<PAGE> 1
UNITED STATES
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 quarterly period ended January 31, 1997.
OR
[ ] 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 (Zip Code)
offices)
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 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
-- --
As of March 11, 1997, 7,477,119 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
<TABLE>
<CAPTION>
Index to Form 10-Q
SCB Computer Technology, Inc.
Page
----
Number
- ------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - January 31, 1997
and April 30, 1996.................................................3
Consolidated statements of income - Three months
ended January 31, 1997 and January 31, 1996; nine
months ended January 31, 1997 and January 31, 1996.................4
Consolidated statements of cash flows - Nine months
ended January 31, 1997 and January 31, 1996........................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.................................................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>
January 31, 1997 April 30, 1996
---------------- --------------
(Restated)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents
Cash $ 458,424 $ 1,990,745
Securities purchased under agreement to resell 1,600,000 10,000,000
Marketable securities 18,580,000 7,410,270
------------ ------------
Total cash and cash equivalents 20,638,424 19,401,015
Accounts receivable:
Trade (net) 8,832,328 7,386,273
Related parties 19,574 18,976
Prepaid expenses 182,362 27,791
Inventory 4,126 --
Deferred federal & state income tax 200,160 201,290
------------ ------------
Total current assets 29,876,974 27,035,345
Fixed assets:
Buildings 1,357,980 1,348,293
Furniture, fixtures, and equipment 1,481,685 1,005,895
Accumulated depreciation (744,583) (583,578)
------------ ------------
2,095,082 1,770,610
Land 444,670 443,301
------------ ------------
2,539,752 2,213,911
Other 297,328 22,481
------------ ------------
Total assets $ 32,714,054 $ 29,271,737
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 565,657 $ 672,823
Accrued & withheld payroll taxes,
insurance, & payroll deductions 320,802 262,655
Accrued vacation 465,490 530,067
Other accrued expenses 798,532 804,058
Accrued federal and state income taxes 147,361 123,207
------------ ------------
Total current liabilities 2,297,842 2,392,810
Deferred federal & state income taxes 82,761 82,761
------------ ------------
Total liabilities 2,380,603 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 6,424,533 3,082,247
------------ ------------
Total shareholders' equity 30,333,451 26,796,166
------------ ------------
Total liabilities & shareholders' equity $ 32,714,054 $ 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 Nine Months
Ended Ended
January 31, January 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
Revenue $ 15,491,395 $ 14,712,853 $ 46,656,248 $ 41,512,820
Cost of services 11,560,939 10,712,999 33,865,981 29,392,525
------------ ------------ ------------ ------------
Gross profit 3,930,456 3,999,854 12,790,267 12,120,295
Compensation-key executives 150,000 755,820 550,000 3,464,840
Other selling, general and
administrative expenses 2,120,514 2,140,473 6,933,482 6,998,522
------------ ------------ ------------ ------------
Total operating expenses 2,270,514 2,896,293 7,483,482 10,463,362
------------ ------------ ------------ ------------
Income from operations 1,659,942 1,103,561 5,306,785 1,656,933
Other income (expenses):
Interest income 265,264 1,686 759,830 2,372
Interest expense -- (23,393) -- (56,871)
Other, net (34,664) (67,033) (74,680) (127,428)
------------ ------------ ------------ ------------
Total other income (expenses) 230,600 (88,740) 685,150 (181,927)
------------ ------------ ------------ ------------
Income before income taxes 1,890,542 1,014,821 5,991,935 1,475,006
Income tax expense 725,700 346,718 2,214,605 414,455
------------ ------------ ------------ ------------
Net income $ 1,164,842 $ 668,103 $ 3,777,330 $ 1,060,551
============ ============ ============ ============
Net income per share $ 0.16 $ 0.11 $ 0.50 $ 0.18
============ ============ ============ ============
Weighted average number of common
and common equivalent shares
outstanding 7,506,074 5,974,613 7,514,870 5,921,790
============ ============ ============ ============
</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>
Nine Months
Ended
January 31,
--------------------------------
1997 1996
------------ -------------
(Restated) (Restated)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,777,330 $ 1,060,551
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 165,372 113,294
Deferred income taxes 1,130 3,719
Stock grant -- 1,227,993
(Increase) decrease in:
Accounts receivable:
Trade (1,446,055) (1,895,185)
Related parties (598) 25,822
Prepaid expenses (154,571) (114,077)
Federal & state income taxes refundable -- (487,354)
Inventory (4,126) --
Other assets (274,847) 6,259
Increase (decrease) in:
Accounts payable-trade (107,166) 321,955
Accrued federal & state income taxes 24,154 (45,419)
Accrued vacation (64,577) 29,686
Other accrued expenses (5,526) (303,103)
Accrued & withheld payroll taxes,
insurance, and payroll deductions 58,147 386,371
------------ ------------
Total adjustments (1,808,663) (730,039)
------------ ------------
Net cash provided by operating
activities 1,968,667 330,512
INVESTING ACTIVITIES
Purchases of fixed assets (491,213) (143,324)
FINANCING ACTIVITIES
Cash dividends paid to Delta Software Systems, Inc.
shareholders prior to merger (240,000) --
Other (45) --
Net borrowings under line of credit -- 115,000
Payments on long-term debt -- (255,851)
------------ ------------
Net cash provided (used) by financing
activities (240,045) (140,851)
------------ ------------
Net increase in cash & cash
equivalents 1,237,409 46,337
Cash at beginning of period 19,401,015 203,641
------------ ------------
Cash at end of period $ 20,638,424 $ 249,978
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ -- $ 61,871
Income taxes paid $ 2,189,321 $ 955,377
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
January 31, 1997
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 nine month periods ended
January 31, 1997 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 per share computations, the
shares issued in the combination with Delta Software have been treated as
outstanding for all periods.
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
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 of the Company
and the following discussions have been restated for all periods to include the
financial condition and results of operations of Delta Software.
Results of Operations
Revenue increased from $14.7 million for the quarter ended January 31,1996 to
$15.5 million for the quarter ended January 31, 1997, an increase of
approximately 5.3%. Revenue increased from $41.5 million for the first nine
months of fiscal 1996 to $46.7 million for the comparable period of fiscal 1997,
an increase of approximately 12.4%. These increases were attributable primarily
to the expansion of the Company's client base, an increase in consulting and
professional staffing services provided to existing clients, and an increase in
equipment and software sales.
Gross profit decreased from $4.0 million for the third quarter of fiscal 1996 to
$3.9 million for the third quarter of fiscal 1997, a decrease of approximately
1.7%. The decrease in the current quarter was primarily attributable to the
Company's investment in the development of a Year 2000 suite of services and the
timing of holidays in the quarter. Gross profit increased from $12.1 million in
the fiscal 1996 nine month period to $12.8 million in the comparable period of
fiscal 1997, an increase of approximately 5.5%. The increase in the nine months
in fiscal 1997 was attributable primarily to the increase in revenue over the
prior period. Gross profit margin for the quarter decreased from 27.2% to 25.4%,
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 nine month period decreased from
29.2% to 27.4%, primarily for the same reasons causing the quarterly decrease.
Compensation for key executives decreased from $755,820 in the third quarter of
fiscal 1996 to $150,000 in the comparable period of fiscal 1997. Compensation
for key executives decreased from $3,464,840 in the fiscal 1996 nine month
period to $550,000 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 were $2.1 million in the
third quarter of fiscal 1996 and fiscal 1997. Other selling, general and
administrative expenses were $6,999,000 in the fiscal 1996 nine month period and
$6,933,000 in the comparable period in fiscal 1997. The fiscal 1996 nine month
period included a charge of $1.2 million for stock bonuses granted in the second
quarter of fiscal 1996. As a percent of revenues, other selling, general and
administrative expenses declined from 14.5% in the third quarter of fiscal 1996
to 13.7% for the third quarter of fiscal 1997.
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<PAGE> 8
Other selling, general and administrative expenses were 16.9% of revenue in the
fiscal 1996 nine month period and 14.9% in the comparable period in fiscal 1997.
The Company believes that other selling, general and administrative expenses
will continue to decline as a percent of revenue.
Other selling, general and administrative expenses include $161,000 in expenses
in the current quarter and $849,000 for the nine months in the current fiscal
year relating to the government's continuing investigation of the Company's
Tennessee Valley Authority billings. Also included in expenses for the nine
month period in the current fiscal year were $118,000 in expenses in connection
with the merger with Delta Software.
Net income for the quarter ended January 31, 1997 increased to $1,165,000, or
$.16 per share, compared with $668,000, or $.11 per share, for the quarter ended
January 31, 1996. Net income for the nine month period ended January 31, 1997
increased 256% to $3,777,000, or $.50 per share, compared with net income of
$1,061,000, or $.18 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 $305,000 for the nine months ended January 31, 1996,
as compared to $1,969,000 in the comparable period for 1997. The cash provided
by operations increased during this period primarily because of increased
profits.
The Company's working capital increased from $3,426,000 for the third quarter of
fiscal 1996 to $27,579,000 for the third 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 January 31, 1997 was 13:1.
Effective February 28, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Technology Management Resources, Inc.
("TMRI"). A portion of the purchase price consisted of $8,500,000 in cash,
$8,000,000 of which was paid to TMRI and $500,000 of which is being held in
escrow to secure potential indemnification claims.
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
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.
-9-
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The government's investigation into the TVA billing matter is
continuing and additional subpoenas were received by Company personnel
during the quarter ended January 31, 1997. See "Item 3. Legal
Proceedings" in the Company's Annual Report on Form 10-K for the fiscal
year ended April 30, 1996 and "Item 1. Legal Proceedings" in the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
July 31, and October 31, 1996 for additional information.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits following the Signature page.
(b) No Current Reports on Form 8-K were filed during the fiscal
quarter ended January 31, 1997, except as previously reported.
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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: March 14, 1997
-----------------------------------
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<PAGE> 12
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>
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<PAGE> 1
EXHIBIT 11-STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31 January 31
1997 1996 1997 1996
------------------------ -------------------------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 7,477,119 5,974,613 7,477,119 5,890,647
Net effect of dilutive stock options or
stock grants-based on the treasury
stock method using average market
price 28,955 -- 37,751 31,143
---------- ---------- ---------- ----------
Totals 7,506,074 5,974,613 7,514,870 5,921,790
========== ========== ========== ==========
Net income $1,164,842 $ 668,103 $3,777,330 $1,060,551
========== ========== ========== ==========
Net income per share $ 0.16 $ 0.11 $ 0.50 $ 0.18
========== ========== ========== ==========
Fully diluted:
Average shares outstanding 7,477,119 5,974,613 7,477,119 5,890,647
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 28,955 -- 37,751 31,143
---------- ---------- ---------- ----------
Totals 7,506,074 5,974,613 7,514,870 5,921,790
========== ========== ========== ==========
Net income $1,164,842 $ 668,103 $3,777,330 $1,060,551
========== ========== ========== ==========
Net income per share $ 0.16 $ 0.11 $ 0.50 $ 0.18
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> JAN-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,058,424
<SECURITIES> 18,580,000
<RECEIVABLES> 8,851,902
<ALLOWANCES> 25,501
<INVENTORY> 4,126
<CURRENT-ASSETS> 29,876,974
<PP&E> 3,284,335
<DEPRECIATION> 744,583
<TOTAL-ASSETS> 32,714,054
<CURRENT-LIABILITIES> 2,297,842
<BONDS> 0
0
0
<COMMON> 74,771
<OTHER-SE> 30,258,680
<TOTAL-LIABILITY-AND-EQUITY> 32,714,054
<SALES> 46,656,248
<TOTAL-REVENUES> 46,656,248
<CGS> 33,865,981
<TOTAL-COSTS> 33,865,981
<OTHER-EXPENSES> 74,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,991,935
<INCOME-TAX> 2,214,605
<INCOME-CONTINUING> 3,777,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,777,330
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
