Use these links to rapidly review the documentMCSi, Inc. FORM 10-Q QUARTER ENDED MARCH 31, 2002 INDEX

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 MARCH 31, 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
May 9, 2002, 24,351,136 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 MARCH 31, 2002  INDEX



|                                                                                              |                                                      | PAGE
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----
|PART IFINANCIAL INFORMATION                                                                  |                                                      |     
|Item 1. Financial Statements:                                                                 |                                                      |     
|                                                                                              | 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 Results of Operations and Financial Condition |                                                      | 8-10
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                      | 11  
|PART IIOTHER INFORMATION                                                                     |                                                      |     
|Item 1. Legal Proceedings                                                                     |                                                      | 12  
|Item 2. Changes in Securities                                                                 |                                                      | 12  
|Item 3. Default Upon Senior Securities                                                        |                                                      | 12  
|Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                      | 12  
|Item 5. Other Information                                                                     |                                                      | 12  
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                                      | 12  
|Signatures                                                                                    |                                                      | 13  

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)

|                                     |                                                                                                                                                              | March 31,
2002            |                                            | December 31,
2001 |        
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ------------------------------------------ | ----------------- | -------
|Assets                               |                                                                                                                                                              |                           |                                            |                   |        
|Current assets:                      |                                                                                                                                                              |                           |                                            |                   |        
|                                     | Cash and cash equivalents                                                                                                                                    |                           | $                                          | 4,525             |        
|                                     | Accounts receivable                                                                                                                                          |                           |                                            | 186,270           |        
|                                     | Inventories                                                                                                                                                  |                           |                                            | 80,568            |        
|                                     | Prepaid expenses                                                                                                                                             |                           |                                            | 1,113             |        
|                                     | Assets of discontinued operations                                                                                                                            |                           |                                            | 8,093             |        
|                                     | Deferred income taxes                                                                                                                                        |                           |                                            | 3,671             |        
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|                                     |                                                                                                                                                              | Total current assets      |                                            |                   | 284,240
|                                     | Property and equipmentnet                                                                                                                                   |                           |                                            | 41,659            |        
|                                     | Intangible assetsnet                                                                                                                                        |                           |                                            | 165,670           |        
|                                     | Other assets                                                                                                                                                 |                           |                                            | 1,956             |        
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|                                     |                                                                                                                                                              | Total assets              |                                            | $                 | 493,525
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|Liabilities and Stockholders' Equity |                                                                                                                                                              |                           |                                            |                   |        
|Current liabilities:                 |                                                                                                                                                              |                           |                                            |                   |        
|                                     | Accounts payabletrade                                                                                                                                       |                           | $                                          | 57,432            |        
|                                     | Accrued expenses, payroll and income taxes                                                                                                                   |                           |                                            | 15,999            |        
|                                     | Liabilities of discontinued operations                                                                                                                       |                           |                                            | 6,802             |        
|                                     | Short-term debt                                                                                                                                              |                           |                                            | 249               |        
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|                                     |                                                                                                                                                              | Total current liabilities |                                            |                   | 80,482 
|Long-term debt                       |                                                                                                                                                              |                           | 64,530                                     |                   |        
|Deferred income taxes                |                                                                                                                                                              |                           | 3,896                                      |                   |        
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|                                     |                                                                                                                                                              | Total liabilities         |                                            |                   | 148,908
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|Commitments and contingencies        |                                                                                                                                                              |                           |                                           |                   |        
|Stockholders' equity:                |                                                                                                                                                              |                           |                                            |                   |        
|                                     | Preferred stock, no par value; 5,000,000 shares authorized, none outstanding                                                                                 |                           |                                            |                  |        
|                                     | Common stock, no par value; 30,000,000 shares authorized, 24,343,522 and 24,306,384 shares outstanding at March 31, 2002 and December 31, 2001, respectively |                           |                                            |                  |        
|                                     | Additional paid-in capital                                                                                                                                   |                           |                                            | 318,566           |        
|                                     | Retained earnings                                                                                                                                            |                           |                                            | 33,710            |        
|                                     | Accumulated other comprehensive income                                                                                                                       |                           |                                            | (707              | )      
|                                     | Unearned compensation                                                                                                                                        |                           |                                            | (312              | )      
|                                     | Treasury stock, at cost 343,422 and 397,470 shares at March 31, 2002 and December 31, 2001, respectively                                                     |                           |                                            | (6,640            | )      
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|                                     |                                                                                                                                                              |                           | Total stockholders' equity                 |                   |        
|                                     |                                                                                                                                                              |                           |                                            |                   |        
|                                     |                                                                                                                                                              |                           | Total liabilities and stockholders' equity |                   | $      
|                                     |                                                                                                                                                              |                           |                                            |                   |        

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

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

|                                                                 |  | Quarter Ended
March 31, |           
|---------------------------------------------------------------- |  | ----------------------- | ----------
|
|Net sales                                                        |  | $                       | 184,246   
|Cost of sales                                                    |  |                         | 130,077   
|                                                                 |  |                         |           
|Gross profit                                                     |  |                         | 54,169    
|Selling, general and administrative expenses                     |  |                         | 42,161    
|                                                                 |  |                         |           
|Operating income                                                 |  |                         | 12,008    
|Interest expense                                                 |  |                         | (1,797    
|Other income                                                     |  |                         | 35        
|                                                                 |  |                         |           
|Income from continuing operations before income taxes            |  |                         | 10,246    
|Provision for income taxes                                       |  |                         | 4,098     
|                                                                 |  |                         |           
|Income from continuing operations                                |  |                         | 6,148     
|Loss from discontinued operations                                |  |                         | (899      
|                                                                 |  |                         |           
|Net income                                                       |  | $                       | 5,249     
|                                                                 |  |                         |           
|Earnings per share of common stockbasiccontinuing operations   |  | $                       | 0.26      
|                                                                 |  |                         |           
|Earnings per share of common stockdilutedcontinuing operations |  | $                       | 0.26      
|                                                                 |  |                         |           
|Earnings per share of common stockbasicnet income              |  | $                       | 0.22      
|                                                                 |  |                         |           
|Earnings per share of common stockdilutednet income            |  | $                       | 0.22      
|                                                                 |  |                         |           
|Weighted average number of common shares outstandingbasic       |  |                         | 23,946,399
|                                                                 |  |                         |           
|Weighted average number of common shares outstandingdiluted     |  |                         | 24,048,556
|                                                                 |  |                         |           

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

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

|                                      |                                                                                      | Quarter Ended
March 31,                       |                                                           
|------------------------------------- | ------------------------------------------------------------------------------------ | --------------------------------------------- | ----------------------------------------------------------
|
|Cash flows from operating activities: |                                                                                      |                                               |                                                           
|                                      | Net income                                                                           |                                               | $                                                         
|                                      | Loss from discontinued operations                                                    |                                               |                                                           
|                                      |                                                                                      |                                               |                                                           
|                                      | Income from continuing operations                                                    |                                               |                                                           
|                                      | Adjustments to reconcile net income to cash used in continuing operating activities: |                                               |                                                           
|                                      |                                                                                      | Depreciation and amortization                 |                                                           
|                                      |                                                                                      | Other non-cash items                          |                                                           
|                                      |                                                                                      | Changes in assets and liabilities:            |                                                           
|                                      |                                                                                      |                                               | 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                         |                                                           
|                                      |                                                                                      |                                               |                                                           
|                                      |                                                                                      |                                               | Cash used in continuing investing activities              
|                                      |                                                                                      |                                               | Cash used in discontinued investing activities            
|                                      |                                                                                      |                                               |                                                           
|                                      |                                                                                      |                                               | Cash used in investing activities                         
|                                      |                                                                                      |                                               |                                                           
|Cash flows from financing activities: |                                                                                      |                                               |                                                           
|                                      |                                                                                      | Proceeds from sale of common stock            |                                                           
|                                      |                                                                                      | Expenses related to 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      |                                                                                      |                                               | 797                                                       
|                                      |                                                                                      |                                               |                                                           
|                                      |                                                                                      | Net decrease 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.

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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 income was $6,046 and $3,686 for the three months ended March 31, 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 period would have been:

Three Months Ended
March 31,In thousands, except per share amounts

2002

2001Income from continuing operations:Reported income from continuing operations

$
6,148

$
4,090Impact of goodwill amortization





1,109Adjusted income from continuing operations

$
6,148

$
5,199Earnings per sharebasiccontinuing operations:Reported income from continuing operations

$
0.26

$
0.33Impact of goodwill amortization





0.09Adjusted earnings per sharebasiccontinuing operations

$
0.26

$
0.42Earnings per sharedilutedcontinuing operations:Reported income from continuing operations

$
0.26

$
0.32Impact of goodwill amortization





0.09Adjusted earnings per sharedilutedcontinuing operations

$
0.26

$
0.41


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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.

For
the three month period ended March 31, 2002, there were no material adjustments to the carrying amount of the Company's goodwill. For the three month period ended
March 31, 2001, the tax benefit resulting from goodwill amortization was insignificant.

Other
intangible assets and their related amortization at March 31, 2002 are insignificant. In addition, estimated amortization expense for future periods is insignificant.

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 2001. Of the 361 total employees to be terminated under this plan, the remaining 160 were terminated
during the first quarter of 2002. At March 31, 2002, the only remaining liability relates to leasehold terminations, totaling $3,847. Total cash payments under this plan were $1,068 during the
first quarter of 2002.

Additionally,
in the fourth quarter of 2001, the Company recorded a charge 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. In total, the Zengine restructuring resulted in the reduction of
57 employees, of which the remaining 20 were terminated in the first quarter of 2002. Total cash payments under this plan were $174 during 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 and amounts shown in the balance sheet at March 31, 2002 were settled in April 2002.
During the three month period ended March 31, 2002, the Company recorded a loss from discontinued operations of $899. Diluted loss per share of Common Stock from discontinued operations was
($0.04) and ($0.01) for the three month periods ended March 31, 2002 and 2001, respectively.

Note 6Subsequent Events

On April 29, 2002, the Company entered into a definitive agreement to sell certain assets and to assign certain liabilities relating to its computer
technology products division. The closing of the agreement is subject to the satisfaction of certain conditions. The computer technology product division accounted for approximately $45,000 and
$64,000 of net sales from continuing operations for the three months ended March 31, 2002 and 2001, respectively. The Company anticipates that the sale will close in the second quarter of 2002
and result in a loss on disposition in the range of $30,000 to $40,000.

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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 closing of the sale of the computer technology
products division, 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
hereto.

Overview

We are a provider of integrated technical services and audio-visual presentation, broadcast and computer technology 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 computer technology product resellers and 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 and Canada allow us to provide consistent products and services for projects of local, regional and national
scope.

Our
competitive strengths include:



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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 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 we will focus on that portion of our business, subject to the factors set forth below. In April,
2002, we entered into a definitive agreement to sell certain assets and to assign certain liabilities relating to our computer technology products division. Upon the closing of the sale of those
assets, we will no longer compete in that part of the market.

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Net sales.Net sales for the three months ended March 31, 2002 decreased by $43.1 million, or 19.0%, to
$184.2 million from $227.3 million for the three months ended March 31, 2001. The net sales decrease was primarily in the product only side of the business and the result of the
Company's decision not to accept orders below certain prices and/or margin levels.

Gross profit.Gross profit for the three months ended March 31, 2002 decreased by $6.2 million or 10.2%, to
$54.2 million from $60.3 million for the three months ended March 31, 2001. Gross profit as a percentage of net sales for the three months ended March 31, 2002 was 29.4%
compared to 26.5% for the three months ended March 31, 2001. The increase in the gross profit percentage was due primarily to the increase in audio-visual systems integration project sales,
which have higher gross profit percentage, as compared to computer technology product sales.

Selling, general and administrative expenses.Selling, general and administrative expenses for the three months ended
March 31, 2002 decreased by $6.8 million, to $42.2 million from $48.9 million for the three months ended March 31, 2001. This decrease was primarily due to the
elimination of goodwill amortization 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. As a percentage of net sales, selling, general and administrative expenses were 22.9% for the three months ended March 31, 2002 compared to 21.5% for the three months ended
March 31, 2001. This increase was due primarily to audio-visual integration system sales, which have a higher percentage of selling, general and administrative expenses than computer technology
product sales.

Operating Income.Operating income for the three months ended March 31, 2002 increased by $0.6 million to
$12.0 million from $11.4 million for the three months ended March 31, 2001, for the reasons stated above. Operating margins were 6.5% for the three months ended March 31,
2002 compared to 5.0% for the three months ended March 31, 2001.

Interest expense.Interest expense for the three months ended March 31, 2002 decreased to $1.8 million from
$4.7 million for the three months ended March 31, 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.

Provision for income taxes.Provision for income taxes for the three months ended March 31, 2002 increased
$1.2 million to $4.1 million from $2.9 million for the three months ended March 31, 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 March 31, 2002 and 41.6% for the three months ended March 31, 2001. The reduced tax rate was primarily the
result of non-deductible goodwill no longer being amortized for financial reporting purposes.

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Liquidity and Capital Resources

For the three months ended March 31, 2002, net cash flows used in operating activities of continuing operations were $17.0 million. Net cash flows
provided by operating activities of continuing operations were $17.0 million for the three months ended March 31, 2001. Cash flows used in operations during the three month period ended
March 31, 2002 relate to the increased receivable and inventory levels necessary to facilitate ongoing audio-visual systems integration projects.

At
March 31, 2002, our average days sales outstanding was 87 days as compared to 67 days at December 31, 2001 and 54 days at March 31, 2001. The
increase of our average 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), extended payment terms to certain customers 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.

Average
inventory turnover on an annualized basis was seven and nine times for the three months ended March 31, 2002 and 2001, respectively. The decrease from the first quarter
last year was primarily the result of increasing audio-visual integration projects which typically do not turn inventory as quickly as product only sales.

Capital
expenditures for the three months ended March 31, 2002 were $2.0 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 $17.3 million for the three months ended March 31, 2002. Cash flows from financing activities are
primarily affected by borrowings and repayments under our credit facility.

At
March 31, 2002, our operations were financed with long-term lines of credit totaling $166.7 million, of which we had utilized $64.5 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.

10

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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.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). We have adopted SFAS 142 effective January 1, 2002. In accordance with SFAS 142, we discontinued the amortization of goodwill upon adoption
and have determined that there was no impairment upon adoption.

ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk

No significant market risk changes occurred in the three-month period ended March 31, 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.

11

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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 March 31, 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 case Lemelson Medical, Educational & Research Foundation, Limited
Partnership v. Federal Express Corporation, et al.

ITEM 2.    Changes In Securities

Not applicable.

ITEM 3.    Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

ITEM 5.    Other Information

Not applicable.

ITEM 6.    Exhibits and Reports on Form 8-K





12

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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: May 15, 2002 |  | By:                   

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