SCB COMPUTER TECHNOLOGY INC - 10-K Annual Report

Back to GetFilings.com

1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED APRIL 30, 2000

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 0-27694

SCB COMPUTER TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)

TENNESSEE 62-1201561
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

3800 FOREST HILL-IRENE ROAD
MEMPHIS, TENNESSEE 38125
(Address of principal executive offices)

Registrant's telephone number, including area code: (901) 754-6577

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

Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

At July 31, 2000, there were 25,045,324 outstanding shares of common stock.
At such date, the aggregate market value of the shares of common stock held by
non-affiliates of the registrant, based on the closing sale price of $2.13 per
share as reported on the Nasdaq Stock Market, was approximately $53,346,540.

DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K

DOCUMENTS INCORPORATED INTO WHICH INCORPORATED
---------------------- -----------------------
Certain portions of the Proxy Statement for
the 2000 Annual Meeting of Shareholders Part III - Items 10-12

2

PART I

ITEM 1. BUSINESS

GENERAL

SCB Computer Technology, Inc. (the "Company") is a leading provider of
information technology ("IT") management and technical services to commercial
enterprises, including a number of Fortune 500 companies, and to state and local
governments. The Company's services primarily consist of (1) PROFESSIONAL
SERVICES, which includes providing skilled IT staff on an as-needed basis; (2)
CONSULTING, which entails evaluation, design and re-engineering of computer
systems, management, quality assurance and technical directions for IT projects,
network planning and implementation, and functional expertise and training; (3)
OUTSOURCING, which involves system development and integration, maintenance,
data center management, help desk and technical services; and (4) ENTERPRISE
RESOURCE PLANNING ("ERP"), which consists of planning and evaluating, system
analysis and administration, implementation and functional support.

The Company was founded as a partnership in 1976 and was incorporated
under the laws of the State of Tennessee in 1984. The Company's principal
executive offices are located at 3800 Forest Hill - Irene Road, Memphis,
Tennessee 38125, and its telephone number at that address is (901) 754-6577. The
Company also can be contacted at the following Internet address:
http://www.scb.com.

ACQUISITIONS

The Company's revenues have increased significantly over the last five
fiscal years, from $56.0 million in fiscal 1996 to $158.0 million in fiscal
2000. Prior to the Company's initial public offering (the "IPO") in February
1996, a substantial majority of the Company's growth was attributable to
obtaining new IT clients and providing additional IT services to existing
clients. Since the IPO, in addition to continuing to expand its services, expand
existing client relationships, and adding new clients, the Company has added
revenues through the acquisition of other businesses. Since the IPO, the Company
has engaged in the following significant business combinations and acquisitions:

DELTA SOFTWARE. On September 26, 1996, the Company effected a business
combination with Delta Software Systems, Inc. ("Delta"), an IT consulting
company and custom software provider. The transaction was accounted for as a
pooling of interests. As a result of the merger, all of the outstanding capital
stock of Delta was converted into an aggregate of 1,384,608 shares (adjusted to
give effect to stock splits) of the Company's common stock.

TECHNOLOGY MANAGEMENT RESOURCES. On February 28, 1997, the Company
acquired substantially all of the assets of Technology Management Resources,
Inc. ("TMR"), an IT consulting company, in a transaction accounted for using the
purchase method. The purchase price for the assets consisted of $8.5 million in
cash, the assumption of certain liabilities (primarily accounts payable), and up
to $4 million payable in shares of the Company's common stock contingent on
growth in the acquired business' revenues and earnings in the fiscal years
ending April 30, 1998, 1999 and 2000. In December 1997, the Company paid TMR's
successor $1.2 million in cash in full and final settlement of any additional
purchase price payments. On May 2, 2000, the Company sold substantially all the
assets, excluding working capital, of the TMR business unit to MAXIMUS, Inc.,
for $10.0 million in cash.

PARTNERS GROUP. On June 30, 1997, the Company acquired all of the
outstanding capital stock of Partners Resources, Inc. ("PRI"), an IT outsourcing
company, and Partners Capital Group, Inc. ("PCG" and collectively with PRI, the
"Partners Group"), a computer leasing company, for $16.0 million in cash. In
addition, in May 1998 the former shareholders of PRI received earnout
consideration based on the net income of PRI for the fiscal year ending December
31, 1997, in the form of 1,580,580 shares of the Company's common stock and
approximately $7.1 million in cash, net of approximately $962,000 of the
original escrow retained due to PCG's failure to meet certain earnings goals set
forth in the acquisition agreement, raising the total purchase price to
approximately $37.4 million. The transaction was accounted for under the
purchase method.

1

3

PROVEN TECHNOLOGY. On May 1, 1998, the Company effected a business
combination with Proven Technology, Inc. ("Proven"), a system integration
services company, pursuant to a merger of Proven with and into a wholly owned
subsidiary of the Company. The transaction was accounted for as a pooling of
interests. As a result of the merger, all of the outstanding capital stock of
Proven was converted into an aggregate of 543,722 shares of the Company's common
stock.

GLOBAL SERVICES. On May 20, 1999, the Company acquired substantially all
of the assets of Global Services, Inc., a computer hardware re-seller, in a
transaction accounted for using the purchase method. The purchase price of the
assets included $6.6 million in cash and the assumption of certain liabilities
(primarily accounts payable).

RAO CONSULTING. On March 3, 2000, the Company acquired substantially all
the assets of RAO Consulting Incorporated ("RAO"), an ERP consulting company
which has an affiliation with a consulting practice in India. The purchase price
of approximately $1,500,000 consisted of $300,000 in cash, a $300,000 promissory
note (which was placed in escrow), and 333,000 shares of the Company's common
stock delivered at the closing. The purchase price also includes a potential
earnout payment of 3 times the EBITDA for the RAO business in fiscal 2001 in
the event that such EDITDA exceeds $150,000 in that period.

SERVICES

PROFESSIONAL SERVICES

The Company provides the services of highly skilled professional IT
personnel at clients' facilities on an as-needed basis. These services are
provided primarily to clients who desire the flexibility to supplement internal
staff with people having particular skill sets or to eliminate the need to
recruit, hire and train technical employees whose skills may not be needed
between projects. The Company's objectives in providing professional staffing
services include developing an understanding of the client's business and IT
systems needs and positioning the Company to provide consulting and outsourcing
services if the need arises. Professional staffing engagements range from
short-term discrete projects to long-term support arrangements.

CONSULTING

The objective of the Company's consulting services engagements is to use
proven techniques to assist clients in evaluating and redesigning IT operations
to achieve improvements in IT cost, quality and efficiency. The Company's
consultants frequently employ state-of-the-art information engineering
methodologies and processes to assist clients in migrating from centralized,
mainframe systems to open, client/server and other network architectures.
General IT consulting services typically are designed to evaluate all phases of
clients' projects, from front-end needs assessment surveys to detailed design
and implementation of appropriate systems. These services include:

- - performing an IT "wellness" test on a client's existing IT systems to
determine whether the overall management information systems ("MIS")
function is performing to optimal management and technical specifications.

- - developing an Information Strategy Plan ("ISP") that identifies a client's
strategic organizational objectives, recommends an IT infrastructure
(either firm-wide or by business unit), and establishes a time-line and
prioritizes tasks for accomplishing the ISP.

- - forecasting a client's expected returns or cost savings on a particular
technology investment.

- - creating IT project specifications that can be submitted for bids.

- - designing and implementing hardware, networks, operating systems, and
database infrastructures as well as integrating software applications with
these infrastructures.

2

4

- - networking and telecommunications solutions such as network services (LAN
/ WAN design and engineering), staffing of help desk centers, project
management of larger network related projects, remote network monitoring
and management, development and implementation of disaster recovery
solutions, and training.

The Company's consulting services are delivered by professionals who are
specialists in providing complete systems development lifecycle consulting and
who have extensive experience working with relational database, networking,
client/server, and related technologies. The Company's consultants also have the
business acumen necessary to understand clients' IT systems' support needs.

The Company's consulting service contracts are typically for short periods
of time and specify the discrete tasks to be performed. The Company's consulting
fees are negotiated on a case-by-case basis, depend on the size of the project
and the skills required, and range from billing at hourly rates to fixed-price
engagements.

OUTSOURCING

The Company believes that the outsourcing of information systems
management and operations is growing rapidly, primarily because outsourcing
often allows large organizations to add expertise and improve end-user service
in their IT operations at a reduced cost. Because of the emerging hardware and
software technologies and the demands by end-users for more memory, speed and
flexibility, many large organizations have been forced to selectively deploy
their IT assets and personnel. Many of the Company's clients have elected to
focus their internal staffs on the emerging technologies and therefore have
engaged the Company to maintain and enhance their legacy systems in connection
with the development and operation of newer systems. The Company believes that
these developments will increase the need to outsource IT services.

The Company's outsourcing services are designed to support a wide range of
legacy and client/server systems and include network design and management,
systems support and maintenance, programming and application software
development, client/server and other network maintenance, data center
management, client staff training, and help desk services. Under the general
direction of the client, the Company assumes full and ongoing management and
technical responsibility for the installation or operation of a client's systems
on a long-term basis, both at the client's business site and at Company sites.
Prior to the Partners Group acquisition in 1997, the Company had not assumed
asset ownership in connection with its outsourcing services. Since such
acquisition, outsourcing services have involved substantial up-front
expenditures to purchase IT systems equipment, hire personnel, and operate
systems on behalf of certain outsourcing clients.

Outsourcing contracts tend to be for longer terms and to produce more
revenue per contract than consulting or professional staffing contracts.
Outsourcing contracts are expressed in terms of fixed prices for defined
services or hourly rates. In general, the Company determines its prices based on
the salaries and overhead costs of professionals assigned to a project plus a
margin designed to cover other expenses and provide a profit. The Company also
provides outsourcing services on a fixed-price basis to some clients when the
Company has a well-defined understanding of the services to be delivered or
extensive knowledge of the client's business.

ENTERPRISE RESOURCE PLANNING

Enterprise Resource Planning ("ERP") is the process of integrating a
client's software packages into a comprehensive package or system designed to
eliminate inefficiencies caused by incompatible packages and systems. The
Company's ERP services include planning and evaluation, systems analysis and
administration, recommendation of software packages, and implementation and
functional support in migrating to a new system. The Company is seeking to
capitalize on its ERP services to develop complete enterprise system work with
existing clients and to generate additional revenue from new clients.

3

5

CLIENTS AND MARKETS

The Company currently performs services for over 200 clients. The
Company's clients represent a diverse group of governmental and commercial
enterprises. Most of the Company's clients are large organizations for which the
Company delivers services to a number of business units or agencies. The Company
also performs services for a number of Fortune 500 companies. Because of its
diverse client base, the Company believes that it is not dependent on any single
client, industry or market. In fiscal 2000, the Company's top five clients - in
terms of revenue to the Company - accounted for approximately 37% of the
Company's revenue, and no client accounted for more than 10% of the Company's
revenue.

Generally, the Company's contracts with its top ten clients are, in
accordance with industry practice, cancelable on short notice and without
penalty (except with respect to the Company's larger outsourcing contracts),
provide for monthly payment of fees, and establish other basic terms such as the
hourly billing rates for each type of Company professional who performs work
pursuant to the contract. Some contracts specifically define the services to be
performed pursuant to the contract, while other contracts, particularly
professional staffing contracts, merely establish the basic parameters of the
work (i.e., the system to be evaluated, designed or maintained) and require that
additional work orders be submitted for services to be performed. The Company is
the exclusive service provider under certain contracts, while other contracts,
particularly professional staffing contracts, specifically allow the client to
engage other vendors for the projects covered by the contract.

MARKETING AND SALES

The Company markets its services through senior management and a sales
staff of 40. The Company currently has personnel located at sales offices in 23
cities. Relationships with the Company's larger clients and key government
personnel are maintained and fostered by at least one of the Company's executive
officers. The Company believes that its senior management's hands-on involvement
with major clients is a significant competitive advantage.

Account managers market the Company's services and serve as the primary
contacts in maintaining client relationships. Accordingly, account managers
learn the basic aspects of a client's business in order to identify
opportunities for providing additional IT services to the client. Account
managers are paid a salary plus commissions based on the revenues associated
with client relationships under their supervision. In general, account managers
are not IT technicians. They are, however, supported by Company technical
personnel in their marketing and sales efforts.

EMPLOYEES AND RECRUITING

The Company currently employs approximately 1,100 persons, consisting of
approximately 907 technicians, 40 salespersons, 45 recruiters, 8 executives, and
100 other administrative personnel. The Company believes that there is a
continuing shortage in the industry for computer professionals, especially
programmers and systems designers. The Company competes for these persons with
in-house MIS departments and other computer services firms.

In general, the Company seeks to hire professionals who have substantial
experience either with an in-house MIS department or another IT services firm.
The Company recruits worldwide by soliciting resumes generated by advertisements
in trade journals and major city newspapers. Employee referrals are another
major source of recruiting leads. In addition, the Company's web site on the
Internet (www.scb.com) is used for recruiting. Most of the Company's recruiters
have technical or IT sales backgrounds and understand the skill sets needed for
the project for which they are recruiting.

COMPETITION

The Company believes that its principal competitors, categorized according
to the services performed, are as follows: (1) professional staffing - Computer
Task Group, Inc., Computer Horizons Corporation, Keane, Inc., and Metro
Information Services, Inc.; (2) consulting, IBM, SHL Systemhouse Inc., Andersen
Consulting, Computer Horizons Corporation, and EDS; (3) outsourcing - IBM, EDS,
Perot Systems Corporation, Computer Sciences Corporation, Computer Management
Sciences, Inc., and

4

6

Andersen Consulting; and (4) ERP services - Andersen Consulting, SAP Corp.,
PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Cap Gemni, and KPMG Peat
Marwick LLP.

The Company believes that the principal competitive factors in the IT
services industry are (1) responsiveness to clients' needs and speed in
delivering IT solutions; (2) effectiveness of delivered solutions as measured
through cost reductions and improvements in price/performance ratios; (3) output
per employee as reflected in utilization rates; (4) quality of service; (5)
price; and (6) technical expertise. The company believes that its ability to
estimate costs accurately, particularly for existing clients, and its lower
labor costs, which are a function, in part, of higher than industry average
utilization rates, cause it to be a lower cost provider than many of its
competitors, which is especially critical in a competitive bid environment. The
Company also believes its reputation for delivering services at the agreed price
without requesting or requiring additional client funds distinguishes the
Company from its competitors.

The Company also competes for the hiring and retention of management and
other professional personnel. See " -- Employees and Recruiting." In connection
with professional staffing engagements, particularly in situations where the
Company is one of a number of approved vendors, the Company competes to provide
services based on the relative qualifications of its personnel.

POTENTIAL LIABILITY TO CLIENTS

Many of the Company's engagements, particularly with regard to Y2K
compliance, involve projects that are critical to the operations of its clients'
businesses and provide benefits that may be difficult to quantify. Any failure
in a client's system could result in a claim for substantial damages against the
Company, regardless of the Company's responsibility for such failure. The
Company attempts to limit contractually its liability for damages arising from
negligent acts, errors, mistakes and omissions in rendering its IT services. The
Company also maintains general liability insurance coverage, including coverage
for errors or omissions, which covers Y2K compliance. Although the Company
believes that the insurance coverage is adequate in scope and amount, there can
be no assurance that such coverage will continue to be available on acceptable
terms or sufficient to cover one or more large claims. Furthermore, any
litigation, regardless of its outcome, could result in substantial costs to the
Company, diversion of management's attention from operations, and negative
publicity, any of which could adversely affect the Company's results of
operations and financial condition.

EXECUTIVE OFFICERS

The table below sets forth information with respect to the business
experience of the Company's executive officers during at least the past five
years.

NAME AGE POSITION AND TERM
---- --- -----------------

Ben C. Bryant, Jr. 53 Mr. Bryant is a co-founder of the Company and has been Chairman of the Board
since December 1999. He previously served the Company as Vice Chairman of the
Board (1984 - December 1999), Chief Executive Officer (1984 - May 2000),
President (1996 - May 2000), and Treasurer (1984 - May 2000). Mr. Bryant was
a partner in Seltmann, Cobb & Bryant, the Company's predecessor, from its
formation in 1976 to 1984. On July 12, 2000, Mr. Bryant resigned as Chairman
of the Board of the Company effective as of September 1, 2000.

T. Scott Cobb 63 Mr. Cobb is a co-founder of the Company and has been Chief Executive Officer
since May 2000. He previously served the Company as Chairman of the Board
(1984 - November 1999) and President (1984 - 1996). Mr. Cobb was a partner in
Seltmann, Cobb & Bryant, the Company's predecessor, from its formation in
1976 to 1984. He is the father of Jeffrey S. Cobb.

5

7

Michael J. Boling 53 Mr. Boling has been Executive Vice President - Finance and Chief Financial
Officer of the Company since December 1999 and its Treasurer since May 2000.
Prior to joining the Company, he was President and Chief Operating Officer of
TBN of TN, Inc., ("TBN"), a management company that provides information
processing services to affiliated companies in the home health care business,
from 1998 to September 1999. Mr. Boling was a partner with
PricewaterhouseCoopers LLP and its predecessor, Coopers & Lybrand LLP, from
1991 to 1998. He was an accountant with Ernst & Young LLP and its
predecessor, Arthur Young & Company, from 1976 to 1991 and became a partner
there in 1982. In July 1999, TBN filed a voluntary petition for
reorganization under federal bankruptcy law.

Jeffrey S. Cobb 38 Mr. Cobb has been President - Professional Services Division of the Company since
December 1999. He previously served the Company as Chief Operating Officer
(1998 - December 1999), Executive Vice President - Operations (1995 - 1998),
Senior Vice President - Operations and Administration (1992 - 1995), Director
of Projects (1990 - 1992), and Director of Recruiting (1989 - 1990). He is
the son of T. Scott Cobb.

Gordon L. Bateman 51 Mr. Bateman has been Chief Administrative Officer of the Company since 1997 and
its Secretary since 1996. He previously served the Company as Executive Vice
President - Finance and Administration (1995 - 1997), Chief Financial Officer
(1988 - 1997), and Senior Vice President (1987 - 1995). Mr. Bateman joined
the Company in 1984.

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

On July 3, 2000, the Company announced that it would restate its
consolidated financial statements for the years ended April 30, 1999 and 1998,
and for each quarter in the nine-month period ended January 31, 2000. The
Company's restated consolidated financial statements for these periods contain
adjustments that fall into three categories. The first category of adjustments
arises from the internal investigation conducted by the audit committee of the
Company's board of directors into the concerns raised by five employees on March
27, 2000, regarding the Company's accounting treatment of certain matters. The
second category of adjustments is the result of the Company's internal review of
financial information relating to various matters, including items that were
similar to those investigated by the audit committee. The third category of
adjustments consists of adjustments that were initially identified during the
audits of the Company's consolidated financial statements for the years ended
April 30, 1999 and 1998, but which the Company elected not to record in those
periods on the basis of immateriality. The Company subsequently decided to
record these adjustments in the year ended April 30, 2000. For further
information regarding the background of all the adjustments, see Note 2 of the
Notes to Consolidated Financial Statements included in Item 8 of this report.

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Annual Report on Form 10-K, including
the exhibits hereto, may constitute forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements are those
that express management's view of future performance and trends, and usually are
preceded with "expects", "anticipates", "believes", "hopes", "estimates",
"plans" or similar phrasing. Forward-looking statements include statements
regarding projected operating revenues and costs, liquidity, capital
expenditures, and availability of capital resources. Such statements are based
on management's beliefs, assumptions and expectations, which in turn are based
on information currently available to management. Information contained in these
forward-looking statements is inherently uncertain, and the Company's actual
performance and results may differ materially due to a number of factors, most
of which are beyond the Company's ability to predict or control, including the
Company's

6

8

dependence on key clients; the Company's dependence on the availability,
recruitment and retention of qualified IT employees; the Company's dependence on
key management personnel; the Company's potential liability to its clients in
connection with the provision of IT services; the Company's ability to finance,
sustain and manage growth; the Company's ability to integrate acquired
businesses; competition; the outcome of litigation involving the Company,
particularly the shareholder litigation described in Item 3 of this report; the
trading status of the Company's common stock, including the outcome of the
Company's appeal of the Nasdaq staff's delisting determination described in Item
5 of this report; and general economic conditions. The Company undertakes no
obligation to publicly release any revision to any forward-looking statement
contained herein to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.

ITEM 2. PROPERTIES

The Company leases its corporate headquarters building (approximately
50,000 square feet) in Memphis, Tennessee, under a lease expiring in June 2009.
The Company currently occupies approximately 35,000 square feet of this office
space which is located in the Memphis Technology Corridor area. The Company
plans to sublease some portion of the building until it is needed by the
Company.

The Company has regional offices in Nashville, Tennessee (approximately
17,000 square feet), Dallas, Texas (approximately 7,500 square feet), Atlanta,
Georgia (approximately 3,300 square feet), Long Island, New York (approximately
3,500 square feet), and Phoenix, Arizona (six locations with approximately
47,000 square feet). The Company leases sales offices or has access to office
facilities in Montgomery, Alabama; Phoenix, Arizona; Little Rock, Arkansas;
Jacksonville and Orlando, Florida; Indianapolis, Indiana; Frankfort, Kentucky;
Baton Rouge and New Orleans, Louisiana; Jackson, Mississippi; Kansas City and
St. Louis, Missouri; Raleigh, North Carolina; and Austin, Texas.

ITEM 3. LEGAL PROCEEDINGS

In April and May 2000, six shareholders of the Company filed separate
purported class action lawsuits in the United States District Court for the
Western District of Tennessee against the Company and certain of its then
directors and officers. In addition to the Company, each lawsuit names Ben C.
Bryant, Jr., Gary E. McCarter, T. Scott Cobb, and Michael J. Boling as
individual defendants, while one lawsuit also names Jeffrey S. Cobb as an
individual defendant. In each case, the plaintiff seeks certification of a
plaintiff class consisting of all persons who purchased or otherwise acquired
the Company's common stock within a specified prior period, other than the
Company's directors and officers and related persons and entities. The suits,
which are substantially the same, generally allege that the defendants violated
federal securities laws by making false and misleading statements regarding the
Company's financial results, which artificially inflated the market price of the
Company's common stock and caused the plaintiffs and other class members to
purchase the Company's common stock at such inflated prices. The suits seek
unspecified monetary damages. On June 1, 2000, the court ordered the
consolidation of each lawsuit into a single matter designated as the In re SCB
Computer Technology Securities Litigation. The Company is reviewing the
litigation and intends to respond in a timely manner. As of the date hereof, the
Company is unable to predict the outcome of the litigation and its ultimate
effect, if any, on the Company's consolidated financial condition and results of
operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fiscal
quarter ended April 30, 2000.

7
9

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The Company's common stock is listed on the Nasdaq National Market and was
traded under the ticker symbol "SCBI" until April 14, 2000. There were
approximately 3,000 holders of common stock as of July 31, 2000.

On April 14, 2000, The Nasdaq Stock Market ("Nasdaq") suspended trading in
the Company's common stock following the Company's issuance of a press release
earlier that day. The press release announced the audit committee's internal
investigation into the accounting issues raised by the Company's employees, the
resignation of Ernst & Young LLP as the Company's independent auditor, and the
anticipated restatement of the Company's consolidated financial statements for
the years ended April 30, 1998 and 1999, and for each quarter in the nine-month
period ended January 31, 2000. Nasdaq suspended trading in the Company's common
stock indefinitely pending its receipt and review of certain information
relating to the Company. The Company subsequently responded to Nasdaq's
information request.

On May 26, 2000, Nasdaq notified the Company that its staff had determined
to delist the Company's common stock from the Nasdaq National Market effective
as of the close of business on June 6, 2000. In accordance with Nasdaq's
procedures and rules, the Company appealed the Nasdaq staff's delisting
determination to a Nasdaq Listing Qualifications Panel. The delisting of the
Company's common stock will be stayed pending the issuance of a decision by the
Nasdaq panel which is expected later this month.

The following table sets forth the high and low sales prices per share of
common stock during each quarterly period of fiscal 2000 and 1999 as reported by
the Nasdaq National Market:

2000 High Low
---- ------ -------

Fourth Fiscal Quarter $ 4.03 $ 2.13
Third Fiscal Quarter 4.00 2.69
Second Fiscal Quarter 6.13 2.88
First Fiscal Quarter 7.13 4.75

1999 High Low
---- ------ -------

Fourth Fiscal Quarter $ 9.50 $ 4.56
Third Fiscal Quarter 10.13 7.00
Second Fiscal Quarter 10.25 6.00
First Fiscal Quarter 12.75 9.31

The Company did not pay any cash dividends on its common stock during
fiscal 2000 and 1999. The payment of cash dividends in the future will be at the
Board of Directors' discretion and will depend on the Company's earnings,
financial condition, capital needs, and other factors deemed pertinent by the
Board of Directors, including the limitations on the payment of dividends under
state law and the Company's credit arrangements. It is the current intention of
the Board of Directors not to pay cash dividends and to retain any earnings to
finance the operation and expansion of the Company's business.

On March 3, 2000, the Company issued 333,000 shares of common stock to RAO
Consulting Incorporated ("RAO") as partial consideration for the Company's
purchase of substantially all of RAO's assets. The total purchase price paid by
the Company for RAO's assets, excluding a potential earnout, was approximately
$1,500,000, which, in addition to the shares of common stock, consisted of
$300,000 in cash and a $300,000 promissory note payable to RAO. The Company did
not register the shares of common stock issued to RAO under the Securities Act
of 1933, as amended, in reliance on the exemption from registration provided by
Section 4(2) thereof. The transaction did not involve any public offering of
common stock, RAO had adequate access to information about the Company by virtue
of the transaction, and the Company placed an appropriate legend on the
certificate evidencing the shares of common stock issued to RAO.

8
10

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial
information of the Company for the periods and as of the dates indicated. The
consolidated financial data are derived from the consolidated financial
statements of the Company. The selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements,
including the notes thereto, in Items 7 and 8, respectively, of this report.

CONSOLIDATED INCOME STATEMENT DATA FOR YEARS ENDED APRIL 30,
(THOUSANDS, EXCEPT PER SHARE DATA)

2000 1999 1998 1997 1996
-------- -------- -------- -------- --------

Revenue $157,957 $152,016 $105,722 $ 64,064 $ 56,024
Cost of services 118,917 108,978 74,201 46,586 39,508
-------- -------- -------- -------- --------
Gross profit 39,040 43,038 31,521 17,478 16,516
Selling, general and administrative
expenses 48,535 37,641 20,520 10,345 13,345
-------- -------- -------- -------- --------
Income (loss) from operations (9,495) 5,397 11,001 7,133 3,171
Other income (expenses), net (3,768) (3,455) (1,012) 983 (27)
-------- -------- -------- -------- --------
Income (loss) before income taxes (13,263) 1,942 9,989 8,116 3,144
Provision (benefit) for income taxes (4,923) 869 3,904 3,053 1,187
-------- -------- -------- -------- --------
Net (loss) income $ (8,340) $ 1,073 $ 6,085 $ 5,063 $ 1,957
======== ======== ======== ======== ========

Net (loss) income per share - basic $ (0.34) $ 0.04 $ 0.27 $ 0.23 $ 0.11
======== ======== ======== ======== ========

Net (loss) income per share - diluted $ (0.34) $ 0.04 $ 0.27 $ 0.23 $ 0.11
======== ======== ======== ======== ========

Net income $ 5,063 $ 1,957
Pro forma adjustment for income taxes 177 162
-------- --------
Pro forma net income $ 4,886 $ 1,795
======== ========

Pro forma net income per share - basic $ 0.22 $ 0.10
======== ========

Pro forma net income per share - diluted $ 0.22 $ 0.10
======== ========

Cash dividends declared per share -- -- -- -- --

Weighted average number of common
shares - basic 24,763 24,683 22,464 22,432 18,556
======== ======== ======== ======== ========

Weighted average number of common
shares assuming conversion - diluted 24,763 24,921 22,756 22,495 18,623
======== ======== ======== ======== ========

CONSOLIDATED BALANCE SHEET DATA AS OF APRIL 30,
(THOUSANDS)

2000 1999 1998 1997 1996
-------- -------- -------- -------- --------

Working capital (deficit) $(13,504) $ 17,699 $ 19,064 $ 20,351 $ 24,643
Total assets 140,300 143,631 99,939 35,094 29,272
Long-term debt, less current portion 17,968 44,493 22,782 -- --
Total shareholders' equity 47,072 54,554 38,374 31,633 26,796

9
11

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company derives substantially all of its revenue from providing IT
professional staffing, consulting, outsourcing, and ERP services. The increase
in revenue from $105.7 million in fiscal 1998 to $158.0 million in fiscal 2000
is a function of three principal factors: (1) an increase in the volume of
services provided (as measured by aggregate hours billed); (2) a shift in the
mix of services provided from lower rate professional staffing services to
higher rate consulting and outsourcing services; and (3) additional revenues
attributable to acquired operations. In fiscal 2000, the Company derived less
than 4% of its revenue from leasing activity. The change in revenue mix is due
to increased emphasis on selling ERP solutions. In general, the Company
recognizes revenue as services are performed. The Company's third fiscal quarter
(ending January 31), in which the number of holidays and employee vacation days
reduces the Company's employee billable hours, generally reflects lower revenue
and profitability in comparison to the other three fiscal quarters.

The Company has historically derived a significant portion of its
revenue from a relatively limited number of clients. The Company currently
performs services for over 200 clients consisting of state and local
governments, Fortune 500 companies, and other large organizations. For the
fiscal years ended April 30, 2000, 1999, and 1998, approximately 38%, 42%, and
39%, respectively, of the Company's revenue was attributable to governmental and
quasi-governmental entities (such as public utilities), with the balance
attributable to commercial enterprises. For the fiscal years ended April 30,
2000, 1999, and 1998, the Company's top five clients (in terms of revenue to the
Company) accounted for approximately 37%, 36%, and 35% of the Company's revenue,
respectively. From time to time the Company has substantial accounts receivable
from its top five clients, but the Company has not experienced any significant
payment problems from these clients. A material decrease in services provided to
any of the largest clients of the Company could have an adverse impact on the
Company's operating results.

The Company's strategy has been to sustain growth in professional
staffing revenue while simultaneously increasing the percentage of revenue
contributed by consulting, outsourcing, and ERP services. Generally, the Company
charges its clients higher hourly rates for consulting, outsourcing, and ERP
services than for professional staffing services. The Company's marketing
strategy emphasizes cross-selling all of its services to existing and potential
clients.

The Company's growth in fiscal 1999 and 1998 has been significantly
affected by acquisition activity. In June 1997, the Company acquired all of the
outstanding stock of Partners Resources, Inc. and Partners Capital Group
(collectively, the "Partners Group"), information technology outsourcing and
computer leasing companies. In May 1998, the Company effected a business
combination with Proven Technology, Inc. ("Proven"), a system integration
services company. In May 1999, the Company acquired substantially all the assets
of Global Services, Inc. ("Global"), a computer hardware re-seller. In March
2000, the Company acquired substantially all the assets of RAO Consulting
Incorporated ("RAO"), an ERP consulting company. The Partners Group transaction
was accounted for as a purchase and goodwill of approximately $38.1 million,
including the earnout payment made after the end of fiscal 1998, is being
amortized ratably over a thirty-year period. The Proven combination was
accounted for using the pooling of interests method of accounting. The Company
exchanged 543,724 shares of its common stock for all the outstanding stock of
Proven. Because of its size, the transaction did not require restatement of
prior financial results. The Global and RAO transactions were accounted for as
purchases and goodwill of approximately $3.8 million and $1.4 million,
respectively, is being amortized over a three-year period.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL 2000 TO FISCAL 1999

Revenue increased from $152.0 million in fiscal 1999 to $158.0 million
in fiscal 2000, an increase of 3.9%. Revenues in the Professional Services
Division decreased from $110.1 million in fiscal 1999 to $109.5 million in
fiscal 2000, a 0.5% decrease. The decrease was primarily due to a 4.1% decrease
in

10

12

average rate per hour which was offset by a 3.7% increase in billed hours.
Revenues in the Enterprise Solutions Division increased from $42.0 million in
fiscal 1999 to $48.5 million in fiscal 2000, a 15.5% increase. The increase was
due primarily to a new outsourcing contract that began in July 1999.

Income from operations decreased from $13.8 million (before
non-recurring charges) in fiscal 1999 to a loss of $6.0 million (before
non-recurring charges) in fiscal 2000. Income from operations in the
Professional Services Division decreased from $16.7 million in fiscal 1999 to
$8.8 million in fiscal 2000, a 47.3% decrease. The decrease in operating income
was due to a $4.1 million decrease in gross profit (primarily due to a $3.3
million increase in salary and wage expense), and a $3.8 million increase in
selling, general and administrative expense (consisting of approximately $1.3
million due to bad debts, $1.2 million in increased selling expense, $0.5
million in increased recruiting expense and $0.8 million in increased
administrative costs). Enterprise Solutions' income from operations decreased
from $4.7 million in 1999 to a loss of $1.2 million in fiscal 2000. Of this
decrease, $2.8 million was due to the costs associated with the development of
the Company's enterprise management services product, $1.5 million was due to
losses from new acquisitions, and $1.6 million was due to an increase in sales,
general and administrative expense.

Corporate overhead increased from $7.5 million in fiscal 1999 to $13.5
million in fiscal 2000. This increase is primarily due to approximately $2.7
million in bad debts, $1.8 million relating to the special audit committee
investigation, $0.5 million in write-offs of inventory in software no longer in
use, and $1.0 million in other general operating expenses. The increase in bad
debts is due to a change in the method of calculating the allowance for doubtful
accounts and a $1.4 million allowance for one contract.

Interest income decreased from $159,000 in fiscal 1999 to $66,000 in
fiscal 2000, primarily as a result of the decrease in cash available for
investment. Interest expense increased from $3.5 million in fiscal 1999 to $4.3
million in fiscal 2000 primarily as a result of an increase in borrowings used
to finance a portion of the Global acquisition.

The Company recorded and impairment of $2.8 million relating to
goodwill on an acqusition. This impairment will reduce annual amortization
expense by $0.5 million.

COMPARISON OF FISCAL 1999 TO FISCAL 1998

Revenue increased from $105.7 million in fiscal 1998 to $152.0 million
in fiscal 1999, an increase of 43.8%. This increase was primarily attributable
to the expansion of the Company's client base, an increase in consulting and
professional staffing services provided to existing clients, and an increase of
$13.7 million in sales at the Partners Group.

Gross profit increased from $31.5 million in fiscal 1998 to $43.0
million in fiscal 1999, an increase of 36.5%. This increase was attributable to
an increase in revenue. Gross margin decreased from 29.8% to 28.3% during the
period. Cost of services consists of all costs directly attributable to the
Company's personnel assigned to various client engagements, including salaries,
benefits, training, travel, and relocation. The decrease in the gross margin was
primarily attributable to a charge for a provision for contract losses of $1.8
million, which effectively reduced gross profit 1.2%; see Note 17 of Notes to
Consolidated Financial Statements.

Selling, general and administrative expenses increased from $20.5
million in fiscal 1998 to $31.0 million in fiscal 1999, primarily due to the
growth in revenue. The Company also recorded non-recurring charges for the
provision of $2.7 million for the TVA settlement and severance payments and a
$4.0 million write-down for the impairment of certain data center equipment (see
Notes 16 and 17, respectively, of Notes to Consolidated Financial Statements).
As a percentage of revenues, selling, general and administrative expenses
increased from 19.4% in fiscal 1998 to 20.4% in fiscal 1999.

Interest income decreased from $347,000 in fiscal 1998 to $159,000 in
fiscal 1999, primarily as a result of the decrease in cash available for
investment. Interest expense increased from $1.4 million in fiscal 1998 to $3.5
million in fiscal 1999 primarily as a result of an increase in borrowings used
to finance a portion of the Partners Group acquisition and the financing of
equipment associated with new outsourcing contracts.

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity and capital resources have historically come
from operating cash flows and borrowings. As a result of the Company's recent
acquisitions and capital expenditures, borrowings have become a more significant
source of liquidity.

11

13

The Company's net cash provided by operating activities was approximately
$7.1 million and $7.6 million for fiscal 2000 and 1999, and a use of $4.8
million for fiscal 1998. Net cash provided in fiscal years 2000 and 1999 is
attributable to the net loss offset by numerous non-cash charges totaling $14.5
million and $12.3 million, respectively, in the Company's statement of
operations.

At April 30, 2000, the Company had approximately $1.8 million in
available cash and $0.5 million available for future borrowings under its credit
facility. The Company believes its cash flow from operations and borrowings
under its credit facility will be sufficient to meet the Company's needs for at
least the next twelve months.

At April 30, 2000, the Company had a working capital deficit of $13.5
million. The deficit is due to the December 15, 2000, scheduled maturity of the
Company's credit facility. The Company and its primary bank are working together
on steps to renew the credit facility when it matures. Management expects the
credit facility to be renewed.

The Company's capital expenditures primarily relate to computer equipment
purchases for use by the Company's professionals or to use in outsourcing
contracts and purchases of equipment used in non-cancelable operating leases. In
fiscal 2000, the Company had approximately $14.8 million in capital expenditures
($9.7 million for non-cancelable operating leases). In fiscal 1999, the Company
had approximately $22.7 million in capital expenditures ($5.4 million for
non-cancelable operating leases), the substantial majority of which were related
to purchases of equipment to complete multi-media centers in Memphis, Dallas,
Nashville, and Phoenix. The Company does not expect substantial capital
expenditures in fiscal 2001.

The Company has a credit facility, comprised of a revolving line of
credit and a term loan, with a commercial bank. Borrowings under the credit
facility bear interest at a rate equal to LIBOR (6.1975% at April 30, 2000) plus
a spread (currently 3.0%) which varies based on certain financial ratios.

The revolving line of credit was amended on February 17, 2000 (the fourth
amendment), again on May 1, 2000 (the fifth amendment), and then on June 15,
2000 (the sixth amendment). The fourth amendment primarily modified certain
financial covenants. The fifth amendment primarily provided the bank's consent
for the Company to sell the TMR business unit and to provide that $2 million ($1
million upon the escrow release on April 30, 2001) of the proceeds would
permanently reduce the balance under the revolving line of credit. The sixth
amendment provided for the modification of certain financial covenants and
extended the maturity date to December 15, 2000. On May 3, 2000, the ceiling on
the revolving line of credit was reduced to $25.3 million, and on July 6, 2000,
the ceiling was reduced to $23.6 million through the receipt of a $1.7 million
income tax refund. The Company has been working with the bank and expects it to
renew the credit facility when it matures. The Company uses the borrowings under
the revolving line of credit for general corporate purposes, including
acquisitions.

At April 30, 2000, there was $10.3 million outstanding under the term
loan, which has a repayment schedule requiring monthly payments of $0.4 million.
The term loan matures on July 15, 2002. The Company used the term loan to fund
the purchase of certain equipment utilized in an outsourcing engagement.

The Company obtained a $2.5 million short-term loan on August 11, 2000
and used the proceeds for general corporate purposes. The short-term loan
matures on September 10, 2000.

On May 2, 2000, the Company sold its TMR business unit for $10.0 million
(less $0.3 million in assumed liabilities). The Company received $8.7 million in
cash, plus $1.0 million was deposited in escrow. Of the proceeds, $7.0 million
were used to retire the short-term loan that was obtained to fund the
acquisition of Global, and $1.0 million were used to permanently reduce the
credit facility. The remaining cash was used for working capital. The $1.0
million escrow is due to be released in April 2001, and will be used to
permanently reduce the credit facility.

The Company also has a $5 million line of credit with another bank, which
bears interest at a rate equal to prime plus a spread, which varies based on
certain financial covenants. At April 30, 2000, there was approximately $5.0
million outstanding under this line of credit. While this line of credit matured
on July 31, 2000, the Company and the bank currently are finalizing an
arrangement to extend the maturity date to June 30, 2001.

As discussed in Item 3 of this report, a consolidated class-action
lawsuit by shareholders of the Company is pending against the Company and
certain individuals. As of the date hereof, the Company is unable to predict the
outcome of the litigation and its ultimate effect, if any, on the Company's
consolidated financial condition and results of operations. The company does not
believe that this matter will significantly impact the consolidated financial
position or ongoing liquidity of the Company.

12

14

OTHER MATTERS

The Company has completed its efforts to minimize the risk of Year 2000
("Y2K") related problems. The "Y2K issue" is typically the result of software
being written using two digits rather than four to define the applicable year.
As discussed in the Company's quarterly report on Form 10-Q for the quarter
ended October 31, 1999, the Company assessed the readiness of its computer
systems and applications and has completed any necessary adjustments that were
identified. Total expenditures for Y2K remediation have not been material. Since
January 1, 2000, the Company is not aware of any customers or suppliers
experiencing any significant equipment or systems problems related to the
rollover to the year 2000. Accordingly, the Company does not believe that any
problems related to the Y2K issue will have a material adverse impact on the
Company's business, results of operations or financial condition.

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

On July 3, 2000, the Company announced that it would restate its
consolidated financial statements for the years ended April 30, 1999 and 1998,
and for each quarter in the nine-month period ended January 31, 2000. The
Company's restated consolidated financial statements for these periods contain
adjustments that fall into three categories. The first category of adjustments
arises from the internal investigation conducted by the audit committee of the
Company's board of directors into the concerns raised by five employees on March
27, 2000, regarding the Company's accounting treatment of certain matters. The
second category of adjustments is the result of the Company's internal review of
financial information relating to various matters, including items that were
similar to those investigated by the audit committee. The third category of
adjustments consists of adjustments that were initially identified during the
audits of the Company's consolidated financial statements for the years ended
April 30, 1999 and 1998, but which the Company elected not to record in those
periods on the basis of immateriality. The Company subsequently decided to
record these adjustments in the year ended April 30, 2000. For further
information regarding the background of all the adjustments, see Note 2 of the
Notes to Consolidated Financial Statements included in Item 8 of this report.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting
for Derivative Instruments and Hedging Activities. The new statement requires
all derivatives to be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. In June 1999, the
FASB deferred the effective date of SFAS No. 133 for one year until fiscal
years beginning after June 15, 2000. The Company does not expect the
application of this standard to have a material effect on the consolidated
financial statements.

In March 2000, the FASB issued Interpretation No. 44 Accounting for
Certain Transactions involving Stock Compensation, (an interpretation of APB
Opinion No. 25). The new interpretation clarifies treatment of stock option
award modifications as well as certain definitions of APB No. 25. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after December 15, 1998, or
January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
Company does not expect the application of this interpretation to have a
material effect on the consolidated financial statements.

FORWARD-LOOKING STATEMENTS

This annual report may be deemed to contain certain forward-looking
statements within the meaning of the federal securities laws. Forward-looking
statements are those that express management's view of future performance and
trends, and usually are preceded with "expects", "anticipates", "believes",
"hopes", "estimates", "plans" or similar phrasing. Forward-looking statements
include statements regarding projected operating revenues and costs, liquidity,
capital expenditures, and availability of capital resources as well as Y2K
readiness and potential exposure. Such statements are based on management's
beliefs, assumptions and expectations, which in turn are based on information
currently available to management. Information contained in these
forward-looking statements is inherently uncertain, and the Company's actual
performance and results may differ materially due to a number of factors, most
of which are beyond the Company's ability to predict or control, including the
Company's dependence on key clients; the Company's dependence on the
availability, recruitment, and retention of qualified IT employees; the
Company's dependence on key management personnel; the Company's potential
liability to its clients in connection with the provision of IT services,
particularly Y2K services; the Company's ability to finance, sustain, and manage
growth; the Company's ability to integrate acquired businesses; competition; the
outcome of litigation involving the Company, particularly the shareholder
litigation described in Item 3 of this report; the trading status of the
Company's common stock, including the outcome of the Company's appeal of the
Nasdaq staff's delisting determination described in Item 5 of this report; and
general economic conditions. The Company undertakes no obligation to publicly
release any revision to any forward-looking statement contained herein to
reflect

13

15

events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risks include fluctuations in interest rates and
variability in interest rate spread relationships (i.e., prime or LIBOR
spreads). Substantially all of our $51.0 million in outstanding recourse debt at
April 30, 2000, relates to our credit facilities with a commercial bank.
Interest on the outstanding balance is charged based on a variable rate related
to the LIBOR rate. The rate is incremented for margins in the form of
fluctuations in interest rates. The effect of a hypothetical one percentage
point increase across all maturities of variable rate debt would result in an
increase of approximately $510,000 in pre-tax net loss assuming no further
changes in the amount of borrowings subject to variable rate interest from
amounts outstanding at April 30, 2000. We do not trade in derivative financial
instruments.

14
16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

Report of Independent Certified Public Accountants.......................................................... 16

Report of Independent Auditors.............................................................................. 17

Consolidated Balance Sheets as of April 30, 2000 and 1999................................................... 18

Consolidated Statements of Operations for the Years ended April 30, 2000, 1999, and 1998.................... 20

Consolidated Statements of Shareholders' Equity for the Years ended April 30, 2000, 1999, and 1998.......... 21

Consolidated Statements of Cash Flows for the Years ended April 30, 2000, 1999, and 1998.................... 22

Notes to Consolidated Financial Statements.................................................................. 23

15
17

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
SCB Computer Technology, Inc.

We have audited the accompanying consolidated balance sheet of SCB Computer
Technology, Inc. and its subsidiaries as of April 30, 2000, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended April 30, 2000. We have also audited the accompanying schedule of
valuation and qualifying accounts as of and for the year ended April 30, 2000.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit.

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

In our opinion, the financial statements and schedule referred to above present
fairly, in all material respects, the consolidated financial position of SCB
Computer Technology, Inc. and its subsidiaries as of April 30, 2000, and the
consolidated results of their operations and their cash flows for the year ended
April 30, 2000, in conformity with generally accepted accounting principles.

/s/ BDO Seidman, LLP

Memphis, Tennessee
August 11, 2000

16
18

REPORT OF INDEPENDENT AUDITORS

Board of Directors
SCB Computer Technology, Inc.

We have audited the accompanying consolidated balance sheet of SCB Computer
Technology, Inc. and its subsidiaries as of April 30, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the two years in the period ended April 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SCB Computer
Technology, Inc. and its subsidiaries as of April 30, 1999, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended April 30, 1999, in conformity with accounting principles
generally accepted in the United States.

/s/ Ernst & Young LLP

Memphis, Tennessee
June 30, 2000

17
19

CONSOLIDATED BALANCE SHEETS

ASSETS

APRIL 30,
-----------------------------------
2000 1999
------------- -------------

Current assets:
Cash and cash equivalents $ 1,812,819 $ 5,318,259
Accounts receivable-trade, net of allowance for doubtful
accounts of $1,519,473 in 2000 and $579,175 in 1999 25,226,281 33,948,406
Other receivables-related parties -- 166,491
Current portion of leases 13,914,611 11,794,999
Prepaid expenses 1,818,107 2,463,721
Inventory 575,365 280,356
Refundable income taxes 11,040,203 2,393,520
Deferred federal and state income tax 2,817,338 2,530,023
------------- -------------
Total current assets 57,204,724 58,895,775

Investment in leasing activities 13,224,988 11,042,321

Fixed assets:
Buildings -- 1,348,293
Furniture, fixtures, and equipment 34,814,427 29,675,296
Accumulated depreciation (13,342,938) (6,753,640)
------------- -------------
21,471,489 24,269,949
Land -- 209,912
------------- -------------
21,471,489 24,479,861
Other Assets:
Goodwill, net of accumulated amortization of
$7,510,568 in 2000 and $2,445,226 in 1999 45,395,714 44,920,437
Other 3,003,190 4,292,769
------------- -------------
48,398,904 49,213,206
------------- -------------

Total assets $ 140,300,105 $ 143,631,163
============= =============

Continued on next page.

18
20

CONSOLIDATED BALANCE SHEETS - CONTINUED

LIABILITIES AND SHAREHOLDERS' EQUITY

APRIL 30,
-----------------------------------
2000 1999
------------- -------------

Current liabilities:
Accounts payable - trade $ 4,789,762 $ 6,845,308
Accrued TVA settlement cost -- 1,658,516
Deferred revenue 2,352,560 1,244,623
Other accrued expenses 10,071,361 8,311,099
Notes payable 7,041,033 4,974,288
Current portion of long-term debt 36,759,471 10,333,097
Current portion of non-recourse debt 9,694,706 7,829,715
------------- -------------
Total current liabilities 70,708,893 41,196,646

Long-term debt 7,231,311 34,492,821
Notes payable - non-recourse 10,737,087 10,000,566
Other long-term liability 182,542 972,353
Deferred federal and state income taxes 4,367,885 2,415,244
------------- -------------

Total liabilities 93,227,718 89,077,630

Commitments and contingencies

Shareholders' equity:
Preferred stock, no par value - authorized 1,000,000
shares, none issued -- --
Common stock, $.01 par value - 100,000,000 shares
authorized; 25,045,324 shares issued and outstanding
standing at April 30, 2000; and 24,710,749 shares
issued and outstanding at April 30, 1999 250,453 247,107
Additional paid-in capital 40,236,035 39,380,220
Retained earnings 6,585,899 14,926,206
------------- -------------
Total shareholders' equity 47,072,387 54,553,533
------------- -------------

Total liabilities and shareholders' equity $ 140,300,105 $ 143,631,163
============= =============

See accompanying notes to consolidated financial statements.

19
21

CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED APRIL 30,
-----------------------------------------------------
2000 1999 1998
------------- ------------- -------------

Revenue $ 157,956,994 $ 152,015,861 $ 105,721,978
Cost of services 118,068,644 107,178,352 74,201,238
Provision for contract losses 848,751 1,800,000 --
------------- ------------- -------------
Gross profit 39,039,599 43,037,509 31,520,740

Selling, general and administrative expenses 45,903,581 30,990,998 20,519,319
TVA settlement and severance payments -- 2,700,000 --
Impairment of assets 2,631,000 3,950,000 --
------------- ------------- -------------
Income (loss) from operations (9,494,982) 5,396,511 11,001,421

Other income (expenses):
Interest income 65,524 159,484 346,727
Interest expense (4,251,429) (3,494,112) (1,358,620)
Other, net 417,569 (119,655) --
------------- ------------- -------------
Total other income (expenses) (3,768,336) (3,454,283) (1,011,893)
------------- ------------- -------------
Income (loss) before income taxes (13,263,318) 1,942,228 9,989,528

Income tax expense (benefit):
Current (6,588,337) 1,975,758 4,071,633
Deferred 1,665,326 (1,106,837) (167,562)
------------- ------------- -------------
Total income tax expense (benefit) (4,923,011) 868,921 3,904,071
------------- ------------- -------------

Net income (loss) $ (8,340,307) $ 1,073,307 $ 6,085,457
============= ============= =============

Net income (loss) per share - basic $ (0.34) $ 0.04 $ 0.27
============= ============= =============

Net income (loss) per share - diluted $ (0.34) $ 0.04 $ 0.27
============= ============= =============

Weighted average number of common
shares - basic 24,763,095 24,683,000 22,464,000
============= ============= =============
Weighted average number of common
shares - diluted 24,763,095 24,921,000 22,756,000
============= ============= =============

See accompanying notes to consolidated financial statements.

20
22

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

NUMBER ADDITIONAL TOTAL
OF COMMON PAID-IN RETAINED SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS EQUITY
----------- --------- ------------ ------------ ------------

Balance at May 1, 1997 7,478,044 $ 74,780 $ 23,849,583 $ 7,709,134 $ 31,633,497
Stock split (3-for-2) 3,742,002 37,420 -- (37,420) --
Stock split (2-for-1) 11,264,648 112,648 -- (112,648) --
Shares retired upon
settlement of Delta
escrow (7,754) (78) (95,800) -- (95,878)
Issuance of common
stock in connection
with the exercise of
employee stock options 53,025 530 750,836 -- 751,366
Net income -- -- -- 6,085,457 6,085,457
----------- --------- ------------ ------------ ------------

Balance at April 30, 1998 22,529,965 225,300 24,504,619 13,644,523 38,374,442

Restatement for pooling
of interest 543,724 5,437 (5,437) 208,376 208,376
----------- --------- ------------ ------------ ------------

Balance at April 30, 1998 23,073,689 230,737 24,499,182 13,852,899 38,582,818
Tax benefit of stock
options exercised -- -- 183,391 -- 183,391
Issuance of common
stock as additional
purchase price for
Partners acquisition 1,580,582 15,806 14,239,168 -- 14,254,974
Issuance of common
stock in connection
with the exercise of
employee stock options 56,478 564 458,479 -- 459,043
Net income -- -- -- 1,073,307 1,073,307
----------- --------- ------------ ------------ ------------

Balance at April 30, 1999 24,710,749 247,107 39,380,220 14,926,206 54,553,533
Issuance of common
stock in connection
with purchase of RAO 333,000 3,330 849,983 -- 853,313
Issuance of common
stock in connection
with the exercise of
employee stock options 1,575 16 5,832 -- 5,848
Net loss -- -- -- (8,340,307) (8,340,307)
----------- --------- ------------ ------------ ------------

Balance at April 30, 2000 25,045,324 $ 250,453 $ 40,236,035 $ 6,585,899 $ 47,072,387
=========== ========= ============ ============ ============

See accompanying notes to consolidated financial statements.

21
23

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED APRIL 30,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------

Operating Activities:
Net (loss) income $ (8,340,307) $ 1,073,307 $ 6,085,457
Adjustments to reconcile net income to
net cash provided by operating activities:
Impairment of assets 2,631,000 3,950,000 --
Provision for contract losses -- 1,800,000 --
Gain on lease disposals -- (994,391) (628,514)
Provision for bad debts 4,024,415 256,284 279,000
Depreciation included in cost of services 6,635,655 4,483,930 2,648,483
Depreciation included in selling, general
and administrative expenses 1,225,936 1,172,939 592,661
Amortization 2,841,467 1,620,382 756,344
Deferred income taxes 1,665,326 (1,106,837) (167,562)
Change in operating assets and liabilities:
Accounts receivable 5,286,027 (9,218,264) (10,736,550)
Prepaid expenses 645,614 168,355 (1,996,798)
Inventory (191,489) 13,826 531,940
Refundable income taxes (8,646,683) (1,305,425) (683,940)
Other assets 882,454 (2,006,456) (2,213,924)
Accounts payable - trade (2,485,721) 3,230,686 (519,550)
Accrued expenses (109,326) 4,318,607 1,621,312
Deferred revenue 1,107,937 207,721 (356,589)
------------ ------------ ------------
Total adjustments 15,512,612 6,591,357 (10,873,687)
------------ ------------ ------------
Net cash provided by operating activities 7,172,305 7,664,664 (4,788,230)

Investing Activities:
Purchases of fixed assets (6,473,169) (22,715,138) (7,902,507)
Net investment in leasing activities (5,365,328) 3,236,731 5,180,467
Proceeds from lease disposals -- 1,245,323 2,996,664
Purchases of businesses (3,218,316) (6,165,283) (18,006,411)
Proceeds from buildings and land sale 1,629,910 -- 273,284
Other long-term liability (789,811) 72,353 --
------------ ------------ ------------
Net cash used by investing activities (14,216,714) (24,326,014) (17,458,503)
------------ ------------ ------------
Financing Activities:
Borrowings on short-term debt 7,000,000 -- --
Borrowings on long-term debt 1,537,513 27,926,092 25,674,484
Payments on long-term debt (4,274,111) (10,289,823) (7,091,340)
Net borrowings under line of credit (1,929,000) 2,569,043 2,405,245
Options exercised 5,848 459,043 751,366
Proceeds from non-recourse debt 12,827,156 4,000,000 3,400,182
Payment on non-recourse debt (11,628,437) (5,668,118) (11,724,619)
------------ ------------ ------------
Net cash provided by financing activities 3,538,969 18,996,237 13,415,318
------------ ------------ ------------

Net increase (decrease) in cash
and cash equivalents (3,505,440) 2,334,887 (8,831,415)
Cash and cash equivalents at beginning of period 5,318,259 2,983,372 11,814,787
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,812,819 $ 5,318,259 $ 2,983,372
============ ============ ============

Supplemental Disclosures of Cash Flow Information:
Interest paid $ 3,974,731 $ 3,613,167 $ 1,953,130
Income taxes paid $ 1,673,918 $ 4,500,009 $ 3,791,000

See accompanying notes to consolidated financial statements.

22
24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
SCB Computer Technology, Inc., and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.

GENERAL

SCB Computer Technology, Inc. (the "Company" or "SCB") was incorporated on
May 11, 1984, in the State of Tennessee. The Company is an information
technology company which primarily provides management and technical services
primarily to state and local governments, public utilities, Fortune 500
companies, and other large organizations.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

FIXED ASSETS

All fixed assets are carried at cost. Depreciation, which includes the
amortization of assets recorded under capital leases, is computed using the
straight-line basis over the useful lives of the various fixed assets. The
estimated useful lives for computing depreciation on fixed assets are as
follows:

ESTIMATED USEFUL
LIFE (YEARS)
----------------

Furniture, fixtures and equipment 5-10
Buildings 31-39

LONG-LIVED ASSETS

Goodwill represents the excess of the cost of businesses acquired using the
purchase method of accounting over the fair value of the net identifiable assets
at the date of acquisition and is being amortized using the straight line method
over periods ranging from 3 to 30 years.

The Company continually monitors events and changes in circumstances that
could indicate the carrying amount of long-lived assets may not be recoverable.
When events or changes in circumstances are present that indicate the carrying
amount of long-lived assets may not be recoverable, the Company assesses the
recoverability of long-lived assets by determining whether the carrying value of
such assets will be recovered through undiscounted expected future cash flows
after related interest charges. Should the Company determine that the carrying
values of specific long-lived assets are not recoverable, the Company would
record a charge to reduce the carrying value of such assets to their fair
values.

23

25

REVENUE RECOGNITION

The Company recognizes revenues as professional services are performed. The
Company records deferred revenue for payments received from certain customers on
service contracts prior to the performance of services required under the
service contract. Estimated losses are recorded when identified.

DIRECT FINANCING LEASES

Leases meeting the criteria for capitalization in accordance with SFAS
No. 13 are classified as direct financing leases. For direct financing leases,
the sum of the minimum lease payments and the unguaranteed residual value is
recorded as the gross investment in the lease. The difference between the gross
investment and the cost of the leased property is recorded as unearned income.
Income is recognized over the life of the lease using the interest method.

OPERATING LEASES

Leases not meeting the criteria for capitalization are classified as
operating leases. For operating leases, lease payments are recognized as rental
revenue on a straight-line basis over the life of the lease. Depreciation
expense on equipment under operating leases is recorded over the lease term. The
amount subject to depreciation is the total cost of the leased asset less the
expected gross residual value at the end of the lease.

RESIDUAL INTEREST IN REMARKETED LEASE TRANSACTIONS

In certain instances, the Company will act as a lease intermediary, or will
sell the ownership rights of leased property. Typically, in connection with such
transactions, the Company retains a percentage interest in the residual value at
the end of the lease. These residual interests are recorded at the present value
of the Company's portion of the estimated gross residual value at the end of the
lease.

INDIRECT LEASING COSTS

Indirect costs incurred in connection with leasing transactions, such as
commissions and certain salaries, are capitalized and amortized over the lease
period.

DETERMINATION OF GROSS RESIDUAL INTERESTS

The unguaranteed gross residual interests of equipment on direct financing
leases, operating leases, and remarketed lease transactions are determined by
assessing the technical and economic life of the equipment in relation to the
length of the lease. The estimated gross residual interests are periodically
reassessed to account for potential fluctuations in residual values.
Reassessment procedures include independent appraisals, evaluation of new
technological developments, and comparison of remaining estimated residual
interests with residual values of leases that terminated during the current
period. If there are indications that gross residual interests are impaired, the
Company's policy is to write the amounts down to estimated future cash flows
discounted using a rate commensurate with the risks involved.

INCOME TAXES

The Company accounts for income taxes using the liability method. Under the
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.

24

26

STOCK BASED COMPENSATION

The Company grants stock options for a fixed number of shares to employees
and directors with an exercise price equal to the fair value of the shares at
the date of grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes no compensation expense for the stock option grants.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The Company
continually evaluates the credit worthiness of its customers' financial
positions and monitors accounts on a periodic basis, but typically does not
require collateral related to trade receivables. The Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in a particular industry or geographic area.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATION

Certain account reclassifications have been made to the 1999 financial
statements to conform to the 2000 presentation.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses and debt approximates fair values of these
instruments at April 30, 2000 and 1999.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting
for Derivative Instruments and Hedging Activities. The new statement requires
all derivatives to be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. In June 1999, the
FASB deferred the effective date of SFAS No. 133 for one year until fiscal
years beginning after June 15, 2000. The Company does not expect the
application of this standard to have a material effect on the consolidated
financial statements.

In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25. The new interpretation clarifies treatment of stock option
award modifications as well as certain definitions of APB No. 25. This
Interpretation is effective July 1, 2000, but certain conclusions in this
Interpretation cover specific events that occur after December 15, 1998, or
January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
Company does not expect the application of this interpretation to have a
material effect on the consolidated financial statements.

2. RESTATED FINANCIAL STATEMENTS

The Company's consolidated financial statements for the fiscal years ended
April 30, 1999, and 1998, were restated for adjustments that fall into three
categories. The first category of adjustments arises from the internal
investigation conducted by the audit committee of the Company's board of
directors into the concerns raised by five employees on March 27, 2000,
regarding the Company's accounting treatment of certain matters. The findings of
the audit committee's investigation indicate that, with respect to fiscal 1999
and 1998, the Company did not properly (1) accrue bonuses paid to two employees,
(2) record revenue from the sale of a partial interest in a computer equipment
lease, (3) account for an outsourcing contract assumed as part of an
acquisition, and (4) record revenue from two sales of residual interests in
computer equipment lease schedules. The second category of adjustments is the
result of the Company's internal review of financial information relating to
various matters, including items that were similar to those investigated by the
audit committee. The third category of adjustments consists of adjustments that
were initially identified during the audits of the Company's consolidated
financial statements for the fiscal years ended April 30, 1999 and 1998, but
which the Company elected not to record in those periods on the basis of
immateriality. The Company subsequently decided to record these adjustments.

Summarized in the tables below is the aggregate pre-tax impact of the
adjustments contained in the Company's restated financial statements for fiscal
1999 and 1998. The adjustments are grouped according to the types of
transactions involved or accounting entries affected.

25
27

YEAR ENDED APRIL 30, 1999
-----------------------------
DIRECT SG&A PRETAX
DESCRIPTION REVENUE EXPENSE EXPENSE INCOME
----------- ----------- ----------- ----------- -----------

Client services agreement (A) $ 592,260 $ 815,674 $ --
Other accrued expenses (B) -- -- 380,000
Residual interest in remarketed
leases (C) (2,766,451) -- --
Direct financing leases (E) (709,718) (80,142) --
Revenue recognition (F) (200,011) -- --
Other accrued expenses (H) -- -- 872,134
Other (I) (1,495,452) (1,473,520) --
Prior unrecorded audit adjustments (75,000) 276,000 165,500
----------- ----------- -----------

(Decrease) increase $(4,654,372) $ (461,988) $ 1,417,634 $(5,610,018)
=========== =========== =========== ===========

YEAR ENDED APRIL 30, 1998
-----------------------------
DIRECT SG&A PRETAX
DESCRIPTION REVENUE EXPENSE EXPENSE INCOME
----------- ----------- ----------- ----------- -----------

Client services agreement (A) $(3,174,812) $(1,432,980) $ --
Direct financing leases (E) (246,573) -- --
Revenue recognition (F) (133,364) -- --
Other accrued expenses (H) -- -- 114,829
Other (I) (60,000) -- --
Prior unrecorded audit adjustments (135,000) -- 79,500
----------- ----------- -----------

(Decrease) increase $(3,749,749) $(1,432,980) $ 194,329 $(2,511,098)
=========== =========== =========== ===========

ADJUSTMENTS RESULTING FROM AUDIT COMMITTEE'S INVESTIGATION

The Company restated its consolidated financial statements for fiscal 1999
and 1998 as a result of the internal investigation conducted by the audit
committee of the Company's board of directors into the concerns raised by five
employees regarding the Company's accounting treatment of certain matters. The
specific matters for which adjustments have been made are described below.

(A) CLIENT SERVICES AGREEMENT. Effective June 30, 1997, the Company acquired all
the outstanding capital stock of Partners Resources, Inc. ("PRI"). As part of
the acquisition, the Company assumed a five-year outsourcing contract with a
customer (the "original contract") that was scheduled to conclude on September
30, 2000. Effective April 1, 1998, the Company and the customer modified the
original contract (the "modified contract") which included a five-year extension
of its term.

The original contract was historically accounted for by PRI as a services
agreement. Subsequent to the acquisition of PRI, the Company continued this
accounting treatment of the original contract. Upon entering into the modified
contract, the Company also accounted for it as a services agreement.
Additionally, in accounting for the modification of the original contract, the
Company recognized revenue of $2,482,277 in the fourth quarter of fiscal 1998 as
(1) compensation for an excess capacity provision in the original contract and
(2) compensation for replacing the computer equipment and related software
specified in the original contract. At the same time, the Company recognized
expense of $578,500 to write-off the software specified in the original
contract.

The Company determined that the accounting for the original contract and
the modified contract was in error. Upon further analysis of the original
contact, the Company determined that it contained two elements: (1) a services
agreement; and (2) in accordance with SFAS No. 13, Accounting for Leases, a
direct financing lease for the assets acquired at the time of execution of the
original contract. A further analysis of the modified contract also led the
Company to determine that it included two elements: (1) a

26
28

service agreement; and (2) an operating lease for the equipment that was
purchased by the Company to replace the equipment under the original contract.
Furthermore, the Company determined that the revenue of $2,482,277 and the
related write-off of software of $578,500 recorded in the fourth quarter of
fiscal 1998 were prematurely recognized and have been reversed. Accordingly, the
Company determined that the accounting for the original contract in fiscal 1998
and the accounting for the modified contract in fiscal 1999 should be changed.
The original contract is accounted for as a services agreement and a direct
financing lease in fiscal 1998, and the modified contract is accounted for as a
services agreement and an operating lease in fiscal 1999.

The following table shows the pre-tax impact of these adjustments in fiscal
1999 and 1998:

1999 1998
---------- -----------

Revenue originally recorded $6,781,488 $ 5,176,847
Revenue as restated 7,373,748 2,002,035
---------- -----------
Revenue (decrease) increase $ 592,260 $(3,174,812)
========== ===========

Depreciation expense originally recorded $2,019,728 $ 1,432,980
Depreciation expense as restated 2,835,402 --
---------- -----------
Depreciation expense (decrease) increase $ 815,674 $(1,432,980)
========== ===========

(B) OTHER ACCRUED EXPENSES. The Company paid $380,000 to two employees in the
first quarter of fiscal 2000. The Company accounted for the payments in fiscal
2000 by (1) capitalizing the net payments to the employees as a cost of
obtaining a new outsourcing contract which would be amortized over the term of
the contract, and (2) expensing the related payroll tax component. The Company
determined that the payments should be accounted for as bonuses paid with
respect to the employees' performance during fiscal 1999. Accordingly, the
Company recorded an expense relating to the employee bonuses in fiscal 1999 and
reversed the accounting for such payments in fiscal 2000.

(C) RESIDUAL INTERESTS IN REMARKETED LEASES. In the first quarter of fiscal
2000, the Company acquired substantially all the assets of Global Services, Inc.
("Global"), a company engaged in the business of reselling used computer
equipment, for a price of $6,647,000 in cash. In two other transactions
consummated at substantially the same time, the Company sold the residual
interests in four computer equipment lease schedules, with a book value of
$1,063,000, to Quest Residual Services LLC ("Quest"), a newly formed equipment
leasing company, for a total price of $3,650,000 in cash. The Company recorded
revenue of $1,650,000 in the third quarter of fiscal 1999 resulting from the
sale of residual interests in two of the computer equipment lease schedules to
Quest. The Company recorded revenue of $936,451, net of book value of
$1,063,000, in the fourth quarter of fiscal 1999 resulting from the sale of
residual interests in the other two computer equipment lease schedules to Quest.
Upon further review of these transactions, the Company determined that (1) the
documents for the sales of residual lease interests to Quest were dated as of
specific dates in the third and fourth quarters of fiscal 1999 (i.e., January
27, 1999, and April 26, 1999, respectively), (2) such sale documents were
executed by the parties in the first quarter of fiscal 2000 (i.e., May 1999),
(3) the Company received the cash payments for the residual lease interests from
Quest in the first quarter of fiscal 2000 (i.e., June 1999), and (4) both Global
and Quest had the same beneficial owners, who held the same ownership
percentages in each entity, at the times of the Company's transactions with
them. Accordingly, the Company recorded the two sales of residual lease
interests to Quest as part of the asset acquisition from Global that occurred in
the first quarter of fiscal 2000. See Note 3.

The Company sold a 15% interest in certain leased computer equipment for
$100,000 in the fourth quarter of fiscal 1999, but erroneously recognized
revenue of $208,000 from the transaction as if it had sold 100% of the
equipment. Upon further review of this transaction, the Company determined that
it should be accounted for as the sale of only a 15% interest in the equipment.
Accordingly, the Company reduced the revenue recognized from the transaction by
85% in the fourth quarter of fiscal 1999.

27
29

The following table sets forth the pre-tax impact of these adjustments in
fiscal 1999:

1999
-----------

Revenue from sales of residual lease interests $(2,586,451)
Revenue from sale of partial lease interest (180,000)
-----------

$(2,766,451)
===========

(D) REVENUE RECOGNITION. The Company inadvertently recognized an extra month's
revenue, net of related expenses, under a contract with a customer in the first
quarter of fiscal 2000. After becoming aware of the billing error, the Company
recorded additional costs relating to the contract in the second and third
quarters of fiscal 2000. The Company determined that the billing error should be
reversed in the first quarter of fiscal 2000. Accordingly, the Company has
reduced the revenue recognized in the first quarter of fiscal 2000 and has
reversed the expense accruals in the second and third quarters of fiscal 2000.
See Note 19.

ADJUSTMENTS RESULTING FROM THE COMPANY'S INTERNAL REVIEW OF FINANCIAL
INFORMATION

In connection with the restatement of its consolidated financial statements
for fiscal 1999 and 1998, the Company undertook an internal review of financial
information relating to various matters, including items that were similar to
those investigated by the audit committee. This internal review resulted in
further adjustments being made to the Company's restated consolidated financial
statements. The specific matters for which adjustments have been made are
described below.

(E) DIRECT FINANCING LEASES. The Company leases computer equipment to several
customers. The Company determined that it erroneously recorded revenue from the
amendment, extension or termination of certain leases in fiscal 1999 and 1998.
Accordingly, the Company reversed or deferred the recognition of revenue from
these lease changes in these periods. The following table shows the pre-tax
impact of these adjustments in fiscal 1999 and 1998:

1999 1998
---------- ----------

Revenue decrease $(709,718) $(246,573)
Direct costs decrease $ (80,142) $ --

(F) REVENUE RECOGNITION. The Company has numerous contracts with customers. The
Company determined that adjustments should be made to the revenue recognized
under three contracts in fiscal 1999 and 1998. These adjustments relate to (1)
the calculation of revenue under a fixed-price consulting contract, (2) the
period in which an unbilled account receivable was recorded, and (3) the
recording of a termination fee on a contract prior to finalization of the
termination agreement. These adjustments reduce revenue by $200,011 and $133,364
in fiscal 1999 and 1998, respectively, and increase revenue in 2000 by $206,995.

(G) SALE OF LEASED EQUIPMENT. The Company sold certain computer equipment in a
series of transactions with two parties for a total of $930,000 in fiscal 1998.
The Company recognized revenue of $589,998 and $300,000 in the second and third
quarters, respectively, of fiscal 1998. The Company determined that the earnings
process for these transactions was not complete until the fourth quarter of
fiscal 1998, and that the transactions should be accounted for as a single sale
of equipment occurring in the fourth quarter of fiscal 1998. Accordingly,
corresponding adjustments have been made in the revenue recognized in the
second, third and fourth quarters of fiscal 1998. See Note 19.

(H) OTHER ACCRUED EXPENSES. The Company identified under accruals of expense
related to health insurance claims, employee benefits, legal fees and
subcontractor costs. The resulting adjustments increase accrued expenses by
$872,134 and $114,829 in fiscal 1999 and 1998, respectively.

(I) OTHER. The Company increased the value of certain acquired inventory by
$60,000 in the first quarter of fiscal 1998 and subsequently wrote off such
amount in the fourth quarter of fiscal 1999. The Company determined that these
inventory adjustments should be reversed. The Company recognized revenue of

28
30

$81,932 in the fourth quarter of fiscal 1999 related to a lease payment on a
direct financing lease that had been assigned to a lender. The Company
determined that this revenue should be reversed. The Company reclassified
$1,413,520 from revenue to direct expense to correct the misclassification by a
division of the Company of certain reimbursed expenses.

PRIOR UNRECORDED AUDIT ADJUSTMENTS

In connection with the restatement of its consolidated financial statements
for fiscal 1999 and 1998, the Company decided to record adjustments that were
identified during the audits of the Company's consolidated financial statements
for fiscal 1999 and 1998, but which the Company elected not to record in those
periods on the basis of immateriality. The following table shows the pre-tax
impact on income of these adjustments in fiscal 1999 and 1998:

1999 1998
---------- ----------

Revenue $ (75,000) $(135,000)
Direct costs 276,000 --
SG&A expense 165,500 79,500

3. BUSINESS COMBINATIONS

Effective June 30, 1997, the Company acquired all the outstanding capital
stock of Partners Resources, Inc. ("PRI"), an information technology outsourcing
company, and Partners Capital Group ("PCG"), a computer leasing company. Both
acquisitions were accounted for using the purchase method of accounting. The
total consideration paid for these entities was $37,382,312, plus the assumption
of liabilities, including an initial cash payment of $16,000,000, of which
$1,600,000 was held in escrow for certain contingencies in accordance with the
acquisition agreement. The remaining purchase price was an earnout discussed
below. The operating results of PRI and PCG are included in the Company's
consolidated statements of operations since July 1, 1997. In May 1998, the
Company paid $7,127,437 and issued 1,580,582 additional shares of its common
stock to the former shareholders of PRI as additional purchase price of
$21,382,312. This was equal to 14 times PRI's net income for the calendar year
ended December 31, 1997, calculated in accordance with the contingent purchase
price provisions of the acquisition agreement. The Company received $962,154 of
the original $1,600,000 escrow as PCG failed to meet its earnings benchmark as
defined in the acquisition agreement. These transactions resulted in $38,097,025
goodwill that is being expensed over the remaining 30-year amortization period.

In February 1997, the Company acquired substantially all of the assets of
Technology Management Resources, Inc. ("TMR"), a company in substantially the
same business as the Company, which was accounted for using the purchase method
of accounting. The consideration initially paid by the Company related to this
acquisition was $8,500,000, of which $500,000 was held in escrow for certain
contingencies in accordance with the acquisition agreement. The initial purchase
price of $8,500,000, plus assumed liability, has been allocated to the assets
acquired based on their estimated fair value as of the date of acquisition. SCB
initially agreed to issue the former TMR shareholders up to $4,000,000 in SCB
common stock as additional purchase price contingent upon growth in the acquired
business' revenues and earnings for the fiscal years ending April 30, 1998,
1999, and 2000. Effective December 30, 1997, SCB agreed to pay the former TMR
shareholders $1,200,000 in cash in full and final settlement of any additional
purchase price payments which has been accounted for as additional goodwill.
Also effective as of December 30, 1997, SCB released the $500,000 escrow amount
that was being held to satisfy potential indemnification obligations and
terminated the employment of one of the former shareholders. The operating
results of TMR are included in the Company's consolidated statements of
operations since March 1, 1997.

In May 1998, the Company effected a business combination with Proven
Technology, Inc. ("Proven"), a company in substantially the same business as the
Company. The combination was accounted for using the pooling-of-interests method
of accounting. The Company exchanged 543,724 shares of its common

29
31

stock for all the outstanding stock of Proven. Because of its size, the
transaction does not require restatement of prior financial results.

In May 1999, the Company paid $6,647,000 for substantially all the assets
of Global Services, Inc. ("Global"), a company in the business of reselling used
computer equipment. The acquisition was accounted for as a purchase. In two
other transactions consummated at substantially the same time, the Company sold
the residual interests in four computer lease schedules (with a book value of
approximately $1,063,000) to Quest Residual Services LLC ("Quest") for a total
price of $3,650,000. As discussed in Note 2, the Company determined that the
sale of these lease residuals should be recorded as a part of the acquisition of
Global. The primary assets acquired in this transaction were approximately
$200,000 in used computer inventory, a customer list, and two-year employment
agreements (with a one-year non-competition provision) with the two principal
employees of Global who had relationships with the customers. The operating
results of Global are included in the Company's consolidated statement of
operations since May 1, 1999.

On March 3, 2000, the Company acquired substantially all the assets of RAO
Consulting Incorporated ("RAO"), an ERP consulting company which has an
affiliation with a consulting practice in India. The purchase price of
approximately $1,500,000 consisted of $300,000 in cash, a $300,000 promissory
note (which was placed in escrow), and 333,000 shares of the Company's common
stock delivered at closing. The purchase price also includes an earnout payment
of 2-3 times EBITDA for the RAO business in fiscal 2001 in the event that such
EBITDA exceeds $150,000 in that period. The acquisition was accounted for using
the purchase method of accounting. In May 2000, the Company and RAO agreed that
the escrow would change to include a $150,000 promissory note and 50,000 shares
of Company common stock and that SCB would retire $150,000 of the original
promissory note. The operating results of RAO are included in the Company's
consolidated statement of operations since March 1, 2000.

4. ACCOUNTS RECEIVABLE -- TRADE

Accounts receivable - trade includes unbilled receivables of $3,870,737 and
$13,813,099 under contracts to purchase services as of April 30, 2000 and 1999,
respectively. Such amounts are billable upon completion of performance
milestones. Substantially all of the unbilled receivables are expected to be
collected within one year.

5. INVESTMENT IN LEASING ACTIVITIES

The company has investments in direct financing leases and non-cancelable
operating leases. Discussed below are the components of each.

The components of the net investment in direct financing leases are as
follows:

AS OF APRIL 30,
-------------------------------
2000 1999
------------ ------------

Minimum lease payments receivable $ 12,903,481 $ 15,912,574
Unguaranteed residual values of leased equipment 3,189,926 4,260,804
Indirect leasing costs 280,804 161,581
Unearned income (2,297,956) (3,480,774)
------------ ------------
Net investment in direct financing leases $ 14,076,255 $ 16,854,185
============ ============

The following is a summary by year of the future minimum lease payments
receivable from direct financing leases and minimum future rentals on
non-cancelable operating leases:

MINIMUM LEASE
PAYMENTS MINIMUM TOTAL PAYMENTS
YEAR ENDING APRIL 30, RECEIVABLE RENTALS RECEIVABLE
--------------------- -------------- ----------- -----------

2001 $ 6,871,909 $ 7,042,702 $13,914,611
2002 2,835,553 4,036,905 6,872,458
2003 2,319,679 1,482,123 3,801,802
2004 593,280 18,803 612,083
2005 283,060 1,442 284,502
----------- ----------- -----------
$12,903,481 $12,581,975 $25,485,456
=========== =========== ===========

30
32

The minimum lease payments receivable for all direct financing leases and
minimum future rentals on non-cancelable operating leases are assigned to
lenders as security for non-recourse debt which is discussed in Note 6.

The following items comprise the net amounts of leasing activities in the
respective balance sheet captions:

April 30
-----------------------------
2000 1999
----------- -----------

Investment in leases
Direct financing leases $14,076,255 $16,854,185
Equipment under operating leases,
net of accumulated depreciation
of $6,680,934 in 2000 and $4,104,044
in 1999. 13,063,344 5,983,135
----------- -----------
27,139,599 22,837,320
Less: current portion 13,914,611 11,794,999
----------- -----------
$13,224,988 $11,042,321
=========== ===========

6. NON-RECOURSE DEBT

At April 30, 2000, the non-recourse debt balances were $10,324,911 and
$10,106,882 for direct financing leases and operating leases, respectively. At
April 30, 1999, the non-recourse debt balances were $14,186,516 and $3,643,765
for direct financing leases and operating leases, respectively. Substantially
all of the proceeds from the issuance of non-recourse debt was used to purchase
assets leased under direct financing and operating leases. The non-recourse
financing, which bears interest at rates ranging from 6.2% to 14.0%, is secured
by the assigned lease payments and the underlying leased property. The lenders
receive lease payments directly from the lessees. The following is a summary of
the future maturities of non-recourse debt:

YEAR ENDING DEBT RELATING TO DIRECT DEBT RELATING TO
APRIL 30, FINANCING LEASES OPERATING LEASES TOTAL
----------- ----------------------- ---------------- ------------

2001 $ 5,308,444 $ 4,386,262 $ 9,694,706
2002 2,188,122 4,124,097 6,312,219
2003 2,005,077 1,540,465 3,545,542
2004 550,257 56,058 606,315
2005 273,011 -- 273,011
----------- ----------- -----------
$10,324,911 $10,106,882 $20,431,793
=========== =========== ===========

7. DEBT

The Company has a $5,000,000 line of credit with a bank which bears
interest at a rate of prime plus 2.0% (10.5% at April 30, 2000) and is due upon
demand. At April 30, 2000, and April 30, 1999, $4,974,288 was outstanding under
this line of credit which is unsecured.

Long-term debt consisted of the following at April 30, 2000 and 1999:

APRIL 30,
-------------------------------
2000 1999
------------ ------------

Credit Facility and Term Loan $ 43,015,722 $ 41,337,912
Term notes 2,303,997 2,212,943
------------ ------------
45,319,719 43,550,855
Less current portion 38,242,239 9,796,227
------------ ------------
$ 7,077,480 $ 33,754,628
============ ============

31
33

On February 17, 2000 the Company entered into the Fourth Amended and
Restated Loan Agreement (the "Loan Agreement"). Under the Loan Agreement, the
Company has a $26,250,000 revolving credit facility (the "Credit Facility"), a
$15,000,000 term loan (the "Term Loan") and a $7,000,000 short-term loan (the
"Short Term Loan") with a bank which is secured by receivables, inventory,
equipment, fixtures and other assets of the Company. The Credit Facility, Term
Loan, and Short Term Loan bear interest at LIBOR plus an additional margin
depending on the funded debt to EBITDA ratio (9.1975 % and 6.43 % at April 30,
2000 and 1999, respectively).

Pursuant to the Loan Agreement, the Credit Facility matures October 31,
2000, the Term Loan matures on July 31, 2002 and the Short Term Loan matures on
May 17, 2000. Additionally, the Loan Agreement contains various covenants,
including funded debt to EBITDA ratio, restrictions on capital expenditures and
leasing obligations. The Loan Agreement also requires that any proceeds from the
sale of assets or subsidiaries or from receipt of income tax refunds be used to
pay down debt.

On June 15, 2000 the Company entered into the Sixth Amended and Restated
Loan Agreement (the "Modified Loan Agreement"). Under the Modified Loan
Agreement, the maturity date of the Credit Facility is extended to December 15,
2000. Additionally, the Modified Loan agreement increases the allowable funded
debt to EBITDA ratio and provides for a borrowing base certificate. In
connection with this Credit Facility, the Company granted 250,000 common stock
warrants to the lender at an exercise price equal to the average reported
closing price per share during the thirty consecutive trading days ending on
December 14, 2000. The fair value of the warrants will be amortized over the
term of the loan.

On August 11, 2000, the Company entered into the Seventh Amended and
Restated Loan Agreement, which provided for $2,500,000 in a short-term loan and
cancels certain financial covenants from the Second Amendment, some of which the
Company was not in compliance with at April 30, 2000. This short-term loan
matures on September 10, 2000.

At April 30, 2000 and 1999, there was $25,727,000 and $27,656,000,
respectively, outstanding under the Credit Facility. In May 2000, the Credit
Facility was reduced by $1,000,000 from the proceeds of the TMR business unit
and in July 2000 was reduced $1,725,000 from the proceeds of an income tax
refund.

The Term Loan is payable in monthly installments of $353,845 and at
April 30, 2000 there was $10,288,722 outstanding under the Term Loan.

The Short Term Loan was retired in May 2000 from the proceeds of the sale
of the TMR business unit.

The Company has several term notes with various lending institutions that
bear interest at rates ranging from 8.4% to 10.5%. These notes have varying
maturity dates ranging from August 2000 to May 2001. The notes are secured
primarily by computer equipment, as the majority of the notes were obtained for
the purchase of such equipment.

Future maturities related to long-term debt are as follows:

YEAR ENDING APRIL 30, LONG-TERM DEBT
--------------------- --------------

2001 $38,242,239
2002 4,014,204
2003 3,063,276
-----------
$45,319,719
===========

8. CAPITAL LEASE

The Company has a capital lease for computer equipment used on various
outsourcing engagements which requires payments of principal and interest of
$624,000 in fiscal 2001,and $208,000 in fiscal 2002, with $42,193 of these
payments representing interest. The present value of the minimum lease payments
at April 30, 2000 and 1999, was $737,807 and $1,275,063, respectively. At April
30, 2000, the current portion of the present value of minimum lease payments is
$583,976. The capital lease is secured by the

32
34

equipment leased which is included in furniture, fixtures and equipment in the
consolidated balance sheets at April 30, 2000 and 1999. The cost and accumulated
depreciation of the computer equipment reflected in the consolidated balance
sheet at April 30, 2000, were $379,522 and $260,921, respectively. The cost and
accumulated depreciation of the computer equipment reflected in the consolidated
balance sheet at April 30, 1999, were $379,522 and $166,011, respectively

9. EMPLOYEE BENEFIT PLANS

The Company has a profit-sharing plan with an employee stock ownership plan
(the "ESOP") provision for full-time employees age 21 and over. Contributions
are made at the discretion of the Board of Directors. The Company did not
contribute to the plan for the years ended April 30, 2000, 1999 and 1998, but
paid administrative expenses associated with the plan of $26,850, $21,510, and
$21,960 in such years.

The Company also provides a qualified 401(k) profit sharing plan for
full-time employees age 21 or over who have been with the Company for thirty
days by April 30. The Company matches a percentage of the employees contribution
based on length of service. Contributions were $853,656, $538,758, and $144,330
for the years ended April 30, 2000, 1999 and 1998, respectively.

10. EMPLOYMENT AGREEMENT

The Company has an employment agreement with its Chairman that expires on
October 31, 2001. This agreement provided for an annual base salary that
effective May 5, 2000, was modified to $300,000. Additionally, at the initial
signing of the contract the Company granted options to the executive to purchase
35,211 shares of common stock.

11. LEASES

Total rent expense for the years ended April 30, 2000, 1999 and 1998 was
$2,079,126, $1,559,211, and $1,015,572, respectively. The Company leases certain
office facilities and vehicles under terms of non-cancelable operating lease
agreements which expire at various dates. Total future annual lease requirements
are as follows:

YEAR ENDING APRIL 30, LEASE REQUIREMENTS
--------------------- ------------------

2001 $ 2,344,446
2002 2,006,518
2003 2,060,011
2004 630,914
2005 661,951
Thereafter 2,647,778
-----------
$10,351,618
===========

12. SIGNIFICANT CUSTOMERS

The Company earns a significant portion of its revenue from its top five
customers. Revenues earned from its top five customers totaled 37%, 36%, and 35%
for the years ended April 30, 2000, 1999, and 1998, respectively. At April 30,
2000 and 1999, accounts receivable from these significant customers were
$12,006,254 and $13,770,582, respectively.

33
35

13. FEDERAL AND STATE INCOME TAXES

Significant components of the provision for income taxes are as follows:

YEAR ENDED APRIL 30,
-----------------------------------------------
2000 1999 1998
----------- ----------- -----------

Federal:
Current $(5,587,577) $ 1,667,268 $ 3,301,222
Deferred 1,412,365 (957,684) (139,094)
----------- ----------- -----------
(4,175,212) 709,584 3,162,128
----------- ----------- -----------
State:
Current (1,000,760) 308,490 770,411
Deferred 252,961 (149,153) (28,468)
----------- ----------- -----------
(747,799) 159,337 741,943
----------- ----------- -----------
Total expense (benefit) $(4,923,011) $ 868,921 $ 3,904,071
=========== =========== ===========

Deferred tax liabilities and assets are comprised of the following:

YEAR ENDED APRIL 30,
----------------------------
2000 1999
----------- ----------

Deferred tax liabilities:
Leasing activities $ 3,565,652 $2,927,189
Deductible goodwill 370,483 932,349
Accumulated depreciation 2,337,351 838,405
----------- ----------
Total deferred tax liabilities 6,273,486 4,697,943
----------- ----------

Deferred tax assets:
Goodwill impairment 1,258,168 --
Impairment of assets and provision
for contract losses 647,433 2,282,699
Vacation expense 794,134 663,546
Net operating loss carryforward 871,718 1,685,367
Allowance for doubtful accounts 1,151,486 181,110
----------- ----------
Total deferred tax assets 4,722,939 4,812,722
----------- ----------

Net deferred tax assets (liabilities) $(1,550,547) $ 114,779
=========== ==========

The reconciliation of income tax computed at the U.S. federal statutory
tax rates to income tax expense is:

YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------
2000 1999 1998
------------------------- --------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ---------- ------- ------------ -------

Tax at U.S. statutory rates $(4,509,528) (34.0%) $660,358 34.0% $3,396,440 34.0%
State income taxes, net of
federal tax benefit (470,235) (3.5) 105,162 5.4 489,682 4.9
Other, net 56,752 0.4 103,401 5.3 17,949 0.2
----------- ----- -------- ---- ---------- ----

$(4,923,011) (37.1%) $868,921 44.7% $3,904,071 39.1%
=========== ===== ======== ==== ========== ====

PCG has a federal income tax loss carryforward for tax return purposes of
$2.2 million that was created primarily from leasing activities. The loss
carryforward expires in various amounts through 2011.

34
36

14. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

YEAR ENDED APRIL 30,
-----------------------------------
2000 1999 1998
-------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NUMERATOR:
Net income (loss) $ (8,340) $ 1,073 $ 6,085
======== ======= =======

DENOMINATOR:
Denominator for basic earnings per share
- weighted average shares 24,763 24,683 22,464
Effect of dilutive securities:
Employee stock options 0 238 292
-------- ------- -------
Denominator for diluted earnings
per share - adjusted weighted average
and assumed conversions 24,763 24,921 22,756
======== ======= =======

Basic earnings (loss) per share $ (0.34) $ 0.04 $ 0.27
======== ======= =======

Diluted earnings (loss) per share $ (0.34) $ 0.04 $ 0.27
======== ======= =======

15. STOCK INCENTIVE PLANS

The Stock Incentive Plans provide for the granting of incentive stock
options or non-qualified options to employees and to the Company's non-employee
directors to purchase shares of the Company's common stock. The options
generally become exercisable within one to four years from the date of grant and
expire ten years from the date of grant. Under the current plan, 780,139 shares
of common stock are available for grant. The plan also provides for grants of
stock appreciation rights and restricted stock. The following amounts reflect
the effect of all stock dividends and splits declared through April 30, 2000:

YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 2000 APRIL 30, 1999 APRIL 30, 1998
---------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------

Outstanding at May 1 2,123,095 $6.93 2,015,183 $7.01 1,093,050 $5.41
Granted 1,604,550 $3.53 388,922 $6.74 1,172,075 $8.50
Exercised (1,300) $5.34 (56,478) $7.26 (112,330) $6.75
Canceled (443,812) $7.06 (224,532) $7.24 (137,612) $7.35
--------- --------- ---------
Outstanding at April 30 3,282,533 $5.24 2,123,095 $6.93 2,015,183 $7.01
========= ========= =========
Exercisable at year end 2,299,983 $5.72 1,480,498 $7.04 874,983 $6.69
Weighted average fair
value of options
granted during year $2.72 $3.22 $4.25

Exercise prices for options outstanding as of April 30, 2000, ranged
from $2.72 to $13.25. The weighted average remaining contractual life of those
options is approximately eight years.

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issues to Employees, and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-based Compensation, requires use of option valuation models
that were

35
37

not developed for use in valuing employee stock options. Under APB No.
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rate of
6.00 percent, 5.01 percent and 6.04 percent; no dividend yield; volatility
factors of the expected market price of the Company's common stock of .992, .487
and .487; and a weighted average expected life of the option of five years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The company's
pro forma information follows:

2000 1999 1998
------------ ---------- ----------

Pro forma net (loss) income:
As reported - $(8,340,307) $1,073,307 $6,085,457
Pro forma - for SFAS No. 123 (10,702,636) $286,128 $3,464,477
Pro forma earnings per share:
As reported - basic $(0.34) $0.04 $0.27
As reported - diluted $(0.34) $0.04 $0.27
Pro forma - for SFAS No. 123 - basic $(0.43) $0.01 $0.15
Pro forma - for SFAS No. 123 - diluted $(0.43) $0.01 $0.15

16. TVA SETTLEMENT

In the fiscal quarter ended October 31, 1998, the Company reached a
tentative agreement with the United States Attorney for the Western District of
Tennessee and the Tennessee Valley Authority (the "TVA") to settle on a civil
basis all claims against the Company related to the Company's billing practices
under its consulting contract with the TVA. The Company has agreed to pay
$1,000,000 to the United States government and $600,000 to the TVA in settlement
of all claims against the Company. The Company provided for an accrual of
$1,900,000 for the anticipated settlement and related costs. The final agreement
was executed on May 5, 1999.

In connection with the settlement, a former officer of the Company plead
guilty to a single felony count of submitting a false claim of less than
$10,000. Pursuant to the resignation of such officer from the Company, SCB
recorded severance expense of $800,000 in the fiscal quarter ended October 31,
1998, with non-compete payments to the former officer (aggregating $980,000)
being amortized ratably over three years.

The $1,900,000 settlement charge and the $800,000 severance charge are
reflected on the consolidated statement of income under the caption "TVA
settlement and severance payments."

17. IMPAIRMENT OF ASSETS AND PROVISION FOR CONTRACT LOSSES

During the fourth fiscal quarter of 1999, the Company completed an
evaluation of its operations related to a data center and determined that its
best course of action would be to close the facility. The data center had
historically generated revenues through data processing services for customers
using legacy systems. However, due to changes in the industry conditions and
significant increases in the

36
38

pricing of software licenses used in conjunction with legacy systems, it became
obvious that the data center would continually generate operating losses in the
future without significant capital improvements. Consequently, the Company
recorded a non-cash nonrecurring charge of $1,800,000 for contract loss reserves
which management believed were sufficient to cover estimated losses on the
wind-down of its remaining contractual obligations related to the data center.

Additionally, the Company identified a non-cash impairment of the long-term
assets related to the data center as the projected future cash flows of the data
center were less than the carrying value of the assets. These assets which
primarily consist of computer equipment were written down to their fair value
based on the salvage value of the assets. As a result, an impairment loss of
$3,950,0000 was also recorded in the fourth fiscal quarter of 1999.

The Company has continuously re-evaluated the remaining cost to wind-down
its obligations related to the data center. Due to the settlement of two
employment agreements and an unanticipated licensing fee payment, the Company
has recorded an additional charge of $848,751 for contract loss reserves, during
the third fiscal quarter of 2000, which management believes is sufficient to
cover estimated losses through April 30, 2000. Subsequent to April 30, 2000, the
Company will have no remaining contractual obligations relating to the data
center.

These charges are based on estimates and, therefore, are subject to various
risks and uncertainties related to the Company's ability to secure agreements
with third parties and relinquish the assets. As a result, the Company believes
it is reasonably possible that these estimates may be revised in the near term.
However, the impacts of such revisions, if any, are not expected to be material.

In April 2000, as called for by the Company's accounting policy, the
Company evaluated all goodwill amounts to determine recoverability. Due to a
dramatic change in market conditions combined with a short (three-year)
amortization period, the Company determined $2,631,000 of the goodwill recorded
in the Global acquisition is impaired.

18. SEGMENT INFORMATION

The Company operates in two industry segments: Professional Services
and Enterprise Solutions.

The revenue components of the Professional Services segment consist
primarily of (1) information technology ("IT") consulting, including evaluation,
design and reengineering of computer systems, management, quality assurance and
technical direction for IT projects, as well as functional expertise and
training; and (2) professional staffing, which involves providing skilled IT
staff on an as-needed basis.

The revenue components of the Enterprise Solutions segment consist
primarily of (1) outsourcing, including system development and integration,
maintenance, data center management, help desk and technical services, remote
processing, computer hardware sales and leasing; (2) enterprise resource
planning ("ERP") services, which include planning and evaluation, systems
analysis and administration, implementation and functional support; and (3)
e-services, which include enterprise management services, Internet application
development, and design and implementation of communication networks.

37
39

Summarized financial information concerning the operating segments in which
the Company operated at April 30, 2000, 1999 and 1998, and for each of the years
then ended is shown in the following tables:

2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)

OPERATING SEGMENTS
Revenue:
Professional Services $ 109,479 $ 110,060 $ 78,399
Enterprise Solutions 48,478 41,956 27,323
Corporate -- -- --
--------- --------- ---------
$ 157,957 $ 152,016 $ 105,722
========= ========= =========
Income (loss) from operations: (a)
Professional Services $ 8,780 $ 16,693 $ 14,421
Enterprise Solutions (1,245) 4,664 2,078
Corporate (13,550) (7,511) (5,498)
--------- --------- ---------
$ (6,015) $ 13,846 $ 11,001
========= ========= =========
Total assets:
Professional Services $ 28,095 $ 35,281 $ 28,528
Enterprise Solutions 102,038 98,463 64,202
Corporate 10,167 9,887 7,209
--------- --------- ---------
$ 140,300 $ 143,631 $ 99,939
========= ========= =========
Expenditures for long-lived assets:
Professional Services $ 1,290 $ 1,341 $ 1,336
Enterprise Solutions 27,406 37,741 24,042
Corporate 1,056 1,097 1,093
--------- --------- ---------
$ 29,752 $ 40,179 $ 26,471
========= ========= =========
Depreciation and amortization:
Professional Services $ 1,225 $ 818 $ 310
Enterprise Solutions 8,688 5,789 3,433
Corporate 790 670 254
--------- --------- ---------
$ 10,703 $ 7,277 $ 3,997
========= ========= =========

(a) 2000 income from operations excludes the nonrecurring charges of $848,751
contract loss reserves and $2,631,000 for an impairment of long-lived
assets. 1999 income from operations excludes the nonrecurring charges of
$1,800,000 contract loss reserves and $3,950,000 for an impairment of
long-lived assets (see Note 17) as well as a $2,700,000 nonrecurring charge
related to the TVA settlement (see Note 16).

The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. There are no
inter-segment sales. Long-term assets is made up of goodwill and property, plant
and equipment. Corporate services, consisting of general and administrative
services are provided to the segments from a centralized location. In addition,
substantially all of the sales and recruiting workforce is contained in the
Professional Services segment. Costs associated with the sales and recruiting
workforce are allocated to the Enterprise Solutions segment based generally on
forecasted revenues.

38
40
'
19. UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS BY QUARTER

The Company's unaudited consolidated results of operations for each
quarter in fiscal 2000 and 1999 are set forth in the tables below.

QUARTER ENDED
---------------------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1999 1999 2000 2000
------------ ------------ ------------ ------------

Revenue $ 43,968,030 $ 43,325,671 $ 37,156,545 $ 33,506,748
Cost of services 30,462,925 30,488,990 30,337,519 26,779,210
Provision for contract losses -- -- 848,751 --
------------ ------------ ------------ ------------
Gross profit 13,505,105 12,836,681 5,970,275 6,727,538
Selling, general and administrative
expenses 8,678,828 9,381,072 10,945,197 16,898,484
Impairment of assets -- -- -- 2,631,000
------------ ------------ ------------ ------------
Income (loss) from operations 4,826,277 3,455,609 (4,974,922) (12,801,946)
Other income (expenses) (844,789) (987,899) (873,484) (1,062,164)
------------ ------------ ------------ ------------
Income (loss) before taxes 3,981,488 2,467,710 (5,848,406) (13,864,110)
Income tax expense (benefit) 1,595,463 985,528 (2,306,921) (5,197,081)
------------ ------------ ------------ ------------
Net income (loss) $ 2,386,025 $ 1,482,182 $ (3,541,485) $ (8,667,029)
============ ============ ============ ============

Net income (loss) per share - basic $ 0.10 $ 0.06 $ (0.14) $ (0.35)
============ ============ ============ ============

Net income (loss) per share - diluted $ 0.10 $ 0.06 $ (0.14) $ (0.35)
============ ============ ============ ============

Weighted average number of common
shares (basic) 24,711,924 24,711,924 24,711,924 24,878,524
============ ============ ============ ============
Adjusted weighted average
number of common shares (diluted) 24,762,646 24,711,924 24,711,924 24,878,524
============ ============ ============ ============

QUARTER ENDED
---------------------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1998 1998 1999 1999
------------ ------------ ------------ ------------

Revenue $ 34,603,684 $ 38,917,885 $ 36,742,437 $ 41,751,855
Cost of services 23,942,509 26,790,465 26,450,547 29,994,831
Provision for contract losses -- -- -- 1,800,000
------------ ------------ ------------ ------------

Gross profit 10,661,175 12,127,420 10,291,890 9,957,024
Selling, general and administrative
expenses 6,865,380 7,201,242 7,464,260 9,460,116
TVA settlement and severance
payments 1,900,000 800,000 -- --
Impairment of assets -- -- -- 3,950,000
------------ ------------ ------------ ------------
Income (loss) from operations 1,895,795 4,126,178 2,827,630 (3,453,092)
Other expenses 626,572 882,437 1,041,403 903,871
------------ ------------ ------------ ------------
Income (loss) before taxes 1,269,223 3,243,741 1,786,227 (4,356,963)
Income tax expense (benefit) 867,382 1,258,580 639,743 (1,896,784)
------------ ------------ ------------ ------------
Net income (loss) $ 401,841 $ 1,985,161 $ 1,146,484 $ (2,460,179)
============ ============ ============ ============

Net income (loss) per share - basic $ 0.02 $ 0.08 $ 0.05 $ (0.10)
============ ============ ============ ============

Net income (loss) per share - diluted $ 0.02 $ 0.08 $ 0.05 $ (0.10)
============ ============ ============ ============

Weighted average number of common
shares (basic) 24,665,318 24,671,661 24,683,382 24,709,965
============ ============ ============ ============
Adjusted weighted average
number of common shares (diluted) 25,114,168 24,844,604 24,918,710 24,709,965
============ ============ ============ ============

39
41

Summarized in the tables below is the aggregate pre-tax impact of the
adjustments contained in the Company's unaudited consolidated results of
operations for the first three quarters of fiscal 2000 and for each quarter in
fiscal 1999. The adjustments are grouped according to the types of transactions
involved or accounting entries affected. See Note 2 for further information
regarding the adjustments.

2000
--------------------------------------------------------------------------------------
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED YEAR ENDED
JULY 31, 1999 OCTOBER 31, 1999 JANUARY 31, 2000 APRIL 30, 2000 APRIL 30, 2000
------------- ---------------- ---------------- -------------- --------------

Revenue:
Client services agreement $ 202,806 $ 202,806 $ 202,806 $ -- $ 608,418
Direct financing leases 110,623 102,703 94,432 -- 307,758
Revenue recognition (613,691) 206,995 -- -- (406,696)
--------- --------- --------- ---------- ---------

(Decrease) increase $(300,262) $ 512,504 $ 297,238 -- $ 509,480
========= ========= ========= ========== =========

Direct Expense:
Client service agreement $ 101,329 $ 34,917 $ 34,917 $ -- $ 171,163
Direct financing leases (10,413) (10,413) (10,413) -- (31,239)
Revenue recognition (211,713) -- -- -- (211,713)
Other 114,225 172,659 58,868 -- 345,752
Prior unrecorded audit
adjustments (226,000) -- -- -- (226,000)
--------- --------- --------- ---------- ---------

(Decrease) increase $(232,572) $ 197,163 $ 83,372 $ -- $ 47,963
========= ========= ========= ========== =========
SG&A Expense:
Residual interest in
remarketed leases $ 143,954 $ 143,954 $ 143,953 $ -- $ 431,861
Revenue recognition (60,292) (101,718) (263,968) -- (425,978)
Other -- 128,000 (249,000) -- (121,000)
Other accrued expenses (155,567) (15,567) (15,567) -- (186,701)
Other accrued expenses (323,328) -- -- -- (323,328)
Prior unrecorded audit
adjustments 16,625 16,625 (89,250) -- (56,000)
--------- --------- --------- ---------- ---------
(Decrease) increase $(378,608) $ 171,294 $(473,832) $ -- $(681,146)
========= ========= ========= ========== =========

1999
--------------------------------------------------------------------------------------
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED YEAR ENDED
JULY 31, 1998 OCTOBER 31, 1998 JANUARY 31, 1999 APRIL 30, 1999 APRIL 30, 1999
------------- ---------------- ---------------- -------------- --------------

Revenue:
Client services agreement $ 32,367 $ 173,691 $ 183,396 $ 202,806 $ 592,260
Residual interest in
remarketed leases -- -- (1,650,000) (1,116,451) (2,766,451)
Direct financing leases (650,563) (299,719) 123,568 116,996 (709,718)
Revenue recognition (171,117) 370,846 (216,138) (183,602) (200,011)
Other (230,613) (397,558) (317,839) (549,442) (1,495,452)
Prior unrecorded audit
adjustments 135,000 (210,000) -- -- (75,000)
--------- --------- ----------- ----------- -----------

(Decrease) increase $(884,926) $(362,740) $(1,877,013) $(1,529,693) $(4,654,372)
========= ========= =========== =========== ===========

Direct Expense:
Client service agreement $ 113,215 $ 234,153 $ 234,153 $ 234,153 $ 815,674
Direct financing leases 17,493 8,191 (10,413) (95,413) (80,142)
Other (230,613) (397,558) (317,839) (527,510) (1,473,520)

Prior unrecorded audit
adjustments -- -- -- 276,000 276,000
--------- --------- ----------- ----------- -----------
(Decrease) increase $ (99,905) $(155,214) $ (94,099) $ (112,770) $ (461,988)
========= ========= =========== =========== ===========

SG&A Expense:
Other accrued expenses $ -- -- -- 380,000 380,000
Other accrued expenses 22,398 51,614 51,613 746,509 872,134
Prior unrecorded audit
adjustments 16,625 16,625 16,625 115,625 165,500
--------- --------- ----------- ----------- -----------

(Decrease) increase $ 39,023 $ 68,239 $ 68,238 $ 1,242,134 $ 1,417,634
========= ========= =========== =========== ===========

40
42

20. SUBSEQUENT EVENTS

On May 2, 2000 the Company sold substantially all the assets of TMR for a
price of $9,675,000 in cash, plus the assumption of certain liabilities. The
Company retained approximately $1,500,000 in working capital of TMR which was
not included in the transaction. Of the proceeds from the sale, the Company used
$8,000,000 to repay a $7,000,000 loan obtained for the Global acquisition and
$1,000,000 to permanently reduce the outstanding balance under the Credit
Facility.

21. MANAGEMENT'S PLANS

In May and June 2000, the Company reassessed its strategic direction,
organization structure and costs under the direction of its newly appointed
chief executive officer. In June the Board approved the new chief executive
officer's plans and the Company began implementing organization changes and cost
reductions, especially in the areas of selling, general and administrative
expenses.

Additionally the Company began focusing on reducing direct costs through
management of its recruiting process and more closely monitoring non-chargeble
time of its consultants. Another strategy implemented by the new chief executive
officer is to focus the Company's sales and marketing efforts for new business
on the products and services of the Company's core competency, IT staffing and
consulting. The Company expects these efforts to increase gross profits.

As discussed in Note 20, the Company reduced its debt by $8,000,000 in May
2000. The Company also intends to use the proceeds from the $1,000,000 escrow
fund established in the TMR sale to repay debt when it is released. In addition,
the Company plans to use $5,500,000 of its anticipated income tax refunds to
repay debt. The Company also is evaluating other non-core assets for potential
divestiture.

The Company expects that the changes made in operations, combined with a
substantial reduction in debt, will yield the financial performance to achieve
positive cash flows and to extend its debt by greater than one year when the
debt matures on December 15, 2000.

22. LITIGATION AND LEGAL PROCEEDINGS

In April and May 2000, six shareholders of the Company filed separate
purported class action lawsuits in the United States District Court for the
Western District of Tennessee against the Company and certain of its then
directors and officers. In each case, the plaintiff seeks certification of a
plaintiff class consisting of all persons who purchased or otherwise acquired
the Company's common stock within a specified prior period, other than the
Company's directors and officers and related persons and entities. The suits,
which are substantially the same, generally allege that the defendants violated
federal securities laws by making false and misleading statements regarding the
Company's financial results, which artificially inflated the market price of the
Company's common stock and caused the plaintiffs and other class members to
purchase the Company's common stock at such inflated prices. The suits seek
unspecified monetary damages. On June 1, 2000, the court ordered the
consolidation of each lawsuit into a single matter designated as the In re SCB
Computer Technology Securities Litigation. The Company is reviewing the
litigation and intends to respond in a timely manner. As of the date hereof, the
Company is unable to predict the outcome of the litigation and its ultimate
effect, if any, on the Company's consolidated financial condition and results of
operations.

The Company is involved in various other claims and litigation incidental
to its business. In the opinion of management, these claims and suits in the
aggregate will not have a material adverse affect on the Company's consolidated
financial statements.

41
43

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The information under the caption "Item 4. Changes in Registrant's
Certifying Accountant" in the current report on Form 8-K filed by the Company
with the Securities and Exchange Commission (the "Commission") on April 14,
2000, and the information under the caption "Item 4. Changes in Registrant's
Certifying Accountant" in the current report on Form 8-K filed by the Company
with the Commission on July 3, 2000, are incorporated herein by reference in
response to this item.

42
44

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information under the caption "Item 1 - Election of Directors" in the
Company's proxy statement for its 2000 Annual Meeting of Shareholders (the
"Proxy Statement"), and the information under the caption "Item 1. Business -
Executive Officers" in this report, are incorporated herein by reference in
response to this item.

ITEM 11. EXECUTIVE COMPENSATION

The information under the captions "How are directors compensated?" and
"Executive Officer Compensation" in the Proxy Statement is incorporated herein
by reference in response to this item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information under the caption "Stock Ownership" in the Proxy Statement
is incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

43
45

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) (1) FINANCIAL STATEMENTS

See the Index to Consolidated Financial Statements included in Item 8
of this report for a list of the financial statements filed as part of this
report.

(2) FINANCIAL STATEMENT SCHEDULES

Schedule II - Valuation and Qualifying Accounts.

(3) EXHIBITS

The exhibits listed in the Exhibit Index following the signature
page of this report are filed as part of this Annual Report on Form 10-K or are
incorporated herein by reference.

(B) REPORTS ON FORM 8-K

On April 14, 2000, the Company filed with the Commission a current
report on Form 8-K relating to the resignation of Ernst & Young LLP as the
Company's independent auditor. On April 21, 2000, the Company filed with the
Commission a current report on Form 8-K regarding the filing of certain lawsuits
against the Company which are described in greater detail under the caption
"Item 3. Legal Proceedings" in this report.

44
46

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.

SCB COMPUTER TECHNOLOGY, INC.

By: /s/ T. Scott Cobb
--------------------------
T. Scott Cobb
Chief Executive Officer

Date: August 14, 2000

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

SIGNATURE TITLE DATE
- ----------------------------------- -------------------------------------------- -----------------

Ben C. Bryant, Jr. Chairman of the Board August 14, 2000
- ----------------------------------
Ben C. Bryant, Jr.

T. Scott Cobb Chief Executive Officer August 14, 2000
- ---------------------------------- (principal executive officer)
T. Scott Cobb

Michael J. Boling Executive Vice President - Finance August 14, 2000
- --------------------------------- and Chief Financial Officer
Michael J. Boling (principal financial and accounting officer)

Jack R. Blair Director August 14, 2000
- ---------------------------------
Jack R. Blair

George E. Cates Director August 14, 2000
- ---------------------------------
George E. Cates

James E. Harwood Director August 14, 2000
- ---------------------------------
James E. Harwood

Robert G. McEniry Director August 14, 2000
- ---------------------------------
Robert G. McEniry

45
47

Schedule II - Valuation and Qualifying Accounts
SCB Computer Technology, Inc.

Col. A Col. B Col. C Col. D Col. E
Additions
Balance At Charged Charged Balance
Beginning To Costs To Other At End
Description Of Period And Expenses Accounts Deductions Of Period
- -------------------------------------------------------------------------------------------------------------------------

Year Ended April 30, 2000
Reserves deducted in the balance
sheet from the assets to which they apply
Allowance for losses on:
Accounts Receivable - Trade $ 579,175 $3,024,415 $ -- $2,084,117 $1,519,473
Other Assets - Notes Receivable -- 1,000,000 -- -- 1,000,000
-----------------------------------------------------------------------------
$ 579,175 $4,024,415 $ -- $2,084,117 $2,519,473
=============================================================================
Year Ended April 30, 1999
Reserves deducted in the balance
sheet from the assets to which they apply
Allowance for losses on:
Accounts Receivable - Trade $ 322,891 $ 256,284 $ -- $ -- $ 579,175
-----------------------------------------------------------------------------
$ 322,891 $ 256,284 $ -- $ -- $ 579,175
=============================================================================
Year Ended April 30, 1998
Reserves deducted in the balance
sheet from the assets to which they apply
Allowance for losses on:
Accounts Receivable - Trade $ 21,289 $ 301,602 $ -- $ -- $ 322,891
-----------------------------------------------------------------------------

$ 21,289 $ 301,602 $ -- $ -- $ 322,891
=============================================================================

48

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------

2.1 Agreement and Plan of Merger dated as of September 20, 1996, among the
Company, Delta Acquisition, Inc., Delta Software Systems, Inc., and the
shareholders of Delta Software Systems, Inc., including form of
Indemnity and Escrow Agreement (incorporated herein by reference to
Exhibit 2 to the Company's current report on Form 8-K dated October 8,
1996). Schedules and other exhibits have been omitted from this filing.
The Company will furnish, as supplementary information, copies of the
omitted materials to the Commission upon request.

2.2 Asset Purchase Agreement dated as of February 28, 1997, among the
Company, TMR Acquisition, Inc., Technology Management Resources, Inc.,
and the shareholders of Technology Management Resources, Inc.
(incorporated herein by reference to Exhibit 2.2 to the Company's
registration statement on Form S-3 (Registration No. 333-22869)).
Schedules and other exhibits have been omitted from this filing. The
Company will furnish, as supplementary information, copies of the
omitted materials to the Commission upon request.

2.3 Settlement Agreement and Release dated December 30, 1997, among the
Company, Technology Management Resources, Inc. (formerly TMR
Acquisition, Inc.), Marino Holdings, Inc. (formerly Technology
Management Resources, Inc.), Thomas R. Marshall, and Thomas V. Ruffino
(incorporated herein by reference to Exhibit 2 to the Company's
quarterly report on Form 10-Q for the fiscal quarter ended January 31,
1998).

2.4 Stock Purchase Agreement dated as of June 30, 1997, among the Company
and the shareholders of Partners Capital Group, Inc. (incorporated
herein by reference to Exhibit 2.1 to the Company's current report on
Form 8-K dated July 24, 1997). Schedules and other exhibits have been
omitted from this filing. The Company will furnish, as supplementary
information, copies of the omitted materials to the Commission upon
request.

2.5 Stock Purchase Agreement dated as of June 30, 1997, among the Company
and the shareholders of Partners Resources, Inc. (incorporated herein
by reference to Exhibit 2.2 to the Company's current report on Form 8-K
dated July 24, 1997). Schedules and other exhibits have been omitted
from this filing. The Company will furnish, as supplementary
information, copies of the omitted materials to the Commission upon
request.

2.6* Agreement and Plan of Merger dated as of April 22, 1998, among the
Company, PTI Acquisition, Inc., Proven Technology, Inc., and the
shareholders of Proven Technology, Inc., as amended by Amendment to
Agreement and Plan of Merger dated as of April 22, 1998, among the
parties. Schedules and other exhibits have been omitted from this
filing. The Company will furnish, as supplementary information, copies
of the omitted materials to the Commission upon request.

2.7 Asset Purchase Agreement dated as of May 1, 1999, among the Company,
Partners Resources, Inc., Global Services, Inc., and the shareholders
of Global Services, Inc. (incorporated herein by reference to Exhibit
2.6 to the Company's annual report on Form 10-K for the fiscal year
ended April 30, 1999). Schedules and other exhibits have been omitted
from this filing. The Company will furnish, as supplementary
information, copies of the omitted materials to the SEC upon request.

2.8* Asset Purchase Agreement dated March 1, 2000, among the Company, RAO
Consulting Incorporated, and the shareholder of RAO Consulting
Incorporated. Schedules and other exhibits have been omitted from this
filing. The Company will furnish, as supplementary information, copies
of the omitted materials to the Commission upon request.

46
49

2.9 Asset Purchase Agreement dated as of April 29, 2000, among MAXIMUS,
Inc., the Company, and Technology Management Resources, Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company's
current report on Form 8-K dated April 29, 2000). Schedules and other
exhibits have been omitted from this filing. The Company will furnish,
as supplementary information, copies of the omitted materials to the
Commission upon request.

3.1 Amended and Restated Charter of the Company (incorporated herein by
reference to Exhibit 3 to the Company's quarterly report on Form 10-Q
for the fiscal quarter ended October 31, 1998).

3.2 Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's registration statement on
Form S-1 (Registration No. 33-80707)).

4.1 Specimen certificate evidencing the Company's common stock
(incorporated herein by reference to Exhibit 4.1 to the Company's
registration statement on Form S-1 (Registration No. 33-80707)).

4.2 Article 7 of the Amended and Restated Charter of the Company, as
amended (included in Exhibit 3.1 hereto, which is incorporated herein
by reference to Exhibit 3 to the Company's quarterly report on Form
10-Q for the fiscal quarter ended October 31, 1998).

10.1* Second Amended and Restated Loan Agreement dated as of July 31, 1998,
among NationsBank of Tennessee, N.A., the Company, and certain of its
subsidiaries, including the form of Term Loan Promissory Note
(incorporated herein by reference to Exhibit 10.1 to the Company's
quarterly report on Form 10-Q for the fiscal quarter ended July 31,
1998), as amended by (1) First Modification of Second Amended and
Restated Loan Agreement dated as of September 15, 1998, among the
parties thereto (incorporated herein by reference to Exhibit 10.5 to
the Company's annual report on Form 10-K for the fiscal year ended
April 30, 1999), (2) Second Modification of Second Amended and Restated
Loan Agreement dated as of May 20, 1999, among the parties thereto
(incorporated herein by reference to Exhibit 10.5 to the Company's
annual report on Form 10-K for the fiscal year ended April 30, 1999),
(3) Third Modification of Second Amended and Restated Loan Agreement
dated as of June 21, 1999, among the parties thereto (incorporated
herein by reference to Exhibit 10.5 to the Company's annual report on
Form 10-K for the fiscal year ended April 30, 1999), (4) Fourth
Modification of Second Amended and Restated Loan Agreement dated as of
February 17, 2000, among the parties thereto (incorporated herein by
reference to Exhibit 10.5 to the Company's quarterly report on Form
10-Q for the fiscal quarter ended January 31, 2000), (5) Fifth
Modification of Second Amended and Restated Loan Agreement dated as of
May 1, 2000, among the parties thereto, (6) Sixth Modification of
Second Amended and Restated Loan Agreement dated as of June 5, 2000,
among the parties thereto, and accompanying Common Stock Purchase
Warrant issued by the Company to Bank of America, N.A., and (7) Seventh
Modification of Second Amendment and Restated Loan Agreement dated as
of August 11,2000, among the parties

Executive Compensation Plans and Arrangements Filed as Exhibits Pursuant to Item
14(c) of Form 10-K: Exhibits 10.2 through 10.4

10.2 SCB Computer Technology, Inc. 1995 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-80707)).

10.3* SCB Computer Technology, Inc. 1997 Stock Incentive Plan (incorporated
herein by reference to Appendix A to the Company's definitive proxy
statement dated September 25, 1998), as amended by (1) Amendment No. 1
to 1997 Stock Incentive Plan dated as

50

of November 3, 1998, (2) Amendment No. 2 to 1997 Stock Incentive Plan
dated as of December 14, 1999, and (3) Amendment No. 3 to 1997 Stock
Incentive Plan dated as of August 7, 2000.

10.4* Employment Agreement dated as of November 1, 1998, between the Company
and Ben C. Bryant, Jr. (incorporated herein by reference to Exhibit
10.1 to the Company's quarterly report on Form 10-Q for the fiscal
quarter ended January 31, 1999), as amended by (1) First Modification
to Employment Agreement dated as of November 1, 1999, between the
parties (incorporated herein by reference to Exhibit 10.4 to the
Company's quarterly report on Form 10-Q for the fiscal quarter ended
January 31, 2000), and (2) Second Modification to Employment Agreement
dated as of May 5, 2000, between the parties.

11 Computation of Earnings Per Share (included in Note 14 of the Notes to
Consolidated Financial Statements in Item 8 of this report).

21 Subsidiaries of the Company (incorporated herein by reference to the
Company's annual report on Form 10-K for the fiscal year ended April
30, 1998).

23.1* Consent of BDO Seidman, LLP.

23.2* Consent of Ernst & Young LLP.

27 Financial Data Schedule - Fiscal Year Ended April 30, 2000.

- -------------------
* All or part of this exhibit is filed herewith.