  factors which help  establish  long-term,  mutually  beneficial  client
relationships:  (i) motivated personnel,  particularly branch managers, who have
established  contacts  in a market  and can  offer  local  support;  and (ii) an
organization  structure that is sufficiently flexible to enable the resources of
multiple divisions and branches to be combined to provide solutions. The Company
believes it is able to provide the required  local  contact and support  through
its  branches,   while  its  Solutions  Team  approach   provides  the  required
flexibility and resources. Once the Company establishes an initial relationship,
it  concentrates  on  familiarizing  itself  with all  aspects  of the  client's
business  in  order to  identify  and  capitalize  on  additional  opportunities
providing the client with IT services and  solutions.  The Company  believes its
Solutions Team approach also enhances this cross-selling process. The success of
this  strategy  is  underscored  by the  fact  that 13 of the  Company's  top 15
clients,  measured in terms of 1997 revenue to the Company,  have had an ongoing
relationship with CMSI for over three years.

                                       9
<PAGE>
                    COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

         Strategic  Alliances and  Promotion.  The Company  currently  maintains
strategic  alliances (a term used by the Company to describe  the  relationships
discussed below) with eight  technology  companies,  DBStar,  Inc., Logic Works,
Inc.,  Lotus  Development   Corporation,   MatriDigm   Corporation,   MicroFocus
Corporation,  Microsoft Corp.,  Oracle Corporation,  Proforma,  Inc. and Sybase,
Inc.  These   alliances   provide  the  Company  with  technical  and  marketing
information,   including  access  to  pre-release   software  and  services  and
cooperative  marketing programs and, in some cases, allow the Company to provide
technical  education  and training  based on the new  technologies.  The Company
believes such  alliances help build the Company's  credentials  with clients and
enhance the Company's visibility and stature in the IT community.  Although each
of the strategic  alliances that the Company has entered into is formalized by a
written agreement  detailing the kind of information that will be made available
and the level of responsiveness  owed to CMSI, such agreements are terminable at
will by either  party.  The  initial  fee paid by the  Company to  establish  an
alliance  ranges from $5,000 to $15,000,  and annual renewals range from $800 to
$3,000.  During the past three  years,  the  greatest  number of such  strategic
alliances was seven and the greatest aggregate amount of fees (both initial fees
and renewal  fees) paid in  connection  with such  alliances in any one year was
less than  $50,000.  The Company does not  consider  any one of these  strategic
alliances material to its business.

Competition

         The commercial IT services  market is highly  competitive and served by
numerous firms,  many of which serve only their  respective  local markets.  The
market includes participants in a variety of market segments,  including systems
consulting and integration firms,  professional services companies,  application
software firms,  temporary employment agencies,  the professional service groups
of  companies  such as Unisys  Corporation  and Digital  Equipment  Corporation,
facilities  management  and  MIS  outsourcing   companies,   certain  "Big  Six"
accounting  firms,  and  general  management  consulting  firms.  The  Company's
competitors include a range of companies such as Andersen Consulting, Technology
Solutions  Corporation,  Cambridge Technology Partners,  Inc., Computer Horizons
Corp.,  IBM Global  Services,  Cap Gemini America,  Business  Systems Group, the
consulting division of Computer Sciences Corporation, Computer Task Group, Inc.,
Analysts International Corp. and Keane, Inc., among others.

         Many  participants in the IT consulting and software  solutions  market
have  significantly  greater  financial,  technical and marketing  resources and
generate  greater  revenue  than the  Company.  The  Company  believes  that the
principal  competitive  factors in the commercial IT services  industry  include
responsiveness to client needs, efficiency of delivery of solutions,  quality of
service,  price, project management capability and technical expertise.  Pricing
has its greatest  importance as a  competitive  factor in the area of technology
support services. The Company believes that its ability to compete also depends,
in part, on a number of competitive  factors outside its control,  including the
ability  of  its  competitors  to  hire,  to  retain  and  to  motivate  skilled
consultants and management personnel, the price at which others offer comparable
services and the extent of its competitors' responsiveness to customer needs.

Human Resources

         As of December 31, 1997, the Company employed approximately 736 people,
of whom approximately 652 were consultants.  The Company's  continued success is
highly  dependent  upon its  ability to attract  and  retain  highly  skilled IT
consultants.  Competition  for the  services  of these  individuals  is intense,
particularly  with respect to the limited number of qualified  project  managers
and  professionals  with certain "niche" skills.  Although the Company generally
has been  successful in attracting  employees  with the skills needed to fulfill
customer engagements, demand for qualified professionals conversant with certain
technologies  may outstrip supply as new and additional  skill sets are required
to keep pace with evolving computer technology. Accordingly, the Company devotes
significant resources to recruiting by maintaining a full time recruiter in each
branch and a full time  recruiting  staff at corporate  headquarters.  To assure
that all candidates meet the expectations of both CMSI and its clients,  CMSI is
committed to a Quality Assurance  Program that involves,  but is not limited to,
identification and qualification of potential  candidates,  detailed  interviews
conducted by CMSI's recruiting personnel, managerial reference checks, technical
interviews  conducted by CMSI's professional  consultant staff, and an appraisal
by CMSI management.

                                       10
<PAGE>
                    COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

         Because the Company is committed to retaining its  professional  staff,
it  instituted  a  Nonqualified  Stock  Option Plan in 1985,  an Employee  Stock
Ownership Plan and Trust ("ESOP") in 1989, a Profit Sharing 401(k) Plan in 1989,
and an Incentive Stock Option Plan in 1992. In 1995, the Company  terminated the
Nonqualified Stock Option Plan and the Incentive Stock Option Plan and adopted a
new Stock  Incentive  Plan and  Non-Employee  Director  Stock Option Plan. As of
December  31,  1997,  the  ESOP  owned  approximately  1,494,000  shares  of the
Company's Common Stock. Contributions to the ESOP and Profit Sharing-401(k) Plan
are at the discretion of the Company's Board of Directors.  In 1997, the Company
contributed $1,250,000 to the ESOP. The Company believes that this commitment to
its employees is a competitive  advantage  because it facilitates  the Company's
ability  to  recruit  and hire  qualified  consultants  and  engenders  employee
loyalty.

Intellectual Property Rights

         The Company's success has resulted, in part, from its methodologies and
other  proprietary  intellectual  property  rights.  The  Company  relies upon a
combination of trade secrets,  nondisclosure and other contractual  arrangements
and technical  measures to protect its proprietary  rights. The Company holds no
patents, but has registered  copyrights on each of its Evolution(R)  methodology
and its  INTELLECT(R)  software  product.  The  Company  generally  enters  into
confidentiality and nonsolicitation agreements with its employees,  consultants,
clients and  potential  clients  and limits  access to and  distribution  of its
proprietary  information.  There can be no assurance that the steps taken by the
Company  in this  regard  will be  adequate  to  deter  misappropriation  of its
proprietary  information or that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights.

         The Company's  business  includes the  development  of custom  software
applications in connection with specific client  engagements.  Ownership of such
software generally is assigned to the client. In addition, as a residual benefit
of some of the Company's client engagements, object-oriented software components
are created that can be reused in software  application  development and certain
software products or "tools".  Often, such components remain the property of the
Company.  Although  the Company  believes  that its services and products do not
infringe  on  the  intellectual  property  rights  of  others,  there  can be no
assurance  that such a claim will not be  asserted  against  the  Company in the
future.

Item 2.  Properties

         The  Company's  headquarters  are  located in an  approximately  11,000
square  foot,  Company-owned  office  building in  Jacksonville,  Florida.  This
facility is  currently  fully  utilized  and serves as  headquarters  for senior
management.  Also located in Jacksonville is an approximately 7,500 square foot,
company-owned  SOC. During 1996, the Company  purchased an  approximately  8,300
square foot  building in  Tallahassee  and an  approximately  22,800 square foot
building in Atlanta,  to house SOCs in those cities.  The Atlanta  property also
has an  approximately  27,200 square foot vacant  industrial  building  which is
being held for future  expansion,  lease or sale. In 1997, the Company purchased
three  additional  buildings  for SOCs as follows;  Greenville,  South  Carolina
(approximately  14,800  square  feet),  Charlotte  (approximately  21,600 square
feet),  and Denver  (approximately  24,250 square feet).  Also during 1997,  the
Company  purchased an  approximate  10,000  square foot building for purposes of
housing a second SOC in Jacksonville and is currently in the process  renovating
and  expanding it to 34,700 square feet.  The remainder of the Company's  branch
offices are operated  from leased space with lease terms ranging from monthly to
three  years.  See note 11 of notes to  consolidated  financial  statements  for
information  as  to  the  Company's  annual  lease   obligations.   The  Company
anticipates  that  additional  space will be required  as  business  expands and
believes that it will be able to obtain suitable space as needed.

Item 3. Legal Proceedings

         The Company  currently is not a party to any legal  proceedings that it
believes  could have a material  adverse effect upon its operations or financial
condition.

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

         No matters were submitted to a vote of the Company's  security  holders
during the fourth quarter of the fiscal year ended December 31, 1997.

                                       11
<PAGE>
                   COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

                                     PART II

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

Market Price of and Dividends on the Company's Common Equity

         Since its initial  public  stock  offering on September  29, 1995,  the
Company's  Common  Stock has been traded on the NASDAQ  National  Market  System
under the symbol "CMSX".  The following  table sets forth,  on a per share basis
for the periods shown (as adjusted for stock splits  during 1996),  the range of
high and low sales  prices of the  Company's  Common  Stock as  reported  by the
Nasdaq.


                                                         High          Low
         Fiscal Year 1997:

         First Quarter                                   $25.000      $14.000
         Second Quarter                                  $21.250      $12.750
         Third Quarter                                   $23.250      $17.250
         Fourth Quarter                                  $23.500      $14.875

         Fiscal Year 1996:

         First Quarter                                   $ 8.778      $ 6.667
         Second Quarter                                  $16.111      $ 7.556
         Third Quarter                                   $15.833      $11.833
         Fourth Quarter                                  $25.000      $15.333

         The Company has never paid any cash dividends on its Common Stock.  The
Company currently intends to retain future earnings for use in its business and,
therefore,  does not  anticipate  paying any cash  dividends in the  foreseeable
future.  As of February 28, 1998, there were  approximately  131 stockholders of
record.

Recent Sales of Unregistered Securities

         The following table shows all sales by the Company of securities during
the past three fiscal  years and  subsequent  thereto  that were not  registered
under the Securities Act of 1933, as amended (the "Act"). All of such sales were
made  for  cash to key  employees  or  non-employee  directors  of the  Company,
pursuant to the  exercise of stock  options or  otherwise,  or to the  Company's
ESOP. The Company claims an exemption from  registration  under the Act for such
sales  in  reliance  upon  the  provisions  of  Section  3(b) or 4(2) of the Act
applicable  to certain  limited  offerings of  securities.  All shares have been
adjusted for subsequent stock splits.

                                              Number of Shares       Aggregate
 Date Issued  Purchaser                       of Common Stock      Consideration

   1/27/95    Susan E. Quan                     $   8,365           $     650
    3/6/95    Employee Stock Ownership Plan       156,055             318,000
    5/1/96    Paul G. Kahn                          1,350               8,400
   8/21/96    Ann E. Kofsuske                       3,346               5,154
  10/29/96    Paul S. Whitman                       6,693               4,551
    1/7/97    Paul G. Kahn                          1,350               8,400

                                       12
<PAGE>
                   COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

         In addition to the above sales of unregistered securities,  the Company
also issued unregistered common shares in connection with the following mergers:

         Acquisition of MIS Software Development, Inc. On December 28, 1995, the
Company exchanged  approximately 343,991 shares (the "MSD Shares") of its common
stock (adjusted for subsequent  stock splits) for all of the outstanding  shares
of  common  stock of MIS  Software  Development,  Inc.,  a  Florida  corporation
("MSD"), in a reverse triangular  subsidiary merger (the "MSD Merger").  The MSD
shares  were  issued pro rata to each of the five  shareholders  of MSD based on
their respective  equity interest in MSD. The Company believes that the issuance
of the MSD Shares pursuant to the MSD Merger was exempt from registration  under
the Act,  by virtue  of  Sections  3(b) and 4(2) of the Act,  and  Regulation  D
promulgated by the Securities Exchange Commission (the "Commission") thereunder,
and was  exempt  from  registration  under the  applicable  laws of the State of
Florida.

         Acquisition of Summit  Computer  Services,  Inc. On April 30, 1996, the
Company exchanged  approximately 945,907 shares (the "SCS Shares") of its common
stock (adjusted for subsequent  stock splits) for all of the outstanding  shares
of common stock of Summit Computer Services,  Inc., a North Carolina corporation
("SCS"), in a reverse triangular  subsidiary merger (the "SCS Merger").  The SCS
shares  were issued pro rata to each of the three  shareholders  of SCS based on
their respective  equity interest in SCS. The Company believes that the issuance
of the SCS Shares pursuant to the SCS Merger was exempt from registration  under
the Act by  virtue  of  Sections  3(b)  and 4(2) of the Act,  and  Regulation  D
promulgated by the Commission thereunder, and was exempt from registration under
the applicable laws of the State of North Carolina.

         Acquisition  of Miaco  Corporaton.  On January  17,  1997,  the Company
exchanged  approximately 584,080 shares (the "Miaco Shares") of its common stock
for all of the  outstanding  shares  of  common  stock of Miaco  Corporation,  a
Colorado corporation  ("Miaco"),  in a reverse triangular subsidiary merger (the
"Miaco  Merger").  The Miaco  shares  were  issued  pro rata to each of the five
shareholders of Miaco based on their  respective  equity interest in Miaco.  The
Company  believes  that the issuance of the Miaco  Shares  pursuant to the Miaco
Merger was exempt from registration under the Act by virtue of Sections 3(b) and
4(2) of the Act, and Regulation D promulgated by the Commission thereunder,  and
was exempt from registration under the applicable laws of the State of Colorado.

Changes in Securities and Use of Proceeds

     (a) Changes in Securities - None

     (b) Use of Proceeds - In accordance  with the provision of Rule 463 (17 CFR
         230.463),  the  following  is a report of the use of proceeds  from the
         Company's initial public offering on September 29, 1995:

         (1)  The effective date of the Securities Act registration statement on
              Form S-1 was September 27, 1995, Commission file number 33-95544.

         (2) The offering commenced on September 29, 1995.

         (3) Not applicable.

         (4) (i) Not applicable.

              (ii) The  managing  underwriters  for the  offering  were The
              Robinson-Humphrey Company,Inc.and Raymond James & Associates, Inc.

              (iii) The class of stock  registered  by the  Company  was  Common
              Stock, par value $0.01 per share.

                                       13
<PAGE>
                   COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

              (iv) The Company  registered and sold  2,185,000  shares of Common
              Stock at an aggregate offering price of $30,590,000.

              (v) The actual direct or indirect payments to others in connection
              with the issuance and distribution  for the securities  registered
              were as follows:

                  Underwriters discounts and commissions -          $2,141,300
                  Other expenses -                                     457,626
                                                                   -----------
                  Total expenses -                                  $2,598,926
                                                                    ==========

              (vi) The net offering  proceeds to the Company after deducting the
              total expenses in (4)(v) above was $27,991,074.

              (vii)  From  the  effective  date  of the  registration  statement
              through September 30, 1997, the Company used the net proceeds from
              the offering for (all of which were direct payments to others):

<TABLE>
                  <S>                                                     <C>
                  Construction of plant, building and facilities             $2,132,650
                  Purchase and installation of machinery and equipment        3,677,021
                  Purchases of real estate                                    8,406,650
                  Acquisition of other businesses                             4,739,192
                  Repayment of indebtedness                                   1,030,467
                  Short term investment securities                            8,005,094
                                                                           ------------
                                                                            $27,991,074
</TABLE>

              (viii) Not applicable.


Item 6.  Selected Financial Data

         The selected  financial data  presented  below as of and for the fiscal
years ended December 31, 1997,  1996,  1995,  1994, and 1993,  have been derived
from the  Company's  consolidated  financial  statements.  All  historical  data
previously  reported has been restated to reflect the combination of the Company
and  Miaco  on  January  17,   1997,   which  has  been   accounted   for  as  a
pooling-of-interests  (see  note  2  of  the  notes  to  consolidated  financial
statements).  This  data  should  be  read  in  conjunction  with  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  the
Company's  consolidated  financial  statements,   including  the  related  notes
thereto, and other financial information appearing elsewhere in this report.

                                       14
<PAGE>
                  COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                        Fiscal Year Ended December 31,
                                     -----------------------------------------------------------------------
                                            1997          1996          1995          1994          1993
                                                     (In thousands, except per share data)
<S>                                   <C>           <C>           <C>           <C>           <C>
Consolidated Statement of Operations
Data:
  Revenue............................  $    71,163   $    57,432   $    41,536   $    31,789   $    22,222
  Direct costs.......................       43,343        35,273        25,686        19,024        13,602
                                          --------      --------      --------      --------      --------
     Gross profit....................       27,820        22,159        15,850        12,765         8,620
  Selling, general and
     administrative expenses.........       14,537        13,463        11,642         9,713         7,167
                                          --------      --------      --------      --------      --------
     Income from  operations.........       13,283         8,696         4,208         3,052         1,453
  Other income, net..................        1,656         1,414           432           (33)           16
                                          --------      --------      --------      ---------     --------
  Income before income
    taxes............................       14,939        10,110         4,640         3,019         1,469
  Provision for income taxes.........        5,670         4,184         1,816         1,113           451
                                          --------      --------      --------      --------      --------
  Net income ........................  $     9,269   $     5,926   $     2,824   $     1,906   $     1,018
                                          ========      ========      ========      ========      ========
  Unaudited pro forma information:
  Net income as reported.............  $     9,269   $     5,926   $     2,824   $     1,906   $     1,018
  (Benefit) charge in lieu of income
    taxes, net (1)...................        -              (114)           76           (23)          101
                                          --------      ---------     --------      ---------     --------
  Pro forma net income...............  $     9,269   $     6,040   $     2,748   $     1,929   $       917
                                          ========      ========      ========      ========      ========
  Pro forma net income
    per share - basic................  $      0.69    $     0.47    $     0.30    $     0.25    $     0.12
                                          ========      ========       =======       =======       =======
  Weighted average number of
    common shares
    outstanding - basic..............       13,494        12,982         9,286         7,857         7,651
                                          ========      ========      ========      ========      ========
  Pro forma net income
    per share - diluted..............  $      0.61    $     0.40    $     0.25    $     0.20    $     0.10
                                           =======       =======       =======       =======       =======
  Weighted average number of
    common and common equivalent
    shares outstanding - diluted.....       15,165        15,051        11,148         9,729         9,573
                                          ========      ========      ========      ========      ========

  Cash dividends per share...........  $     -       $     -       $     -       $     -       $      -
                                          ========      ========      ========      ========      ========
</TABLE>

     (1) Reflects federal and state income taxes (assuming an effective tax rate
         of 39.1%) as if SCS had been a C Corporation for all periods presented,
         but excludes  the impact of the  non-recurring  charge  relating to the
         change in tax status of SCS from an S Corporation  to a C  Corporation,
         which resulted in an increase in income tax expense of $247,000 in 1996
         pursuant  to the  provisions  of SFAS No.  109.  Pro forma  income  tax
         expense  (benefit)  for  SCS  was  $133,000,  $76,000,  ($23,000),  and
         $101,000 in 1996, 1995, 1994, and 1993, respectively. See note 2 to the
         consolidated financial statements.

                                       15
<PAGE>
                  COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                        As of December 31,
                                ------------------------------------------------------------------
                                       1997         1996         1995         1994         1993
                                       ----         ----         ----         ----         ----
                                                          (In thousands)
<S>                                <C>          <C>          <C>          <C>          <C>
Consolidated Balance Sheet Data:
  Working capital                  $   32,018   $   26,027   $   32,477   $    2,973   $    2,043
  Total assets                         66,123       48,370       42,498        9,927        7,157
  Long-term liabilities, less
     current portion                      285          501          315          366          485
  Total shareholders' equity       $   60,963   $   43,256   $   37,119   $    6,221   $    3,989

</TABLE>


Unaudited Selected Quarterly Operating Results

     The  following  table  sets forth  certain  unaudited  quarterly  operating
information  for the last eight quarters  beginning with the quarter ended March
31, 1996,  and ending with the quarter  ended  December 31, 1997.  This data has
been prepared on the same basis as the audited  financial  statements  contained
elsewhere  herein and includes all  adjustments,  consisting of normal recurring
adjustments,  necessary  for a fair  presentation  of the  information  for  the
periods  presented,  when  read in  conjunction  with  the  Company's  financial
statements and notes thereto contained  elsewhere herein.  The operating results
for any previous quarter are not necessarily indicative of results of any future
period. The Company believes that its business is generally not seasonal, except
for the fourth  calendar  quarter,  in which the number of holidays and employee
vacation days  adversely  impacts the  Company's  revenue and  profitability  in
comparison to preceding quarters.

     The four  quarters  ended  December  31,  1996  differ  from those  amounts
previously  reported due to the  restatement  to reflect the  combination of the
Company  and  Miaco  on  January  17,  1997,   which  was  accounted  for  as  a
pooling-of-interests.

<TABLE>
<CAPTION>
                                                                   Quarter Ended
                                 ----------------------------------------------------------------------------------
                                                   1997                                     1996
                                 ----------------------------------------- ----------------------------------------
                                  Dec. 31   Sept. 30  June 30   Mar. 31     Dec. 31   Sept. 30  June 30   Mar. 31
                                  -------   --------  -------   -------     -------   --------  -------   -------
                                                       (In thousands, except per share data)
<S>                              <C>       <C>       <C>       <C>         <C>       <C>       <C>       <C>
Revenue                          $  19,229 $  18,160 $  17,545 $  16,229   $  15,993 $  14,544 $  13,822 $  13,073
Income before income taxes           4,261     3,886     3,683     3,109       2,506     2,764     2,553     2,286
Pro forma net income
      per share - diluted        $    0.18  $   0.16  $   0.15  $   0.13    $   0.09  $   0.11  $   0.10  $   0.09
</TABLE>


Item 7. Management's Discussion & Analysis of Financial Condition and Results of
     Operations

     The following  discussion and analysis should be read in conjunction  with,
and is  qualified in its entirety  by, the  consolidated  financial  statements,
including the notes thereto,  and selected  financial data included elsewhere in
this  report.  Historical  events are not  necessarily  indicative  of trends in
operating results for any future period.  Reference is also made to Part I, Item
1  (Forward  Looking  Statements),  with  regard to the risks and  uncertainties
associated with forward-looking statements.

                                       16
<PAGE>
                 COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

Overview

     The Company was incorporated in 1983 to pursue opportunities in the rapidly
growing information  technology consulting services market. The Company provides
IT consulting  and custom  software  development  services to a diverse group of
clients,   primarily   consisting  of  Fortune  1000   companies,   other  large
organizations  and state and local  governments that are located  throughout the
United  States.  The  Company's  services  are  generally  an  outside  resource
supplementing  a client's  internal  information  technology  capabilities,  and
include  a  broad  range  of  technical  services,  such as  technology  support
services, IT solutions services and strategic IT consulting.  Technology support
services  include  systems  support and  maintenance  and contract  programming.
Solutions  services  include  software   application  design,   development  and
implementation,  as well as systems  integration.  Strategic consulting services
include planning and designing enterprise-wide  information systems and business
process  re-engineering  which allow clients to maximize the strategic  value of
business information.

Significant Trends and Developments

     Recent Growth.  The Company has experienced  significant  growth in revenue
and geographic  expansion in the past nine years.  The Company  established  its
first  branch in  Hartford in 1987,  after  which it opened or  acquired  twelve
additional branch offices:  Atlanta (1990);  Greenville,  South Carolina (1991);
Boston  (1993);  Portland,  Oregon,  Chicago and Cleveland  (1994);  Tallahassee
(1995); Charlotte and Detroit (1996); Winston-Salem,  North Carolina, Denver and
Washington,  D.C. (1997). A significant  portion of the Company's revenue growth
since  1994 is  attributable  to the  incremental  revenue  growth  of  existing
branches. For instance, the growth in revenue from 1994 to 1997 for the branches
listed  above that began  operating  prior to January 1, 1994,  was greater than
100%. During the next 24 months,  the Company expects to establish an average of
three or four branches per year by new start-up or acquisitions.

     Strategic  Shift  toward  Premium-Billed  Services.  In late 1992 and early
1993,  the  Company  made  a  strategic   decision  to  seek  more  value-added,
premium-billed  engagements,  particularly those involving complex client/server
solutions and strategic IT consulting.  The Company also  established  strategic
alliances  with several  major  technology  companies,  which have  provided the
Company with access to  technical  and  marketing  information  and  specialized
training  for  client/server  applications.   Moreover,  the  Company  continued
developing its Evolution(R) methodology,  which has been of competitive value in
securing strategic consulting engagements.  As a result of the implementation of
these  efforts,  in 1993  revenue  was  essentially  flat,  but  profit  margins
increased.  Since  1993,  revenue  has grown  rapidly  and profit  margins  have
continued to increase.

     Increase in Fixed-Bid Projects. Relying on its Software Factory Process and
Evolution(R) methodology,  which enable the Company to better project and manage
its costs in fixed-bid projects,  the Company recently has pursued a strategy of
seeking to improve its gross margins by undertaking more fixed-bid  engagements.
During 1995,  approximately  4% of the  Company's  revenue was  attributable  to
fixed-bid projects. Revenue attributable to fixed-bid projects was approximately
9% and 7% in 1997 and 1996, respectively. With recent awards of some significant
fixed-bids,  it is anticipated  that  fixed-bids  will  represent  approximately
15-20% of revenue in 1998. The Company's SOC  infrastructure  has proven to be a
viable model that provides for greater management control of projects,  improved
efficiency  resulting from access to the latest "state of the art"  technologies
and improved profitability resulting from the process and methodology.  Although
fixed-bid projects  historically have increased the Company's gross margins, the
Company bears the risk of cost  over-runs and inflation in connection  with such
projects,  and there can be no assurance that such risks in the future might not
negatively impact the Company's gross margins.

     Revenue  Recognition.  Revenue earned on time and materials  engagements is
recognized as incurred. The Company recognizes revenue attributable to fixed-bid
engagements on the percentage of completion method.  Utilization of this method,
which requires the Company's management to estimate the status of each fixed-bid
project at the end of each period, can increase the variability of the Company's
revenue  because  of the  possible  necessity  from  time to  time of  adjusting
estimates for subsequent  developments.  Although  fixed-bid  engagements  are a
relatively  small component of revenue,  as the Company seeks to increase volume
of fixed-bid  engagements,  such possible variability in revenue recognition may
likewise increase.

                                       17
<PAGE>
                 COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

     ESOP/Profit  Sharing  Expense.  The  Company has  actively  used its profit
sharing plan and its Employee Stock Ownership Plan ("ESOP") to attract, develop,
motivate and retain  employees and has made  significant  contributions to these
plans in recent  periods.  These  contributions  are a significant  component of
selling,  general and administrative  expenses. The total contributions to these
plans in 1997,  1996 and 1995 were  approximately  $1,250,000,  $1,000,000,  and
$770,000, respectively. Although contributions are made at the discretion of the
Board of Directors,  the Company expects that  contributions will continue based
on the Company's profitability.

      Significant  Business  Combination  During 1997. On January 17, 1997,  the
Company  exchanged 584,080 shares of its common stock for all of the outstanding
common stock of Miaco Corporation  ("Miaco"),  a computer consulting firm, based
in Denver,  Colorado,  specializing  in  relational  database and  client/server
technologies.  Miaco  also has an  office  in  Washington,  D.C.  This  business
combination was accounted for as a  pooling-of-interests  and, accordingly,  the
Company's  historical  consolidated  financial  statements have been restated to
include  the  accounts  and  results  of  operations  of Miaco  for all  periods
presented.  Miaco will continue to operate as a  wholly-owned  subsidiary of the
Company.  For 1996 and 1995,  Miaco  contributed  $11.3 and $9.5 million towards
CMSI's total revenue of $57.4 and $41.5 million, respectively.

 Results of Operations

     The  following  table  sets  forth,  for the  periods  indicated,  selected
consolidated  statement of operations  data and the  percentage of the Company's
total  revenue  represented  by each  line  item  presented,  together  with the
percentage increase or (decrease) in each line item between comparative periods:

<TABLE>
<CAPTION>

                                           Percentage of Total Revenue                  Percentage
                                     -----------------------------------------
                                               Year Ended December 31,             Increase (Decrease)
                                     -----------------------------------------  ---------------------------
                                           1997         1996          1995        1997/1996    1996/1995
                                           ----         ----          ----        ---------    ---------

<S>                                        <C>          <C>          <C>              <C>          <C>
Revenue..............................      100.0%       100.0%       100.0%            23.9%        38.3%
Direct costs.........................       60.9         61.4         61.8             22.9         37.3
Gross profit.........................       39.1         38.6         38.2             25.5         39.8
Selling, general and administrative
  expenses...........................       20.4         23.5         28.0              8.0         15.6
Income from operations...............       18.7         15.1         10.2             52.7        106.6
Other income.........................        2.3          2.5          1.0             17.1        227.6
Income before income taxes...........       21.0         17.6         11.2             47.8        117.9
Net income...........................       13.0         10.3          6.8             56.4        109.8
Pro forma net income.................       13.0         10.5          6.6             53.5        119.8
Pro forma net income
  per share - diluted................        -            -            -               52.3         62.8
</TABLE>

                                       18
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

1997 Compared To 1996

     Revenue. Revenue for 1997 was $71,163,000, a 23.9% increase over revenue of
$57,432,000 recorded in 1996.  Consulting service revenue,  which represents 98%
of total revenue for the year,  increased  28.6% to $69,502,000 in 1997,  versus
$54,045,000  in 1996. The increase in revenue was primarily  attributable  to an
increase in volume of services  which was sustained by the growth in the average
billable  consultant  headcount from  approximately 489 in 1996 to approximately
595 in 1997, a 21.7% increase.  Also contributing to the increase in revenue was
an increase in the number and value of IT solution fixed bid projects undertaken
by the Company, which positively impacted average billing rates and enhanced the
Company's ability to leverage its SOC model. During 1997, the Company signed its
largest fixed bid contract,  which generated nearly  $4,000,000 during the year.
As a percentage of revenue,  fixed bid projects increased to 9% of total revenue
as compared to 7% in 1996. The ability to win and manage  significant  fixed bid
projects is  primarily  due to the success of the  Atlanta and  Charlotte  SOCs,
which came online  during the year.  Partially  offsetting  these  increases  in
revenue was a decline in education  fees and software  sales of 51.9% during the
year,  which  were  historically  generated  by  Miaco  and  SCS  and  are not a
significant  source of revenue  for the  Company.  Management  made a  conscious
decision to exit  public  training at the  beginning  of 1997 due to  historical
losses that were  incurred by the  education  division.  Also,  with  respect to
software sales, the Company  redirected its resources to consulting  services in
the Charlotte SOC.

     Gross Profit.  The 1997 gross profit of  $27,820,000  was a $5,661,000,  or
25.5%, improvement over 1996. Expressed as a percentage of revenue, gross profit
was 39.1% in 1997 versus 38.6% in 1996. This  improvement is attributable to the
increase in IT  solution  fixed bid  projects,  which  generally  results in the
realization  of stronger  margins when compared to  technology  support time and
materials engagements.  As mentioned above, the success and leverage of the SOCs
has  contributed  to an increase in  outsourced  and fixed bid  projects,  which
improved the gross profit  percentage.  This has also resulted in an increase in
average hourly billing rates during the year of approximately 9% over 1996.

     Selling,  General and Administrative Expenses ("S,G&A").  Selling,  general
and  administrative  expenses  totaled  $14,537,000  in  1997,  an  increase  of
$1,074,000,  or 8.0%, over 1996. Expressed as a percentage of revenue,  however,
S,G&A  expenses  decreased  from 23.5% in 1996 to 20.4% for 1997.  The  improved
percentage  for 1997  resulted from  increased  volume and cost  containment  of
marketing  and  other  fixed  expenses.  The cost  containment  during  1997 was
primarily  achieved  with the  assimilation  of the January  1997 Miaco  merger.
Historically, Miaco's S,G&A expenses as a percentage of revenue were higher than
the  Company's  and the  Company's  ability to  assimilate  this merger into its
infrastructure as well as adopt its culture has resulted in a reduction of S,G&A
as a percentage of revenue.  Partially  offsetting the percentage  decline was a
$300,000 expense for the Resource  Development  Program,  an internal  technical
training  program,  which  was a new  initiative  in 1997.  The  single  largest
discretionary  expense  included  in  S,G&A  was the  ESOP/Profit  Sharing  Plan
contribution, which was 1.8% and 1.7% of revenue in 1997 and 1996, respectively.

     Income Before Income Taxes. Income before income taxes increased $4,829,000
to $14,939,000 in 1997, an increase of 47.8%. As a percentage of revenue, income
before  income taxes was 21.0% in 1997  compared to 17.6% for the prior  period.
This  result  was  driven by  increased  revenue,  improved  gross  profit and a
reduction of S,G&A as a percentage of revenue,  as discussed above.  Also, other
income,  net increased to $1,656,000 in 1997,  from  $1,414,000 in 1996, a 17.1%
increase.  Other income,  net primarily  consists of investment and lease income
and the increase was the result of improved investment yields in 1997 as well as
lease income received from the Denver building prior to converting it to a SOC.

     Net Income and Pro Forma Net Income.  For 1997, net income was  $9,269,000,
an  increase  of  $3,229,000  or 53.5%  over  1996 pro forma  net  income.  This
improvement  was a result of increased  revenue,  stronger gross  margins,  cost
containment of S,G&A expenses,  the increase in other income,  net, as discussed
above,  and an  improvement  in the  effective  income tax rate.  For 1997,  the
effective  tax rate was  38.0%  versus  40.3%  for the  comparable  1996  amount
(adjusted for pro forma  credit).  The decrease in the effective tax rate is due
to a state and local  tax  minimization  strategy  that was  implemented  in the
fourth quarter of 1997 and a favorable  provision to return  variance from 1996,
which was  recorded in the third  quarter of 1997.  On a comparable  basis,  pro
forma net income  expressed as a percentage  of revenue was 13.0% in 1997 versus
10.5% for 1996. Pro forma net income per diluted share  increased 52.3% over the
prior period.

                                       19
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

1996 Compared To 1995

     Revenue. Revenue for 1996 was $57,432,000, a 38.3% increase over revenue of
$41,536,000 recorded in 1995. The increase in revenue was primarily attributable
to an increase in volume of services  which was  sustained  by the growth in the
average  billable  consultant  headcount  from  approximately  360  in  1995  to
approximately  489 in 1996, a 35.8% increase.  Also contributing to the increase
in revenue was a slight change in the mix of services  delivered by the Company.
During 1995, the Company's engagements consisted primarily of technology support
and IT solution services billed on a time and material basis. Over the course of
1996, however, the number of strategic IT consulting and  outsourcing/fixed  bid
projects  undertaken by the Company steadily  increased and positively  impacted
average  billing  rates.  The change in mix of services is primarily  due to the
success of the SOC in Jacksonville,  which came online in October 1995 and fixed
bid projects in the Greenville branch.

     Gross Profit.  The 1996 gross profit of  $22,159,000  was a $6,309,000,  or
39.8%, improvement over 1995. Expressed as a percentage of revenue, gross profit
was 38.6% in 1996 versus 38.2% in 1995. This  improvement is attributable to the
delivery of more strategic IT consulting  services, a larger percentage of fixed
bid business, and increased software revenue. As mentioned above, the success of
the SOCs has  contributed  to an increase in outsourced  and fixed bid projects,
which generally  command higher billing rates than technology  support services.
Also contributing to the increased gross profit percentage in 1996, was a slight
increase in consultant utilization from 98% in 1995 to 99% in 1996.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses totaled  $13,463,000 in 1996, an increase of $1,821,000
over 1995.  Expressed  as a  percentage  of  revenue,  however,  S,G&A  expenses
decreased from 28.0% in 1995 to 23.4% for 1996. The improved percentage for 1996
resulted from increased volume and cost containment of marketing and other fixed
expenses.  The single largest  discretionary  expense  included in S,G&A was the
ESOP/Profit  Sharing  Plan  contribution,  which was 1.7% and 1.9% of revenue in
1996 and 1995, respectively.

     Income Before Income Taxes. Income before income taxes increased $5,470,000
to  $10,110,000  in 1996,  an increase of 117.9%.  As a  percentage  of revenue,
income  before  income  taxes was 17.6% in 1996  compared to 11.2% for the prior
period.  This  result  was  driven  by  increased  operating  revenue,  improved
operating  efficiencies  and interest  income on the  proceeds of the  Company's
initial public offering,  which closed on October 4, 1995.  Interest income from
such  proceeds   amounted  to   $1,314,000   and  $392,000  in  1996  and  1995,
respectively.  The business  combinations with MSD and SCS, which were accounted
for as  poolings-of-interests  in 1995 and 1996,  contributed  significantly  to
income from operations during 1996. MSD's and SCS's  contribution to income from
operations in 1996 was $1,079,000 and $1,331,000 versus $200,000 and $214,000 in
1995, respectively.

     Net Income and Pro Forma Net Income.  For 1996, net income was  $5,926,000,
an increase of $3,102,000 or 109.8% over 1995. This  improvement was a result of
increased  revenue,  stronger gross margins,  cost containment of S,G&A expenses
and investment income earned on funds received from the Company's initial public
offering.  For 1996, the effective tax rate was 41.4% versus 39.1% for 1995. The
significant  increase  in  the  effective  tax  rate  is  due  to  the  business
combinations  with SCS, an S  Corporation,  and Miaco acquired by the Company on
April 30, 1996 and January 17, 1997,  respectively.  The acquisitions of SCS and
Miaco were accounted for as pooling-of-interests. As an S Corporation, SCS's tax
liability was the responsibility of its stockholders. To reflect the earnings of
SCS on an after-tax  basis, a pro forma charge (benefit) in lieu of income taxes
has been  included for the periods  preceding the  termination  of S Corporation
status.  A pro forma  benefit  for the impact of a non-cash,  non-recurring  net
charge  for  deferred  income  taxes  resulting  from the  termination  of the S
Corporation status has also been included pursuant to the provisions of SFAS No.
109.  With  respect to Miaco,  there was a charge to  deferred  taxes in 1996 to
establish  deferred  tax  liabilities  at the  statutory  rates that such timing
difference will reverse as part of the Company's  consolidated tax return.  On a
comparable  basis, pro forma net income expressed as a percentage of revenue was
10.5% in 1996  versus  6.6% for 1995.  Pro forma net  income per  diluted  share
increased 62.8% over the prior period.

                                       20
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

Liquidity and Capital Resources

     On September 29, 1995, the Company completed its initial public offering of
common stock, in which 4,916,250  shares of common stock were sold at a price of
$6.222 per share (shares and per share amount have been adjusted for  subsequent
stock  splits).  The net proceeds from the sale amounted to $28.4  million.  The
Company continues to use the proceeds for general corporate purposes,  including
establishing   additional  branch  offices  and  outsourcing  centers,   funding
increased working capital requirements  resulting from the Company's anticipated
growth, and acquisitions of companies in related businesses.

     During 1997,  cash and working capital  increased  $349,000 and $5,991,000,
respectively. While a number of factors contributed to the increase in cash, the
main components  were cash generated from  operations of $10,996,000,  offset by
cash used by  investing  and  financing  activities  of  $10,647,000.  Cash from
operations  increased from income tax benefits resulting from nonqualified stock
option  exercises which allowed the Company to forego its estimated tax payments
in the third and fourth quarters of 1997. Significant components of cash used by
investing and financing activities were property and equipment purchases related
to  SOC  acquisitions,   increases  in  intangible  assets  due  to  non-compete
agreements and contingent  consideration  payments for the Pathways  acquisition
and repayment of notes acquired from the Miaco merger. Working capital increased
primarily due to increases in accounts  receivable  and revenue earned in excess
of billings  and  refundable  income taxes due to tax  benefits  resulting  from
nonqualified stock option exercises.

     As of December 31, 1996,  $12,800,000  was invested in funds with  original
maturity of ninety days or less and were classified as cash equivalents,  versus
$9,822,000  at  December  31,  1997.  In an effort  to  increase  the  return on
investments,  the Company acquired  investments with maturities extending beyond
ninety days during the current year. By the end of 1997, $2,805,000 was invested
in current  securities  and  $8,137,000  was invested in various  corporate  and
governmental bonds with maturities exceeding one year and other securities which
are classified as long term.

     Accounts  receivable  increased  $2,345,000 during 1997. The number days of
sales  outstanding  were 61 days at the end of 1997  and  1996.  Therefore,  the
increase in accounts receivable is a reflection of increased sales volume during
the  period.  The  amount  of  fixed  bid  business  rose  during  the  year  by
approximately  $2,120,000,  or 53%. Most of this business requires payment after
completion  of particular  phases of a project or upon  completion of the entire
project.  The  amounts  of  revenue  earned  in  excess  of  billings  increased
approximately $976,000 since the end of 1996.

     During  1997,  the  Company  spent  approximately  $8,869,000  for  capital
expenditures  and  approximately  $1,450,000  related  to  acquisitions.  Of the
capital  expenditures,   $6,231,000  was  spent  for  property,   buildings  and
improvements to house the Greenville,  Denver, Charlotte and second Jacksonville
SOCs and $2,444,000 was spent for computer equipment, software and furniture for
the Tallahassee,  Greenville,  Charlotte and Denver SOCs. The acquisition  costs
related to non-compete  agreements with former  shareholders of Miaco as well as
contingent consideration payments under the Pathways acquisition agreement.

     The Company  maintains a $4 million line of credit with a commercial  bank.
The line of credit is unsecured,  but is contingent on meeting certain financial
covenants  measured on a quarterly basis. The Company is currently in compliance
with such  covenants  and  management  expects that the Company will continue to
meet such  covenants in future  periods.  The credit  facility has been inactive
during 1997. The Company assumed certain debt obligations  totaling  $944,000 in
connection  with its January 1997 merger with Miaco,  which were paid off during
the first quarter of 1997.

     The Company currently anticipates that its existing cash and operating cash
flow are sufficient to meet both the Company's  short-term and long-term working
capital  requirements  and to fund its expansion  through the  establishment  of
additional branches and SOC locations, and possible acquisitions.

                                       21
<PAGE>
                      COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

Recently Issued Accounting Standards

     During  February  1997,  the Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standard No. 128,  (SFAS 128)  "Earnings Per
Share".   SFAS  128  governs  the   computation,   presentation  and  disclosure
requirements for earnings per share (EPS) for entities with publicly held common
stock.  SFAS 128 was issued to simplify the  computation of EPS and replaces the
Primary and Fully diluted EPS calculations currently in use with calculations of
Basic and  Diluted  EPS.  SFAS 128 is  effective  for both  interim  and  annual
financial  statements ending after December 15, 1997, and earlier application is
not  permitted.  The Company began to calculate EPS in compliance  with SFAS 128
for the fourth  quarter and year ended  December 31, 1997.  All prior period EPS
data presented has been restated to conform to SFAS 128.

Year 2000 System Conversion

     The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" problem and is in
the  process  of  resolving  the issue.  The Year 2000  problem is the result of
computer  programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time sensitive software
may  recognize a date using "00" as the year 1900  rather than 2000.  This could
result in major system  failure and  miscalculations.  During 1997,  the Company
commenced  implementation of a new enterprise wide packaged  financial  software
system, which is Year 2000 compliant.  The supplier of the software has received
ITAA 2000 certification from The Information  Technology Association of America,
the  industry's  century  date change  certification  program.  The Company will
continue  to assess  its other  internal  systems  and  reprogram  or upgrade as
necessary.  The Company is also  reviewing the Year 2000 system  conversions  of
other  companies  with  which  it does  business  in order  to  determine  their
compliance.

Item 8.  Financial Statements and Supplementary Data

     The consolidated financial statements included in this report are listed in
Part IV, Item 14(a). The supplementary data included in this report is presented
in Item 6 under the caption "Unaudited Selected Quarterly Operating Results."

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

     None.


                                       22
<PAGE>
                      COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

         Information  required by this Item is  incorporated by reference to the
definitive  proxy statement to be filed by the Company for the Annual Meeting of
Shareholders to be held June 19, 1998.

Item 11.  Executive Compensation

         Information  required by this Item is  incorporated by reference to the
definitive  proxy statement to be filed by the Company for the Annual Meeting of
Shareholders to be held June 19, 1998.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

         Information  required by this Item is  incorporated by reference to the
definitive  proxy statement to be filed by the Company for the Annual Meeting of
Shareholders to be held June 19, 1998.

Item 13.  Certain Relationships and Related Transactions

         Information  required by this Item is  incorporated by reference to the
definitive  proxy statement to be filed by the Company for the Annual Meeting of
Shareholders to be held June 19, 1998.

                                       23
<PAGE>
                     COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997


                                     PART IV

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

(a)      The following documents are filed as part of the report:

         1. The Company's 1997 consolidated financial statements,  including the
         report  thereon of KPMG Peat Marwick LLP dated  January 22,  1998,  are
         listed on the index  immediately  preceding the consolidated  financial
         statements at the end of this report.

         2. All  financial  statement  schedules  are omitted  because  they are
         inapplicable or the requested information is either immaterial or shown
         in the financial statements of the Company or notes thereto.

         3. For Exhibits see Item 14(c) below.

(b) The Company filed a Form 8-K report on January 31, 1997, Commission File No.
0-26622.

(c)      List of Exhibits:

Exhibit No.   Description

2.1**   Agreement  and Plan of Merger,  dated  December 28,  1995,  by and
        among the Company,  MSD, MSD  Acquisition,  Inc.,  and each of the
        shareholders of MSD.
2.3**   Agreement  and Plan of Merger,  dated April 8, 1996,  by and among
        the  Company,  SCS,  SCS  Acquisition,   Inc.,  and  each  of  the
        shareholders of SCS.
2.4**   Agreement and Plan of Merger, dated January 16, 1997, by and among
        the Company,  Miaco,  Bronco  Acquisition,  Inc.,  and each of the
        shareholders of Miaco.
3.1*    Amended and Restated Articles of Incorporation of the Company
3.2*    Bylaws of the Company
4.2*    Agreement dated October 15, 1991, between SunBank/North  Florida,
        N.A., and the Company ("Line of Credit")
4.3*    Letter of Amendment to Line of Credit
21.1    Subsidiaries of the Registrant
27.0    Financial Data Schedule - 1997
27.1    Restated Financial Data Schedule - 1996
27.2    Restated Financial Data Schedule - 1995
99.3    Report of Williams, Cox, Weidner and Cox, Independent Auditors for MSD
99.4    Report of Dellinger & Deese, L.L.P., Independent Auditors for SCS
99.5    Report of  Ehrhardt,Keefe,Steiner  & Hottman  PC,Independent  Auditors
        for Miaco

* Filed with  Amendment  No. 3 to the Company's  Registration  Statement on Form
S-1, dated  September 26, 1995,  Registration  No.  33-95544,  and  incorporated
herein by reference.

** Filed with the Company's Current Reports on Form 8-K, dated January 12, 1996,
May 3, 1996, and January 31, 1997.

(d)  Financial Statements excluded by Rule 14a-3(b).  None

                                       24
<PAGE>
                    COMPUTER MANAGEMENT SCIENCES, INC.
                Form 10-K For Fiscal Year Ended December 31, 1997


                                   Signatures

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

                                            COMPUTER MANAGMENT SCIENCES, INC.


Date:  March 30, 1998                       By:      /s/ Anthony Colaluca
                                                  --------------------------
                                            Anthony Colaluca, Vice President and
                                            Chief Financial Officer


         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  this  report has been  signed by the  following  persons on behalf of the
Registrant and in the capacities shown below as of March 30, 1998.

         Signature                                      Title


/s/ Jerry W. Davis                         Chief Executive Officer and Director
Jerry W. Davis

/s/ R. Halsey Wise                         President and Chief Operating Officer
R. Halsey Wise

/s/ Anthony V. Weight                      Senior Vice President, Secretary and
Anthony V. Weight                          Director

/s/ Larry A. Longhi                        Senior Vice President and Director
Larry A. Longhi

/s/ Edward W. Fishback, Jr.                Group Vice President and Director
Edward W. Fishback, Jr.

/s/ Harry C. Stonecipher                   Director
Harry C. Stonecipher

/s/ Perry E. Esping                        Director
Perry E. Esping


                                       25
<PAGE>

                       COMPUTER MANAGEMENT SCIENCES, INC.


                   Index to Consolidated Financial Statements



                                                                           Page

Independent Auditors' Report                                                F-2

Consolidated Balance Sheets as of December 31, 1997 and 1996                F-3

Consolidated Statements of Operations for the years ended
     December 31, 1997, 1996 and 1995                                       F-5

Consolidated Statements of Shareholders' Equity for the years ended
     December 31, 1997, 1996 and 1995                                       F-6

Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995                                       F-7

Notes to Consolidated Financial Statements                                  F-9







                                      F-1
<PAGE>





                          Independent Auditors' Report



The Board of Directors and Shareholders
Computer Management Sciences, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Computer
Management Sciences,  Inc. and subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the  three-year  period ended  December 31, 1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial  statements  based on our audits.  We did not audit the 1995 financial
statements  of Miaco  Corporation,  MIS  Software  Development,  Inc. and Summit
Computer  Services,  Inc.,  which  were  acquired  by the  Company  in  business
combinations accounted for as poolings of interests, as described in note 2, and
whose statements  reflect combined total revenues  constituting  39.9 percent in
1995 of the related  consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us, and in our opinion, insofar as
it  relates  to  the  amounts  included  for  Miaco  Corporation,  MIS  Software
Development,  Inc., and Summit Computer  Services,  Inc. are based solely on the
reports of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that our audits and the  reports  of the other  auditors  provide a
reasonable basis for our opinion.

In our opinion,  based on our audits and the reports of the other auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects, the financial position of Computer Management Sciences,  Inc.
and  subsidiaries  as of December  31,  1997 and 1996,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December  31,  1997 in  conformity  with  generally  accepted  accounting
principles.




                                                          KPMG Peat Marwick LLP


Jacksonville, Florida
January 22, 1998

                                      F-2
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                           Consolidated Balance Sheets

                           December 31, 1997 and 1996

<TABLE>
<CAPTION>

                       Assets                                                         1997              1996
                       ------                                                         ----              ----
<S>                                                                             <C>                 <C>
Current assets:
     Cash and cash equivalents                                                  $    14,550,323       14,201,624
     Accounts receivable, net of allowance for
         doubtful accounts of $208,000 and $179,000
         for 1997 and 1996, respectively (note 6)                                    11,720,377        9,375,005
     Revenue earned in excess of billings                                             2,461,228        1,485,205
     Refundable income taxes                                                          4,358,250          -
     Investments available for sale, at fair value (note 5)                           2,805,072        4,895,482
     Other receivables                                                                  251,407           81,516
     Notes receivable (note 3)                                                          619,328          465,250
     Deferred income taxes (note 7)                                                     -                 14,312
     Other current assets                                                               127,289          122,069
                                                                                  -------------    -------------

              Total current assets                                                   36,893,274       30,640,463
                                                                                  -------------    -------------

Property and equipment:
     Land                                                                             2,562,000        2,107,000
     Buildings and improvements                                                       9,100,902        3,309,151
     Computers and software                                                           3,934,806        2,656,423
     Office furniture and equipment                                                   2,586,417        1,435,101
     Vehicles                                                                           391,750          331,435
                                                                                      ---------      -----------
                                                                                     18,575,875        9,839,110
     Less accumulated depreciation                                                    3,077,243        2,248,972
                                                                                  -------------    -------------

              Net property and equipment                                             15,498,632        7,590,138
                                                                                  -------------    -------------
Other assets:
     Intangible assets, net of accumulated
         amortization of $872,230 and $310,280
         for 1997 and 1996, respectively (note 2)                                     3,516,531        2,628,664
     Land held for investment (note 4)                                                  424,065          424,065
     Investments available for sale, at fair value (note 5)                           8,137,146        5,542,369
     Notes receivable, less current portion (note 3)                                    829,792        1,135,092
     Other                                                                              823,830          409,699
                                                                                  -------------    -------------

              Total other assets                                                     13,731,364       10,139,889
                                                                                  -------------    -------------

              Total assets                                                      $    66,123,270       48,370,490
                                                                                  =============    =============


                                                                                                     (Continued)
</TABLE>

                                      F-3
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                     Consolidated Balance Sheets (continued)

                           December 31, 1997 and 1996
<TABLE>
<CAPTION>


       Liabilities and Shareholders' Equity                                              1997              1996
       ------------------------------------                                              ----              ----
<S>                                                                             <C>                 <C>
Current liabilities:
     Notes payable (note 6)                                                     $         -              864,411
     Accounts payable                                                                   106,320          282,275
     Accrued expenses (note 9)                                                        4,341,936        2,824,711
     Unearned revenue                                                                   376,556          330,291
     Income taxes payable                                                                 -              312,249
     Deferred income taxes (note 7)                                                      50,623            -
                                                                                  -------------    -------------

              Total current liabilities                                               4,875,435        4,613,937
                                                                                  -------------    -------------

Long-term liabilities:
     Deferred income taxes (note 7)                                                     249,553          385,774
     Other                                                                               35,594          114,814
                                                                                  -------------    -------------

              Total long-term liabilities                                               285,147          500,588
                                                                                  -------------    -------------

Shareholders' equity (note 10):
     Preferred stock, $.01 par value; 5,000,000 shares
         authorized, no shares issued and outstanding                                     -                -
     Common stock, $.01 par value; 40,000,000
         shares authorized, 14,455,337 and 12,997,101
         shares issued and outstanding in 1997
         and 1996, respectively                                                         144,554          129,971
     Paid-in capital                                                                 38,605,137       30,290,455
     Retained earnings                                                               22,054,155       12,785,285
     Unrealized gain on investments, net of income tax (note 5)                         158,842           50,254
                                                                                  -------------    -------------

              Total shareholders' equity                                             60,962,688       43,255,965
                                                                                  -------------    -------------

Commitments (notes 2 and 11)

              Total liabilities and shareholders' equity                        $    66,123,270       48,370,490
                                                                                  =============    =============


</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                      Consolidated Statements of Operations

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                   1997             1996              1995
                                                                   ----             ----              ----

<S>                                                        <C>               <C>              <C>
Revenue                                                    $     71,162,549        57,432,222       41,535,734
Direct costs                                                     43,342,847        35,272,809       25,685,857
                                                            ---------------  ----------------  ---------------
              Gross profit                                       27,819,702        22,159,413       15,849,877

Selling, general and administrative
     expenses (notes 8 and 11)                                   14,536,459        13,463,021       11,641,479
                                                            ---------------  ----------------  ---------------
              Income from operations                             13,283,243         8,696,392        4,208,398

Other income (expense):
     Investment and other income (note 5)                         1,617,040         1,452,814          542,171
     Interest expense                                               (12,800)         (116,132)        (127,573)
     Other, net                                                      51,387            77,046           17,002
                                                            ---------------  ----------------  ---------------
                                                                  1,655,627         1,413,728          431,600
                                                            ---------------  ----------------  ---------------

              Income before income taxes                         14,938,870        10,110,120        4,639,998

Provision for income taxes (notes 2 and 7)                        5,670,000         4,184,045        1,815,982
                                                            ---------------  ----------------  ---------------

              Net income                                  $       9,268,870         5,926,075        2,824,016
                                                            ===============  ================  ===============

Unaudited pro forma information (note 2):
     Net income as reported                               $       9,268,870         5,926,075        2,824,016
     (Benefit) charge in lieu of income taxes, net                    -              (114,207)          75,752
                                                            ---------------  ----------------- ---------------

              Pro forma net income                        $       9,268,870         6,040,282        2,748,264
                                                            ===============  ================  ===============


Pro forma net income per share - basic                    $            0.69              0.47             0.30
                                                            ===============  ================  ===============

Weighted average number of common
     shares outstanding - basic                                  13,493,759        12,982,061        9,286,493
                                                            ===============  ================  ===============


Pro forma net income per share - diluted                  $            0.61              0.40             0.25
                                                            ===============  ================  ===============

Weighted average number of common and
     common equivalent shares outstanding - diluted              15,164,975        15,050,671       11,148,039
                                                            ===============  ================  ===============
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                 Consolidated Statements of Shareholders' Equity

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>


                                                                                            Unrealized      Total
                                                                                               Gain        Share-
                                         Common     Preferred       Paid-in    Retained      (Loss) on    holders'
                                          Stock       Stock         Capital    Earnings     Investments    Equity
<S>                                   <C>            <C>        <C>            <C>         <C>          <C>

Balance at January 1, 1995            $    35,447         -       1,507,877    4,691,279    (13,640)      6,220,963

Shares issued for exercised stock
     options                                   67         -          30,784           -          -           30,851
Shares issued in initial public
     offering                              21,850         -      28,426,850           -          -       28,448,700
Dividends paid to shareholders of
     pooled entities                           -          -              -        (2,000)        -           (2,000)
Stock issuance costs                           -          -        (457,626)          -          -         (457,626)
Net income                                     -          -              -     2,824,016         -        2,824,016
Unrealized gain on investments,
     net of income tax (note 5)                -          -              -            -      53,781          53,781
                                        ---------  ---------   ------------    ----------  ---------    ------------

Balance at December 31, 1995               57,364         -      29,507,885    7,513,295     40,141      37,118,685

Shares issued for exercised stock
     options                                  424         -         159,441           -          -          159,865
Stock splits (note 10)                     72,183         -         (72,183)          -          -               -
Contribution of undistributed
     S Corporation earnings of
     pooled entity                             -          -         695,312     (695,312)        -               -
Adjustment to conform year-end of
     pooled entity                             -          -              -        41,227         -           41,227
Net income                                     -          -              -     5,926,075         -        5,926,075
Unrealized gain on investments,
     net of income tax (note 5)                -          -              -            -      10,113          10,113
                                        ---------  ---------  -------------  -----------  ---------  --------------

Balance at December 31, 1996              129,971         -      30,290,455   12,785,285     50,254      43,255,965

Shares issued for exercised stock
     options                               14,583         -         578,452           -          -          593,035
Income tax benefit for stock option
     exercises                                 -          -       7,736,230           -          -        7,736,230
Net income                                     -          -              -     9,268,870         -        9,268,870
Unrealized gain on investments,
     net of income tax (note 5)                -          -              -            -     108,588         108,588
                                        ---------  ---------  -------------  -----------  ---------  --------------

Balance at December 31, 1997          $   144,554         -      38,605,137   22,054,155    158,842      60,962,688
                                        =========  =========  =============  ===========  =========  ==============
</TABLE>


See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>

                                                                     1997               1996              1995
                                                                     ----               ----              ----
<S>                                                          <C>                     <C>              <C>

Cash flow from operating activities:
     Net income                                               $     9,268,870         5,926,075        2,824,016
     Adjustments to reconcile net income to net
        cash provided by operating activities:
         Depreciation and amortization                              1,467,767         1,055,553          788,052
         Net gain on disposition of property
              and equipment                                           (63,193)           (7,631)          (1,984)
         Net gain on sale of investments                              (83,540)          (22,852)         (25,655)
         Deferred income tax (benefit) expense                       (136,591)          221,954          (81,421)
         Adjustment to conform year-end of pooled entity                -                41,227            -
         Change in assets and liabilities:
              Increase in accounts and other
                  receivables                                      (3,491,286)       (3,747,068)      (2,222,257)
              (Increase) decrease in other current assets              (5,220)          101,261          (70,120)
              Decrease in refundable income taxes                       -                 -               23,726
              (Increase) decrease in other assets                    (414,131)         (299,856)          11,564
              Increase in accounts payable and
                  accrued expenses                                  1,041,960           509,631          413,262
              Increase (decrease) in unearned revenue                  46,265          (443,403)         299,905
              Increase in income taxes payable                      3,365,041           130,489           90,165
                                                                -------------     -------------    -------------

                  Net cash provided by operating
                      activities                                   10,995,942         3,465,380        2,049,253
                                                                -------------     -------------    -------------

Cash flow from investing activities:
     Purchases of property and equipment                           (8,869,405)       (5,145,032)      (1,245,888)
     Proceeds from the sale of property and equipment                 118,470             9,610           23,703
     Increase in intangible assets                                 (1,450,000)       (2,557,155)        (176,575)
     Decrease (increase)  in notes receivable                         151,222        (1,356,719)        (221,873)
     Purchases of investments available for sale                   (8,668,212)      (13,490,608)        (502,102)
     Proceeds from sale of investments                              8,421,278         3,738,675          303,802
                                                                -------------     -------------    -------------

                  Net cash used in investing activities           (10,296,647)      (18,801,229)      (1,818,933)
                                                                -------------     -------------    -------------


                                                                                                    (Continued)
</TABLE>


                                      F-7
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                Consolidated Statements of Cash Flows (continued)

                  Years ended December 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>


                                                                        1997             1996               1995
                                                                        ----             ----               ----
<S>                                                          <C>                     <C>              <C>

Cash flow from financing activities:
     Proceeds from issuance of common stock                   $          593,035          159,865        28,479,551
     Payment of stock issuance costs                                       -                -              (457,626)
     Dividends paid                                                        -                -                (2,000)
     Proceeds from notes payable                                           -                -               959,078
     Repayment of notes payable and other long-
         term liabilities                                               (943,631)        (704,057)         (266,315)
                                                                ----------------  ---------------  ----------------

              Net cash (used in) provided by
                  financing activities                                  (350,596)        (544,192)       28,712,688
                                                                ----------------  ---------------- ----------------

              Net increase (decrease) in cash
                  and cash equivalents                                   348,699      (15,880,041)       28,943,008

Cash and cash equivalents at beginning of year                        14,201,624       30,081,665         1,138,657
                                                                ----------------  ---------------  ----------------

Cash and cash equivalents at end of year                      $       14,550,323       14,201,624        30,081,665
                                                                ================  ===============  ================

Cash paid for income taxes                                    $        2,137,493        3,831,602         1,794,867
                                                                ================  ===============  ================

Cash paid for interest                                        $           12,800          116,132           127,573
                                                                ================  ===============  ================


</TABLE>















See accompanying notes to consolidated financial statements.

                                      F-8
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements

                           December 31, 1997 and 1996




(1)    Summary of Significant Accounting Policies and Operations

       Nature of Operations

       Computer Management Sciences, Inc. (the Company) is a national consulting
       and professional  services  company  providing  client/server  solutions,
       information technology,  systems consulting,  project management, systems
       analysis and design,  programming,  and information  systems  outsourcing
       services to a broad range of industries and software/hardware platforms.

       Basis of Presentation

       The accompanying  consolidated  financial statements include those of the
       Company  and its wholly  owned  subsidiaries,  after  elimination  of all
       significant intercompany accounts and transactions.

       Cash and Cash Equivalents

       For purposes of the  consolidated  statements of cash flows,  the Company
       considers all short-term  investments with an original maturity of ninety
       days or less to be cash equivalents. The carrying amount approximates the
       fair value because of the short maturity of these investments.

       Investments

       The Company  accounts for its investments in accordance with Statement of
       Financial  Accounting  Standards No. 115 (SFAS No. 115),  "Accounting for
       Certain Investments in Debt and Equity Securities."

       Under SFAS No. 115, the Company has  classified  all of its  investments,
       consisting  of  equity  and  debt   securities   and  mutual  funds,   as
       available-for-sale  which are recorded at fair value.  Unrealized holding
       gains and losses, net of the related income tax effects,  are included as
       a separate component of shareholders' equity, until realized. Investments
       are  categorized  as short or long-term  based on their stated  maturity.
       Investments  with  no  stated  maturity  are  categorized  based  on  the
       Company's best estimate as to when such investments will be disposed.


                                      F-9
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements



(1)    Summary of Significant Accounting Policies and Operations, continued

       Property and Equipment

       Property and equipment are recorded at cost.  Depreciation is computed on
       the straight-line method using estimated useful lives as follows:
                                                      Estimated Useful Lives
                                                            (in years)

              Buildings                                         31
              Building improvements                           7 to 27
              Computers and software                             5
              Office furniture and equipment                  5 to 7
              Vehicles                                           5

       The Company  reviews its property and equipment for  impairment  whenever
       events or changes in  circumstances  indicate  the  carrying  value of an
       asset may not be recoverable. Recoverability is measured by comparison of
       the carrying amount to the net cash flows expected to be generated by the
       asset.

       Intangible Assets

       Intangible   assets   primarily   consist  of  goodwill  and  non-compete
       agreements, associated with purchased acquisitions. Goodwill is amortized
       over the period  estimated to benefit  from the acquired  assets which is
       five to fifteen years. Non-compete agreements are amortized over the term
       of the agreement.  Management periodically assesses the recoverability of
       intangible assets based on the cash flows from operations of the acquired
       entity.

       Revenue Recognition

       The Company  derives  substantially  all of its revenue  from  consulting
       services  provided  on both a  time-and-materials  and fixed  fee  basis.
       Revenue with respect to  time-and-material  contracts  is  recognized  as
       incurred.  Revenue with respect to fixed fee contracts is recognized on a
       percentage of completion basis and is adjusted monthly for the cumulative
       impact of any revision in estimates.  The Company  recognizes  the entire
       loss on a  fixed  fee  contract  in the  period  when  current  estimates
       indicate a loss.

       Revenue  earned  in excess  of  billings  and  unearned  revenue  consist
       principally  of services  performed and not yet billed and amounts billed
       or received for services not yet performed.


                                      F-10
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(1)    Summary of Significant Accounting Policies and Operations, continued

       Income Taxes

       The Company  follows the asset and  liability  method of  accounting  for
       income  taxes  in  accordance  with  Statement  of  Financial  Accounting
       Standards No. 109, "Accounting for Income Taxes." Deferred tax assets and
       liabilities are recognized for the 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 expected
       to  apply to  taxable  income  in the  years  in  which  those  temporary
       differences  are  expected  to be  recovered  or  settled.  The effect on
       deferred  tax  assets  and  liabilities  of a  change  in  tax  rates  is
       recognized in income in the period that includes the enactment date.

       Earnings Per Share

       The Company  adopted the provisions of Statement of Financial  Accounting
       Standards  (SFAS) No. 128,  "Earnings  per Share," on December  31, 1997.
       This  statement  governs the  computation,  presentation,  and disclosure
       requirements  of earnings per share  ("EPS") for entities  with  publicly
       held common stock. Effective December 31, 1997 the Company has calculated
       EPS in accordance  with SFAS No. 128 and all periods  presented have been
       restated.

       Net income per share of common stock is computed  based upon the weighted
       average number of common shares and share equivalents  outstanding during
       the  year.   Stock  options,   when  dilutive,   are  included  as  share
       equivalents.

       Weighted average shares  outstanding under the basic calculation  differs
       from that  under the  diluted  calculation  due to the  weighted  average
       effect of dilutive  stock  options  using the  treasury  stock  method of
       1,671,216,  2,068,610  and  1,861,546  shares  during 1997,  1996,  1995,
       respectively.

       Retroactive recognition has been given in the calculation of earnings per
       share to the shares issued in the pooling of interest  mergers  discussed
       in note 2 and the stock splits discussed in note 10.

       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 the reported  amounts of revenues and expenses
       during the  reporting  period.  Actual  results  could  differ from those
       estimates.


                                      F-11
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(1)    Summary of Significant Accounting Policies and Operations, continued

       Concentration of Credit Risk

       Financial   instruments   which   potentially   expose  the   Company  to
       concentrations  of  credit  risk  consist  primarily  of  trade  accounts
       receivable. The Company has not experienced significant losses related to
       receivables  from  individual  customers  or  groups  of  customers  in a
       particular industry or geographic area. Due to these factors,  management
       believes no additional credit risk beyond amounts provided for collection
       losses is inherent in the Company's accounts receivable

       During 1996, the  Company earned revenues from one customer that  totaled
       $4.8 million or 10.4% of total revenue.

       Stock Option Plan

       Prior to January 1, 1996,  the  Company  accounted  for its stock  option
       plans in accordance  with the provisions of Accounting  Principles  Board
       (APB) Opinion No. 25,  "Accounting  for Stock Issued to  Employees,"  and
       related interpretations.  As such, compensation expense would be recorded
       on the date of grant only if the current  market price of the  underlying
       stock  exceeded  the  exercise  price.  On January 1, 1996,  the  Company
       adopted SFAS No. 123,  "Accounting for Stock-Based  Compensation,"  which
       requires  entities to recognize  as expense  over the vesting  period the
       fair value of all stock-based awards on the date of grant. Alternatively,
       SFAS No. 123 also allows  entities to continue to apply the provisions of
       APB  Opinion  No.  25 and  provide  pro forma  net  income  and pro forma
       earnings per share  disclosures  for employee stock option grants made in
       1995 and future years as if the  fair-value-based  method defined in SFAS
       No. 123 had been  applied.  The  Company has elected to continue to apply
       the  provisions  of APB Opinion 25 and  provide the pro forma  disclosure
       provisions of SFAS No. 123.

(2)    Business Combinations and Acquisitions

       Business Combinations

       On January 17, 1997, the Company  exchanged  584,080 shares of its common
       stock  for all of the  outstanding  common  stock  of  Miaco  Corporation
       ("Miaco"),  a  computer  consulting  firm,  based  in  Denver,  Colorado,
       specializing in relational database and client/server technologies. Miaco
       also has an office in Washington, D.C. This business combination has been
       accounted for as a pooling-of-interests  and, accordingly,  the Company's
       historical  consolidated  financial  statements  have  been  restated  to
       include the  accounts  and  results of  operations  of Miaco.  Miaco will
       continue to operate as a wholly-owned subsidiary of the Company.

       On April 30,  1996,  the  Company  issued  approximately  945,907  shares
       (adjusted  for  subsequent  stock splits) of its common stock in exchange
       for all of the outstanding common stock of Summit Computer Services, Inc.
       (SCS),  a  Charlotte, North Carolina   based  computer  consulting   firm

                                      F-12
<PAGE>

                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(2)    Business Combinations and Acquisitions, continued

       Business Combinations, continued

       with concentrated  expertise in client/server  technology.  This business
       combination  has  been  accounted  for  as  a  pooling-of-interests  and,
       accordingly,  the  consolidated  financial  statements  for  all  periods
       presented  have been  restated  to include  the  accounts  and results of
       operations  of SCS.  Prior to its  acquisition  by the  Company,  SCS had
       elected S  Corporation  status for federal and state income tax purposes.
       As an S Corporation,  SCS's tax liability was the  responsibility  of its
       stockholders.  Included in the  provision  for income  taxes in 1996 is a
       non-cash,  non-recurring  charge of $246,876  for  deferred  income taxes
       resulting from the  termination of the S Corporation  status.  To reflect
       the earnings of SCS on an after tax basis,  a pro forma charge in lieu of
       income taxes of $132,669 in 1996,  and $75,752 in 1995 has been included,
       in the  accompanying  consolidated  statements  of  operations,  for  the
       periods  preceding the termination of S Corporation  status.  A pro forma
       benefit  for  the  impact  of  the  non-cash,  non-recurring  net  charge
       described above is also included for 1996.

       On December 28, 1995,  the Company  issued  approximately  343,991 shares
       (adjusted  for  subsequent  stock splits) of its common stock in exchange
       for all of the outstanding common stock of MIS Software Development, Inc.
       (MSD),  an  information   systems  consulting   company.   This  business
       combination has been accounted for as a pooling-of-interests  combination
       and, accordingly,  the consolidated  financial statements for all periods
       presented  have been  restated  to include  the  accounts  and results of
       operations of MSD.

       The results of operations previously reported by the separate enterprises
       and the  combined  amounts  presented  in the  accompanying  consolidated
       financial  statements  for the years ended December 31, 1996 and 1995 are
       summarized below:
                                                   1996              1995
                                                   ----              ----
            Revenue:
                Company                     $     46,095,306       24,975,281
                SCS                                    -            4,185,322
                MSD                                    -            2,837,617
                Miaco                             11,336,916        9,537,514
                                              --------------    -------------
                     Combined               $     57,432,222       41,535,734
                                              ==============    =============
            Net income (loss):
                Company                     $      6,219,227        2,740,223
                SCS                                    -              193,740
                MSD                                    -              202,639
                Miaco                               (293,152)        (312,586)
                                              --------------    -------------
                     Combined               $      5,926,075        2,824,016
                                              ==============    =============

       There were no significant transactions between the Company and Miaco, MSD
       or SCS prior to the combinations.

                                      F-13
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(2)    Business Combinations and Acquisitions, continued

       Acquisitions

       On January 30, 1996, the Company acquired  certain assets,  contracts and
       personnel of Weldon Systems, Inc. (Weldon), a Springfield,  Massachusetts
       company that develops customized  applications for firms in the financial
       services and insurance industries for $225,000.  Goodwill of $185,000 was
       recorded and is being amortized over 7 years.

       On July 31,  1996,  the  Company  acquired  all of the assets of Pathways
       Consulting, Inc. (Pathways), an Atlanta-based information technology firm
       specializing in providing systems integration  consulting services to the
       public utility industry. The acquisition was accounted for as a purchase,
       with a price of $4.4  million in cash of which $2.3  million  was paid at
       closing and $2.1 million of contingent  consideration is payable in equal
       installments  over an  approximate  three year period if  Pathways  meets
       certain revenue goals. Subsequent to December 31, 1997 and 1996, Pathways
       exceeded  its first two  revenue  goals and as a result  $700,000  of the
       contingent  consideration  was  paid  in the  first  quarter  of  1997 an
       additional  $700,000  payment will be made in the first  quarter of 1998,
       with  goodwill  adjusted  accordingly.  Goodwill of  $2,975,425  has been
       recorded thus far and is being amortized over 15 years.

       The  acquisition  of Weldon and Pathways were  accounted for as purchases
       and  as  such  the  results  of  their  operations  are  included  in the
       consolidated financial statements from the date of the acquisition.  None
       of the acquisitions  were significant to the operations of the Company in
       the  year  in  which  they  were  acquired  or  the  year  preceding  the
       acquisition.



                                      F-14
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(3)    Notes Receivable

       Notes  receivable  consisted  of the  following  at December 31, 1997 and
       1996:

                                                           1997            1996
                                                           ----            ----

        Notes receivable from third parties       $       890,219        993,005
        Notes receivable from stockholders                357,941        273,250
        Notes receivable from an employee                   -            235,825
        Notes receivable from officers                    200,960         98,262
                                                    -------------   ------------
                     Total                        $     1,449,120      1,600,342

                     Less current portion                 619,328        465,250
                                                    -------------   ------------

                     Non-current portion          $       829,792      1,135,092
                                                    =============   ============


       Notes receivable have interest rates ranging from 5.6% to 9.75% per annum
       with maturities beginning in October 1998 through October 2001. The notes
       are  secured by  tangible  assets  with the  exception  of the notes from
       stockholders  which are  unsecured.  Based on the range of interest rates
       and the stated  maturities,  management  believes  the fair values of the
       notes  receivable  are  not  materially  different  from  their  carrying
       amounts.


(4)    Land Held for Investment

       Land held for investment purposes primarily  represents  undeveloped land
       located in north Georgia. The undeveloped land is recorded at cost, which
       is less than net realizable value determined by appraisal.
       Annual carrying costs associated with the land are expensed.



                                      F-15
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(5)    Investments

       The cost, gross unrealized  holding gains and losses,  and estimated fair
       value of investments available for sale at December 31, 1997 and 1996 are
       as follows:
<TABLE>
<CAPTION>

                                                                Gross             Gross          Estimated
                                                             Unrealized        Unrealized          Fair
                                               Cost             Gains            Losses            Value
         <S>                            <C>                 <C>                 <C>            <C>

         1997
         Equity securities              $     1,852,345           233,747            -             2,086,092
         Debt securities                      8,434,535            12,100          (20,648)        8,425,987
         Mutual funds                           399,306            30,833            -               430,139
                                          -------------     -------------       ----------     -------------

              Total                     $    10,686,186           276,680          (20,648)       10,942,218
                                          =============     =============       ==========     =============


         1996
         Equity securities              $     2,069,528            99,196           (7,578)        2,161,146
         Debt securities                      8,130,844             5,250          (30,710)        8,105,384
         Mutual funds                           155,340            15,981            -               171,321
                                          -------------     -------------       ----------     -------------

              Total                     $    10,355,712           120,427          (38,288)       10,437,851
                                          =============     =============       ==========     =============
</TABLE>


       The cost and estimated fair value of debt  securities  available for sale
       at December 31, 1997, by contractual maturity is as follows:

                                                                     Estimated
                                                     Cost           Fair Value

           Due in one year or less            $      2,814,765        2,805,072
           Due in one to five years                  5,619,770        5,620,915
                                                --------------    -------------
                                              $      8,434,535        8,425,987
                                                ==============    =============



                                      F-16
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(5)    Investments, continued

       Net gain on the sale of  investments  included  gross  realized  gains of
       $115,686,  $32,491,  and  $27,295 and gross  realized  losses of $32,146,
       $9,639, and $1,640, for the years ended December 31, 1997, 1996 and 1995,
       respectively.  For the purpose of  determining  gross  realized gains and
       losses,   the  cost  of  marketable   securities  is  based  on  specific
       identification.

       Net unrealized gains on investments  available for sale were $256,032 and
       $82,139  at  December  31,  1997 and 1996,  respectively.  The  change in
       unrealized  gains, net of income taxes,  have been included as a separate
       component  of  shareholder's  equity and amounted to $108,588 and $10,113
       for the years ended December 31, 1997 and 1996, respectively.


(6)    Notes Payable

       Notes payable consisted of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>

                                                                                      1997           1996
                                                                                      ----           ----
        <S>                                                                    <C>              <C>

         Line-of-credit,  up to the  lesser  of  $750,000  or 75% of  trade
             accounts  receivable  less than 90 days old,  secured by trade
             accounts receivable, due on demand, with interest
             due at the prime rate, terminated July 25, 1997                   $     -                  100

         Revolving Credit Loan, up to $4,000,000,  unsecured, contingent on
             meeting certain financial covenants, due May 31, 1999,
             with interest due at the prime rate minus .5%                           -                -

         Other notes payable,  interest ranging from 8% to 12.5% per annum,
             collateralized by accounts receivable,
             paid in full during 1997                                                -              864,311
                                                                                 -----------    -----------

                 Total                                                         $     -              864,411
                                                                                 ===========    ===========
</TABLE>


                                      F-17
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(7)    Income Taxes

       The income tax expense for the years ended  December 31,  1997,  1996 and
       1995 was allocated as follows:

<TABLE>
<CAPTION>
                                                            1997             1996                1995
                                                            ----             ----                ----
      <S>                                            <C>                 <C>              <C>

       Income from continuing operations             $     5,670,000         4,184,045        1,815,982
       Shareholders' equity, for recognition of
            unrealized gain on marketable
            equity securities                                 65,305             6,417           34,122
                                                       -------------     -------------    -------------

                                                     $     5,735,305         4,190,462        1,850,104
                                                       =============     =============    =============


       Net  income  before   income  taxes  is  derived   solely  from  domestic
       operations.  The  provision  for income tax  expense  for the years ended
       December 31, 1997, 1996 and 1995 consists of the following:


                                                           1997             1996                1995
                                                           ----             ----                ----

       Current tax expense                          $     5,806,591         3,962,091        1,897,403

       Deferred tax expense (benefit)                      (136,591)          221,954          (81,421)
                                                      --------------    -------------    -------------

            Total                                   $     5,670,000         4,184,045        1,815,982
                                                      =============     =============    =============

</TABLE>

                                      F-18
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(7)    Income Taxes, continued

       Income tax expense attributable to income from continuing  operations for
       the years ended  December  31,  1997,  1996 and 1995,  differed  from the
       amounts  computed by applying the U.S.  Federal income tax rate of 34% to
       income before taxes as follows:

<TABLE>
<CAPTION>
                                                                     1997             1996                1995
                                                                     ----             ----                ----
          <S>                                                 <C>                  <C>             <C>

           Computed "expected" tax expense                    $     5,079,216         3,437,441        1,577,599
           Increase (decrease) in income taxes resulting
             from:
                S Corporation income                                      -            (115,364)         (65,872)
                Tax exempt interest                                   (10,561)          (34,650)          (3,772)
                Non-deductible meals and entertainment                 51,002            37,268           31,779
                Non-deductible merger related costs                       -             132,325              -
                State income tax, net of federal benefit              573,725           500,903          238,349
                Dividend income exclusion                             (29,737)          (25,194)             -
                Deferred income taxes resulting from
                    change in tax status of pooled entity                 -             246,876              -
                Other, net                                              6,355             4,440           37,899
                                                                -------------     -------------    -------------
                                                              $     5,670,000         4,184,045        1,815,982
                                                                =============     =============    =============
</TABLE>

       The  effects  of  temporary  differences  that give  rise to  significant
       portions of deferred tax assets and  liabilities  as of December 31, 1997
       and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                     1997              1996
                                                                     ----              ----
     <S>                                                     <C>                <C>

      Deferred tax assets:
          Accrued expenses                                   $       215,237          171,489
          Allowance for doubtful accounts                             78,928           69,309
          Net operating loss carry-forward                           123,841          120,470
          Intangible assets                                           69,116            -
          Other                                                        5,929            3,284
                                                               -------------    -------------
              Total deferred tax assets                              493,051          364,552
                                                               -------------    -------------

      Deferred tax liabilities:
          Change of reporting from the cash basis to the
              accrual basis for income tax purposes                  298,345          452,127
          Property and equipment depreciation                        397,692          205,800
          Intangible assets                                            -               46,202
          Unrealized gain on investments                              97,190           31,885
                                                               -------------    -------------
                   Total deferred tax liabilities                    793,227          736,014
                                                               -------------    -------------
                   Net deferred tax liabilities              $       300,176          371,462
                                                               =============    =============
</TABLE>

                                      F-19
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(7)    Income Taxes, continued

       In  assessing  the  realizability  of  deferred  tax  assets,  management
       considers  whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent  upon the  generation of future  taxable
       income  during the periods in which those  temporary  differences  become
       deductible. Management considers the schedule of reversal of deferred tax
       assets,  projected future taxable income, and tax planning  strategies in
       making the assessment. Based upon the above criteria and that the Company
       has paid sufficient  taxes in prior years which is available for recovery
       of deferred  tax assets,  management  believes it is more likely than not
       that  the  Company  will   realize  the  benefits  of  these   deductible
       differences.


(8)    Benefit Plans

       The Company provides a 401(k) withholding plan which covers substantially
       all employees after sixty days of employment.

       The Company  maintains  an  Employee  Stock  Ownership  Plan (ESOP) and a
       Profit Sharing Plan  (collectively,  the Plans) for  substantially all of
       its employees.  Contributions  to the Plans are made at the discretion of
       the Board of  Directors.  The Plans may be terminated at any time without
       further  obligation  to the Company.  Employee  benefit plan expenses are
       summarized as follows:

<TABLE>
<CAPTION>

                                                                     December 31,
                                              1997                       1996                       1995
                                              ----                       ----                       ----
        <S>                           <C>                        <C>                        <C>

         Profit Sharing Plan          $        -                          -                        294,929
         ESOP                               1,250,000                  1,000,000                   475,000
                                       ---------------            --------------             -------------

                                      $     1,250,000                  1,000,000                   769,929
                                        =============             ==============             =============
</TABLE>


       The Company accrues a combined  contribution to the Plans  throughout the
       year and recognizes employee benefit plan expense. Cash is contributed to
       the ESOP  throughout  the  year as  needed  and at year end the  Board of
       Directors approves the contribution  allocation between the Plans and the
       payment of cash and/or stock.


                                      F-20
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(8)    Benefit Plans, continued

       The Company also has a nonqualified  stock option plan (the  Nonqualified
       Plan) and an  incentive  stock  option  plan (the ISO Plan)  under  which
       certain key  employees  are granted the option to purchase  shares of the
       Company's common stock at a price equal to the market price of stock. The
       Nonqualified  and ISO Plans  were  terminated  on August 31,  1995,  with
       respect to the  issuance  of new  options  under  these  plans,  however,
       unexercised options remain outstanding under these plans.

       The Company has a Stock Incentive Plan and a Non-Employee  Director Stock
       Option  Plan (the  Plans)  pursuant  to which the Company may grant stock
       options to officers,  directors and key  employees.  The Plans  authorize
       grants of options to purchase up to 1,125,000  shares of  authorized  but
       unissued  common stock.  Stock options are granted with an exercise price
       equal to the stock's  fair market  value at the date of grant.  All stock
       options   generally  have  10  year  terms  and  vest  and  become  fully
       exercisable after 5 years from the date of grant (20% per year).

       At December 31, 1997, there were 346,149  additional shares available for
       grant under the Plans. The per share weighted-average fair value of stock
       options granted during 1997, 1996 and 1995 was $10.10,  $10.26 and $2.23,
       respectively, on the date of grant using the Black Scholes option-pricing
       model with the following weighted-average assumptions: 1997 - no expected
       dividend  yield,  risk-free  interest  rate  of  5.8%,  weighted  average
       expected  volatility of 57.1% and an expected life of 6 years;  1996 - no
       expected  dividend  yield,  risk-free  interest  rate of  5.9%,  weighted
       average  expected  volatility  of 53.4% and an expected  life of 6 years;
       1995 - no  expected  dividend  yield,  risk-free  interest  rate of 5.4%,
       weighted average  expected  volatility of 53.4% and an expected life of 6
       years.

       The Company  applies APB Opinion No. 25 in accounting  for its Plans and,
       accordingly,  no  compensation  cost has been  recognized  for its  stock
       options  in  the  consolidated  financial  statements.  Had  the  Company
       determined  compensation  cost  based on the fair value at the grant date
       for its stock  options under SFAS No. 123, the Company's net income would
       have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                             1997              1996             1995
                                                             ----              ----             ----
                      <S>                             <C>                    <C>              <C>

                        Net income:
                           As reported                 $   9,268,870         6,040,282         2,748,264
                           Pro forma                       8,765,310         5,893,516         2,355,600

                        Per share:
                           As reported - basic         $         0.69             0.47              0.30
                           Pro forma - basic                     0.65             0.45              0.25

                        Per share:
                           As reported - diluted       $         0.61             0.40              0.25
                           Pro forma - diluted                   0.59             0.40              0.23

</TABLE>
                                      F-21
<PAGE>
                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements



(8)    Benefit Plans, continued

       Pro forma net income  reflects  only  options  granted in 1997,  1996 and
       1995.  Therefore,  the full impact of calculating  compensation  cost for
       stock  options  under SFAS No. 123 is not  reflected in the pro forma net
       income amounts  presented  above because  compensation  cost is reflected
       over the options'  vesting  period of 5 years and  compensation  cost for
       options granted prior to January 1, 1995 is not considered.

       Stock option activity during the period indicated is as follows:


                                                                     Weighted-
                                               Number of              Average
                                                Shares            Exercise Price

       Balance at December 31, 1994             1,618,875       $        .223

            Granted                               885,073               3.927
            Exercised                             (15,349)              2.010
            Forfeited                             (29,275)              2.578
                                             ------------         -----------

       Balance at December 31, 1995             2,459,324               1.576

            Granted                               189,403              17.802
            Exercised                             (95,182)              1.680
            Forfeited                             (69,910)              4.839
                                             ------------         -----------

       Balance at December 31, 1996             2,483,635               2.678

            Granted                               511,976              17.655
            Exercised                          (1,458,236)               .407
            Forfeited                            (122,758)             12.355
                                             ------------         -----------

       Balance at December 31, 1997             1,414,617       $       9.600
                                             ============         ===========



                                      F-22
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(8)    Benefit Plans, continued

       The  following  table  presents  information   regarding  all  options
       outstanding at December 31, 1997.

                         Weighted
                          Average                                    Weighted
        Number of        Remaining              Range of              Average
         Options        Contractual             Exercise             Exercise
       Outstanding         Life                  Prices                Price

          125,334         1.2 years    $        0.078 - 2.175    $         .376
          532,093         7.4 years             2.176 - 4.350             2.583
           16,665         7.6 years             4.351 - 6.525             6.229
          132,879         7.8 years             6.526 - 8.700             8.142
          108,500         9.3 years           10.875 - 13.050            13.000
           24,750         8.5 years           13.051 - 15.225            14.071
          111,796         9.7 years           15.226 - 17.400            16.001
          149,100         9.0 years           17.401 - 19.575            18.748
          213,500         9.5 years           19.576 - 21.750            21.687
       ----------    --------------      --------------------       -----------

        1,414,617         7.7 years    $       0.078 - 21.750    $        9.600
       ==========    ==============      ====================       ===========


       The following  table presents  information  regarding  options  currently
       exercisable at December 31, 1997.

                                                                Weighted
              Number of                 Range of                 Average
               Options                  Exercise                Exercise
             Exercisable                 Prices                   Price

                 108,599         $      0.078 - 2.175         $     0.197
                 434,138                2.176 - 4.350               2.584
                   8,565                4.351 - 6.525               6.236
                  50,253                6.526 - 8.700               8.129
                     300              10.875 - 13.050              13.000
                   6,750              13.051 - 15.225              14.260
                   1,396              15.226 - 17.400              16.075
                  23,700              17.401 - 19.575              18.788
                   2,700              19.576 - 21.750              20.750
           -------------           ------------------           ---------

                 636,401         $     0.078 - 21.750         $     3.502
           =============           ==================           =========


                                      F-23
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(9)    Accrued Expenses

       Accrued expenses at December 31, 1997 and 1996 consist of the following:


                                                       1997              1996
                                                       ----              ----

         Salaries and benefits                 $     1,779,786         1,387,913
         Employee benefit plan contributions           238,877           227,492
         Payroll tax and withholdings                1,235,823           520,866
         Other                                       1,087,450           688,440
                                                 -------------    --------------

                                               $     4,341,936         2,824,711
                                                 =============    ==============


(10)   Shareholders' Equity

       On June 7, 1996,  the  Company's  Board of  Directors  declared a 3-for-2
       stock  split,  which was  effected as a fifty  percent  dividend,  of the
       Company's common stock. The common stock dividend was distributed on July
       5, 1996 to shareholders of record on June 21, 1996.

       On October 17, 1996, the Company's Board of Directors  declared a 3-for-2
       stock split, to be effected as a fifty percent dividend, of the Company's
       common stock.  The Common stock dividend was  distributed on November 21,
       1996 to shareholders of record on November 4, 1996.

       All share, per share and conversion  amounts relating to common stock and
       stock  options  included  in  the  accompanying   consolidated  financial
       statements  and notes  have been  restated  to  reflect  the above  stock
       splits.

       On April 4, 1997, the Company's Board of Directors  approved an amendment
       to the Amended and Restated  Articles of  Incorporation of the Company to
       increase the  authorized  capital  stock of the Company  from  20,000,000
       shares  of common  stock  and  5,000,000  shares  of  preferred  stock to
       40,000,000  shares of  common  stock and  5,000,000  shares of  preferred
       stock,  each maintaining a $0.01 par value per share.  Such amendment was
       submitted  to a vote and approved by the  shareholders  of the Company on
       June 6, 1997.

                                      F-24
<PAGE>




                       COMPUTER MANAGEMENT SCIENCES, INC.

                   Notes to Consolidated Financial Statements






(11)   Commitments

       The Company  leases office space in nine national  locations and computer
       equipment under  non-cancelable  agreements which expire at various dates
       through  2000.  Office  rentals  are  subject  to  escalations  based  on
       increases in real estate taxes and  operating  expenses.  Aggregate  rent
       expense under these operating leases was approximately $507,000, $711,000
       and  $594,000  for the years  ended  December  31,  1997,  1996 and 1995,
       respectively.

       Future minimum lease  payments  required  under  operating  leases having
       remaining  non-cancelable  terms in excess of one year as of December 31,
       1997 are as follows:


                    1998                        $     140,581
                    1999                              110,475
                    2000                               42,783
                                                  -----------

                                                $     293,839
                                                  ===========





                                      F-25