SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                                 -------------

                                   FORM 10-KSB

(Mark One)

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

For the fiscal year ended December 31, 1997

                                       OR

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

For the transition period from ________ to ___________

                         Commission file number: 0-26464


                         CSI Computer Specialists, Inc.
             (Exact name of Registrant as specified in its charter)

Delaware                                                     52-1599610
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

904 Wind River Lane  Suite 100
Gaithersburg, Maryland                                       20878
(Address of principal executive offices)                     (Zip code)

                                 301-921-8860
               (Registrant's telephone number including area code)

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

Title of Securities                             Exchanges on which Registered
Common Stock, par value $0.001 per share           The NASDAQ SmallCap Market



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



         Check whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes X No ________

         Check if there is no disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|

State issuer's revenues for its most recent fiscal year.  $24,185,609


As of March 23, 1998,  the  aggregate  market value of Common Stock  outstanding
held by  non-affiliates  of the issuer was $2,205,491  (computed by reference to
the  average bid and asked  price of the Common  Stock) and the total  number of
shares of Common Stock outstanding was 4,116,226.



                       DOCUMENTS INCORPORATED BY REFERENCE

         List hereunder the following documents if incorporated by reference and
the Part of the Form  10-K  SB(e.g.,  Part I,  Part II,  etc.)  into  which  the
document is  incorporated:  (1) Any annual report to security  holders;  (2) Any
proxy or information  statement;  and (3) Any prospectus  filed pursuant to Rule
424(b) or (c) under the Securities Act of 1933. The listed  documents  should be
clearly described for identification  purposes (e.g.,  annual report to security
holders for fiscal year ended December 24, 1990).

None.



Transitional Small Business Disclosure Format (check one):
Yes ___; No X


Certain   statements   made  in  this   Annual   Report  on  Form   10-KSB   are
"forward-looking"  statements  within  the  meaning  of the  Private  Securities
Litigation Reform Act of 1995. Such statements  involve known and unknown risks,
uncertainties,  and other factors that may cause actual results, performance, or
achievements of the Company to be materially  different from any future results,
performance,  or  achievements  expressed  or  implied  by such  forward-looking
statements.  Although the Company  believes that the  expectations  reflected in
such  forward-looking  statements  are based upon  reasonable  assumptions,  the
Company's  actual  results could differ  materially  from those set forth in the
forward-looking  statements.  Certain factors that might cause such a difference
include,  but are not limited to, the timing of  revenues,  rapid  technological
change,  the demand for  services  for  computer  hardware  systems and computer
equipment,  the  timing  and  amount of  capital  expenditures  and other  risks
detailed herein.



<PAGE>


                                    CONTENTS


                                                                          Page

Part I   Item 1   Description of Business                                   4

         Item 2   Description of Property                                   8

         Item 3   Legal Proceedings                                         9

         Item 4   Submission of Matters to a Vote of Security Holders       9


Part II  Item 5   Market for Common Equity and Related Stockholder Matters  9

         Item 6   Management's Discussion and Analysis                      9

         Item 7   Financial Statements                                     F-1

         Item 8   Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                      12


Part III Item 9   Directors, Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16(a)                   12

         Item 10  Executive Compensation                                   13

         Item 11  Security Ownership of Certain Beneficial Owners and
                  Management                                               14

         Item 12  Certain Relationships and Related Transactions           15

         Item 13  Exhibits List and Reports on Form 8-K                    15



<PAGE>


                                     PART 1

Item 1.  Description of Business

General

                  CSI   Computer   Specialists,   Inc.   (the   "Company")   was
incorporated pursuant to the laws of the State of Delaware on February 22, 1994.
The Company is the  successor to  CSI-Maryland.  CSI-Maryland  was  incorporated
pursuant to the laws of the State of Maryland in October 1988 for the purpose of
providing computer hardware services, including installation and de-installation
of equipment,  computer upgrades,  computer maintenance and repair, and the sale
of computer parts and equipment.  The Company was organized by  CSI-Maryland  to
enable  CSI-Maryland  to merge with and into the  Company  on March 31,  1994 in
order to effectuate a reincorporation in the State of Delaware.

         The  Company  provides  a full  range of  computer  hardware  services,
including  sales and maintenance of mainframe and mid-range  computer  equipment
and parts, network design and installation,  computer upgrades, and installation
and  de-installation  of  equipment.   The  Company  provides  its  services  to
commercial  customers,  agencies of federal,  state and local  governments,  and
universities,  hospitals,  and  associations in the  Mid-Atlantic  region of the
United  States,  including West Virginia,  Virginia,  Maryland,  the District of
Columbia, New Jersey, New York, Connecticut,  Pennsylvania,  and in Illinois and
California, as a result of recent asset acquisitions.

         In pursuit of its plans for  geographic  expansion,  the Company opened
offices  near  Philadelphia,  Pennsylvania  in  January,  1995 and in  Richmond,
Virginia in December,  1995. In addition,  as part of the  Company's  efforts to
expand its technological  expertise and customer base, the Company completed its
acquisition of Capitol  Computer  Systems,  Inc., doing business as CCS Systems,
Inc. in December,  1995.  CCS Systems,  Inc. is a Lanham,  Maryland  value added
reseller  specializing  in equipment  sales and computer  hardware  maintenance.
Furthering its expansion efforts,  the Company acquired  Cintronix,  Inc., which
specializes in the sale and servicing of personal computers,  in January,  1997,
and Advanced Network Systems,  which provides  network  integration  service and
sales to companies and associations in the Washington,  DC metropolitan area, in
February, 1997. The Company acquired the assets of Phoenix Service, Inc. in May,
1997. Phoenix Service provides  mainframe sales and maintenance  services in the
Eastern  region of the  country,  as well as outside  Chicago,  Illinois and San
Francisco, California.

         Initially,  the Company's business was limited to providing service for
computer mainframes  manufactured by International Business Machines ("IBM") and
peripheral  equipment,  such as printers,  disk drives, tape drives and computer
controllers.  The  Company  has  broadened  its  peripheral  support  to include
servicing for products  manufactured by Memorex,  Storage Technology and various
other original equipment  manufacturers of input/output  products.  In addition,
the Company offers  maintenance  services for personal  computers and associated
peripheral  equipment  produced  by several  major  manufacturers,  such as IBM,
Compaq, NEC, Epson and  Hewlett-Packard,  as well as provides parts and services
for computer mainframes  manufactured by Digital Equipment  Corporation ("DEC"),
such as DEC/VAX platforms and peripheral equipment.

         The Company provides its services to customers  pursuant to maintenance
agreements.  Substantially  all  of the  Company's  maintenance  agreements  are
fixed-fee  agreements  for  terms  of one or  more  years.  Pursuant  to such an
agreement, a customer agrees to pay a fixed amount, payable monthly, in exchange
for the Company's  agreement to provide all parts (other than expendable  parts)
and labor necessary to maintain or repair the equipment  during the term of such
agreement.  The Company occasionally provides services on a "time-and-materials"
basis  pursuant  to which a  customer  agrees to pay a  specified  rate for each
particular  service  to  be  performed  by  the  Company  and  to  purchase  any
replacement parts used in connection therewith.

         The Company began  actively  selling  computer  equipment in 1993,  and
management  believes that current  market  conditions  have afforded the Company
strong potential for growth.  The Company sells computer  equipment  pursuant to
equipment sales agreements.  Pursuant to such agreements,  customers pay for the
computer equipment which they purchase from the Company upon delivery. Given the
Company's large existing customer base, the Company has what management believes
to be a "niche  market  audience,"  which  enables the  Company to "bundle"  its
services to include the sale of equipment  to a customer,  the  installation  of
such equipment and the  maintenance  of the installed  equipment on a continuing
basis. The acquisition of Cintronix,  Inc. has enabled the Company to expand its
sales of mid-range and personal computer products, bringing purchasing volume to
levels that provide more competitive pricing from suppliers and distributors.

         The industry in which the Company  operates has been  characterized  by
rapid  and  continuous   technological  advances,   permitting  cost  reduction,
increased  computer  processing  capacities and broadened  equipment  platforms.
Customers  frequently  upgrade or replace  equipment and also use mainframes and
peripheral  equipment  manufactured  by  various  vendors to take  advantage  of
technological innovations. As a result, equipment which is replaced by different
or newer  models  becomes  available  to the resale or  secondary  market.  This
enables the Company to purchase this  equipment and support  additional  product
lines.

         Management   believes  that  the  Company  has  been  able  to  compete
successfully because of the high quality of service the Company provides and the
competitive pricing it is able to offer to its customers. As a result, since its
inception,  the  Company  has  been  able  to  attract  and  maintain  long-term
relationships  with its  existing  customers  and to expand  its  customer  base
consistently and effectively.


Maintenance Services

         The Company provides  third-party,  multi-vendor  computer hardware and
peripheral equipment maintenance services to commercial  customers,  agencies of
federal, state and local governments,  universities, hospitals, associations and
other  organizations  located primarily in the Mid-Atlantic region of the United
States. The equipment currently  maintained and serviced by the Company consists
of a wide range of peripheral subsystems, including terminals, disk drives, tape
drives,  printers and computer  controllers,  and also includes the  mainframes,
mid-range   minicomputers  and  personal  computers  on  which  such  peripheral
subsystems  are dependent.  The equipment  serviced or maintained by the Company
varies  from  customer  to  customer  and ranges  from  providing  services  for
individual computers or peripherals to providing services for many computers and
peripherals  located in a customer's  mainframe computer room. Services provided
by the  Company  consist  primarily  of  scheduled  preventive  maintenance  and
emergency  remedial  services.   Preventive  maintenance  includes  inspections,
diagnostic analysis,  cleaning,  adjustments,  and replacement of components and
parts.  In addition,  the Company  conducts  inspections  for  certification  of
equipment in connection  with  determining  whether  mainframes  and  peripheral
equipment meet original equipment manufacturer maintenance standards.

         Most of the mainframe computers  maintained and serviced by the Company
are  manufactured  by IBM,  although the Company also provides such services for
computers   manufactured  by  other  companies,   including   Memorex,   Storage
Technology,  and DEC. The personal computers and peripheral  equipment currently
serviced by the Company are manufactured by numerous companies.  The Company, in
1995,  expanded  its  business  to include  the sale and  servicing  of IBM RISC
System/6000,  IBM AS/400 and IBM  ES/9000.  In  addition,  the  Company  greatly
expanded its sale and servicing capabilities in the mid-range computer area with
the acquisitions of Cintronix, Inc. and Advanced Network Systems in early 1997.


Maintenance Agreements

         The Company  provides  most of its  services  pursuant  to  maintenance
agreements  having terms of one or more years.  Pursuant to such  agreements,  a
customer is obligated  to pay a fixed amount on a monthly  basis in exchange for
the Company's  agreement to provide all parts (other than expendable  parts) and
labor  necessary to maintain or repair the  equipment  subject to the  agreement
during  the  term  of the  agreement.  Additionally,  the  Company  occasionally
provides services on a  "time-and-materials"  basis pursuant to which a customer
agrees to pay a specified  rate for each  particular  service to be performed by
the Company and to purchase any replacement parts used in connection  therewith.
The Company's  standard  maintenance  agreement provides that upon expiration of
the initial term thereof, such agreement will continue on a month-to-month basis
until  such time as  either  party  terminates  the  agreement.  It has been the
Company's  experience  that  very  few of its  maintenance  agreements  with its
customers are cancelled or  discontinued  upon expiration of their initial terms
given the monthly renewal provisions.

         Most of the  Company's  maintenance  agreements  with  agencies  of the
federal  government are entered into for terms of three to five years.  However,
such  maintenance  agreements  provide agencies an annual right to terminate the
contract  in  the  event  that  the  agencies  do  not  receive  the   requisite
governmental  funding.  Revenues from such contracts are,  therefore,  dependent
upon  annual  governmental  funding.  Such  termination  rights have seldom been
exercised,  however,  and  such  maintenance  agreements  have  terminated  upon
expiration of their  specified  terms and, in some cases,  have been renewed for
one-year periods.


Subcontracting

         The Company has entered into subcontracting  agreements with several of
its vendors  pursuant to which such vendors perform  certain  services which the
Company has agreed to provide to  customers  pursuant  to  existing  maintenance
agreements.  In such cases,  the Company acts as the "prime  contractor" for the
provision  of  computer   maintenance  services  and  the  vendor  acts  as  the
"subcontractor."  The Company enters into such  agreements for several  reasons.
The Company may elect to enter into subcontracting agreements when the equipment
that  is  subject  to a  maintenance  agreement  is  expensive  or is  otherwise
difficult for the Company to obtain or replace.  Similarly,  such subcontracting
agreements have been advantageous to the Company when the services required by a
maintenance  agreement have been of a particular level of engineering  expertise
that the  Company  does not  otherwise  provide.  The  Company  also enters into
subcontracting  agreements  because  customers  sometimes  prefer to be provided
services by one entity,  such as the  Company,  which has the ability to service
all of its computer equipment  (notwithstanding  the manufacturer or the model),
rather  than rely on the  services  which may be provided  individually  by each
vendor with respect to its own  manufactured  product or model.  Such agreements
may be terminated by either party at any time upon delivery of written notice 30
days in advance of such  termination.  Several  companies offer the services and
expertise  for  which  the  Company  enters  into   subcontracting   agreements.
Therefore,  management  believes  that  the  loss  of the  services  of any  one
subcontractor  would  not  have a  material  adverse  effect  on  the  Company's
business.


Equipment Sales

         The  Company  sells  computer  equipment  pursuant to  equipment  sales
agreements.  Pursuant  to  such  agreements,  customers  pay  for  the  computer
equipment  which they purchase from the Company upon  delivery.  Generally,  the
Company takes an order for equipment from a customer,  contacts its suppliers to
ascertain the availability of the equipment, provides the customer with a quoted
price for the equipment and executes an agreement upon the customer's acceptance
of the terms.  The Company does not,  therefore,  maintain a large  inventory of
computer  equipment,  particularly  mid-range and personal  computer  equipment,
which is readily  available.  Revenues from the sale of computer  equipment have
steadily increased during recent years, with the largest increase resulting from
the sale of mid-range and personal computer equipment. A significant increase in
revenues from the sale of mid-range and personal computer  equipment occurred in
1997, with a 280 percent increase over 1996. This increase is principally due to
the acquisition of Cintronix,  Inc., which specializes in the sale and servicing
of personal  computers.  The Company  intends to continue to expand this area of
its business during the next few years.


Sales and Marketing

         The  Company  currently  employs  approximately  twenty-five  full-time
marketing   representatives.   Most  representatives  direct  their  efforts  to
promoting the Company's sales and services to commercial accounts, universities,
hospitals and associations in the Mid-Atlantic region,  Illinois and California.
The remaining representatives market the Company's services primarily to federal
government  agencies.  The  majority  of the  leads  pursued  by  the  marketing
representatives  are  generated  by existing  customers  and by  referrals  from
various  vendors.  In  addition,  the Company  utilizes  the services of several
contract marketing representatives, who provide marketing services. To date, the
Company has done little advertising.  However,  the Company is in the process of
developing an effective  marketing and  advertising  program,  a primary part of
which will be the integration and  cross-education  of sales personnel to market
each  subsidiary's and division's  products and services to the others' customer
base.


Principal Suppliers and Subcontractors

         The Company  acquires from IBM a significant  part of the equipment and
parts which it uses in  connection  with  providing  maintenance  services.  The
Company also relies on IBM to provide  subcontracting  services.  See Note 10 to
the Financial Statements included in Item 7 hereof. Payments made by the Company
to IBM equaled  $257,000  and  $221,000,  respectively,  during the fiscal years
ended  December  31, 1997 and 1996.  The Company  also  subscribes  to a service
called  "CDLANET,"  which  provides  the  Company  with  access to an  "on-line"
nationwide  database  of  equipment  offered  for sale by  various  vendors  and
distributors.  The Company  frequently  acquires  equipment from various vendors
identified using this service. In addition,  the Company,  primarily through its
subsidiary Cintronix, Inc., acquires a significant part of its personal computer
and network  equipment  and supplies for resale from Tech Data and Ingram Micro,
from which the Company purchased $2.7 million and $1.5 million, respectively, of
equipment  and supplies in 1997.  Due to the  significant  number of  comparable
vendors of these  products,  the Company  does not feel that the loss of any one
supplier would have a material adverse effect on the Company's business.


Customers

         Historically,  most of  the  Company's  direct   revenues  are  derived
from  services  performed  through  maintenance  agreements.  However,  with the
acquisition of Cintronix,  Inc.,  equipment and parts sales accounted for 58% of
the Company's combined revenues for 1997. The percentage of commercial customers
serviced by the Company pursuant to maintenance  agreements for the fiscal years
ended   December  31,  1997  and  1996  equaled   approximately   73%  and  79%,
respectively,  of all customers  serviced by the Company pursuant to maintenance
agreements.   Federal  government  agencies  serviced  pursuant  to  maintenance
agreements  accounted  for  approximately  27%  and  21%,  respectively,  of the
Company's  customers  for the fiscal  years  ended  December  31, 1997 and 1996.
Revenues  derived from time and  materials  agreements  approximated  7% and 5%,
respectively,  of the  Company's  gross  revenues  for the  fiscal  years  ended
December 31, 1997 and 1996.  Revenues  generated by parts and  equipment  sales,
reflecting the increase provided by Cintronix,  Inc., represented  approximately
58% and 30%, respectively, of gross revenues for the fiscal years ended December
31, 1997 and 1996.

         The  Company's  customers  generally  have been loyal.  It has been the
Company's  experience  that  most of its  maintenance  agreements  are  renewed.
Currently,  no one customer represents more than 7% of the total revenues of the
Company. The Company's commercial customers include American Management Systems,
Inc., Lockheed Martin, IBM,  Interactive  Systems,  Inc. ("ISI"),  Computer Data
Systems Inc., and Medlantic Health Care System, Inc.


Business Strategy

         The  objectives of the Company are, through the provision of currently
offered and new services to  increase its customer  base  and  to  also increase
equipment sales. Management believes that increasing the Company's customer base
can be achieved by the cross  marketing  of products  and  services  between the
Company and its acquired subsidiaries and divisions, as well as the expansion of
sales and servicing of additional mainframe and mid-range computers. The Company
can also realize these objectives by expanding its business to provide sales and
service outside of the Mid-Atlantic  region into other  geographical  locations.
Management also believes that it can continue to increase its sales of parts and
equipment as a result of the Company's  designation as a "Value Added  Reseller"
of  computer  equipment  produced  by various  manufacturers,  and  through  the
provision  of  network  design  and  integration  services  to new and  existing
customers.  Designation  as a "Value  Added  Reseller"  enables  the  Company to
acquire computer  equipment  directly from manufacturers at discounts based upon
the  volume  of its  purchases.  Management  believes  that the  acquisition  of
Cintronix,  Inc.  will also  result in  increased  parts  and  equipment  sales.
Cintronix, Inc., is a MicroAge franchisee, and as such benefits from the various
programs offered by MicroAge including dealer  arrangements with  manufacturers,
financing and insurance programs, and business referrals.


Acquisitions

         The  Company's  long-term  plan  has  been to  pursue  its  growth  and
acquisition  strategy  on  both a  national  and  regional  level.  The  Company
implemented this plan on a national level when it acquired the assets of Phoenix
Service,  Inc., which gives the Company the ability to develop business in major
population  areas in California and Illinois  where it had not  previously  been
represented.  Management  believes that the acquisitions of Cintronix,  Inc. and
Advanced  Network  Systems in early 1997 have  furthered the  Company's  goal of
developing  regional  clusters of sales and service  representatives  to improve
customer  service  and to  gain  greater  market  penetration.  Management  also
believes  that these  businesses  will draw on the  operational  and  management
expertise  of the  Company,  and that the Company  will realize cost savings and
expansion of customer bases through the centralization of controls, economies of
scale, finance, cash management,  inventory control and purchasing,  accounting,
marketing,  and  human  resource  functions.  The  Company  does  not  presently
anticipate any further  acquisitions  until the companies  acquired in 1997 have
been  sufficiently  integrated  so that the  expected  synergies  are  achieved.
Management believes that such synergies will occur during 1998.

         The Company could be subject to liabilities arising from an acquisition
in the event the Company has assumed unknown or contingent liabilities or in the
event such liabilities are imposed on the Company. In an effort to minimize such
risks,  prior to making  acquisitions,  the Company has  conducted due diligence
investigations of its targets. In addition, the Company has sought to avoid such
liabilities by purchasing only selected assets and assuming selected liabilities
of certain  acquirees  and seeking  indemnification.  There can be no assurance,
however,  that these efforts will result in the Company's  avoidance of any such
liabilities,  which  could  have a  material  adverse  effect  on the  Company's
financial condition.


Employees

         The Company has approximately  160 full-time  employees who are located
at the Company's  headquarters in  Gaithersburg,  Maryland and in nine cities in
the Mid-Atlantic region, Illinois and California.


Item 2.  Description of Property

                  The  Company's   headquarters  are  located  in  Gaithersburg,
Maryland  (the  "Gaithersburg   facility").  In  addition  to  the  Gaithersburg
facility,  the Company  maintains  its National  Support  Center in  Beltsville,
Maryland (the  "Beltsville  facility");  sales and marketing  offices in Towson,
Maryland  ("the  Towson  facility"),   Fairfield,  New  Jersey  (the  "Fairfield
facility"),  and Wheaton,  Illinois  (the  "Wheaton  facility");  and office and
warehouse  space  in  Moorestown,   New  Jersey  (the  "Moorestown   facility"),
Sunnyvale,  California  (the "Sunnyvale  facility") and Richmond,  Virginia (the
"Virginia facility").  In addition, CCS Systems, Inc., a wholly-owned subsidiary
of the Company, maintains its offices and service facilities in Lanham, Maryland
(the "Lanham facility"),  and Cintronix, Inc., the other wholly-owned subsidiary
of the Company,  maintains  its offices in Annapolis,  Maryland (the  "Annapolis
facility").

         The Gaithersburg  facility is leased by the Company pursuant to a lease
having  a  term  of ten  years,  which  term  expires  in  November,  2007.  The
Gaithersburg  facility consists of 12,566 square feet and is used by the Company
primarily as general office space.  The monthly rental payment for such space is
approximately $13,350 and is subject to annual increases.

         The  Beltsville  facility is leased by the Company  pursuant to a lease
having a term of five years, which term is scheduled to expire in October, 2002.
The  monthly  rental  payment for such space is $13,912 and is subject to annual
increases.  The Beltsville facility currently consists of 31,000 square feet and
is used by the Company to house the Company's technical support staff,  in-house
training  instructors  and  logistical  personnel,   and  for  the  storage  and
warehousing  of  the  bulk  of  the  Company's   equipment,   parts  and  supply
inventories.

         The Towson  facility is used by marketing  personnel of the Company and
is leased by the Company on a  month-to-month  basis. The monthly rental payment
for such space is $995.

         The Fairfield  facility is used by marketing  personnel of the Company.
The Company  assumed the lease held by Phoenix  Service for this  facility.  The
lease is for a fifteen-month period and expires in September,  1998. The monthly
rental payment for such space is $624.

         The Wheaton facility is used by marketing personnel of the Company. The
Company assumed the lease held by Phoenix  Service for this facility.  The lease
is on a month-to-month basis. The monthly rental payment for such space is $850.

         The  Moorestown  facility is leased by the Company  pursuant to a lease
having a term of ten years, which term is scheduled to expire in February, 1999.
The Company  assumed the lease from Phoenix  Service.  The  Moorestown  facility
consists  of  approximately  19,200  square  feet and is used by the Company for
storage and  warehousing  of  equipment,  parts and supplies for accounts in its
service  area,  as well as office space for the computer  engineers  assigned to
that area. The monthly rental payment for such space is $11,328 per month.

          The  Sunnyvale  facility is leased by the Company  pursuant to a lease
having a term of two years,  which term is scheduled to expire on June 22, 1999.
The Sunnyvale facility consists of approximately 3,726 square feet and  is  used
by the  Company  for storage and  warehousing  of  equipment, parts and supplies
for  accounts  in  that  service  area, as well as office space for the computer
engineers  assigned to that area.  The monthly rental payment for such  space is
$5,384 and is subject to annual increases.

         The  Virginia  facility  is leased by the  Company  pursuant to a lease
having a term of five years,  which term is  scheduled to expire on December 31,
2000. The Virginia facility  consists of approximately  5,900 square feet and is
used by the Company for storage and warehousing of equipment, parts and supplies
for  accounts in that  service  area,  as well as office  space for the computer
engineers  assigned to that area.  The monthly  rental payment for such space is
$4,316 and is subject to annual increases.


         The Lanham facility is leased by CCS Systems, Inc., pursuant to a lease
having a term  expiring  in  December,  1998.  The Lanham  facility  consists of
approximately  8,000  square  feet and is used for storage  and  warehousing  of
equipment,  parts and supplies for the service of CCS Systems, Inc.'s customers,
as well as housing  the sales,  administrative  and  service  personnel  of such
company.  The monthly  rental payment for such space is $5,668 and is subject to
annual increases.

         The Annapolis facility is leased by Cintronix, Inc. pursuant to a lease
having a term  expiring in October,  1999.  The Annapolis  facility  consists of
approximately  6,000  square feet and is used  primarily  for housing the sales,
administrative  and  service  personnel  of such  company,  and for  storage and
warehousing of equipment,  parts and supplies en route to customers  under sales
agreements.  The monthly  rental payment for such space is $4,377 and is subject
to annual increases.

         In addition to the foregoing  facilities,  the Company  maintains local
parts storage facilities in various locations throughout the Mid-Atlantic region
of the United States and in Illinois to provide local support to area  accounts.
The  monthly  rental  for these  storage  centers  is less than $100  each.  The
facilities are leased pursuant to  month-to-month  leases. In the event that any
lease is  terminated  or not  otherwise  renewed,  management  believes that the
Company would be able to lease adequate space  elsewhere on terms  comparable to
those in the current lease.

         The Company  does not intend to invest in real estate or  interests  in
real estate,  real estate  mortgages,  or  securities of or interests in persons
primarily engaged in real estate activities in the foreseeable future.

Item 3.  Legal Proceedings

None.

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

None.

                                     PART II


Item 5.  Market for Common Equity and Related Stockholder Matters

The Company's Common Stock trades on the Nasdaq SmallCap Market under the symbol
"CSIS".  The  following  table sets forth the range of high and low trade  price
information for the periods indicated:

1st Quarter 1996           High     7 1/8   Low      4 5/8
2nd Quarter 1996           High     6 1/4   Low     5.0
3rd Quarter 1996           High     5 7/8   Low      2 3/4
4th Quarter 1996           High     3 5/8   Low      1 1/8
1st Quarter 1997           High     2 5/8   Low      1 3/16
2nd Quarter 1997           High     2 5/8   Low     1 13/16
3rd Quarter 1997           High     1 15/16 Low      1
4th Quarter 1997           High     1 9/16  Low      25/32
1st  Quarter 1998          High     1 5/8   Low       3/4


As of May 13, 1998,  the  Company's  Common Stock was held by  approximately  40
holders of record.  As of June 13, 1997, the Company's  Common Stock was held by
approximately 35 holders of record and approximately 732 beneficial holders. The
Company believes that it continues to have in excess of 700 beneficial  holders.
The Company has never  declared or paid a cash  dividend and has no present plan
to do so in the foreseeable  future. The Company currently intends to retain its
future  earnings,  if any, to fund the development and finance the growth of its
business.  The amount and timing of any future  dividends will depend on general
business  conditions  encountered  by the  Company,  as  well  as the  financial
condition,  earnings and capital  requirements  of the  Company,  and such other
factors as the Board of Directors of the Company may deem relevant.


***
Item 6.  Management's Discussion and Analysis




GENERAL

         The  Company  provides  a full  range of  computer  hardware  services,
including  sales and maintenance of mainframe and mid-range  computer  equipment
and parts, network design and installation,  computer upgrades, and installation
and  de-installation  of  equipment.  These  services are provided to commercial
customers,  agencies  of  federal,  state and local  governments,  universities,
associations and hospitals  primarily in the  Mid-Atlantic  region of the United
States, including West Virginia,  Virginia,  Maryland, the District of Columbia,
New Jersey,  New York,  Connecticut and  Pennsylvania,  and also in Illinois and
California.

         The Company's principal business is providing computer  maintenance and
repair services,  which are provided under both fixed fee and time and materials
arrangements.  Under the fixed fee  arrangement,  which is the primary method of
service,  a customer  pays a fixed  monthly  fee for the term of the  agreement,
generally one to two years,  for which the Company  provides the parts and labor
for both scheduled  preventative  maintenance and emergency repairs. The Company
records  the  revenue  from  fixed fee  contracts  ratably  over the term of the
contract,  while the costs the  Company  incurs to provide the  maintenance  and
emergency  repairs  are  charged  to  expense  as  incurred.   Accordingly,  the
profitability  of the Company's  maintenance and repair services can and will be
affected  by period to period  fluctuations  in the number and  severity  of the
emergency repairs required by its customers, which the Company cannot predict or
control.  Additionally,  in certain  circumstances  the  Company  will choose to
provide the contracted-for services by subcontracting with others,  particularly
when the  equipment  covered  by the  agreement  cannot  be  serviced  in a cost
effective  manner, is  difficult  to  repair  or  replace,  or  requires  unique
engineering  expertise  that  is  not  applicable  to  equipment  utilized  by a
significant number of the Company's other customers.  The Company  obtains  such
subcontracting services through short-term agreements,  and  its  profit  margin
will generally be lower than if the  work were not  subcontracted.  Accordingly,
operating results may  fluctuate  from  period to period as a result of  changes
in the level and nature of subcontracted services.

         The sale of computer equipment accounts for a rapidly expanding portion
of the Company's  business,  and, as a result,  revenues therefrom have and will
continue to fluctuate  from period to period.  This  fluctuation  has stabilized
somewhat with the  acquisition of Cintronix,  Inc.,  whose business is primarily
equipment  sales,  but which sales are also somewhat  seasonal.  Cross marketing
among  the  Company's   subsidiaries   and  divisions   should   decrease  these
fluctuations over time. Mainframe equipment sales are entered into more commonly
to secure  contracts  for the  maintenance  thereof  than for the  profit on the
equipment  sale itself,  and the margins on these sales of equipment are subject
to market conditions.  Consequently,  operating profits as a percentage of gross
sales are subject to  fluctuation  due to the volume and the makeup of equipment
sales.  Other areas of expansion are in the areas of servicing  laser  printers,
providing  help desk support  services,  and expanding  the Company's  technical
capabilities to maintain the more current mainframe technology.


RESULTS OF OPERATIONS

         Revenues for the fiscal year ended  December 31, 1997 increased by 123%
to  $24,185,609  compared to revenues of  $10,835,678  for the fiscal year ended
December 31, 1996.  This  increase in annual net  revenues  resulted  from sales
growth in both  maintenance  services  and  equipment  sales,  notably  with the
increased  revenues  generated by  Cintronix,  Inc., a  wholly-owned  subsidiary
acquired  in  January,  1997,  and which  accounted  for 87% of the  increase in
revenues.  Maintenance  revenues  increased  principally  due to  growth  in the
Company's and its subsidiaries' book of fixed fee agreements, both in number and
dollar amount of the agreements.  Maintenance revenues for 1997 increased by 34%
to  $10,111,099  compared  to  maintenance  revenues  of  $7,536,634  for  1996.
Maintenance  services  accounted for approximately 42% of the Company's revenues
for 1997  compared to 70% for 1996,  due to the increase in equipment  and parts
sales. Equipment and parts sales increased 327% to $14,074,510 for 1997 compared
with  $3,299,044  for 1996,  comprising 58% of sales in 1997 and 30% of sales in
1996. Cintronix, Inc. accounted for about 282% of that increase.

         The Company's cost of sales as a percentage of revenues was 82% in 1997
compared to 68% in 1996. An increase in the costs of  maintenance  services as a
percentage of  maintenance  service income was combined with the higher level of
equipment  sales by Cintronix,  Inc., on which profit  margins  percentages  are
lower.  The increased  costs of  maintenance  services  resulted  primarily from
increased  costs of  emergency  replacement  parts  and  increased  reliance  on
subcontracted  services.  Subcontractor  costs could  decrease as the  necessary
expertise is developed  in-house to service newer  technology;  however,  as the
Company  enters into contracts on even more recent  technology,  the services of
subcontractors may still be required. Additionally, gross margins in fiscal 1997
have been  adversely  affected  by the costs  associated  with  integrating  the
Company's  newly-acquired  operations with existing  operations in Philadelphia,
Pennsylvania  and  Richmond,  Virginia.  The Company  expects  that the costs of
maintenance  services as a percentage of maintenance  service income to increase
in future  quarters  as the Company  expands  the mix of  hardware  that will be
maintained  under contracts and as the  competition  based on pricing results in
lower margins.  The Company expects to partially  offset these costs by reducing
subcontract  expense as the Company develops the additional  in-house expertise,
and by  increasing  both the book of fixed  fee  agreements  and the  parts  and
equipment sales.

         Selling,  general and  administrative  expenses as a percentage  of net
revenues were 22% and 32%, respectively,  for 1997 and 1996. The decrease in the
percentage is primarily due to the larger base of the increased equipment sales.
The Company expects short-term  fluctuations in this percentage in the future as
it adds to its  technical  support,  marketing  staff and  other  administrative
personnel in order to expand its customer  base and  increase  equipment  sales.
These  expenses  increased 54% to $5,331,448 for 1997 compared to $3,487,760 for
1996. The increase is primarily  attributable to hiring additional marketing and
office  personnel  to  support  the  increased  revenue  base,  as  well  as the
administrative costs of the companies acquired in 1997.

         The  Company's  operating  loss for the fiscal year ended  December 31,
1997  increased  2117% to a loss of  $919,378  compared to a loss of $41,469 for
1996. The decrease in operating profit was primarily attributable to the overall
increase in costs of sales compared to the increase in revenues,  as well as the
increase in selling and administrative  costs related to building up sales staff
and  integrating  the  combined   operations  of  each  of  the  newly  acquired
businesses.

         Net interest income decreased 81% to $39,317,  compared to $206,460 for
1996,  primarily  as a result of the  decrease  in  investment  earnings  as the
remaining  proceeds of the Company's 1995 initial public  offering were utilized
for the 1997  acquisitions.  The Company  expects that net interest  income will
continue to decrease until the Company starts  generating  additional  cash from
operations.

         Net income  decreased 657% to a loss of $569,440 for 1997 from a profit
of $102,246  for the prior year,  primarily  as a result of the higher  costs of
sales, the increased selling and administrative costs and the integration of the
acquired  companies.  The Company expects that its cross marketing  efforts,  as
well as cost-cutting  efforts to reduce duplication of administrative  expenses,
will improve its performance in the future.

         The Company's results of operations have been adversely affected in the
last  year  by  increased  competition  in  the  computer  market,  as  well  as
management  time and expenses  associated with the Company's 1997  acquisitions.
Management is now focused on the  integration  and  coordination  of these newly
acquired businesses.In order to compete in the rapidly changing computer market,
management is currently expanding  the Company's  mid-range  network support and
maintenance  operations,  expanding   maintenance  services   to  include  newer
mainframe  technology and expanding software  support and help desk  services.



LIQUIDITY AND CAPITAL RESOURCES

         Working capital,  which consists principally of cash and investments in
government  securities  for  terms of three  months  or less,  was  $193,056  at
December 31, 1997,  compared to $3,915,578 at December 31, 1996. Cash flows used
in operations for 1997 totaled  $1,242,800,  resulting primarily from operations
and  increased  by an increase in accounts  receivable  and the parts and supply
inventories  necessary to support service contracts on newer  technologies.  The
ratio of current assets to current liabilities  decreased to 1.8:1 from 7.5:1 at
December 31, 1996.  The decrease in the current ratio was due chiefly to the use
of Company cash to complete the three acquisitions in 1997.

         The Company has a $750,000 revolving line of credit with  Crestar  Bank
which was renewed to continue until May, 1998. At December 31, 1997, the balance
owed on this line of credit was $650,000.

         Cintronix,  Inc., a wholly-owned subsidiary, has a $1.3 million line of
credit with First Union Bank which will expire in June,  1998.  At December  31,
1997, the balance owed on this line of credit was $496,839.

         The Company's  principal  commitments at December 31, 1997 consisted of
obligations under operating leases for facilities.

         The  Company  believes  that its  existing  cash , as  supplemented  by
expected cash flow from operations and existing credit facilities, is sufficient
to satisfy its currently anticipated working capital needs.


Year 2000 Issues

         Year 2000 Compliance means the ability of software and other processing
capabilities  to interpret and  manipulate  correctly all data that includes the
Year 2000 and dates  thereafter.  The  Company  principally  sells and  services
computer hardware and has not been confronted with Year 2000 issues in providing
such services.  Further,  the Company has surveyed all of its internal  business
systems  and  software  applications  and  determined  that  they are Year  2000
compliant.  Consequently,  the  Company  does  not  expect  its  business  to be
adversely affected in any material respect because of Year 2000 issues.


<PAGE>



F-1




Item 7.  Financial Statements and Supplementary Data


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

                                      INDEX


                                                                     Page

Report of Independent Auditors ..............................    F-2........

Consolidated Balance Sheet as of December 31, 1997 ..........    F-3........F-4

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

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

Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996....................................   F-7........F-8

Notes to Consolidated Financial Statements ...................   F-9........F-17







                         .  .  .  .  .  .  .  .  .  .  .  .




<PAGE>





                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders of
   CSI Computer Specialists, Inc.
   Rockville, Maryland



                  We have audited the accompanying consolidated balance sheet of
CSI Computer Specialists, Inc. and its subsidiaries as of December 31, 1997, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash  flows for each of the two years in the period  ended  December  31,  1997.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

                  In our opinion, the consolidated financial statements referred
to above present fairly, in all material  respects,  the consolidated  financial
position of CSI Computer  Specialists,  Inc. and its subsidiaries as of December
31, 1997, and the consolidated  results of their operations and their cash flows
for each of the two years in the period ended  December 31, 1997,  in conformity
with generally accepted accounting principles.







                                           MOORE STEPHENS, P. C.
                                           Certified Public Accountants.

Cranford, New Jersey
April 8, 1998



<PAGE>



CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.



Assets:
Current Assets:
   Cash and Cash Equivalents                                   $       193,056
   Accounts Receivable                                               3,513,478
   Accounts Receivable - Related Party                                 121,427
   Net Investment in Sales Type Leases - Current                       215,618
   Resale Inventory                                                    384,241
   Parts and Supplies                                                1,033,068
   Prepaid Income Taxes                                                323,544
   Prepaid Expenses                                                    173,031
   Miscellaneous Receivables                                            12,952
                                                               ---------------

   Total Current Assets                                              5,970,415

Property and Equipment:
   Vehicles                                                            122,787
   Furniture and Fixtures                                              261,360
   Equipment                                                         1,110,745
   Equipment Under Operating Leases                                     87,300
   Leasehold Improvements                                              120,183
                                                               ---------------

   Totals - At Cost                                                  1,702,375
   Less:  Accumulated Depreciation                                     933,686
                                                               ---------------
   Property and Equipment - Net                                        768,689
                                                               ---------------

Other Assets:
   Cash - Restricted                                                   416,897
   Goodwill [Net of Accumulated Amortization of $210,578]            2,396,365
   Net Investment in Sales Type Leases - Non-Current                    77,271
   Other Assets                                                         96,573
                                                               ---------------

   Total Other Assets                                                2,987,106

   Total Assets                                                $     9,726,210
                                                               ===============



See Notes to Consolidated Financial Statements.


<PAGE>



CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997.


Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts Payable                                            $     1,764,012
   Accrued Expenses                                                    146,088
   Bank Revolving Lines of Credit                                    1,146,839
   Deferred Income Taxes Payable                                       182,835
   Current Maturities of Long-Term Debt                                 11,401
                                                               ---------------

   Total Current Liabilities                                         3,251,175

Long-Term Debt - Net of Current Maturities                               8,445
                                                               ---------------

Commitments and Contingencies                                               --

Stockholders' Equity:
   Preferred Stock - Authorized, 10,000,000 Shares of $.001 Par Value;
     Issued and Outstanding, None                                           --

   Common Stock - Authorized, 25,000,000 Shares of $.001 Par Value;
     Issued and Outstanding, 3,966,126 Shares                            3,966

   Common Stock - $.001 Par Value, Stock Subscribed and
     Unissued - 75,000 Shares                                               75

   Paid-in Capital                                                   5,627,114

   Retained Earnings                                                   835,435
  
Total Stockholders' Equity                                           6,466,590

   Total Liabilities and Stockholders' Equity                  $     9,726,210
                                                               ===============



See Notes to Consolidated Financial Statements.


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
                                                             Years ended
                                                             December 31,
                                                      1 9 9 7          1 9 9 6
                                                      -------          -------

Revenues                                       $    24,185,609    $  10,835,678
                                               ---------------   --------------

Costs and Expenses:
   Cost of Sales                                    19,773,539        7,389,387
   Selling, General and Administrative               5,331,448        3,487,760
                                               ---------------   --------------

   Total Costs and Expenses                         25,104,787       10,877,147
                                              ----------------  ---------------

   Operating [Loss]                                   (919,378)         (41,469)
                                              ----------------  ---------------

Other Income [Expense]:
   Interest Income                                     114,318          207,720
   Interest Expense                                    (75,001)          (1,260)
                                              ----------------  ---------------

   Total Other Income                                   39,317          206,460
                                              ----------------  ---------------

   [Loss] Income Before [Benefit] Provision
       for Income Taxes                               (880,061)         164,991
                                              ----------------  ---------------

[Benefit] Provision for Income Taxes:
   Current                                            (225,558)         129,719
   Deferred                                            (85,063)         (66,974)
                                              ----------------  ---------------

   Total [Benefit] Provision for Income Taxes         (310,621)          62,745
                                              ----------------  ---------------

   Net [Loss] Income                          $       (569,440) $       102,246
                                              ================  ===============

   Net [Loss] Income Per Share                $           (.14) $           .03
                                              ================  ===============

   Weighted Average Number of Shares
      Outstanding                                    3,966,126        3,652,500
                                              ================= ===============



See Notes to Consolidated Financial Statements.


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
       


                                           
                                            Common Stock             Paid-in    
                                      Shares           Amount        Capital   

Balance - December 31, 1995           3,727,500   $       3,727  $    5,227,428 

   Net Income                                --              --              -- 
                                  -------------   -------------  -------------- 

Balance - December 31, 1996           3,727,500           3,727       5,227,428 

   Issuance Pursuant to Stock
     Purchase Agreement B
     January 10, 1997                   313,626             314         399,686 

   Net [Loss]                                --              --              -- 
                                  -------------   -------------  -------------- 

Balance - December 31, 1997           4,041,126   $       4,041  $    5,627,114 
                                  =============   =============  ============== 


                                                                      Total
                                                   Retained       Stockholders'
                                                   Earnings          Equity

Balance - December 31, 1995                    $     1,302,629  $     6,533,784

   Net Income                                          102,246          102,246
                                               ---------------  ---------------

Balance - December 31, 1996                          1,404,875        6,636,030

   Issuance Pursuant to Stock
     Purchase Agreement B
     January 10, 1997                                       --          400,000

   Net [Loss]                                         (569,440)        (569,440)
                                               ---------------  ---------------

Balance - December 31, 1997                    $       835,435  $     6,466,590
                                               ===============  ===============




See Notes to Consolidated Financial Statements.


<PAGE>



CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           Years ended
                                                           December 31,
                                                     1 9 9 7           1 9 9 6
                                                     -------           -------
Operating Activities:
   Net [Loss]                                 $       (569,440) $       102,246
                                              ----------------  ---------------
   Adjustments to Reconcile Net Income to
     Net Cash Provided by Operating Activities:
     Depreciation and Amortization                     463,433          339,170
     Amortization of Parts and Supplies                727,311          446,122
     Provision for Bad Debts                            42,829           35,926
     Deferred Income Taxes                             (85,063)         (66,974)

   Changes in Assets and Liabilities:
     [Increase] Decrease in:
       Accounts Receivable                            (351,306)        (101,877)
       Inventory B resale                             (214,025)              --
       Parts and Supplies                             (905,609)        (753,052)
       Prepaid Income Taxes                           (208,126)          48,025
       Prepaid Expenses                                (62,615)          (5,067)
       Miscellaneous Receivables                        (5,970)           1,547
       Other Assets                                    (15,427)          13,274

     Increase [Decrease] in:
       Accounts Payable and Accrued Expenses            15,137          (24,754)
       Income Taxes Payable                            (73,929)              --
                                              ----------------- ---------------

     Total Adjustments                                (673,360)         (67,660)
                                              ----------------  ---------------

   Net Cash - Operating Activities                  (1,242,800)          34,586
                                              ----------------- ---------------

Investing Activities:
   Net Cash Transferred - Acquisition of
      Subsidiaries                                      13,907               --
   Cash - Restricted                                  (400,000)              --
   Payment of Acquisition Costs                     (1,968,549)        (499,494)
   Acquisition of Property and Equipment              (549,168)        (190,770)
                                              ----------------  ---------------

   Net Cash - Investing Activities                  (2,903,810)        (690,264)
                                              ----------------  ---------------

Financing Activities:
   Payments on Long-Term Debt                           (9,751)          (4,839)
   Proceeds from Revolving Line of Credit              433,839               --
                                              ----------------  ---------------

   Net Cash - Financing Activities                     424,088           (4,839)
                                              ----------------  ----------------

   Net [Decrease] in Cash and Cash Equivalents      (3,722,522)        (660,517)

Cash and Cash Equivalents - Beginning of Years       3,915,578        4,576,095
                                              ----------------  ---------------

   Cash and Cash Equivalents - End of Years   $        193,056  $     3,915,578
                                              ================  ===============


See Notes to Consolidated Financial Statements.


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           Years ended
                                                           December 31,
                                                     1 9 9 7           1 9 9 6
                                                     -------           -------
Supplemental Disclosures of Cash Flow Information:
   Cash paid during the years for:
     Interest                                 $         72,383  $         1,407
     Income Taxes                             $         14,300  $       120,251

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
   On January 10, 1997, the Company  purchased all of the issued and outstanding
shares of Cintronix,  Inc. for a total  purchase  price of  $1,300,000.  On this
date, $900,000 was paid, and the remaining $400,000 was paid on January 10, 1997
by  313,726  shares  of  the  Company's  common  stock,   calculated  using  the
then-closing bid price of the common stock.





See Notes to Consolidated Financial Statements.



<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


[1] Corporate Organization and Principles of Consolidation

The  consolidated  financial  statements  include the  accounts of CSI  Computer
Specialists, Inc. and its  wholly-owned subsidiaries, Capitol Computer Services,
Inc.  T/A  CCS  Systems,  Inc.,  and  Cintronix,  Inc.  [the  "Company"].  All
intercompany balances and transactions have been eliminated.

CSI Computer  Specialists,  Inc., a Delaware  corporation,  is the  successor to
Computer Specialists,  Inc., a Maryland corporation ["CSI-Maryland"],  which was
incorporated  in 1988.  The  Company was  organized  by  CSI-Maryland  to enable
CSI-Maryland  to merge  with and into the  Company  in March  1994,  in order to
effectuate a reincorporation in the State of Delaware.

The Company, which operates primarily from Maryland,  provides computer hardware
services,   which  primarily  consist  of  maintenance  and  repair  along  with
installation and  deinstallation of equipment,  and sales of parts and equipment
to governmental and commercial entities in the Mid-Atlantic region of the United
States.  The Company  provides its services to customers  primarily  pursuant to
maintenance agreements for terms of one to three years.

[2] Summary of Significant Accounting Policies

A summary of the  significant  accounting  policies  in the  preparation  of the
accompanying consolidated financial statements follows:

Cash and Cash  Equivalents - Cash  equivalents  are comprised of certain  highly
liquid investments with a maturity of three months or less when purchased.

Parts and  Supplies  - Bulk  purchases  of spare  parts and  supplies  which are
utilized to support maintenance contracts are recorded at cost and are amortized
to operations on a  straight-line  basis over a period  ranging from eighteen to
twenty-four  months.  The Company also purchases certain parts for immediate use
which are  charged  to  expense  as  incurred.  Management  estimates  that this
methodology  approximates  a lower of cost or market  inventory  valuation on an
average cost basis. Actual results could differ from those estimates.

Property and Equipment and  Depreciation - Property and equipment is recorded at
cost.  Depreciation  is provided for using  declining  balance  methods based on
estimated useful lives of five to seven years.  Equipment under operating leases
are depreciated  over the terms of the respective  leases,  usually two to three
years.

The Company's leasing operations consist  principally of the leasing of computer
equipment to existing monthly maintenance customers. The leases are for terms of
two to three years,  and are cancelable at any time by the lessee.  If the lease
goes to term, ownership of the equipment passes to the lessee. Beginning January
of 1996,  the  Company's  leasing  operations  consist  principally  of  leasing
computer  equipment  under  sales-type  leases expiring in various years through
1999.



<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2


[2] Summary of Significant Accounting Policies [Continued]

Property and Equipment  and  Depreciation  [Continued] - Minimum lease  payments
to be received as of December 31, 1997 for each of the next 5 years are:

 Year ended
December 31,
   1998                                           $   238,544
   1999                                                80,282
                                                  -----------

   Total                                              318,826
   Less: Interest Portion                             (25,937)

     Total                                        $   292,899
     -----                                        ===========

   Current                                        $   215,617
   Non-Current                                    $    77,271

Expenditures  for normal repairs and  maintenance  are charged against income as
incurred.

Depreciation  for the years ended  December  31, 1997 and 1996 was  $300,502 and
$339,170, respectively.

Income Taxes - The provision for income taxes includes  federal and state income
taxes  currently  payable and those  deferred  because of temporary  differences
between the financial statement and tax bases of assets and liabilities. In 1997
the Company elected to change its method of reporting income for tax purposes to
the accrual method.  Temporary  differences  between financial reporting and tax
reporting  existing  as of  January 1, 1996 are being  recognized  over the next
five-year period [See Note 8].

Goodwill  Policy -  Amortization  is provided on a  straight-line  basis over 15
years.  Goodwill represents the excess of cost over the fair value of net assets
acquired. The Company evaluates the period of goodwill amortization  continually
to determine whether current events and circumstances  warrant revised estimates
of its useful life.

Impairment -  Management  evaluates  the period of  amortization  of  intangible
assets to determine whether events and  circumstances  warrant revised estimates
of useful lives.  Additionally,  management  reviews long-lived assets including
intangible  assets for impairment  whenever  events or changes in  circumstances
indicate  that the carrying  amount may not be  recoverable.  As of December 31,
1997, management expects these assets to be fully recoverable.

Stock Options Issued to Employees - The Company  adopted  Statement of Financial
Accounting   Standards   ["SFAS"]   No.   123,   "Accounting   for   Stock-Based
Compensation,"  on January 1, 1997 for financial  note  disclosure  purposes and
applies the  intrinsic  value  method of  Accounting  Principles  Board  ["APB"]
Opinion  No. 25,  "Accounting  for Stock  Issued to  Employees,"  for  financial
reporting purposes.

Advertising Costs - Advertising costs are expensed when incurred.  Advertising
expense was $31,339 and $35,534 for the years ended December 31, 1997 and 1996,
respectively.


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3

[2] Summary of Significant Accounting Policies [Continued]

Revenue  Recognition - The Company  derives its revenue  principally  from fixed
price maintenance  contracts,  which it recognizes  ratably over the term of the
contract.  Revenue from computer  equipment sales and performance under time and
materials  contracts are recognized upon product  shipment or the performance of
the related work.

Use of Estimates - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Earnings Per Share - Earnings per share are  calculated by dividing net earnings
by  the  weighted  average  common  shares  outstanding  during  1997  and  1996
[3,966,126 and 3,652,500, respectively].  Options and warrants did not result in
dilution for the years ended December 31, 1997 and 1996.

[3] Accounts Receivable

Accounts receivable at December 31, 1997 consist of:

Receivables Under U. S. Government Contracts and Subcontracts:
   Amounts Billed                                        $      1,105,751
   Unbilled Amounts                                               169,099
Commercial and Other Receivables                                  838,149
                                                         ----------------      
Total                                                           2,112,999
Less:  Allowance for Doubtful Receivables                         172,253
                                                         ----------------
   Total                                                 $      1,940,746
   -----                                                 ================

[4] Notes Payable

The Company has a note payable to General Motors Financing with an interest rate
of 9% and  maturity  date of January  11,  1998.  The note  payable  was used to
finance the purchase of a vehicle.  The Company also has a note payable  through
its subsidiary, Cintronix, to First Union Bank with an interest rate of 9% and a
maturity date of November,  2000. This note payable was also used to finance the
purchase of a vehicle.

                                                                 December 31,
                                                                    1 9 9 7

Notes Payable                                                $          19,846
Less: Current Maturities                                                11,401
                                                             -----------------

   Long-Term Debt                                            $           8,445
   --------------                                            =================


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4

[4] Notes Payable [Continued]

Maturities of long-term debt at December 31, 1997 is as follows:

1998                                                        $           11,401
1999                                                                     3,972
1999                                                                     4,473
                                                            ------------------

   Total                                                    $           19,846
   -----                                                     =================

[5] Revolving Lines of Credit

The  Company  arranged  for a bank  line of  credit  with a  maximum  amount  of
$750,000. The line bears interest at the rate of 1.0% over prime. The prime rate
at  December  31,  1997 was 8.5%.  The line is secured by  accounts  receivable,
general intangibles and parts and supplies,  and is personally guaranteed by the
officers of the Company.  The Company is required to maintain certain ratios and
$650,000 in tangible net worth. The Company was in compliance with the ratio and
tangible net worth  requirements  at December  31, 1997.  The balance due on the
line of credit at December 31, 1997 was $650,000.

Cintronix,  Inc.,  arranged  for a bank line of credit with a maximum  amount of
$1,300,000.  The line bears  interest at the rate of 1.0% over prime.  The prime
rate at December 31, 1997 was 8.5%.  The line is secured by accounts  receivable
and  inventories,  and is  guaranteed  by the Company and CCS Systems,  Inc. The
balance due on the line of credit at December 31, 1997 was $496,839.

[6] Fair Value of Financial Instruments

Effective  December  31,  1996,  the  Company  adopted  Statement  of  Financial
Accounting Standards ["SFAS"] No. 107, "Disclosure about Fair Value of Financial
Instruments,"  which  requires  the  disclosure  of the  fair  value of off- and
on-balance  sheet financial  instruments.  The carrying amounts of cash and cash
equivalents,  accounts  receivable,  accounts  payable  and  notes  payable  are
estimated to  approximate  fair value  because of the short  maturities of those
instruments.

[7] Commitments

The Company leases  facilities and vehicles under operating  leases which expire
at various  dates  through  2002.  Facility  lease  agreements  provide for rent
increases  based on changes in the Consumer  Price Index and  adjustments  for a
proportionate share of real estate taxes and operating expenses.

Minimum  rental  commitments  under all  noncancelable  operating  leases with a
remaining term in excess of one year are as follows:

Year Amount

1998                                                       $       697,617
1999                                                               508,716
2000                                                               412,639
2001                                                               362,869
2002                                                               343,082
Thereafter                                                       1,052,807
                                                           ---------------

   Total                                                   $     3,377,730
   -----                                                   ===============

Total rent expense for the years ended  December 31, 1997 and 1996  approximated
$423,400 and $271,000, respectively.


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5


[7] Commitments [Continued]

In April 1996, the Company  entered into  employment  agreements  with its Chief
Executive  Officer,  Chief Financial  Officer,  and its President for an initial
period through 1999 with automatic  renewals for  successive  one-year  periods,
unless  terminated by the Company or the executive.  The agreements  provide for
initial base compensation  aggregating $378,250 subject to annual cost of living
increases,  as well as a bonus to the Chief  Executive  Officer equal to 5.5% of
the Company's  earnings before income taxes.  Additional  employment  agreements
were entered into as part of the acquisition of Cintronix, Inc. [See Note 12].

[8] Income Taxes

The components of income tax expenses are as follows:

                                                            December 31,
                                                      1 9 9 7          1 9 9 6
Current:
   Federal                                        $    (184,658)   $    109,282
   State                                                (40,900)         20,437
                                                  -------------    ------------

   Total Current [Benefit] Expense                     (225,558)        129,719
                                                  -------------    ------------

Deferred:
   Federal                                              (69,637)        (58,937)
   State                                                (15,426)         (8,037)
                                                  -------------    ------------

   Total Deferred [Benefit] Expense                     (85,063)        (66,974)
                                                  -------------    ------------

   Totals                                         $    (310,621)   $     62,745
   ------                                         =============    ============

A net deferred tax  liability  of $182,835 is shown as a current  liability  and
represents the balance due with respect to the Company's election to change from
a cash  basis  of  income  tax  reporting  to an  accrual  basis of  income  tax
reporting.  This  election was made in January of 1996 under  section 481 of the
Internal Revenue Code.

The following table reconciles the U.S. federal income tax rate to the Company's
effective tax rate:

                                                    1 9 9 7           1 9 9 6
                                                    -------           -------

U.S. Statutory Rate                                  (34.0)%            34.0%

Increases [Decreases] Resulting from:
   State Income Taxes                                 (7.0)%             7.0%
   Surtax Exemption                                    5.0 %            (3.0)%
                                                 -----------       -----------

   Totals                                            (35.0)%            38.0 %
   ------                                        ===========       ===========

[9] Related Party Transactions

For the years ended December 31, 1997 and 1996, the Company  recognized  revenue
approximating  $490,000  [including  equipment sales of $107,000],  and $375,000
[including equipment sales of $86,000],  respectively,  from a corporation owned
by the Company's majority stockholder. At December 31, 1997, accounts receivable
include $130,771 from the related party.


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6


[10] Major Vendors/Customers

The  Company  paid  approximately  $221,200  and  $414,000  in  1997  and  1996,
respectively,  to one vendor for subcontract  services and the purchase of parts
and supplies. Management believes that there are alternative competitive sources
within the industry.

Revenue under U. S. Government contracts approximated 21% and 25%, respectively,
of total revenues for the years ended December 31, 1997 and 1996.

[11] Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist  of cash and cash  equivalents  and  accounts  receivable.
Concentrations of credit risk with respect to accounts receivable are limited as
a  result  of  the  dispersion  of  the  Company's   customer  base  among  both
governmental and commercial  entities in the Mid-Atlantic area.  Generally,  the
Company  does not  require  collateral  or other  security  to support  customer
receivables.  The  Company  routinely  assesses  the  financial  strength of its
customers  and based upon factors  surrounding  the credit risk of its customers
establishes  an  allowance  for  uncollectible  accounts  receivable  and,  as a
consequence,  believes that its accounts  receivable credit risk exposure beyond
such allowances is limited. The Company places its cash with high credit quality
financial  institutions.  The  amount on  deposit  in any one  institution  that
exceeds  federally  insured limits  is  subject to credit risk. The  Company has
$360,779 in financial institutions which are subject to such risk.

[12] Acquisition of Subsidiary and Divisions

The Company acquired 100% of the outstanding  capital stock of Cintronix,  Inc.,
on January 10, 1997 for $1,300,000 in a business combination accounted for under
the  purchase  method of  accounting.  The Company  paid the  purchase  price at
closing with $900,000 cash and the balance of the purchase price, $400,000, paid
in shares of the Company's  common stock  calculated  using the then-closing bid
price of the common stock.  The Company set up  a  $400,000  escrow  account  to
redeem these shares at the sellers' option. This option expires in January,1999.

The purchase price of this acquisition exceeded the fair value of the net assets
of Cintronix,  Inc. by $1,022,901  which is being  amortized over 15 years under
the straight-line method.

Certain  principal  stockholders  of  Cintronix,  Inc. and certain key employees
entered into employment agreements with Cintronix,  Inc. in conjunction with the
closing on January 10, 1997. The employment  agreements  provide that Cintronix,
Inc. will employ each of such persons for varying terms of two or three years at
salaries  commensurate  with their positions and duties.  Each of the employment
agreements contain non-compete and confidentiality provisions.

The  Company  acquired  the book of  business of  Advanced  Network  Systems,  a
division of American Bankers  Corporation Service  Corporation,  on February 28,
1997 for  $200,000 in a business  combination  accounted  for under the purchase
method of accounting.  The acquisition is operated as a division of the Company.
The Company paid the purchase price at closing with $200,000 cash.

The  purchase  price of this  acquisition  was recorded as goodwill and is being
amortized over 15 years under the straight-line method.

Certain key employees  entered into  employment  agreements  with the Company in
conjunction  with the closing on February 28, 1997.  The  employment  agreements
provide that the Company  will employ each of such persons for varying  terms of
two or three years at salaries  commensurate  with their  positions  and duties.
Each  of the  employment  agreements  contain  non-compete  and  confidentiality
provisions.



<PAGE>



CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7

[12] Acquisition of Subsidiary and Divisions [Continued]

The Company  acquired 100% of the business assets of Phoenix  Service,  Inc., on
May 28, 1997 for  $793,579  in a business  combination  accounted  for under the
purchase method of accounting.  The acquisition is operated as a division of the
Company. The Company paid the purchase price at closing in cash.

The purchase price of this acquisition exceeded the fair value of the net assets
of Phoenix  Service,  Inc. by $568,797  which is being  amortized  over 15 years
under the straight-line method.

Certain  key  employees  of  Phoenix  Service,   Inc.  entered  into  employment
agreements with the Company in conjunction with the closing on May 28, 1997. The
employment  agreements provide that the Company will employ each of such persons
for  varying  terms of two or three years at  salaries  commensurate  with their
positions and duties. Each of the employment  agreements contain non-compete and
confidentiality provisions.

All results have been included from the date  acquired.  The following pro forma
[unaudited] information assumes the acquisitions occurred on January 1, 1996:
                                                          Years ended
                                                          December 31,
                                                 1 9 9 7            1 9 9 6
                                                 -------            -------

Revenues                                    $    25,150,216  $      23,597,346
Net [Loss] Income                           $      (547,838) $          71,964
Earnings Per Share:
   Net [Loss] Income                        $         (0.13) $            0.02

[13] Stock Options

The Company adopted the CSI Computer Specialists, Inc. 1994 Stock Option Plan in
1994 which  provides  for the grant of both  qualified  and  nonqualified  stock
options to officers, directors, employees and consultants. The Stock Option Plan
has  authorized  the granting,  in the  aggregate,  of options to purchase up to
200,000 shares of stock. Options granted under the Plan vest immediately.

Following is a summary of the status of fixed  options  outstanding  at December
31, 1997:

                                                                 
                                         Outstanding Stock Options
                         ------------------------------------------------------
                                      Weighted-Average
   Range of                             Remaining            Weighted-Average 
Exercise Prices          Shares      Contractual Life          Exercise Price   

$0.87 - $1.50             11,850              8                       $0.93     
$3.12 - $5.37            127,500              8                       $5.35     


                                                        Exercisable
                                                       Stock Options
                                                  ---------------------------
      Range of                                               Weighted-Average
   Exercise Prices                                 Shares      Exercise Price

$0.87 - $1.50                                      11,850            $0.93
$3.12 - $5.37                                     127,500            $5.35




The  Company  also  adopted  an  incentive  compensation  plan in 1995,  for the
majority  stockholder whereby the stockholder has been granted a ten year option
to purchase up to 200,000  shares of common stock at an exercise  price of $1.95
per share.  The options are exercisable if the Company achieves certain earnings
levels as follows:

   Earnings Before
  Interest and Taxes                                 Number of Shares

    $    1,200,000                                            100,000
    $    2,000,000                                            100,000


<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8

[13] Stock Options [Continued]

If it becomes  probable  that the above  earnings  levels will be achieved,  the
Company will recognize  compensation expense equal to the difference between the
fair  market  value and the  exercise  price  pursuant  to APB  Opinion  No. 25.
Achievement  of the above  earnings  levels  is likely to result in  substantial
compensation expense to the Company in future years.

 A summary of stock options activity under all plans is as follows:

                               1 9 9 7                           1 9 9 6
                               -------                           -------
                                   Weighted-Average            Weighted-Average
                         Shares     Exercise Price    Shares     Exercise Price

Outstanding - 
     January 1,          129,500         5.35         134,750          5.38

Granted                   11,850          .93           2,000          3.81
Exercised                     --           --              --            --
Forfeited/Expired         (2,000)       (3.81)         (7,250)        (5.38)
                       ---------    ---------      ----------      --------

   Outstanding - 
     December 31,        139,350         4.99         129,500          5.38
   --------------      =========    =========      ==========      ========

   Exercisable - 
     December 31,        139,350         4.99         129,500          5.38
   --------------       ========    =========      ==========      ========

   Shares Available on
      December 31, For
      Options that may
      be Granted         260,650                      270,500
     -----------        ========                   ==========

The Company  applies APB Opinion No. 25 for stock options issued to employees in
accounting  for its stock option plans for  financial  reporting  purposes.  The
exercise  price for all stock options  issued to employees  during 1997 and 1996
was  equal to the  market  price of the  Company's  stock at the date of  grant.
Accordingly,  no  compensation  expense has been  recognized  for the  Company's
stock-based compensation plans.

Had  compensation  cost for the Company's stock options issued to employees been
determined  based upon the fair value at the grant date for stock options issued
under these plans  pursuant to the  methodology  prescribed  under  Statement of
Financial  Accounting  Standards  ["SFAS"] No. 123,  "Accounting for Stock-Based
Compensation,"  the  Company's net income and earnings per share would have been
reduced,  on a pro forma basis, by approximately  $6,570, or $0.00 per share for
the year ended December 31, 1997 and increased by approximately  $5,798 or $0.00
per share for the year ended December 31, 1996. The weighted-average  fair value
of stock options  granted to employees used in determining the pro forma amounts
is estimated at $.55 and $2.90,  during 1997 and 1996,  respectively,  using the
Black-Scholes  option-pricing model for the pro forma amounts with the following
weighted average assumptions:

                                                            December 31,
                                                     1 9 9 7             1 9 9 6

Risk-free Interest Rate                               6.18%               6.20%
Expected Life                                        4 Years             4 Years
Expected Volatility                                  65.20%              109.9%
Expected Dividends                                     N/A                 N/A




<PAGE>


CSI COMPUTER SPECIALISTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9

[13] Stock Options [Continued]

Net  income and income  per share as  reported,  and on a pro forma  basis as if
compensation  cost had been  determined  on the basis of fair value  pursuant to
SFAS No. 123 is as follows:
                                                           December 31,
                                                   1 9 9 7            1 9 9 6
Net (Loss) Income:
   As Reported                                $       (569,440) $       102,246
                                              ----------------  ---------------
   Pro Forma                                  $       (576,010) $       108,027
                                              ----------------  ---------------

Income Per Share:
   As Reported                                $            (.14)$           .03
                                              ----------------- ---------------
   Pro Forma                                  $            (.14)$           .03
                                              ----------------- ---------------

[14] New Authoritative Pronouncements

The Financial Accounting Standards Board ["FASB"] issued Statement of Financial
Accounting Standards ["SFAS"] No. 125,  "Accounting for Transfers and Servicing
of Financial Assets and  Extinguishment  of  Liabilities."   SFAS  No.  125  is
effective for transfers and servicing of financial assets and extinguishment of
liabilities  occurring  after  December 31, 1997.  Earlier  application  is not
allowed.  The  provisions  of  SFAS  No. 125  must  be  applied  prospectively;
retroactive application is prohibited.  Adoption  on  January  1, 1997  is  not
expected to have a material  impact on the  Company.  Some  provisions of  SFAS
No. 125, which are unlikely to apply to the Company, have been deferred by  the
FASB.

The FASB has  also  issued  SFAS  No.  128,  "Earnings  per  Share,"  and  SFAS
No. 129, "Disclosure of Information about Capital Structure," in February 1997.

SFAS No. 128 simplifies the earnings per share ["EPS"] calculations  required by
Accounting Principles Board ["APB"] Opinion No. 15, and related interpretations,
by replacing the  presentation  of primary EPS with a presentation of basic EPS.
SFAS No. 128  requires  dual  presentation  of basic and diluted EPS by entities
with complex capital structures.  Basic EPS includes no dilution and is computed
by dividing  income  available to common  stockholders  by the  weighted-average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution of securities that could share in the earnings of an entity,
similar  to the  fully  diluted  EPS of APB  Opinion  No.  15.  SFAS No.  128 is
effective for financial  statements issued for periods ending after December 15,
1997,  including  interim periods;  earlier  application is not permitted.  When
adopted,  SFAS No. 128 will require  restatement  of all  prior-period  EPS data
presented;  however,  the Company has not sufficiently  analyzed SFAS No. 128 to
determine  what effect SFAS No. 128 will have on its  historically  reported EPS
amounts.

SFAS No. 129 does not change any previous  disclosure  requirements,  but rather
consolidates existing disclosure requirements for ease of retrieval.

The FASB has  issued  SFAS No.  130,  "Reporting  Comprehensive  Income."  SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted.  Reclassification of financial  statements for earlier
periods  provided  for  comparative  purposes  is required.  SFAS No. 130 is not
expected to have a material impact on the Company.

The  FASB  has   issued  SFAS  No.  131,  "Disclosures   About  Segments  of  an
Enterprise and Related Information." SFAS No. 131 changes how operating segments
are reported in annual  financial  statements  and  requires  the  reporting  of
selected  information  about  operating  segments  in  interim financial reports
issued to  shareholders.  SFAS No. 131 is effective for periods  beginning after
December 15, 1997,  and comparative  information  for  earlier  years  is  to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the initial  year of its  application.  SFAS No. 131 is not expected  to  have a
material impact on the Company.


<PAGE>





                                                 PART III

Item 8.  Changes in and Disagreements With Accountants on Accounting and
           Financial Disclosure

None.

Item 9.  Directors, Executive Officers, Promoters and Control Persons; 
     Compliance with Section 16(a) of the Exchange Act

Directors and Executive Officers of Registrant

Donald C. Weymer
Chairman of the Board of Directors
Chief Executive Officer
Secretary

Donald C. Weymer has been the Chief Executive  Officer and Chairman of the Board
of Directors of the Company since 1988 and has been the Secretary of the Company
since March,  1994. He was the Chief  Financial  Officer from March,  1994 until
October,  1995. In 1991 Mr. Weymer  founded ISI, a Virginia  corporation,  which
provides data processing outsourcing,  timesharing and fundraising assistance to
agencies of the federal  government,  non-profit  organizations  and  commercial
clients.  Mr. Weymer has served as the Chief Executive Officer and the President
of ISI since 1991.
         Term of Office: Mr. Weymer's term as director is three years, expiring
           in 2001 or until a successor is elected and qualified.
         Age: 53

William F. Pershin
Director
President
Chief Accounting Officer

William F. Pershin has been the  President  and a director of the Company  since
1988 and has been the Chief Accounting Officer of the Company since March, 1994.
         Term of Office: Mr. Pershin's term as director is three years, expiring
           in 2000 or until a successor is elected and qualified.
         Age: 43

Herbert H. Derian
Director

Herbert H. Derian has been the president and a director since 1985 of Cintronix,
Inc., which is a MicroAge franchisee specializing in the sale and servicing of 
personal computers. Cintronix, Inc. is a wholly-owned subsidiary of the Company.
Mr. Derian was appointed to the Board of Directors in January, 1997 to fill a
vacancy.
         Term of Office: Mr. Derian's term as director expires in 1998 or until 
          a successor is elected and qualified.
         Age: 68

C. A. Miller, III
Director

C. A. Miller III has been employed with Southern  States  Cooperative,  Inc., of
Richmond,  Virginia  since  1979,  and  currently  serves as Vice  President  of
Information  Systems.  Mr.  Miller was  appointed  to the Board of  Directors in
March, 1998 to fill a vacancy.
         Term of Office: Mr. Miller's term as director expires in 2001 or until
           a successor is elected and qualified.
         Age: 58

David A. Chappell
Director

David A.  Chappell has been an  insurance  agent with  Northwestern  Mutual Life
since 1984. In addition, he has been an account representative with Jacksonville
Specialty  Advertising  since 1996.  Mr.  Chappell was appointed to the Board of
Directors in March, 1998 to fill a vacancy.
         Term of Office: Mr. Chappell's term as director expires in 2001 or 
          until a successor is elected and qualified.
         Age: 43


James D. Boccabella
Chief Financial Officer

James D. Boccabella, age 44, has been the Chief Financial Officer of the Company
since  October,  1995. For the five years prior to that, he owned and operated a
public accounting practice, James D. Boccabella, CPA, CFP.


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, (the "Exchange
Act"),  requires that the Company's directors,  executive officers,  and persons
who own more than 10% of a  registered  class of the  equity  securities  of the
Company  ("reporting  persons") file with the Securities and Exchange Commission
(the  "Commission")  initial  reports of  ownership,  and  reports of changes in
ownership,  of shares of stock,  and options to  purchase  such  shares,  of the
Company.  Reporting  persons  are  required by  Commission  rules to furnish the
Company with copies of all Section 16(a) reports they file.

Based solely on a review of Section 16(a)  reports  furnished to the Company for
the  fiscal  year  ended  December  31,  1997,  (the  "1997  fiscal  year")  and
representations by reporting persons that no other reports were required for the
1997 fiscal year, all Section 16(a) reporting requirements were met.


Item 10.  Executive Compensation


SUMMARY COMPENSATION TABLE


The following table summarizes the  compensation  paid or accrued by the Company
during  the three  fiscal  years  ended  December  31,  1997,  to the  Company's
executive officers:



               Annual Compensation                                      Awards
-------------------------------------------------------------------------------
Name                                       Other         Number of
and                                        Annual        Under-
Principal                                  Compen-       lying
Position       Year          Salary            Bonus     sation         Options
-------------------------------------------------------------------------------
Donald C. Weymer 1997    $178,464            0          0             0
Chief Executive
Officer,
Chairman of the
Board, Secretary
                 1996    $163,404            $9,600     0             0

                 1995    $155,625           $33,100     0             0

William F.       1997    $142,974            0          0             0
Pershin
President and
Director
                 1996    $136,168            0          0             0
                 1995    $129,688            0          0             0

James D.         1997    $101,333            0          0             0
Boccabella
Chief Financial
Officer
                 1996    $96,842             0          0             0
                 1995    $39,400             0          $18,355(1)     25,000(2)

     (1) Represents  payment by the Company to Mr. Boccabella for accounting and
         management   consulting   services  provided  to  the  Company  by  Mr.
         Boccabella prior to his employment with the Company.

     (2) These options were awarded to Mr.  Boccabella under the Company's Stock
         Option Plan for  accounting  and  management  services  rendered to the
         Company.


Item 11.  Security Ownership of Certain Beneficial Owners and Management

The  following  table  sets  forth,  as of  January  31,  1998,  the  number and
percentage of outstanding  shares of Common Stock  beneficially owned by (i) all
persons  known by the  Company  to own more  than 5% of such  shares,  (ii) each
director,  (iii) each  executive  officer,  and (iv) all executive  officers and
directors as a group.  Unless  otherwise  noted below,  each person named in the
table has sole  voting and sole  investment  power  with  respect to each of the
shares beneficially owned by such person.


Name and Address               Amount of
of Beneficial Owner            Beneficial                    
                               Ownership                     Percent
-------------------------------------------------------------------------------
Donald C Weymer                  1,060,000                     25.7%
1013 Parrs Ridge Road
Spencerville, Maryland  20868

William F Pershin                640,000                       15.5%
11616 Morning Star Drive
Germantown, Maryland  20876

Lorelei F Derian                 235,294                       5.7%
1305 Eva Gude Drive
Crownsville, Maryland  21032

David A. Chappell                5,450                         0.1%
650-D Ponte Vedra Blvd
Ponte Vedra Beach , Florida
32082

C. A. Miller III                 15,000                        0.4%
3003 Water Creek Court  #1-A
Midlothian, Virginia  23112

James D. Boccabella              25,000                        0.6%  
P O Box 399
Olney, Maryland  20830

All executive officers and       1,745,450                     42.4%
directors as a group (5
persons)


Item 12.  Certain Relationships and Related Transactions

Donald C. Weymer

The Company  provides  computer  maintenance  services to ISI, which is owned by
Donald C. Weymer, a stockholder,  director and officer of the Company,  pursuant
to the terms of maintenance  agreements.  Mr. Weymer is also the owner and chief
executive  officer of ISI.  During the fiscal years ended  December 31, 1997 and
1996,  approximately  $705,000  (including  equipment  sales  of  $362,000)  and
$490,000 (including equipment sales of $107,000), respectively, of the Company's
revenues were  generated by services  rendered and equipment  sold to ISI by the
Company. See Note 9 of the Financial Statements included in Item 7 hereof.


Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)       Exhibits

Exhibit
Number            Title of Exhibit

3.4 **            Agreement and Plan of Merger between CSI Computer Specialists,
                  Inc. (Delaware) and Computer Specialists, Inc. (Maryland) 
                  filed with the Securities and Exchange Commission as an 
                  exhibit to the Registration Statement filed on July 19, 1995
                  (the "Registration Statement") and incorporated herein by
                  reference.

3.5 **            Bylaws of CSI Computer Specialists, Inc. (Registrant) filed
                  with the Securities and Exchange Commission as an exhibit to
                  the Registration Statement and incorporated herein by
                  reference.

3.7 **            Certificate of Amendment of Certificate of Incorporation of
                  CSI Computer Specialists, Inc. (Delaware) as filed with the
                  Secretary of State of the State of Delaware on August 5, 1994,
                  filed with the Securities and Exchange Commission as an 
                  exhibit to the Registration Statement and incorporated herein
                  by reference.

4.1 **            Specimen   Common  Stock   Certificate,   filed  with  the
                  Securities  and  Exchange  Commission  as an  exhibit  to  the
                  Registration Statement and incorporated herein by reference.

4.2 **            Specimen Warrant Certificate, filed with the Securities and
                  Exchange   Commission  as  an  exhibit  to  the   Registration
                  Statement and incorporated herein by reference.

4.3 **            Form of Underwriter's Unit Purchase Option,  filed with the
                  Securities  and  Exchange  Commission  as an  exhibit  to  the
                  Registration Statement and incorporated herein by reference.

4.4 **            Form  of  Warrant  Agreement  by and  among  the  Company,
                  Biltmore  Securities,  Inc. and  Continental  Stock Transfer &
                  Trust  Company,  amended  from that  which was filed  with the
                  Securities  and  Exchange  Commission  as an  exhibit  to  the
                  Registration Statement and incorporated herein by reference.

 10.1             ** Form of Maintenance Agreement filed with the Securities and
                  Exchange   Commission  as  an  exhibit  to  the   Registration
                  Statement and incorporated herein by reference.

 10.2 **          Form of Subcontracting (Microcomputer Service) Agreement filed
                  with the Securities and Exchange Commission as an exhibit to
                  the Registration Statement and incorporated herein by
                  reference.

 10.3             ** Form of Equipment Sales Agreement filed with the Securities
                  and  Exchange  Commission  as an exhibit  to the  Registration
                  Statement and incorporated herein by reference.

 10.6 **          Employment Agreement, dated April 7, 1994, by and between the
                  Company and Donald C. Weymer filed with the Securities and
                  Exchange Commission as an exhibit to the Registration
                  Statement and incorporated herein by reference.

 10.7 **          Employment Agreement, dated April 7, 1994, by and between the
                  Company and William Pershin filed with the Securities and
                  Exchange Commission as an exhibit to the Registration
                  Statement and incorporated herein by reference.

 10.8 **          CSI Computer Specialists, Inc. 1994 Stock Option Plan filed
                  with the Securities and Exchange Commission as an exhibit to
                  the Registration Statement and incorporated herein by
                  reference.

 10.9 **          Plan for Incentive Compensation of Donald C. Weymer filed with
                  the Securities and Exchange Commission as an exhibit to the
                  Registration Statement and incorporated herein by reference.

 10.10            ** Revolving  Commercial  Loan Note,  dated May 27,  1994,  in
                  favor of Citizens Bank of Maryland in the principal  amount of
                  $750,000 filed with the Securities and Exchange  Commission as
                  an  exhibit to the  Registration  Statement  and  incorporated
                  herein by reference.

 10.11            **  Security  Agreement,  dated  May 27,  1994,  in  favor  of
                  Citizens   Bank  of  Maryland  and   corresponding   Financing
                  Statement filed with the Securities and Exchange Commission as
                  an  exhibit to the  Registration  Statement  and  incorporated
                  herein by reference.

11.               Computation of Net Income per Common Share(included in the 
                  Financial Statements in Item 7).

21.               Subsidiaries of the Company


27.      Financial Data Schedule.

**       Previously filed as noted.


(b)       Reports on Form 8-K

         None.





<PAGE>



         SIGNATURES

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

                                      CSI Computer Specialists, Inc.

May 18, 1998                         By:   /s/ Donald C. Weymer
------------                             --------------------------------------
Date                                     Donald C. Weymer
                                         Chief Executive Officer



May 18, 1998                         By:  /s/ James D. Boccabella
------------                             --------------------------------------
Date                                     James D. Boccabella, CPA
                                         Chief Financial Officer






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

May 18, 1998                         By:  /s/ Donald C. Weymer
------------                             --------------------------------------
Date                                     Donald C. Weymer
                                         Chairman of the Board, Chief Executive
                                         Officer and Director



May 18, 1998                         By:  /s/ William F. Pershin
------------                             --------------------------------------
Date                                     William F. Pershin
                                         President and Director



May 18, 1998                         By:  /s/ Herbert H. Derian
------------                             --------------------------------------
Date                                     Herbert H. Derian
                                         Director


<PAGE>


                                                                   Exhibit 21

                               Subsidiaries of the Company

               Subsidiary        (Year Acquired)         State of Incorporation

               CCS Systems, Inc.         1995                      Virginia

               Cintronix, Inc.           1997                      Maryland