<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 October 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
--------
SCB Computer Technology, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Tennessee 62-1201561
- ---------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1365 W. Brierbrook Road
Memphis, Tennessee 38138
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
901-754-6577
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(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 December 12, 1996, 7,477,119 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 - October 31, 1996 and April 30, 1996 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated statements of income - Three months ended October 31, 1996
and October 31, 1995; six months ended October 31, 1996 and October 31, 1995 . . . . . . . . . . . . . . . . . 4
Consolidated statements of cash flows - Six months ended October 31, 1996
and October 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . 7-9
Part II. Other Information
- ---------------------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
October 31, 1996 April 30, 1996
---------------- --------------
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents
Cash $ 188,495 $ 1,990,745
Commercial paper 12,100,000 0
Variable rate demand notes 6,480,000 0
Securities purchased under agreement to resell 1,570,820 10,000,000
Merrill Lynch Institutional Fund - 7,410,270
------------ -----------
Total cash and cash equivalents 20,339,315 19,401,015
Accounts receivable:
Trade (net) 8,379,264 7,386,273
Related parties 22,270 18,976
Prepaid expenses 132,083 27,791
Inventory 1,244 -
Deferred federal & state income tax 200,160 201,290
------------ -----------
Total current assets 29,074,336 27,035,345
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures, and equipment 1,297,712 1,005,895
Accumulated depreciation (679,517) (583,578)
------------ -----------
1,966,488 1,770,610
Land 443,301 443,301
------------ -----------
2,409,789 2,213,911
Other 152,601 22,481
------------ -----------
Total assets $ 31,636,726 $29,271,737
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 532,368 $ 672,823
Accrued & withheld payroll taxes,
insurance, & payroll deductions 173,544 262,655
Accrued vacation 501,748 530,067
Other accrued expenses 888,648 804,058
Accrued federal and state income taxes 289,148 123,207
------------ -----------
Total current liabilities 2,385,456 2,392,810
Deferred federal & state income taxes 82,761 82,761
------------ -----------
Total liabilities 2,468,217 2,475,571
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 7,477,119
shares issued and outstanding at
October 31, 1996 and 7,015,583 shares
issued and outstanding at April 30, 1996 74,771 71,755
Additional paid-in capital 23,834,147 23,642,164
Retained earnings 5,259,591 3,082,247
------------ -----------
Total shareholders' equity 29,168,509 26,796,166
------------ -----------
Total liabilities & shareholders' equity $ 31,636,726 $29,271,737
============ ===========
</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 Six Months
Ended Ended
October 31, October 31,
1996 1995 1996 1995
------------ ----------- ----------- -----------
(Restated) (Restated) (Restated) (Restated)
<S> <C>
Revenue $15,583,536 $14,110,318 $31,164,853 $26,799,967
Cost of services 11,242,601 9,867,189 22,305,142 18,679,526
----------- ----------- ----------- -----------
Gross profit 4,340,935 4,243,129 8,859,711 8,120,441
Compensation-key executives 150,000 1,354,510 400,000 2,709,020
Other selling, general and
administrative expenses 2,291,789 3,162,322 4,812,968 4,858,049
----------- ----------- ----------- -----------
Total operating expenses 2,441,789 4,516,832 5,212,968 7,567,069
----------- ----------- ----------- -----------
Income (loss) from operations 1,899,146 (273,703) 3,646,743 553,372
Other income (expenses):
Interest income 244,250 190 494,566 686
Interest expense - (16,253) - (38,478)
Other, net (4,586) (23,909) (40,016) (55,395)
----------- ----------- ----------- -----------
Total other income (expenses) 239,664 (39,972) 454,550 (93,187)
----------- ----------- ----------- -----------
Income (loss) before income taxes 2,138,810 (313,675) 4,101,293 460,185
Income tax expense (benefit) 804,000 (203,307) 1,488,905 67,737
----------- ----------- ----------- -----------
Net income (loss) $ 1,334,810 ($110,368) $ 2,612,388 $ 392,448
=========== =========== =========== ===========
Net income (loss) per share $ 0.18 ($0.02) $ 0.35 $ 0.07
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares
outstanding 7,516,141 5,974,613 7,519,559 5,974,613
=========== =========== =========== ===========
</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>
Six Months
Ended
October 31,
------------------------------
1996 1995
----------- -----------
(Restated) (Restated)
<S> <C> <C>
Operating activities
Net income $ 2,612,388 $ 392,448
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 99,972 75,195
Deferred income taxes 1,130 (20,240)
Stock grant 0 1,227,993
(Increase) decrease in:
Accounts receivable:
Trade (992,991) (1,427,683)
Related parties (3,294) (118,590)
Prepaid expenses (104,292) 66,474
Federal & state income taxes refundable - (780,968)
Inventory (1,244) -
Other assets (130,120) (640)
Increase (decrease) in:
Accounts payable-trade (140,455) 307,861
Accrued federal & state income taxes 165,941 (29,201)
Accrued vacation (28,319) 44,842
Accrued compensation-key
executives - 1,169,000
Other accrued expenses 84,590 (552,117)
Accrued & withheld payroll taxes,
insurance, and payroll deductions (89,111) 127,396
----------- -----------
Total adjustments (1,138,193) 89,322
----------- -----------
Net cash provided by operating
activities 1,474,195 481,770
Investing activities
Purchases of fixed assets (295,850) (99,532)
Financing activities
Cash dividends paid to Delta Software Systems, Inc.
shareholders prior to merger (240,000) -
Other (45) -
Net borrowings under line of credit - (91,000)
Payments on long-term debt - (255,851)
----------- -----------
Net cash provided by financing
activities (240,045) (346,851)
----------- -----------
Net increase in cash & cash
equivalents 938,300 35,387
Cash at beginning of period 19,401,015 203,641
----------- -----------
Cash at end of period $20,339,315 $ 239,028
=========== ===========
Supplemental disclosures of cash flow
information:
Interest paid $ - $ 38,478
Income taxes paid $ 1,212,964 $ 899,000
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
October 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 and six month
periods ended October 31, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ending 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.
On September 26, 1996 the Company issued 461,536 shares of common stock in a
merger of Delta Software Systems, Inc. ("Delta Software") with and into a
wholly owned subsidiary of the Company. The merger was accounted for as a
pooling of interests. Accordingly, these consolidated financial statements
have been restated for all periods to include the results of operations and
financial position of Delta Software. For purposes of earnings (loss) per
share computations, the shares issued in the combination with Delta Software
have been treated as outstanding for all periods.
The revenue and net income (loss) for each of the Company and Delta Software
on a separate basis for the three and six month periods ended October 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31 OCTOBER 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
- -------
Company $13,476,007 $12,361,672 $26,651,391 $23,074,719
Delta Software 2,107,529 1,748,646 4,513,462 3,725,248
----------- ----------- ----------- -----------
Combined $15,583,536 $14,110,318 $31,164,853 $26,799,967
=========== =========== =========== ===========
Net income (loss)
- -----------------
Company $ 1,121,337 $ (275,869) $ 2,087,070 $ 74,809
Delta Software 213,473 165,501 525,318 317,639
----------- ----------- ----------- -----------
Combined $ 1,334,810 $ (110,368) $ 2,612,388 $ 392,468
=========== =========== =========== ===========
</TABLE>
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<PAGE> 7
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> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 26, 1996 the Company issued 461,536 shares of common stock in a
merger of Delta Software Systems, Inc. ("Delta Software") with and into a
wholly owned subsidiary of the Company. The merger was accounted for as a
pooling of interests. Accordingly, the consolidated financial statements of
the Company and the following discussion have been restated for all periods to
include the financial condition and results of operations of Delta Software.
Results of Operations
Revenue increased from $14.1 million for the quarter ended October 31,1995 to
$15.6 million for the quarter ended October 31, 1996, an increase of
approximately 10.4%. Revenue increased from $26.8 million for the first six
months of fiscal 1996 to $31.2 million for the comparable period of fiscal
1997, an increase of approximately 16.3%. 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 $4.2 million for the second quarter of fiscal 1996
to $4.3 million for the second quarter of fiscal 1997, an increase of
approximately 2.3%. Gross profit increased from $8.1 million in the fiscal
1996 six month period to $8.9 million in the comparable period of fiscal 1997,
an increase of approximately 9.1%. The increase was attributable primarily to
the increase in revenue over the prior period. Gross profit margin for the
quarter decreased from 30.1% to 27.9%, primarily because of the (i) investment
made during the quarter for the development of Year 2000 services, (ii) the
costs associated with the development of a governmental budgeting and tracking
software package for resale, and (iii) underutilization of certain technical
staff in anticipation of new consulting agreements. Gross margin for the six
month period decreased from 30.3% to 28.4%, primarily for the same reasons
causing the quarterly decrease.
Compensation for key executives decreased from $1,355,000 in the second quarter
of fiscal 1996 to $150,000 in the comparable period of fiscal 1997.
Compensation for key executives decreased from $2,709,000 in the fiscal 1996 six
month period to $400,000 in the comparable period in 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 effective as of February 14, 1996 in connection with the Company's
initial public offering ("IPO").
Other selling, general and administrative expenses decreased from $3.2 million
for the second quarter of fiscal 1996 to $2.3 million for the second quarter of
fiscal 1997. This decrease was primarily attributable to the inclusion of stock
bonuses of $1.2 million in selling, general and administrative expenses in the
second quarter of fiscal 1996. In addition, the Company incurred unanticipated
expenses of $259,000 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. The Company also incurred $118,000 of expenses in
connection with its merger with Delta Software in the second quarter of fiscal
1997. Other selling, general and administrative expenses decreased from
$4,858,000 in the fiscal 1996 six month period to $4,813,000 in the comparable
period in fiscal 1997. The fiscal 1997 period included a charge of $688,000 for
legal and accounting fees incurred in connection with the TVA matter, and
$118,000 of expenses in connection with the merger with Delta Software.
Net income for the quarter ended October 31, 1996 increased to $1,335,000, or
$.18 per share, compared with a loss of $110,000, or $.02 per share, for the
quarter ended October 31, 1995. Net income for the six month period ended
October 31, 1996 increased 566% to $2,612,000, or $.35 per share, compared with
net income of $392,000, or $.07 per share, for the comparable period in the
prior year.
Liquidity and Capital Resources
Cash flow has historically been the Company's primary source of liquidity.
Cash flows from operations were $482,000 for the six months ended October 31,
1995, as compared to $1,474,000 in the comparable period for 1996. The cash
provided by operations increased during this period primarily because of
increased profits.
The Company's working capital increased from $2,768,000 for the second quarter
of fiscal 1996 to $26,689,000 for the second quarter of fiscal 1997, primarily
because of the IPO in February 1996 and the receipt of $20.8 million in net
proceeds. The Company's current ratio at October 31, 1996 was 12.2:1.
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,
-8-
<PAGE> 9
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.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may be deemed to contain certain
forward-looking statements regarding the anticipated financial and operating
results of the Company. The Company undertakes no obligation to publicly
release any revisions to any forward-looking statements contained herein to
reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events. Information contained in these
forward-looking statements is inherently uncertain and actual performance and
results may differ materially due to many important factors, many of which are
beyond the Company's control, including the Company's dependence on key
clients; the Company's dependence on the availability of qualified IT
employees; the Company's dependence on key management personnel; the Company's
ability to sustain and manage growth; the timing and ultimate outcome of the
governmental investigations of the Company and certain members of its
management; competition; general economic conditions; and the like.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The government's investigation into the TVA billing matter is
continuing. Additionally, subpoenas have been received seeking tax
information, including a subpoena served on the Company's former
auditor and tax accountant. 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.
ITEM 2. CHANGES IN SECURITIES.
On September 26, 1996, the Company issued 461,536 shares of Common
Stock to the four former shareholders of Delta Software in connection
with the merger of Delta Software with and into a wholly owned
subsidiary of the Company. The issuances were made in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933, as
amended, for a transaction not involving a public offering.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 6, 1996 the Company held its 1996 Annual Meeting of
Shareholders. At the Annual Meeting, the shareholders of the Company
elected the following persons to serve as directors for a term of one
year and until their successors are duly elected and qualified with
the number of votes cast for or withheld as set forth opposite their
names:
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<PAGE> 10
<TABLE>
<CAPTION>
Votes
------------------------------------
For Withhold Authority
------------------------------------
<S> <C> <C>
T. Scott Cobb 6,097,583 20,125
Ben C. Bryant, Jr. 6,097,638 20,025
Steve N. White 6,108,038 9,625
James E. Harwood 6,108,138 9,525
Joseph W. McLeary 6,108,138 9,525
</TABLE>
The shareholders of the Company also voted on the ratification of the
appointment of Ernst & Young LLP as the independent public accountants
of the Company for fiscal 1997 with the following number of votes cast
for, against or abstaining:
<TABLE>
<CAPTION>
Votes
------------------------------------------------------------------------
For Against Abstain
------------------------------------------------------------------------
<S> <C> <C>
6,113,638 2,000 2,025
</TABLE>
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 October 8, 1996
reporting the merger of Delta Software with a subsidiary of
the Company, which report contained certain historical
financial statements of Delta Software. A Form 8-K/A was
filed with the SEC on December 4, 1996 amending the prior
report to include pro forma combined financial information of
the Company and Delta Software.
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<PAGE> 11
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: December 16 , 1996
--------------------------
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<PAGE> 12
Index to Exhibits
Exhibit No. Description
- ----------- ----------------------------------------------
11 Statement Re Computation of Per Share Earnings
27 Financial Data Schedule (for the SEC use only)
<PAGE> 1
EXHIBIT 11-STATEMENT Re: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
October 31 October 31
1996 1995 1996 1995
---------------------- ---------------------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 7,477,119 5,927,899 7,477,119 5,927,899
Net effect of dilutive stock options or
stock grants-based on the treasury
stock method using average market
price 39,022 46,714 42,440 46,714
---------- ---------- ---------- ----------
Totals 7,516,141 5,974,613 7,519,559 5,974,613
========== ========== ========== ==========
Net income (loss) $1,334,810 ($110,368) $2,612,388 $392,448
========== ========== ========== ==========
Net income (loss) per share $0.18 ($0.02) $0.35 $0.07
========== ========== ========== ==========
Fully diluted:
Average shares outstanding 7,477,119 5,927,899 7,477,119 5,927,899
Net effect of dilutive stock options or
stock grants-based on the treasury
stock method using the quarter end
market price, if higher than
average market price 51,073 46,714 51,073 46,714
Totals 7,528,192 5,974,613 7,528,192 5,974,613
========== ========== ========== ==========
Net income (loss) $1,334,810 ($110,368) $2,612,388 $ 392,448
========== ========== ========== ==========
Net income (loss) per share $ 0.18 ($0.02) $ 0.35 $ 0.07
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,339,315
<SECURITIES> 0
<RECEIVABLES> 8,427,035
<ALLOWANCES> 25,501
<INVENTORY> 1,244
<CURRENT-ASSETS> 29,074,336
<PP&E> 3,089,306
<DEPRECIATION> 679,517
<TOTAL-ASSETS> 31,636,726
<CURRENT-LIABILITIES> 2,385,456
<BONDS> 0
0
0
<COMMON> 74,771
<OTHER-SE> 29,093,738
<TOTAL-LIABILITY-AND-EQUITY> 31,636,726
<SALES> 31,164,853
<TOTAL-REVENUES> 31,164,853
<CGS> 22,305,142
<TOTAL-COSTS> 22,305,142
<OTHER-EXPENSES> 40,016
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,101,293
<INCOME-TAX> 1,488,905
<INCOME-CONTINUING> 2,612,388
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,612,388
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
