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Dayton, Ohio based MCSI, Inc. (Nasdaq: MCSI) generated revenues of over $800 million in 2001, and has twice been named as one of the fastest growing companies in America by Fortune magazine. MCSI has been diagnosed with The EPS Syndrome four times, the most recent being November 28, 2000, at a price of $23.50 per share. More recently it has posted four consecutive quarters of negative OPS. Even worse, MCSI has generated negative OPS for seven consecutive fiscal years dating back to 1995. Not surprisingly, Wall Street is very bullish on MCSI with five "buy" recommendations and no "sells". We completely disagree with Wall Street and would caution all investors to avoid this stock since we believe that its share price will see $.20 before it reaches $20 for the following reasons:

1. MCSI has over 2,000 employees and only has $2 million in cash. This equates to $1,000 in cash per employee. Making payroll could become increasingly difficult.
2. Its revenue for its most recent quarter was down almost 50% and has been steadily decreasing for its last three quarters.
3. Its inventory is the highest that it has been in its last four quarters. Also its inventory to revenue ratio has increased sharply.
4. In order to make up for its inability to generate any positive OPS, MCSI has been diluting existing shareholders by selling shares via Wall Street stock offerings. Shares outstanding increased 100% over the last 12 months.
5. MCSI has $59 million in long-term debt and has reported losses for two of its last three quarters. Since it does not generate any OPS and has little cash it may be difficult for it to make its interest payments.
6. It seems that MCSI has never had a viable business model and has only been able to survive by having access to Wall Street and bank financing.

MCSI's management appears to do or say anything to prop up its stock price. Even though they have only $2 million in cash they recently announced a buy back of 2,000,000 shares, which equates to a cash outlay of $13 million at its recent price of $6.50. Also, in August of 2001, just prior to a secondary stock offering, which was completed in late 2001, management issued guidance that revenue for fiscal 2001 would be at $935 million (a record), an increase of $40 million as compared to fiscal 2000. (Its CEO, Michael Peppel sold 300,000 of his shares for $6 million in December 2001). MCSI reported revenue for 2001 was $810 million. In other recent EPS announcements the company has positioned itself as doing well by reporting a 21.4% increase in EPS, though removing shares outstanding shows earnings at $4.2 million against $3.8 million, an increase of 10.5% (before discontinued operations). Actual earnings, including discontinued operations, were reported at ($41.2 million).

At this point our worst-case scenario is that MCSI will have to file for bankruptcy in the not too distant future. Our best-case scenario is that they will be able to survive a little longer by substantially diluting their shareholders. In any event, we believe that it is inevitable that MCSI shares will trade below $1 and that it will be very difficult for them to avoid a chapter-seven bankruptcy filing.