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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-QQuarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
|- | ------------------------------------------------------------------------------------------------------------------------------------

OR

|o | 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 000-21561

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MCSi, Inc.(Exact name of registrant as specified in its articles of incorporation)

Maryland(State or other jurisdiction of incorporation or organization)

31-1001529(I.R.S. Employer Identification No.)


4750 Hempstead Station Drive, Dayton, Ohio 45429(Address of principal executive offices)

(937) 291-8282(Registrant's telephone number, including area code)

Indicate
by check 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) had been subject to such filing requirements for the past
90 days. Yes ý    No o

At
August 12, 2002, 25,050,594 shares of common stock, no par value per share, of the registrant were outstanding.

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MCSi, Inc.  FORM 10-Q  QUARTER ENDED JUNE 30, 2002  INDEX

|                                                                                              |                                                      | PAGE
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----
|PART IFINANCIAL INFORMATION                                                                  |                                                      |     
|Item 1. Financial Statements (Unaudited):                                                     |                                                      |     
|                                                                                              | Consolidated Balance Sheet                           |     
|                                                                                              | Consolidated Statement of Operations                 |     
|                                                                                              | Consolidated Statement of Cash Flows                 |     
|                                                                                              | Notes to Unaudited Consolidated Financial Statements |     
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                      | 9-13
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                      | 13  
|PART IIOTHER INFORMATION                                                                     |                                                      |     
|Item 1. Legal Proceedings                                                                     |                                                      | 14  
|Item 2. Changes in Securities and Use of Proceeds                                             |                                                      | 14  
|Item 3. Defaults Upon Senior Securities                                                       |                                                      | 14  
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                      | 14  
|Item 5. Other Information                                                                     |                                                      | 15  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                      | 15  
|Signatures                                                                                    |                                                      | 16  

As
used in this report on Form 10-Q unless the context otherwise requires, the terms "we," "us" or the "Company" and "MCSi" refer to MCSi, Inc., a Maryland
corporation and its consolidated subsidiaries.

2

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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

MCSi, INC.  CONSOLIDATED BALANCE SHEET  (UNAUDITED)  (Dollars in thousands)

|                                     |                                                                                                                                                                                   | June 30,
2002                              |        | December 31,
2001 |        
|------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ----------------- | -------
|Assets                               |                                                                                                                                                                                   |                                            |        |                   |        
|Current assets:                      |                                                                                                                                                                                   |                                            |        |                   |        
|                                     | Cash and cash equivalents                                                                                                                                                         |                                            | $      | 2,166             |        
|                                     | Accounts receivable                                                                                                                                                               |                                            |        | 96,566            |        
|                                     | Inventories                                                                                                                                                                       |                                            |        | 109,133           |        
|                                     | Prepaid expenses                                                                                                                                                                  |                                            |        | 2,091             |        
|                                     | Assets of discontinued operations                                                                                                                                                 |                                            |        |                  |        
|                                     | Deferred income taxes                                                                                                                                                             |                                            |        | 20,619            |        
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|                                     |                                                                                                                                                                                   | Total current assets                       |        |                   | 230,575
|                                     | Property and equipmentnet                                                                                                                                                        |                                            |        | 38,879            |        
|                                     | Notes receivable                                                                                                                                                                  |                                            |        | 13,210            |        
|                                     | Intangible assetsnet                                                                                                                                                             |                                            |        | 163,029           |        
|                                     | Other assets                                                                                                                                                                      |                                            |        | 1,790             |        
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|                                     |                                                                                                                                                                                   | Total assets                               |        | $                 | 447,483
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|Liabilities and Stockholders' Equity |                                                                                                                                                                                   |                                            |        |                   |        
|Current liabilities:                 |                                                                                                                                                                                   |                                            |        |                   |        
|                                     | Accounts payabletrade                                                                                                                                                            |                                            | $      | 56,429            |        
|                                     | Accrued expenses, payroll and income taxes                                                                                                                                        |                                            |        | 15,225            |        
|                                     | Liabilities of discontinued operations                                                                                                                                            |                                            |        |                  |        
|                                     | Short-term debt                                                                                                                                                                   |                                            |        | 207               |        
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|                                     |                                                                                                                                                                                   | Total current liabilities                  |        |                   | 71,861 
|Long-term debt                       |                                                                                                                                                                                   |                                            | 59,085 |                   |        
|Deferred income taxes                |                                                                                                                                                                                   |                                            | 3,896  |                   |        
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|                                     |                                                                                                                                                                                   | Total liabilities                          |        |                   | 134,842
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|Commitments and contingencies        |                                                                                                                                                                                   |                                            |       |                   |        
|Stockholders' equity:                |                                                                                                                                                                                   |                                            |        |                   |        
|                                     | Preferred stock, no par value; 5,000,000 shares authorized, none outstanding                                                                                                      |                                            |        |                  |        
|                                     | Common stock, no par value; 60,000,000 shares and 30,000,000 shares authorized, 25,050,594 and 24,306,384 shares outstanding at June 30, 2002 and December 31, 2001, respectively |                                            |        |                  |        
|                                     | Additional paid-in capital                                                                                                                                                        |                                            |        | 327,565           |        
|                                     | Retained (deficit) earnings                                                                                                                                                       |                                            |        | (7,492            | )      
|                                     | Accumulated other comprehensive income                                                                                                                                            |                                            |        | (465              | )      
|                                     | Unearned compensation                                                                                                                                                             |                                            |        | (260              | )      
|                                     | Treasury stock, at cost 352,985 and 397,470 shares at June 30, 2002 and December 31, 2001, respectively                                                                           |                                            |        | (6,707            | )      
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|                                     |                                                                                                                                                                                   | Total stockholders' equity                 |        |                   | 312,641
|                                     |                                                                                                                                                                                   |                                            |        |                   |        
|                                     |                                                                                                                                                                                   | Total liabilities and stockholders' equity |        | $                 | 447,483
|                                     |                                                                                                                                                                                   |                                            |        |                   |        

The
accompanying notes are an integral part of these consolidated financial statements.

3

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MCSi, INC.  CONSOLIDATED STATEMENT OF OPERATIONS  (UNAUDITED)  (Dollars in thousands, except per share data)

|                                                                 |  | THREE MONTHS ENDED
JUNE 30, |            | SIX MONTHS ENDED
JUNE 30, |  
|---------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | -
|
|Net sales                                                        |  | $                           | 123,504    |                           | $
|Cost of sales                                                    |  |                             | 81,175     |                           |  
|                                                                 |  |                             |            |                           |  
|Gross profit                                                     |  |                             | 42,329     |                           |  
|Selling, general and administrative expenses                     |  |                             | 33,406     |                           |  
|                                                                 |  |                             |            |                           |  
|Operating income                                                 |  |                             | 8,923      |                           |  
|Interest expense                                                 |  |                             | (2,243     | )                         |  
|Other income (expense), net                                      |  |                             | 335        |                           |  
|                                                                 |  |                             |            |                           |  
|Income from continuing operations before income taxes            |  |                             | 7,015      |                           |  
|Provision for income taxes                                       |  |                             | 2,806      |                           |  
|                                                                 |  |                             |            |                           |  
|Income from continuing operations                                |  |                             | 4,209      |                           |  
|(Loss) income from discontinued operations, net of income taxes  |  |                             | (45,411    | )                         |  
|                                                                 |  |                             |            |                           |  
|Net (loss) income                                                |  | $                           | (41,202    | )                         | $
|                                                                 |  |                             |            |                           |  
|Earnings per share of common stock-basiccontinuing operations   |  | $                           | 0.17       |                           | $
|                                                                 |  |                             |            |                           |  
|Earnings per share of common stock-dilutedcontinuing operations |  | $                           | 0.17       |                           | $
|                                                                 |  |                             |            |                           |  
|Earnings (loss) per share of common stock-basic                  |  | $                           | (1.70      | )                         | $
|                                                                 |  |                             |            |                           |  
|Earnings (loss) per share of common stock-diluted                |  | $                           | (1.70      | )                         | $
|                                                                 |  |                             |            |                           |  
|Weighted average number of common shares outstandingbasic       |  |                             | 24,198,765 |                           |  
|                                                                 |  |                             |            |                           |  
|Weighted average number of common shares outstandingdiluted     |  |                             | 24,269,308 |                           |  
|                                                                 |  |                             |            |                           |  

The
accompanying notes are an integral part of these consolidated financial statements.

4

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MCSi, INC.  CONSOLIDATED STATEMENT OF CASH FLOWS  (UNAUDITED)  (Dollars in thousands)

|                                      |                                                                                                    | SIX MONTHS ENDED
JUNE 30,                                         |                                                           
|------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------
|
|Cash flows from operating activities: |                                                                                                    |                                                                   |                                                           
|                                      | Net (loss) income                                                                                  |                                                                   | $                                                         
|                                      | Loss (income) from discontinued operations                                                         |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   |                                                           
|                                      | Income from continuing operations                                                                  |                                                                   |                                                           
|                                      | Adjustments to reconcile net income to cash (used in) provided by continuing operating activities: |                                                                   |                                                           
|                                      |                                                                                                    | Depreciation and amortization                                     |                                                           
|                                      |                                                                                                    | Other non-cash items                                              |                                                           
|                                      |                                                                                                    | Changes in assets and liabilities, net of effect of acquisitions: |                                                           
|                                      |                                                                                                    |                                                                   | Accounts receivable                                       
|                                      |                                                                                                    |                                                                   | Inventories                                               
|                                      |                                                                                                    |                                                                   | Prepaid expenses and other assets                         
|                                      |                                                                                                    |                                                                   | Accounts payabletrade                                    
|                                      |                                                                                                    |                                                                   | Accrued expenses, payroll and income taxes                
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   | Cash (used in) provided by continuing operations          
|                                      |                                                                                                    |                                                                   | Cash used in discontinued operations                      
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   | Cash (used in) provided by operating activities           
|                                      |                                                                                                    |                                                                   |                                                           
|Cash flows from investing activities: |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    | Capital expenditures                                              |                                                           
|                                      |                                                                                                    | Business combinations                                             |                                                           
|                                      |                                                                                                    | Investments in cash surrender value of insurance policies         |                                                           
|                                      |                                                                                                    | Proceeds from sale of computer technology products division       |                                                           
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   | Cash provided by (used in) continuing investing activities
|                                      |                                                                                                    |                                                                   | Cash used in discontinued investing activities            
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   | Cash provided by (used in) investing activities           
|                                      |                                                                                                    |                                                                   |                                                           
|Cash flows from financing activities: |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    | Proceeds from sale of common stock                                |                                                           
|                                      |                                                                                                    | Cost of sale of common stock                                      |                                                           
|                                      |                                                                                                    | Purchase of treasury shares                                       |                                                           
|                                      |                                                                                                    | Net proceeds from (repayment of) debt                             |                                                           
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   | Cash provided by (used in) continuing financing activities
|                                      |                                                                                                    |                                                                   | Cash provided by discontinued financing activities        
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    |                                                                   | Cash provided by (used in) financing activities           
|                                      |                                                                                                    |                                                                   |                                                           
|Effect of exchange rates on cash      |                                                                                                    |                                                                   | 1,039                                                     
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    | Net (decrease) increase in cash and cash equivalents              |                                                           
|                                      |                                                                                                    | Cash and cash equivalentsbeginning of period                     |                                                           
|                                      |                                                                                                    |                                                                   |                                                           
|                                      |                                                                                                    | Cash and cash equivalentsend of period                           |                                                           
|                                      |                                                                                                    |                                                                   |                                                           

The
accompanying notes are an integral part of these consolidated financial statements.

5

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MCSi, INC.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)  (Dollars in thousands, except per share data)

Note 1General

The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of SEC
Regulation S-X. Consequently, they do not include all the disclosures required under generally accepted accounting principles for complete financial statements. However, in the
opinion of the management of MCSi, Inc. (the "Company"), the consolidated financial statements presented herein contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position, results of operations and cash flows of the Company and its consolidated subsidiaries. For further information regarding the Company's accounting
policies and the basis of presentation of the financial statements, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001. The results of the Company's operations for the interim periods presented are not necessarily indicative of the operating results for the full fiscal year or
any future interim periods.

Note 2Comprehensive Income

Comprehensive (loss) income was $(40,960) and $4,510 for the three months ended June 30, 2002 and 2001, respectively and $(34,914) and $7,435 for the six
months ended June 30, 2002 and 2001, respectively.

Note 3Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), on January 1,
2002, and, in accordance with SFAS 142, discontinued the
amortization of goodwill upon adoption. Assuming goodwill amortization had been discontinued at January 1, 2001, the comparable income from continuing operations and earnings per share (basic
and diluted) from continuing operations for the prior-year three month and six month periods ended June 30, 2001 would have been:

|                                                          |  | Three Months Ended
June 30, |       | Six Months Ended
June 30,
|--------------------------------------------------------- |  | --------------------------- | ----- | -------------------------
|
|Income from continuing operations:                        |  |                             |       |                          
|Reported income from continuing operations                |  | $                           | 4,209 |                          
|Impact of goodwill amortization, net of tax               |  |                             |      |                          
|                                                          |  |                             |       |                          
|Adjusted income from continuing operations                |  | $                           | 4,209 |                          
|                                                          |  |                             |       |                          
|Earnings per sharebasiccontinuing operations:           |  |                             |       |                          
|Reported income from continuing operations                |  | $                           | 0.17  |                          
|Impact of goodwill amortization, net of tax               |  |                             |      |                          
|                                                          |  |                             |       |                          
|Adjusted earnings per sharebasiccontinuing operations   |  | $                           | 0.17  |                          
|                                                          |  |                             |       |                          
|Earnings per sharedilutedcontinuing operations:         |  |                             |       |                          
|Reported income from continuing operations                |  | $                           | 0.17  |                          
|Impact of goodwill amortization, net of tax               |  |                             |      |                          
|                                                          |  |                             |       |                          
|Adjusted earnings per sharedilutedcontinuing operations |  | $                           | 0.17  |                          
|                                                          |  |                             |       |                          

As
required by the adoption of SFAS 142, the Company has assessed its goodwill as of January 1, 2002 and determined that no impairment of goodwill exists.

6

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For
the three month and six month periods ended June 30, 2002, there were no material adjustments to the carrying amount of the Company's goodwill, except that $12,543 of goodwill
was acquired in business combinations. For the three month and six month periods ended June 30, 2001, the tax benefit resulting from goodwill amortization was immaterial.

Other
intangible assets and their related amortization at June 30, 2002 are insignificant. In addition, estimated amortization expense for future periods is immaterial.

The
Company has elected to perform its required annual impairment analysis in the fourth quarter of each fiscal year. In addition to the annual analysis, SFAS 142 requires interim
impairment analysis if events or circumstances dictate that the Company's goodwill may be impaired. Although the Company believes its goodwill is not impaired at June 30, 2002, management will
continue to review the carrying amount of its goodwill in the future.

Note 4Restructuring

In the fourth quarter of 2001, the Company implemented a restructuring plan to facilitate and support the growth of its audio-visual integration operations. In
connection with the restructuring, the Company recorded a pre-tax charge of $6,073 in the fourth quarter of 2001. Of the 361 sales and administrative employees to be terminated under this
plan, all were terminated by the first quarter of 2002. At June 30, 2002, the only remaining liability relates to leasehold terminations, totaling $3,037. Total cash payments under this plan
were $1,068 and $810 for the three month periods ended March 31, 2002 and June 30, 2002, respectively.

Additionally,
in the fourth quarter of 2001, the Company recorded a charge of $885 for merger related integration costs relating to its acquisition of the outstanding common shares of
Zengine, Inc. that the Company did not already own. The merger related integration was completed in the first quarter of 2002. Of the 57 sales, software engineering and administrative employees
to be terminated under this plan, all were terminated by the first quarter of 2002.

Note 5Discontinued Operations

In December 2001, the Company entered into a definitive agreement to sell its Canadian Computer Supply Division (the "Division") and accounted for the
Division as a discontinued operation. In the first quarter of 2002, the divestiture was completed.

On
April 29, 2002, the Company entered into a definitive agreement to sell certain assets and to assign certain liabilities relating to CTG. CTG primarily represented US the
computer supply business of the Company which comprised a separate component of the Company under SFAS 144. The total consideration was $24,800 and included approximately $11,200 of cash
($8,562 received at closing, $1,000 of which was received subsequent to June 30, 2002 and $1,600 which is a short term receivable from the purchaser, which will be paid by September 30,
2002), $8,100 in the form of a secured, five year note receivable bearing interest at 12% per annum, and the assumption of certain obligations, which included trade accounts payable. The purchase
price was determined by arms-length negotiations between the Company and the purchaser, MCPc, Inc. MCPc, Inc. is owned by certain former employees of the Company and other
outside investors, including the former Vice President of Sales, Chief Development Officer of the Company. The computer technology product division accounted for approximately $92,000 and $154,000 of
net sales for the six months ended June 30, 2002 and 2001, respectively. The sale was completed in June 2002 and has been accounted for as a discontinued operation. Accordingly, amounts
shown for all periods have been reclassified to reflect CTG as a discontinued operation. As the result of the sale of CTG and the aforementioned sale of the Canadian

7

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Computer Supply Division, the Company recorded a net loss from discontinued operations for the three and six month periods ended June 30, 2002, which are comprised of the following:

|                                                                                                                    |  | Three months ended June 30, |         | Six months ended June 30,
|------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | -------------------------
|
|Results of operations, net of income tax benefit (provision) of $6,160, $(1,450), $6,253 and $(1,663), respectively |  | $                           | (9,838  | )                        
|Loss on disposal, net of income tax benefit of $12,404, $, $12,404 and $, respectively                            |  |                             | (35,573 | )                        
|                                                                                                                    |  |                             |         |                          
|                                                                                                                    |  | $                           | (45,411 | )                        
|                                                                                                                    |  |                             |         |                          

Note 6New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 replaces EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring"). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are
associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. We will evaluate the impact of this standard on our consolidated financial position, results of operations or cash flows prior to the effective date of
December 31, 2002.

Note 7Commitments, Contingencies and Risks

In the normal course of business the Company is subject to claims, both asserted and unasserted. Based on information presently available at June 30, 2002,
management does not believe that any of these issues would have a material effect on the Company's financial position, results of operations or cash flows.

8

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the information contained in the unaudited consolidated financial statements and notes to unaudited
consolidated financial statements. The following information contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act") and is subject
to the safe harbor created by that Act. The words "estimate," "project," "anticipate," "expect," "intend," "believe," "plans" and similar expressions are intended to identify forward-looking
statements. Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by
such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in general economic and business conditions, the availability of
capital on acceptable terms, actions of competitors and key suppliers, risks inherent in acquiring, integrating and operating new businesses, the Company's ability to compete in the audio visual and
broadcast systems integration marketplace, exchange rate fluctuations, the regulatory and trade environment (both domestic and foreign), and changes in business strategies and other factors as
discussed in Exhibit 99.6 hereto.

Overview

We are a provider of integrated technical services and audio-visual presentation and broadcast products. The convergence of audio, data, visual communications and
computer network systems has created the need for sophisticated providers of these products with the ability to design, source, install and service complex systems. We believe that we are one of the
country's leading designers and integrators of custom configured and integrated audio, video and data display, broadcasting, conferencing and networking systems. These systems are designed for use in
board and conference rooms, lecture halls, theaters, command and control centers, museums, churches, professional broadcast facilities and streaming network facilities. Our offices throughout the
United States, United Kingdom and Canada allow us to provide consistent products and services for projects of local, regional, national and global scope.

Our
competitive strengths include:



Although
we have sold audio-visual and computer technology products from our inception, we began to focus on the integration services related to those products in 1998 when we acquired
Electronic Image Systems, Inc. Since that time, we have grown the integration services portion of our

9

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business both internally and by acquisition. We believe that our integration services business provides better margins than our audio-visual and computer technology products business and, with the
sale of the Computer Technology Division ("CTG") in June 2002, we will focus on that business. Accordingly, our discussion and analysis below reflects the continuing operations of the Company.
The discontinued operations are discussed separately.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Net sales.Net sales for the three months ended June 30, 2002 decreased by $8.2 million, or 6.2%, to
$123.5 million from $131.7 million for the three months ended June 30, 2001. The net sales decrease was primarily due to a decline in audio-visual products which are not included
as part of an integration project. We believe this decline is a direct result of the general US economic conditions.

Gross profit.Gross profit for the three months ended June 30, 2002 decreased by $2.5 million or 5.5%, to
$42.3 million from $44.8 million for the three months ended June 30, 2001. Gross profit as a percentage of net sales for the three months ended June 30, 2002 was 34.3%
compared to 34.0% for the three months ended June 30, 2001. During difficult economic conditions, we were able to maintain our gross margin percentage through an increase in sales mix to higher
margin integration sales discussed previously.

Selling, general and administrative expenses.Selling, general and administrative expenses for the three months ended
June 30, 2002 decreased by $3.1 million, to $33.4 million from $36.5 million for the three months ended June 30, 2001. This decrease was primarily due to the
elimination of goodwill amortization as a result of adoption of SFAS 142 and payroll and rent expense associated with the employees who were severed and the facilities that were closed in
conjunction with our 2001 restructuring activities. Excluding goodwill amortization, our selling, general and administrative expenses were $35.4 for the three months ended June 30, 2001. As a
percentage of net sales, selling, general and administrative expenses were 27.0% for the three months ended June 30, 2002 compared to 27.7% for the three months ended June 30, 2001. This
decrease was due to the above mentioned reasons.

Operating Income.Operating income for the three months ended June 30, 2002 increased by $0.6 million to
$8.9 million from $8.3 million for the three months ended June 30, 2001, for the reasons stated above. Operating margins were 7.2% for the three months ended June 30, 2002
compared to 6.3% for the three months ended June 30, 2001. This improvement primarily relates to the factors cited in selling, general and administrative expenses described above.

Interest expense.Interest expense for the three months ended June 30, 2002 decreased to $2.2 million from
$4.7 million for the three months ended June 30, 2001 due primarily to the decreased level of indebtedness during 2002, as a result of debt reductions which occurred in the fourth
quarter of 2001 with proceeds from our equity offering. Our weighted average borrowings for the three months ended June 30, 2002 were approximately $100.0 million and differ from amounts
shown on the balance sheet as we offset certain cash balances under contractual right of offset.

Provision for income taxes.Provision for income taxes for the three months ended June 30, 2002 increased
$1.5 million to $2.8 million from $1.3 million for the three months ended June 30, 2001 due to an increase in pre-tax income, offset by a reduction in the
effective tax rate. Our effective tax rate was 40.0% for the three months ended June 30, 2002 and 42.1% for the three months ended June 30, 2001. The reduced tax rate was primarily the
result of non-deductible goodwill no longer being amortized for financial reporting purposes.

10

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Discontinued operations.Discontinued operations relate to the June 2002 sale of CTG and the December 2001 sale
of our Canadian Computer Supply operations. A summary of discontinued operations for the three months ended June 30, follows:

2002

2001Results of operations, net of income tax benefit (provision) of $6,160 and $(1,450), respectively

$
(9,838
)
$
1,994Loss on disposal, net of income tax benefit of $12,404 and $ , respectively


(35,573
)

$
(45,411
)
$
1,994


Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Net sales.Net sales for the six months ended June 30, 2002 decreased by $24.2 million, or 8.6%, to
$256.3 million from $280.5 million for the six months ended June 30, 2001. The net sales decrease was primarily due to a decline in audio-visual products which are not included as
part of an integration project. We believe this decline is a direct result of the general US economic conditions.

Gross profit.Gross profit for the six months ended June 30, 2002 decreased by $5.6 million, or 6.0% to
$87.8 million from $93.4 million for the six months ended June 30, 2001. Gross profit as a percentage of net sales for the six months ended June 30, 2002 was 34.3% compared
to 33.3% for the six months ended June 30, 2001. During difficult economic conditions, we were able to maintain our gross margin percentage through an increase in sales mix to higher margin
integration sales discussed previously.

Selling, general and administrative expenses.Selling, general and administrative expenses for the six months ended
June 30, 2002 decreased by $7.8 million, to $66.7 million from $74.5 million for the six months ended June 30, 2001. This decrease was primarily due to the
elimination of goodwill amortization as a result of adoption of SFAS 142 and payroll and rent expense associated with the employees who were severed and the facilities that were closed in
conjunction with our 2001 restructuring activities. Excluding goodwill amortization, our selling, general and administrative expenses were $72.2 for the six months ended June 30, 2001. As a
percentage of net sales, selling, general and administrative expenses were 26.0% for the six months ended June 30, 2002 compared to 26.5% for the six months ended June 30, 2001. This
decrease was due primarily to the above mentioned reasons.

Operating income.Operating income for the six months ended June 30, 2002 increased by $2.2 million to
$21.2 million from $19.0 million for the six months ended June 30, 2001, for the reasons stated above. Operating margins were 8.3% for the six months ended June 30, 2002
compared to 6.8% for the six months ended June 30, 2001. This improvement primarily relates to the factors cited in selling, general and administrative expenses described above.

Interest expense.Interest expense for the six months ended June 30, 2002 decreased to $4.0 million from
$9.4 million for the six months ended June 30, 2001 due primarily to the decreased level of indebtedness incurred during 2002 as a result of debt reductions which occurred in the fourth
quarter of 2001 with proceeds from our equity offering. Our weighted average borrowings for the six months ended June 30, 2002 were approximately $100.0 million and differ from amounts
shown on the balance sheet as we offset certain cash balances under contractual right of offset to reduce our borrowing levels at each period end.

Provision for income taxes.The provision for income taxes for the six months ended June 30, 2002 increased
$3.1 million to $7.0 million from $3.9 million for the six months ended June 30, 2001 due to

11

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an increase in pre-tax income, offset by a reduction in the effective tax rate. Our effective tax rate was 40.0% for the six months ended June 30, 2002 as compared to 41.8% for the
six months ended June 30, 2001. The reduced tax rate was primarily the result of non-deductible goodwill no longer being amortized for financial reporting purposes.

Discontinued operations.Discontinued operations relate to the June 2002 sale of CTG and the December 2001 sale
of our Canadian Computer Supply operations. A summary of discontinued operations for the six months ended June 30, follows:

|                                                                                                  |  | 2002 |         | 2001
|------------------------------------------------------------------------------------------------- |  | ---- | ------- | ----
|Results of operations, net of income tax benefit (provision) of $6,253 and $(1,663), respectively |  | $    | (9,977  | )   
|Loss on disposal, net of income tax benefit of $12,404 and $ , respectively                      |  |      | (36,472 | )   
|                                                                                                  |  |      |         |     
|                                                                                                  |  | $    | (46,449 | )   
|                                                                                                  |  |      |         |     

Liquidity and Capital Resources

As the result of the sales of CTG and the Canadian Computer Supply Division, business combinations completed or finalized during the six month period ended
June 30, 2002, and growth in our integration business, there are several changes in our June 30, 2002 balance sheet when compared with balances at December 31, 2001. These
include:



For
the six months ended June 30, 2002, net cash flows used in operating activities of continuing operations were $14.1 million. Net cash flows provided by operating
activities of continuing operations were $50.8 million for the three months ended June 30, 2001. Cash flows used in operations during the six month period ended June 30, 2002
relate to a reduction in accounts payable and an increase in inventory, which relates to large installation projects in various stages of completion, partially offset by a reduction in receivables.

At
June 30, 2002, our days sales outstanding was 68 days as compared to 63 days at June 30, 2001. The increase of our days sales outstanding is primarily the
result of increased sales of audio-visual integration system project sales (which typically have longer collection cycles than product sales), and slow-downs in collections from customers.
To date, management does not believe that the increase in the average days sales outstanding exposes us to increased credit risk.

Excluding
the impact of acquisitions, inventory turnover on an annualized basis was 6 and 7 times at June 30, 2002 and 2001, respectively. The decrease from last year was
primarily the result of increased inventory levels relating to large scale audio-visual integration projects, which typically do not turn inventory as quickly as product only sales or smaller
integration projects.

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Capital
expenditures for the three months ended June 30, 2002 were $4.2 million. Funds were used primarily to upgrade and enhance furniture, fixtures, equipment and
information systems.

Cash
flows provided by financing activities of continuing operations were $11.8 million for the six months ended June 30, 2002. Cash flows from financing activities are
primarily affected by borrowings and repayments under our credit facility.

At
June 30, 2002, our operations were financed with long-term lines of credit totaling $166.7 million, of which we had utilized $59.1 million.

Based
on the foregoing, we believe that our financing arrangements provide the financial resources and liquidity required to continue our operations in the normal course of business for
the foreseeable future.

Credit Facility

Loans under the Credit Facility may be incurred by us from time to time to finance working capital and acquisitions and may be made at the Bank's prime rate (as
defined) or at the defined published eurodollar rate plus a "eurodollar margin" that ranges from 150 to 275 basis points based on certain of our indebtedness ratios. Borrowings under the Credit
Facility are secured by substantially all of our assets and property, including accounts receivable, equipment and inventory. The loan commitment terminates on the maturity date (December 10,
2003), unless terminated earlier. We may voluntarily prepay any advance without penalty or premium at any time or from time to time.

The
Credit Facility contains restrictive covenants, which may have an adverse effect on our operations in the future. We have agreed that, among other things, we will not:
(i) change the nature of our business; (ii) liquidate or dissolve our affairs, merge, consolidate or acquire the property or assets of any person, other than permitted acquisitions that
comply with the financial covenants of the Credit Facility, certain intercompany mergers, permitted investments, permitted dispositions, certain capital expenditures and leases; (iii) permit
the incurrence of any other lien on our property and assets; (iv) incur certain other indebtedness; (v) pay cash dividends or repurchase more than a certain amount of our capital stock;
(vi) violate certain financial covenants; or (vii) engage in certain other transactions.

Inflation

Certain of our product offerings have been and are expected to continue to be subject to price fluctuations due to inflationary and other market conditions. We
are generally able to pass such increased costs on to our customers through price increases, although we may not be able to adjust our prices immediately. In general, we do not believe that inflation
has had a material effect on our results of operations in recent years.

Recent Events

On July 30, 2002, the Board of Directors authorized the repurchase of up to 2 million shares of the Company's common stock.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

No significant market risk changes occurred in the six-month period ended June 30, 2002. Refer to Item 7A in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001 for further information.

13

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PART II-OTHER INFORMATION

ITEM 1. Legal Proceedings

We are, and have been involved, from time to time, in various claims, complaints, proceedings and litigation relating to activities arising from the normal course
of our operations. Based on the facts currently available to us, we believe that the matters pending at June 30, 2002 are covered by insurance, without merit, or of such amounts which upon
resolution are not likely to have a material adverse effect on our financial condition, results of operations or cash flows. Reference is made to the Company's Form 10-K for the
year ended December 31, 2001 concerning certain pending litigation. There was no significant change in the status of the caseLemelson Medical, Educational &
Research Foundation, Limited Partnership v. Federal Express Corporation, et al.since the filing of our Form 10-K.

ITEM 2. Changes In Securities and Use of Proceeds

Not applicable.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

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

On May 28, 2002, the Company held its Annual Meeting of Shareholders at The Presidential Banquet Center, 4548 Presidential Way, Dayton, Ohio 45429, at
10:30 a.m., Eastern Time.

There
were 24,344,190 shares of Common Stock of the Company, which could be voted at the Annual Meeting, and 22,293,285 shares were represented at such meeting by the holders thereof in
person or by proxy, which constituted a quorum. Matters voted upon were as follows:

Nominees for Board of Directors for a One-Year Term Expiring in 2002Name

For

Withheld

Not Voteda. Timothy R. Chrisman

22,203,319

89,966

2,050,905a. Robert G. Hecht

22,203,459

89,826

2,050,905d. Michael E. Peppel

20,771,317

1,521,968

2,050,905b. Harry F. Radcliffe

22,203,309

89,976

2,050,905c. Ira H. Stanley

20,618,344

1,674,941

2,050,905


The
shareholders also voted by ballot and by proxy to approve the amendment of the Company's Articles of Incorporation to increase its shares of common stock to 60,000,000 and the result
of the vote taken was as follows:

For

Against

Abstain

Not Voted20,409,853

1,722,435

160,997

2,050,905


The
shareholders also voted by ballot and by proxy to ratify the appointment by the Board of Directors of PricewaterhouseCoopers, LLP as the Company's independent auditors for the fiscal
year ending December 31, 2002, and the result of the vote taken was as follows:

For

Against

Abstain

Not Voted22,069,004

219,850

4,431

2,050,905


The
said proposals were approved by the requisite number of the total votes eligible to be cast and these matters have been adopted by the stockholders of the Company.

14

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ITEM 5. Other Information

Not applicable.

ITEM 6. Exhibits and Reports on Form 8-K





15

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                      |  | MCSI, INC.(Registrant)
|--------------------- |  | ----------------------
|Date: August 14, 2002 |  | By:                   

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