<PAGE> 1
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended July 31, 1996.
( ) Transition Report pursuant to Section 13 or 15(d) of Securities Exchange
Act of 1934
For the transition period from to .
------- -------
Commission File No.: 0-27694
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SCB Computer Technology, Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1201561
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1365 W. Brierbrook Road
Memphis, Tennessee 38138
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(Address of principal executive offices) (Zip Code)
901-754-6577
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
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 periods 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
--- ---
As of September 11, 1996, 7,015,583 shares of the Registrant's common stock
were outstanding.
<PAGE> 2
Index to Form 10-Q
SCB Computer Technology, Inc.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - July 31, 1996 and April 30, 1996.......................... 3
Consolidated statements of income - Three months ended July 31, 1996
and July 31, 1995....................................................................... 4
Consolidated statements of cash flows - Three months ended July 31, 1996
and July 31, 1995 ...................................................................... 5
Notes to consolidated financial statements.............................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 7
Part II. Other Information
Item 1. Legal Proceedings....................................................................... 9
Item 6. Exhibits and Reports on Form 8-K ....................................................... 9
Signature ....................................................................................... 10
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, 1996 April 30, 1996
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents
Cash $ 1,555,254 $ 1,848,443
Securities purchased under agreement to resell 18,500,000 10,000,000
Merrill Lynch Institutional Fund - 7,410,270
----------- -----------
Total cash and cash equivalents 20,055,254 19,258,713
Accounts receivable:
Trade 6,413,518 6,201,969
Related parties 8,071 5,699
Prepaid expenses 59,728 27,791
Deferred federal & state income tax 188,160 201,290
Federal & state income taxes refundable 2,370 -
----------- -----------
Total current assets 26,727,101 25,695,462
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures, and equipment 797,314 636,452
Accumulated depreciation (368,707) (333,464)
----------- -----------
1,776,900 1,651,281
Land 443,301 443,301
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2,220,201 2,094,582
Other 8,491 8,491
----------- -----------
Total assets $28,955,793 $27,798,535
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 631,663 $ 656,915
Accrued & withheld payroll taxes,
insurance, & payroll deductions 64,882 202,904
Accrued vacation 471,748 530,067
Other accrued expenses 456,641 593,961
Accrued federal and state income taxes 673,645 123,207
----------- -----------
Total current liabilities 2,298,579 2,107,054
Long-term liabilities:
Deferred federal & state income taxes 22,800 22,800
----------- -----------
22,800 22,800
----------- -----------
Total liabilities 2,321,379 2,129,854
Shareholders' equity:
Preferred stock, no par value-authorized
1,000,000 shares, none issued - -
Common stock-20,000,000 shares of $.01
par value authorized and 7,015,583
shares issued and outstanding at
July 31, 1996 and April 30, 1996 70,155 70,155
Additional paid-in capital 22,516,279 22,516,279
Retained earnings 4,047,980 3,082,247
----------- -----------
Total shareholders' equity 26,634,414 25,668,681
----------- -----------
Total liabilities & shareholders' equity $28,955,793 $27,798,535
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended
July 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenue $13,175,384 $10,713,047
Cost of services 9,397,393 7,533,782
----------- -----------
Gross profit 3,777,991 3,179,265
Compensation-key executives 250,000 1,354,510
Other selling, general and
administrative expenses 2,122,526 1,164,750
----------- -----------
Total operating expenses 2,372,526 2,519,260
----------- -----------
Income from operations 1,405,465 660,005
Other income (expenses):
Interest income 248,478 172
Interest expense - (21,259)
Other, net (23,210) (22,070)
----------- -----------
Total other income (expenses) 225,268 (43,157)
----------- -----------
Income before income taxes 1,630,733 616,848
Income tax expense 665,000 266,170
Net income $ 965,733 $ 350,678
=========== ===========
Net income per share $ 0.14 $ 0.06
=========== ===========
Weighted average number of common
and common equivalent shares
outstanding 7,015,583 5,433,843
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended
July 31,
-----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Operating activities
Net income $ 965,733 $ 350,678
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation 35,243 22,526
Deferred income taxes 13,130 (8,520)
(Increase) decrease in:
Accounts receivable:
Trade (211,549) (963,479)
Related parties (2,372) (3,588)
Prepaid expenses (31,937) 65,520
Federal & state income taxes refundable (2,370) -
Other assets - 161
Increase (decrease) in:
Accounts payable-trade (25,252) (148,527)
Accrued federal & state income taxes 550,438 252,510
Accrued vacation (58,319) 22,421
Accrued compensation-key
executives - 584,500
Other accrued expenses (137,320) (451,809)
Accrued & withheld payroll taxes,
insurance, and payroll deductions (138,022) 126,637
----------- ----------
Total adjustments (8,330) (501,648)
----------- ----------
Net cash provided (used) by operating
activities 957,403 (150,970)
Investing activities
Purchases of fixed assets (160,862) (30,205)
Financing activities
Net borrowings under line of credit - 125,000
Payments on long-term debt - (43,990)
----------- ----------
Net cash provided by financing
activities - 81,010
----------- ----------
Net increase(decrease) in cash & cash
equivalents 796,541 (100,165)
Cash at beginning of period 19,258,713 203,641
----------- ----------
Cash at end of period $20,055,254 $ 103,476
=========== ==========
Supplemental disclosures of cash flow
information:
Interest paid $ 303 $ 21,485
Income taxes paid $ 114,562 $ 10,182
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
July 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended July 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended April 30, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Registrant's Annual Report on Form 10-K for the fiscal year ended April 30,
1996 filed with the Securities and Exchange Commission.
NOTE B - CHANGE IN CAPITALIZATION
Effective December 21, 1995, the Company's Charter was amended to, among other
things, increase the authorized shares of common stock from 1,000,000 to
20,000,000 and to authorize 1,000,000 shares of preferred stock. In
connection with the Company's initial public offering (the "IPO") on February
14, 1996, the Board declared a 5.56-for-1 common stock split, resulting in the
issuance of 4,418,220 additional shares of common stock. In connection with the
stock split, $44,182 was reclassified from retained earnings to common stock.
All share and per share amounts have been retroactively restated to reflect the
stock split.
In February 1996, the Company completed the IPO, resulting in the issuance of
1,495,000 shares of common stock to the public.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Revenue increased from $10.7 million for the quarter ended July 31,1995 to
$13.2 million for the quarter ended July 31, 1996, an increase of approximately
23.0%. These increases were attributable primarily to services provided under
two new outsourcing projects, the expansion of our client base, and an increase
in consulting and professional staffing services provided to existing clients.
Gross profit increased from $3.2 million for the first quarter of fiscal 1996
to $3.8 million for the first quarter of fiscal 1997, an increase of
approximately 19%. The increase was attributable primarily to the increase in
revenue over the prior period. Gross profit margin for the quarter decreased
from 29.7% to 28.7%.
Compensation for key executives decreased from $1,355,000 in the first three
months of fiscal 1996 to $250,000 in the comparable period of fiscal 1997.
This decrease resulted from the decrease in compensation of T. Scott Cobb,
Chairman, and Ben C. Bryant, Jr., President and Chief Executive Officer,
pursuant to employment contracts entered into in February 1996 and amended in
July 1996.
Other selling, general and administrative expenses increased from $1.2 million
for the first quarter of fiscal 1996 to $2.1 million for the first quarter of
fiscal 1997, an increase of approximately 82.2%. As a percentage of revenue,
other selling, general and administrative expenses increased from 10.9% in the
fiscal 1996 first quarter to 16.11% in the fiscal 1997 first quarter. Selling
and recruiting expenses, including salaries and travel, increased by
approximately $390,000 during the three months ended July 31, 1996 as a result
of an increase in the number of personnel employed in the sales and recruiting
departments. Administrative expenses also increased with the addition of
offices and personnel necessary to support SCB's growth. In addition, the
Company incurred unanticipated expenses of $429,000 in the 1997 fiscal quarter,
which expenses primarily related to legal and accounting fees incurred in
connection with the government's investigation and the Company's internal
review of billings under the TVA consulting contract.
Net income for the quarter ended July 31, 1996 increased 17.5% to $966,000, or
$.14 per share, compared with net income of $351,000, or $.06 per share, for
the quarter ended July 31, 1995.
Liquidity and Capital Resources
Cash flow has historically been the Company's primary source of liquidity.
Cash flows from operations were ($151,000) for the three months ended July 31,
1995, as compared to $957,000 in the comparable period for 1996. The cash
provided by operations increased during this period primarily because of
increased profits and reduced financing requirements for accounts receivable.
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<PAGE> 8
The Company's working capital increased from $960,864 for the first quarter of
fiscal 1996 to $24,428,522 for the first quarter of fiscal 1997, primarily
because of the Company's initial public offering (the "IPO") in February 1996
and the receipt of $20.8 million in net proceeds. The Company's current ratio
at July 31, 1996 was 11.6:1.
The Company's revolving credit facility (the "Revolver") of $1,500,000 expired
according to its terms on August 1, 1996. The Company has not renewed the
Revolver because the Company believes that cash flows from operations, together
with the net proceeds from the IPO, will be sufficient to fund the Company's
operating needs for at least the next twelve months. Although the Company is
currently in preliminary discussion with several firms regarding potential
acquisitions, presently there are no definitive agreements with such firms and
no assurance can be made that any transaction currently being discussed will be
consummated. Any such transactions may be financed through the use of cash,
the issuance of securities (including Common Stock), or a combination of both.
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<PAGE> 9
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 21, 1996, certain members of senior management of the
Company received subpoenas from the Federal Grand Jury of the United
States District Court for the Western District of Tennessee, apparently
related to the government's continuing investigation into the TVA
billing matter. The subpoenas request additional documents and the
personal appearances of such officers before the Grand Jury on
September 18, 1996. See "Item 3 Legal Proceedings" in the Company's
Annual Report on Form 10-K for the fiscal year ended April 30, 1996 for
additional information concerning this matter.
Item 6. Exhibits and reports on Form 8-K
(a) See Index to Exhibits following the Signature page.
(b) A Current Report on Form 8-K was filed by the Company with
the Securities and Exchange Commission on May 29, 1996, reporting
the issuance of a press release relating to the Company's internal
investigation of the Tennessee Valley Authority contract billing
matter.
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<PAGE> 10
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ Gordon Bateman
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
Date: September 12, 1996
-----------------------------------
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<PAGE> 11
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------------------------
<S> <C>
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule (for the SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 11-STATEMENT Re: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months
Ended
July 31
1996 1995
----------------------
<S> <C> <C>
Primary:
Average shares outstanding 7,015,583 5,387,129
Net effect of dilutive stock
grants-based on the treasury
stock method 0 46,714
---------- ----------
Totals 7,015,583 5,433,843
========== ==========
Net Income $ 965,733 $ 350,678
========== ==========
Net income per share $ 0.14 $ 0.06
========== ==========
Fully diluted:
Average shares outstanding 7,015,583 5,387,129
Net effect of dilutive stock
grants-based on the treasury
stock method 0 46,714
---------- ----------
Totals 7,015,583 5,433,843
========== ==========
Net income $ 965,733 $ 350,678
========== ==========
Net income per share $ 0.14 $ 0.06
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SCB COMPUTER TECHNOLOGY INC. FOR THE QUARTER ENDED JULY
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 20,055,254
<SECURITIES> 0
<RECEIVABLES> 6,413,518
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,727,101
<PP&E> 2,588,908
<DEPRECIATION> 368,707
<TOTAL-ASSETS> 28,955,793
<CURRENT-LIABILITIES> 2,298,579
<BONDS> 0
0
0
<COMMON> 70,155
<OTHER-SE> 26,564,259
<TOTAL-LIABILITY-AND-EQUITY> 28,955,793
<SALES> 13,175,384
<TOTAL-REVENUES> 13,175,384
<CGS> 9,397,393
<TOTAL-COSTS> 9,397,393
<OTHER-EXPENSES> 23,210
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,630,733
<INCOME-TAX> 665,000
<INCOME-CONTINUING> 965,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 965,733
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
