<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 12, 1997 (July 10, 1997)
SCB COMPUTER TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Tennessee 0-27694 62-1201561
- ---------------------------------------------------- ------------------------ ---------------------
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
1365 West Brierbrook Road, Memphis, Tennessee 38138
- ---------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (901) 754-6577
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
This Current Report on Form 8-K/A amends and supersedes subsection (a)
of "Item 7. Financial Statements and Exhibits" of the Registrant's Current
Report on Form 8-K, dated July 24, 1997.
Item 7. Financial Statements and Exhibits
- --------------------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired and Pro Forma Financial
Information.
Partners Capital Group:
Independent Auditor's Report
Balance Sheets at December 31, 1996 and 1995
Statements of Income and Retained Earnings for the Years Ended
December 31, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1996
and 1995
Notes to Financial Statements
Partners Resources, Inc.:
Independent Auditor's Report
Balance Sheets at December 31, 1996 and 1995
Statements of Operations for the Years Ended December 31, 1996
and 1995
Statements of Stockholders' Deficit for the Years Ended
December 31, 1996 and 1995
Statements of Cash Flows for the Years Ended December 31, 1996
and 1995
Notes to Financial Statements
Partners Capital Group and Partners Resources, Inc.:
Unaudited Pro Forma Combined Financial Information as of April
30, 1997 and for the Year Ended April 30, 1997
Unaudited Pro Forma Combined Balance Sheet as of April 30,
1997
Unaudited Pro Forma Combined Statement of Operations for the
Year Ended April 30, 1997
Notes to Unaudited Pro Forma Combined Financial Information
2
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Partners Capital Group
We have audited the accompanying balance sheets of Partners Capital
Group as of December 31, 1996 and 1995, and the related statements of income and
retained earnings and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial position of Partners Capital
Group as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Friar, Harper & Arendt L.L.P.
Walnut Creek, California
July 8, 1997
3
<PAGE> 4
Partners Capital Group
Balance Sheets
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Assets
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash $ 211,841 $ 486,669
Receivables:
Trade 293,907 99,530
Due from affiliated companies 173,904 110,890
Stockholders 654,590 129,046
------------ ------------
1,122,401 339,466
------------ ------------
Equipment held for resale 391,131 105,643
Net investment in direct financing leases 27,101,924 22,827,786
Residual interests in remarketed lease transactions 970,150 1,272,311
Indirect leasing costs 355,462 186,975
Equipment on operating leases 9,686,183 7,345,460
Accumulated depreciation and amortization of
equipment on operating leases (3,342,623) (1,350,538)
------------ ------------
6,343,560 5,994,922
------------ ------------
Property and equipment used in operations 419,659 251,330
Less: accumulated depreciation and amortization (134,704) (92,758)
------------ ------------
284,955 158,572
------------ ------------
Deposits 2,629 10,629
Prepaid expenses 5,833 --
Investments:
Purchased residual interests 10,000 25,000
Mineral Rights -- 84,794
------------ ------------
10,000 109,794
------------ ------------
$ 36,799,886 $ 31,492,767
============ ============
</TABLE>
(Continued)
4
<PAGE> 5
Partners Capital Group
Balance Sheets (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Notes payable to bank $ 1,657,077 $ 371,457
Non-recourse debt 30,935,172 28,468,123
Accounts payable and accrued expenses 1,262,094 140,914
Due to affiliate 2,960 --
Deferred income taxes 1,300,000 826,689
------------ ------------
Total Liabilities 35,157,303 29,807,183
------------ ------------
Stockholders' Equity:
Common stock, no par value; 100,000 shares
authorized; 12,000 shares issued and outstanding 200,000 200,000
Retained Earnings 1,442,583 1,485,584
------------ ------------
Total Stockholders' Equity 1,642,583 1,685,584
------------ ------------
$ 36,799,886 $ 31,492,767
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE> 6
Partners Capital Group
Statements of Income and Retained Earnings
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Income from direct financing leases $ 2,658,012 $ 2,670,594
Rentals from operating leases 4,615,172 1,756,114
Revenue generated from investment in purchased
residual interests 326,092 168,563
Present value increases of residual interests on
remarketed leases 94,387 6,735
Equipment sales, rental revenues and other 5,229,674 904,123
------------ ------------
Total Revenues 12,923,337 5,506,129
------------ ------------
Operating Expenses:
Officers' salaries 1,583,750 390,000
Salaries and commissions 1,506,813 731,946
Depreciation and amortization 3,440,253 1,364,532
Interest 2,678,556 1,710,316
Cost of equipment sold 1,711,365 126,054
Payroll taxes and employee benefits 292,718 85,434
Travel and entertainment 251,853 137,141
Legal and accounting 181,949 56,463
Rent 151,574 93,757
Freight, postage and shipping 144,973 13,951
Telephone and utilities 98,998 34,954
Insurance 61,297 3,127
Outside services 55,335 6,927
Bad debt expense 50,000 --
Office supplies 47,372 11,582
Repairs and maintenance 36,136 7,414
Equipment rental 25,447 12,238
Dues and subscriptions 23,785 9,986
Taxes and license 4,726 2,799
Office and other 123,473 14,076
------------ ------------
Total Operating Expenses 12,470,373 4,812,697
------------ ------------
Income Before Income Taxes 452,964 693,432
------------ ------------
Income Taxes:
Current 22,654 --
Deferred 473,311 270,000
------------ ------------
495,965 270,000
------------ ------------
Net Income (Loss) (43,001) 423,432
Retained Earnings, Beginning of Year 1,485,584 1,062,152
------------ ------------
Retained Earnings, End of Year $ 1,442,583 $ 1,485,584
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
6
<PAGE> 7
Partners Capital Group
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (43,001) $ 423,432
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 3,440,253 1,364,532
Deferred income taxes 473,311 270,000
Changes in assets and liabilities:
Receivables (782,935) (74,284)
Equipment held for resale (285,488) 87,357
Net investment in direct financing leases (4,274,138) (2,783,572)
Residual interests in remarketed lease transactions 302,161 (6,735)
Indirect leasing costs (168,487) (42,725)
Equipment on operating leases (3,746,945) (6,353,880)
Deposits and investments 107,794 31,897
Prepaid expenses (5,833) (850)
Accounts payable and accrued expenses 1,121,180 (76,069)
Due to affiliates 2,960 (139,650)
----------- -----------
Total Adjustments (3,816,167) (7,723,979)
----------- -----------
Net Cash Used in Operating Activities (3,859,168) (7,300,547)
----------- -----------
Cash Flows From Investing Activities:
Acquisition of property and equipment (168,329) (2,546)
----------- -----------
</TABLE>
(Continued)
7
<PAGE> 8
Partners Capital Group
Statements of Cash Flows (Continued)
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows From Financing Activities:
Proceeds from notes payable to bank $ 1,547,704 $ 199,678
Repayments of notes payable to bank (262,084) (321,321)
Proceeds from non-recourse debt 13,131,455 17,034,419
Principal payments on non-recourse debt (10,664,406) (9,160,893)
----------- -----------
Net Cash Provided by Financing Activities 3,752,669 7,751,883
----------- -----------
Net (Decrease) Increase in Cash (274,828) 448,790
Cash, Beginning of Year 486,669 37,879
----------- -----------
Cash, End of Year $ 211,841 $ 486,669
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
8
<PAGE> 9
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Nature of the Business
Partners Capital Group (Partners) is a California corporation which
commenced operations in 1992. Partners leases data processing equipment
and remarkets leasing transactions of data processing equipment.
Risks and Uncertainties
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities, revenues,
and expenses. Such estimates primarily relate to unsettled transactions
and events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
Cash and Equivalents
For purposes of reporting cash flows, the Company considers all cash
accounts which are not subject to withdrawal restrictions or penalties,
and certificates of deposit with original maturities of 90 days or less
to be cash or cash equivalents
Operating Cycle
Partners' leases typically range from 3 to 5 years. Accordingly, the
assets and liabilities are not classified as current and non-current
since Partners' operating cycle is in excess of one year.
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 which terminated during the current period.
Direct Financing Leases
Leases meeting the criteria for capitalization in accordance with
Statement of Financial Accounting Standards Number 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.
9
<PAGE> 10
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies (Continued)
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 Interests in Remarketed Lease Transactions
In certain instances, Partners will act as a lease intermediary, or will
sell the ownership rights of a lease. Typically, in connection with such
transactions, Partners retains a percentage interest in the residual
value at the end of the lease. These residual interests are recorded at
the present value of Partner'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.
Property and Equipment Used in Operations
Property and equipment used in operations is carried at cost.
Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets. The cost of repairs and
maintenance is charged to expense as incurred. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation and
amortization are removed from the accounts, and any resulting gain or
loss is recognized in operations for the period.
Purchased Residual Interests
During 1993, Partners purchased a one-third interest in the residual
values of a lessor's portfolio. The purchase of the residual interests
are recorded at the lower of cost or net realizable value. The total cost
was allocated to the specific leases on a pro-rata basis after
considering the estimated profitability of each residual. The cost
assigned to the residual interest is removed from the investment balance
when a lease terminates and Partners realizes its residual return.
10
<PAGE> 11
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies (Continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement
No. 109, "Accounting for Income Taxes", which requires the use of the
"asset and liability method" of accounting for income taxes. Deferred
income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. The major differences
relate to the treatment of direct financing leases and residual values on
remarketed transactions. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets
and liabilities.
Partners has a federal income tax loss carryforward for tax return
purposes in excess of $7,800,000. These loss carryforwards expire in
various amounts through 2011.
The current year tax exceeds the normal effective tax rate since
management feels that when the deferred income is realized it will be at
a higher tax rate than initially anticipated.
Reclassification
Certain reclassifications, not affecting net income, were made to prior
year balances to bring them into conformity with the current year
presentation.
2. Transactions with Related Parties
Certain stockholders of Partners are stockholders in Peripheral
Remarketing, Inc. (PRI), a company that brokers and remarkets mainframe
and peripheral computer equipment. During the year ended December 31,
1995, Partners leased approximately $680,000 of PRI equipment to third
parties. Partners received commissions from PRI totalling approximately
$59,000 in 1995 in connection with the leasing of PRI equipment.
Effective May 1, 1996, Partners acquired approximately $100,000 of
inventory and approximately $40,000 of furniture and fixtures from PRI
in addition to all future business.
The stockholders of Partners are also stockholders in Partners Resources,
Inc. and On*Guard Disaster Recovery, companies that provide disaster
recovery, data processing services and facilities management. The due
from affiliated companies balances of $173,904 at December 31, 1996 and
$110,890 at December 31, 1995 primarily relate to working capital
advances to, and unpaid commissions from, these companies.
11
<PAGE> 12
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
2. Transactions with Related Parties (Continued)
Partners leases a Scottsdale, Arizona office facility from a real estate
LLC owned by the Company's stockholders under a long-term non-cancellable
operating lease that calls for monthly payments of $3,817 through
February, 2004.
Partners had a $700,000 overdraft to Partners Resources at December 31,
1996. This amount is included in accounts payable and accrued expenses.
The overdraft was funded immediately subsequent to year-end.
Included in receivables are approximately $650,000 and $125,000 of
stockholder advances at December 31, 1996 and 1995.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
Useful
1996 1995 Lives
-------- --------- ----------
<S> <C> <C> <C>
Equipment $ 96,334 $ 76,644 5 years
Leasehold improvements 198,947 174,686 10 years
Computer software 74,788 -- 5 years
Furniture and fixtures 49,590 -- 5-10 years
-------- ---------
$419,659 $ 251,330
======== =========
</TABLE>
Depreciation and amortization expense charged to operations was
$3,440,253 and $1,364,532 for the years ended December 31, 1996 and 1995,
respectively.
4. Net Investment in Direct Financing Leases
The components of the net investment in direct financing leases are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Minimum lease payments receivable $ 29,228,875 $ 25,618,133
Unguaranteed residual values of leased equipment 3,643,872 3,184,342
Unearned Income (5,770,823) (5,974,689)
------------ ------------
Net investment in direct financing leases $ 27,101,924 $ 22,827,786
============ ============
</TABLE>
12
<PAGE> 13
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
4. Net Investment in Direct Financing Leases (Continued)
The following is a summary by year of the future minimum lease payments
receivable from direct financing leases:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1997 $ 9,149,958
1998 7,130,333
1999 6,297,880
2000 5,299,973
2001 1,259,648
2002 91,083
------------
Total minimum future lease payments receivable $ 29,228,875
============
</TABLE>
The minimum lease payments receivable for all direct financing leases are
assigned to lenders as security for non-recourse debt (see Note 8).
5. Rentals Under Operating Leases
The following is a summary by year of the minimum future rentals on
noncancellable operating leases as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1997 $ 3,742,988
1998 2,121,681
1999 453,370
2000 25,260
------------
Total minimum future rentals $ 6,343,299
============
</TABLE>
All of the above future rentals have been assigned to lenders in
connection with the repayment of non-recourse debt (see Note 8).
13
<PAGE> 14
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
6. Mineral Rights
In connection with the default of a note receivable, the Company received
mineral rights. The mineral rights are recorded at the value of the
corresponding defaulted receivable. Partners' management has obtained
geological studies that indicate that the net profit from the mineral
rights could significantly exceed the recorded value.
During the year ended December 31, 1996, the mineral rights were
distributed to the stockholders.
7. Notes Payable
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
The Company has a bank line of credit that provides for maximum
borrowings of $2,000,000 at an interest rate of prime plus 2-1/2%. The
credit line, which expired in June 1997, is secured by receivables and
all equipment and is personally guaranteed by the Company's
stockholders. The line of credit is in the process of being renewed. $1,392,460 $ --
In 1995, the Company entered into a financing agreement with a commercial
lender for credit facilities of approximately $5,000,000. These credit
facilities are for interim lease financing, long-term non-recourse lease
financing and residual financing. Under the terms of the residual
financing credit facility, Partners may only use loan proceeds to fund
financing shortfalls on new leases. Borrowings under this credit facility
are limited to the estimated proceeds to be realized from lease residuals
during the next twelve months. Interest is at prime plus 2%. 109,373 371,457
The notes payable balance at December 31, 1996 of $155,244 represents
borrowings under the residual financing credit facility from a bank
entered into June, 1996. The notes are secured by certain residual
interests. These notes will be paid with the proceeds from the secured
residual interests, which are expected to be realized within the next 12
months. Interest on this credit facility is prime plus 2-1/2%, payable
monthly. 155,244 --
---------- --------
$1,657,077 $371,457
========== ========
</TABLE>
14
<PAGE> 15
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
8. Non-Recourse Debt
At December 31, 1996 and 1995 the non-recourse debt balances were
$30,935,172 and $28,468,123, respectively. The substantial portion of
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 7% to
9.5%, 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:
<TABLE>
<CAPTION>
Year ending Debt Relating to Direct Debt Relating to
December 31, Financing Leases Operating Leases Total
------------ ----------------------- ---------------- -----------
<S> <C> <C> <C>
1997 $ 7,368,902 $3,345,198 $10,714,100
1998 5,953,347 1,977,439 7,930,786
1999 5,550,842 437,641 5,988,483
2000 4,979,544 24,158 5,003,702
2001 1,206,188 -- 1,206,188
Thereafter 91,913 -- 91,913
------------ ---------- -----------
$ 25,150,736 $5,784,436 $30,935,172
============ ========== ===========
</TABLE>
9. Stockholders Agreement
Partners has agreements with its stockholders which restrict the transfer
of stock in certain circumstances and grant Partners and then the other
stockholders right of first refusal to purchase any stock offered for
sale, and grant Partners and then the other stockholders an option to
purchase stock in the event of the death of either stockholder.
15
<PAGE> 16
Partners Capital Group
Notes to the Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
10. Supplemental Cash Flow Disclosures
Approximate cash payments for:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
- Income Taxes $ 3,000 $ 4,000
============ ==========
- Interest $ 2,678,000 $1,710,000
============ ==========
</TABLE>
11. Subsequent Events
In July, 1997 Partners Capital Group was acquired by a publicly-held
company.
16
<PAGE> 17
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Partners Resources, Inc.
We have audited the accompanying balance sheets of Partners Resources,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 opinions.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Partners Resources,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Friar, Harper & Arendt L.L.P.
Walnut Creek, California
July 8 1997
17
<PAGE> 18
Partners Resources, Inc.
Balance Sheets
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Assets
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 590,681 $ 129,550
Cash - restricted -- 130,248
Receivables:
Trade, less allowance for doubtful accounts
of $40,000 in 1996 1,550,959 609,907
Affiliated companies -- 145,007
Stockholders 44,569 86,357
----------- -----------
1,595,528 841,271
----------- -----------
Prepaid software license fees 197,864 112,258
Other prepaid expenses 7,158 8,000
----------- -----------
Total Current Assets 2,391,231 1,221,327
----------- -----------
Property and Equipment 6,045,216 5,876,705
Less: accumulated depreciation and amortization (1,670,450) (433,004)
----------- -----------
4,374,766 5,443,701
----------- -----------
Other Assets:
Loan fees and negotiation costs, net of amortization 124,180 139,741
Other 5,062 4,625
----------- -----------
129,242 144,366
----------- -----------
$ 6,895,239 $ 6,809,394
=========== ===========
</TABLE>
(Continued)
18
<PAGE> 19
Partners Resources, Inc.
Balance Sheets (Continued)
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current Liabilities:
Note payable to bank $ 250,000 $ --
Current maturities of long-term debt 1,417,955 1,146,643
Notes payable to affiliate's profit-sharing retirement plan 585,000 585,000
Accounts payable and accrued expenses 1,115,656 150,032
Accrued interest to affiliate's profit-sharing retirement
plan and stockholders 210,333 179,551
Due to affiliates 873,904 102,399
Deferred revenue 1,884,265 1,116,860
Customer deposits -- 108,246
----------- -----------
Total Current Liabilities 6,337,113 3,388,731
Long-Term Debt 3,580,493 4,126,612
Notes Payable to Stockholders -- 100,000
----------- -----------
Total Liabilities 9,917,606 7,615,343
----------- -----------
Stockholders' Deficit:
Common stock, no par value; 1,000,000 shares authorized;
4,000 shares issued and outstanding 5,000 5,000
Additional paid-in capital 300,000 100,000
Accumulated deficit (3,327,367) (910,949)
----------- -----------
Total Stockholders' Deficit (3,022,367) (805,949)
----------- -----------
$ 6,895,239 $ 6,809,394
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
19
<PAGE> 20
Partners Resources, Inc.
Statements of Operations
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Revenues $ 7,756,994 $ 3,314,442
----------- -----------
Operating Expenses:
Salaries 1,998,244 680,987
Software licenses 1,537,925 626,866
Depreciation and amortization 1,260,365 356,438
Equipment rentals 777,005 769,769
Outside services 615,955 63,821
Hardware maintenance 328,651 --
Payroll taxes and benefits 328,432 230,737
Service contract 278,001 86,538
Professional fees 230,000 36,684
Building rent 201,243 108,747
Utilities 195,578 71,527
Travel and promotion 186,573 31,518
Telephone and pagers 171,933 80,624
Commissions 154,294 45,453
Cost of equipment sold 142,094 30,000
Disaster recovery 102,000 --
Computer supplies 98,734 6,870
Postage and delivery 80,936 6,024
Repairs and maintenance 49,662 66,170
Bad debt expense 40,000 --
Taxes and licenses 17,276 44,405
Insurance 12,131 50,863
Office and other 40,554 61,746
----------- -----------
Total Operating Expenses 8,847,586 3,455,787
----------- -----------
Operating Loss (1,090,592) (141,345)
----------- -----------
Other Income (Expense):
Interest expense (584,498) (113,969)
Interest income 1,043 --
Closure of Louisiana bank processing division (742,371) --
----------- -----------
(1,325,826) (113,969)
----------- -----------
Net Loss $(2,416,418) $ (255,314)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
20
<PAGE> 21
Partners Resources, Inc.
Statements of Stockholders' Deficit
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
---------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 4,000 $5,000 $ -- $ (655,635) $ (650,635)
Conversion of notes
payable to equity -- -- 100,000 -- 100,000
Net Loss -- -- -- (255,314) (255,314)
----- ------ -------- ----------- -----------
Balance, December 31, 1995 4,000 5,000 100,000 (910,949) (805,949)
Contribution of Capital -- -- 200,000 -- 200,000
Net Loss -- -- -- (2,416,418) (2,416,418)
----- ------ -------- ----------- -----------
Balance, December 31, 1996 4,000 $5,000 $300,000 $(3,327,367) $(3,022,367)
===== ====== ======== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
21
<PAGE> 22
Partners Resources, Inc.
Statements of Cash Flows
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(2,416,418) $(255,314)
----------- ---------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,260,365 356,438
Proceeds from disposition of property and
equipment 391,000 --
Changes in assets and liabilities:
Cash - restricted 130,248 (130,248)
Receivables (754,257) (99,635)
Prepaid software license fees (85,606) (112,258)
Other prepaid expenses 842 (6,682)
Other assets 96,874 (126,266)
Accounts payable and accrued expenses 965,624 (244,497)
Accrued interest to affiliate's profit sharing
retirement plan and stockholders 30,782 85,816
Due to affiliates 771,505 (117,520)
Deferred revenue 767,405 (71,395)
Customer deposits (108,246) 108,246
----------- ---------
Total Adjustments 3,466,536 (358,001)
----------- ---------
Net Cash Provided by (Used in) Operating Activities 1,050,118 (613,315)
----------- ---------
Cash Flows From Investing Activities:
Acquisition of property and equipment (219,456) (195,252)
----------- ---------
</TABLE>
(Continued)
22
<PAGE> 23
Partners Resources, Inc.
Statements of Cash Flows (Continued)
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash Flows From Financing Activities:
Net increase in note payable to bank $ 250,000 $ --
Principal payments on long-term debt (1,274,807) --
Proceeds from long-term debt 555,276 987,818
Principal payments on notes payable to stockholders (100,000) (50,000)
Contributions of capital 200,000 --
----------- ---------
Net Cash Provided by (Used in) Financing
Activities (369,531) 937,818
----------- ---------
Net Increase in Cash 461,131 129,251
Cash, Beginning of Year 129,550 299
----------- ---------
Cash, End of Year $ 590,681 $ 129,550
=========== =========
</TABLE>
See Accompanying Notes to Financial Statements
23
<PAGE> 24
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Principles of Combination
The financial statements include the accounts of Partners Resources, Inc.
(Resources), an Arizona corporation formed in September, 1994 and
Recovery International Ltd. (Recovery), a Delaware corporation which
commenced operations in December, 1993 (collectively referred to as the
Company). These companies have common ownership and management. All
material intercompany accounts and transactions have been eliminated in
combination.
Effective March 1996, Recovery merged into Partners Resources, Inc. and
became one company.
Nature of the Business
The Company provides data processing, computer outsourcing, data center
facilities management services and disaster recovery services.
Risks and Uncertainties
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities,
revenues, and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
Cash and Equivalents
For purposes of reporting cash flows, the Company considers all cash
accounts which are not subject to withdrawal restrictions or penalties,
and certificates of deposit with original maturities of 90 days or less
to be cash or cash equivalents
Property and Equipment
Property and equipment is carried at cost. Depreciation and amortization
is computed using the straight-line method over the estimated useful
lives of the assets. The cost of repairs and maintenance is charged to
expense as incurred. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation and amortization are
removed from the accounts, and any resulting gain or loss is recognized
in operations for the period.
24
<PAGE> 25
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies (Continued)
Certain customer contracts require specialized software. Computer
software purchased under long-term licenses is capitalized and amortized
over the estimated useful lives of the contracts which are primarily one
year or less.
Revenue Recognition
Revenue is recognized as it is earned over the life of the related
service contract. Revenues billed but not earned are included in deferred
revenue.
Income Taxes
The Company is an S Corporation. Under the applicable provisions of the
Internal Revenue Code, the stockholders of S Corporations report the
income and certain other tax attributes on their individual federal and
state income tax returns. Accordingly, no income tax is applied on
taxable income earned by the Company.
Reclassification
Certain reclassifications, not affecting net income, were made to prior
year balances to bring them into conformity with the current year
presentation.
2. Concentration of Business Risks
Major Customers
For the years ended December 31, 1996 and 1995 approximately $5.9 million
and $2.0 million of revenues, which represented approximately 75% and
60%, respectively of Partners revenues were from three major customers.
Deferred Revenue
Since the Company has been incurring losses from inception, significant
amounts of future revenues have been used to fund current operations.
Deferred revenues were $1,884,265 and $1,116,860 at December 31, 1996 and
1995, respectively.
25
<PAGE> 26
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
3. Related Party Transactions
Certain stockholders in the Company are stockholders in Peripheral
Remarketing, Inc. (PRI), a company that brokers and remarkets mainframe
and peripheral computer equipment. The stockholders of the Company also
own Partners Capital Group (Partners), a company that leases mainframe
and peripheral computer equipment; On*Guard Disaster Recovery, Inc.
(On*Guard), a company that provides disaster recovery services; and
various real estate LLC's which own and rent the Scottsdale, Arizona
facilities to the Company.
The Company leases computer equipment used to perform disaster recovery
and outsourcing services from PRI and Partners and leases its Arizona
facilities from various stockholder owned real estate LLC's (See Note
12). Rental expense on these related party leases was $623,001 in 1996
and $743,977 in 1995.
The Company has contracted with On*Guard to provide disaster recovery
services (See Note 5).
The Company has a note payable to PRI's profit-sharing retirement plan
(See Note 9).
Included in receivables are $44,569 and $86,357 of stockholder advances
at December 31, 1996 and 1995.
See Note 10 for detail of notes payable to stockholders.
<TABLE>
<CAPTION>
1996 1995 Purpose
---------- -------- -----------------------
<S> <C> <C> <C>
Summary of receivable from affiliated companies:
PRI $ -- $137,827 Net Working Capital
Advances
On*Guard -- 7,180 Rent/Operating Expenses
---------- --------
$ -- $145,007
========== ========
Summary of due to affiliates:
Partners $ 173,904 $102,399 Net Working Capital
Advances
Spencer, Young, Fulton and 700,000 -- Short-Term Loan which
Hirschey Partnership ---------- -------- was paid back subsequent
to year-end
$ 873,904 $102,399
========== ========
</TABLE>
26
<PAGE> 27
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
4. Closure of a Division
In August 1996, the Company acquired a bank data processing center in
Louisiana. Since the acquisition, the Company has experienced significant
losses and therefore is in the process of closing down this division. In
connection with this close down, the Company has written off $667,371 of
assets related to this division and has accrued $75,000 of other closure
expense.
5. Facilities Management
Effective October 1, 1995, the Company commenced mainframe facility
management services for Honeywell, Incorporated (Honeywell). The terms of
the five year agreement called for the Company to receive monthly
facility management revenues of $264,312 for the first nine months of the
agreement and $269,457 per month thereafter. In connection with the
contract, the Company was required to purchase $1,971,437 of equipment
from Honeywell. The purchase price of the equipment was based on
Honeywell's book value at the time of the agreement. The Company was also
required to purchase $2,314,000 of software from Unisys.
As part of the facilities management services, the Company has contracted
with Xerox to manage copier and other document services. The terms of the
agreement call for the Company to make base monthly payments of $9,575
through September, 2000.
Additionally, the Company has contracted with On*Guard to provide
disaster recovery services for the management facilities. The terms of
the agreement call for the Company to make monthly payments of $8,000
through September, 2000.
In 1995, the Company obtained a $5,273,255 loan to finance the equipment
additions, software purchases and provide working capital for the project
(See Note 8).
In connection with the facilities management contract and the related
debt acquisition, the Company incurred loan fees which are amortized
over the four year loan and legal and other negotiation costs that are
amortized over the five year contract. These net amounts total $124,180
at December 31, 1996 and $139,741 at December 31, 1995.
27
<PAGE> 28
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
6. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION> Useful
1996 1995 Lives
---------- ---------- ------------
<S> <C> <C> <C>
Equipment $2,883,541 $3,250,144 5 - 20 years
Computer software 2,846,266 2,388,186 3 - 10 years
Leasehold improvements 219,710 188,831 5 years
Furniture and fixtures 95,699 49,544 5 - 10 years
----------- ----------
$6,045,216 $5,876,705
========== ==========
</TABLE>
Depreciation and amortization expense charged to operations was
$1,260,365 and $356,438 for the years ended December 31, 1996 and 1995,
respectively.
7. Note Payable to Bank
The Company has a $250,000 revolving line of credit which expires July,
1997. The line of credit bears interest at the lender's base rate plus
2-1/2% and is secured by various assets and personally guaranteed by the
stockholders.
8. Long-Term Debt
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Long-term debt consists of the following:
$1,000,000 term loan payable to bank in monthly principal and interest
installments of $21,026 beginning October, 1996 through September,
2001. Interest is at the lender's base rate plus 2.5%. The loan is
secured by various assets and is personally guaranteed
by the stockholders. $ 958,824 $ --
</TABLE>
28
<PAGE> 29
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
8. Long-Term Debt (Continued)
<TABLE>
<S> <C> <C>
In October, 1995, the Company obtained a loan in the amount of
$5,273,255 in connection with the Honeywell Facilities Management
Project (See Note 5). The loan calls for monthly payments of $130,248
including interest at 9%. The lender receives payment directly from
Honeywell. This loan is secured by the proceeds from the Honeywell
contract and by the equipment and software acquired with the loan
proceeds. The lender required that the Company place $130,248 (one
payment) in escrow until July, 1996. The amount was reflected in the
balance sheet as restricted cash at December 31, 1995. 4,039,624 5,273,255
---------- ----------
4,998,448 5,273,255
Less: current maturities (1,417,955) (1,146,643)
---------- ----------
$3,580,493 $4,126,612
========== ==========
</TABLE>
Future annual principal payments for long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $1,417,955
1998 1,551,975
1999 1,625,029
2000 223,227
2001 180,262
----------
$4,998,448
==========
</TABLE>
9. Notes Payable to Affiliate's Profit-Sharing Retirement Plan
At December 31, 1996 and 1995, the Company had demand notes payable to
PRI's profit-sharing retirement plan totaling $585,000. These loans have
been outstanding since 1992. These notes, which bear interest at 10%, are
secured by property and equipment and are personally guaranteed by the
Company's stockholders.
29
<PAGE> 30
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
9. Notes Payable to Affiliate's Profit-Sharing Retirement Plan (Continued)
Annual interest expense was $78,231 in 1996 and $70,816 in 1995. Accrued
interest on these notes was $210,333 and $162,102 at December 31, 1996
and 1995, respectively.
10. Notes Payable to Stockholders
The Company had unsecured demand notes payable to stockholders of
$100,000 at December 31, 1995. Interest expense was $17,449 in 1995.
11. Contract Revenues
At December 31, 1996, the Company had signed contracts for data
processing and facilities management and disaster recover services which
provide for the following annual revenues:
<TABLE>
<CAPTION>
Year Ending
December 31, Total
------------ ------------
<S> <C>
1997 $ 7,417,838
1998 7,107,228
1999 6,017,292
2000 4,289,201
2001 582,140
------------
Total minimum future revenues $25,413,699
===========
</TABLE>
In some instances, the Company bills annual service contracts in advance.
At December 31, 1996 and 1995, the deferred revenue relating to such
billings and collections was $1,884,265 and $1,116,860, respectively.
Effective January 1, 1997, the Company (acting as a subcontractor for a
division of IBM) commenced processing services for a county government in
the eastern United States. Under the terms of the subcontracting
agreement, the Company was to recognize a total of $10,050,000 of revenue
over a 38 month term. The union representing the displaced workers has
legally disputed the contract between IBM and the county government.
Current legal proceeding indicated that it is likely that the contract
will be voided. The Company is performing processing services for the
county under an informal agreement with IBM. There exists a possibility
that IBM will reach a settlement with the union, and the Company will
continue to perform processing services under a modified contract. The
revenues from this contract are not included in the minimum future
revenues above.
30
<PAGE> 31
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
12. Leases
The Company leases its Scottsdale, Arizona facilities from various
stockholder owned LLC's under a long-term non-cancelable operating lease
that calls for total monthly payments of $12,034 through 2004.
The Company leases computer equipment from PRI and Partners under
non-cancelable operating leases that call for aggregate monthly payments
of approximately $39,000 through December 1997, and is reduced to
approximately $22,000 through September, 1999.
Future minimum lease payments for long-term operating leases are as
follows:
<TABLE>
<CAPTION>
Computer
Year Ending Building Equipment
December 31, Leases Leases
------------ ---------- ---------
<S> <C> <C>
1997 $ 144,402 $466,740
1998 144,402 264,096
1999 144,402 198,072
2000 144,402 --
2001 144,402 --
Thereafter 542,003 --
---------- --------
Total minimum future lease payments $1,264,013 $928,908
========== ========
</TABLE>
Rental expense relating to the long-term operating leases were $679,842
during the year ended December 31, 1996 and $708,322 during the year
ended December 31, 1995.
13. Stockholders Agreement
The Company has agreements with its stockholders which restrict the
transfer of stock in certain circumstances and grant the Company and then
the other stockholders right of first refusal to purchase any stock
offered for sale, and grant the Company and then the other stockholders
an option to purchase stock in the event of the death of either
stockholder.
31
<PAGE> 32
Partners Resources, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
- --------------------------------------------------------------------------------
14. Non-Cash Investing and Financing Activities
In 1995, the stockholders of the Company converted $100,000 of notes
payable into equity.
In connection with the October 1, 1995 facilities management agreement,
the Company financed the acquisition of $4,285,437 of computer hardware
and software with long-term debt.
In 1996, the Company acquired $362,974 of fixed assets and $81,750 of
intangible assets using long-term debt financing.
Approximate cash payments for:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
- Income Taxes $ -0- $ -0-
======== ========
- Interest $550,000 $100,000
======== ========
</TABLE>
15. Subsequent Events
In July, 1997 Partners Resources, Inc. was acquired by a publicly-held
company which has the financial resources necessary to eliminate Partners
Resources, Inc.'s liquidity problems.
32
<PAGE> 33
Unaudited Pro Forma Combined Financial Information
As of April 30, 1997 and for the fiscal year ended April 30, 1997
SCB Computer Technology, Inc. (SCB) and
Partners Resources, Inc. (PRI) and Partners Capital Group
(PCG) collectively Partners Group (PG)
The following unaudited pro forma combined financial information presents the
pro forma effect of the acquisition of PG by SCB on SCB's historical financial
position and results of operations using the purchase method of accounting in
accordance with the provisions of Accounting Principles Board Opinion No. 16,
and accordingly, the purchase price has been allocated to the net assets
acquired based on historical information available to management and preliminary
estimates of fair market value. PG's fiscal year ends December 31. In presenting
the acquisition on a pro forma basis, PG's statements of operations for the
twelve months ended April 30, 1997 were combined with SCB's statement of
operations for the same period and such information is adjusted as if the
acquisition had been consummated on May 1, 1996. The balance sheet as of April
30, 1997 is presented as if the acquisition had occurred on April 30, 1997. The
pro forma combined financial information has been prepared and included as
required by the rules and regulations of the Securities and Exchange Commission
and does not purport to be indicative of the results that actually would have
been obtained if the acquisition had been effected on the dates indicated or of
the results which may be obtained in the future.
Results of operations for PG will be included in the consolidated results of
operations in future statements from June 30, 1997, the date of the purchase
acquisition.
33
<PAGE> 34
SCB Computer Technology, Inc. and Partners Group
Unaudited Pro Forma Combined Balance Sheet
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
---------------------------------- -------------
PARTNERS PARTNERS COMBINED SCB COMPUTER PRO FORMA
RESOURCES, INC. CAPITAL GROUP PARTNERS GROUP TECHNOLOGY, INC. PRO FORMA COMBINED
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 ADJUSTMENTS APRIL 30, 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents:
Cash $ 19,054 $ 79,124 $ 98,178 $ 947,083 $ $ 1,045,261
Securities purchased under
agreement 787,704 787,704
Marketable securities 10,080,000 (d)(6,000,000) 4,080,000
Accounts receivable:
Trade 1,429,466 725,090 2,154,536 11,326,517 13,481,053
Related Parties 11,929 678,340 690,269 12,018 702,287
Other 8,402 8,402
Prepaid expenses 295,552 2,549 298,101 307,287 605,388
Inventory 452,698 452,698 28,182 480,880
Deferred federal and state income
taxes 231,663 231,663
--------------------------------------------------------------------------------------------
Total current assets 1,755,981 1,937,801 3,693,782 23,728,856 (6,000,000) 21,422,638
Non-current assets
Operating leases:
Equipment 8,264,692 8,264,692 8,264,692
Accumulated depreciation (1,645,926) (1,645,926) (1,645,926)
---------------------------------------------------------------------------------------------
6,618,766 6,618,766 6,618,766
Net investment in direct financing
leases 26,637,090 26,637,090
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures and equipment 6,416,846 485,966 6,902,812 1,813,920 8,716,732
Accumulated depreciation (2,120,711) (184,210) (2,304,921) (838,888) (3,143,809)
---------------------------------------------------------------------------------------------
Land 444,670 444,670
---------------------------------------------------------------------------------------------
Net fixed assets 4,296,135 301,756 4,597,891 2,767,995 7,365,886
Goodwill 8,150,782 (b)16,657,964 24,808,746
Net investment in leases 26,637,090 26,637,090 26,637,090
Other 188,464 97,424 285,908 446,741 732,649
---------------------------------------------------------------------------------------------
Total assets $ 6,240,600 $ 35,592,837 $ 41,833,437 $ 35,094,374 $ 10,657,964 $ 87,585,775
=============================================================================================
</TABLE>
34
<PAGE> 35
SCB Computer Technology, Inc. and Partners Group
Unaudited Pro Forma Combined Balance Sheet
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
-------------------------------- ----------------
PARTNERS PARTNERS CAPITAL COMBINED SCB COMPUTER PRO FORMA
RESOURCES, INC. GROUP, INC. PARTNERS GROUP TECHNOLOGY, INC. PRO FORMA COMBINED
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 ADJUSTMENTS APRIL 30, 1997
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $1,196,645 $ 565,279 $ 1,761,924 $ 1,072,451 $ $ 2,834,375
Accrued and withheld payroll taxes,
insurance, and payroll deductions 299,859 299,859
Accrued vacation 660,763 660,763
Other accrued expenses 238,820 238,820 1,007,102 (b)139,400 1,385,322
Accrued federal and state income
taxes 234,000 234,000 149,941 383,941
Notes payable to bank 250,000 1,846,716 2,096,716 2,096,716
Current portion of LT debt 1,400,000 1,400,000 1,400,000
Deferred revenue 1,506,024 1,506,024 1,506,024
Other liabilities 966,614 17,960 984,374 984,374
-------------------------------------------------------------------------------------------
Total current liabilities 5,791,903 2,429,955 8,221,858 3,190,116 139,400 11,551,374
Long-term liabilities:
Non-recourse debt 29,143,546 29,143,546 29,143,546
Long-term debt 3,230,883 3,230,883 (d)10,000,000 13,230,883
Deferred federal and state income
taxes 1,755,714 1,755,714 270,761 2,026,475
-------------------------------------------------------------------------------------------
Total liabilities 9,022,786 33,329,215 42,352,001 3,460,877 10,139,400 55,952,278
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
11,217,066 shares issued and
outstanding at April 30, 1997 5,000 200,000 205,000 112,170 (b)(205,000) 112,170
Additional paid-in capital 300,000 300,000 23,812,193 (b)(300,000) 23,812,193
Retained earnings (deficit) (3,087,186) 2,063,622 (1,023,564) 7,709,134 (b)1,023,564 7,709,134
-------------------------------------------------------------------------------------------
Total shareholders' equity
(deficit) (2,782,186) 2,263,622 (518,564) 31,633,497 518,564 31,633,497
-------------------------------------------------------------------------------------------
Total liabilities and shareholders'
equity $6,240,600 $35,592,837 $41,833,437 $35,094,374 $10,657,964 $87,585,775
===========================================================================================
</TABLE>
See accompanying notes.
35
<PAGE> 36
SCB Computer Technology, Inc. and Partners Group
Unaudited Pro Forma Combined Statement of Operations
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
-------------------------------- ---------------
PARTNERS PARTNERS CAPITAL COMBINED SCB COMPUTER PRO FORMA
RESOURCES, INC. GROUP PARTNERS GROUP TECHNOLOGY, INC. COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PRO FORMA YEAR ENDED
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997 ADJUSTMENTS APRIL 30, 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $12,490,440 $17,805,309 $30,295,749 $64,063,576 $ $94,359,325
Cost of services 11,210,491 10,053,592 21,264,083 46,585,959 67,850,042
-----------------------------------------------------------------------------------------------
Gross profit 1,279,949 7,751,717 9,031,666 17,477,617 26,509,283
Compensation-key executives 480,000 480,000 960,000 700,000 (f)(635,000) 1,025,000
Selling, general and
administrative expenses 1,149,410 5,585,718 6,735,128 9,417,297 (c)555,265 16,707,690
-----------------------------------------------------------------------------------------------
Total operating expenses 1,629,410 6,065,718 7,695,128 10,117,297 (79,735) 17,732,690
-----------------------------------------------------------------------------------------------
Income (loss) from operations (349,461) 1,685,999 1,336,538 7,360,320 79,735 8,776,593
Other income (expense), net (1,388,219) (46,520) (1,434,739) 755,408 (e)(720,000) (1,399,331)
-----------------------------------------------------------------------------------------------
Income (loss) before income
taxes (1,737,680) 1,639,479 (98,201) 8,115,728 (640,265) 7,377,262
Income tax expense 950,000 950,000 3,052,690 (g)(95,600) 3,907,090
-----------------------------------------------------------------------------------------------
Net income (loss) $(1,737,680) $ 689,479 $(1,048,201) $ 5,063,038 (544,665) 3,470,172
===============================================================================================
Net income per share $ 0.45* $ 0.31*
===============================================================================================
Net income (loss) $(1,737,680) $ 689,479 $(1,048,201) $ 5,063,038 $ (544,665) $3,470,172
===============================================================================================
Pro forma adjustment for income
taxes 177,000 177,000
-----------------------------------------------------------------------------------------------
Pro forma net income (loss) $(1,737,680) $ 689,479 $(1,048,201) $ 4,886,038 $ (544,665) $3,293,172
===============================================================================================
Pro forma net income per share $ 0.43* $ 0.29*
===============================================================================================
Weighted average number of
common and common equivalent
shares outstanding 11,268,414* 11,268,414*
===============================================================================================
</TABLE>
* Per share and share amounts have been restated for the effects of the 3 for 2
stock split on September 3, 1997
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SCB Computer Technology, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Combined Financial Information
THE FOLLOWING PRO FORMA ITEMS ARE REFLECTED IN THE ACCOMPANYING UNAUDITED PRO
FORMA COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS.
(a) Pro forma net income per common and common equivalent share was
computed by dividing pro forma net income by the pro forma combined
weighted average number of common and common equivalent shares
outstanding and gives effect to the 3 for 2 stock split on September
3, 1997.
(b) Adjustment to reflect the purchase and purchase price adjustments
associated with SCB's acquisition of PG. Effective June 30, 1997, SCB
acquired the stock of PG for $16,000,000 cash. The allocation of the
purchase price will include approximately $16,600,000 to goodwill,
representing the excess of cost over the fair value of the net assets
acquired. The final purchase price allocation is subject to refinement
upon completion of review of fixed assets, intangibles and certain
accounts. In addition, an amount equal to 14 times PRI's net income
for calendar year 1997 payable in cash or shares of SCB common stock
may be paid to PG as additional purchase price which could result in
additional goodwill being recorded.
(c) Adjustment to reflect the increase in amortization expense relating to
the goodwill recorded in purchase accounting in conjunction with SCB's
acquisition of PG. The goodwill will be amortized by the Company over
its estimated life of 30 years.
(d) Adjustment to record SCB's use of its $10,000,000 revolving line of
credit to finance part of the cash purchase price.
(e) Adjustment to record interest expense during the year at 7.2% on the
$10,000,000 revolving line of credit.
(f) Salary modifications to adjust for elimination of three of the former
PG owners and a salary reduction for a fourth.
(g) Tax benefit of pro forma adjustments.
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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 hereunto duly authorized.
SCB COMPUTER TECHNOLOGY, INC.
Date: September 12, 1997 By: /s / Gary E. McCarter
-----------------------------
Gary E. McCarter
Chief Financial Officer
